POLAND: REFORM OR DIE

In Poland, the liberal Civic Platform won the very recent elections by a narrow margin ahead of socially conservative Law and Justice (here, here, here, here and here).

The current economic and structural picture in Poland is mixed. Despite the great impact of the stabilization and market liberalization on economic performance in the past 17 years, Poland, as well as other Central European countries, maintained a high level of public spending in the share of the GDP. Poland scores low on Corruption Perception Index with a rampant track on the overall corruption. The index is measured on the scale between 0 (highest) and 10 (lowest). Poland slumped from 4,6 in 1998 to 3,4 in 2005.

The reason for such persistent corruption is the fact that Poland's government spending has not fallen below 40 precent of the GDP yet. In turn, higher level of spending and more extensive government and public administration negatively affect the overall capacity of the economy to operate and sustain robust growth subject to convergence process.

As a positive thing, under previous government, the burden of government size and spending was reduced, which was an additional influence on Poland's 6-7 percent economic growth rate, which is still low on Eastern European average. One of numerous disadvantages of the government chaired by Law and Justice was a an assertive foreign policy and a brisk growth of populism, curtailing individual liberties through the coercive dogmas of Catholic values, in addition to the enforcement of protectionism and criticism of free-market views based on the doctrine primarily adopted by socialist movements.

Civic platform's leader Donald Tusk pledged to accelerate the privatization of state-owned assets more rapidly and energetically as previous government did. He also pledged to adopt replace the current progressive income tax with 19 percent flat income tax. Polish economy is doing well at the moment driven by strong foreign direct investment and solid export performance. Mr. Tusk's also promised to reform Poland's wasteful public finance, inefficient and oversized bureaucracy and a lagging infrastructure.

A victory of Poland's now-leading party inspired by liberal political views might play a crucial role in building and implementing a reform agenda as a sign of relief with positive impacts on overall growth foundations such as reduced tax burden and an active fight against corruption through reducing the size of government and improve the inadequte public administration.