The Kalecki Foundation, supported by NBP has released a report critical of the activities of foreign corporations in Poland, with “doubt as to the source of sustainable economic growth” for the present Polish economic situation.

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Poland is a “subcontractor” of Germany

It’s titled “Kapitał zagraniczny: Czy jesteśmy gospodarką poddostawcy?” or roughly “Foreign capital: are we this sort of economy?”. The report opens with:

Poland has the characteristics of a subsidiary of a market economy, characterised by low labour costs and low added production value.

The main thrust of the report is that the influx of foreign investment has only superficially been good for Poland, and the present structure is bad for long term prospects. At the beginning of the Polish economic transformation, it was believed that the opening of Polish foreign investment would result in the transfer of innovation, and the creation of many jobs.

Although in terms of quantitative objectives, which have been substantially achieved, the quality of the above factors raise doubt as to the source of sustainable economic growth.

One of the examples given of the peripheral nature of the Polish economy has to be the fact that half of the foreign corporations operating here transfer profits abroad, which in general means they are not paying local corporation tax. The reason for this state of affairs is to be “large scale tax optimisation practices and low efficiency of tax offices” in the collection of tax from foreign corporations.

The report calls for change. “The current legal regulations require administrative review of the current situation, as they mainly seem to favour foreign entrepreneurs”, is the assessment of the authors of the report.

What are the main structural problems of the Polish economy? It has more than twice as low as the EU average GDP share of expenditure on research and development, as well as a very low wage share of our country’s domestic product, being 46%, which is about 10 percentage points lower than the EU average.

Polish special economic zones

The Kalecki Foundation believes special economic zones are not functioning well. “Entities with foreign capital largely enjoyed the support of the Polish State, even though they pay relatively lower taxes than domestic firms,” the authors write in the report.

They highlight that less than one-fifth of investors in the SEZ is a Polish entity, and the total value of the exemptions in respect of taxes on income in the years 1998-2013 in these zones amounted to over 14.6 billion zł. This leads to the fact that the “effective rate of corporate tax in 2013 for entities with the participation of foreign capital was lower than the effective rate for all other taxpayers of corporation tax of 1.2 percentage points.”

Subcontractor of Germany

The analysts believe the Polish economy “has the characteristics of a subcontractor management, mainly in relation to the German economy.”
They indicate that not only a quarter of Polish exports go to Germany, but also the business cycles of the economy of the Polish and the German “from the last decade show a significant synchronization.”
As a highlight, “in the supply chain, the German economy connects Poland with relatively low value added exports.”

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