The economic rise of Poland and lessons for Turkey: Analysis
In late September 2018, the index provider FTSE Russell decided to upgrade Poland to a “developed market” status. It is the first country in Europe to be promoted to such a status in a decade. Poland, which was a member of the Soviet Bloc, has had an impressive run during the last quarter of a century. During this time period, its economy doubled in size in terms of real GDP. It became a member of the European Union in 2004 and its political clout has significantly increased. Moreover, its NATO membership has made it a key US military ally. What is more, none of these transformations entailed any major economic or social interruptions. The country managed to maintain both its stability and democracy. Surely, the country also has its share of social and political divisions, such as the conflict between social conservatives and progressives. However, the Polish elite successfully prevented them from becoming major issues that could derail the country’s economic success.
This Polish success can be a major inspiration for Turkey as well. In a way, Turkey and Poland were in a very similar economic situation back in 1991. Yet Polish development has been a lot smoother than Turkey’s. Even though the GDP per capita improved similarly in both countries, the Polish economy does not suffer from high current deficits or export/import imbalances as much as Turkey does. While Turkish economic measures show high unemployment rates and inflation levels, Poland has much healthier figures. In terms credit rating, Poland is an investment grade county. The following table further shows a selection of measures for both countries.
It is true that one should be careful in comparing two economies as there are many geopolitical and social differences. It is also true that development differences involve many different factors and cannot be reduced to a few variables. However, there are general observations that one can make that can serve as lessons for the Turkish economy.
One of the first observations is the importance of political stability. From the very start, the Polish elite chose to have strong and stable relationships with the West, notably with the US, the UK, and Germany. For example, despite historical grievances, they developed strong commercial links with Germany. In return, they managed to attract a lot of German industrial companies to Poland and this helped boost their economy. Not only did they already become a member of the EU back in 2004, but they also became a successful economic partner with a very balanced import/export picture. Political stability was also behind Turkey’s strong growth between 2003 and 2010. In other words, Turkey could further improve its economy by prioritizing political stability and good diplomatic relationships with major trade partners. Certainly, a solid partnership with the EU could create a real difference also for Turkey like it did for Poland.
Secondly, Poland has a well-balanced situation with regards to its trade deficit. Unlike Turkey, which has a deficit of $70.5 billion, Poland has a deficit of only $3.7. Poland has also managed to transform itself into an industrial-goods exporter with strengths in machinery, auto parts, and furniture. By doing this, they successfully controlled imports. As discussed in the article dated September 18 2018 (entitled “The way to go for Turkey: the EU or BRIC?”)
Turkey has large trade deficits particularly with BRIC countries. In order to address these issues, policy makers need to analyze the root causes of the deficits and work on solutions.
Without being prescriptive, the solutions to these problems could include measures such as prioritizing essential imports, selective consumption taxes, import-substitution, re-industrialization, and re-negotiating of certain existing trade deals. Before all else, Turkey could greatly benefit from defining and committing to a long-term economic and trade strategy that it will apply for the next decades. Then, all policy measures will follow accordingly.