Raising Poland’s Competitiveness:Macro and Sectoral Context
Dr Marcin PiątkowskiThe World Bank
ROUND TABLEAn Integrated Industrial Policy for the Globalisation Era
Putting Competitiveness and Sustainability at Centre Stage
27 June 2011
Main messages
• By 2020, Poland is likely to achieve the highest level of income relative to Western Europe in its history
• But the in short-term, GDP growth rate will decline relative to the pre-crisis rates and other emerging markets
• There is large scope for productivity improvements on the sectoral level
• Reform momentum will need to be sustained to ensure continued convergence
Poland’s new Golden Age
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Figure: GDP per capita in Poland relative to EU-15=1, in percent, PPS
Source: Maddison (2008) and Eurostat (starting 1995); illustrative projections 2012-16
But post-crisis growth is likely to declineFigure: Poland’s Past and Projected Growth Rates, 2005–16
Source: IMF 2011
3.6
6.2 6.8
5.1
1.7
3.8 3.8 3.6 3.7 3.7 3.9 3.9
5.4
3.8
More than in other emerging markets
Source: IMF World Economic Outlook database April 2011.Note: Advanced Asia: Korea, Hong Kong, Taiwan, Singapore. Other definitions as in the IMF’s World Economic Outlook.
Figure. Projected Average GDP Growth Rates for Poland and selected regions, 2011-16
5.9
4.6 4.5 4.1 3.9 3.8
2.1
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
ASEAN-5 World Advanced Asia
Latin America
CEE Poland EU
And decline further in the long-term Figure. Projected Long-Term Growth Rates for Poland, EU-10, and EU-15, 2004–50
0
1
2
3
4
5
2004-2010 2011-2020 2021-2030 2031-2040 2041-2050
Grow
th in
GDP
pre
capi
ta
Poland EU-10 EU-15
Source: Carone and others 2006.
Enteprise productivity is still low
Source: Bijsterbosch and Kolasa 2009
Figure: Labor productivity levels relative to the euro area (euro area=100)
Also relative to non-EU countries
8
ConstructionPublic, military, education, health
Wholesale and retail trade
Agri, forestry,fishing, hunting
Hotels, restaurant UtilityMining,
quarryingFinance, insurance,
real estate,business service
Transport, storage,communication
ManufacturingTransport, storage,communication
Wholesale andretail trade
ManufacturingHotels, restaurant
Agri, forestry,fishing, hunting
Finance, insurance,real estate,
business serviceUtility
Public, military,education, health
ConstructionMining, quarrying
Poland overall:14.9
US overall:37.6
Polish Economy 2005 US Economy 2005
Value-add per labor hour *1 (Euro)
60% gap
Labor hour share in total economy (%)
*1 Output deflated to 1997 price level in local currency, and converted to Euro with industry-level PPPs for 1997Source: World Bank based on Amable et al. (2008) for mehtodology, EU-KLEMS database for productivity indicators, Timmer et al. (2007) for industry-level PPPs
76% gap
9
Low share of mid- and high-tech sector
0
1
2
3
4
5
6
7
8
9
10
11
12
2000 2002 2004 2006 2008 2010
Bulgaria
Poland
Hungary
Czech Rep.
Slovenia
Germany
Romania
Slovakia
0
5
10
15
20
25
30
35
2000 2002 2004 2006 2008 2010
Romania
Slovakia
Bulgaria
Hungary
Czech Rep.
Slovenia
Germany
Poland
*1 OECD definition; chemicals, machinery, electrical equipment, motor vehicle, other transport equipment, electronics, medical instruments*2 Eurostat definition; telecommunications, IT services, R&D servicesSource: Eurostat
Employment share of high-tech and medium-high-tech manufacturing *1
% in economic active population
Employment share of knowledge intensive service sectors *2
% in economically active population
10
Low private sector R&D spending
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2000 2002 2004 2006 2008 2010
Romania
Slovakia
Bulgaria
Poland
Hungary
Czech Rep.
Slovenia
Germany
0.0
0.5
1.0
1.5
2.0
2000 2002 2004 2006 2008 2010
Romania
Slovakia
Bulgaria
Poland
Hungary
Slovenia
Germany
Czech Rep.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2000 2002 2004 2006 2008 2010
Romania
Slovakia
Bulgaria
Slovenia
Germany
Poland
Czech Rep.
Hungary
Total R&D spending% of GDP
Private sector R&D spending% of GDP
Public and scientific sector R&D spending% of GDP
Source: Eurostat
11
Poor innovation performance
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
Slovakia
Bulgaria
PolandHungary
Czech Rep.
Slovenia
Germany
20062004
Romania
Source: Community Innovation Survey, published through Eurostat
Innovation Turnover in Industries% of firms’ turnover from products new to the enterprise and new to the market
Innovation Turnover in Services% of firms’ turnover from products new to the enterprise and new to the market
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
20062004
Romania
Slovakia
Bulgaria
Poland
Hungary
Czech Rep.
Slovenia
Germany
Productivity growth at the macro level has not been impressive recently
Labor productivity growth (GDP per hour, annual average, percent), 2005-2010
0
1
2
3
4
5
6
Source: Conference Board (2011)
Affecting the speed of catch-up
Source: World Bank 2011
Figure 4. When Could Poland Catch Up with the EU-15?
2132
2051
2041
2035
2031
2028
2010 2030 2050 2070 2090 2110 2130 2150
2.0
3.0
3.5
4.0
4.5
5.0
GDP
grow
th ra
te, i
n %
So, what to do?
Raise employment
15Source: Eurostat
Figure: Average Employment Rates in EU-10 and EU-15 Countries, 2000–09
55.0
60.0
65.0
70.0
75.0
80.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
EU10
EU15
Bulgaria
Czech Republic
Estonia
Latvia
Lithuania
Hungary
Poland
Romania
Slovenia
Slovakia
Women and the elderly represent the highest potential
Source: World Bank
Figure : Poland: Effect of 10% Fall in Inactivity on Total Employment Rate (by Age and Gender), 2008
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-640.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
Men Women
age group
percentage point
16
Higher employment= faster GDP growth
-1
0
1
2
3
4
5
6
7
Germany United Kingdom Lithuania Korea Chile Spain
perc
ent
Increase in value added if inactivity among older workers in Poland were reduced to the level of selected countries
as % of GDP2008
Women
Men
Source: World Bank
Selected Policy Directions
– Enhance the productivity and employability of older workers through focused training programs and private sector involvement (such as Germany’s Initiative New Quality of Work)
– Increase retirement age and decrease worker disincentives resulting from pre-retirement benefits
– Rationalize disability pensions– Reduce tax wedge, subject to fiscal sustainability– Encourage higher female labor force participation– Promote active labor market policies
18
Improve skills
-15 -10 -5 0 5 10 15
Managers
Professionals
Technicians
Clerks
Personal service
Sales workers
Craftsmen
Machine operators
Elementary
percentage points
The difference between the shares in job creation and in job destruction by occupation
2009
Net job creation
Net job destruction
Figure : Newly Created Jobs in Poland Require Different Skills from Old Jobs, Giving Rise to the Skills Mismatch
Source: Economic Papers 382, DG Economic & Financial Affairs, July 2009. 2
Enhance efficiency of R&D spending
Higher and more efficient R&D would raise GDP
21
Table : Overall Effects on GDP Levels of Achieving Lisbon Targets in Selected EU-27 Countries by 2025
Selected Policy Directions
• Redesign public R&D funding systems to emphasize applied research and collaboration with industry
• Reform state-owned research institutes, including through commercialization and employee-led privatization, to better align their outputs with the needs of industry
• Strengthen the public institutional framework for R&D and innovation
• Increase financing for start-up and innovative companies
22
Promote inter-industry re-allocation
Source: McMillan and Rodrik (2011)
Improve business environmentEase of Doing Business rank in 2011 and the change since 2010
Source: Doing Business in 2011, World Bank staff calculations
43
33
1723 24
41 4246
5156
6370
3
-1
03 3
-1 16
0-2
19
3
0
10
20
30
40
50
60
70
80
EU10 EU15 EE LT LV SK SI HU BG RO CZ PL
25 *1 Industry classification in the source used for this analysis does not coincide with the previous slide; sectors shown are not comprehensiveSource: World Bank based on COMTRADE statistics
Emphasize monitoring for policy makingGrowth of national supply and international demand for export products of Poland – 2009 *1
Current internationally competitive sectors are mostly in
mid-to-low tech, with international demands growing
only moderately…
Are there ways to stimulate these sectors win internationally? Does it take absorption or innovation?
Are there ways to stimulate these sectors scale up and grow? What financing challenges do emerging firms in these sectors face?
Other policy directions
• Maintain macroeconomic stability (fiscal)• Increase domestic savings• Promote immigration• Control real FX appreciation• Diversify exports
28
Improvement in the technology-level structure
of output
Increase in the global export market shares
Intermediate objectives Indicators Potential policy instruments
Higher R&D and ICT spending in the private
sector
Improvement in high-end human skills
Reduced enterprise sector energy intensity and
environmental footprint
Improved ethics and corporate social responsibility of
enterprises
▪ High-tech, mid-tech, low-tech structure of output (%)▪ VC/PE financing, total and to high/mid-tech sectors (% of GDP)▪ Seed / early-stage financing for high/mid-tech sectors (% of GDP)▪ Introduction of technological and non-technological innovations (% of firms)
▪ Aggregated and industry-level shares in global export market (%)▪ Increase of export-oriented enterprise (% of firms)▪ Increase in micro or small enterprises growing to mid to large enterprises
▪ Private sector R&D spending (% of GDP)▪ Private sector R&D ratio to public R&D▪ Increase in enterprises engaged in R&D (% of firms)▪ Increase in R&D intensive FDI (% of GDP)▪ Improvement in Summary Innovation Index/Innovation Union Scoreboard▪ Number of European patents
▪ Science and technology graduates (total number/as percentage of total student population),
▪ improvement/maintenance of the high position in the OECD PISA study, above average score in the upcoming OECD tertiary education quality assessment etc
▪ Reduction in industry CO2 emissions▪ Enterprises with environmental certificate (% of firms)▪ Decrease in penalties for enterprises for exceeding environmental norms
▪ Increase in the effective tax rates for foreign companies▪ Reduction in enterprises avoiding payment of taxes▪ Reduction in enterprises manipulating the public opinion into buying overpriced
products▪ Alignment of remuneration packages of enterprise management with their
marginal productivity▪ Reduction in labor law court cases▪ Increase in enterprises spending on philanthropy
▪ Skills improvement (education, training, immigration)
▪ Structural measures (barriers to entry/exit, firm registration, insolvency process, product market competition..)
▪ Control exchange rate appreciation
▪ Financing measures (public VC, R&D matching grant, subsidized loans for absorption, vouchers)
▪ Tax incentives
▪ Specific regulatory measures
▪ RDI reform▪ Soft support (patent process,
incubation center, cluster development…)
