Matthew Tyrmand, the son of 20th century writer and anti-communist Leopold Tyrmand, is an investor and economist based in New York City. He co-runs a Chicago-based NGO focused on bringing transparency to government spending (www.openthebooks.com) which he hopes to introduce to Poland now that he has obtained Polish citizenship.
I was recently asked by a Polish venture capitalist what my thoughts were on a recession occurring in the Polish economy and if so what the timing and depth of it would be. What follows is my response.
The short answer on the timing of the recession that I am predicting is right after the national elections in 2015, though I do believe the cracks in the economy are starting to show and with the recent 50 basis point interest rate cut, I think the nomenklatura see it too and are trying to put a “bandage on a gunshot wound” ahead of next year’s elections. Hopefully this coming recession lasts two to three years at most and is accompanied by a changing of the political guard. If Polish politics follows the trend of most of Europe- that of Brussels led socialism- then it will look more like a lost generation in the manner that Japan has had and the likes of which the US and parts of the EU are embarking upon. In this case the coming recession will last closer to ten years than two or three. Politics matters.
My reasoning behind this recession and its depth primarily hinges upon the preponderance of political corruption that has undermined Poland’s free market. To understand why there is an economic reversal occurring or about to occur (but not yet having commenced if you believe the statistics out of the government) one has to understand the previous positive trends. Poland’s strong tailwinds, and strong they have been, will not guarantee perpetual growth. Poland has had over two decades of uninterrupted sequential quarterly GDP growth with nary a recessionary contraction. Growth rarely occurs in this straight a line and Poland has amazed the world for how long this straight line has been (thanks to Balcerowicz and his eponymous economic liberalization plan). This is similar to the China of the last 20 years in the sense that after 1989 in Poland there were huge amounts of pent up animal spirits ready to be unleashed on a free market (one need only look at the entrepreneurship that followed passage of Wilczek’s Law in 1988) . Poland weathered the recent crisis well because it decoupled from the Eurozone in large part due to the potency of this massive 20 year tailwind. In essence, 40mm people from a closer-to-third-world post- Soviet regime saw economic development that moved the nation toward the first world Western European middle class quality of life and with it much stronger consumption trends and a more potent rule of law when it comes to private property protection. This was more prevalent in Poland than other Soviet satellites due to a stronger education system and a civic minded population. There has always been, even throughout the dark years of communist oppression and now to this day still, a stronger moral center in this society (politicians not withstanding) rooted in the Catholic Church.