Lessons from Poland: Reflections by Leszek Balcerowicz

Central Europe Digest

Posted: 30 November 2007

by Dr. Leszek Balcerowicz

The results of last month’s parliamentary elections in Poland have been widely commented on with reference to developments exclusively in Poland. I would like to offer some broader observations.

Many governments waste good economic times by putting off reforms necessary for building stronger foundations for prosperity. The Law and Justice (PiS) government that came to power in Poland in the autumn of 2005 inherited a fast-growing and well-balanced economy but did nothing to strengthen these positive legacies: privatization was blocked, while fiscal reform and deregulation of the economy took place only on paper. This government combined neglect of market reforms with “anti-reforms” hailed by its own propaganda as building the “new Poland.”

PiS attacked the separation of powers – as embodied in the constitutional tribunal and independent central bank – as obstacles to building a “strong” state. The publicly-owned media was captured by the ruling party, the general prosecutor’s office was politicized and, through the media, made into a tool of party propaganda. The goal was to vindicate the party in its presentation of Poland as a country ruled by hidden and malicious forces known as the układ, which PiS claimed had robbed and cheated the Polish people.  Real problems – e.g., the bloated public sector, excessive taxation and overregulation of the economy – mattered little. Instead, the układ was the internal enemy that had to be exposed and eliminated; once that was done, prosperity and justice would prevail.

Anyone who disagreed with this diagnosis, or who criticized the methods employed by PiS and its leader, Jarosław Kaczyński, was promptly denounced as a member of the układ. PiS spared no critic; it even ruthlessly attacked such national heroes as Lech Wałęsa and Władysław Bartoszewski (“Poland’s Mandela”). Any rich entrepreneur could easily be branded an “oligarch.” In short, Kaczyński's party brutalized the public discourse in a way that prevented any reasonable debate from taking place.

But these developments have nothing to do with Polish exceptionalism. A brief look at U.S. history shows no shortage of dangerous demagogues in politics. In Europe, Jörg Haider's Freedom Party was until recently quite successful in Austria. Jean-Marie Le Pen made it to the second round of presidential elections in France in 2002 on a far-right nationalist and populist platform. Extremist forces can disrupt a democracy virtually anywhere. 

Let us reflect upon the conditions under which political upheavals of this kind occur and, second, on how to safeguard against them. In both cases, the Polish case may offer some lessons. Contrary to popular cliché, PiS’ electoral victory in 2005 did not result from “reform fatigue,” since few reforms were implemented during 2000-2005 (one exception was an ambitious but partially blocked attempt to reform public finance). Attributing electoral outcomes in other Central and Eastern European (CEE) countries to anti-reform sentiment is also dubious; factors other than reform fatigue were important in these elections. In Slovakia, reformist leader Mikuláš Dzurinda, who was reelected in 2002 after implementing a tough stabilization program, could have continued to govern after the 2006 elections, had it not been for disagreements within his own coalition. In the Czech Republic, a reformist government won the 2006 elections, and, in neighboring Hungary, political divisions rather than reform fatigue have tended to dominate electoral campaigns.

I am not saying that it is easy for reformers to win elections. The opposite is usually true: reforms are generally undertaken either when the signs of an impending crisis are so strong that they become difficult to ignore, or after a crisis has done its educational work. (On the other hand, if a crisis follows reforms, populist politicians may rise to power by blaming the reforms, instead of their incomplete nature. This appears to have been the case in Argentina under Kirchner). My point is that reformers can win elections if they can beat the populists at getting their message across. This is often an uphill battle - bad policies are usually easier to sell than good ones. But anti-reform sentiment is not a good explanation for recent electoral outcomes in CEE countries.

In Poland, the main factor behind PiS’ 2005 victory was the corruption issue. Two years earlier, a corruption scandal (called Rywingate in Poland) put corruption at the center of public attention. The theme received a large amount of media attention and was hyped by political campaigns. While all of Poland’s political parties jumped on the anticorruption bandwagon, Law and Justice was much more successful than the others. PiS captured the anticorruption ticket and strengthened its appeal, linking it to the party’s obsession with hidden forces that allegedly pervert Polish society, undermine democracy and cause all individual misfortunes. If not for corruption becoming a defining public issue, the results of the 2005 elections would most likely have been different.

PiS played the anticorruption card even more strongly during last month’s snap parliamentary elections. During a special press conference, aired live on state television a few days before the elections, the head of the government’s newly-established Central Anti-Corruption Agency leveled accusations of corruption against a candidate from PiS’ main rival (Civic Platform, or PO). Regular programming was interrupted as if these developments were breaking news, even though the accusations were already widely known a month before the press conference.

The anticorruption card was an effective instrument for PiS in 2005 and could have been effective again this year if not for the party’s excesses, a very good public debate performance by PO leader Donald Tusk and an unprecedented mobilization of civil society organizations urging people to vote. As a result, electoral participation increased by almost 15 percentage points compared to previous elections, handing victory to PO.  Just 9 days before the elections, however, PiS had been in the lead, and though the party ultimately lost, more people voted for PiS than two years ago.

To criticize anticorruption campaigns is risky business as one can easily be accused of neglecting the dangers of corruption. Let me therefore present my anti-corruption credentials: as a Deputy Prime Minister in 1999, I was the first Polish politician to ask the World Bank to prepare a report assessing corruption and suggesting ways to eradicate it. In my public activity, I emphasized the importance of eliminating discretionary regulations as the main source of both inefficiency and corruption. But being against corruption should not blind us to the dangers of political demagogues hijacking the anticorruption ticket. When dealing with corruption, as with most other policy issues (e.g., terrorism, immigration), we should be wary of the law of unintended consequences. This seems to be the case in Poland. As a result of heavy media publicity, the popular perception of Poland, both at home and abroad, is of a state suffering from endemic corruption.

But most observers, including the Polish public, confuse the perceived corruption with its actual extent. Available measures of actual corruption in Poland suggest that it was lower in 2005-2006 than at the turn of the century. In other words, actual corruption was already on the decline before the Kaczyński twins were elected to office. For example, the index of the frequency of paying bribes, calculated by the World Bank and the European Bank for Reconstruction and Development (EBRD), fell from 2.7 in 1999 to 2.03 in 2005 (a score of 1.0 indicates a minimum level of corruption). Furthermore, the estimated corruption tax (the percentage of sales paid in bribes) declined from 1.22 percent in 2002 to 0.7 percent in 2005).

So Poland now has a huge gap between levels of perceived and actual corruption. In terms of perception, it fares much worse than Slovakia, the Czech Republic, Hungary and Greece, while on the indicators of actual corruption it ranks better, or at least no worse. The percentage of respondents admitting to paying bribes in 2006 was 5 percent in Poland and 17 percent both in the Czech Republic and in Greece. The index of the frequency of paying bribes in 2005 was 2.22 in Slovakia, 2.09 in the Czech Republic and 2.37 in Greece – all worse than Poland. As regards the corruption tax, Poland did slightly worse than Hungary (0.63 percent) in 2005, but better than Slovakia (0.93 percent). And Belgium, which on the perception indicator in 2007 came out as cleaner than Poland (7.1 vs. 4.2), had worse measures of the frequency of paying bribes and of the corruption tax (2.37 and 1.1 percent respectively).

Naturally, I do not mean to say that we in Poland should settle for the present level of corruption. Rather, my point is that we should avoid conflating perception and reality, which can result in dangerous political consequences. The battle with corruption should aim at the removal of its root causes by targeting the scope of the discretionary public sector and suppressing markets where corrupt individuals operate – but without endangering society’s fundamental moral values. This is the only strategy capable of delivering both less corruption and more economic growth. Alternatively, combating corruption through increased punitive action, while leaving the bloated and discretionary public sector intact, is likely to paralyze public officials and delay important decisions while doing little to reduce actual corruption. It goes without saying, but the battle with corruption should also respect the basic rights of due process; otherwise, the cure may turn out to be worse than the disease.

A free and independent media is essential to ensuring that the battle against corruption does not degenerate into a tool of cynical demagogues or political fanatics. Fortunately, many of Poland’s private media outlets meet these conditions. The public media, conversely, are easily captured by power-thirsty politicians. Reformist forces should liberate the public media from this dangerous dependence and place the ultimate responsibility for oversight in competent, nonpolitical hands. They should also train their sights on the role of public prosecutors, which, as recent Polish experience shows, can be abused. Achieving both efficiency and impartiality in these public institutions should be the subject of another round of reforms.

Finally, Poland shows the importance of building civil society and especially of developing organizations that aim at civil education so that more people participate in democracy and make informed choices. The importance of such organizations cannot be overestimated: the stronger they are, the smaller the gap between knowledge and false beliefs as the basis for democratic decisions.

These lessons hold true well beyond Polish borders.

Dr. Leszek Balcerowicz is a former Deputy Prime Minister and Governor of the Central Bank in Poland. He is currently a distinguished visiting fellow at Brown University and at the Center for European Policy Analysis in Washington, DC. A shorter version of this article was published via The Project Syndicate in various newspapers.

The views expressed in this article are those of the author and do not necessarily reflect the opinions of the Center for European Policy Analysis.