x Abu Dhabi, UAETuesday 23 January 2018

Shock therapy helped Poland, can it do the same for Ukraine?

Alan Philps looks at the differing fates of two countries that have emerged after the disintegration of the USSR.

Poland has been in the news recently – not for anything it is doing, but for its history as a country that lifted itself from near bankruptcy and the threat of civil war in the 1980s to find a sense of purpose and national renewal. With tensions still high between Russia and the West over Ukraine, many are looking to see what lessons can be drawn from the Polish experience.

President Obama visited Poland this week to mark the 25th anniversary of the partly free election that helped eastern Europe shake off communism. It was also a show of solidarity with countries of eastern Europe who fear a resurgent Russia.

All in all, the story of Poland’s escape from the Russian orbit is a rare story of Western success, a welcome distraction from the quagmire of the European Union and the inability of Washington to project power in Ukraine, Syria and elsewhere.

The comparisons between Poland and Ukraine are striking. In 1990, as the Soviet empire was cracking up, their economies were of similar size, with Ukraine’s marginally bigger. By 2012, Poland had soared away, with its gross domestic product per capita three times that of Ukraine. Today, Poland is a proud – some would say even arrogant – member of the European Union with a stable democracy and growing economy. Ukraine is going through a second revolution, and Vladimir Putin has seized the Crimean peninsula while an uprising in the east has brought the country to the brink of civil war.

There are many causes for Poland’s success. When the power of Moscow waned in the late 1980s, the Poles knew exactly what they wanted: to restore a nation that had been crushed since the 18th century between the hammer of Germany and the anvil of Russia. Luckily at the end of the Cold War, the Poles had friends in the west who were persuaded to cancel Soviet-era debts, while the EU funnelled money to bind Poland to the Western system.

This transformation was harsh and painful, and required the population to expose themselves overnight to market forces. All former communist countries have had to do this to a degree, but Poland was first and fastest. It had some unique advantages. It is one of the most ethnically homogenous countries in Europe, with 97 per cent of the population identifying as Polish, thanks to the horrific bloodshed and ethnic cleansing during and after the Second World War. During the war the Nazi occupiers liquidated the Jewish minority. At the end of the war the Soviet Union expelled the Germans and eliminated the other significant minorities by deportation and moving the borders.

With a strong sense of national purpose, Poland opted in 1989 for shock therapy. The currency was made convertible by the pro-Communist government within four months of taking office. Hyperinflation and the prospect of famine turned quickly to economic growth and the entrepreneurial spirit of the Poles was unlocked. Governments changed regularly, which might be seen as a sign of political weakness, but in this case it had a beneficial effect. The crony capitalism of Russia and Ukraine could not take root, as the political class was constantly changing. By contrast, Russia has had only two genuine leaders since 1991 – Boris Yeltsin, and his chosen successor, Mr Putin. Ukraine, until this year’s revolution, had had only four leaders in the same period.

The architect of Poland’s shock therapy, Leszek Balcerowicz, stresses this element of success. “In Poland the success of private groups does not depend, as a rule, on their political and bureaucratic connections, while in Russia or Ukraine this has been crucial.”

Shock therapy is not pleasant. More than 2 million Poles are working abroad because they cannot find reasonably paid work at home. This is a tradition for Poles, who have for generations been forced to seek work elsewhere. There are now half a million – and perhaps many more – Poles living in Britain where Polish is the second most widely spoken foreign language.

Economists have been predicting that the flow will reverse, with more paid jobs being created in Poland, but the process is very slow.

Against this background, the failures of the Ukrainian state since independence in 1991 are more understandable. Its sense of national purpose was lacking, with the west of the country – which was never part of the Russian empire – looking towards Europe, and the East, with a strong minority of Russian speakers looking to Moscow.

To their own surprise, the Russian-speaking minority found in 1991 that their weight in numbers and in the economy were enough to give them a veto in national politics. This provided some kind of stability, built on crony capitalism. This was shattered at the end of last year, when President Viktor Yanukovich, was forced to decide between Russia and the EU, a choice that divided the country.

Times have changed since 1991: the EU is no longer flush with the kind of money it was able to provide to Poland, and Russia is no longer weak and confused. The Ukrainians’ appetite for shock therapy – which would require painful cutbacks in fuel subsidies – is limited. There is no opportunity for them to seek work in the rest of Europe, where anti-immigrant sentiment is rising. The economy is fatally distorted by the politically connected oligarchs.

A rescue effort such as the one that cushioned Poland’s transition is unthinkable at the moment. The nightmare for European governments is that they have to take responsibility for Ukraine’s debts while Mr Putin watches from the sidelines, always ready to destabilise the country if it appears to be lurching into the western orbit.

And what of countries farther away, such as Egypt, which is in much the same state as Poland in 1989?

The lesson of Poland is that the first requirement for foreign help is an evident sense of national purpose and an economy that is not going to be captured by politically-connected power centres.

Alan Philps is a commentator on global affairs

On Twitter@aphilps