This year's Euro 2012 host has been untouched by the financial crisis, but for Poland, success has not come without strainby Sam Knight / April 24, 2012 / Leave a comment
Chuck Norris, a cult figure in Poland, advertises bank services. A cautious financial culture helped the nation avoid the worst of the crisis
Flying into Rzeszów on a clear day, the company name “Zelmer” appears in bold letters across a vast factory roof, surrounded by acres of birch trees. Last summer, after 60 years in a warren of old workshops in the middle of the city, an unshowy city in southeastern Poland, the company moved into a purpose-built plant on the edge of town. While manufacturers in almost every other corner of Europe have spent recent years desperately cutting costs, Poland’s number one domestic brand of vacuum cleaners and kitchen appliances (meat mincers, juice mincers, multi-purpose mincers) was executing “Project Junior”: an ambitious plan to modernise its production lines, increase its profits and break open new markets in Russia and Ukraine.
Driving towards Zelmer’s new premises—a giant grey and blue box—I passed some of the other new things in Rzeszów (pronounced “Jeshoff”): the new airport terminal (built for this summer’s Euro 2012 football championships); the new shopping mall; the new motorway. Flags and posters announced that Rzeszów was now a “capital of innovation.” On the city’s logo, one arm of the red Maltese Cross—Rzeszów’s symbol during turbulent centuries of war, famine and emigration—had been turned into a hopeful, digital arrow.
Rzeszów is a place where the dream of European prosperity is vividly alive. The capital of Podkarpackie, one of the country’s poorer provinces, it is hell-bent on catching up with the living standards of the wealthier, western half of Poland. The resulting sense of purpose means that when you are in Rzeszów it is hard to know whether you have been somehow transported to the innocent days that preceded the European Union’s political and economic crisis, or to some briskly-fixed version of the future.
Rzeszów, and Poland as a whole, is Europe without the crisis. Despite a reputation for excessive bureaucracy and rulemaking, the country has emerged as the EU’s unflashy, undisputed star. In 2009, its economy was the only one in the bloc of 27 not to slip into recession. Since then, the country has been, in the phrase beloved of the Polish media, “an island of green in a sea of red.” While the European economy has shrunk 0.5 per cent in the last four years, Poland’s GDP has grown by 15 per cent. Though the labour market has profound structural problems, unemployment has gone down, migrants have come home and the country’s public debt has stayed below its constitutionally-defined limit. Other, fancier tigers that the country was long urged to emulate have been left mewling in the rain.
At Zelmer’s new headquarters, I stood in front of a glass cabinet full of brightly coloured irons, microwaves and meat slicers. Two executives in their thirties led me through ultra-modern corridors. The lights came on and off as we walked. The plant manager happened to be away, so his secretary sat in a pool of fluorescence, surrounded by deep shadow. In the boardroom, Piotr Dolega, the company’s finance director, and Agnieszka Grabowska, its head of investor relations, described Zelmer’s transformation from a state-owned enterprise to publicly-traded player in the regional economy—whose revenues grew by 50 per cent from 2004 to 2008—in fluent English business-speak. When I asked Dolega about the company’s strategy during these uncertain times, he replied, on reflex: “Double digit growth every year.”
Below us, on the gleaming grey factory floor, Poles earning around £400 a month affixed the looping necks of vacuum cleaners and clipped rubber feet onto blenders. They worked under enormous electronic boards that counted down the number of products to be completed in the next eight hours. Pallets in a cold loading dock showed Zelmer products bound for Turkey, Switzerland and Ukraine.
Rzeszów’s mayor, a former communist party official called Tadeusz Ferenc, is a symbol of the city’s energy. Ferenc was a housing manager before he came to power in 2003, the year before Poland joined the EU. Under his rule, Rzeszów has doubled in size, gobbling up surrounding villages and suburbs, and won more EU grants per head than any other city in the country. By 2013, Poland will have received around €67bn in EU “cohesion funding,” and much of it has ended up in places like Rzeszów. Before I met Ferenc, one of his advisers flicked through a computer presentation of the city’s EU-funded improvements. “New infrastructure, new bike paths, new fountains,” she said. “New places to spend time.”
The city has not prospered on handouts alone, though. Taking advantage of its relatively cheap labour—wages in the region are 20 per cent below the Polish average—Rzeszów has used local tax breaks and the promise of a young, educated population (it has a large university) to lure companies from Poland and across the world. Nestlé, Borg Warner (a US car parts maker) and Valeant Pharmaceuticals all have branches in Rzeszów, their low-rise offices visible over the trees from the city’s old centre.
The relentless growth of both Rzeszów and Poland is driven, in part, simply by the extent to which their economies have room to develop. Poles still earn a mere 53 per cent of the EU average. But that does not explain why the country has done so much better than its neighbours in central and eastern Europe, nor the sheer thrum of business activity. While analysts in Warsaw might be disappointed by the country’s growth forecast of 2.5 per cent in 2012 (down almost 2 per cent on last year), it is still the highest in a continent stalked by recession. So what is going on?
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Part of the answer is a Polish achievement more startling than any economic statistic: political steadiness. Last October, for the first time since the fall of communism, Poland re-elected a government. What’s more, Prime Minister Donald Tusk, despite a wavering personal support, managed to lead his centre-right Civic Platform party to victory during Poland’s virtually impossible tenure holding the presidency of the European Union. During six months of half-cocked summits and sovereign debt emergencies, Polish ministers did their best to keep an uncertain show on the road, inviting Tim Geithner, the US treasury secretary, to Poznan to try and shock Angela Merkel and Nicolas Sarkozy into action last September.
Then when Britain, a natural ally on the EU periphery, vetoed a new European treaty in December, Poland took over to lead negotiations for the eight members that do not use the euro but wanted a say in the bloc’s new fiscal pact. While David Cameron returned home to adulation from the right-wing press, Radek Sikorski, Poland’s foreign minister, went to Berlin to make an appeal for German leadership in Europe that was remarkable given the traditional enmity between the two countries. “I will probably be the first Polish foreign minister in history to say so, but here it is,” Sikorski had told the German Society for Foreign Affairs the previous month. “I fear German power less than I am beginning to fear German inactivity.”
The result is a Polish government that is—outwardly at least—confident about its growing power and influence. Talking with government ministers about Europe’s crisis, you encounter a kind of polite condolence. When I asked the finance minister, Jacek Rostowski, whether he teased the other EU finance ministers about the strength of the Polish economy, his verbatim reply was: “Never, ever, ever, ever. Never, ever. Never say, ‘We are leaders of the region or anything like that.’ We are never rude to other countries, never, ever, ever.”
We were talking in Rostowski’s maple-panelled office on the second floor of the finance ministry in Warsaw. Outside, the main entrance to the building was blocked by the construction of a new metro line. Rostowski, who was raised in England, went to Oxford and speaks English rather like an antiquarian book dealer, was giving me a modest run-down of the ways in which Poland has managed to avoid Europe’s recession.
Nothing glamorous, it turns out: sensible banks; not much of a property bubble (Poland has a population of 38m, similar in size to Spain, but was building a quarter of the number of new homes during the boom years); a flexible currency (the zloty); strong trade with Germany (which buys 25 per cent of Poland’s exports) and a large domestic market (38m Poles buying vacuum cleaners). Yet, as Rostowski said, “The thing is, none of these underlying strengths are unique.”
So what is Poland’s secret? When pushed, Rostowski admitted a certain amount of good fortune: the previous government, for completely unrelated reasons, happened to cut taxes and boost spending just before the financial crisis hit in 2009, producing a lucky stimulus.
I wondered whether Polish people are also simply used to the grind. Whereas populations in western Europe are getting accustomed to the first real spending cuts in a generation, any Pole over the age of 25 can recall at least three austerities: the “shock therapy” of the early 1990s, the Russian financial crisis of the late 1990s, and the campaign of cuts and severe interest rates that brought the Polish economy into shape to join the EU in 2004. Many times when I spoke to working Poles about their country’s deft evasion of the economic downturn they shrugged rather disbelievingly and talked instead about the air of constant transformation over the last 20 years. “There is always a crisis,” they said.
They have a point. Even in its current, flush state, the government is forcing through highly unpopular pension reforms: raising the state retirement age to 67 in a country where men, on average, still only live to the age of 72. It is cutting the state funeral subsidy at the same time.
If there is a living symbol in Poland of this never-ending project of reform, his name is Professor Leszek Balcerowicz. Inspired by the free market thinking of the Chicago School of Economics, Balcerowicz was the finance minister who led Poland’s sudden return to capitalism in 1989. On a single afternoon in that October, he and his team at the finance ministry (including a young Jacek Rostowski) unveiled ten laws that would frame the new economy. Balcerowicz returned to steer Poland through the Russian financial crisis in 1998 (introducing the new constitutional limit on government borrowing) before taking over the national bank in 2001. Three years later, the Economist reckoned that his mere presence there—“the Balcerowicz effect”—made it cheaper for Poland to borrow money on the world markets to the tune of around a billion euros a year.
Nowadays Balcerowicz teaches at the Warsaw School of Economics, where he runs a think tank, writes columns for Polish newspapers, and generally harangues the nation to be fiscally prudent. He criticises Rostowski for not being hawkish enough and is scathing about countries that spend money they do not have. “I never understood why Brown was called an Iron Chancellor,” Balcerowicz mused at one point. “I always thought he was an impostor.” Balcerowicz views the rest of his life’s work as the cultivation of a fiscally conservative, “anti-statist” majority in Poland, who will resist the growth of government at all costs.
Balcerowicz sees the sovereign debt crises of southern Europe as excellent material for his ongoing campaign of economic liberalisation in Poland. “The Greeks have done a great disservice to themselves,” he said, “but they have done a great service to other countries. They serve as a perfect warning.”
Not everyone is convinced, however, including the conservative Law and Justice party, whose leaders, the identical twin brothers Lech and Jaroslaw Kaczynski, governed the country from 2005 to 2007 (Lech continued as president until his death in the Smolensk plane crash of 2010 that killed 88 of Poland’s generals, business leaders and politicians). Now in opposition, Law and Justice has used Europe’s dysfunction to raise doubts about Poland’s long marches to both free market capitalism and total EU integration. Playing on traditional fears about German power, the party managed to raise thousands of supporters to protest in Warsaw in December against further losses of Polish sovereignty. (The country is officially committed to joining the euro as early as 2015.) The party is also tapping into new anxieties about the Poland’s increasingly open economy. Income inequality, as measured by the OECD, is higher in Poland than it is in Switzerland and 25 per cent of Polish workers are employed on short-term contracts, the highest rate in the EU. Young Poles, of whom a further 300,000 are forecast to emigrate over the next three years as Germany relaxes its work permit restrictions, call these contracts smiec, or junk, contracts. Popular faith in the Polish miracle is not assured.
Ryszard Petru, an economist at PricewaterhouseCoopers, described the government’s challenge to me this way: to keep on keeping its head above the European waters, Poland must carry out yet another round of economic reforms—raising the retirement age, privatising the energy sector and further loosening the labour market—while convincing the population that there is nothing to be afraid of.
“We are on the safe side,” said Petru. “But there is always a risk that a smart populist could take over.” In which case Poland could slip back into the nationalist, homophobic obsessions of the Kaczynski years that briefly threatened to derail the whole project. “Kaczynski doesn’t speak English,” said Petru, describing Jaroslaw, the current leader of Law and Justice. “He looks odd. He doesn’t have a bank account. He is not driving the car. It is funny, it is so basic. But if you have an Orbán”—here Petru referred to Victor Orbán, the populist Hungarian Prime Minister whose unorthodox responses to the financial crisis have been condemned so far by the UN, the IMF and the EU—“If you have an Orban instead of Kaczynski, he could win, and this is my problem.”
I heard fears that Poland’s quest for “convergence” with the EU, followed to its logical conclusion, could leave it exactly like the countries that it currently stands above. One rush hour in Warsaw, I met a man who gave his name as Robert, a former soldier who now works selling mortgages and financial products for Open Finance, Poland’s largest financial advice company. Using techniques borrowed from fallen economies in the west, Robert told me that he regularly sold long-term savings products—whose value could just as easily go down as up—to Polish savers who did not understand the risks they were taking. “They think they will become rich in 15 years time or pay off their mortgages but it won’t be like that,” said Robert. “My colleagues know that, but nobody tells it outside.”
“And in the future there will be the same things in Poland as there are in the United States and other countries. It is sell, sell, sell: sell more and more to people who don’t actually need it, actually bad products,” he said. “We are a green point in the European Union. Right now we are special but maybe in a few years time we are not.”
Before Robert left the café, he reminisced. “In the past it was a very different country,” he said. “I was brought up in an old block of flats. It was for poor families and I remember in the hall, I would say ‘good morning’ to our neighbours and we would help each other. You know, right now, we don’t even know who lives next door. We have become more and more western, haven’t we?”
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I did not encounter any such nostalgia in Rzeszów, or much anxiety that something Polish is being lost in the country’s grand transition. (Everyone calls the largest monument to communism in the city “The Big Pussy.”) But I did talk to workers, from Zelmer and other companies based in the city, about the feeling of increasing instability in their lives even as Rzeszów grew around them. It was striking talking to people from a country known in Britain for its cheap labour (a factory worker in Rzeszów might earn €2 an hour) about their fears of being undercut in the globalised economy. “We have no economic achievements. We have people,” a supply manager at a Canadian-owned aviation firm just outside the city told me. “They can just take this production plant to Ukraine, or Bulgaria, or Romania… We can end up with nothing.”
To get a sense of how the experience of working in Poland has changed, one morning I went to Zelmer’s old factory in the middle of Rzeszów. At its zenith as a state-owned enterprise in the early 1980s, the company employed 4,000 people and exported vacuum cleaners and kitchen products right across the Soviet Union. Now Agnieszka Grabowska, who had shown me the new plant, led me through cold, still warehouses. The detritus of old production lines lay about like equipment of some long finished military campaign.
Grabowska admitted that the company’s workers had found it extremely painful to leave their old premises. “It was like a small town, and people got used to this town, to this life,” she said. But her patience was limited. “I don’t want to call them stupid,” she said. “But they don’t understand anything about trade.” Grabowska said that Zelmer would probably have had to close in 2005 unless it had undergone its transformation.
The next day I went to meet a family, several of whose relatives had worked at Zelmer over the years. It was Saturday lunch, and the table was heavy with pork chops, mashed potato, sauerkraut and home-made cherry liquor. There were three generations gathered about, and the conversation ranged around all the ways that Poland has changed over the years. But even among the older people—who in Poland frequently pine for the security of socialism—everyone agreed that the country had never been so prosperous. “We used to be under Moscow, and now we are under Brussels!” Said Czeslaw, the father of the family, who was in his sixties. Everyone laughed.
Later, after lunch, one of Czeslaw’s daughters, who earns 1,150 zloty (£227) a month working in Zelmer’s new factory, turned up. She had worked the night shift and her hair was still wet from the shower. She had brought her six-year-old son and talked about the strain of working on the company’s new, state-of-the-art production lines. “There is so much control,” she said. “They have cameras on our lines.” She was also worried Rzeszów might be about to get pulled into Europe’s slump after all: Zelmer was asking workers to take extra holiday and there was a rumour that they might stop making vacuum cleaners altogether for a few months. Temporary workers were being let go. “They plan to fire people,” she said.
But still, her tone was not especially downbeat. It was Saturday. She was surrounded by her family. Poland was getting richer. She had a job. She was earning. I just noticed that she kept using the same word to describe all the different corners of her life. The word was presja—pressure.