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Successful economic reform in the context of Poland's transition to democracy
 

Successful economic reform in the context of Poland's transition to democracy

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This presentation was given by Dr. Andrzej Kondratowicz, Ph.D, University of Warsaw, Lazarski University & the Forecasting Committee of the Polish Academy of Sciences in the Seminar: "Achieving ...

This presentation was given by Dr. Andrzej Kondratowicz, Ph.D, University of Warsaw, Lazarski University & the Forecasting Committee of the Polish Academy of Sciences in the Seminar: "Achieving economic growth in the periods of democratic transition:
experience of Poland and Turkey” on Sunday, February 24, 2013 at the Faculty of Economics and Political Science, Cairo University - Egyptand the Conference: “Egyptian economy: challenges and future prospects” from February 23 to 25, 2013 at Ain Shams University - Egypt

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    Successful economic reform in the context of Poland's transition to democracy Successful economic reform in the context of Poland's transition to democracy Presentation Transcript

    • CONFERENCE The Egyptian Economy:Challenges and Future Prospects  CAIRO, EGYPT  FEBRUARY 23, 2013
    • Successful Economic Reformin the Context of Polands Transition to Democracy Dr. Andrew C. Kondratowicz Lazarski & Warsaw University, Poland Forecasting Committee of the Polish Academy of Sciences
    • MOTIVATION & INTENDED RESULTSI am NOT "a foreign adviser" to give youanswersto your problems I can only humbly present a story of our experiences in the past 25 yearsPerhaps you will find it relevant forapplicable to your situation. 3
    • A possible subtitle of my presentation:The Arab & East-European „refolutions” compared: a refolution = reform + revolution [after Timothy Garton Ash] A revolution = a 1789 model A refolution = a 1989 model
    • Hypothesis 1revolutions are like cars: it is better to have a newer model 1989 > 1789 5
    • Hypothesis 2 the newer model is worth the price (the price being „a rotten compromise”)accept a [rotten] compromise from Polish experience: if you don’t accept a compromiseyou will have to retry your revolution again and again - It is costly! (of course, all parties have to compromise) 6
    • Hypothesis 3a compromise is possible, if there is some consensus about the future shape of the economycan you unite behind a number of common goals even if only for a short time? from Polish experience: back in 1989 quite everybody hated communism and quite everybody embraced capitalism and the market (not necessarily now) 7
    • HISTORYTHE POLISH TRANSITION PROCESS 8
    • The Polish backgroundFor the record:over twenty years ago an abrupt political regimeswitchover took place in Poland [June 1989] – and then spread to other then-communist countries of the region [East- and Central- Europe = ECE] – and then even further to various parts of the then Soviet Union. 9
    • The starting point of the Polish transition: There was no blueprint "which way to go", no previous experience.It was the "sailing onto unchartered waters"A. There was no economic transformation theoryB. There was no macroeconomic stability (equilibrium) internallyC. There was a broadly understood stability externally (i.e. on the global scale) – except that created by the breakdown of the communist system itself
    • • The A + B + C above were construed in economic terms, but they are also valid from a political perspective
    • Now, what about Egypt (& its neighbours) now? How does Egyptian economy and society of today compare with Poland in 1989? The starting point: A+B+C = • better knowledge of "transformation theory" + • internal instability + • larger external instability__________________________________A = existence of theory; B = no internal equilibrium; C = weak external equilibrium
    • THE DEPARTURE POINTS COMPARED ECE & AW (ECONOMY, POLITY, BOTH?) Poland 1989+ Egypt 2013 (East-Central Europe) (Arab World)A (EXISTENCE OF THEORY) NO YES (?)B (INTERNAL EQUILIBRIUM) NO NOC (EXTERNAL EQUILIBRIUM) YES NO 13
    • GRAPH 1EFI values ECE14 1990-2009, chained EFI DATA 14
    • GRAPH 2EFI values for AW11 1990-2010, chained EFI DATA 15
    • EFI DATAGRAPH 3. EFI values for AW11 & ECE14,1990-2009 17
    • Graph Y.POLIT Index 1971, 1980 & 1989-2010; Min, Max & Meanvalues for ECE_19 and Mean value for AW_11 10 8 6 4 2 ECE_19 mean 0 AW_11 mean -2 -4 -6 -8 -10 10 8 6 4 ECE_19 mean 2 AW_11 mean 0 ECE_19 MAX -2 ECE_19 MIN -4 -6 -8 19 -10
    • Graph Y.POLIT Index 1971, 1980 & 1989-2010; Min, Max & Meanvalues for ECE_17* and Mean value for AW_11 10 8 6 4 2 ECE_17 MAX ECE_17 MIN 0 ECE_17 average AW_11 average -2 -4 -6 -8 -10*) ECE_19 without Ukraine & Russia 20
    • Successful economic transformation called for changes in the following areasi. Ownership structure & the allocation mechanismii. Economic policiesiii. Formal economic institutionsiv. Informal economic institutions  this is the biggest question mark!  What could be a "role model" for Egyptians?  What values will be accepted/adopted in the SR & LR?
    • 3 strategic points (from Polish experience)• Reform has 3 dimensions: political, economic, social – in 1989 we "designated" 3 political leaders to deal with them separately – seems a good idea• When privatizing the conomy the privatization of SOEs was less important and in Poland came later – the endogenous growth of small and medium sized enterprises (SMEs) was crucial in combatting transformational recession – but this requires deregulation (PL 1988 / 1997)• People can do it! Let them do it! Deregulate & promote economic freedom. SMEs will not solve all problems ,but they are vety important 22
    • Alternative scenarios of the tranformational recession paths, depending on the SME sector dynamics 23source: Winiecki (2004), p.51 & his Publisher 
    • Final remarks 1/6 International economic ramifications are today not as good for the Arab transforming economies, as they were for Poland/ECE 20+ years ago – the world economy was then more stable. Global political situation may be actually working for the Arab countries – they are new big players on the scene. This creates opportunities. Economic experience of the post-communist transformation is around - perhaps some lessons may be learned (technically). 24
    • Final remarks 2/61. Polish/ECE most important lesson: Gradualism in reforming has its beauty, but ... „political time" for reforms is short." Use it while you can.2. The deeper the crisis, the longer the political window of oportunity for reforms (i.e. of social acceptance of dramatic changes).3. Later, the Olsonian [re: Mancur Olson] redistributive coalitions re-emerge and they block reforms (since their vested interests are hurt). 25
    • Final remarks 3/6 A comprehensive change in formal institutions and policies is a necessary condition for economic success (and it shows in the EFI scores), but Informal institutions are crucial for solidifying the early changes / successes – if they do not change we get "unfinished transformation" (like some former USSR Republics) or regime reversals. 26
    • Final remarks 4/6The ROW – especially the EU – has been helpful (in Poland & theECE):1. It provided some funding when it was especially needed2. It provided some technical assistance when it was especially needed3. It provided a "role model" for many Poles and ECE citizens4. It provided common institutions for the entire region, thus decreasing the transactions costsCould it work the same/similar way for Egypt? 27
    • Final remarks 5/61. "The money from the EU" has been important but not crucial for Polish/ECE reforms – these funds came much later.2. Nevertheless, the early debt cancellation (by 50%) by the Clubs of Paris and London were crucial for stabilizing the economies in crisis.3. So was the technical assistance (in building modern economic institutions) in the early phases of transformation4. Therefore, foreign aid cannot and should not be underestimated 28
    • Final remarks 6/6 Informal institutions must change in order to solidify the early reforms (i.e. the changes in policies and formal institutions) It has been believed until recently, that informal institutions generally are very slow to change Fortunately, recent research shows that some of them may change relatively quickly – this is a chance for the Arab countries It remains to be seen if their societies be willing and able to do it. 29
    • 30Ras al Jinz, Sur, Sultanate of Oman
    • Or like this? 31 Will it be like this?
    • 32haps like this – 1956, 1968/70, 1976, 1981 & 1989 – the Polish way?
    • THE END 33
    • 36
    • Closing remarks 1Q: Have the roads to prosperity passed through the Land of Economic Freedom?A: For most core EE14 – yes. - Ukraine is a notable negative exception. - Russia another one, although with some improvement in 2008. - Chinas EFI is improving >Russia! - non-EU Balkan economies (5) are doing worse than EE14 (except for Montenegro & Macedonia) - ex-Soviet republics from Asia are doing well (6,99) except non-measured Turkmenistan, Tadjikistan, Uzbekistan which are considered transformational fiascos (as is Belarus) 37
    • Closing remarks 2 Those considered transformatonal failure have also failed in improving EFI. Oleh Havrylyshyn in Divergent Paths in Post- Communist Transformations (2006) classified the above as countries of either limited / reversed reforms or as gradual but delayed reforms. In both groups the likelihood of rent-seeking activities of new olygarchs was very high; in some cases it ended up in what he called "the state capture" by those olygarchs colluding with one another. 38
    • Closing remarks 3 The positive scenarios present in the EE14 were to a large extent (and may still continue to be) made possible and amplified by beneficial institutional changes caused by accession to the EU. What counts is not only "goodness" of some EU institutions but also their spread over a sufficiently large economic area. As Douglass North was stressing (1986) not only good, but common institutions decrease transactions costs, thus positively influencing economic growth of a given region. Those beneficial institutional changes have been reflected by increasing levels of EFI. 39
    • A final question In EE14 we have witnessed quite dramatic economic changes over the past 20+ years. They resulted in enormous increase in the standards of living within just one generation. The forces at work may be characterized as a push-pull process: an initial push toward a liberal free market-based economy and a subsequent pull toward the institutions of EU (read: WE) that generally mean higher levels of EFI (except for Area I). Can the Arab countries find and implement some similar ways to boost their EFI and economic prosperity? This remains to be seen, but examples of some Arab economies – like Oman, its economic policies and institutional changes – are encouraging. 40
    • THE END 41
    • 42
    • Emerging economies of ECE:economic freedom vs economic performance: Economic freedom has increased, but what about economic performance? In most of ECE there has been a dramatic change in economic prosperity: 25 years ago average monthly salary in Poland was below $20 now is well above $1000 Those post communist countries that are considered transformatonal failure have also failed in improving EFI 44
    • Some examples of weak performers among post-communist economies (in terms of EFI) Ukraine is a notable negative exception Russia another one, although with some improvement in EFI over recent years Chinas EFI is improving >Russia! non-EU Balkan economies (5) are doing worse than EE14 (except for Montenegro & Macedonia) ex-Soviet republics from Asia are doing well ( 7.0) except non-measured Turkmenistan, Tadjikistan, Uzbekistan which are considered transformational fiascos (as is Belarus) 45
    • A threat of unfinished and reversed reforms Oleh Havrylyshyn in Divergent Paths in Post- Communist Transformations (2006) classified the above as countries of either limited / reversed reforms or as gradual but delayed reforms. In both groups the likelihood of rent-seeking activities of new olygarchs was very high; in some cases it ended up in what he called "the state capture" by those olygarchs colluding with one another (a menace to the Arab Spring?). 46