How Poland Became Europe’s Most Dynamic Economy

feat_Poland49__01__630x420Reprinted from BusinessWeek.

The oldest coffee shop in Warsaw has been in operation nearly without interruption since the end of the 18th century. In the upstairs room, a young Frédéric Chopin played one of his last concerts before emigrating to Paris. During the Nazi occupation from 1939 to 1945, the cafe was strictly for Germans. When the city rose up at the end of the war, the building, like much of the old city around it, was completely destroyed—then reconstructed from photographs in the years following. The cafe was state-owned under communism and privatized in 1989 after the fall of the Iron Curtain, sold to a journalist and a jazz musician. “And now,” says Polish businessman Adam Ringer, sitting in the cafe in early October, “it’s been bought by an international company.”

Ringer, 64, reopened the cafe earlier this year under the name Green Caffè Nero, a coffee chain co-owned by Ringer, another Polish partner, and the U.K.-based chain Caffe Nero. “Here you have the whole history of Poland,” he says. “Look at that wall. Each brick is different. They were gathered from the ruins of prewar Warsaw.” Although they’re always aware of the past, Ringer and his countrymen are charging ahead. Revenue at most of his chain’s locations is up 10 percent from the year before, and the company is in the midst of a rapid expansion. “People are much richer than they were, and you can easily feel it,” he says.

With much of Europe still struggling to recover from the impact of the 2008 financial crisis, Poland stands out as an unlikely island of economic success, a place where companies and individuals plan for growth rather than decline. In 2009, when the gross domestic product of the European Union contracted by 4.5 percent, Poland was the only country in the union to see its economy grow, by 1.6 percent. The EU economy as a whole remains smaller than it was at the beginning of 2009 and isn’t expected to recover its losses until the end of next year. In that same period, Poland is projected to enjoy a cumulative growth of more than 16 percent. “Poland didn’t feel the crisis, really,” says Ringer.

There are various reasons Poland, a country of 38.5 million with more than 200 years of tragic history, suddenly finds itself in a position of envy. It has a large internal economy, a business-friendly political class, and the hypercharged potential of a developing country catching up with its western peers. It is playing an increasingly influential role in EU negotiations, often providing a voice of restraint during discussions on how to rebalance an off-kilter euro zone.

The secrets of Poland’s resiliency trace back to the postcommunist era, when its leaders pushed through a set of painful but ultimately effective reforms. Two decades later, the country benefited from an infusion of foreign assistance at the precise moment other EU members were getting clobbered by the financial crisis. The story of the Polish miracle is a testament to the importance of prudent policymaking—but it’s just as much about luck.

“I remember how it was 20 years ago,” says Ringer. “Gray, dirty, with nervous people, always running.” The street outside his cafe, until recently a tarmac thoroughfare, is now a narrow cobblestone lane flanked by wide sidewalks, where in the evening tourists mingle with students from the nearby university. A 20-minute walk away stands what was once the headquarters of Poland’s Communist party, squatting over a small city block. From 1991 to 2000 it was home to the Warsaw Stock Exchange. Today a Ferrari (F:IM) dealership neighbors a Montblanc outlet.

Since the fall of the Iron Curtain, Poland has refashioned itself as a model of free-market economics. From 1989 to 2007 its economy grew 177 percent, outpacing its Central and Eastern European neighbors as it nearly tripled in size—the result of a series of aggressive measures taken by the government after the collapse of communism. Price controls were lifted, government wages were capped, trade was liberalized, and the Polish currency, the zloty, was made convertible. The policies left millions out of work but freed Poland to begin to recover from decades of mismanagement. The economy got a further boost with the country’s entry into the EU in 2004.

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