Will Poland Overtake the UK?

If so, should we care?

Sir Keir Starmer caused quite a stir earlier this week when he used data from the World Bank to demonstrate that Poland is set to overtake the UK in economic terms if both countries continue on their current trajectories. Starmer’s comments received a mixed reaction with some people branding it as a racist comparison, others arguing that it simply isn’t true, and some saying it’s true but fine. I’ll revisit some of this later but I do think Poland’s growth story is pretty interesting and worth looking into.

How did Poland do so well?

I hope I don’t get cancelled for this but I always loved the Just So stories by Rudyard Kipling and have enjoyed being able to read them to my nieces. If you don’t know them then they are essentially origin stories looking at things such as how elephants got their trunks and leopards their spots. I’m going to attempt to do the same and explain just how Poland has done so well in recent decades, but in a less fun way…

Poland had an incredibly rough deal in the 20th Century. Sharing a border with Germany and being close to Russia means it has been the victim of two of the most brutal and evil regimes in history, which obviously was disastrous for their economy. However, since the country regained its independence from the Soviet Union it has enjoyed significant economic growth.

In many ways this is not too surprising. Abandoning the failed policies of socialism and opening up your markets has been shown to work time after time. This has certainly been the case for the majority of countries from the former Soviet Union and Poland is no exception. Many point to the EU and the money it has received since joining as a reason for Poland’s success and while this has been a massive help (more on that later), it’s not the only reason.

Poland actually experienced a boom in the middle of the 90s. This is partly due to the creation of Special Economic Zones which incentivised investment in certain areas in Poland by building the right infrastructure and providing tax breaks and the like. It appears that these worked pretty well and significantly increased FDI. During this period (and beyond) the country providing the highest amount of foreign capital was Germany. This goes to show the importance of proximity when it comes to economics whether that’s FDI or international trade. As discussed above, having Germany as a next door neighbour at one point had a devastating impact on the Polish people and their economy but these days it’s actually a blessing.

Poland has also got really good at exporting. I bang on about this a lot but international trade really is incredibly important as it brings huge economic benefits and makes us all wealthier. Getting businesses exporting rather than sticking to their domestic market stops them from becoming lazy and forces them to innovate and up their game in order to compete with other firms. Again, Poland is no exception here – it’s got good at export discipline and so is reaping the rewards.

We also need to mention the EU. There are the obvious benefits of Poland joining such as frictionless trade within the Single Market, benefiting from EU trade deals with other countries, and of course the massive amount of money it was given really did help. There is more going on though as obviously joining the EU comes with conditions. Many of the prerequisites of EU membership have again been incredibly helpful for Poland such as fiscal discipline, rooting out corruption, and strengthening the rule of law. One of the many reasons why Putin’s evil regime is such a corrupt basket case.

It also shows us something about immigration. Those who have read my previous posts will know that I’m a big fan of immigration and I would like the UK to have much more of it. An objection that is often levelled at increased immigration is that even if it is good for the host nation, it’s bad news for the sending nation as it can lead to a ‘brain drain’. There is actually no evidence for this though and increased immigration can often bring significant benefits to the sending nation. For example, young workers often learn new skills when they are living and working abroad which they can then use when they return home. Increased migration also increases and strengthens economic and cultural ties between the two nations which can help to boost economic growth in the sending nation. Moreover, migrant workers often send remittances home which have a lot of benefits such as alleviating poverty, increased investment, and higher economic growth. One again, it would appear that Poland is no exception to this.

Will Poland overtake the UK and should we care?

As discussed above, the projections from the World Bank do seem to suggest that Poland will overtake the UK on a GDP per capita basis. However, there might be a few barriers to this. For example, Poland will probably have to do a much better job at connecting its rural communities to urban areas which it’s so far not doing a great job at. Also, as the clever people at McKinsey have pointed out, Poland probably does need to work at moving up the value chain into higher-value-added activities. Despite upping its game, it still is lagging behind the rest of the EU in terms of manufacturing  productivity. Obviously, projections are based on assumptions and a lot of weird and unusual things do keep happening so who really knows?!

All things being equal, and if both countries do continue on their current trajectories, then Starmer is right. I imagine this does apply to both nations as a whole though. Poland will have a higher GDP per capita than the UK but this will not be the case in London and some of our other major cities. Regional inequality in the UK is fascinating and will have to be dealt with in another post though.

So, should we care? For the reasons set out above we should in no way be surprised by Poland’s economic success. They’ve done all the right things and we should be incredibly happy that millions of Poles have not only been free from Communist tyranny but have also escaped poverty.

However, I do not think it is wrong or racist to suggest that it should be a wake up call for the UK. Poland was a country which was dirt poor and had essentially been enslaved by an evil empire and is now set to overtake the UK. I would have a very similar response if, for example, Lithuania (where my grandpa came from, hence the name) was in the same position.

While we should be really pleased that Poland is growing, we should not accept or settle for some form of managed decline. There is every reason why the UK can continue to be a major economic player and not just see GDP increase but also an improvement in the living standards of everyone. I’ve obviously discussed Poland’s story here but I think it would probably be wrong for the most part to follow their example as we’re in different stages in our development journeys. 

However, we do need to focus on export discipline to get more UK firms trading with other nations which is where the government should play a role. It should provide help and support for businesses to get them exporting but also needs to remove barriers to trade by building on the TCA with the EU and continuing to forge trade deals with other countries. We also obviously do a good job at attracting FDI but of course we can do better. Having essentially patched things up with the EU through the Windsor Framework will probably have helped with this as it helps to provide stability and makes a trade war with the EU far less likely. We do need to look at the tax system again though and, as I’ve written before, this is more to do with complexity and how the government treats investment as opposed to headline rates.

The UK is a highly developed economy and so if we want to boost growth we need to look at what it is exactly that is holding the UK back. As I’ve repeatedly pointed out it is the NIMBYs. The government needs to be bold and take on those who would block things from being built. The country needs to build more transport infrastructure, solar panels, nuclear power plants, wind turbines, offices, labs, and crucially millions of new homes. If the government doesn’t tackle the NIMBYs and build, build, build then it might as well not even bother and instead settle and prepare for terminal decline.

Poland is a great country with fantastic people and their economic success should be a cause for celebration for everyone. However, the UK government should not simply accept low economic growth and decline as inevitable. We all deserve better and the government needs to pursue policies which will deliver sustainable economic growth.