Is Poland's the debt to GDP ratio already unmanageable?

The United States have its own reasons to be concerned about future of their economy. However recent estimates show that so-called the new economies in Central Europe, not affected by the crisis, are also in the urgent need of repair.

According to the analysts from the Bank of International Settlements the debt to GDP ratio of the major Western governments will inrease over 200 percent without the fiscal reforms. This may not be a news but this information still remains relevant.

Central Europe was supposed to be an oasis with its growing population, opening markets and the modern economy. Surprise, surprise.

The Central Europe states face the same type of the danger as the West. They are however much less developed. Their growth depends on exports and the internal market sales. Their economies are fragile and burdened with a huge debt.

The new report by the Sobieski Institute in Poland reveals that the current real the debt to GDP ratio may be is more than 200 percent.

Author of the report calculated the debt through analysis:

  • an official debt,
  • projected debt of the state's pension fund,
  • the debt of the farmers' pension fund (KRUS),
  • the future costs of the special pensions (for the public sector workers),
  • the cost of the bridged pensions (for the pre-retirement period of about 2-5 years). This is not an easy problem as the below graph shows.

Analysts, who praise supposedly brilliant Polish economy are not aware of the state of the pension fund and other liabilities of Polish government.

In 90s during the restucturization of the heavy industry (coal, metal, shipbuiding etc) Polish governments permitted many workers to retire earlier. Industrial workers' unions managed to negotiate often extremely high pensions.  Ten percent of the 2009 budget expense were the special pensions (of the public sector workers: defense, judicial, education etc).

According to a reliable source Polish government did not count the value of non-fiscal liabilities such as for instance the cost of medical services or the public transportation for pensioners. But these services are part of the special pensions' package. 

Therefore even this estimate may not give a full picture. However it is the first attempt to estimate real debt of Polish government by the analysts from the private institution.

Here is this calculation:

the official debt + the estimated deficit
of the state's pension fund -                          598401.6 + 1363897.9

the Fund of the Demographic Reserve -                 50000


the cost of the special pensions
(for the public sector workers) -                          273347,1            =  208,2 %


the cost of the farmers' pension fund
(KRUS) -                                                          370 725,0


the cost of the bridged pensions                          46638, 4


PKB                                                                                   1271700, 0

The debt to GDP ratio is already 208,2 percent - four times higher than the official debt of the Polish government (47 percent).

But for the careful observers it should not be a surprise. Because in 2004 the fiscal imbalance of the Polish government was not a small.


A crisis of the Max Weber view on the economy

While Chinese economists are studying Christian roots of the capitalist system American believers have more doubts about it. A new survey claims that significant ammount of Christians rethought their view on the capitalist philosophy.

According to the survey, conducted by Public Religion Research Institute, only 38% believe capitalism and the free market are consistent with Christian values while 46% believe the two are at odds. Half (50%) of women believe that capitalism and Christian values are at odds, compared to 37% of men.

What in this survey is interesting for me that even among Republicans, the political party with the numerous defenders of the free market system, only 37% say Christian values and capitalism are at odds, and nearly half (46%) say the two are compatible.

I think diligent and careful observers of the market cannot agree with the practices that led to the current financial crisis. Is it the begining of the end of the Max Weber protestant work ethic? Popularity of the recent movie based on the free market defender Ayn Rand's book seems to suggest that it is not. It maybe however a good time to think whether there is a third way between the socialism and capitalism.

About two decades ago an economist Louis Kelso noticed that key to the just economic system is a private property, a capital, owned by the every consumer - a rich and poor one.

You live in a great democracy. If the logic of capital acquisition is to buy capital assets on terms where they will pay for themselves in a reasonable period of time, AND THAT IS ITS LOGIC, you can persuade the government of your country to adopt - and implement - a national economic policy that recognizes your human right to acquire capital out of its own income.

Ownership of a reasonable holding of productive capital, legitimately acquired, is the prize of the great Industrial Revolution.
If the Industrial Revolution, at its outset, and as an ever-ongoing phenomenon, is sustained by the efforts of all citizens of every society, then every human being who lives in a democratic country should insist and work for the establishment of an institutional infrastructure through which he or she, over a reasonable lifetime, can acquire and own a reasonable holding of productive capital.
After all, when governments help their citizens to become capital workers as well as labor workers, the government is also cooperating with Nature, as it should.

  • It is enabling its citizens to augment their democratically-held labor power with capital power.
  • It will reduce, even eliminate, welfare costs, redistribution and subsidies.
  • It will make its people more productive and make it easy for them to pay taxes.
  • It will raise the quality of their lives.
  • Capital is the keystone of the life support system of every post-industrial society.
  • Every family and every single individual needs to legitimately acquire and own a reasonable part of that life support system - so that the principles of free market economics will work in the post-industrial age.

Two-Factor Theory: the Economics of Reality; How to Turn Eighty Million Workers Into Capitalists on Borrowed Money, and Other Proposals

The New Capitalists: A Proposal to Free Economic Growth from the Slavery of Savings

The Capitalist Manifesto