Shadowlands

“There could be shadow galaxies, shadow stars, and even shadow people.” So believes Stephen Hawking, former Lucasian Professor of Mathematics at the University of Cambridge (the chair held by Isaac Newton in 1663), and a man regarded as one of the most brilliant theoretical physicists since Einstein. While to understand much of the conjecture at the forefront of theoretical mathematics demands a faith in theory no less intense than that of the religious faith which some believe to be incompatible with science, what is beyond conjecture is that Poland has a shadow economy which, unlike Hawking’s universe, appears to be contracting rather than expanding.

Poland enjoys – if that is the right word, and it might well be depending on the elements in the shadows (please see Pretty Woman) – a shadow economy equal to 23.8 per cent of GDP according to international research commissioned by Visa Europe and undertaken by A.T. Kearney and Friedrich Schneider, PhD, professor of economics at the Johannes Kepler University in Linz. To put these findings in context, the shadow economy is smallest in Switzerland at 7.1 per cent of GDP, followed by Austria and Luxembourg at 7.5 per cent and 8 per cent respectively. And it will, perhaps, come as no surprise to learn that the shadow economy is largest in Bulgaria at 31.2 per cent of GDP) and Romania and Croatia at 28.4 per cent.

In fact, after years of decline, the Polish black market is now at its smallest level for a decade. There has been a steady reduction since 2003 save for 2009 when the shadow economy to GDP ratio grew by 0.6 percentage points, whereas between 2003 and 2013 there was a 3.9 percentage point fall. This trend has been seen across the EU as a whole with the shadow economy having declined from 22.4 percent of GDP in 2003 to 18.5 per cent of GDP in 2013.

The report concludes, unsurprisingly, that an increase in electronic payments curbs shadow transactions. Since 2010 an initiative launched in Poland to expand acceptance of both Visa and other cards, has seen more than 120,000 new terminals registered, most in predominantly cash-based industries with high sales under reporting, such as food and drink retailing, hotels, restaurants, and catering. With recent growth in contactless payments Poland is now second only to the United Kingdom in the number of contactless cards, which has transferred low-value payments from cash to cards. Still, I imagine that cash remains king in the in Pretty Woman world and, as I wrote there, there seems to be a large degree of moral confusion, to say the least, in adding the proceeds of illegal activity to GDP figures when GDP growth is seen as the primary objective of economic policy.

Meanwhile, out of the shadows, the Treasury Ministry is working on legal regulations, which it hopes will come into force in the first half of 2015, to block share purchases in companies seen as strategic in Poland. Earlier this year, a list of 22 strategic companies was announced by the Treasury Ministry which included Grupa Azoty, PKN Orlen, Grupa Lotos, PKO BP and PZU. In 2012, Poland decided on the consolidation of state-controlled chemical sector companies around Grupa Azoty after a takeover attempt from Russia’s Acron. “The example of the successful defence of Grupa Azoty, supervised by the State Treasury … distinctly showed that we need effective tools for the protection of our market and our interests,” Treasury minister Wlodzimierz Karpinsk said.

That’s all very well but wither the concept of a single and free European market so beloved by Poland when it suits? After all, when David Cameron suggested changes to EU arrangements were needed to protect the interests of the UK – not least long term social cohesion – Poland’s deputy foreign minister Rafal Trzaskowski wrote in a letter to The Independent newspaper that ”there is a red line we cannot allow ourselves to cross and that is discrimination against EU citizens.” He was adamant that EU migrants residing in the United Kingdom contributed more in taxes than they reaped in benefits such as housing, medical and other services, although when “in work” benefits are taken onto account the position is far from clear.

Be that as it may, when trying to tie together these policies, whether it be the prime minister’s demanding more cash from Brussels before agreeing to stricter climate regulations (please see Compromise), or seeking to protect selected companies from foreign shareholders, the best I could manage, without a shadow of a doubt, was: “Hands out; hands off.”

Merry Christmas!

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