Towards an innovative and inclusive economy OECD Economic Survey Poland 2018
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This document summarizes key points from the 2018 OECD Economic Survey of Poland. It finds that while economic growth and standards of living are rising, investment and productivity remain relatively weak. It recommends that Poland strengthen investment in research and skills, increase female labor participation, implement tax reforms to finance infrastructure and innovation, and develop clear climate policies and a migration strategy to support future growth.
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Towards an innovative and inclusive economy OECD Economic Survey Poland 2018
- 1. 2018 OECD ECONOMIC SURVEY OF POLAND Towards an innovative and inclusive economy Warsaw, 19 March 2018 @OECD @OECDeconomy http://www.oecd.org/eco/surveys/economic-survey-poland.htm
- 2. • Economic growth and the labour market are strong • Stronger investment in higher education and research excellence is needed • Business engagement in vocational education and adult learning should improve • Stronger senior and female employment would help counteract demographic decline • Financing investment in infrastructure and innovation requires tax and spending reform 2 Main messages
- 3. Living standards are rising 3 Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database). Convergence in GDP per capita continues Constant PPPs, Index OECD=100
- 4. Family benefits helped lower child poverty 4 Source: Statistics Poland. 0 2 4 6 8 10 2015 2016 Absolute poverty among children has fallen 0-17 years old, per cent
- 5. Investment in research excellence is needed 5 Poland's share of global top publications is low Per cent of all documents¹, 2015 Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2017 (database). 0 2 4 6 8 10 12 14 16 SVK HUN CZE POL SVN JPN GRC LVA PRT ESP OECD EST FRA NOR IRL AUT FIN CAN DEU SWE AUS ITA BEL GBR USA DNK NLD CHE 1 Share of the scientific output of domestic research institutions that is included in the set of the 10% most cited papers in their respective scientific fields, fractional counts.
- 6. Demographic challenges are rising rapidly 6 Source: United Nations (2017), “World Population Prospects: The 2017 Revision”, Department of Economic and Social Affairs, United Nations, New York. The working-age population will decline sharply Percentage change, 2015-2060
- 7. Maintaining macroeconomic stability and sustainable growth 7
- 8. 8 Real GDP growth in % Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database). Economic activity is expanding rapidly -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 2001 2003 2005 2007 2009 2011 2013 2015 2017 Poland OECD
- 9. The labour market is tightening 9 Source: OECD (2017), Labour Market Statistics (database) https://data.oecd.org/unemp/unemployment-rate.htm Unemployment rate Total, % of labour force, Q4 2017 or latest available
- 10. Investment is weak 10 Investment-to-GDP ratio, current prices 1 Unweighted average of Hungary and the Czech and Slovak Republics. Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
- 11. Inflation is close to the central bank’s target 11 Inflationary pressures are rising Year-on-year % changes Source: National Bank of Poland.
- 12. The general government deficit shrank, but the structural deficit is expected to widen 12 Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database). Headline and cyclically-adjusted deficits -8 -7 -6 -5 -4 -3 -2 -1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 General government financial balance (as a percentage of GDP) Underlying government financial balance (as a percentage of potential GDP)
- 13. Investment in infrastructure, skills and health are needed 13 0 2 4 6 8 10 LVA POL GRC EST HUN LUX IRL SVK PRT CZE SVN ESP AUS OECD ITA FIN CAN GBR AUT CHE BEL USA NLD FRA DNK JPN SWE DEU Public spending on health care Per cent of GDP, 2016 Source: OECD (2017), Health Statistics (database).
- 14. Further revenue-raising reforms would help finance Poland’s spending needs 14 Tax revenues Per cent of GDP, 2015¹ 1. Or latest year available. Source: OECD (2017), OECD Revenue Statistics (database).
- 15. Main recommendations to maintain macroeconomic stability and sustainable growth Implement a tighter fiscal stance through revenue-raising tax reforms or increased spending prioritisation. Strengthen environmentally related taxes, limit the use of reduced VAT rates and exemptions, and make the personal income tax more progressive, e.g. by introducing a lower initial and more intermediate tax brackets and ending the preferential tax treatment of the self-employed. If the NBP’s economic assessment suggests considerable upward risk for price stability, it should raise interest rates in a timely fashion to ensure that inflation remains well within its target range. Develop and implement clear and stable climate-change policies aligned with European and international objectives to reduce uncertainty for innovative green investments. Ensure the stability and clarity of policies affecting investment decisions. 15
- 16. Strengthening employment to confront demographic challenges 16
- 17. Women’s retirement age is set to remain low 17 Women's average effective retirement age is low 2016 Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2017 (database).
- 18. There is a risk of old-age poverty 18 The share of female minimum pensioners is expected to increase sharply Simulations based on an overlapping generations model, per cent Source: J. Tyrowicz and N. Brandt (2017), “Simulating the effects of pension reforms in Poland in an overlapping generations model”, Technical Background Paper, OECD, Paris.
- 19. Increasing female participation is a challenge 19 The new child benefits may weigh on female labour force participation Source: I. Magda, A. Kielczewska and N. Brandt (2017), "The impact of large child benefits on female labour supply – the case of Poland’s 500+ programme”, Technical Background Paper, OECD, Paris.
- 20. Better access to subsidised childcare would help 20 Participation rates in formal childcare and pre-school services¹ 0-to-2 year-olds with mothers without tertiary education, 20142 Insert Figure 25 A here 1. Data refer to children using centre-based services (e.g. nurseries or daycare centres and pre-schools, both public and private), organised family daycare, and care services provided by paid professional childminders, excluding those using unpaid informal services provided by relatives, friends or neighbours. 2. Or latest year available. Source: OECD (2017), OECD Family Statistics (database).
- 21. A migration policy is needed 21 Hiring of immigrant workers is increasing sharply Thousands 1. 12-month moving sum. Source: Ministry of Family, Labour and Social Policies (https://www.mpips.gov.pl/analizy-i- raporty/cudzoziemcy-pracujacy-w-polsce-statystyki/).
- 22. Main recommendations to strengthen employment Evaluate the pension reform’s effects, and make corrections such as aligning male and female retirement ages and indexing them to healthy life expectancy. Inform the public about the impact of working longer on pension income Invest in childcare and long-term care facilities. Taper the phase out of the child benefit for the first child. Develop a migration policy strategy to better monitor integration of foreigners in line with labour market needs, the protection of their rights and access to education and training for them and their children. 22
- 23. Strengthening innovation, research and skills 23
- 24. Investment in research excellence is needed 24 Tertiary education spending per student is relatively low Thousand USD in PPPs, 2014 Source: OECD (2017), OECD Education at a Glance 2017, (database).
- 25. The supply of researchers is insufficient 25 Share of researchers in total employment Per thousand employed workers, 2015 Source: OECD (2017), OECD Research and Development Statistics (database).
- 26. Industry-science cooperation is limited 26 Industry-financed public R&D Per cent of GDP, 2015 Source: OECD (2017), OECD Research and Development Statistics (database).
- 27. Adult learning and vocational training need strengthening 27 1. Share of managers with at least upper secondary education scoring below level 2 in at least one of the PIAAC proficiency scales, i.e. literacy, numeracy and problem-solving in technology-rich environments. Source: OECD (2013), OECD Skills Outlook 2013 (database). Low skills are pervasive among Polish managers¹, 2012 Share of low-skilled managers aged 20-65 with at least upper secondary education
- 28. Participation in adult learning is weak 28 Adult participation in lifelong learning 25-64 year-olds, % of population Source: OECD (2016), Skills Matter: Further Results from the Survey of Adult Skills, OECD Publishing, Paris.
- 29. Main recommendations to strengthen research and skills Continue to increase funding for higher education and research over time, to merge small universities and independent research institutes to build strong research universities, and to allow underperforming institutions that do not improve over time to shut down. Improve the quality of doctoral training by structuring it through coursework and tutoring and tightening entry criteria. Offer well-remunerated academic positions, and base career progression on an evaluation of research and teaching quality by faculty and external experts. Develop a national skills strategy with a strong basic skills component. Give employers incentives to develop workplace-based vocational education and adult training. 29
- 31. 31 A higher quality capital stock is needed Reported quality of capital stock Proportion of state-of-the-art machinery and equipment, including ICT Per cent, 2015 Source: EIB (2017), “Investment Survey”, European Investment Bank.
- 32. 32 A much needed increase in public support for business R&D lies ahead Public support for business R&D As a percentage of GDP, 2014¹ 1. Or latest year available. 2. In Poland, indirect support refers to PLN 284 million CIT tax exemptions granted for innovation activities in 2014. Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2015.
- 33. Financing for innovative start-ups is increasing 33 Venture capital investment As a percentage of GDP¹, 2016² 1. Only the value of total venture capital investments is available for Korea and New Zealand. 2. Or latest year available. Source: OECD (2017), OECD Entrepreneurship at a Glance 2017, OECD Publishing, Paris.
- 34. Government loan guarantees are extensive 34 Government loan guarantees for SMEs As a percentage of GDP, 2015¹ 1. Or latest year available. 2. 2016 data for Poland. They refer to PLN 13.9 billion of outstanding De Minimis guarantees at end-2016 and PLN 1.59 billion of guarantees from local and regional funds. Source: OECD (2017), OECD Entrepreneurship at a Glance 2017, OECD Publishing, Paris.
- 35. Bankruptcy procedures are lengthy 35 Length of bankruptcy procedures¹ Number of years as of June 2017 1. Period from the company’s default until the payment of some or all of the money owed to the bank. World Bank (2017), Doing Business 2018: Reforming to Create Jobs (database), the World Bank Group, Washington, DC.
- 36. Main recommandations to foster innovative business investment 36 Plan for the national financing of business R&D and innovation programmes beyond the current EU budgetary cycle, if necessary. If the take-up of the new R&D tax allowance is low among small innovative firms, adjust its provisions. Rigorously evaluate the general loan-guarantee programme for SMEs and adjust its provisions if needed as it can lock in resources in low-productivity firms and crowd-out alternative financing sources. Improve transparency, stability and impact assessment of public support by involving the private sector in the Innovation Council. Make more extensive use of impact analyses, notably by engaging with stakeholders in ex ante consultative processes and ex post evaluations. Reduce the bias towards debt over equity financing of businesses. Include a simplification component for SMEs to the government’s tax compliance strategy.
- 37. For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 37 http://www.oecd.org/eco/surveys/economic-survey-poland.htm @OECDeconomy @OECD
Editor's Notes
- GDP growth at 4.6% in 2017, around 4% in 2018/19; booming labour market Innovation relied mainly on foreign technology adoption and industrial restructuring, so far; investment in higher education and research excellence is needed to strengthen Poland’s own capacity to innovate along with weak science-industry collaboration – the higher education reform in preparation has the potential to address some of these issues As labour and skills shortages are emerging weak participation and business engagement in adult learning and vocational education needs to be stepped up. By some estimates Poland faces the fastest decline in the working-age population in the OECD. Stronger employment of seniors and females would help counteract this; the recent lowering of the retirement age and the introduction of large child benefits pose challenges in that respect, in the context of limited access to institutional early childhood care and long-term care for the elderly. Given higher child benefits, planned spending increases in healthcare and childcare services and continued investment needs in infrastructure and skills Poland needs to plan for revenue raising tax reform or greater spending restraint to secure sustainable financing, not least because the availability of EU funds might decline after 2020 as a result of Brexit and the rapid rise of average incomes in Poland
- Poles have never had it so good Growth is expected to remain strong around 4% per year and convergence is continuing. The labour market is booming and shortages are getting more acute: more opportunities for Polish workers and rising incomes.
- Poverty and inequality have fallen thanks to rising incomes and are now around the OECD average The introduction of large child benefits (family 500 + programme) in 2016 has further reduced poverty among families with children Life expectancy has risen faster than elsewhere in the OECD After a spectacular higher education boom tertiary education attainment is now above the OECD average for the younger generation Poland is establishing itself as a top destination for business outsourcing and logistics services of increasingly high value added – Polish computer programmers have an excellent reputation A spectacular rise in immigration from Ukraine and other eastern countries is testimony to rising living standards in Poland
- Productivity growth has weakened in the mid-2000s as in other OECD countries It has been largely based on industrial restructuring and adoption of foreign technologies (mainly fixed assets) To strengthen and sustain productivity growth Poland needs to develop its own capacity to innovate and capacity to absorb innovations Poland's spending on higher education and research, the quality of its research and the supply of researchers are all relatively low, although rising. The government plans a welcome reform of higher education and public research to strengthen the quality of training for students and researchers and currently weak science-industry collaboration.
- The working age population is set to fall sharply Employment among seniors remains low despite some recent improvements– recent lowering of the retirement age is a challenge in this respect Female employment also needs to be strengthened further; access to affordable childcare services weak in many places, although improving; institutional care for the elderly is very rare; both need to be strengthened urgently to counteract undesired side effects of the child benefits on female employment Developing a migration policy (there is currently no official government strategy) will help to make the most of the strong inflow of workers from Ukraine; it is also a good moment to engage with the Polish diaspora to advertise business, research and job opportunities among them
- GDP growth is firming, as we and other forecasters kept revising up our forecasts for the Polish economy over the last year. In 2017, growth was at 4.6% about twice stronger than the OECD average, and the strongest headline growth figure for the Polish economy since 2011. The key driver of growth was consumption that grew at close to 5% in 2017, resulting from the tight labour market and rising social transfers, most notably the 500+ programme (the new child benefits). We expect growth to remain strong, but we factored in somewhat softer GDP growth in 2018-19, since we expect consumption growth to slow down from high levels, and it will be only offset in part by much stronger investment growth resulting from faster disbursements of EU structural funds and the strong external environment, notably in the euro area. We expect growth to be at 4.2% in 2018 and 3.7% in 2019.
- A success story of the macro. environment in Poland is the strong decline in the unemployment rate that is near record-low levels. If you look at the ILO unemployment rate – which is used for international comparisons – you see that Poland now ranks very well among OECD countries with an unemployment rate below 5%. Labour shortages are spreading through the economy, particularly in the manufacturing and construction sectors. But investment in training is needed to fill vacancies (Strong migration seems to contain wage growth for now)
- The investment-to-GDP ratio is now close to its lows from the early 1990s, and it is well below those of neighbouring countries and the euro area. That matters, since in the long-run, strong investment leads to stronger potential growth. (To be fair, Poland has a low investment-to-GDP ratio relative to peer-countries for a long time, yet it has not prevented Poland from growing very quickly over the last decade or so). Investment has recovered in 2017 after a slump related to the switchover of EU budget periods in 2016. In particular, investment accelerated very strongly at the end of 2017, faster disbursements of EU funds is likely to be a key factor given their importance for the Polish economy. (Total EU structural funds are 86 billion euros over a 7-year period, and that’s roughly 2.5% of GDP annually that Poland receives from the EU cohesion policy). But surveys – e.g., the investment survey from the European Investment Bank – also point to higher uncertainty than elsewhere as a factor limiting investment. Likely related to high regulatory uncertainty in some sectors (e.g. a major change in support mechanisms for renewables took several years to implement and many uncertainties remain; changes in regulation that make investment in wind parks prohibitively complicated and expensive)
- Inflation is rising after a period of deflation in 2014-16 Core inflation (excluding food and energy) has been broadly stable at about 1% in 2017, but if you look at alternative measures of core inflation, they are rising and now within the central bank’s target range. Yet, the spillover from rising wage pressures and domestic capacity constraint remains surprisingly mitigated as observed in other OECD countries. Deviating from monetary policy in major economies could entail destabilising capital flows with heightened appreciation pressures on the Polish zloty. No easy environment for monetary policy.
- The general government deficit declined further in 2017 to about 2% of GDP (we still don’t have the final data on this), well below the initial government budget forecast. In 2017, there were stronger revenues than expected, mostly related to better VAT tax compliance reflecting a series of measures from the government, as the VAT gap closed quite substantially in 2017. Stronger-than-expected VAT revenues also reflect the strong cyclical position of the Polish economy, particularly strong consumption growth. Going forward, we think the deficit should remain around 2% in 2018-19. That said, if you look at the structural deficit, that is the headline deficit correcting for the position of the economy in the cycle, you see that we expect the structural deficit to widen in coming years, suggesting that the fiscal policy would be accommodative this year and next year even though the economic environment is very favourable ----> That does suggest that the current environment is conducive to implement a tighter fiscal stance through stronger revenues or more spending restraint to strengthen the fiscal position and provide room for a needed increase in spending in selected areas.
- Yet, public spending needs to increase in a number of areas. Decision to increase health spending markedly to counter doctor scarcity, long-waiting lines and a large share of patients skipping appointments related to high out-of-pocket payments. The government foresees to increase health care spending to 6% of GDP by 2025. Higher education spending also needs to rise to offer more attractive conditions for researchers (wages and other working conditions) Continued infrastructure bottlenecks A strategy is also needed to prepare for a possible decline in structural EU funds in the next EU budget period. This does not represent an immediate requirement for more spending (the next EU budget will start in 2021 and the overlapping of EU budget periods for 2 years means that 2023 is the “real” beginning of the next EU budget), but it does suggest that the government should look for further revenues to put itself into a position to continue much needed investments in infrastructure, research and skills.
- On this chart, we show tax revenues for OECD countries in terms of personal income tax, social security contributions and other tax revenues. First, we can see that Poland’s tax revenues relative to GDP are fairly low relative to other European countries. In particular, PIT income plays a relative minor role, it is essentially a flat tax in that the vast majority of households paying PIT are subject to the lowest tax rate of 18%. Giving a stronger role to PIT could generate additional revenues, while contributing to a more inclusive society. One solution would consist in introducing a lower initial and more intermediate tax brackets and ending the preferential tax treatment of the self-employed (a 19% flat tax). There is also a need to strengthen environmental taxation (e.g., taxes on fossil fuels) to accelerate the energy transition. Limiting the reliance on reduced VAT rates would also generate additional revenues. The benefits of reduced rates are limited in that they sometimes tend to benefit the most affluent households (e.g., the reduced VAT rate on hotels and restaurants).
- Starting from a low level, employment rates of workers over 55 have risen particularly quickly, accounting for half the increase in the total employment rate between 2006 and 2015 The 2009 and 2013 pension reforms limiting early retirement and gradually increasing the statutory pension age to 67 played key roles, as participation for cohorts affected by the reforms rose substantially compared to those who were not. Unemployment for older workers fell in line with that of other age groups. The recent reversal of the reform increasing the retirement age responded to popular demand; will leave the retirement age unusually low for women (60 compared to 65 or more in most countries) Replacement rate will be very low for the generation entering the labour market now if they do retire at the statutory age; 27.9% for women and 31.6% for men compared to 52% on average in the OECD Workers can work longer, but research shows that many workers retire at the earliest possible age, even if financial incentives to do so are weak; more than 80% of workers newly eligible for pensions in Poland claimed them Workers can also be more easily dismissed when they have reached the pension age
- If people do retire at the earliest date it could entail heightened poverty risks According to simulations based on an overlapping-generations model it would substantially increase the share of pensioners who have no more than a minimum pension, particularly among women The estimate is a lower bound, as it does not take into account that women often have interrupted careers because of care responsibilities; Fiscal costs due to a higher share of minimum pensioners could increase by up to 0.9% of GDP annually on average until 2030. Very good information for pensioners is needed to make sure they understand the financial consequences of retiring early The government has started to send out more detailed and clearer annual information to workers about their entitlements, including simple examples comparing pension benefits when retiring at the new statutory age and 5-10 years later. It should also include the evolution of benefits over the beneficiary's expected lifetime, and minimum pensioners should be informed how much longer they need to work to lift their pension income sizeably above this level. In addition, it would be useful to continue regular nation-wide awareness campaigns, provision of simple pension calculators and introduce seminars, targeting groups that are likely to have low financial literacy. Conduct studies whether people read and understand this information – e.g. not the case in Chile. But: Decision to retire may not be entirely up to the worker; it is much easier to dismiss workers who reached the retirement age
- Child benefits have lowered poverty; some studies from other countries suggest that they can increase fertility But there are also risks: Female labour force participation has been falling among low-skilled women Joint OECD research with partners from Poland (IBS) suggests that child benefits have had a small, but significant negative impact on participation – almost 3 percentage points by 2017– which was stronger among low-skilled women An unemployed single mother of two taking up a job that pays the average wage would retain less than 20% of her earnings as a result of taxes and immediate withdrawal of the benefit for the first child. Once taking childcare costs into account, which can be very high in the private sector - often the only available option, she would actually lose money. Tapering the benefit withdrawal for the first child would help; alternative: make it income-dependent for all children, but with a much higher eligibility ceiling
- Better access to childcare is urgently needed; the government’s intention to invest here is welcome Institutional care for the elderly is very scarce; this question also needs to be addressed
- Requiring only a simple declaration of intent to hire workers from neighbouring non-EU countries for short assignments makes Poland one of the most open countries in the OECD. Abuse of the simplified procedure is widespread according to the trade unions, which report dozens of complaints every day from Ukrainian workers who came to Poland after having paid for what turns out to be a falsified declaration of intent to hire them. Setting up a system to monitor immigrant workers’ skills and their willingness to stay in Poland beyond a short assignment would enable the government to better understand the impact of immigration on the labour market and develop policies to improve it. Access to language training for foreign workers and to education from a very young age for their children will be needed, particularly if the set of source countries widens. This is not ensured, given that Poland’s immigration experience is recent, and the migration strategy abandoned in 2017 has not yet been replaced. It will be crucial to develop a new strategy as foreseen in the Strategy for Responsible Development. Reaching out to the Polish diaspora and advertise business, job and research possibilities would also be helpful.
- Spending on tertiary education remains low in relation to the large number of students after a tertiary education boom that has brought attainment rates for the young generation above the OECD average . A multi-year plan to increase funding linked to improvements in spending is needed. The sector is fragmented, with many small, specialised institutions. Poland wants to promote voluntary mergers with “federations” of higher education institutions as an intermediate step to full mergers -> might ensure more efficient use of infrastructure and staff. The best public research institutes would also help. The government plans to award extra funding to the best performing universities. Can be useful to build some strong research universities, but should not drain funding from higher education institutions, such as vocational institutions. The share of young tertiary graduates with skills at the limit of illiteracy is high (35% compared to 20% on average in the OECD and 10% in CZE). They would benefit more from a vocational orientation combined with basic-skills training. Public higher vocational schools suffer from declining student enrolment, a lack of short-cycle programmes with work-based learning opportunities and weak alignment with regional labour market needs. The government plans more short-cycle programmes, but stronger engagement with employers is needed. Plans to integrate at least six-monthly internships into study programmes useful first step, but full co-financing with business employing students (Germany, Netherlands) should be the ultimate goal. Institutions that do not improve after repeated negative evaluations should be allowed to close down.
- The supply of researchers is weak, both in quantity and quality The funding formula for higher education and research institutes provides incentives to take on large numbers of doctoral students without regard to quality. They are typically supervised by a single professor, many of whom do not produce high-quality research themselves. Doctoral studies need tighter entry requirements and shorter duration, along with a more structured transmission of disciplinary knowledge and transversal skills. The higher education reform plans changes along these lines. Reforms are needed to enable universities to offer well-remunerated entry-level positions. Full professorship and further pay and career progression should be conditional on an evaluation of research quality and impact by both faculty members and independent experts, possibly also from other countries. This could also help to attract the Polish research diaspora and foreign researchers, although grants for short stays at Polish universities are also required. The new agency for academic exchange is an opportunity to work more closely with Polish and foreign researchers trained abroad to build on their knowledge and networks. Providing sufficient flexibility to combine a career in research with family life, for example by lengthening the duration of entry-level contracts in line with family-related career breaks and postponing the final evaluation accordingly, will help attract and retain women.
- A lot of EU structural fund financing is conditional on science-industry collaboration and that is showing first effects. Developing mentoring and consulting services for small firms to help them cope with often complicated procedures to draw on innovation support and find partners in science would ensure policy effectiveness. The government wants to give more weight to successful commercialisation in institutional and individual evaluations determining research funding and to allow obtaining a doctorate degree, while developing research as an employee in industry. It should go further by allowing professors to work part-time on commercial activities, as well. Some university technology transfer offices are very active in helping local business to use their universities’ know-how and research, but many suffer from weak financing and difficulties in attracting and retaining qualified staff. A 2016 law stipulates that 2% of institutional R&D funding has to be set aside for research commercialisation. Merging them across universities that are close to each other would help reap economies of scale and stimulate research collaboration.
- Poland has lots of micro-firms with very weak productivity Many adults, including managers and tertiary graduates have weak basic literacy and - in particular - digital skills Better access to adult learning, which is weak, and stronger business engagement in vocational education is also needed to align training programmes with labour market needs and create more opportunities for vocational students to combine work in a firm with studies
- The Polish government plans with the OECD to develop a skills strategy involving the whole government and stakeholders. Basic skills should feature high on this agenda, as Poland currently lacks a basic skills strategy and there is insufficient awareness about such skills deficiencies. In Germany, France and the United Kingdom, basic-skills strategies feature information campaigns to raise awareness, specialised training for basic-skills trainers, partnerships with schools and employers to reach workers and parents with weak literacy, as well as training for job-search assistants and continuing-education teachers to identify clients with weak basic skills. More than 60% of Polish adults have no intention to participate in adult learning compared to 40% on average elsewhere. And while three-quarters of firms complain that they cannot find workers with the right skills, few show a willingness to invest in their employees' training The government should campaign to convince firms of the necessity to offer practical training opportunities for young and older workers and participate in developing training programmes : advertising successful examples, e.g. from German investors in Poland, and studies that point to the net longer-term gains from training investments. With labour shortages rising employers are now more interested in training. Poland’s numerous SMEs often shy away from the logistical difficulties and costs of setting up training. Good practice: Australia’s Group Training Organisations, which pool recruitment and placement of apprentices, quality control and management of employer responsibilities.
- The capital stock is often outdated and does not necessarily meet the highest energy efficiency standards. That is in part related to the weak level of investment, but also to the limited innovation capacity of the Polish economy; that is, the fact that investment remained focused on the adoption of existing technologies, with limited self innovation capacity. That hinders potential growth in the long-run; hence, the need to address this issue. There is also a need to modernising ageing electricity and heat generation capacity infrastructures to secure greener and more reliable energy supply with positive effects on public health. For public infrastructure, there is also a need to strengthen competition in public procedures procurement, since Poland is one of the EU countries with the largest number of auctions with a single bidder. Also, need to strengthen innovation and environmental criteria in public procurement procedures. Efforts have been made so that the price criterion is no longer the exclusive criterion, electronic procurement are now mandatory, but probably more needs to be done. The projected reform of public procurement is welcome.
- Public support for innovation used to be low in terms of both direct/grants and indirect/typically tax incentives. But the EU and the government are stepping up funding for innovation activities. For example, EU structural funds will contribute to about a 25 billion euros increase in programmes for innovation over the 7-year window of the EU budget. The government is also stepping up incentives for innovations, for example a new R&D tax credit scheme was put in place in January 2018, which is a key policy to increase private sector innovation activities. Previously, the R&D tax credit scheme was fairly confidential with only about 80 firms benefitting from this scheme, and the list of eligible costs created much confusion. The new scheme is much more generous and the list of eligible cost was extended and clarified, which is welcome. Initiatives to start and develop brokerage/mentoring/consulting services to help SMEs adopt high-level technology are also being set up. It is important to strengthen these efforts as in the past, there were challenges for SMEs to benefit from EU programmes due to the complexity of the application process. There is also a need to guarantee the stability of funding for innovation policies as they tend to be very much dependent on EU funds that are cyclical, and this can limit the benefits of innovation policies as a stable environment, which is critical for research activities.
- A diverse source of funding (i.e., going beyond traditional bank lending) is necessary to boost projects with a high risk/high return component. That also holds true for projects with little-to-no tangible capital. Venture capital is one such alternative source of financing. VC is quite low in Poland, but different funds have been set up by the authorities with the help of EU structural funds (PFR ventures), and close to 3 billion PLN will be allocated to venture capital investments in the next years. These funds will cover different stages of development from the very beginning to more advanced projects, which is welcome. Yet, the supply of good projects may be limited, in part because there is room for improvement in higher education/research systems As a general rule for these new innovation programmes, it is important to step up the evaluation of existing projects to make adjustments to existing programmes if needed. As part of the EU-funded programmes, it is mandatory, but getting more systematic input from different stakeholders, including from the private sector and researchers, could be helpful in identifying the right policies.
- One of the most common tools to boost investment for SMEs among OECD economies is to use of government credit guarantee schemes. In Poland, the existing programme (“de minimis”) was introduced in 2013 as the economy slowed down, and there was a strong case to introduce the programme back then But, this initially temporary programme is transformed into a permanent programme in 2018. Now that the economy is growing strongly and that unemployment is near record lows, the case for having an extensive government loan programmes is much less compelling given potential negative effects. Some OECD research shows that such programmes can lock-in resources in low-productivity firms in that it can lead to the survival of weak firms, preventing firm exit or firm restructuring, which is holding back productivity growth. While there is no evidence that the “de minimis” programme has such effects in Poland, it is important to conduct a rigorous evaluation (e.g., to evaluate the additionality effects of the programme; i.e., the extra lending that is obtained thanks to the programme. One way to do so is to facilitate data access so that third-party researchers can conduct such evaluations. One possible solution for reform would be to target the “de minimis” programme for innovative projects that have little tangible capital and are therefore the most likely to need the most such government guarantees.
- One way to boost productivity is to ensure to have an efficient allocation of resources, that includes the ease of firm exits / firm restructuring if necessary. On this chart, we see that the bankruptcy procedures are lengthy in Poland, and we get a similar picture if we look at the cost of insolvency procedures for SMEs 2016 corporate insolvency reform was an improvement (e.g., a dedicated tribunal in charge of firm restructuring was also put in place). Needs to be carefully monitored as this is one of the policy levers for government to ensure effective allocation of resources. Some options for reforms to be considered: Promoting out-of-court settlements, possibly by developing mediation, could speed up the court system Court clerks could be allowed to tackle small non-litigious cases to free up judges' time Developing special insolvency procedures for SMEs, akin to those found in other OECD countries could be helpful as they may not be able to cover the insolvency costs. [Of note, lots of recent policy changes were devoted to ease business regulation to facilitate firm entry and make it easier to develop a business– “business constitution”, “100 changes for business”, but also important to look at the other end; i.e., firm exit].