Surprisingly a lot, as it turns out. First, despite their distinguished history, both China and Poland have consistently lagged in development behind the leading global economies in the West for most of their modern history. Since at least 1400AD, China’s and Poland’s level of income per capita has been significantly lower than, for instance, in the United Kingdom (Figure 1). Following almost three centuries of economic decline, in 1800 both countries’ income per capita amounted to less than one third of that in the UK. Their relative incomes have continued to decline even further well into the 20th century.
What was the reason behind such a disappointing economic performance? In my book, I argue that throughout its long history, Poland and the rest of the neighboring Central and Eastern European countries have lagged behind the West because they created extractive societies, that is societies ruled by the elites for the benefit of the elites and not the rest of the society, which promoted political and economic institutions that thwarted development. The narrow elites at the very top of the society did everything to ensure that the remaining vast majority of the population had no real chance to flourish. Education was available only to a few, markets and trade were largely closed to new entrants, and the state was emaciated by low tax revenue to ensure that it was too weak to compete against the established elites and protect the interest of the rest of the society. The elites also developed a culture that treated business with contempt, opposed innovation, denigrated science and emphasized class and social divisions. The elites enjoyed the status quo and had no interest in promoting economic development, because it could enrich others and thus risk undermining their political and economic position. Better to be powerful in a poor country than weak in a rich one.
It could be argued that China was a similarly extractive society, where at least until the fall of the last Qing dynasty, the elites opposed reforms, restricted access to education and business and promoted stability at all costs even if it hurt development. Various attempts at reforming the economically inefficient system, including those that drew lessons learned from the earlier collapse of Poland such as publications by Liang Qichao (梁啟超), 1896: “Record of the Destruction of Poland” (波蘭滅亡記) and Kang Youwei (康有為), 1904: “Record of the Partition and Destruction of Poland” (波蘭分滅記), have failed.
The extractive system needed a shock to change and unlock development. In my book I argue that communism was the external shock that after the Second World War helped Poland and Central and Eastern Europe destroy the old extractive society and lay foundations for a new inclusive society, which was critical for development. Communism removed class privileges, opened access to education to the poorest classes of the society, strengthened gender equality, introduced far reaching land reforms and started industrialization. All these measures dramatically improved social mobility and created a new, largely inclusive and egalitarian society. To give an example, up until the beginning of the Second World War, under the old extractive society, the richest 1% of the population in Poland accounted for up to 15% of GDP and only the top 1% of the society had access to university education. After 1945, the share of the top 1% in GDP collapsed to below 5% of GDP and university enrollment skyrocketed.
Economic planning introduced under communism by both Poland and China did not serve these countries well. It was largely only after the introduction of gradual market reforms, as in the case of China after 1978, or full market reforms, as in the case of Poland after 1989, that both economies started to grow at a fast clip. China’s success over the subsequent forty years is truly mind-boggling: Chinese people saw their incomes increase by thirty times, extreme poverty was eliminated and a new country emerged that could be hardly recognizable to the earlier generations. Never in the history of mankind have so many people achieved such success in such a short time.What drove China’s success? The debate is ongoing about the direct and indirect drivers of Chinese success and it will not end soon. But most economists would agree that China’s success resulted from strong leadership, pragmatic use of market forces to meet development goals, openness of the West to embrace China and social consensus to “rejuvenate the nation” and regain the status of a powerful country from the past. Much the same drivers, including the urge of the Poles to “return to Europe”, also animated Poland’s reforms and the subsequent success.
Will China and Poland continue to develop? Will China become as rich as America and Poland as rich as Germany? What economic policies will be needed to achieve it? Historical experience of other countries suggests that past success does not guarantee future success. While I am convinced that China and Poland will continue to converge on the leading economies of the world and China, like earlier Poland, will soon become a high-income country, challenges will nonetheless multiply. In fact, in many ways the next forty years for both countries will be dramatically harder than the past forty years: economic growth will naturally slow as both countries are now much richer, it will get harder to develop just by continuing to absorb ideas from abroad and competition from other countries will intensify.
China, in particular, will face at least five key challenges or “5Ps”: productivity slowdown, population aging, pollution and climate change, politics, and plutocracy. First, over the last decade productivity (TFP) growth has plummeted to worryingly low levels of below 1 percent per year. Unless productivity growth is rejuvenated, the time needed for China to become a truly rich country will lengthen. Second, rapid population aging will be another driver of slowing growth. China will need to decide whether to open up to immigration from abroad, a hallmark of all successful economies around the world, to sustain economic progress. Third, China’s growth prospects and the quality of life of its citizens will depend on the country’s ability to deal with pollution and climate change. Indeed, and that’s the fourth point, given China’s key role in the global GHG emissions, China’s commitment to protecting domestic and global environment will affect the world’s approach to China’s further development. China’s rise has already changed global politics and has given rise to intensifying headwinds that climate challenges will only escalate further. The next decades in global politics will be thus much different than the past decades and are not likely to support development. Finally, China’s growth has been accompanied by rising inequality, which, somewhat ironically, is now as high as in the US, and the growing power of the new elites. China will need to do everything to stop the self-perpetuating process of oligarchization in its track and avoid falling back into the old extractive trap, where the elites ruled the country for their own benefit. If this were to happen, China’s miracle would end.
Countries grow rich and stay rich only when they create and sustain inclusive societies in which, at least in principle, everyone can be successful regardless of who his or her parents are, where he or she was born or who he or she knows. Keeping societies inclusive will remain a fundamental challenge for both China and Poland, but also for the world at large.
About the author: Marcin Piatkowski, Associate Professor at Kozminski University in Warsaw, author of “Europe’s Growth Champion. Insights from the Economic Rise of Poland”, Oxford University Press 2018. Twitter: @mmpiatkowski