The collapse of Soviet communism was a process that began in Poland, with the Solidarnosc movement eventually overcoming an oppressive and inhuman order. A powerful motivation in this dynamic was the desire to reconnect with international institutions and with Europe.
Poland’s economic transformation since then has been a spectacular success, with continued growth. Indeed, Poland was the only member of the European Union where income growth continued during the 2008 financial crisis; more recently, it is the country least affected economically by the Covid. Statistics on living standards are of course subject to all kinds of interpretations and distortions, even if they bear witness to the astonishing convergence with Western Europe. The simplest and most intuitively appealing measure is people’s lifespan. In 1990, life expectancy in Ukraine and Poland was almost identical (70.1 and 70.9 years respectively); in contrast, the latest figures (2019) are 71.8 and 77.9. Poles can now live longer and better.
This result is not the result of a fortuitous development, but rather reflects the quality of the institutions and the signals and incentives. Today, a consensus of economists and political scientists identifies institutions as the main actors in development. But good institutions cannot be created immediately: they require careful debate and careful attention to institutional design. The creation of a viable and vibrant legal and economic order also crucially depends on learning from others.
In the conventional view of transformation, all attention is focused on the great drama of liberation in 1989, the charisma of John Paul II, the Polish Pope, and the daring visions of the Round Table participants. But the corporate design business took much longer: It wasn’t all but completed in the late 1990s, and then the movement laid the groundwork for the pursuit of an economic miracle.
Institutional development reflected a new vision of what international best practices were. During the 1980s, an important academic literature developed concerning the performance of inflation as well as macroeconomic stability and growth. The new consensus suggested that in industrialized countries, but also more generally, central bank independence (CBI) was strongly correlated not only with lower inflation rates, but also with better economic performance. It was already well known that monetary authorities were frequently subject to political pressures that produced higher levels of money growth, but that such dependence did not improve long-term growth rates.
The literature initially developed on the basis of an appreciation that establishing mechanisms for firm engagement was an essential element in establishing the credibility of policies. This approach emphasized the contractual element of the position of central banks and, therefore, focused on the explicitly defined terms of contracts or laws establishing central banks.
A new ordinance of the central bank in Poland was part of a general constitutional overhaul, and of the new constitution of 1997. This approach is only intelligible within the framework of a sustained movement of institutional rapprochement with the ‘Europe and the European ideal: through NATO then EU membership. An independent central bank and a fiscal rule were part of the convergence process. The budget target set out in Article 216/5 reproduced the 60% limit of the Maastricht Treaty and the EU’s Stability and Growth Pact: three-fifths of the value of annual gross domestic product. The provisions relating to the central bank (Article 227) resembled a repetition of the law of the Bundesbank, emphasizing the “securing” of the value of the currency, or price stability: “The National Bank of Poland is responsible for the value of the Polish currency. currency.”
This movement, and the details as defined in the 1997 banking law, corresponded to movements in other countries, around the world. Stage 2 of the European Monetary Union process, as provided for in the Maastricht Treaty, required the transition to the independence of the central bank; and the new, particularly independent European Central Bank began its existence in 1999.
In Poland, this decision was a success: inflation fell to less than 2% in 2002 and was used for years to make the business decisions that helped build an entrepreneurial and prosperous economy.
Text published in the monthly Wszystko Co NajwaÅ¼niejsze (Poland) as part of a historical education project with the Institute of National Remembrance and Narodowy Bank Polski (Polish Central Bank)
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