How to avoid the middle-income trap: Lessons from Poland, a European Tiger (Enrique Aldaz-Carroll, Rogier van den Brink, Emilia Skrok, 12/24/18, Brookings)

Over the last two decades, Poland experienced the most stable high growth in the EU, increasing the size of its economy by two and a half times and raising incomes. In 1994, the Poles had one-fourth less income than the Mexicans did. By 2014, the incomes of Mexicans had grown annually at about 0.9 percent (to $16,300); whereas Poles saw their incomes grow annually at 4.2 percent (to $25,000). In only 20 years, a Pole had become 50 percent richer than a Mexican. [...]

1. Governing

It is important to get the institutions right--economic but also political--and guide reform with a shared vision. What sets Poland apart from the Asian Tigers is that it sustained its high growth with a vibrant democracy--one that supported a shared vision of a socially responsible market economy. Such a vision facilitated remarkable policy continuity spanning 17 governments since democratization. Reforms were sequenced effectively. Rapid liberalization was quickly followed by the creation of a support structure of basic democratic institutions at the local and national level. This support structure, together with the use of EU accession as an anchor, helped create a political consensus for deeper economic institutional change. And the inclusive political institutions at all levels of government also made the Poles pay their taxes, something other transition economies often struggle with but is a key pillar of sustainable public finances.

2. Sustaining

Ensuring macroeconomic stability is key to keep inflation and debt under control. Poland did this through a rules-based but flexible fiscal framework that limited deficits and debt, and a flexible exchange rate backed up by a credible inflation-targeting monetary policy. Poland's effective restructuring, regulating, and supervising of the financial sector also ensured that banking crises were avoided.

3. Connecting

Integrating domestic markets into global markets helps increase firm competitiveness. Poland did this through rapid, but sequenced, integration: cutting tariffs first to help markets "get the prices right," then tackling the more complex soft infrastructure in advance of EU accession, and finally making the most of EU hard infrastructure funds to connect domestic and external markets. Poland welcomed foreign direct investment enabling its domestic firms to participate in global value chains and exposed them to the global markets, which provided access to quality inputs, capital goods, and technological transfers.

End History; succeed.