Impact of Globalization on the Economic Change and Development of Public and Private Enterprises in Poland After 1989 - Essay Example

Chapter Introduction Globalization has been the buzzword for a long time for countries, and Poland is no different. Although Poland started outits modern life as a communist country, living in the shadow of the Soviet Union, it transformed its economy in 1989. It was during this year that communism fell and Poland started the process of transforming from a communist country to a capitalist one. This was a painful process for Poland and for the rest of the countries who had transform their economies. And, because Poland was in transition in 1990, along with suffering an economic crisis, its third major one in modern history, Poland could be considered to be a developing country. The literature review shows that globalization hurts developing countries, at least according to a theory put forth by Ha-Joon Chang, an economist who wrote a book about how globalization hurts developing countries. His theory was that developing countries need to practice protectionism while they are in their infancy, so that their private sectors can grow without being dominated by foreign superpower firms that would force out the small, weak, domestic entities. His philosophy is that these developing countries are hurt by globalization, as opposed to helped by it. There was other indications in the literature that this might be the case, as at least one piece of literature hypothesized that Changs scenario would be one of the scenarios facing Poland when she fully integrated into the European Union. However, another study in the literature indicated that the opposite was true – with the dairy industry, the dairy farmers were not hurt at all by globalization, and, in fact, might have been helped by it. In contrast to the doomsday scenarios, the small, presumably weak, dairy firms were not pushed out by the global giants but, instead, stayed in business. The hypothesis put forth by this study as to why this was true is that foreign firms, with their superior knowledge of globalization basis and access to technology, showed the domestic suppliers and firms the ropes. These firms then took the foreign firm strategies and applied to their own firms, and this is what caused them to thrive. So, there were two different scenarios for Poland as far as how she would react to globalization. Either Chang would be correct and Poland, who sought to globalize shortly after her economy began its transition, would fail, because it would be too much too soon. Her industries would be weak and would be pushed out by the foreign competitors, and there likely would be a trade imbalance that would further decimate Polands economy. Or the other study would be correct, and globalization would actually show to be beneficial for Polands economy. What the research showed, and the research was focused upon secondary sources, was that Poland started globalizing in 1990, and her imports and exports grew substantially year by year. And, in between the years 1990 and 2000, as every year her imports and exports grew, so did her GDP. Also during this decade, foreign direct investment increased for Central and Eastern Europe, which would mean that Poland would be a part of that largess, and this also tracks with Polands increase in GDP, year by year. At the same time, Polands recent statistics show that it is a major player in the globalization, as it is 27th in the world for importing and exporting. The statistics also show that Polands economy is increasingly dependent upon importing and exporting, as it represents 85% of its GDP. Therefore, the statistics that were compiled show that Poland defied expectations and has thrived in the face of globalization. The major research question that was sought to be answered is how Poland fared through globalization, and whether Changs hypothesis would bear out. The answers to these questions, in a nutshell, are that Poland fared very well through globalization and Changs hypothesis did not bear out. As stated above, the methodology of this study was secondary research. As indicated below, secondary research is superior to qualitative and quantitative because compiling secondary research is not prohibitively expensive. This research is gathered by world organizations, such as the World Bank and the World Trade Organization. This was the most appropriate type of research for this project, as this project studied Poland on a global scale, so statistics that are compiled by governmental agencies would be the most broad, which is appropriate in this context. Qualitative research, in which individuals are asked questions, by either a narrative or a case study, or through questionnaires, etc., would not be appropriate, as the researcher would have to have access to individuals that are high up in government, in order to present the kind of statistics that are necessary for this study. The limitations to such an approach are that statistics are not always compiled accurately, if a country has something to hide. However, this is not the case, and the statistics should be accurate. The only problem is that they might be a bit difficult to interpret, but these statistics that are presented in this study did not have that degree of difficulty. The way that this dissertation is laid out is that the literature review begins in Chapter 2. The first subdivision of Chapter 2 is an explanation of globalization basics. This section describes globalization in general, and presents Changs theory about developing countries in relation to globalization. The next section gives a history of the Polish economy. This is helpful to the analysis, as it shows how and why Poland was a developing country at the time that it attempted globalization. The third section presents Polands efforts to globalize, and what the literature states about this. The next Chapter, Chapter 3, describes the methodology which was used to compile the statistics and information that would be used to refute or support the hypotheses and research questions. The Chapter after that, Chapter 4, presents the statistics about Poland and how it has fared under globalization, these statistics having been compiled from secondary sources. The last Chapter, Chapter 5, is the discussion and conclusion of the findings. Here the findings will be summarized, and the limitations of the study presented. Chapter 2 - Literature Review Globalization Basics Globalization may be defined as “an extent of internationalisation at a level where boundaries are blurred or appear close, where networks and solidarities are communicating, [and] where interdependencies are increasing” (Withal de Wenden, 2009, p. 48). On a technological basis, modern globalization is dependent upon the structures for communication, transportation, computation and enforcement interlocking (Jobes, 2003, p. 74). Globalization has reached many sectors, including intellectual property, financial services, money capital, goods and financial instruments (Buttel, 2003, p. 95). There are obvious positive aspects of globalization, and negative ones as well, as globalization leads to clashes, prejudices, tension and cultural misunderstandings such as those seen on 9/11, and the Bali, Madrid and London bombings (Hermans & Dimaggio, 2007, p. 31). The modern process of globalization began approximately in the 1940s, as work was redistributed (Schaeffer, 2005, p. 2). However, globalization in the modern era was in evidence as far back as 1929, as the stock market crash in the United States resulted in a global collapsing, which was evidence that the worlds economies were interconnected (Wojcicka et al., 2003, p. 1). The evolution of globalization was that, just after World War II, the United States produced most of the manufactured goods that the United States, Western Europe and Japan consumed, as well as most of the food consumed in those countries. However, the next 25 years saw a substantial change in this ratio, as the United States, by 1973, only produced one-fifth of the worlds manufactured goods, while businesses in Western Europe and Japan doubled their share of world manufacturing, going from 15 percent to more than 30 percent (Schaeffer, 2005, p. 2). This redistribution marked the tenets of globalization, and it occurred because businesses, governments and consumers adopted policies and practices that saw a shift in job locations from inside the United States to outside the United States (Schaeffer, 2005, p. 2). The way that the United States led the globalization effort was multi-pronged. First, they gave aid to their allies through the Marshall Plan and other programs, which included military aid to Western Europe and Japan, and this aid amounted to as much as $2 trillion between 1950 and 1970 (Schaeffer, 2005, p. 2). This allowed Western Europe to rebuild after the war, and also helped the United States, as the military funding to these countries enabled these countries to buy military goods from the United States. Second, the U.S. government allowed high tariffs to be levied by her allies, which encouraged U.S. firms to invest in Western Europe, but also led to the loss of two million United States jobs (Schaeffer, 2005, p. 3). Third, the United States instituted global fixed exchange rates during the war, which allowed Western Europe and Japan to compete as the United States equals (Schaeffer, 2005, p. 3). Ha-Joon Chang, in his book Bad Samaritans contrasts the official story of globalization, which was explained by him as being catalyzed by which rely on laissez faire domestic policies, low barriers to the international flowing of goods, labour and capital; and “macroeconomic stability, both nationally and internationally, guaranteed by principles of sound money and balanced budgets” (Chang, 2008, p. 22), with what he calls “the real history of globalization” (Chang, 2008, p. 24). According to Chang, the real history is far different from the official story of globalism. The real history involves considerable coercion on the part of the neo-liberal countries, who are led by Great Britain and the United States. For instance, Britain, in the 1840s, used its might around the world to force weaker countries to accept low tariffs, while they themselves set their own tariffs high (Chang, 2008, p. 25). This criticism is echoed by Anthony McGrew in the book Globalization Theory, as he states that the coercion practiced by countries from the Chinese Armadas in the 13th Century, as well as the medieval Crusades and the New Imperialism of the late nineteenth century, is proof that globalism has always been fueled by an element of violence, and this violence has been vital in “drawing the worlds distant regions and discrete civilizations into tightening webs of recursive interaction” (McGrew, 2007, p. 15). The coercion on these countries continue as the World Bank lends money to developing countries, while imposing draconian conditions to these loans, such as demanding that these countries correct budget deficits, privatize state-owned enterprises, and demanding that private sector businesses have limited debt. (Chang, 2008, p. 34). Other international coercions include forcing developing countries to raise interest rates and balance their budgets when these countries get into recessions, even though, when rich countries get into a recession, they do just the opposite (Chang, 2008, p. 158). Chang states that the World Bank gets away with these policies because it is essentially controlled by rich countries, whom collectively control 60% of the voting shares for the bank (Chang, 2008, p. 35). The coercion of these countries is galling for Chang, as these liberal policies have been harmful to developing countries. Chang points out that developing countries, prior to implementing neo-liberal policies had a per capita growth rate of 3.2% per year, then 2.1% in the two decades after the neo-liberalism policies have been implemented (Chang, 2008, p. 26). The policies that worked for these countries included protectionism and state intervention, and resulted in the per capita incomes growing at over 3% per year. Chang also states that these countries per capita growth rate average would be even worse than the paltry growth rate they have experienced since implementing neo-liberal policies, if China and India, two rapidly growing countries, were not included in the analysis (Chang, 2008, p. 27). Other economists have echoed Changs concerns, stating that global neo-liberal policies have contributed to the famines that plagued India, Brazil and China at the end of the nineteenth century, and that neoliberal policies have increased global injustice and poverty, as well as accelerated environmental destruction (Callinicos, 2007, p. 63). Chang also notes that economic instability is being experienced in these developing countries, and has been experienced since the advent of the global neo-liberal policies, which means that “neo liberal globalization has failed to deliver on all fronts of economic life – growth, equality and stability” (Chang, 2008, p. 28). Chang later compares the developed countries coercion of developing countries to liberalize their trade policies to coercing a six year old child to get a job – while the six year old child can start earning money early, that same child will never become a brain surgeon if he is forced to leave school at the age of six to get a job. Likewise, developing countries will not thrive if they are forced into international competition too early (Chang, 2008, p. 66). Chang’s central argument is that, like his six year old son, developing countries need to be protected until their infant industries are developed enough to sustain the country and then, and only then, should they develop more neo-liberal policies (Chang, 2008, p. 73). The Evolution of Polands Economy Prior to 1989, Poland was a Communist country, which means that all her industrial enterprises were state owned (Shen, 1993, p. 39). This was broadly in line with the other Eastern European countries during this time, as the typical Eastern European country had “highly subsidized prices on food, housing, transport and basic necessities, guaranteed employment, adequate health and education provisions and small differential between the wages of workers, professionals and managers, in return for the political quietude of the population” (Deacon, 2000, p. 147). Additionally, a communist welfare system provided such benefits to the state enterprise employees as cash and in-kind benefits, along with allowances, day-care facilities, and subsidized recreational facilities and vacations (Takumi, p. 169). Polands economy was dependent upon a centralized Planning Commission that was put into place after World War II (Shen, 1992, p. 16). Prior to World War II, the Polish economy had a substantial private sector, and the new centralized industrial sector was considered to be a reform (Clarke, 1989, p. 29). The Planning Commission was considered to be a necessity, as Polands economy was decimated after the war, as it was left with a lot of debt and very little governmental revenue (Landau & Tomaszewski, 1985, pp. 202-203). The Planning Commission coordinated the economic activities of Poland with a central objective in mind. The Planning Commission then drew up the details, monitored its success and supervised its implementation. At one time, the Planning Commission was so large that it had more employees than any other government agency in Poland (Shen, 1992, p. 16). Some of the activities of the Planning Commission included directing key investment areas; apportioning production quotas to state enterprises and communes; allocating factors of production; and suggesting which ministry would have what proportion of the economic pie (Shen, 1992, p. 16). However, the Planning Commission was not successful because of the implementation of the objectives, as it involved itself in all sectors and subsectors of the Polish economy, which made it inefficient, especially because information flow during this period was slow and inaccurate (Shen, 1992, p. 16). Other problems with the Planning Commission and the Polish economy in general during this time were that workers were not rewarded for performance or effort, but, rather, recognition was given for fulfillment of production quotas; state enterprises were allocated by production objectives, not market needs; and labor was but a small cog in the Polish machine, in which privilege for the political elite was more important than goods for the masses (Shen, 1992, p. 17). Economic reform began around 1956, in which agriculture was decollectivized, domestic price reforms were implemented, and workers council were institutionalized (Kemme, 1991, p. 2). These reforms were related to political disturbances in Poland during this time, as workers were aggrieved, which led to social discontent and the need for reform (Kemme, 1991, p. 2). The late 1960s to early 1970s saw more economic reform, as well as a developing strategy to open Polands economy to international markets. Other domestic events were that political activism increased and the free trade-union movement blossomed. Meanwhile, a schism between the government and social groups grew, and the Catholic church conflicted with the government due to revisions made to the Polish Constitution (Kemme, 1991, p. 3). Production increased sharply between 1971-1975, a burst in production unmatched by any East European economy (Poznanski, 1996, p. xx). However, this production increase was funded in large part by foreign debt that exceeded most Eastern European countries, which led to corrections that included investment downsizing and wage corrections, which, in turn, led to a production crisis and high inflation (Poznanski, 1996, p. xx). Strikes followed price increases in 1976, and imports were curtailed in 1977, yet economic performance peaked in 1978, then rapidly deteriorated (Kemme, 1991, p. 3). Beginning in 1979, Polands economy was in crisis to where, by the end of 1982, Polands national product had fallen to the 1976 level (Poznanski, 1996, p. xx). Post-Commmunism: Poland after 1989 Poland entered a new political contract in April of 1989, following the fall of communism, and this contract was forged at The Roundtable Talks (Matynia, 2003, p. 499). Poland also saw its next big economic crisis that same year, when industrial output fell, then fell further in 1990, and this loss continued through 1992 (Poznanski, 1996, p. xxi). Since this was the second major economic crisis in just over 10 years, and the period between the crises was illusory, Poland had an economic loss for more than a decade, with quantitative decline coming close to the 1976 level, and, qualitatively, the growth fatigue caused even more economic damage (Poznanski, 1996, p. xxi). Additionally, during this time, communism fell, which led Poland to have the same problems that all post-communist countries faced, which was work had to be fundamentally transformed (Johnson & Loveman, 1995, p. 217). The result of all this economic turmoil is that, when the new Solidarity-led government took the reins in Poland in August 1989, Poland had an economy marked by stagflation, debt of $40 billion, which accounted for 65% of Polands export earnings and distorted incentives (Industrial Development Review Series, 1991, p. 1). At the same time, Poland initiated changes in 1989 that were systemic and revolutionary, and changed the three subsystems of the state – the political, social and economic (Parysek, 2004, p. 109). Globalization started to play a big part in Polands economic development after 1989, a trend that is echoed throughout Europe (Morris, 1997, p. 192), as well as the privatization of Polands economy, in which the state became accountable to the workers, and led the way to transforming the government, economy and society of Poland (Dunn, 2004, p. 33). Privatization refers to the transfer of public services to the private sector, and has become “the global economic buzzword of this decade (Iatridis & Hopps, 1998, p. 4). According to Iatridis & Hopps, the reform goals that are implicated by privatization cannot be achieved unless there is a balance struck between public-private sector responsibility, social-political-economic institutions and government-citizen contracts. Without this balance, society will be dysfunctional (Iatridis & Hopps, 1998, p. 6). Privatization means turning state-owned enterprises into private control, and is accomplished through direct cash or credit sales; voucher auction; and transfers to workers, pension funds, or public holding companies (Iatridis & Hopps, 1998, p. 28). Polands plan in 1989 to get its macroeconomy on its feet was called the Balcerowicz plan, and it had five major components – a restrictive monetary policy, in which the money supply was reduced, and loans had interest rate adjustments; the budget deficit was eliminated by tax exemptions and subsidies; prices were extensively liberalized, and 90 percent of prices were determined by the market; foreign trade was liberalized, and the zloty was converted; and income policy became more restrictive (Jackson, Klich & Poznanska, 2005, p. 25). Thus, Poland opened its markets beginning roughly around 1990 to foreign direct investment (FDI). The factors that facilitated Polands global capabilities were the fact that Poland liberalized FDI legal regulations, liberalized trade and currency convertibility and privatized state-owned enterprises (Gorynia & Wolniak, p. 89). Before the economic and market transformation, Poland treated foreign investment differently than other parts of its economy; after the market reforms, Poland started treating foreign investment the same as domestic investment (Gorynia & Wolniak, p. 89). Additionally, Poland opened the markets by liberalizing its prices and markets, re-directing trade from the former COMECON to the EU, opened its markets to foreign investments and privatized most of its state-owned enterprises (Gorniya et al., 2003, p. 30). The upshot is that, after 1989, Poland saw a dramatic increase in foreign trade, as its exports grew by 127 percent between 1990 and 2000, and imports by 426 percent during this same period (Gorniya et al., 2003, p. 233). Although this led to a trade imbalance, this imbalance was offset by capital inflows (Gorniya et al., 2003, p. 233). As far as foreign direct investment, Poland attracted only $88 million in 1990, then saw this number grow to over $9 billion in the year 2000 (Gorniya et al., 2003, p. 237). In 1991, Poland instituted an Act that further facilitated the globalization of Polands economy, and helped define how the nation would treat FDI, in that the Act proclaimed that the transfer of profits and start-up capital would be restriction-free; the automatic three-year tax holidays would be abolished; expropriation would be fully compensated; foreign firms could only operate under two legal entities – limited liability companies and joint stock companies; lottery and gambling businesses would be off-limits to foreign investment; and certain industries were restricted in that foreign companies could only be a certain percentage of these industries – for example, foreign companies could only own a 49% share in the telecommunication industry and 33% of the radio and television industry (Gornyia & Wolniak). Some of the other features of the 1991 Act were that transfers of profits and initial capital abroad would not be restricted; and that foreign investors did not have to obtain permits unless they were buying equity, or purchasing or leasing assets of state-owned firms (Gorniya et al., 2007, p. 59). As Poland became more immersed in globalization, certain threats to its stability occurred, such as the fact that its export capacities were not satisfactory to maintain a sufficient trade balance, and these capacities were not growing fast enough; the demand for imports was not high; a trade imbalance occurred because of the difference between the values of exports and imports; and the foreign direct investments financed the trade balance, but this was not a stable means over the long term (Gorniya, 2002, pp. 7-8). The problem during this period of time was with the insufficient exports, and less that the imports were excessive, and the problem was not uniquely Polish, as Czech Republic and Hungary were experiencing similar imbalances (Gorniya, 2003, p. 33). Poland showed competitiveness in the exportation of products in the international markets, although not consistently and not for every product groups. The product groups that increased their share were manufacturing, which includes agriculture machinery, electrical machinery, automotive parts and accessories and television and radios (Gorniya, 2003, p. 34). Between 1992 and 1998, Polands exports increased by 13 percentage points (Gorniya, 2003, p. 34). Around 2001, Poland sought to be integrated into the European Union. At this time, Gorynia and Wolniak (2003) hypothesized how Poland would be affected by this integration. The first hypothesis is that Poland would be able to expand into the European Union market, but would also open Poland up to foreign competition with regards to her protected domestic sectoral markets, which would be a serious threat to the market share and competitive positions of many of these firms. This would lead to many of these protected domestic firms facing stiff competition from the international markets, and many Polish firms would no longer be able to compete. In other words, the large, strong foreign competitors would put the weaker Polish firms out of business (Gorniya & Wolniak, 2003, p. 32). This scenario would be harsh, but would also be keeping with the philosophy of economic efficiency with regards to globalization (Gilarek, 2003, p. 120). The second hypothesis was that the Polish economy would be internationalized at a much greater speed than the Polish firms, partially because the managers of the Polish firms did not have the expertise to handle internationalization. The third hypothesis was that Polish firms would become larger after Poland entered the European Union, because large firms are better able to handle internationalization, and this restructuring was taking place with Polands foreign competitors. The fourth hypothesis was that Polish firms would be hesitant to diversify, as they need core skills and competencies (Gorniya & Wolniak, 2003, p. 33). Despite the concerns that the small and weak would be driven out by the strong and global, globalization has generally been a positive experience for Poland, as evidenced by a recent poll. In 2008, 59% of Polish citizens felt positively about globalization, and this is just about average in the EU, and had the highest percentage of any EU country as to whether globalization was seen as fostering economic growth and a way of attracting foreign investment. Additionally, the poll showed that Poland had the third lowest, in the European Union, percentage of people who believed that globalization posed a threat (Palonka, 2010, p. 370). Case Study: Polish Dairy Dries & Swinnen (2003) studied the Polish dairy industry for evidence of how globalization affected that particular industry. The reason why they chose Poland was because it was one of the largest European transitional economies, yet a small player in the global market. The dairy industry was chosen because agriculture is such an important sector to the Polish economy, with 20% of the Polish population being employed in agriculture, mostly on small farms (Dries & Swinnen, 2003, p. 1). Additionally, Polands land is 80% rural, which is much higher than any other European Union country (Gilarek et al., 2003, p. 120). And, in 1999, there was high support for interventionist policies regarding agriculture, such as putting high import tariffs on the agricultural products or the government purchase of local food products. This is because the Polish peasants suffered the most loss in the economic transformation – income parity was 151% in 1989, then dropped to 40% by 1998 (Gilarek et al., 2003, p. 123). Dairy was chosen because most of the farms have some dairy production, and dairy was seen as an industry that needed restructuring to compete in the global market, as milk production was plagued by low quality and production (Dries & Swinnen, 2004, p. 30. Additionally, dairy was the target of much FDI, yet local companies still retained a large share of the overall market (Dries & Swinnen, 2003, p. 2). Dries & Swinnen identified ways that FDI can influence the food industrys upstream suppliers: 1) by helping local firms adopt new technologies and solve contract problems; 2) through imposing higher grades and standards on the industry and 3) the foreign investor might prefer dealing with larger suppliers to reduce transactional costs, which presumably would mean that even local firms would do the same to compete (Dries & Swinnen, 2003, p. 3). Dries & Swinnen found that foreign investment in the dairy sector leads to a spillover effect, which improves all firms, large and small, and their access to finance, increased investment and quality improvement by small local suppliers (Dries & Swinnen, 2003, p. 6). This is in contrast to previous studies that found that foreign investment is detrimental for small suppliers who might not be able to comply with high standards and grading, or are cut out by the company to cut transaction costs. Dries & Swinnens study lasted 5 years, between 1995 and 2000, and they found that 85% of their suppliers continued to supply milk, despite the fact that the industry was restructuring and quality requirements were tightening, and that most of those who stopped supplying were older farmers who would have stopped supplying anyhow (Dries & Swinnen, 2003, p. 6). They found that the reason why these firms do well is because of the process of vertical integration, which means that foreign processing companies vertically integrate with local suppliers, and, along with this integration, comes reforms, such as enhanced quality controls, access to technology, credit and inputs. Additionally, there is a horizontal spillover effect, in which domestic firms copy these vertical integration strategies, therefore the vertical integration affects the entire industry (Dries & Swinnen, 2003, p. 6). Conclusion This part of the paper explained Polands evolution from communist country with a poor economy to a global player and member of the European Union. Most of the literature reviewed was from the early 2000s, which is when Poland sought to be integrated into the EU. Therefore, current statistics on how Poland has reacted to globalization is necessary. The hypothesis is that, at least in the beginning, Polish industries struggled after EU integration, because Poland was a developing country at this time, having only been a free market country for one decade. As the literature shows, the countries who were under communist rule had problems with transitioning, and Poland, with 80% of its country being rural, would probably have more problems than most. Using Changs hypothesis, that developing countries should not be pressured towards globalization until the country is ready and her own domestic industries are developed to the point that she is internally strong, one can deduce that Poland probably struggled with globalization, and, perhaps, is still struggling. This is especially true because of the way that Poland went about globalizing, in that she seemed to rush headlong into it after the fall of communism. If Changs hypothesis is correct, Polands economy and domestic sectors probably were set up to fail right from the beginning. However, Dries & Swinnens study would seem to contradict this. Therefore, this is the important research question – how did Polands economy react to the rush to globalize, and did Changs hypothesis play out? The next section will detail the methodology that was behind the research, showing how the use of secondary data and the literature review enabled the research question to be honed and answered. Chapter 3 - Methodology The design of this paper is based upon the four phases outlined by Cowan, in that the point of view of the research was considered, as was the philosophy, the methodology and the design. (Developing a Doctoral Research Methodology). The point of view encompasses what the researcher wants to know, and what needs to be learned. In this case, the research was geared towards discovering the best way to accomplish educational funding, as well as to investigate if it is really advantageous to make credit more open to the impoverished. What needs to be learned is the best way to accomplish these goals. The research method that was used was secondary data. Secondary data is, in a nutshell, data that has been collected by others. It can be in the form of government and regulatory reports, company reports, published academic research, and internal documents produced by organizations, just to name a few. (Harris, 2001). It can be distinguished from primary data, in that primary data would be data that I, as the researcher, would collect myself. The advantages of using secondary data is that it is readily available, and generally has a low cost. (Hopperth, 2005). Conversely, collecting primary data is often prohibitively expensive. (Brown & Semradek, 1992). Primary data can take years to compile; secondary data, a matter of months. (Hopperth, 2005). Also, there is the issue of sample size – secondary research is often compiled by a government agency, with well-documented collection procedures and well-maintained data files. The information that is compiled is often comprehensive – everything from information on births, deaths, employment, income, etc. to specialized information, such as information about participants attitudes, beliefs, and related family issues. (Hopperth, 2005). That said, there are issues with using secondary research. One of the issues is that of validity and reliability. Validity is if the study measures what it purports to measure, while reliability refers to the ability to give the same result consistently, even with different researchers, instruments and events. (Harris, 2001). Reliability can be reproducible, which means that different researchers will get the same result; stable, which means that the results do not change over time; and accurate, which means that process conforms to a known standard and yields what it is supposed to. (Harris, 2001). In order for the study to be valid, the outcome data needs to be complete. This is especially crucial when looking at statistical evidence over a period of time between different populations. (Sorensen et al., p. 436). Validity, as well as reliability and accuracy are all sensitive issues when dealing with secondary data, because of the problems with conceptualizing of the data, as well as dealing with errors that can occur when selecting, collecting, recording, filing, analyzing and publicizing the data. (Brown & Semradek, 1992). The secondary data will be compiled from World Trade Organization, the World Bank, the Central Statistical Office of Poland and United Nations Conference of Trade and Development. These are the places where the secondary data will commence, and will go from there. These sites are excellent places to start, as there are quite a few different ones that can be explored. The other methodology is the literature review. The purpose of the literature review is to “1) provide a context for the research; 2) Justify the research...3) Show where the research fits into the existing body of knowledge; 4) Enable the researcher to learn from previous theory on the subject; 5) Illustrate how the subject has been studied previously...6) Show that the work is adding to the understanding and knowledge of the field; 7) Help refine, refocus or even change the topic.” (Boote & Beile, 2005, pp. 3-15). The literature review provides a theoretical foundation upon which the qualitative data is based. (Aquino & Pagliarussi, p. 4). While the typical literature review is one that supports a scientific research by providing literature on what has happened before, (Aquino & Pagliarussi, p. 1), the aim of this project is slightly different in that the literature reviews aim is to explain what the history is of the Polish globalization efforts, as well as the history of the modern Polish economy, and theories about globalization in general. To this end, the literature review concentrated on these topics. The literature review provided a justification for the research, in that it demonstrated that there was a problem that needed to be addressed. It provided context for the research, in that the questions were geared toward the specific problem that the literature review contextualized. The literature review also showed how the acquired data fit into the existing body of knowledge, as the data fits into what was studied through the review. It also enables one to learn about the theory of the subject. It helped gain an understanding how the secondary research work is adding to the understanding and knowledge of the field, therefore adding to understanding the questions posed. Finally, the literature review helped refine the topic, by showing what the important issues were in the research, thus guiding the discussion and analysis of the data acquired. The strategy in approaching this research as far as the literature review is that a search for articles addressing the issue of Poland and globalization as separate topics, as well as journals combining the words Poland and globalization, was performed in journals that were published in English. The data bases that were used were SSRN, Google Scholar and JStor. These databases were used because they are comprehensive and contain a multitude of peer-reviewed journals, and these are the databases commonly used for researching topics such as this one. The initial search terms that were used were Poland + economics, globalization and Poland + globalization. At this time, the search was limited to these words to see what what come up. After examining 100 articles from these databases, the articles were narrowed down to articles that dealt specifically with the topics of Poland economics before 1989, globalization regarding Eastern European Countries, globalization regarding developing countries and Poland after globalization. All other articles that dealt with Poland but did not address these particular topics were left out, leaving 50 articles. As I was interested in the evolution of the Polish economy, and the history thereof, the articles that I reviewed and researched were from 1950 to present. Since the topic at hand concerns mainly Poland after 1989, the main articles that were culled were dated from 1989 on. The reason why the evolution of the Polish economy was so pertinent was to show a contrast to how Poland was before 1989 in relation to where it was after 1989, as well as show the reasons why Poland would have been considered a developing country at the time of globalization, per Changs analysis. The interest was to see if the literature would bear out Changs hypothesis, which would be that Poland, as a developing country, would not react well to globalization and whether these articles would address the need for protectionism regarding Polands domestic firms. Therefore, the search went back to 1950, which is right around the time that Poland experienced its first economic reform ideas. All 50 articles were carefully evaluated. Of interest was how prominent was the author, and did the author publish other articles on the topics of interest? How well-regarded was the author in his or her field? How well-researched was the article? How in-depth did it delve into the problems facing globalization, or the benefits of globalization? Also of interest in the initial batch of 50 studies was the bibliography – were there any articles cited that had interesting titles, that fit the overall theme of the paper, and perhaps approached the problems in a slightly different way? After these additional articles were obtained, the count of articles went up to 57. Each of the 57 articles were carefully studied. It was narrowed down to 40 articles by eliminating articles that essentially duplicated other, very similar articles. If an article did not provide a fresh angle or solution, it was eliminated. The goal was to find diverse articles that represented slightly different solutions and strategies to the problems, as well as slightly different angles on the problems themselves. The strongest, most valid, articles, that represented the widest diversity, were picked. Books were also used, and these books concentrated on the key areas of globalization and the Polish economy, although none of the books was specifically geared towards Polish globalization. However, these books were helpful in discerning the necessary historical context for the situation at hand. Conclusion Secondary data was judged to be the most useful methodology for this particular topic, as the topic is broad and would be reliant upon information that would be compiled by governmental organizations, as opposed to using information that would be qualitative or quantitative in nature. Moreover, the literature review enabled a further honing of the research question. Therefore, the next section will provide the answers to the research question, which is how Poland reacted to globalization, and if Poland was ready for globalization in the sense that it was a developing economy at the time it pursued globalization, and, according to Changs theory, this would mean that globalization was premature and that Poland should have pursued more protectionist policies until its economy was developed enough to compete on the global scale. Chapter 4: Data Presentation and Analysis Information gathered from the World Trade Organization about Polands statistics tell the story about Polands integration and globalization efforts. According to the figures, listed on Figure 1 in the Appendix, Poland currently has a population of 38,150,000 and a GDP of around $4.3 billion US dollars. Its trade per capita is around $10 million. Its trade per GDP ratio is 82.8, which means that Polands trade, which include importing and exporting, is around 83 percent of its GDP. It also shows that it acceded to the WTO in July 1, 1995, and to the GPA in May 2004. It ranks 27th in world trade for its merchandise exports, and 21st for its merchandise imports. Its rank in commercial services is 29 for exports and 32 for imports. Its share in world exports is .86, and its share in world imports is .75. It further shows that it gets the bulk of its imports from the European Union, as it gets 77.9 percent from the EU, while the bulk of its exports goes out to the European Union, as it exports 62 percent. The Russian Federation, Ukraine, Norway and the United States all trail in the import/export ratio, as all of them are in single digits on both the importing and the exporting. What is striking about this data is that Poland has so high of a trade to GDP ratio. As figure 2 shows, this ratio is among the highest in the world, and the superpowers of Britain and the United States both have much lower ratios. The United States ratio in this regard is only around 25%. What this shows is that Poland is devoting much of its economy to importing and exporting. This is especially shown by the fact that it is ranked 27th in the world in merchandise exporting and 21st in the world in merchandise importing, as well as being ranked 29th in the world for commercial services exporting and 32nd in the world in commercial services importing. Considering that its GDP is only around $4 billion, this ranking seems rather high. The upshot of this is that Poland would be much more sensitive to market changes in the world than would a country that is less dependent upon globalization and more dependent upon its own domestic product. Moreover, it seems that its GDP has not changed appreciably since 2000, as it indicates only a 4% change from 2000-2009, while the export of goods rose 7 % during this same period, and the importation of goods rose 5% during this same period, then both importation and exportation dropped 14% and 11% respectively in the year 2009. This drop could presumably be explained by the global recession. In analyzing these figures, it appears that Poland is reliant upon importing and exporting to keep its economy afloat, much more than countries that are more established, such as the United State and Great Britain. This could be because its GDP is so much less than those countries, so the ratio would be higher, simply because there are only so much imports and exports that can go out into the world. After all, if the United States, with its GDP of over $14 trillion (World Trade Organization, Profile: United States) had a ratio of 80%, its importing and exporting would be so dominant that it would overshadow all other countries, and the other countries would have to reduce their importing and exporting because of the excessive amount of imports and exports coming out of the United States, and this would cause a massive global imbalance. As it is, with the importing and exporting being a mere 27% of the United States GDP (World Trade Organization, Profile: United States), the United States is still number three in the world for exports of merchandise and number one for imports of merchandise, and number one for commercial services for both importing and exporting (World Trade Organization, Profile: United States). Moreover, Poland seems to have closed its gap between its exports and imports, a gap that was shown in the literature. Poland used to have insufficient exports, so that it had more exports than imports, which caused a trade imbalance (Gornyia et al., 2003, p. 33). Now its exports are more than its imports for merchandise, and a bit less for commercial services. This corrects a historical imbalance that was shown in 1991, when the volume indices for imports was 138, and for exports it was 98 (Gorniya et al., 2003, p. 33). However, it cannot be denied that Poland is a major player in globalization, as its ranking in importing and exporting is quite high for a country its size. This would be seemingly contradictory to Changs analysis, which is that developing countries should practice protectionist policies instead of being globalized, until the country is ready to get on its feet and stand on its own. These statistics are recent, however, from the indications, the percentage of its importing and exporting between the years 2000 to 2009 outpaced the percentage change of its GDP, although the GDP did increase somewhat during these years. So, it is a good indication that its economy did not collapse during these years, as the year 2000 would have been just after a decade after Poland began its transition from a communist economy to a capitalist one, and just under a decade after Poland legislated the 1991 Act that was aimed at increasing Polands ability to globalize. If anything, Polands globalization efforts is helping it maintain its GDP, if not helping it increase it significantly. The World Bank indicates that Polands GDP has steadily grown, year by year, since the year 2005. In 2005, the growth was 3.6%; 2006, 6.2%; 2007, 6.8%; 2008, 5.0% and 2009 – 1.7 % (World Bank GDP Growth). This tracks with its importing and exporting, because, as shown above, Polands importing and exporting rose during the years 2005-2006, then had sharp dropoffs in the year 2009. Again, this is most likely because of the global recession, as there is less of a demand for imports and exports worldwide. However, it shows how sensitive Polands economy is to worldwide events, and this sensitivity is directly related to the fact that so much of its economy is reliant upon importing and exporting. Poland had strong growth during the years that its importing and exporting was increasing, then the growth in GDP dropped sharply as its importing and exporting did the same. This statistic would also seem contradictory to Changs analysis, as Polands economy is reliant upon globalization for its growth. If Poland would be considered to be a developing country, then globalization would hurt its GDP growth. Of course, this could also be because Poland is no longer considered to be a developing country. Perhaps a more clear picture can be discerned by looking at Polands historical import and export figures, dating back to 1990, which is a year that Poland was really considered to be developing (Central Statistical Office (Poland)). As indicated in Figure 3, which is a table of Polands gross domestic product, imports and exports, year by year, it shows that in the year 1990, that Polands GDP was $59 billion, its imports were around $9 billion and its exports around $15 billion. In that year, its importing and exporting represented .3% of its world share total. In the years that followed, Polands GDP grew steadily, year by year, while its importing, exporting and world share of both also grew, year by year. For instance, in 1991, the GDP went from around $59 billion to around $73 billion, and its imports grew from around $9.5 billion to around $16 billion in that same period of time. However, the exports stayed roughly the same. What this shows is that, in 1990, there was a trade imbalance, one that was largely corrected the following year. So, it seems that these two factors – the correction of the trade imbalance coupled with the overall growth in globalization, caused the GDP to grow substantially in just one year. And the growth has continued ever since. As its imports and exports have grown from $9 billion and $14 billion respectively in 1990 to $48 billion and $32 billion respectively in the year 2000, its GDP has grown from around $59 billion in 1990 to $159 billion in the year 2000 (Central Statistical Office (Poland)). What this shows is that, contrary to what Changs analysis might state, Poland, even as a newly developing country, grew its GDP substantially by participating in the global market. Going back to the year 1990 is helpful, as this was basically the year after it transformed its economy from communist to capitalist, and 1991 was the year that it really started to participate in the global market. The statistics show that this was overall a good move for Poland. This is contradictory to Changs analysis, which stated that developing countries, as Poland certainly was in 1990, should not globalize, but should work on developing its domestic firms and industries before attempting to participate in the world stage. So, it shows that Poland has defied Changs analysis and has managed to grow its economy substantially because of its importing and exporting. Moreover, an analysis of the inflow and outflow of Foreign Direct Investment in the years 1990-2000 show that, for Central-Eastern Europe, as seen in Figure 5, that there was an inflow of .3 billion in 1990, and an outflow of .04 billion (United Nations Conference on Trade and Development). This means that there was substantial investment in Central and Eastern Europe, at least in comparison to the investment that was coming out of those countries during this time. As with Polands importing and exporting, as Foreign Direct Investing grew in the countries in Central – Eastern Europe, Polands GDP grew as well. The FDI grew substantially from $.3 billion in 1990 inflow to $25.4 billion in the year 2000, and, as was shown before, Polands GDP grew substantially during these years as well. Conclusion According to much of the literature, including Changs analysis, Poland, as a developing country, should not have tried to globalize. Poland would have been considered to be a developing country in 1990, as it was transitioning from a communist regime to a capitalist one. Indeed, there was much indication in the literature that globalization would hurt domestic Polish firms, because the large multi-national corporations, with their large budgets and ability to minimize expenses, would push out smaller Polish firms. This would presume to have a domino effect on the Polish economy, as these firms would be pushed out, and the people in these firms would lose their jobs, which would mean that they could not buy Polish products, which would lead to a worsening of the economy. This is in line with Changs analysis, that domestic industries in developing countries need to stay out of globalization until they are ready. Also in the literature is a study done on the Polish dairy industry, which showed that globalization did not hurt the domestic Polish dairy firms at all, which contradicts the conventional wisdom that is exemplified by Chang and others. However, the statistics tell a different story for Poland. The statistics show that, from 1990 to 2000, Polands imports and exports grew exponentially. During this same period of time, foreign direct investment in Eastern and Central Europe also grew exponentially. Although Poland was not singled out in this analysis, Poland is part of Central and Eastern Europe, so it presumably benefited from the overall largess in the Eastern European economy. In this decade, 1990 to 2000, Polands GDP also grew at a startling rate, from $59 billion in 1990 to $159 billion in the year 2000. Therefore, its GDP almost tripled in the decade that it went global. And recent statistics also bear this out. For instance, Polands GDP continued to grow since the mid 2000s, and, during this time, Polands import and export continued to grow as well. However, Polands importing and exporting sharply dropped in the year 2009 by 14% and 11% respectively. Perhaps not coincidentally, its GDP quit growing in 2009 – whereas the growth was 5.0% in 2008, when the imports and exports were still growing, its growth was only 1.7% in 2009, when its importing and exporting fell. This shows that Poland is reliant upon its globalization efforts, perhaps a bit too much so, since its GDP ratio was almost 85%, compared to around 27% for the United States. Because of this high ratio, Poland is more sensitive to world market changes than other countries would be. Poland shows that not all developing countries should avoid globalization. If Changs analysis would have been correct, then Poland should have failed when its economy was transitioning and weak in 1990. Its industries could not have been developed, because they were geared to a communist system and they all had to be restructured to compete in the capitalist system. Moreover, as shown by the literature, Poland was mired in an economic crisis in 1989, its third major one. Its industrial output was falling, and continued to fall until 1992. In short, Poland in 1990 was a weak country that was just beginning its transition from communist country to capitalist country, who had suffered major economic setbacks in the 1970s and 1980s, who was beginning another economic crisis that would last for two more years. Its industries were not yet restructured for the capitalist system. Yet it decided in 1991 to begin its push for globalism, opening its markets for both imports and exports, and receiving a flush of cash from foreign domestic investments. According to Chang, it should have failed, because its domestic industries were clearly not ready. Yet it did not – it grew, year by year. And the importing and exporting have proven to be a major part of Polands overall economy. Why? Perhaps the answer to this lies in Dries & Swinnen. Remember, in their literature they found that foreign investment helped the dairy industry, including the domestic firms by vertical and horizontal integration, and the spillover effect. found that foreign investment in the dairy sector leads to a spillover effect, which improves all firms, large and small, and their access to finance, increased investment and quality improvement by small local suppliers (Dries & Swinnen, 2003, p. 6). They found that the reason why these firms do well is because of the process of vertical integration, which means that foreign processing companies vertically integrate with local suppliers, and, along with this integration, comes reforms, such as enhanced quality controls, access to technology, credit and inputs. Additionally, there is a horizontal spillover effect, in which domestic firms copy these vertical integration strategies, therefore the vertical integration affects the entire industry (Dries & Swinnen, 2003, p. 6). Because of this, 85% of milk suppliers stayed in business during the years 1995 to 2000, which is when their study was done (Dries & Swinnen, 2003, p. 6). In other words, the presence of foreign firms has a positive impact on domestic firms, because these foreign firms, in essence, show the domestic firms how it is done. These domestic firms do not necessarily have the infrastructure or expertise in place to take advantage of the global market, so they need a kind of mentor to show them the way. This is where foreign direct investment helps these domestic firms gain a foothold in the global market. This apparently has had a positive effect in Poland, as this would be one reason why Poland defied Changs predictions and blossomed through globalization, instead of failed. Chapter 5 – Conclusions and Discussion The findings in this study show that Polands economy grew because of its globalization efforts. The collecting of secondary data went well, as these different organizations keep a good record of the different countries, and what their imports and exports are, along with the GDP and many other statistical analyses that go into analyzing a country. The limitations of the study were that there was just too much information that had to be sifted through, and many of the indices, etc., for the country were esoteric. In other words, the analysis of this study concentrated on foreign direct investments and importing and exporting as indications of Polands participation in globalization. In reality, this provides an incomplete picture, for there were many other pieces of the puzzle that could have and should have been examined. For instance, there could have been a statistical breakdown of Polands industries, and how each industry has fared since 1990. There was some indication in the literature that different industries fared differently, however a statistical analysis of this was not provided in this paper. Part of the reason for this was that it was difficult to find information about Poland that was older than a decade, because the organizations that compile the information for these countries provide recent information, and these sites do not make clear about how to find older information. Also, downloading Polands statistical yearbook out of the statistical site for Poland was daunting and overwhelming. There were so many figures, and little explanation about how to read any of it. These were all challenges, so it was decided to use the raw figures on importing, exporting and foreign direct investment to show how Poland is faring as a whole globally. Also, these numbers do not really explain why Poland was able to thrive, despite the fact that, as a developing economy, globalization presumably would have hurt it overall. They only explain that Poland did thrive. The literature helps with this, however, as at least one study described vertical integration, and how this helps domestic firms by giving them a kind of mentor that shows them how to navigate the global waters. So, overall, a more thorough statistical analysis of all the data that is presented for the Polish economy would have presented a more complete picture of how Poland is faring in the global economy. However, the raw data regarding importing and exporting is still very helpful, because it shows the extent that Poland has globalized, and, since this information could be obtained back to 1990, it shows the evolution of the globalization efforts and how this evolution tracks with the growth of the Polish economy in general. Therefore, it gives the big picture, which might actually be more helpful than to present a lot of statistics about all the different Polish industries through the years, because this kind of analysis would be lengthy and involved, and probably would have muddied the waters. This way, it is straightforward and clear - Poland globalized, it substantially increased its importing and exporting, while foreign direct investment increased, and this resulted in substantial increases in the GDP. In the year when the exporting and importing fell off substantially, that year being 2009, Polands GDP fell for the first time in decades. Therefore, Poland is reliant upon globalization to keep its economy strong, which is a double-edged sword, as it makes it more likely to have economic slumps when there is a world crisis, such as the current global recession. These findings have affected me personally as it makes me understand that Changs analysis in his book is not necessarily the entire picture and is not necessarily accurate for all developing countries. Chang presented a good argument, one that was well-reasoned and well-researched, and seemed irrefutable. He showed how the superpowers, Great Britain and the United States managed to grow their economy by starting out with protectionist policies, and then the protectionist policies helped the domestic firms grow, and this, in turn, gave them the footing to go global. He argued that nations should not be forced upon the global stage until their domestic firms are developed, through protectionist policies such as putting high tariffs on imports, and then, and only then, should they attempt globalization (Chang, 2008, p. 28). Other hypothesis put forth by other authors in this study concluded the same thing – that globalization would possibly hurt Polands economy, because the big multi-national firms would come in and basically swallow the weak domestic firms whole. However, it did not play out that way with Poland, and this has affected the way that I thought, for I bought into Changs analysis completely. Poland shows that globalizing is beneficial even for the countries that are developing, and that, indeed, these countries can grown their economies substantially by participating in the global market. Poland is only one country, and, certainly, other countries should be studied to see if Changs hypothesis is true. It would be interesting to study how countries in Africa and Asia, countries that are certainly considered developing or third world react to globalizing. Would they have the same result, in that, as their imports and exports grew, so would their GDP? Would foreign direct investments hurt these countries or help them like they did Poland? And, if so, why? In other words, merely examining one country, Poland, for the answer to Changs hypothesis is short-sighted, especially since Poland was never considered to be a third world country, per se. Perhaps Changs hypothesis only applies to the countries that are considered truly third world. However, that does not seem to be true – for, any company that is weak and has weak domestic firms would presumably benefit more from protectionism than globalism. Therefore, this is dichotomy that should be explored for future studies. Bibliography Buttel, F. 2003, “Some Observations on the Anti-Globalisation Movement,” Australian Journal of Social Issues, vol. 38, no. 1, pp. 95-101. Brown, J.S. & Semradek, J. (1992) Secondary data on health-related subjects: Major sources, uses and limitations. Public Health Nursing 9(3): 162- 171. Callinicos, A. 2007, “Globalization, Imperialism and the Capitalist World System,” in Globalization Theory, Polity Press, Cambridge. Central Statistical Office (Poland). Available at: United Nations Conference on Trade and Development. Available at: http://www.unctad.org/Templates/ StartPage.asp?intItemID=2068 Clarke, R. 1989, Poland: The Economy in the 1980s, Longman Group UK Limited, Essex. Deacon, B. 2000, “Eastern European Welfare States: The Impact of the Politics of Globalization,” Journal of European Social Policy, vol. 10, pp. 146- 158. Dries, L. & Swinnen, J. 2004, “The Impact of Globalization on Investment and Agricultural Restructuring: Evidence from Polish Agriculture.” Available at: http://ageconsearch.umn.edu/ bitstream/20255/1/sp04dr01.pdf Dries, L. & Swinnen, J. 2003, “The Impact of Globalization and Vertical Integration in Agri-Food Processing on Local Suppliers: Evidence from the Polish Dairy Sector,” Available at: ftp://ftp.fao.org/es/esn/food_systems/driesF.pdf Dunn, E. 2004, Privatizing Poland, Co Read More