Somewhere Between Rags and Riches

Will the governments in CE ever switch their political currency from simple jobs to technology or climate change?

Visegrad Insight
27 March 2017

The promise of a great economic leap forward will not happen by increasing employment. Will the governments in CE ever switch their political currency from simple jobs to technology or climate change?

Gold and green forests were for months displayed on the never ending power point presentations by the Deputy Prime Minister Mateusz Morawiecki. The public has been carpet-bombed with slogans like: responsible development, bright future, GDP growth and innovative economy. The only thing that he didn’t mention was how to shift from the planning stages to the implementation of the policy.

To demonstrate some progress, on the 26th of January a strategic cooperation agreement between the Polish government and General Electric was signed hopefully to improve not only government’s image but also the country’s economy.

Visegrad Insight has talked to John G. Rice, vice chairman of GE, about his company’s strategy towards Poland. The practical application of forward-thinking attitude, adopted by the multinational giant should be taken as a model for Morawiecki’s Action Plan for Responsible Development.

“Poland and GE have a 25-year history of cooperation, and we are eager to think about next 25 years in the country. We envisage that the next five years will be crucial for the region’s market development,” Rice stated.

So far, GE has invested $500 m in Poland; the company spends approximately $100 m on research and development a year. This is a remarkable capital injection for the economy. Now, GE plans to invest an additional $49 m over the next 3 years in Polish energy equipment manufacturing.

“We’ve heard about plans for the modernisation of the energy industry in Poland, and GE provides all necessary technologies that assure efficient power generation,” Rice continued.

The company is going to bid for contracts in the energy field. GE has experience in both industry and software which makes it a strong competitor. One of the stronger points of its strategy is providing solutions based on the specific target.

The question for the Polish government though is whether is it aiming at employment numbers, innovation and future growth of the economy or meeting ecological standards of COP21?

Peter Stracar, CEO for GE in Central and Eastern Europe, explains that if Poland upgrades its existing power plants, and not necessarily build anything new, it could already meet the COP21 criteria.

“The question is not about the energy mix but limited emission” – Stracar remarks. “In the light of air pollution problems and EU restrictions, Poland should take into consideration efficiency improvement of coal-fired power stations, since every 1% higher efficiency reduces CO2 emissions by 2-3%.”

However, the main government expectation from foreign investors is likely to be job creation and wage growth rather than any reduction of emissions.

Asked about this aspect of partnership, Rice noticed that wage growth in Poland is inevitable and GE is aware of this.

“Searching for business only where there is a cheap labour force and low taxes is short-sighted”, he underlined. “The company is operating in countries where the average income is much higher than in Poland, and it is able to generate profits anyway because of high productivity.”

“Our competitiveness will not be just about wages,” Stracar agreed. “Only 10% of costs for a company like GE are wages. It’s about skills and knowledge that Central Europe needs and GE has been continuously providing,” he added.

Yet, what people always fear most is that modernisation will cause a reduction in employment. The investor explained that every job at one of the GE facilities in Poland generates another four in the supply chain.

But it may not be enough if the Polish government decides to act with a view towards the next election, as it has with The Family 500+ Programme – a family benefit programme costing roughly €4 bn a year.

Drawing up a chiselled blueprint is surely the first step, but the decision makers must transform the verbose declarations reaffirming their commitments into harmonised and effective action.

The current Polish government has promised both the family benefit programme and an economic development strategy.

While the first was implemented quickly, the second guarantee has yet to be realised. It seems like spending money is much easier for the government than attracting investments, and, in the long run, this tactic will backfire miserably.

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