Today, politicians are not helping the economy

Małgorzata Tomczak

15 of February '23

visualization from Jubilee Square

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The interview is from the 02/23 issue of A&B.

Professor Stanislaw Mazur is a Polish scientist, a specialist in public policies and public management. For years he has been associated with the Cracow University of Economics, whose rector he has been since 2020. During his tenure, a competition for UEK's Jubilee Building was launched and decided (September 2022), which was won by BE DDJM Architects. Professor Stanislaw Mazur is interviewed by Malgorzata Tomczak about emotions, the crisis, the Polish economy and the development of the university and Krakow.

"Rationally thinking, the government should support metropolises and metropolitan areas. However, this is not happening. Thus, the government's policy is, to some extent, anti-modernization, because it limits the development potential of metropolises, which generate development. A modern economy needs, first of all, those competencies that are located in metropolitan areas."

Prof.Stanisław Mazur - Prof. UEK, PhD - Rector of the Cracow University of Economics, Head of the Department of Public Policy, former Dean of the College of Economy and Public Administration. Editor-in-chief of the quarterly "Public Management". Graduate of political studies at Jagiellonian University (1994), where he defended his doctoral dissertation in 1999. He received his postdoctoral degree in the humanities from the University of Wroclaw in 2012. He specializes in: public policy analysis, public management, organizational and systemic learning. He participated as an expert and coordinator in dozens of national and international projects in the field of public policy analysis, quality of governance, strategic management, organizational learning. He is the author of more than 260 scientific publications published in renowned national (PWN, Scholar) and foreign publishing houses (Routledge, Peter Lang Publishing).

Malgorzata Tomczak:Mr. Rector, a difficult time lies ahead. Crisis chases crisis. Economic, energy, climate, raw materials. How do you assess the moment in which we find ourselves?

Prof. Stanislaw Mazur:We are living in an exceptional time, the accumulation of various crises we are facing is astonishing and unfavorable. Also, when we look at our country, we see growing economic problems, inept monetary and fiscal policies, galloping inflation. We are on the eve of a recession. In addition, the energy and climate crises and the war in Ukraine are negatively affecting the economic situation, creating anxiety, fear, uncertainty. Increasing polarization and populism reinforce this anxiety. This is a difficult, strange and bleak time. May it be behind us now.

visualization from Jubilee Square

Malgorzata: How will this affect the economy in the short and long term? How will citizens feel the effects of such a situation?

Prof. Stanislaw Mazur:If the unfavorable situation continues, the economy will begin to decelerate rapidly, companies will reduce investment, labor problems will arise, GDP dynamics will decrease. As citizens, we are already severely affected by very high inflation translating into a decrease in purchasing power, that is, a situation in which we can buy less for what we earn. Another very acute consequence of the unfavorable economic situation is the high cost of credit preventing, especially for young people, the acquisition of housing. When things go badly in the economy, it is always the less well-off who suffer the most. Those better off have more ways to do better during a downturn.

site plan

Malgorzata: How long can it take?

Prof. Stanislaw Mazur:It is very difficult to give a reliable answer to this question. Capitalist economies develop in certain cycles - from prosperity to recession. What happened during the pandemic period disrupted the variability of these cycles. Fear of economic recession due to the covid pandemic caused governments and central banks in many countries to pursue a policy of "dropping money from the helicopter" - by not directing it to those who actually need it and would use it most efficiently. The pumping of huge amounts of money into the economy has unsettled it. We don't know how long this condition will last.

What we do know is that the most important call for economic policy in many countries, especially in Poland, is to fight the hydra of inflation. In order to stifle inflation, it is necessary to pursue a very consistent economic policy that is strongly oriented toward curbing inflationary impulses, which involves, among other things, reducing public spending. Let's be realistic, we are on the eve of national and local elections - this will not promote the rationalization of economic policy. It will lead to a situation where inflation is high, while the economy is stagnant. This has a very negative impact on the economic situation of citizens.

township diagram

Malgorzata: What should happen for inflation to slow down?

Prof. Stanislaw Mazur:At the moment, the biggest challenge is very high inflation, which in part - and this should be noted - is external. Rising energy prices, disrupted supply chains, the war in Ukraine - all of these have a strong impact on rising inflation. However, it should be said very clearly that a significant part of it, I estimate roughly 50 percent, is due to the inept economic policy pursued by the government, particularly the National Bank of Poland and the Monetary Policy Council. The Polish raison d'etre is to suppress inflation.

The simplest way to do this is to limit the social transfers that those in power lavish on their electorates. Given the election cycle we are entering, this will be insanely difficult. Politicians would have to say: it will hurt in order to make it better later. But are they so brave as to say that in an election year? It seems not. Moreover, I think that on the side of the opposition the boldness to make such a diagnosis will not be significant either.

functional diagram

Malgorzata:However, let's try to outline the most certain scenario. Are we dealing with anything beyond political speculation? Do you see any elements of necessary and rational planning and running of the Polish economy?

Prof. Stanislaw Mazur:Increasingly in economics we are dealing with two ways of thinking, often in opposition to each other: political, dominated by the logic of the election cycle and maintaining power, and rational, based on the calculation of economic costs and benefits. In recent years, political thinking has clearly dominated, with politicians putting their party's interests ahead of the common good. The result is inconsistent economic policy. Its textbook example is, on the one hand, raising interest rates leading to a reduction in the money supply to choke off inflation, and on the other hand, the government launching more social transfers to fuel inflation.

It is important that real money, such as that enshrined in the National Reconstruction Program, be in the economy. This is money that can stimulate investment, build the competitiveness of Polish companies, and drive the national economy. Social transfers temporarily mitigate the negative consequences of the crisis, but are not a viable way to solve it. Not everyone needs a carbon allowance, not everyone needs a 500+ allowance. At the same time, I want to make it clear that social transfers are necessary in a capitalist economy. However, they make sense when they go to those who really need this support, help them realistically solve the problems they face, and not when they are a way to buy electoral votes.

Serious thought needs to be given to how to help companies to thrive in these difficult times. Certainly an important form of support would be the mobilization of European funds, including those that go to local governments. They are very important investors. But these big investors are exhausting their investment potential, because they are being squeezed by unwise tax changes, the Polish Deal, and have an increasingly difficult situation and narrower space to invest. Without expanding this space through a stream of European funds, the ability of local governments to invest, and thus drive local and regional economies, will be depleted.

mockup

Malgorzata: So what are the possible scenarios for local governments? What will happen to their budgets without KPO? Can the same scenarios be foreseen for large, medium and small cities?

Prof. Stanislaw Mazur:The Law and Justice government does not seem to be a great enthusiast of local governments. It is taking many measures that limit the competencies of local governments, undermine the stability of their revenues, and lead to the erosion of their decision-making autonomy, in line with centralist inclinations. In this context, the KPO acquires fundamental importance. The decline in revenues of local governments, particularly evident in the case of metropolitan areas, limits their development opportunities, prevents them from undertaking new investments, and hinders the improvement of public services. Without KPO funds, local governments will not be able to develop, and this will negatively affect the quality of life of local communities.

It is worth noting that small and medium-sized cities and rural municipalities on the tax solutions introduced by the government relatively gain. Large cities lose from them. Their revenues fall, expenses rise, their operating surplus is sharply reduced, limiting their ability to invest and improve the quality of public services. Let me cite the example of education. Krakow subsidizes education by about 40 percent, because the subsidy that comes from the state budget for this purpose is not sufficient. This prompts the question, why is this happening? Many studies show that cities are becoming centers of civilization development. The force of their economic impact extends over an area reaching 250-300 kilometers. Rationally thinking, the government should support metropolises and metropolitan areas. However, this is not happening. Thus, the government's policy is, to some extent, anti-modernization, because it limits the development potential of the metropolises that generate development.

cross-section A-A

Malgorzata: In view of this, are we going to move out of the big cities to the so-called periphery, because there will be better development prospects there, and cheaper living at the same time?

Prof. Stanislaw Mazur:We are increasingly moving outside the areas of big cities. Living outside of metropolitan areas is most often chosen by freelancers because of higher living comfort. However, they work in large cities. They are the ones that offer more opportunities for development and higher salaries.

Speaking of metropolises, it is worth noting the problem of depopulation occurring in medium-sized cities. They are trying to dynamize the development processes taking place in them through public investments or relocating offices to them, which are located in the capital. This, however, does not bring satisfactory results. Locating modern companies in smaller cities is not easy and rarely yields good results. This is especially evident in those industries that are technologically advanced, based on innovation and creativity. Modern business needs a specific institutional ecosystem and a creative class. Its members generally work in metropolitan areas. This is one of the main reasons why it is so difficult for medium and small cities to fight the exodus of residents seeking better jobs, higher wages. Above all, the modern economy needs those competencies that are located in metropolitan areas.

entrance area, lobby

Malgorzata:So we are dealing with another urban utopia, which for economic reasons cannot succeed?

Prof. Stanislaw Mazur:Living outside metropolitan areas will always be an attractive option. This is obvious. However, it would be an illusion to assume that without strong metropolises it is possible to build an innovative, competitive economy offering quality jobs.
Margaret: You surely remember the once iconic book "The Birth of the Creative Class", in which the author, Richard Florida, tried to prove that it is enough to create suitable and attractive conditions for the creative industry, which, settling in a given place, will soon attract business and be an impulse for the development of a given locality or region. At the same time it does not matter whether it is a smaller or larger city. Another romantic?

Prof. Stanislaw Mazur:I do not exclude the possibility of a scenario in which representatives of creative professions, for example, artists, are able to build a settlement in which they implement business projects together. But is it possible to build a modern economy this way? No. At the beginning of the 20th century, German sociologist Georg Simmel wrote an excellent essay, "The Mentality of the Population of Large Cities." Simmel wrote that the uniqueness of life in big cities lies in the concentration of exceptional energy in a relatively small space. Metropolises are brimming with energy, full of excitement, creative tension, and these generate waves of innovation and creativity that are a key factor in building technologically advanced economies. In order to be able to launch specific generators of energy transforming the economy and society, it is necessary to concentrate different temperaments, personalities, emotions, values in a relatively small space. It is impossible to generate all this outside of metropolises. They are the ones with the right energy and dynamics. The creative class is needed, only it begs the question, where does it want to live?

Student Square

Malgorzata: What is your professor's answer?

Prof. Stanislaw Mazur:The creative class chooses places with good quality services, theaters, cinemas, cafes, libraries. It chooses social environments characterized by openness, tolerance and inclusiveness. The creative class needs a specific ecosystem. Without it, it loses its greatest asset - creativity. For many members of the creative class, this is more important than making money. The latter are important, of course, but they are not the main motivation.

Malgorzata:And that's interesting!

Prof. Stanislaw Mazur:Many studies show that the creative class is much more interested in development, self-realization than consumption. I have talked to founders of start-ups many times. Start-ups can generate high revenues, the opportunity to get rich quickly. However, this does not seem to be the main motivation of their founders. What often motivates them, causes them to create another start-up - is a kind of competition with the competition and with themselves. Like in sports - it's important to win in order to become even more successful.