Friday 30 October 2015

Poland's successful losers

By Jacek Rostowski, Published The Straits Times, 29 Oct 2015

WARSAW • How can a government with the best economic record in Europe (indeed in the entire OECD) be humiliated at the polls by a eurosceptic, nationalistic and economically illiterate opposition - one deemed unelectable only a year ago?

That is the question many Poles, and friends of Poland, are now asking, following the defeat on Oct 25 of the Civic Platform government. If creating jobs and boosting incomes can't get you re-elected, what can?

One reason for the opposition's victory is, of course, universal: after a time, people everywhere want change, and Civic Platform had been in power since 2007. And impatience with the status quo is arguably stronger in the post-communist countries of Central and Eastern Europe, where much of the social, political and economic order is yet to be generally accepted. Indeed, Civic Platform's Mr Donald Tusk was Poland's first post-communist prime minister to win successive terms.

Moreover, as parties govern longer, their strongest personalities tend to be replaced by weaker ones. Civic Platform contested this election after replacing Mr Tusk with Ms Ewa Kopacz, and has had the same problem with a number of other "substitutions".

What is specific to Poland is that the past eight years have apparently created a pronounced case of cognitive dissonance. Annual GDP growth averaged 3.2 per cent over this period; and, unlike in the rich West, both inequality and unemployment have actually fallen, with growth mainly benefiting the middle three quintiles of the income distribution. This segment of the population - usually politically crucial - enjoyed a 28 per cent rise in per capita real income from 2007 to 2014.

At one level, Poles are aware of this, with large majorities describing financial conditions in their own families, workplaces and social environments as either "good" or "very good". The dissonance is that equally large majorities also describe Poland's economic situation and the direction in which the country is moving as either "bad" or "very bad".

Poland's transformation is visible not only in the form of new motorways, local roads, airports, hospitals and stadiums, but also in the appearance of vast numbers of new and refurbished housing units, supermarkets and modern factories. And this has not been achieved by mortgaging the future. Poland has recorded the fourth lowest increase in public debt (as a percentage of GDP) in the European Union.

And yet the disconnect between this reality and the Poland "in ruins" or "on the verge of catastrophe" perceived by many voters was too strong to ignore. Even Ms Kopacz admitted the contrast between the "public affluence" that everyone sees and the "private penury" that many feel persists.

In today's Poland, it is harder to accept wages - nominally about a third of those in Germany - that had seemed perfectly adequate in 2007, when they were only a quarter of the German level. But, unsurprisingly, Ms Kopacz's campaign slogan, "A strong economy - higher wages", and her implicit promise to address the issue in one parliamentary term, did not appear credible.

Although the problem faced by Ms Kopacz and Civic Platform was specifically Polish, it contains a universal truth: to win, politicians must define the context in which they operate. During Mr Tusk's premiership, the government was perversely reluctant to claim credit for Poland's economic success. Mr Tusk praised Poles themselves for their hard work, but neglected to emphasise that without the government's effective macroeconomic policies, that work would have been wasted. He never even reminded voters that the government's choices in managing the fallout from the 2008 global financial crisis - which were neither obvious nor easy, because they required rejecting the EU's austerity consensus - had been the right one.

Given that most voters do not consider themselves able to judge competence in government, they base their choice of party on the general direction in which it intends to take the country and the overarching principles by which it intends to govern. Civic Platform came to power in 2007 with a strongly pro-business and free-market ethos. During the financial crisis, it had to moderate these views considerably, taking steps that ran counter to its ideology: increasing deficits in the trough of the crisis (2009-2010) and raising taxes once growth resumed (2011).

And then, when the government reduced the size of the absurdly expensive, but popular, funded pension system (2011-2014), Mr Tusk attempted to compensate voters by pumping all additional free resources into family benefits. Although this was justified, given Poland's very low birth rate, it was also intended to appeal to his urban electorate. But, to many voters, it seemed that Civic Platform, which had identified itself in 2007 as socially conservative and economically liberal, was drifting to the economic (as well as the cultural) left.

By 2014, the government was perceived as being so pragmatic as to be almost value-free. That perception naturally raised the suspicion that self-interest had become Civic Platform's main motivation. As the party's narrative became an endless litany of the good social things it had done (or was about to do), Poles came to view the campaign as a cynical attempt to buy their votes - and to do so with their own money. Even the fact that these promises, though plentiful, were mostly inexpensive (certainly compared to those of the opposition) was not used to convey a commitment to fiscal responsibility.

Elections are a choice, not an auction between competing lists of promises, with victory simply going to the highest bidder. Civic Platform lost because it failed to explain to Poles its own view of that choice. It hardly mattered that the opposition's programme lacked credibility: Civic Platform had already become the architect of its own defeat.


The writer was Poland's Minister of Finance and Deputy Prime Minister from 2007 to 2013.

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