Poland, long an economic success story, losing momentum

WARSAW — Michal Ruminski was 6 when his father took him through a local supermarket here. The store shelves were empty, except for some bottles of vinegar, but that was precisely the point. His father wanted the young boy never to forget the deprivations of living in a backward communist state.

Today, streets once patrolled by soldiers and armored vehicles now teem with trendy cafes and tony boutiques, not to mention grocery stores filled to bursting.


And Ruminski, now 39, as managing partner of a venture capital firm, can provide his wife and his own 6-year-old son all the comforts of life. Their family vacations have included Africa, Turkey and the Caribbean islands.

"We can afford to buy him anything," Ruminski said recently upon returning from a business trip to Chicago, home to the largest Polish diaspora.

More than three decades have passed since a strike at a Gdansk shipyard touched off a regional revolution, leading to 18 months of martial law in Poland and setting the stage for the eventual collapse of communism.

With the fall of the Berlin Wall in 1989, Poland and its neighboring Soviet bloc states underwent a historic shift, embracing democracy and a market-based economy. Since then, Central Europe has been transformed by those political and economic reforms. And no former Soviet bloc nation has shined as brightly as Poland.

Poland's economy typically grew 4% to 5% a year. Even in the midst of the worldwide recession in 2009, the nation pushed ahead with growth of nearly 2%.

Now, however, Poland's economy, like that of its neighbors, has slowed. It faces many of the same problems bedeviling Western Europe and the United States — chronically high unemployment, aging populations and a sense of losing its way on the road to greater prosperity.

The Polish government is considering an overhaul of the nation's educational system, moving away from a U.S.-style focus on general studies to more of a German model emphasizing apprenticeships and vocational programs.

And Poland is making efforts, with European Union support, to modernize a transportation network that hasn't been upgraded since its days as a Soviet state.

Ryszard Petru, an energetic, widely known economist here, ruefully talks about his frequent trips to Wroclaw, a major industrial and cultural hub about 225 miles from Warsaw. "It takes five hours or longer by train and car; should be three hours," he said, speaking in fluent English. Though it's expensive, Petru said, he now has to resort to flying.

Whether Poland can keep up its success matters to the U.S., and not just because Americans like the imported Polish hams.

Long a key NATO member, Poland has been one of only a few allies that over the years has met or come close to the target of military spending of 2% of its overall economy. Given its location bordering politically volatile neighbors in Eastern Europe, Poland's stable democratic government plays an influential role in less-developed countries such as Ukraine and Belarus.

Poland's importance has increased as it has grown to become, by some measures, the sixth-largest economy in Europe, ahead of Belgium and Austria.

In a visit to Warsaw last week, Secretary of State John F. Kerry compared Poland's rapid rise to the economic rebirth of South Korea. He said he was looking to Poland to help the U.S. and the EU forge a trade pact, something that both sides said could sharply increase the flow of goods and investment.

"The impact of Poland is really felt now throughout the transatlantic community," Kerry said at a news conference with Polish Foreign Minister RadosBaw Sikorski.


Yet to some extent, Warsaw has drifted from the U.S. as its center of gravity has shifted more toward Western Europe and the EU, which it joined in 2004. Although Poland has yet to adopt the euro — which turned out to be a blessing in disguise as control over its currency helped the country during the recession — Poland counts on the EU for billions of dollars in development assistance.

And more than ever, Warsaw takes its political cues from Brussels and Berlin rather than from Washington.

The shift in Poland's orientation partly reflects a series of what many Poles have viewed as snubs by Washington, including weaker-than-sought defenses in Poland along the Russian border and as yet no visa waiver for Poles who want to visit the U.S. for tourism or business. Then there are the economic relationships.

Although U.S.-Polish trade has quadrupled in the last decade and some of the biggest American names have invested here — Goodyear, IBM, Google and Citibank — these commercial links pale next to Poland's growing interdependence with Europe, particularly powerhouse Germany.

Besides being Poland's biggest buyer of craftsman furniture and other manufactured goods, Germany has plowed investments into the country for lower-wage production of car parts and other intermediate goods, bolstering Germany's profits and linking Poland into its global supply chain.

"German companies very quietly ran at full blast [in Poland] while reducing production at home," said Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington.

But as Poland has become richer, the country, like much of Central Europe, is facing greater competition from lower-wage countries and greater urgency to fix long-standing structural problems, such as low research spending and regional disparities.

"The critical thing is that Central and Eastern Europe has reached a ceiling," Aslund said. "They're now in a middle-income trap."

As in the U.S. and most countries in Europe, one of Poland's biggest challenges is high joblessness. Its youth unemployment rate was over 26% last year, higher than the neighboring Czech Republic and Slovenia and triple Germany's 8.1% figure for workers 15 to 24 years of age. The comparable U.S. youth jobless rate was 16.2% last year.

"Now we're stressing skills, not diplomas," said Jan Rutkowski, the World Bank's lead economist in Warsaw.

Although he and other experts see Poland's economy expanding more slowly in the years ahead — the International Monetary Fund's forecast calls for 2.4% growth in 2014 — Poles are more optimistic about the long term.

Economist Petru noted that Poland has an excellent entrepreneurial tradition. Even during the communist years, he said, Poland was different from other Soviet states in that many peasants operated their plots less like collectives and more like private farmers, selling their meat and crops in black markets.

Poland's economy today is dominated by small businesses, and like manufacturers in northern Italy and Los Angeles, Petru said, they compete by specializing in small lots and offering quick turnaround and flexibility.

Ruminski, the venture firm partner, recalled an old joke that "Poland was the happiest barrack in Soviet bloc" — a reference to the relative liberalization in Poland compared with other communist countries. In many ways, he reckons, it still is.

"Polish entrepreneurism is one of our strongest cultures," he said, sitting inside a sleek coffee shop downtown with a good view of the new 54-story sail-shaped tower designed by American architect Daniel Libeskind. "It's time for Poland to introduce Polish innovation. This is the next stage."