Krzysztof Rybiński: How to use globalization to improve Poles' living
standards?
Address by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the panel
session: Globalization and Poland's development, 4th Congress of the Polish Lisbon Strategy Forum,
Warsaw, 13 October 2006.
* * *
Ladies and Gentlemen,
In my today's speech, I should like to achieve two goals:
• First of all, I would like to outline major economic changes effected by globalization.1
•
Second, I would like to point out to such areas in Poland's economic strategy that call for
profound changes necessary if we want to reap the benefits of globalization while avoiding
its pitfalls.
At the same time, I would like to emphasize, as I usually do, that the opinions presented in this speech
reflect my personal views and by no means are an official stance taken by any institution I used to be
or I am presently professionally involved with.
* * *
(1) What major changes in the global economy and in national economies have been
induced by globalization?
Globalization may be defined in various ways, and I believe that its essence is best captured when we
free movement of goods, services, labour, capital and knowledge between countries.
define it as
Before I proceed with the presentation of the most important effects of globalization, it is well worth
recalling the demographic trends that are going to strongly influence the global economy. According to
UN estimates2, by 2050 Europe's population will have shrunk by more than 70 million, that is by
around 10%. In the same period, Asia's and Africa's population will have grown by 1,300 million and
more than one billion respectively. This means that we should expect a gradual shift in the centre of
gravity of the economic activity from the US and Europe to Asia and Africa. As a matter of fact,
numerous estimates have shown that in 2050 the Chinese economy will be 40% larger than that of the
US, while India's economy will be similar to the US in terms of GDP measured at purchasing power
parity3. These trends are also reflected in studies assessing what companies in developing markets
will challenge the current global giants based mainly in the US, Europe and Japan. According to
Boston Consulting Group, the 100 'global challengers' include 44 Chinese, 21 Indian and 12 Brazilian
companies. There are no Polish companies on this list, even though it includes a few companies from
Egypt and Turkey4, among other countries.
In the future, demographic trends will be of greater significance than they used to be in the past, for
several reasons. First of all, the population is aging faster in the developed world, yet China will also
be affected by this problem due to its one-child policy. Second, the past 20 years have seen the global
labour market emerge as a result of dramatic progress in information and communication
technologies, lower transportation costs and reforms launched in many countries. For instance,
Richard Freeman from Harvard University estimates that with the integration of the former Soviet Bloc
economies, China and India into the global labour market, the number of workers available globally
jumped from 1.46 billion to 2.93 billion people, which Freeman calls "the great doubling"5.
The first major change caused by globalization is therefore the emergence of the global labour
market in the 21st century. This has already brought about changes both in businesses' operating
strategies and employees' behaviour. The global labour market shifts jobs to places with the highest
effectiveness and lowest cost of manufacturing. For Poland, this means a large inflow of foreign direct
investment despite a halt in privatization. In the global labour market, employees move to places
where they are better paid for their skills. According to various estimates, about 5% people at working
age have already left Poland. For Estonia, this figure stands at as much as 10%.
In the global economy of the 21st century, technological progress and lower transportation costs have
allowed for the business processes or their parts to be easily moved between countries
(a phenomenon frequently described as business process offshoring). The relative role of crucial
factors behind long-term development prospects is thus changing. In the 21st century, the key factor
conducive to economic growth will be knowledge - broadly understood as a country's
intellectual capital - and this country's ability to drive innovation. If businesses in a given country
fail to change their product and service profiles to achieve greater value added, they will find
themselves pushed out of the market by companies from countries with low manufacturing costs. This
applies to a number of markets, products and services only recently considered as subject to the
international competition, one glaring example being the off-shoring of services offered by radiologists
from the US to India6. China has already become the world's leading exporter of computers and their
components or telecommunications equipment7. I believe that it is just a matter of less than twenty
years for China to achieve a similar position in the automotive industry, mainly because Chinese
companies have mastered network-based cooperation.
Hence, if a given European country fails to reach an adequate ability to drive innovation despite
having sound public finances, liberal labour market and low taxes, it cannot stand the competition on
the part of countries with low manufacturing costs. This may lead to lost markets, falling output and
growing unemployment, and in consequence public finance deterioration.
It was as early as in late 1980s that a well-known economist, Paul Romer8, wrote that a country's
success would be determined by knowledge and ability to drive innovation. When set against labour
and capital, knowledge and innovation are infinite, with a number of people able to simultaneously use
the same knowledge or innovation. Labour and capital are in turn ascribed to a specific place. By
saying that I do not only mean such great innovations as the light bulb, mobile phone or Wal Mart's
business model, which have improved the living standard of millions or billions of people. What I have
in mind are also thousands or even millions of small innovations, for instance those aimed to improve
the efficiency of a given business process. Today, we can add yet another factor to Romer's model,
namely the relationship capital. Now, it is common knowledge that innovation is fostered by
cooperation between experts in various countries, cooperation between manufacturers and customers,
local market expertise, cooperation between higher education establishments and businesses. In the
long term, successful countries and businesses will be those that knowingly invest in the relationship
capital. Here, China's informed policy of supporting poor Asian and African countries is definitely worth
mentioning.
Perhaps some of you think that China and India are far countries, and for that reason pose no
challenge for us. This is far from being true, as technological progress and lower transportation costs
have in many instances rendered distance immaterial, with many economists speaking of 'the death of
distance'. This can be exemplified by the United States, where one-third of the import measured by
value takes place by air, as is the case with 25% of export value of Africa9.
(2) What areas of Poland's economic strategy call for changes in order that globalization
can lead to a visible improvement in Poles' living standard?
Globalization is not a zero-sum game where some people gain, however at other people's expense.
Globalization has already enabled billions of consumers across the globe to enjoy enhanced living
standard, as can be exemplified by lower prices, enhanced quality and increasingly diversified product
and service offerings. Millions of Polish consumers also experience these benefits. Simultaneously,
more than one million of Poles, the so-called euro 300-gross-pay generation, have obtained better
paid jobs in other EU countries, following Poland's accession to the EU. New jobs are created in
Poland thanks to foreign direct investment and investment projects implemented by Polish companies
that increase export production. Consumer optimism continues to grow, whereas fears related to the
labour market subside. Poles enjoy an enhanced living standard and voice fewer concerns about their
future. Undoubtedly, after our accession to the EU, Poland has achieved great success in the global
economy. Does this mean that we can rest on our laurels and there is no need for rapid and
farreaching changes? It is not quite right, however, as there are a number of areas where Poland ranks
the very last. Failure to make progress in these areas may sizably reduce the economic growth in the
years to come.
These areas include, but are by no means limited to road infrastructure, volume and quality of
spending on research and development or business environment in Poland, as can be exemplified by
an average of three years that it takes to claim one's rights before courts in disputes between business
entities. These weaknesses of the Polish economy are well known and it is also common knowledge
what should be done to eliminate them. It is however not the weaknesses that I intend to discuss
today, as I believe that there are other and much more serious areas of concern that significantly
reduce Poland's economic potential. Lack of reform in these areas may deprive Poland of the benefits
brought by globalization. Today, I would like to outline two such problems:
•
First, for many years there has been no common vision of Poland and no leadership that
could inspire Poles to pursue this vision.
• Second, we may boast our world's best IT specialists, but
we are still well backward in
terms of e-government - according to the Capgemini survey from June 2006 Poland ranks
third from the bottom in the European Union10.
Why do I believe the lack of vision, lack of leadership and Poland's backwardness in e-government to
be major weaknesses that diminish Poland's possibility to capture the opportunities offered by the
global economy? Just imagine a company that has no long-term strategy and experiences
management reshuffles every few years, including board members, department directors and often
unit heads. Every department within this company has its own budget, sets its own priorities and
pursues its own often obscure goals (so as to maximize the available budget), which are frequently
inconsistent with the overall purpose of the company. Can such a company compete in the global
economy against companies with clear and consistent vision and strategy, companies where all
departments' activities are subject to this vision? This is a rhetorical question, as after using up all
simple reserves of growth, such company would be doomed to bankruptcy unless it changed. The
same applies to entire countries. While others continue to paint and fulfil daring visions, for example
iN201511 (Intelligent Nation 2015) in Singapore, we are still unable to join our efforts and are stuck in a
business model where each department silos keeps pursuing its own goals.
The ability to capitalize on knowledge will be crucial to Poland's success in the 21st century.
The
country's economic strength will be built with the power of mind, not muscle or machinery. For
the time being, we have lost a million of minds that have increased the growth potential of other
countries. Many people who left Poland will achieve success, and set up prosperous companies.
Some of these companies may become global challengers. Simultaneously, Poland has gained a
million ambassadors abroad. For the time being, we are only lamenting. Have we yet done anything to
use this huge Polish intellectual potential located in other countries in order to pursue joint efforts
aimed at improving the standard of living for Poles, both at home and abroad. Have we got a vision
that would for example indicate mechanisms for creating a diaspora with millions of Poles in the EU or
across the globe, a diaspora that could effectively care for Poles' and Poland's interest? Actual
examples of these include the Chinese and Mexican diaspora in the US, the Jewish diaspora across
countries, the Portuguese diaspora in France or Global Scott Network, and many other.
In the global economy, greater progress is made thanks to increasing use of information and
communication technologies (ICT), also in public services. Firstly, it allows to leave unilateral
communication channels for interactive two-way communication, which in turn enables citizens and
entrepreneurs to be more active, and allows to offer public services better tailored to the needs of
individuals and businesses. Secondly, ICT development leads to innovation growth in public services
worldwide, which means that changes in public administration's activities increasingly rarer show
features of reproduction, and the public administration becomes ever more often a leader in the field of
innovative services. In consequence, methods of a country's actions and fulfilment of its functions are
irrevocably directed at using such technologies, and adopt the form of e-strategy, e-policy,
eregulations and e-services.
With just a few exceptions, public administration in Poland has not contributed to increasing
innovativeness and effectiveness of the private sector, but has been rather ball and chain.
Communication between citizens, entrepreneurs and an authority takes place mainly on paper, and it
is necessary to come in person, bring a form, sign a document, while in other countries, e-government
bodies are available via a mobile phone. For example, would it not be easier and more cost-efficient
for an entrepreneur, if such sufficed, to participate in a tender by submitting only a factual offer, and
other documents would be automatically collected through communication between various public and
private registers (such as the National Court Register, Social Insurance Institution, Central Statistical
Office, the revenue or credit database etc.). There are countless examples where public
administration's activities might sizably increase the economy's efficiency.
In many countries, including some European and in particular Asian states, we can observe an
effective pursuit of a vision leading to success in the global economy and determination of the public
administration to develop a country's ability to drive innovation, that is to develop a factor determining
the country's success in the global economy of the 21st century. Examples may be found in a recent
The The Search for Talent
edition of Economist, where the article entitled names a number of activities
pursued by public administration in many countries in order to attract well-educated foreigners.
Ladies and Gentlemen, the 21st century has witnessed not only 'the death of distance' but also 'the
death of time'. Innovation is driven, efficiency is improving and value is created by companies for
clients and by public administration for citizens at a significantly faster pace. In order to win in an
increasingly competitive economy, it is not only necessary to move ahead, but to move ahead
increasingly faster. And in the two areas I discussed, that is lack of vision and leadership and
backwardness in e-government, we have to run, as the race has already begun, and we are still
pondering whether we should start moving the left or right leg first.
Poles are hardworking, talented and have entrepreneurial spirit. We are sufficiently predisposed to
achieve success in the global economy. As citizens, we have every right to demand that
decisionmakers, regardless how they differ in their assessment of the past, create and support a common
vision of strong and competitive Poland in the global economy of the 21st century as fast as possible.
Thank you very much for your kind attention.