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Raising Poland’s Competitiveness: Macro and Sectoral Context Dr Marcin Piątkowski The World Bank ROUND TABLE An Integrated Industrial Policy for the Globalisation Era Putting Competitiveness and Sustainability at Centre Stage 27 June 201 1. Main messages.

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  1. Raising Poland’s Competitiveness:Macro and Sectoral ContextDr Marcin PiątkowskiThe World BankROUND TABLEAn Integrated Industrial Policy for the Globalisation EraPutting Competitiveness and Sustainability at Centre Stage27 June 2011

  2. 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

  3. Poland’s new Golden Age

  4. But post-crisis growth is likely to decline Figure: Poland’s Past and Projected Growth Rates, 2005–16 Source: IMF2011

  5. More than in other emerging markets Figure. Projected Average GDP Growth Rates for Poland and selected regions, 2011-16 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.

  6. And decline further in the long-term Figure. Projected Long-Term Growth Rates for Poland, EU-10, and EU-15, 2004–50 Source:Carone and others 2006.

  7. Enteprise productivity is still low Source: Bijsterbosch and Kolasa 2009

  8. US Economy 2005 Polish Economy 2005 Also relative to non-EU countries Value-add per labor hour *1(Euro) US overall: 37.6 76% gap 60% gap Poland overall: 14.9 Labor hour share in total economy (%) Agri, forestry, fishing, hunting Finance, insurance, real estate, business service Hotels, restaurant Utility Agri, forestry, fishing, hunting Mining, quarrying Hotels, restaurant Manufacturing Wholesale and retail trade Finance, insurance, real estate, business service Utility Wholesale and retail trade Public, military, education, health Public, military, education, health Construction Manufacturing Transport, storage, communication Construction Transport, storage, communication Mining, quarrying *1 Output deflated to 1997 price level in local currency, and converted to Euro with industry-level PPPs for 1997 Source: World Bank based on Amable et al. (2008) for mehtodology, EU-KLEMS database for productivity indicators, Timmer et al. (2007) for industry-level PPPs

  9. Employment share of high-tech and medium-high-tech manufacturing *1 Employment share of knowledge intensive service sectors *2 % in economically active population % in economic active population Low share of mid- and high-tech sector Germany Czech Rep. Germany Hungary Slovakia Slovenia Slovenia Czech Rep. Hungary Poland Slovakia Bulgaria Romania Poland Romania Bulgaria *1 OECD definition; chemicals, machinery, electrical equipment, motor vehicle, other transport equipment, electronics, medical instruments *2 Eurostat definition; telecommunications, IT services, R&D services Source: Eurostat

  10. Public and scientific sector R&D spending Private sector R&D spending Total R&D spending % of GDP % of GDP % of GDP Low private sector R&D spending Germany Slovenia Czech Rep. Hungary Germany Slovakia Poland Romania Bulgaria Slovenia Czech Rep. Hungary Poland Bulgaria Germany Slovakia Romania Slovenia Czech Rep. Poland Hungary Bulgaria Slovakia Romania Source: Eurostat

  11. Innovation Turnover in Industries Innovation Turnover in Services % of firms’ turnover from products new to the enterprise and new to the market % of firms’ turnover from products new to the enterprise and new to the market Poor innovation performance Germany Slovakia Romania Czech Rep. Slovenia Romania Bulgaria Germany Hungary Czech Rep. Poland Slovenia Slovakia Poland Bulgaria Hungary 2004 2006 2004 2006 Source: Community Innovation Survey, published through Eurostat

  12. Productivity growth at the macro level has not been impressive recently Source: Conference Board (2011)

  13. Affecting the speed of catch-up Figure 4. When Could Poland Catch Up with the EU-15? Source:World Bank 2011

  14. So, what to do?

  15. Raise employment Figure: Average Employment Rates in EU-10 and EU-15 Countries, 2000–09 Source: Eurostat

  16. Women and the elderly represent the highest potential Figure : Poland: Effect of 10% Fall in Inactivity on Total Employment Rate (by Age and Gender), 2008 Source: World Bank

  17. Higher employment= faster GDP growth Source: World Bank

  18. 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

  19. Improve skills Figure : Newly Created Jobs in Poland Require Different Skills from Old Jobs, Giving Rise to the Skills Mismatch

  20. Enhance efficiency of R&D spending

  21. Higher and more efficient R&D would raise GDP Table : Overall Effects on GDP Levels of Achieving Lisbon Targets in Selected EU-27 Countries by 2025

  22. 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

  23. Promote inter-industry re-allocation Source: McMillan and Rodrik (2011)

  24. Improve business environment Ease of Doing Business rank in 2011 and the change since 2010 Source: Doing Business in 2011, World Bank staff calculations

  25. Emphasize monitoring for policy makingGrowth of national supply and international demand for export products of Poland – 2009 *1 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? Current internationally competitive sectors are mostly in mid-to-low tech, with international demands growing only moderately… *1 Industry classification in the source used for this analysis does not coincide with the previous slide; sectors shown are not comprehensive Source: World Bank based on COMTRADE statistics

  26. Other policy directions • Maintain macroeconomic stability (fiscal) • Increase domestic savings • Promote immigration • Control real FX appreciation • Diversify exports

  27. THANK YOU!www.worldbank.org.pl

  28. Intermediate objectives Indicators Potential policy instruments • Control exchange rate appreciation Increase in the global export market shares • 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 • Structural measures (barriers to entry/exit, firm registration, insolvency process, product market competition..) • 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) Improvement in the technology-level structure of output • Skills improvement (education, training, immigration) • Financing measures (public VC, R&D matching grant, subsidized loans for absorption, vouchers) • Tax incentives • 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 Improvement in high-end human skills • RDI reform • Soft support (patent process, incubation center, cluster development…) • 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 Higher R&D and ICT spending in the private sector • Reduction in industry CO2 emissions • Enterprises with environmental certificate (% of firms) • Decrease in penalties for enterprises for exceeding environmental norms Reduced enterprise sector energy intensity and environmental footprint • 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 Improved ethics and corporate social responsibility of enterprises • Specific regulatory measures

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