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"Institutional Systems and Quality of Life" - Report from the anniversary conference of Prof. Leszek Balcerowicz

On Thursday 26 January, at Marriott Hotel in Warsaw, a conference was held to celebrate the occasion of the 70th birthday of Prof. Leszek Balcerowicz. It was organized jointly by the Civil Development Forum FOR, Association of Polish Economists, Center for Social and Economic Research and the School of Economics in Warsaw. Referring to the academic interest of the Jubilarian, the subject of the conference was "Institutional systems and quality of life.” The variety of invited speakers and as well as topics of the debate made the event a real intellectual feast, especially for those interested in interrelations between economics, law, and politics.

The conference was opened by Prof. Marek Rocki, Rector of the School of Economics, and Dr. Andrzej Rzońca, Chairman of the Association of Economists, Advisor to the Board of FOR. Prof. Leszek Balcerowicz delivered the introductory lecture. He stressed the necessity of academic research on institutional arrangements and pointed to the practical question of the need for the introduction of good and removal of bad institutions. As the author of the Polish economic transformation stated, "institutional factors affect the quality of human life more than natural ones." Economic policy through which the state encourages citizens to remain in poverty, Prof. Balcerowicz called "a crime against the people." The Founder of FOR also referred to a frequently occurring phenomenon of criticism of the free market by various political forces and some intellectuals. In his opinion, anyone who criticizes the free market should realize that its abolition would mean the introduction of some form of authoritarianism. ”There is no democracy without the free market - for those who love democracy but not capitalism (very fashionable these days) capitalism should become love substitute," argued Leszek Balcerowicz.

Then the guests had the opportunity to listen to the first panel discussion, on "Institutions and mechanisms of systematic growth of the economy", moderated by Dr. Wiktor Wojciechowski from SGH (Warsaw School of Economics). In his speech, Prof. Stanisław Gomułka, Chief Economist at the Business Centre Club, pointed out that "for many years, the role of institutions was not considered central in world economic literature. Now it starts to change, which is crucial in building an interdisciplinary theory of economic growth.”

Prof. Gomułka pointed to the work of Acemoglu and Robinson as an example of this positive change, though critically stressed that these studies focus exclusively on the analysis how institutions affect economic growth." According to Prof. Stanisław Gomułka, the experience of the countries of Central and Europe and the former Soviet Union shows that it is worthwhile to examine the inverse relationship: from economic growth to institutions. As he explained, in our region of Europe, "the strong public demand led to institutional changes" which allow for stable growth of the economy and thus faster catching up with Western countries. As an example he mentioned control of inflation which a quarter of a century ago contributed to the poverty of population and economic instability.

The next speaker was Prof. George Selgin, director of the Cato Institute's Center for Monetary and Financial Alternatives. His speech challenged the interesting and yet rarely discussed assumption: the need for the existence of central banks. As Prof. Selgin argued on the basis of scientific data, both in the United States and Britain, the establishment of a central bank and, related to it, introduction of government control of the amount of money, made it impossible for small banks to obtain capital. "In the first 30 years after the founding of the Fed, there were more financial crises than in the previous 30-year period. It is a myth to say that the Fed is the best solution to the financial stability or that the Bank of England is wonderful. Central banks are currently promoting such bad practices as "too big to fail" policy, which is an invitation for financial institutions to excessive risk-taking," argued the US economist. George Selgin also recalled that it is not the market that is the source of financial crises, but the intervention of governments and public institutions acting on market mechanisms. Selgin also noted that "we still have financial crises, because we still believe that governmental institutions can prevent them."

The second session of the conference went beyond strictly macroeconomic issues, presenting a broader view of the relationship of political and legal conditions with the daily life of citizens, not only in economic terms. The panel called "The level of the rule of law, protection of freedoms and economic and non-economic living conditions" was chaired by Agata Stremecka, the CEO of FOR.

The first speaker was Dr. Włodzimierz Cimoszewicz, lawyer, former prime minister and minister of justice. Cimoszewicz pointed to the low level of knowledge of citizens about the Constitution. ”We do not have such luck as the Americans, who have been living seven generations under the same constitution, and have already memorized what their rights are. The average journalist still has no knowledge of the Constitution," deplored the speaker. In his opinion, this ignorance results in the process of adoption by politicians rights that violate the Constitution what has been observed for a long time. ”Why do we have what we have in our country? This is not a breakthrough; it is just another step. Since the beginning of the Third Republic, violation of the foundations was moving farther and farther," said Cimoszewicz and as an example he cited law on legal highs from 2010 which gave powers of judges to officials and so-called law on beasts from 2013, which allows indefinite deprivation of freedom of some criminals. These moves paved the way for reducing the role of the Constitutional Court or dubious vote on the budget in December 2016. According to Cimoszewicz, it would be appropriate to introduce lessons in foundations of law in schools.

Another talk was delivered  by Prof. Jerzy Stępień, former president of the Constitutional Court, who began his lecture with the following words: "One cannot imagine a good lawyer without a rudimentary knowledge of economics, one cannot imagine a good economist without the knowledge of the law.” He noted that in Poland there is a tension between the eastern and the western approach to the law.

As he said, "Eastern tradition is the lack of a sense of influence on the shape of local and central government plus the belief that everything depends on the center," while the western one is decentralization and civil agency. Jerzy Stępień - referring to the works of legal philosopher Hans Kelsen - stated that the necessary condition for the constitution being actually in force is the existence of a body able to overthrow unconstitutional law.” Otherwise, the constitution is just a set of wishful thinking," he said.

Of the input from the public, the vice of Prof. Ewa Łętowska, former judge of the Constitutional Court and the Ombudsman, merits special attention. She talked about the government's draft that limits the term of office of mayors and heads of municipalities. According to her, the most important problem with this project is not that it violates the prohibition of retroactivity, but that it limits the right to be elected.

The speakers were divided as to the question, set by one of the attendees, whether criticism of individualism impacted limitation of the freedoms of the individual, including economic freedom, in the form of, among others, increased taxation on employment. According to Prime Minister Cimoszewicz "In Poland, there is no criticism of individualism - for people, for whom individualism is not an offer, the safety of being in the community is attractive.” However, according to the Judge Stępień "Poland experiences a crisis of individualism, e.g. in the Parliament, despite the fact that individualism is a value in the European culture. As Descartes said: 'I think, therefore I am; I think because I doubt.'"

The third panel on "Good and bad transformations" was moderated by Marek Tatała, Vice-president of FOR. Dr. Christopher Hartwell, President of CASE, compared the economic reforms in Poland and Ukraine. His speech was all the more interesting because not only it covered the last 25 years, but was also a rich historical analysis. According to Hartwell, the key to the success of economic transformation in Poland and its defeat in Ukraine was the approach of both nations to trade. In Poland, to the good development of trade contributed, among others, the creation in Krakow of craft guilds in the twelfth century and trade guilds in the fourteenth, because they put into effect institutional mechanisms which were independent of decisions of the king.

”In contrast, in Ukraine, there was little competitions between traders and the state. In addition in 1710-1991, Ukraine was subject to the very bureaucratic Russian trading system," explained the economist. He said, however, that when it comes to the development of trade, "today Ukraine is on the right track, while others are building barriers", ended his speech Hartwell, referring to, among others, the US plan to withdraw from international trade agreements.

The next speaker was an independent deputy of the Hungarian Parliament and creator of the Free Market Foundation Zoltán Kész, which spoke about the threats to democracy and the economy in Hungary. Kész has expressed great concern over the changes introduced by Prime Minister Viktor Orbán. He stressed that when there is a risk of the introduction of totalitarian solutions by the government, it is important to unite opposition politicians, what is lacking in Hungary.

He added that "if there is no civil society, there is no democracy. People should be allowed to take to the streets.” According to Kész, the root cause of adverse changes in Hungary is the lack of sufficient sensitivity of citizens to vague promises of politicians. ”When Orbán said, “Let us make Hungary great”, we did not know that it would mean breaking the constitution, limiting the freedom of the media and non-governmental organizations", said the guest from Hungary.

As the third took floor Dr. Dalibor Rohac, a researcher at the American Enterprise Institute and the author of the book "Towards an Imperfect Union: A Conservative Case for the EU". Rohac combined problems of transition in Central and Eastern Europe with the issue of the impact of the European Union. According to the economist and political scientist, conservatives - understood as proponents of free markets and limited government - often question what the point of the European Union really is.

Dalibor Rohac maintains that being a Eurosceptic a bad choice, though wise criticism of the Union is essential.” When writing a book, part of my Euroscepticism disappeared. I noticed that there is space for joint action, e.g. due to the fact that the European Union defends free trade and democracy. In Slovakia, the introduction of the euro was an opportunity to carry out structural reforms. A conservative regarding the EU should answer: let's go back to the concept of federation and do not dismantle the EU. Security policy and the common market must be strengthened," said Dr. Rohac. He notices that "many people do not trust institutions such as the open society and a free market," and this if the gain of right and left-wing populists. Trust in these institutions must be strengthened so that objections to the EU are replaced by substantive criticism of the Union.

The last, fourth panel, "Topics of the conference from the perspective of students of Leszek Balcerowicz", was led by Dr. Jakub Karnowski from SGH and combined academic issues with interesting memories of collaboration with Prof. Balcerowicz. Balcerowicz. Dr. Jarosław Bełdowski from SGH quoted the sentence, often repeated by Professor "bad knowledge is worse than ignorance" and stressed his aversion to popular Russianisms ('wdrożenie') and Anglicisms ("implementacja").

Dr. Peter Ciżkowicz, also from SGH, told how cooperation with Leszek Balcerowicz taught him to get up early in the morning and talk about complex issues in a clear way. As an important requirement of Professor, Ciżkowicz also mentioned fast walking. "Once Andrzej Rzońca went with Professor to a conference in Slovakia. Professor said afterward: I cannot work with this guy, he walks too slowly.”

In turn, the same Dr. Andrzej Rzońca, Chairman of the Association of Polish Economists, talked about Professor's perfectionism and his demand to be "110 percent certain" that the data and the conclusions are correct. ”The book 'Puzzles of economic growth' came close to being abandoned," recalled Rzońca. Dr. Jakub Karnowski considers as his greatest success as a student of Prof. Balcerowicz privatization of cable railway on Kasprowy - a controversial issue for many people with leftist or nationalist views.

Panel members also answered the question about the contribution of Leszek Balcerowicz to the economic sciences. According to Dr. Bełdowski, the main achievement of Professor was that he "introduced the concept of the rule of law to economics. He drew attention to the input of real institutions, and not only paper ones.”

Dr. Rzońca and Dr. Ciżkowicz stressed Professor's ability to carry out far-sighted analyses: they recalled how he, as the President of NBP (National Bank of Poland), at a meeting in Basel in 2002 warned, in strong terms, the heads of Western central banks against easing the monetary policy. Then his statement did not meet with understanding. However, it was in those countries, that the banking crisis of 2008 occurred, and not in Poland. Similarly, in 2008, as Rzońca reminded, Professor warned southern Eurozone countries against the effects of pumping public money into the economies in crisis.

For his ability to perceive long-term effects, Professor is often labeled as heartless and antisocial, commented Dr. Ciżkowicz. On the contribution of Leszek Balcerowicz to the economic sciences also spoke Prof. Tomasz Shapiro, economist, former rector of SGH: "Science consists in ugly facts murdering beautiful theories. You have to know how to ask questions that will survive facts and opponents. Leszek Balcerowicz has this ability. Such questions have staying power.  For example, for me, his question "When does equality make sense?" seems to be a rare one"- said Prof. Shapiro.

The conference ended with a summary presented by Jubilarian. Prof. Leszek Balcerowicz once again quoted the famous phrase that "bad knowledge is worse than ignorance.” He stressed that the phenomenon of "bad knowledge" is especially dangerous to social sciences - including economics - where verifiability is more problematic than in science. He gave the specific example of the "bad knowledge": "Marxism was based on one definition - that of exploitation, and it gained a very big impact. It is not the workers who make a revolution, but frustrated intellectuals.” Professor again referred to the increasing popularity of statist views in intellectual circles. ”Where did the greatest economic collapses occur? Was it where the market was free, or where it was not? The biggest disasters are created by excessive political power", he argued.

The author of the Polish economic transformation also referred to issues of economic reforms: "It is not hard to say which system is better and which is worse. A really interesting practical and analytical problem is how to make the transition. In 1989 no one knew how fast socialist economy should be privatized," he said, and then he criticized the habit of using the word "transformation" only in the positive sense: "There are good and bad transformations. Bad ones bring down levels of democracy, the rule of law, protection of individual freedom”, said Prof. Balcerowicz, referring to the still present risk of the emergence of authoritarianism in contemporary Europe. ”Authoritarian groups use the three methods: bribery, stupefaction, and intimidation. No man should feel left alone in the case of intimidation" - ended his speech Leszek Balcerowicz.

Author: Anna Czepiel, FOR Junior Analyst

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