The Polish National Cabinet

I would like to welcome you to the Polish Cabinet and to YMGE 2017 with great excitement! We hope that the discussions and debates you engage in through the course of these committee sessions will enhance your understanding of the European Union and its continuing importance in the international stage.

I am a senior in Silliman College originally from the beautiful island of Guam and South Korea. I am double majoring in East Asian Studies and Political Science with a focus on Japan Korea relations. Within YIRA, I have served on the secretariats of YMGE as its President for the 2016 iteration of the conference, YMUN XLI as ASG and USG of Business and Conference, YMUN Korea as Director General of Administration, YMUN China as a chair, YMUN Taiwan as chair, and Security Council Simulation at Yale as a chair. In my free time outside of YIRA, I enjoy studying at one of many different cafes on campus, catching up with friends, and eating at one of the many restaurants here in New Haven. I am honored to be able to serve as your committee chair and can’t wait to meet you all for YMGE this year!

This Cabinet will take us through the problem that is the bleak Polish economic forecast. This is currently a huge problem in Poland, so it is going to take everyone’s effort to come up with some great solutions. As the previous President of the conference I want to let you all know that the resolutions you come up with at YMGE has huge implications. Last year we sent every resolution from the conference for review of the European Union, so what you do at the conference has real implications.

If you have any questions regarding the topic or preparation feel free to email me at mike.yoon@yale.edu! I am excited to meet all of you in November!

All my best,

Mike Yoon

The historical events that most significantly shaped modern Polish history before World War I were the Partitions of Poland between 1772 and 1815 by Prussia, Germany, and Austria. By the end of the 19th century and beginning of the 20th century, Polish heritage was still not represented at the national level due to the geographical separation of the Poles. It was only in 1879, as Patrice M. Dabrowski argues brought about what some considered a miracle: a coming together of Poles that showed no signs of turning into revolution. According to Dabwroski, the Polish status as a national minority in the mid 19th century translated in cultural lethargy that diminished Polish heritage and prevented Poles from desiring to achieve national unity.

Much changed in Poland after 1879. With the advent of the industrial revolution, Russia and Germany were able to tap into the natural resources present at the regions under their control, which expedited the process of urbanization and reduced the importance of aristocracy in Polish society. This process of urbanization was accompanied by the development of emigration patterns in Polish Russia, both from the countryside to cities and from the Polish Russia to North America. Falling prices of grain in the European market as a result of American competition became worse in the following decades. This decline in crop prices, coupled with the emigration of Poles and the process of urbanization, heightened social tensions in urban areas. The ever-growing Polish nationalism bred tension between Poles and other ethno-racial groups, such as the Jews and the Germans.

In this way, Poland oversaw both economic and ethnographic transformations at the end of the 19th century. It was at this time that Poland experienced the emergence of the major political parties and movements that would dominate Polish politics over the course of the 20th century. Józef Piłsudski led the re-establishment of the Polish Socialist Party in 1892 with a platform based on the creation of an independent Republic of Poland based on democratic principles, and public policies such as progressive taxation and equal wages for men and women. Roman Stanisław Dmowski co-founded the right-wing Endecja (National Democracy) movement, which espoused a nationalistic doctrine hostile to Jews and other non-Polish minorities. The Polish Socialist Party and the Endecja movement became two of the major political ideals and would become antithetical to each other over the course of the 20th century. Finally, it is important to notice that after 1900, all political activity was suppressed in the Polish region under Prussian control.

The geopolitical significance of Poland, and the split of the nation between Germany, Austria-Hungary, and Russia meant that it played a crucial role during World War I. Because the country was divided by three nations that possessed conflicting ideologies during WWI (Russia versus Germany and Austria-Hungary), Poland was able to gain political and military leverage with the two conflicting sides that allowed it to push for the unification of the three regions. While Russia recognized the Polish right to autonomy, allowing it to form the Polish National Cabinet, Austria-Hungary allowed nationalist organizations to form in its territory. While Dmowski spent the war years in Western Europe with the intent of persuading the Allies to unify Polish lands under Russian rule, Piłsudski formed the Polish Legions to aid the Central Powers in defeating Russia. Here, it is important to notice that the two major political factions supported different combatting sides of the war with the same objective: achieving Polish unity and independence. In 1916, Austria-Hungary and Germany declared the creation of the Kingdom of Poland (Królestwo Regencyjne), which was to serve as a client state controlled by the German Reich. However, disputes over the territory prevented the creation of the Królestwo Regencyjne. It is estimated that around two million Polish troops fought in the War for all three sides, with around four-hundred and fifty thousand dying, and close to one million being wounded. It was only towards the end of the war in 1918 that Poland was re-established as one independent nation. During the Treaty of Versailles in June 1919, Poland’s independence was confirmed by the victorious powers. However, it was only in March 1923 that the final Second Polish Republic’s frontiers became internationally recognized.

Between 1945 and 1989, Poland became known as the People’s Republic of Poland (Polska Rzeczpospolita Ludowa), a country under the control of the Polish United Worker’s Party, and politically aligned with the USSR. During this period, the country adopted many measures such as land reform and the nationalization of industries, as well as the imposition of economic re-structuring. At the end of the 50’s and beginning of the 60’s, the country underwent a de-Stalinization, which led to economic stagnation. In 1981, the country adopted the amrtial law, which was suspended in 1982, with political amnesty being given to those who were arrested in September 1986. In 1989, Poland entered the period known as the Third Polish Republic, with the round-table talks that were unable to form a communist government. In 1993, the first “post-communist” elections were held, and Poland joined NATO in 1999. In May 2004, Poland became a member of the European Union. Today, the country is run with by a civic-platform led government. While most European nations suffered with the 2008 economics crisis, Poland left it relatively well, mostly because the country is nor a member of the Eurozone.

According to the Polish Constitution (ratified in April 1997), the “legislative power shall be vested in the Sejm and the Senate, executive power shall be vested in the President of the Republic of Poland and the Council of Ministers, and the judicial power shall be vested in courts and tribunals” (National Assembly of Poland 1997). The council of ministers consists of the Prime Minister, the Deputy Prime Minister, and other ministers who are nominated by the President of Poland. Currently, the council is composed by the Prime Minister, the Minister of the Economy the Minister of Finance, the Minister of Administration and Digitization, the Minister of Agriculture and Rural Development, the Minister of Culture and National Heritage, the Minister of the Environment, the Minister of Foreign Affairs, the Minister of Health, the Minister of the Interior, the Minister of Justice, the Minister of Labour and Social Policy, the Minister of National Defence, the Minister of National Education, the Minister of Regional Development, the Minister of Science and Higher Education, the Minister of Sport and Tourism, the Minister of State Treasury, the Minister of Transport, Construction and Marine Economy, and the Chief of the Chancellery.

Historical Polish Economic Integration & Standardization

According to Polish historian Katarzyna Kolodziejczyk, "between 1772 and 1795 the Republic of Poland was split among the empires of Tsarist Russia, the Habsburg monarchy, and emerging Prussia". As a consequence of the partitions Poland disappeared from the map. Only the fortuitous alignment of factors operating at the end of WWI, when all three parts of the emergent nation were weakened through war and revolution, allowed for its eventual reunification. Because of the long period of separation, different institutions had sprung up in the three parts that bore upon all aspects of social, political, and economic life. The government could rely on extensive programs for legal, administrative, and economic unification that had been prepared since 1907 for an eventual reunification. However, the agenda was not guided by any political or economic ‘master plan’, but rather by the ongoing war that Polish troops fought with the Soviet army in the east.

According to Professor Carsten Trenkler, "this war required massive outlays and some mechanism to finance them" because "international credit was not available and Poland was yet to be formally recognized as a state". The political compromise in 1919 relied on early concessions to the socialists on the one hand and observing private property rights on the other. As a consequence, the next step was to create the institutional framework necessary to tax capital and labor or a common currency and a working fiscal administration. The unification of the fiscal administration belonged to the very first institutional changes. A common income tax was decreed in July 1920, but it took several years to implement it in the former Russian territories. Business taxes in turn were introduced and unified throughout the whole territory by July 1921, following the Russian system of business certifications.

Professor Nikolaus Woulf, Professor of Polish History, states that "An important precondition of a functioning tax system would be the creation of a common currency area, namely the unification of the five currencies that were in circulation in Polish territory: the German Mark, the Austrian Crown and the Russian Rouble, as well as the Polish Mark in the Kingdom of Poland and the ‘Ost-Rubel’ on the territory of ‘Ober-Ost." Since the Warsaw government only controlled the Polish Mark, it adopted a stepwise strategy to get rid of the competing banknotes. Some months after the introduction of the Polish Mark as a parallel currency in the different areas, the other currencies were withdrawn. For most of the Polish territory with the exception of Upper Silesia this was already realized. While such a quick institutional change was an indisputable success, it could not create the necessary revenues to win a war. Nevertheless, it opened the way for the Polish government to effectively tax money holders via inflation.

Woulf also states that, "The temporary gains from seigniorage and the devaluation of the budget deficit were quickly wiped out by the costs of hyperinflation, namely the loss of access to foreign capital." When Prime Minister Władysław Grabski tried to stabilize the currency, his specific aim was to link the Polish currency with some foreign currency that had successfully restored the gold standard in attempting to gain access to the international capital market. Indeed, Grabski managed to realize this task with the help of a temporary property tax fixed in Swiss gold francs and several international loans. The nominal exchange rate had been stabilized and a new currency, the Zloty, was fixed to the Swiss gold franc.

According to Professor Carsten Trenkler, Poland after 1919 was characterized by a multitude of barriers to trade, information, and mobility, which may have given rise to border effects. Poland made massive efforts to remove these barriers that had divided the country for more than a century.

Poland's Entrance into the European Union & the Economic Impacts

On May 1, 2014, Poland became a member of the European Union (EU), after a long effort to join this organization. These efforts had been touched off by the international movement of the ‘Autumn of Nations’ that ushered in a transformation of Polish foreign policy, constructing an unprecedentedly pro-Western orientation and striving towards integration with Western European institutions. Formed by Tadeusz Mazowiecki in September 1989, the first non-Communist government set expanding political, economic and cultural relations with Western Europe and the United States as one of the priorities for Polish foreign policy. This approach was referred to as ‘the return to Europe’.

According to historian Katarzyna Kolodziejczyk, Poland established diplomatic relations with the European Economic Community (EEC) in September 1988, and in the following year, on September 19th, it signed the first agreement with the EEC on trade and economic partnership. This agreement was important for the country’s systemic transformation and the crumbling trade exchange within the Council for Mutual Economic Assistance (CMEA). Even though the conclusion of the association agreement between Poland and the European Community (EC) on December 16, 1991 did not provide Poland with any guarantee of future membership, it constituted the foundation for the further development of relations with the EC because it established an institutional and legal framework for long-term economic, political, social, and cultural cooperation.

The Polish application for membership to the European Union was launched on April 8, 1994. Having obtained a positive assessment from the European Commission, Poland was invited to the accession negotiations at the European Council meeting held in Luxembourg. The negotiations were concluded on December 13, 2002, and the Accession Treaty was signed on April 13, 2003. Once the ratification procedure was completed, Poland joined the EU on May 1, 2004 with nine other countries.

More than a decade has passed since then, and Poles quickly got accustomed to EU membership. Polish enterprises have entered into competition with companies from other countries in the single market, employees from Poland seek employment in other EU Member States, students benefit from EU scholarships, and common ordinary Poles cross borders as fully-fledged members of the Schengen area.

Previously mentioned research conducted by a global consulting firm also found that in terms of Gross Domestic Product (GDP), which is the most popular measure of the overall size of the economy, with the value of 413 billion EUR, Poland holds the eighth place in the EU in terms of nominal GDP, after Germany, France, the United Kingdom, Italy, Spain, the Netherlands, and Sweden. Compared to the first five greater EU economies, the gap is immense and virtually impossible to overcome. For example, in 2014, Germany’s GDP in current prices was 2.90 billion EUR. In terms of GDP at purchasing power parity per capita, an indicator used to assess the living standards, with the value of EUR 10,700, Poland holds only the, followed by Croatia, Hungary, Bulgaria, and Romania. This figure is below the EU average, which in 2014 was 27,300 EUR.

Challenges Today and Ahead:

Poland’s Productivity Challenge

According to research conducted by a global consulting firm, Poland's economic success has been impressive but its past record does not guarantee the same level of economic expansion in the future. The growth model underpinning Poland’s success heavily relies on low-to-medium technology sectors with a relatively high share of low-skilled labor. This exposes the country to the risk of the so-called ‘middle-income trap’, where a country’s productivity gets trapped at a medium level.

Productivity is a measure of how well human and technical resources are configured in the production of goods and services. At a national level, this depends on the efficiency with which available resources are utilized, including raw materials, labor, skills, capital equipment, land, intellectual property, managerial capability, and financial capital. With the right investments, higher value added and higher incomes can be achieved for every hour worked. Generally speaking, higher productivity results in higher standards of living for the country’s population. According to data published by the World Bank, Over the past 25 years, Poland has made considerable progress with regard to GDP growth and increased productivity. Since the accession to the EU in 2004, Poland closed the productivity gap with the EU-15 countries by 27 percent. Despite this progress, however, Poland’s comparative labor productivity in 2012 remained low, at 67 percent of the EU-15 average.

A country’s GDP can grow either through an increase in productivity or in labor utilization. The first component measures the contribution per worker as the value of produced goods and services divided by working hours. The second component is a measure of the size of the workforce actually engaged in production as the number of working hours per capita. Poland’s GDP gap with the EU-15 is largely the result of lower productivity. The majority of Polish industries, including agriculture and process manufacturing, are focused at a low point in the value chain, meaning that their products have low value added per unit of labor. Key capital-intensive sectors, such as mining and power generation, have not completed their transformations and are sustaining inefficient levels of employment, using dated operating practices, and freezing out resources from better growth opportunities. The Polish economy remains generally undercapitalized compared with advanced European economies, so closing this gap will mean investing more capital in industry, including for modern machinery and infrastructure The country has an unfounded belief that labor costs will remain relatively low compared with those of the EU-15. This belief can further delay modernization, putting productivity at additional risk. Raising productivity is the key to Poland’s future growth, especially since Poland will likely not escape the negative demographic forecasts for all of Europe. Poland, like the rest of Europe, will be facing a shortage of workers, so now is the time to invest in the modern machinery, branding, and infrastructure that will enable much higher productivity from the smaller Polish workforce of the future.

As shown in the graph above Poland is struggling to find suitable candidates to fill its blue collar workforce. Coupled with looming demographic shifts, which will be discussed later in this topic guide, Poland must find a solution to securing a stable and qualified workforce to boost its productivity.

Demographic Shifts and the Economy

Like many countries across the world such as Japan and South Korea being the two most obvious examples, Poland’s demographic outlook is unfavorable. This is because with an aging population and a better standard of living, the birth rate will drop and life expectancy will increase. According to research conducted by a global consulting firm, "the prime working-age population (15 to 59) is expected to decline by 2.7 million by 2025, and the old-age dependency ratio (population older than 59 to working-age population) will jump from around 29 percent in 2012 to 42 percent in 2025." In the face of these demographic trends, Poland’s budget will come under increasing strain, with a shrinking tax base accompanied by increasing demand for healthcare. Thus, increasing the labor supply and labor productivity are imperatives.

The labor supply in Poland cannot be increased by significantly extending working hours: Poles already work far more hours than their European peers. The average Polish worker works 1,918 hours per year, while Germans work about 1,400 and the European average is about 1,600. At the same time, labor productivity in Germany is considerably higher than in Poland.

According to the same global consulting firm, the imbalance in the labor market will worsen from a low birthrate and greater longevity, which is a hallmark demographic crunch seen in the more advanced economies in the 21st century. Since the beginning of the 1990s, Poland’s fertility rate, the average number of children born to a woman over her lifetime, has been decreasing, and reached 1.26 in 2013. Recent government actions have sought to increase births, including longer parental leaves and easier access to kindergartens. As a result, during the first half of 2014, births rose by 5,600 over the same period in 2013. However, it is important to consider whether this is enough to solve Poland’s looming issues.

The Polish population is aging and the workforce is expected to shrink. Research suggest that, "Seniors (60 and over) are the only age group that will likely grow, while 15 to 59 year olds, the key labor force segments, are expected to experience serious shrinkage. The old-age dependency ratio, a measure of the share of population older than 65 to the working-age population (15– 64), is expected to jump from around 20 percent in 2012 to 30 percent in 2025, assuming no major labor market reforms are implemented." Moreover, the migration balance is negative for Poland, this means that more workers are leaving than coming in. The demographics show no signs of improvement and a shrinking tax base will likely be accompanied by increased demand for social and health services on the part of the elderly. These trends will pose a considerable strain on public funds unless remedial actions are implemented.

Undercapitalization of Industries and Over-Reliance on the EU

According to McKinsey and Company, the ratio of capital, as expressed by net assets, per employee remains very low in Poland compared with EU-15 levels. Most investments in Poland are financed by domestic savings, both household and corporate. However, the share of domestic savings contribution used to finance investments has decreased, from 87 percent for the period 1993–2003 to 80 percent in the past decade. Consequently, financing from abroad has grown in size and importance. In the past ten years, nearly 20 percent of investments in Poland came through FDI and EU funding.

The same research found that, "In the pre-crisis years, until 2008, the contribution of FDI to GDP fluctuated between 2 and 5 percent. After the crisis, however, Poland and other Central and Eastern European countries saw a significant drop in international capital flows. Polish domestic household and corporate savings are relatively low, at around 17.4 percent of GDP in 2012, compared with the CEE average of 21.2 percent."

After EU accession, Poland turned to the open European market as its destination of choice for exports growth. Polish exports grew healthily because of the cost advantages of Polish products, the country’s favorable geographic location, and high European growth fueling demand. The success of Poland’s EU-bound products has been impressive, and this market will rightfully continue to be an area of focus for Polish exports. As the center of gravity of the world economy shifts toward growing economies in Asia and Africa, however, Poland will want to make direct connections with these markets to accelerate economic growth in the next decades. The objective would be to establish a presence and open markets beyond Europe directly to Polish goods so that Polish producers capture the margins, as opposed to merely supplying European exporters.

According to data, since 2006, Polish exports have grown at an average rate of 8 percent per year, with over 75 percent bound for the European Union. As a destination, Germany was the leading recipient, importing more than three times the share of the United Kingdom, the second-place country. Exports to countries outside the EU, meanwhile, account for less than 25 percent of the total, with only 7 percent bound for the Middle East, Asia, and Africa, the eastern growth engines
of the global economy. To outgrow Europe, Poland needs to connect with the world’s most dynamic economies directly by expanding exports to the new growth regions, establishing new international brands, and capturing additional margins on domestically produced goods.

Poland’s Productivity Challenge

Who are the different stakeholders in solving this issue?

How is education related to increasing productivity?

What pieces of legislation are currently in place and what pieces of legislation are missing?

What are some lessons from other countries that are facing similar issues that Poland can follow?

Demographic Shifts and the Economy

What are different sectors other than the economy demographic shifts will influence?

What is causing the declining birthrate and aging population?

What pieces of legislation are currently in place and what pieces of legislation are missing?

What are some lessons from other countries that are facing similar issues that Poland can follow?

Are economic incentives a feasible option?

Undercapitalization of Industries and Over-Reliance on the EU

How is this challenge related to the productivity issue?

What industries are unique to Poland that may be attractive to foreign markets outside the EU?

Does Poland have the infrastructure to expand its export network?

What are the laws regulating trade in Poland, especially as they deal with non-EU markets.

Further Questions

What cultural and historical factors are unique to Poland that may influence these issues?

What role can your ministry play in the matters above?

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McKinsey and Company, “Poland 2025: Europe’s New Growth Engine”

"Poland - The Historical Setting," University of Buffalo. 

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