Poland: From Tragedy to Triumph

Orenstein_Poland

Source:  Foreign Affairs, Full article:  www.foreignaffairs.com/articles

Anyone who knows Polish history cannot help but marvel at the country’s emergence from the ashes of its traumatic past. Over the last 25 years, Poland, after centuries of war and subjugation, has enjoyed peace, a stable and booming economy, and integration with the rest of Europe.

The Polish economy has grown rapidly for two decades — at more than four percent per year, the fastest speed in Europe — and garnered massive investment in its companies and infrastructure. Poland’s is now the sixth-largest economy in the EU. Living standards more than doubled between 1989 and 2012, reaching 62 percent of the level of the prosperous countries at the core of Europe. All of this led the World Bank economist Marcin Piatkowski to conclude in a recent report that Poland “has just had probably the best 20 years in more than one thousand years of its history.”

Part of what makes Poland such a good place to invest today is the depth of the bond it has forged with Europe’s leading economy. The relationship benefits both countries. A large part of the German export machine is now based in Poland. Poland gets German investment and markets for its goods, and Germany profits from the opportunity to use Poland as a low-cost, high-quality production platform to compete with East Asia. Indeed, some German industries are able to produce goods in Poland for less than what they would cost to make in China. And Poland offers Germany a friendly business climate, plenty of skilled labor, and, above all, proximity.

Germany owes much of the success of its automobile industry to its eastern neighbor. At its factory in Poznan, Volks­wagen employs 6,900 workers who produce intake-pipe modules, cylinder heads, and steering-gear housings, as well as 155,000 commercial vehicles each year. The MAN Group employs 4,000 workers in Poland who build heavy trucks, city buses, and bus chassis at three different factories. Cars and automotive components are now Poland’s leading export, despite the fact that the country has no internationally known brand; a large share end up as German marques. The same holds true for industries as diverse as household appliances and clothing; the German fashion house Hugo Boss, for example, produces its shoes at a factory in the Polish city of Radom.

Because Poland is now a key part of the German supply chain, it has become a great exporting economy — exports now make up 46 percent of its GDP. A recent Morgan Stanley report estimated that 30 to 40 percent of Poland’s exports to Germany now end up as German exports to the rest of the world. This interdependence explains why Germany is by far Poland’s largest trade partner, buying or selling 25 percent of Poland’s exports and imports, which total about 12 percent of the overall Polish economy.

None of this could have happened if the German-Polish relationship were not embedded in the broader EU. Since Poland joined in 2004, the EU has done wonders for it and the rest of eastern Europe, ensuring democratic freedoms and administrative reforms and helping the region liberalize its markets. In the last decade, the EU has invested nearly 40 billion euros in Polish infrastructure, building the autobahns that Poland never had; replacing its outmoded, overcrowded, and often deadly two-lane highways; renovating its decrepit train stations and train lines; cleaning up its rivers; and setting up broadband infrastructure. In the process, Poland has become Europe’s biggest construction site. Between 2000 and 2013, the aggregate length of Polish highway and express roads grew fivefold, dramatically reducing the cost and the time it takes to transport goods to the west. And the benefits should keep coming: between 2014 and 2020, the EU is expected to pump 106 billion more euros into the country. That infusion of cash will equal nearly two percent of Poland’s annual GDP, a level of funding similar to what Washington provided to Europe under the Marshall Plan.

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