China’s Model Economist in Poland
Polish policymakers have had a growing interest in recent years in the ideas of Chinese economist Justin Lin Yifu. But to what extent have Lin's prescriptions been adopted, and do they actually suit Poland's domestic context?
China’s global influence has many faces. But of all the stories the country has to tell in its push for soft power — following Xi Jinping’s call for state media to “tell China’s story well” — the most compelling on the global stage remains that of its rapid economic rise. What are the reasons for China’s economic development successes? Can those successes be replicated in other countries?
In Poland, one of the most recognizable faces of China’s economic soft power in recent years has been that of former World Bank chief economist Justin Lin Yifu, an important figure in Chinese economic policy-making. Lin is known among economic experts internationally for his “New Structural Economics” (NSE), an approach to economic policy-making that advocates, following on the paths pursued by China and other Asian economies, an active role for the government in pushing structural changes to the economy.
Chinese economist Justin Lin Yifu, an important figure in China’s economic policy-making, has become a friend and informal advisor for Polish Prime Minister Mateusz Morawiecki. Lin’s theory of “New Structural Economics” is cited in the economic plan of the conservative Law and Justice party (PiS), which embraces a more active state in the process of industrial upgrading.
PiS pursues a political agenda of national pride, focused on regaining economic sovereignty and maintaining an autonomous foreign policy— all notable parallels with China’s stress on national sovereignty and the notion of “the great rejuvenation of the Chinese nation.”
While Polish scholars debate whether Lin’s concepts can and should be adopted, Lin’s popularity with the Polish government shows that the so-called “Chinese Model” can be attractive for elites not just in Asian or African countries but also in strong emerging economies in the heart of Europe.
This means directing investment to certain industries and providing other forms of support, including a favorable regulatory environment, thereby spurring (or so is the hope) a process of industrial upgrading on the basis of a country’s comparative advantages.
Lin has talked about NSE as a “third wave” of development economics, and has spoken against the “Washington Consensus” view that spurns interventionist industrial policies for developing countries and favors unchecked and unguided neoliberal, market-based measures such as trade liberalization, deregulation and privatization. Nevertheless, Lin’s NSE is rooted in the neoclassical paradigm. Lin does not reject the market economy, market mechanisms and basic neoclassical concepts but rather the methods and sequence of their implementation. It should also be emphasized that although he does not admit so openly, Lin’s concepts are not particularly new, and his framework is based on the developmental state concept and the experiences of the so-called “Asian tiger” economies.
While Lin’s “New Structural Economics” should not simply be conflated with the “China Model” — and Lin himself has said that China does not follow a model in the sense that “[we] need to change policy all the time” — the economist has nevertheless become associated with structural assessments of China’s “success,” and with a shift away from the Washington Consensus while maintaining the market economy and market mechanisms. Much of what is central to Lin’s NSE, including a “facilitating [or active] state” that supports private companies to exploit the country’s comparative advantage, pursuing “the country’s areas of comparative advantage,” is regarded by some as the basis of China’s development success.
In an interview with Shanghai’s Liberation Daily newspaper in April this year, Lin, now a professor at Peking University and founder and director of the China Center for Economic Research, put Poland at the top of his list when he was asked for examples of how NSE has been received in developing countries. The economist noted proudly that Mateusz Morawiecki, Poland’s prime minister and former finance minister, had written forewords for the Polish-language editions of two of his books. Morawiecki had linked the insights and appeal of New Structural Economics to Poland’s “sufferings,” as Lin put it, under “the over-emphasis on the role of the government in the [Soviet-style] planned economy” on the one hand, and its experience of the “malady of neoliberalism’s sole emphasis on the market” on the other.
The reasons for the appeal of Justin Lin’s ideas in Poland are complex — as much about personality as about politics, economics and history. But the context of Lin’s reception is worth exploring in greater detail, as this helps us gain a clearer picture of China’s economic soft power at play in Central and Eastern Europe.
In this article, I explore the interest in Lin’s “New Structural Economics” in Warsaw along three parallels — or shared interests and concerns — between the Polish and Chinese contexts, all of which have contributed to the general appeal of some aspects of the so-called Chinese models as an attractive alternative to liberal democratic capitalism. These include:
* a focus on nationalism in Chinese politics, the importance of national interest in Poland, and the relation in both cases to a narrative of national rejuvenation;
* a mutual belief in the Chinese and Polish leaderships in the state or national identity of capital;
* a mutual concern about the so-called “middle-income trap” and the need to quickly catch up with developed countries.
These parallels have facilitated the reception in Poland of Justin Lin’s NSE concepts, which are among the various concepts included in the so-called “China Model,” and their subsequent inclusion in relevant policy responses. I conclude by looking at the limitations of the application of Lin’s NSE concepts in Poland, and by reviewing the domestic discussion of NSE among Polish economists.
The context of Lin’s reception is worth exploring in greater detail, as this helps us gain a clearer picture of China’s economic soft power at play in Central and Eastern Europe.
As I alluded earlier, personalities and personal relationships are also crucial. In Justin Lin’s interview with the Liberation Daily, as he talked about “[our] “mutual exploration of New Structural Economics,” he referred to his relationship with Mateusz Morawiecki, the Polish prime minister. That relationship goes back to 2015, when, in Lin’s retelling, “the party led by Morawiecki had just won the general election, and he formally announced that he would use the ideas of New Structural Economics to formulate [Poland’s] development policies.”
Lin described his relationship with Morawiecki as close and ongoing. “These past two years, whenever I attend [the World Economic Forum in] Davos,” he said, “I meet with Morawiecki, and we discuss Poland’s development and global trends.”
Poland’s Path to Rejuvenation?
Polish parliamentary elections in October 2015 had a dramatic impact on the country’s political landscape, and this in some ways set the stage for the appeal of Chinese economic thinking among policymakers. The defeat of the liberal-centrist coalition (formed between Civic Platform and the Polish People’s Party) by the center-right opposition party Law and Justice (PiS) under the leadership of Jarosław Kaczyński, marked an intensified turn toward conservatism, based on a core of Christian values, and national interests. The elections also marked a turn toward greater scepticism about the European Union, and about neoliberalism.
The political agenda of PiS, summed up in the phrase, “Poland rising from its knees,” is quite distinct as a form of Polish national pride, focused on the notion of the boosting economic development and regaining economic sovereignty, gaining prominence as an important actor within the EU and the CEE region, maintaining an autonomous foreign policy (not dictated by Berlin or Brussels), and building modern and capable armed forces. Nevertheless, there are notable parallels with China's stress on national sovereignty and dignity under Xi Jinping, and the notion of “the great rejuvenation of the Chinese nation.” Both visions involve a patriotism rooted in an idea of a nation as the state’s foundation, paired with a vision of modernization and prosperity. The past experience of the fascist and communist occupation in Poland and China’s century of humiliation impact the way the PiS and CCP respectively shape their present-day policies.
The October 2015 elections put PiS in a position to implement a broad range of political and economic reforms and policies around the party's national interest-based political agenda, without the need for public consultation or concern for opposition. PiS now holds an absolute majority in Poland’s parliament, and with Law and Justice politician Andrzej Duda serving in the presidency, the party has had full control of both legislative and executive powers in Poland.
Regionally, the PiS agenda envisions a strong Poland that leads in Central and Eastern Europe, regaining its national dignity and economic sovereignty — which the party sees as having been eroded by bureaucrats in Brussels and the sway of the West, principally Germany, over Polish political and economic life. At the same time, the party hopes Poland can remain a relevant, though independent, political player within the European Union – reshaping the rules and mechanisms governing the EU, not leaving it altogether as some observers often assume. The party’s platform has included new social welfare programs, such as increased pension payments and family benefits, that entail substantial increases in state spending, but also play an important role in boosting economic development, wealth redistribution and improvement in living standards for a large share of Polish citizens. Despite increases in spending, the PiS is also pushing for a balanced budget on the back of increased revenues. Some have read these policies as a populist move to shore up the political support necessary to keep the party in power ahead of parliamentary elections this month.
In November 2015, shortly after the parliamentary elections, Andrzej Duda appointed Mateusz Morawiecki, a Polish economist and former chairman of Bank Zachodni WBK, as deputy prime minister and minister of development. Morawiecki had previously served from 2010 to 2012 on the economic council advising then-Prime Minister Donald Tusk. In March 2016 Morawiecki announced that he had formally joined PiS. The following September, he was appointed minister of finance, placing him in the driving seat of budget and government finances as well as overall economic policy. The release in September 2016 of Morawiecki’s grand economic plan, called the “Strategy for Responsible Development” (Strategia na rzecz Odpowiedzialnego Rozwoju), and sometimes called the “Morawiecki Plan,” marked the introduction of an economic vision to match the PiS ethos of national pride and a Poland “rising from its knees.” The SRD, which can be downloaded here, became Poland’s official economic strategy in 2017 — a year that would also mark Morawiecki’s continued political climb as he replaced Beata Szydło as prime minister in December.
In Morawiecki’s address as he began in the post of prime minister, the ethos of Polish revival was palpable. Poland, building on “our great national heritage,” was now rising above its historical challenges, “rebuilding that which we have lost.” The new prime minister thanked his predecessor for her “constant faith in the sense of restoration of the Republic of Poland.”
Poland “rising from its knees” shares the sense found in China’s rejuvenation discourse of a return from the depths of modern history to a lost national greatness and dignity. And according to PiS, reaching its goals requires Poland, like China, to strike out on its own development path. This is where Justin Lin’s ideas, and China’s experiences, come into the picture. According to the “Strategy for Responsible Development,” Poland should not blindly follow the Washington Consensus framework. It should instead redefine it and adapt it to the country’s needs. As Morawiecki wrote in his introduction to the SRD:
The transformation [in Poland] after the fall of communism required a redefinition of the role of the state in the economy. The foundation on which Polish capitalism and prosperity was to be built was the set of rules of the so-called Washington Consensus, including deregulation, privatization, trade liberalization and free movement of capital.
Morawiecki referred to this period of liberalization as a triumph of “the dogma that the best industrial policy is no industrial policy.” What Poland needed instead was a strong state capable of making strategic development decisions.
The Active State
Morawiecki and the PiS are redefining the role of the state in the economy, adopting the view that capital has nationality, and that the state therefore must be a central actor in managing economic diplomacy and guaranteeing economic sovereignty — having an active role in stimulating and supporting industrial development to make it more efficient and better aligned with the overall economic development strategy. As sociologist and economist Anna Gromada wrote in 2017: “The PiS victory in 2015 meant not only reconstruction the political scene in Poland, but also a statist shift in almost all areas of public life, including the economy.”
In his foreword to the Polish edition of Justin Lin’s New Structural Economy for Less Developed Countries, published by the University of Warsaw’s Faculty of Management Press in 2017, Morawiecki announced the failure of the Washington Consensus and classic neoliberal theory in the CEE region, and re-stated his party’s opposition to laissez-faire concepts.
Morawiecki had already made this position quite clear in his introduction to the SRD, in which he wrote: “Of course, there is no one recipe for modern capitalism. However, in the face of today’s civilization challenges, market unrest and social challenges, and with the current technological progress, designing the best development methods should be the fundamental duty of the modern state.”
The influence of Justin Lin’s development playbook is unmistakable here, and indeed Lin’s “New Structural Economics” is cited directly in the SRD document to support the idea of a more active state in the process of industrial upgrading. At one point in his introduction, Morawiecki expands on his party’s views regarding the role of the state in overall economic development, including the directed development of strategic sectors:
The state has a fundamental role to play in initiating and implementing changes in the socio-economic development model. The basis of the adopted Strategy is therefore the belief that countries with proactive policies can lend positive impulses and generate positive pressure for the creation of a modern, an innovative and sustainable economy.
In the Polish political context, this emphasis on the role of the state — which is associated closely with Lin’s NSE and draws some elements from the "China Model" — also has implications for questions of democratic governance. This is an issue I will come back to in a moment.
But there is a third parallel between the Polish and Chinese contexts that has encouraged interest in the ideas of Justin Lin — and that is shared apprehension about the dangers of the so-called “middle-income trap.”
Trapped in the Middle
Weathering the global financial crisis in 2008, China’s economy continued to be the envy of the world, reporting blistering GDP growth of 8.7 percent in 2009. But by 2011, a level of unease had already set in within the Chinese Communist Party, which remained “nervous about the sustainability of economic growth.” A joint report called China 2030, released in 2012 by the World Bank and China’s government-run Development Research Center, called China’s economic performance over three decades “remarkable,” and noted that “China is well positioned to join the ranks of the world’s high-income countries.” But the report also stressed that the country “must change its policy and institutional framework” if it wished to become a “modern, harmonious, and creative society by 2030.”
“China’s policy makers are already focused on how to change the country’s growth strategy to respond to the new challenges that will come, and avoid the ‘middle-income trap,’” the report said.
Since that time, the “middle-income trap,” a term frequently used by the World Bank to describe countries that get mired at a middle level of economic development as they try to become wealthy, has become a buzzword often heard when talk turns to China’s efforts to “rebalance” its economy and move up the value chain.
The “middle-income trap” has been a priority, and a key issue in Poland too, where policymakers talk about unlocking the latent potential of Polish companies, fostering more dynamic growth, and encouraging technological advances and innovation. The hope is that all of this might lead to better-paid, high value added jobs, and to a richer society and a stronger domestic market. Ultimately, the achievement of these goals could result in higher revenues for the state, which would serve the broader PiS agenda of achieving more equal income distribution and a more developed social welfare system.
As he discussed the implementation of the Strategy for Responsible Development during a parliamentary meeting in 2017, Morawiecki called the “middle-income trap” “one of the main pitfalls identified in the Polish economy.”
Morawiecki’s SRD actually identifies five “development traps” facing Poland. These include the “middle-income trap”; the “imbalance trap” (that is, a lack of balance between the Polish and foreign capital); the “average product trap” (meaning that products should move up the value chain); the “demographic trap” (namely, an insufficiency of young and skilled workers); and finally the “weak institutions trap” (taking us back to the NSE notion of the “active state” that pushes industrial restructuring).
Like the “middle-income trap” in the Chinese context, these traps are seen as obstacles on the road to national revitalization. While for China that goal, linked to the notion of national "rejuvenation," is to achieve a moderately prosperous to well-off society by 2020 and to build "a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious" by 2049 — in time for the 100th anniversary of the People’s Republic — the goal in Poland is to catch up with or surpass the wealthier nations of western Europe in terms of income. Morawiecki has said that his overall objective through the SRD is to raise incomes and improve social and economic cohesion. He has projected that by 2030 the average Polish family will have a disposable income close to the European Union average.