Markiewicz (2019) investigates the Polish state’s role in nurturing the country’s automotive industry. By using protectionist, FDI-friendly, and investment conditionality methods, the author sees the domestic bureaucracy as instrumental to the sector’s growth. The lack of state capture by powerful multinational corporations (MNCs) is also viewed as a key enabler of the policies’ effectiveness.
Poland has developed into a key European automotive hub
Poland’s relationship to the automotive industry has a turbulent history: once central and eastern Europe’s largest car producer under communism, the sector crumbled in 1989. This led the Solidarity movement government to begin the sector’s privatisation to multinational corporations (MNCs). Today, Poland is one of the European Union’s major light vehicle makers, accounting for 4% of the block’s annual production in 2019.
The country is active in both vehicle and component production. Once largely an assembly line for MNCs, Poland became a net exporter of automotive components from 2000 onwards (see Figure 1, below). This covers from easy technologies such as seat belts to advanced ones such as engines. In fact, nine out of the ten largest automotive component producers had factories in Poland as early as 2006. A natural question arises: how did the sector reach this position after its collapse in 1989?
Figure 1: Net exports of Polish vehicles and automotive components, euros bn
DATA: Markiewicz (2019), UN Comtrade
Public policy was a key driver of the automotive sector’s expansion
Despite multiple changes in government over time, the Polish state has remained consistently in support of its automotive sector. This was done through a combination of protectionist and FDI-friendly measures. More specifically, in 1993 Poland agreed to sell the state-owned automotive maker FSM to Fiat, in exchange for investments in the sector. Moreover, the government agreed to shield the local market from imports, as well as offered duty-free component imports and other incentives.
The FSM privatisation was the beginning of a series of bilateral deals between the Polish state and automotive MNCs, where special privileges were exchanged for investments. Most crucially, after 1996 Poland also started to set local content requirements in order to incentivise automotive producers to buy from Polish component makers. This, combined with the usage of Special Economic Zones (SEZs) led to the parallel expansion of the component sector. Additionally, the Ministry of Trade became responsible for monitoring that MNCs met their obligations, withholding tax reliefs in cases of noncompliance.
After Poland’s accession to the EU in 2004 the tools it used changed but the approach to the automotive sector remained highly supportive. More specifically, while it had to remove import tariffs and quotas for foreign cars, it got access to Structural funds to support the sector. In fact, by using EU Research and Development grants Poland further developed its automotive capabilities on the research side.
State capture did not occur due to domestic conditions and EU controls
Markiewicz (2019) emphasizes that despite the Polish state’s high reliance on MNCs for investment, it managed to balance between the companies’ demands and the country’s development. This was driven by two factors: 1) domestic political economy conditions and 2) European Union (EU) rules. On the first point, intense political competition was argued to lead to a developmental agenda. In terms of the latter, the author highlights numerous cases when EU regulation limited MNC negotiating power by limiting what the Polish state could offer. For example, in order to join the EU, Poland had to redesign its SEZs, which limited the number of exemptions that could be given to MNCs. Essentially the EU’s aim to protect the rest of its automotive industry prevented the Polish government from giving too much to MNCs.
Conclusion
The paper gives a positive message over how a country can utilise MNCs to develop its domestic industry. With the automotive sector accounting for 11% of the country’s manufacturing base, 4% of its GDP, and 7% of its total employment in 2016, past support schemes seem a resounding success. At the same time, one needs to remain cautious over FDI-reliant growth, with volatility and superficial growth being key risks.
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