Time to Change Gears for Poland’s Economy
Poland is Europe’s growth champion. It has more than doubled its GDP per capita since the beginning of post-socialist transition in 1989, consistently growing since 1992, and was the only EU economy to avoid a recession in 2009. Poland is a prime example of the success of the European “convergence machine”. In 2014, the level of income adjusted for purchasing parity exceeded $24,000 and reached almost 65% of the level of income in the euro zone, the highest absolute and relative level since 1500 A.D.
However, past successes do not guarantee a prosperous future and Poland cannot afford to grow complacent. Given the significant productivity gap—Poland’s productivity per hour amounts to less than half of that in Germany —technology absorption will continue to drive private sector productivity in the near term, but it is unlikely to help sustain—not to mention accelerate—economic growth in the long term as Poland moves closer to the technology frontier. Investment in private sector R&D and innovation will have to increase far more rapidly. Growth can stagnate if Poland doesn’t start shifting from imitating others to generating new ideas, from quantity to quality, and from potato chips to microchips.
Simply put, Poland has not spent enough on R&D and innovation and the impact of that spending seems to have been much lower than in its central European peers. In 2013, R&D spending amounted to only 0.9 percent of GDP, placing Poland at the tail end of EU rankings. Notably, private R&D spending was particularly low, at only one third of total R&D spending.
Going forward, the public innovation support system will need to be fundamentally modernized and reoriented towards global excellence with a more prominent role of the private sector. The status quo will not do. What Poland cannot afford is to increase public spending on R&D, but continue to achieve negligible outcomes. The efficient investment of nearly 10 billion euros made available to Poland from the European Union funds until 2020 will be thus instrumental in transitioning the country to a creator of new knowledge and incremental or disruptive innovation.
So what will it take to nurture the next Marie Curie Sklodowska, world class Polish scientist and the only woman to win two Nobel prizes in physics and chemistry, or launch a global innovation champion from Poland? What can the Polish authorities do?
We suggest five priorities for innovation policy:
First, focus on outputs rather than inputs.
Poland must move away from merely disbursing EU funds to focusing on return on investment and tangible economic results. In the next—and likely last round of EU structural funding—it should not matter how much has been spent but what the results are. The government should help support firms and researchers to go where no one has dared to venture before, and not to substitute existing research or innovation activities.
Second, put businesses in the driver’s seat.
So far, much financing for R&D and innovation has been channeled via the public research institute sector, which is by definition a step removed from global technological and market trends. Going forward, it should focus on direct support for R&D to enterprises, while ensuring that no public money is spent without matching private money. Moreover, bottom-up needs of the enterprise sector should beat top-down innovation policies designed at a bureaucrat’s desk. Finally, the public sector should engage enterprises to discover their real needs and barriers to growth through constant dialogue, in-depth interviews and crowdsourcing.
Third, focus on implementation.
The devil is ultimately always in the details. While everyone agrees on the lofty objectives, hardly anyone takes the time to set up efficient project selection systems or assess the results for net economic impact. Complex procedures, deep rooted risk aversion, and a poor understanding of technology and market risks affect the project selection process. This often implies that R&D innovation program beneficiaries are often different than the ones originally targeted or desired. As a result, the innovation system ends up funding a lot of low risk technology absorption but little of high-risk innovation.
Fourth, open up and connect to the world.
Poland should use English in application processes, integrate international peer review and introduce foreign experts to investment panels for entrepreneurship and R&D support programs. It must make sure that it becomes increasingly difficult to become or remain a professor without speaking English, collaborating internationally or publishing in international journals. It will also be critical to promote highly-skilled immigration, especially among academics, young entrepreneurs and VC experts. Finally, Poland could send as many Poles as possible to study and do research abroad, at the best universities, and help them reintegrate and work their magic when they return home.
Lastly, invest in building top-notch institutional capacity and business friendly environment.
Use experienced professionals to staff the innovation support institutions and treat them as if they were the army’s Special Forces. Introduce incentives for top experts to partner with public sector agencies to support innovation. Set up robust evaluation and fast-track decision making processes (maximum 60-90 days for reaching a decision). Finally, introduce R&D tax credits for medium to large enterprises, given that Poland lags most of Europe in this regard and promote friendly taxes on intellectual property rights and venture capital investments.
Poland has just experienced probably the best twenty years in its economic history. It has become the European growth champion and one of the fastest growing economies in the world among its peer group. If it continues growing until the end of the decade, it will set new global records for interrupted economic growth, beating Japan and Korea. It will enter its golden age and permanently escape the European periphery; but this can hardly happen without innovation.