 Poland's Economy
is No Joke
Peter Schiff
Jan 16, 2010
My visit to Krynica was a breath of
fresh air, and a startling reminder of how far America has strayed...
Watching the world's leaders stumble
their way through the economic crisis, it often feels as if political
success and economic understanding are mutually exclusive.
Even the Chinese, who over the past generation have engineered
a dramatic turnaround from their Maoist economic nightmare,
show a remarkable willingness to pursue a monetary policy (a
currency peg to the U.S. dollar) that yields no benefit to their
citizens. Amid this morass of economic quackery, it is refreshing
to see a clear ray of sanity emanating from one country: Poland.
Last summer, I was invited to speak at
the Economic Forum in Krynica, a resort town in Southern Poland.
I was amazed at the level of economic activity and civic spirit
that was on display throughout the country. I also was fairly
surprised that my economic views, which are routinely ridiculed
at home, have much wider support among the Polish economic officials
who presented at the conference.
This common sense understanding was showcased
in an opinion piece published this week in the Financial Times
by Polish Finance Minister Jacek Rostowski. Contrary to
the public flogging of the free market currently underway
in Washington, under the auspices of the Financial Crisis Inquiry
Commission, Rostowski explains how governments caused the Crash
of 2008 by removing the necessary element of fear from the
markets. He states that this was symptomatic of the "deep
Keynesian project," in which governments over the last half
century have looked to smooth the economic cycle through
periodic floods of monetary expansion and government
spending. I couldn't have said it better myself.
A product of the Solidarity movement
that opposed the Polish Communist Party in the 1980's, Mr. Rostowski,
like many of his colleagues in the current Polish Administration,
is intimately familiar with the hazards of central economic planning.
He has seen this movie before, and he knows how it ends.
Instead, Poland has enacted economic
policies that are informed by a belief in Austrian School (read:
free market) economics. After the downfall of the Communists
in 1989, Rostowski was part of a group that called for "shock
therapy": the rapid privatization of state-owned enterprises
and the dismantling of price and currency controls.
In 2007, the center-libertarian Civic
Platform party was put in power, with Rostowski as Finance
Minister. Along with Prime Minister Donald Tusk, he has continued
the process of transforming Poland into a laissez-faire paradise.
Not accidentally, Poland is the only EU member state that
showed positive GDP growth in 2009, at 1.9%. Also its public
debt, at roughly 55% of GDP, compares favorably with its neighbors
- and with the United States.
A top priority of their administration
was reduction of the income tax. The previous system, with
three-tiers of 19%, 30%, and 40%, has been reduced to two
tiers: 18% and 32%. In addition, the system's minimal use
of deductions and credits makes it radically simpler than the
U.S. income tax.
In the meantime, Civic Platform is continuing its
move toward privatization. Recently, Poland held an IPO for its
state-owned power utility, Polska Grupa Energetyczna. According
to a news report, "The sale brought in $2.1bn, pricing at
the top end of the bankers' guidance range, and becoming Europe's
largest IPO of the year." The government has used these
revenues to fund its budget and keep taxes in check. More importantly,
it has returned capital to the marketplace to be used in the
most efficient manner.
Civic Platform also understands that
regulation hurts small business disproportionately by raising barriers
of entry. Fortunately for Poland, a multi-year program of
deregulation has been a boon for small businesses, and has given
the country the most entrepreneurs of any state in Europe. This may
explain the country's resilience in the face of the global economic
crisis.
Poland's current growth is also
fueled by an influx of foreign investment. To encourage
such inflows, Rostowski has laid out a specific plan
to adopt the euro as the country's currency by 2015.
While I have never been crazy about the euro concept, as opposed
to a gold standard, the effort indicates to foreign investors
a desire to control inflation. Assuming the block is able to
stick together, the European Central Bank is considered a reliable
enforcer of strict monetary policy. Poland's zloty rapidly devalued
after it was allowed to float, and though the rate of inflation
is declining, it remains high. Eurozone membership will impose
external discipline on the Polish government, even if Civic
Platform loses power.
Anecdotally, I can attest that these
people are hungry for free markets. My visit to Krynica was a
breath of fresh air, and a startling reminder of how far America
has strayed. If the Polish people can hold onto the traumatic
lessons of communism, and continue undeterred down their current
path, then this battleground of the 20th century may be the paragon
of the 21st.
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Jan 15, 2010
Peter Schiff
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: pschiff@europac.net
website: www.europac.net
Archives
 Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
County Register.
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.
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