Economic dependence curbs Poland’s rise

Jan Bogusławski is a political economist and researcher at Sciences Po Paris and a fellow at the German Marshall Fund of the United States.

As the war in Ukraine continues, in a noted shift, all eyes are on Eastern Europe, amid claims that “Europe’s center of gravity is moving east ” and praise for Poland’s recent economic prowess.

This spotlight moment fuels Warsaw’s well-vocalized ambition of finally shedding its “periphery” label and joining the European Union’s heavyweight division. But Poland’s reliance on foreign capital — a legacy of its post-Communist economic transformation — casts a long shadow.

As Europe’s core and south have seen GDP levels stagnate or increase sluggishly, post-2004 EU member countries have been playing catch-up. And today, Poland already has a higher GDP per capita than Greece and Portugal, and is on track to surpass Spain.

Poland and its booming economy also play an undeniable role in the EU’s response to the war in Ukraine. Its robust economic growth of the last decades has made the purchase of ultra-modern tanks and aircraft possible, while the country was able to absorb large numbers of refugees thanks to its thriving enterprise sector and ever-growing appetite for labor.

However, Poland’s economic success was possible because the country capitalized on its Communist legacy of industrialization, attracting foreign investments from the West. This, in turn, stimulated domestic production, successfully inserting the country’s economy into global supply chains. And as a result, Poland, along with its Visegrád Group neighbors, is now a big player in industries like automotive and electronics, where domestic firms pose as suppliers for transnational — notably German — manufacturers.

But development fueled by foreign capital comes with caveats.

In 2009, political scientists Andreas Nölke and Arjan Vliegenthart coined the notorious term “Dependent Market Economies” to emphasize the fact that Eastern European growth was contingent on the inflow of capital and expertise from the West. Foreign companies produce a large share of Polish exports and employ a large share of the Polish workforce, which means profits are transferred abroad, weakening the ability of domestic firms to “go big.”

And while Central and Eastern European economies are still on a roll, this structural dependence cannot be easily undone: Poland’s foreign direct investment (FDI) inflows are breaking historical records, and the country stands to benefit from the global trend of nearshoring supply chains.

FDIs are a double-edged sword — they fuel growth but simultaneously consolidate dependence and disincentivize local decision-makers from investing in domestic economic capacities. For example, while the entire region of Central and Eastern Europe currently has only one representative on the Fortune 500 Global list — the Polish state-owned oil refiner PKN Orlen — Spain, which is projected to fall prey in the GDP per capita chase, has eight.

Moreover, Poland’s economic success was achieved on the back of EU funds of which Warsaw is the largest beneficiary. But the European budget is not a bottomless pit. The democratic backsliding that underpins the Law and Justice party’s (PiS) rule has already prevented Poland from accessing EU recovery funds, and improving economic conditions will result in proportionally fewer funds being allocated to the country in the future.

For its part, the Polish establishment is well aware of these issues stemming from its economic dependence, with political scientist Marek Naczyk noting an ideological turn toward a “developmentalist” economic policy, orchestrated by local business elites. Meanwhile, the populist PiS has been building a rhetoric of economic patriotism since its first day in office, and Prime Minister Mateusz Morawiecki — a former CEO of Spanish Santander Bank’s Polish subsidiary — even wrote the Polish foreword for economist Mariana Mazzucato’s seminal book “The Entrepreneurial State.”

But this developmentalist turn remains half-baked.

Poland is still a laggard in terms of investments that boost domestic competitiveness in the long run, including research and development (R&D), education and the green transition. The country currently spends less than 1.5 percent of GDP on R&D — roughly half the average of Western Europe — while low private investment rates and declining public education expenditures, accompanied by a stagnant demography and a bias toward the elderly in social policy, all hinder a pro-innovation climate. An obsolete coal-based energy mix and apathetic green transition don’t help either.

Russian President Vladimir Putin’s invasion undoubtedly marks a watershed moment for Central and Eastern Europe, with Poland, alongside its southern neighbors and the Baltic states, at the forefront of rallying Western support for Ukraine — and rightly so. The country has finally acquired a sense of significance that breaks from recent years, where it mostly made headlines for its troubled democracy.

And yet, this current history-in-the-making is unlikely to challenge Europe’s balance of power for good. The EU remains a union built on trade and economic interest, and Poland still plays a peripheral role in that institutional landscape, with low domestic capital levels and an inability to elbow its way to the top of global value chains.

This doesn’t mean the shift will never happen, of course — but it will require a genuine commitment to nurture domestic economic capacities in the landscape of a globalized and fast-paced economy. And in Poland, such a commitment is still largely confined to the realm of political speeches and wishful thinking.

And the longer the government stalls, the longer these speeches will remain what they are now — just words.