Modernising Poland's knowledge based economy

23-01-2004

Poland is facing problems in creating a modern knowledge based economy. That is an economy in which wealth is created through production, distribution and use of knowledge. A preliminary report from the World Bank identifies some of the barriers and it lists - a monopoly in fixed-line telephones, loose ties between universities and firms, and flaws in the educational system. Rick Woodward is one of the authors of the report. He's an economist at the Centre for Social and Economic Research in Poland

"The main problem is that there's too little spending in the private sector and this means that firms in Poland are not competing on the basis of high "value-added" and intellectual property. They're competing to a large extent on the basis of low cost. In general I think there's a breakdown between universities, R and D institutes and so on, and private enterprise."

Could that be fairly easily corrected?

"I don't think it's an easy problem to correct. It's going to require intense work by policy makers, a lot of change in organizational cultures, and it's probably going to require quite a lot of public spending and spending is obviously a sore point for Poland given the state of its public finances currently."

So private industry is probably the best source of new finance for research and development?

"Yes private sector spending is where the biggest lags are. Private sector spending has to be raised."

Can Poland's government say that we require that a certain percentage of turn over be reinvested in research and development?

"I don't think that this can be done by decree but there are a number of instruments that can be used by policy. They would cost money, and that would be for example a tax instrument, giving tax benefits for R and D. his was not the type of recommendation that was endorsed by the World Bank, which has endorsed a system of grants and pilot seed capital for innovative start-up funds. It will cost the public sector in order to stimulate the private sector to invest more."

You wrote about the problems of administrative barriers, things that perhaps exist in rules and regulations that prevent some of these initiatives, these innovations, particularly the knowledge based ones from taking off. Can you give me some examples?

"These sorts of barriers are the barriers that generally face small firms, especially start-ups. Barriers that increase the costs of starting up businesses, for example the need to spend lots of time to visit various offices to register a company, to register it with the tax office. Additionally there are tax costs, costs of legal protection in the courts, which are particularly high for any start-ups. The functioning of the court system especially in the area of economic civil suits that would deal with the protection of intellectual property and so on, the functioning of Polish courts is very poor and very slow and that of course raises the level of risk for companies that already have problems finding finance due to low levels of collateral and things like that. The typical difficulties that any small firm faces tend to be greater in firms whose assets tend to be in the form of intellectual property rather than physical assets."

Did it come as a surprise to you, in doing the research for this report, that some of those problems hadn't been dealt with over the past 13 years?

"I would have to say that I find it particularly surprising, or disappointing, that through the 13 years of transformation in Poland, that so little has been done to reform administration of justice; the police, the courts, the prosecutor's office and so on. This is an area where practically nothing has been done and clearly this is one of the points that the European Commission has been making recently in its criticism of Poland. And I think this really needs to become a priority area for policy."

23-01-2004

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