Poland catching up to Germany

average earnings in Poland reached 23.5 percent of the EU average, while in 2016 it was as much as 34.4 percent. Nevertheless, assuming that the current trends are maintained, in 2023, earnings in Poland will be higher than in Portugal and a year later they will be higher than in Greece. In 2027 they will reach the level of Malta, and in 2030, the level of Spain. In 2053, Poland will reach the average level in the eurozone, if economic trends remain unchanged. And finally, in 2077, earnings in Poland will overtake Germany. The calculations are based on the assumption that salaries will continue to grow at the same pace – 4.53 percent in Poland and 2.65 percent in the EU. One disadvantage of this model is that economists take into consideration average data from the past, while the future remains invariably unknown.

To some extent, Poland’s economic pursuit of the West can be compared to the famous paradox of the Greek philosopher Zeno, who described the race of Achilles and the tortoise. Achilles, being the fastest among runners, gives the tortoise a head start and begins the race a few meters behind it. In order to overtake the tortoise, the runner must first reach the place from which the tortoise started. By this time, however, the tortoise will have moved ahead. Achilles will cover this distance again, but the tortoise will be able to move a few centimeters forward at the same time... and so on and so forth. According to that train of thought, Achilles’ pursuit of the tortoise will last forever. Achilles will never catch up with the tortoise, even though he is running two or ten times faster – and there will always be an ever declining distance between them. It is worth noting, however, that Aristotle, to whom we owe the depiction of Zeno’s paradox, formulated it with the intention of disproving it.

QUANTITY OVER QUALITY?

Again, chasing German GDP levels does not directly translate into raising the quality of life for Polish citizens. In particular, it can be seen that these differences become smaller when we pay attention to other indicators. For example, according to Better Life Index, Poland is ahead of some of more affluent countries, e.g. South Korea and Portugal, almost catching up with Italy. It is important, because in recent years the government declared that GDP growth is not the most important criterion that the country’s policies will be guided by. And this is visible in the increased social transfers such as the additional 13th pension payment, or the extended 500+ program.

The most powerful economies in the world have built their power on the wealth of society, basing their systems on free market solutions with a low share of government expenditure in GDP. According to economic theory, when fiscalism and state participation in income increase and the free market becomes more limited, economic growth slows down. By that token alone, in order to accelerate the catching-up process, the country would have to consistently focus on economic freedom, and not on building a welfare state. Nonetheless, Joseph Schumpeter, one of the greatest economists of the 20th century, claimed that it is unrealistic, because all countries, as they become rich, abandon some of their economic freedom in favor of greater security and a fairer income distribution, at the cost of lower economic growth.

Regardless of whether Poland will catch up with Germany or not, Poles already earn as much as Germans, provided they work in the West. Employers all over the world values professionals, regardless of their nationality. Perhaps this is the work-valuing, meaningful system of thinking that Nisbett wrote about – a system that can convince people from both the East and the West to take a critical look and verify their own beliefs.

“Germany is an ideal to which the Polish economy aspires, on the other hand, in a certain sense, it looks like

Poles have a German hang-up

This year, Poland is celebrating 100 years since it declared independence after World War I. The past century has featured both successes and hard times, in every aspect of life

BY SERGIUSZ PROKURAT

The Family 500+ program was introduced in 2016 after the Law and Justice party (PiS) won the parliamentary elections in fall 2015. Today it is the government’s showpiece, giving the party strong social support. However, when the program came into force, many people, including PiS voters, were disappointed with its form. It turned out that the pro-demographic program covered only the second and subsequent children in the family, and for the first child the money would be paid only in cases where parents met a certain income criterion of PLN 800 (ca. €190) per family member. This year, months before the next election, the government announced that the 500+ program is to apply to every child under the age of 18, without exception. The income criterion has been lifted. Nevertheless, the announcement that the 500+ allowance would cover all children has become a hot topic, in some cases even more so than its original, limited version.

As much as PLN 67 billion has been dedicated for the implementation of the 500+ program over the last three years. According to government data, parents of 3.6 million children have taken advantage of the program. No expert, however, is in any doubt that the 500+ program is more than just about demographics or helping the poorest – this program has additional goals; both political and economic – and it was aimed at achieving far more extensive results in these fields.

Can you pay people to have children? Yes, you can! Just like you can pay students for better grades. The purpose of a school experiment conducted several years ago by four economists: Steven Levitt, John List, Susanne Neckermann and Sally Sadoff, was to test whether certain incentives – monetary or non-monetary – make children improve their test results. During the experiment students were informed that if they improved their score they would receive a reward – either a financial reward ($10 or $20) or a trophy. Did it affect the results achieved by students? In general – yes. It was the financial incentives, in particular, that had a positive impact on test results. And the amount of the prize was a significant factor.

OPPOSITE EFFECTS?

On the other hand, are Poles going to be more willing to have more children if their financial comfort improves? After all, the relationship between the affluence of countries and fertility has long been established: there are more children in poorer countries.

If we look at the effects of the program in 2016-2019, they don’t give a lot of cause for optimism. The pro-demographic plans of the Polish government after the implementation of the program were very ambitious. And in fact, in 2016-2017, Poland saw a slight increase in the number of births, but in 2018 there was a decrease. In 2018, 388,000 children were born, which is 13,000 fewer compared to the previous year. There is practically zero chance of going back to the level of 413,000 births recorded in 2010, not to mention 550,000 at the beginning of the transformation, or 700,000 in 1980. In other words, the Family 500+ program may have failed at achieving its primary goal, which was to increase the birth rate and improve the country’s demographic situation in the long run. It is equally unlikely that the extended 500+ will manage to reverse the trend. Currently, the fertility rate (about 1.3) is far below the threshold of generational replacement (2.1). Just like many developed countries, Poland is heading for a major demographic shift, if not a disaster.

POVERTY AND LABOR MARKET EFFECTS

If we consider Family 500+ a social program, it actually does eliminate poverty among the most disadvantaged. The Economist estimated a few months ago that more than two years after being implemented, the 500+ program has reduced the number of children living in extreme poverty from 12 to 3 percent, which in and of itself is a remarkable feat.

Unfortunately, the side effect is that the extra income has pushed some women out of the labor market. It is, however, difficult to determine how many. Estimates from IBS Institute researchers show that almost 100,000 women may have decided to give up work. Withdrawing from the job market does, in the vast majority of cases, mean that women who have struggled to balance work and family care have been relieved from at least some of their burdens. And children having a full-time, stay-at-home mother is not a bad thing.

COSTLY ENDEAVOR

The 500+ program is the most expensive social program in Poland’s history. The annual cost after extending the scope of the 500+ program to cover the first child is PLN 42 billion per year (€10 billion), or a tenth of the Polish budget (PLN 416.1 billion in 2019). This is as much as the entire GDP generated by all citizens of Mongolia or Nicaragua. Even space flights are much cheaper. This cost per one working citizen amounts to almost PLN 2,500. It means forcing tax increases and/or reducing other state expenditures. Some experts claim that a significant part of this money will return to the state budget in the form of VAT. Others believe that the program triggers inflation, resulting in higher prices of basic commodities such as potatoes or bread. So far, we have no reliable data that would prove any of these viewpoints.

A BLEAK SCENARIO

Too few children can be socially expensive, assuming that there are no immigrants. At the current pace of depopulation, it seems that Poland is facing a population loss of 2 million by 2035, being the result of fewer births and mortality of older people, and it will overlap with trends as obvious and natural as the aging of those who are working today. So, although the population will be smaller by 2 million, the working-age population will decrease by almost 4 million, and the number of pensioners will increase by another 4 million. So the number of those who rely on social benefits will double. If the current birth trends are maintained, in 50 years almost 40 percent of society will be past productive age, and another 14 percent will be children unable to work yet. Poland will at that point have the lowest percentage of young people in relation to the eldest (over 65 years of age) in Europe. The problem is real, and it will become quite evident, but only within 15-30 years.

The 500+ program will not change this irreversible trend. People in rich countries put off having children because they want to spend their youth on activities other than raising children. Nevertheless, the later we start having children, the fewer members of the family there are. And they are born later because of a prolonged education process and changing aspirations. This especially applies to women, who are culturally burdened with the duty to care for children, often unable to balance full-time work with childcare. It looks like economic growth is the best contraceptive, and it is proving to be more effective than the state incentive to get a bonus check for having children.