TOO GOOD FOR EUROPE:

Poland And The EU: Will the dynamic Poles energize Europe or sink into a bureaucratic, slow-growth trap? (David Fairlamb with Bogdan Turek, 5/10/04, Business Week)

[T]here are two Polands vying with each other today, and which one prevails will determine the success of Poland's EU experiment. One is the Poland of scrappy entrepreneurs, hardworking, well-educated factory hands, and eager foreign investors who have poured around $70 billion into the country in the past 14 years. This is the Poland that could give Europe a shot in the arm and shake up things in Brussels -- by forcing the EU to meet sharper competition from the new members. The other Poland is a quasi-dysfunctional political system grafted onto a communist-era welfare state and form-happy bureaucracy. This is the Poland that makes applicants wait up to 230 days to set up a business. The Poland with the biggest budget deficit, as a share of GDP, in Europe (it could hit 7.5% this year). The Poland that cannot even build a decent road from Warsaw to Gdansk. "It's hard to imagine anything worse than the Polish bureaucracy," says Piotr Bielski, an economist at Bank Zachodni WBK in Warsaw. The idea of this overbearing system merging with the faceless bureaucracy in Brussels makes many informed Poles worry whether they can keep up their record of growth and transformation. "The EU offers a chance for us, but it gives no guarantees," says former Finance Minister Leszek Balcerowicz, who now heads the National Bank of Poland.

There are precedents for a happy entry into the EU from which Poland is trying to learn. Spain boomed after joining in 1986 because successive governments spent the funds they received from the EU shrewdly, restructured state finances successfully, and continued to liberalize and deregulate the economy. The results were rapid growth, rising living standards, and, after a period of painful restructuring, lower unemployment. Spain's per capita GDP is now about $22,500, almost 90% of the EU average. Polish GDP per capita, in contrast, is less than $6,000. "If we could do what the Spanish did, I'd be very happy," says Janusz Onyszkiewicz, senior fellow at the Center for International Relations in Warsaw and a former Defense Minister. But Poland could just as easily go the way of Greece, which wasted billions in EU subsidies on propping up state-owned companies.

The Poles know the economic challenges. But they see EU membership as a way to reclaim their historic place at the heart of Europe. Although Poland ceased to exist as a country for more than 120 years after being divided up among Russia, Prussia, and Austria in 1795, it has traditionally been a powerful, creative force in the Old World. Poles still proudly recite their countrymen's historic and scientific achievements. Europeans thought the earth was the center of the universe before the great 16th century astron- omer, Nicolaus Copernicus, a Pole from Torun, proved otherwise. When Western civilization was threatened by Turkish and Tatar invaders in the late 1600s, Polish King Jan III Sobieski came to its rescue with an army that destroyed the Ottoman forces at the Battle of Vienna in 1683. The first woman to win a Nobel prize was Poland's Maria Sklodowska Curie, who discovered radium in 1898. "Poland is returning to the mainstream of Western Europe by joining the EU," says George Swirski, a director for Central Europe at Advent International Corp., the global private equity firm that has recently moved into the Polish market. "That's something that resonates in the Polish soul."

Why risk it? Join your natural ally: America.

Posted by Orrin Judd at May 4, 2004 11:54 AM