Shanghai Poverty Conference Scaling Up Poverty Reduction

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Shanghai Poverty ConferenceScaling Up Poverty
Reduction

• Poland
• Reform, Economic Performance and Poverty
  Developments (1994 2002)
• Case Study
• GDLN session, March 11, 2004

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A growth-poverty story

• Economic growth helps alleviate poverty...
• ...but how to make growth work for the poor?
• Polands case
• Story 1 1990-1993
• how did Poland kick-start growth after 50 years
  of communist repression
• Story 2 1994-1998
• how did growth became a powerful poverty
  reduction tool
• Story 3 1999-2002
• recent deterioration and its causes
• What do we learn from that?

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Poland, 1989

• Fall of communism
• first country in the socialist block to hold
  free elections and introduce democracy
• Heritage
• suppressed and devastated economy
• serious microeconomic and macroeconomic
  imbalances

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Reform strategy

• Crisis
• Enthusiasm
• A big bang strategy
• Liberalization (prices, interest rates, economic
  activity)
• Stabilization
• Hard budget constraints
• Institutional reform

political window of opportunity
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Results
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Impact on poverty, inequality and welfare

• after an initial increase...
• poverty rates decreased spectacularly
• from almost 18 in 1994 to almost 12 in 1998

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Growth poverty reductionKey success
factors

• employment growth
• Favorable investment climate
• growth of small and medium enterprises
• successful privatization
• effective social safety nets
• helped to maintain reform momentum (preventing
  social protests)
• kept poverty rates in check
• social cohesion
• kept the inequality (growth) at a very moderate
  level

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Recent deterioration 1999 - 2002

• ...after 1998...
• reform effort slows,
• investment climate deteriorates
• bureaucracy burdens economic activity
• lax fiscal discipline
• no necessary public finance reform
• macroeconomic instability
• adverse loose-fiscal-tight-money policy mix
• Russian crisis
• only initiated a second round of restructuring gt
  lay-offs
• problems with the labor market
• supply side
• badly targeted and abused system of social
  benefits distorts incentives for work
• skill mismatch produces structural unemployment
• demand side
• high payroll taxes discourage hiring

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Macro instability (1998-2002)
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Result Poverty increases
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Lessons learned 1 PolandCatalysts of reforms
success

• crisis necessitating comprehensive reforms
• creates political window of opportunity
• ownership and commitment to reform, governments
  credibility
• consistency of the reform framework
• proper policy instruments and sequencing
• adequate incentives on micro side
• competition, freedom of economic activity,
  contract enforcement, etc.
• stable macroeconomic environment
• effective social safety nets
• holding social protests of disadvantaged groups
• external catalysts
• anchors such as EU accession providing a
  long-time direction
• other

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Lessons learned 2 PolandMaking growth poverty
link work

• employment (preventing a jobless growth)
• labor friendly environment (low payroll taxes,
  (re)training of workers, education system reform)
• effective social safety nets (again!)
• how to protect those who really need
  assistance...
• ...while not distorting incentives for work
• social cohesion (to keep inequality/poverty in
  check)
• private safety nets, family ties, civil society,
  etc.