Tuesday, August 3, 2010

Why would anyone want to be the Prime Minister of Poland?

Seriously, I have no idea. You'd be putting yourself in a lose-lose situation.

Polish economy is on an unsustainable path. The biggest problem we face, in a nutshell, is that currently, for each employed person receiving income and paying taxes, there are on average two people who are unemployed and who receive public assistance from the government (retirement, unemployment benefits, health insurance, disability, whatever). This is unsustainable as it is, but it's getting even worse; due to catastrophically low fertility rate (1.29 live births per woman) and negative net migration rate, the population is shrinking and ageing. So the ratio of one person working supporting two people receiving government assistance is deteriorating further. A recent report from a National Center for Policy Analysis has estimated that if current trends facing Poland (e.g. demographics, GDP growth, structure of government receipts and spending, etc.) stay as they are now, then in the year 2050 the value of unfunded liabilities of the Polish government will be fifteen times the level of Poland's GDP. Something like this is really impossible; what the report actually says is that, if things stay the way they are, Polish government will be bankrupt much sooner than 2050.

If you're a Prime Minister and your government is forced to default on its obligations, that makes you very unpopular. Presumably, then, you should try to do something to prevent the doom from happening. The problem is that the things that all economists agree are necessary conditions of preventing the worst-case scenario, are all things that are extremely unpopular in the eyes of pretty much every single Polish voter. Everyone serious knows that if bankruptcy is to be prevented, all of the following changes must be made at one time or another:
  1. Increasing the minimum retirement age. Currently it's 60 for women and 65 for men; at the very least, it would need to be set at 65 for everyone, but even that would probably not be enough. It looks like we'll need 70 for everyone.
  2. Cutting spending on disability assistance. As of now, more than 13% of people between 20 and 64 are on some kind of disability. That's about three times as much as an OECD average.
  3. Discouraging people from working in agriculture and/or changing special rules by which agriculture operates in Poland. Polish agriculture is extremely inefficient; it employs 17.4% of labor force, but produces only 4.6% of GDP--despite the fact that agricultural production is heavily subsidized by the government. It is an enormous burden on the economy, and on the budget as well (farmers don't have to pay income taxes; they also have their own state-owned social insurance agency to which they pay premiums in exchange for social assistance. The problem is that the premiums farmers pay cover about 8% of the assistance they receive).
  4. Doing away with all or at least most early retirement privileges for certain groups (such as the military, police, firemen, teachers, judges, public attorneys and prosecutors etc.) They are of course well-deserved, but prohibitively costly.
Now keep in mind that these are just necessary conditions of avoiding a complete disaster; they are by no means sufficient. As of now, even hinting that you might want to try to actually do any item from this list may spell the end of your career as a first-tier politician.

Damned if you do, damned if you don't. Why, then, are there still people who actually want to govern Poland? The most competitive electable office in Poland should be that of the leader of the second-largest opposition party. (Why second-largest? Because if you're leading the largest opposition party, you're running a considerable risk of actually becoming Prime Minister yourself.)

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