30 Years after SolidarityPOLANDFINANCIAL TIMES SPECIAL REPORT | Friday June 25 2010

InsideJan Cienski on the variedglobal celebrations of thebirth ofFryderykChopin200yearsagoPage 4

www.ft.com/poland­2010 | twitter.com/ftreports

Taking small steps to play catch­up

Thirty years ago, anyone stand-ing on Warsaw’s Marchlewskistreet (named after a Bolshe-vik hero), would have seen

dirty grey apartment buildings, theoccasional horse-drawn wagon clop-ping by, and drab people, weigheddown by a back-breaking 60 per centincrease in the price of meat.

The labour unrest unleashed bythat price rise triggered a chain reac-tion of strikes that led to the creationof the Solidarity labour union in 1980,an event that shook Polishcommunism to its core and endedwith the 1989 Round Table talks thatsaw the communists hand over power,setting off economic and politicalreforms that have transformedPoland.

Today, someone standing on thesame street, now named after PopeJohn Paul II, would scarcely recognisethe place. The boulevard is packedwith jostling modern cars, the pave-ment thronged with well-dressed peo-ple and lined with gleaming skyscrap-ers – a new Deloitte office, a Westinhotel, an international office centre.

But just visible beyond the curvedglass roof of a new shopping centre isthe hulk of Warsaw’s main train sta-tion, stained and decrepit, with thesour odour of kebabs and urine mix-ing in the foetid passages leading tothe trains – a sign of the distancePoland still has to travel as it tries tocatch up with western European liv-ing standards.

That is the challenge facing DonaldTusk and his coalition government,led by his centrist Civic Platformparty, as Poland tries to shake off theaftereffects of the global economic cri-sis while embarking on a further setof economic and social reforms aimedat continuing the country’s transfor-mation, all without upsetting hisparty’s political dominance.

The party has one enormous asset,frequently mentioned by the govern-ment. It was the only European Unioncountry not to fall into recession lastyear, growing by 1.7 per cent, andgrowth this year will be among theEU’s fastest, about 3 per cent.

“Crisis, what crisis?” says KrzysztofOlszewski, who saw his Solaris buscompany increase sales last year, andpredicts even higher sales this year.

Poland’s strong performance lastyear was largely the result of fortui-tous tax cuts and a large and resilientdomestic market, but the ruling partyis hoping the economy’s lustre willhelp in the campaign of BronislawKomorowski, the speaker of parlia-ment and Civic Platform’s candidatefor president.

Mr Komorowski faces off againstJaroslaw Kaczynski, the leader of theright-wing opposition Law and Justiceparty, in a second round vote on July4. Voting in the first round last Sun-day produced a much narrower leadthan expected for Mr Komorowski.

The early election was made neces-sary by the untimely death of Presi-

dent Lech Kaczynski, Jaroslaw’s twinbrother, in the April 10 crash of agovernment jet. Mr Kaczynski was afoe of the current government, andvetoed some crucial legislation, butalso acted as a convenient excuse toavoid politically costly reforms. Thatdefence disappears if, as is likely, MrKomorowski becomes the next presi-dent.

“When we win, there will be noexcuses,” says Grzegorz Schetyna,Civic Platform’s parliamentary chief.

After the election, the government’smain challenge will be putting abudget together that reduces the

deficit from this year’s level of closeto 7 per cent of gross domestic prod-uct.

“I think that now is a good momentto slow the growth in expenditure,”says Marek Belka, the new centralbank governor.

However, Poland’s budget cuts arefairly unambitious. “Poland has optedfor a relatively back-loaded adjust-ment path with not much happeningthis year and the next,” says ThomasLaursen, the World Bank’s managerfor Poland and the Baltics.

In a world where a country’s debtand deficit have become key perform-ance markers, it is vitally importantfor an emerging economy such asPoland to show not only that it isgrowing, but that it has its fiscal pol-icy under control.

“We need now to focus on frugal-ity,” says Jan Krzysztof Bielecki, aformer prime minister and the head ofa panel of Mr Tusk’s economic advis-ers. “The most important thing is tobe prudent and stable.”

Prudent and stable has becomesomething of a Polish characteristic, aremarkable change from the cavalryflair and risk-taking that used to beencoded in the national DNA.Restraint was a hallmark of the Soli-darity labour union, which did not setoff an armed uprising against thecommunists, and was apparent in thecareful transition to democracy thatinvolved no bloodshed and little retri-bution.

Although Jaroslaw Kaczynski’s twoyears in power from 2005-2007 weremarked by radicalism, Civic Platformhas made a virtue of carefully plod-ding towards a better society. MichalBoni, Mr Tusk’s chief adviser, whohas come up with a plan spelling outwhat steps should be taken to create amodern Poland by 2030, recoils at theidea of big reforms, noting the “need

for social acceptance for change”.Mr Boni’s “small steps” include

completing the overhaul of pensions,ending a separate retirement schemefor farmers, and increasing researchspending to allow Poland to movefrom depending on cheap labour tocompeting in knowledge-based indus-tries.

Gone is the earlier bravado overjoining the euro as quickly as possi-ble. Although the governmentremains committed to joining eventu-ally, it is not setting a firm date(although entry by 2015 is possible),and there is an appreciation for thebuffer that a floating currency pro-vided last year.

Jacek Rostowski, finance minister,told a radio interviewer that Poland

should still join, but added: “Maybeit’s better that we are in our own littlehouse and, in a few years when theeurozone has been renovated, we’llmove in.”

The government’s caution extendsto its privatisation programme.Although the treasury ministryintends to raise 25bn zlotys from sell-ing off state assets this year, the coun-try’s 20 biggest strategic companieswill remain under state control, evenif they are partially floated on theWarsaw Stock Exchange.

The government’s goal is to turnsome of those companies into well-runand depoliticised giants that will beable to compete on a European oreven a global scale.

Although it may not appeal to radi-

cal reformers, the incrementalapproach can work over time. Oneexample is the country’s perennialproblems with building highways.After 20 years of underwhelmingresults, there should be visibleprogress in the next year, partlybecause of pressure to get roads builtbefore Poland co-hosts the 2012 Euro-pean football championships. Anyimprovement will help Civic Platformin the 2011 parliamentary elections.

The government has also workedpatiently to raise the country’s inter-national profile. Mr Tusk and his for-eign minister, Radoslaw Sikorski,have managed to reset relations withneighbours and make Warsaw a seri-ous player in the European Union,after Jaroslaw Kaczynski strainedrelations with Brussels, Berlin andMoscow.

As Poland has seen that its coreinterests lie within the EU, the bloomhas come off the relationship with theUS. Although a US Patriot missile bat-tery is rotating through Poland, MrKomorowski has called on the govern-ment to come up with a strategy forwithdrawing the Polish contingentfrom Afghanistan, where 18 of thecountry’s soldiers have died.

Three decades after the strikes thathelped create Solidarity, Poland is atleast four times wealthier, based onGDP at purchasing power parity percapita, and an entrenched democracy.Despite the death of the president,many senior officials and the com-manders of all branches of the armedforces in the April crash, governmentinstitutions never once broke down.

Building institutions and a marketeconomy still has a long way to go, asany businessman caught up in redtape can attest, but Poland has foundits place in the EU, and that place ismuch closer to the sober countries ofnorthern Europe than the troublednations of the south.

“We may have Mediterraneanhearts, but we have northern Euro-pean minds,” says Mr Boni, whoinstead of the open-necked shirts heused to favour was dressed in a darkblue suit and a conservative red tie.

Radical reforms have givenway to cautious ploddingtowards a better society,reports Jan Cienski

Inside this issueEconomy Cool heads and good luckhelped the country become the soleEU member to avoid recession lastyear, writes Neil Buckley Page 2

Privatisation The government hopesto sell almost all the 800­pluscompanies it still owns, writes JanCienski Page 3

Media Adam Easton profiles ITIGroup, which began selling videocassettes and snack foods Page 4

Who’s Who Jan Cienski profiles fiveleading players in the dramaticevents of 1980, including LechWalesa (below) Page 4

Old and new side­by­side: aerial view of Warsaw’s Golden Terraces (Zlote Tarasy) and Palace of Culture and Science Alamy

2 ★ FINANCIAL TIMES FRIDAY JUNE 25 2010

Poland: 30 Years After Solidarity

Parity plea yet to be answered

Irena Eris is the head of alarge Polish company,which makes her somethingof a rarity in a countrywhere few women reach thetop of the corporate ladder.

Mrs Eris herself startedthe cosmetics company thatbears her name in 1983, andhas built it into a large andsuccessful private business.

“In my case, being awoman made no differ-ence,” she says. “I wantedto own my own companyand I simply did it.”

But there are not manyother women in senior cor-porate positions. Only threeof the 60 largest companieslisted on the Warsaw StockExchange, are headed bywomen, two of them banks,where women have gener-ally done better than inother areas.

Of the 273 senior manag-ers of the top 60 companies,only 16 are women, accord-ing to 2009 data.

Polish women are alsounder-represented in poli-tics, making up about afifth of parliamentary depu-ties, far below the levels ofNordic countries, but

slightly better than otherpost-communist new Euro-pean Union members.

Of the 19 members of thecabinet, only five arewomen, and they tend to bein portfolios such as healthand education, not the mostpowerful ministries such asfinance and foreign affairs.

Under communism,women’s status was theo-retically higher, althoughmen still dominated themost important posts. Inthe 1950s, the communistscame up with the iconicimage of the woman tractordriver – young, blonde, andploughing her way to amore egalitarian future, butin the end communism gavewomen the appearance ofequality without the sub-stance.

A big fuss used to bemade over women’s day onMarch 8, when all womenwere given carnations,something that stillbesmirches the reputationof the red blooms in an oth-erwise flower-mad country.

Ironically, it was a fightover a woman that helpedbring down communism. In1980, the workers at theLenin Shipyard in Gdanskwent on strike to reinstateAnna Walentynowicz, whohad been fired for tradeunion activism.

Despite that, Polish menhave had difficulty findinga place for women at thetop table.

Although Polish womenwere granted the vote assoon as the countryregained independence in1918, the traditional view ofwomen, enhanced by thecountry’s Roman Catholi-cism, placed them at theheart of the family home,where they were supposedto raise children, while menwent off to fight Poland’soppressors.

Something of that viewsurvives today. WhenBronislaw Komorowski, thepresidential candidate ofthe ruling Civic Platformparty and acting head ofstate, showed up at awomen’s congress in mid-June, he strode up and chiv-alrously kissed the hand ofHenryka Bochniarz, the no-nonsense head of the Polishemployer’s confederationand president of Boeing forcentral and eastern Europe.

Hand-kissing has goneout of fashion in Poland,but is still practised both byMr Komorowski and hischief rival, Jaroslaw Kac-zynski.

That delicacy towards

women also appears in theeconomy, where women’sretirement age is five yearslower than men’s – some-thing the current govern-ment plans to change.

While Mr Komorowskiexplained to the hundredsof delegates that he was“just a guy” who had toprotect women, theychanted at him “Parity! Par-ity!”

This reflected the call forthe law to be changed toensure that women makeup from 35 per cent to 50per cent of the names onthe electoral lists puttogether by political parties,a law Mr Komorowskipromised to sign if electedpresident.

“Parity is as importantfor us today as labourunions were in 1980,” saysMagdalena Sroda, a philoso-pher and feminist who wasone of the leaders of thewomen’s congress.

Although they do nothave the best corporatejobs, women have done bet-ter at the bottom end of thebusiness world – they headabout a quarter of the coun-try’s small and mediumsized enterprises, and athird of the self-employedare women, a level higherthan in much of westernEurope.

“I encourage women tostart their own companies,”says Mrs Eris, adding thatwomen make up 50 per centof the management team ather company.

WomenWinning a place atthe top in businessor politics has longbeen a struggle,writes Jan Cienski

Companies f lock to the Lodz special economic zone

The approach to the head officeof Lodz’s special economic zoneseems inauspicious. To one sidestands the hulk of a 19th-century red-brick textile mill,the glass smashed in its windowframes, paint peeling in clumpsfrom the ceilings within. It is arelic of the long-gone days whenthe strength of the city’s textileindustry meant it was known asthe Manchester of Poland.

Yet beyond are modern, low-level industrial units, loadinggoods on to articulated trucks.Nearby, another red-brick millthat has been converted into

luxury apartments, and a textilewarehouse reborn as a modernoffice building are signs ofregeneration.

That revival has not beenreversed – though it has beenslowed a little – by the globaleconomic crisis.

The textile industry, whichused to serve the Soviet bloc,went downhill rapidly after thecommunist collapse, sendinglocal unemployment rocketingtowards 30 per cent by the mid-1990s. Today, only a few special-ist textile makers remain.

A big factor in the regenera-tion of the city – Poland’s third-largest – and its surroundingregion has been the fact thatLodz hosts one of Poland’s 14special economic zones, createdin 1997.

These are designed to attractinvestment by offering incen-tives such as tax breaks,

depending on the size of thecompany and the investment.

The team running the zonealso helps investors negotiatethe bureaucracy, as well as find-ing sites and ensuring necessaryservices and infrastructure areprovided.

Other factors have helped,too. Lodz is close to Poland’sgeographical centre, and at thejunction of north-south andeast-west highways being com-pleted across the country. It alsohas eight universities with145,000 students, and recognisedstrengths in language teachingand some technical subjects.

As a result, Lodz has beenable to diversify, attracting com-panies such as household elec-tronics manufacturers, beautyproducts makers, logistics andpackaging companies, and busi-ness process outsourcing.

The roll-call of international

brand names in its economiczone includes Dell, Indesit,Bosch-Siemens, Procter & Gam-ble, Fujitsu, and ABB.

“We made an effort to attractbrand companies, whose namessay something about them-

selves, which can function as akind of promotion for the regionitself,” says Marek Cieslak, pres-ident of the board of Lodz’s spe-cial economic zone.

The main zone near Lodz andits 42 “sub-zones” dotted acrossthe Lodz region have issued 160

investment permits to investors,and now host 130 companies.

Mr Cieslak says the zoneissued 20 permits last year, thesame number as in 2008, despitethe global financial crisis. Theonly difference is that theinvestments were generallysmaller, and companies morecautious about the number ofjobs they declared that theyintended to create.

There was also a shift frombig, international companiestowards medium-sized anddomestic businesses.

But in some ways, Lodz evenbenefited from the Europeanrecession, as companies soughtto reduce costs in more expen-sive countries.

Dell, the US computer manu-facturer, announced in January2009 it was shifting productionfrom Limerick, in Ireland, to itsplant in Lodz.

Fujitsu, the Japanese compu-ter and IT services company,began looking for a site in Lodzin 2008 for a services centre thatwould handle calls for technicalassistance from its IT clients allover Europe, such as Germany’sAllianz. It had considered loca-tions such as the Czech Repub-lic, Hungary and Slovakia, andeventually started services inMarch 2009, in the teeth of thedownturn.

Matt Howes, service opera-tions manager, says the crisiswas in a sense good news forthe centre. “The pressures beingput on organisations to cut costswas one of the reasons we werecreated,” he says. “It just addedto the incentive to bring workout here.”

Other companies have seizedthe downturn as an opportunityto invest. A half-hour’s drivenorth-west of Lodz, in green

fields in the town of Aleksan-drow Lodzki, ABB, the Swiss-Swedish engineering group,opened a state-of-the-art factorymanufacturing low-voltagemotors last July. It is alreadyclose to launching a factoryalongside it making power elec-tronics.

Lodz’s location – less than 24hours by truck from ABB’s cen-tral warehouse in Menden, west-ern Germany – was one of thefactors that gave it an edge overother central European coun-tries, says Artur Rdzanek, man-aging director of the plant. Headds that the company neverthought twice about goingahead.

“This was the perfect time forinvestment,” he says. “We wereinvesting money when every-thing was cheaper. Now we areready to ramp up productionwhen demand comes back.”

InvestmentNeil Buckley chartsthe revival of Poland’sthird­largest city

‘The pressures beingput on organisationsto cut costs was oneof the reasonswe were created’

Cool heads and goodluck help avert crisis

It is a proud boast: Poland wasthe only European Union mem-ber to escape recession andreport positive growth last year.

Yet with uncertainties over thestrength of its recovery because of theeurozone crisis, and a sharp increasein the budget deficit last year, there islittle time for self-congratulation.

Poland avoided an economic con-traction through luck and some gooddecisions. Among the latter was thatcutting some taxes and social securitycosts shortly before the crisis, givinga timely boost to the economy.

The country also accelerated use ofEU funds in 2007-08, partly in prepara-tion for co-hosting the Euro 2012 foot-ball championships with Ukraine.

Its government and citizens, saymany observers, deserve credit, too,for cool-headedness. The Civic Plat-form-led government of Donald Tuskinsisted that Poland was not headingfor catastrophe – even while investorspanicked over the broader outlook forcentral and eastern Europe – and ordi-nary Poles kept their nerve.

“There can be such a thing as aself-fulfilling prophecy,” notes JanWiniecki, a member of Poland’s mone-tary policy council. “People didn’t buythe idea that we were facing a catas-trophe, and so they didn’t changetheir spending patterns so much.”

Poland’s large domestic market,compared with neighbours such asthe Czech Republic and Slovakia,helped it withstand the slump in itsmain EU export markets.

Witold Orlowski, chief economicadviser at PwC in Poland, notes, too,that Polish companies and consumershad not gorged on foreign currencyborrowing as Hungary or the Balticrepublics had, fuelling gaping currentaccount deficits. But such borrowing

was growing rapidly in Poland by2008.

“Our neighbours hit the wall,” hesays. “We were also running in thedirection of the wall, but fortunatelywe were still far away when ourneighbours started to hit it.”

Finally, the fact that Poland wasneither within the eurozone – like Slo-vakia or Slovenia – nor had pegged itscurrency to the euro – like the Balticsand Bulgaria – meant a sharply depre-ciating zloty helped preserve competi-tiveness.

“The currency depreciated enoughto help deal with the problem in thereal economy, but not to such adegree that it would create problemsin the banking industry,” MrOrlowski says.

Yet Stanislaw Gomulka, a formerdeputy finance minister and professorat the London School of Economics,cautions that Poland’s achievement inmaintaining growth should not be

over-emphasised. The fall from its pre-vious trend rate was as big as that ofmany other European countries.

“In advanced western countries, thestandard rate of growth is 1-2 per cent[a year]. Then there are the emergingcountries . . . where the standard rateis something like 5 per cent. Polandbelongs to that category,” he says.

The consequences of the sharp fallin growth must now be faced. On topof the earlier tax cuts, lower growthhit tax receipts even as spending con-tinued to rise. As a result, the budgetdeficit ballooned to 7.1 per cent ofoutput last year, from 1.9 per cent in2007 and 3.7 per cent in 2008.

The fact this figure is well abovethe 3 per cent ceiling for euro mem-bership is not an immediate problem.

Talk of joining the euro by 2012 has

been shelved. With Poland havingexperienced the benefits of an inde-pendent monetary policy and observ-ing the eurozone’s escalating debtproblems, membership is on the backburner and unlikely before 2015.

Poland’s deficit is also below thoseof the worst western European offend-ers. But it is at a level at which,without action to tackle it, marketscould become jittery.

Having Bronislaw Komorowski ofCivic Platform as president couldassist the government in fiscal consol-idation, ending the gridlock createdwhen the late president Lech Kaczyn-ski in 2008 vetoed reforms of pensionsand healthcare.

But, notes Mr Gomulka, the govern-ment faces parliamentary elections inlate 2011 so is “unlikely to produceany fiscal initiatives for next year”. Afiscal plan sent to Brussels sees thedeficit remaining close to 7 per centthis year, with the bulk of consolida-tion put off until 2012.

Senior officials stress the govern-ment’s budgetary caution. “We haveto resolve a difficult dilemma – how toharmonise the need to stabilise publicfinances with the need to grow,” saysMichal Boni, the prime minister’schief adviser.

Officials also point to rules thathave been introduced limiting the risein discretionary spending, about aquarter of the budget, to 1 per cent.

Yet the government will face signifi-cant reform challenges, notably ofpensions and of the state-financedsocial security system for farmers.The eurozone’s woes, moreover, meanthis could be played out against abackground of economic growthslower than official forecasts of 3 percent this year and 4.5 per cent in 2011.

Marek Belka, Poland’s new centralbank governor, says only a “real pes-simist” would foresee a double-diprecession, but suggests westernEurope’s recovery could be very frag-ile, affecting Polish exports.

“We are seeing a recovery, but likethe rest of Europe we are being care-ful. Until there is more of a revival indomestic demand it’s hard to say thatthe revival is on firm ground.”

EconomyNeil Buckley explainshow the country wasthe sole EU member toavoid recession last year

GDP growth in 2009Annual % change

-20 -15 -10 -5 0 5

LatviaLithuaniaEstoniaRomaniaHungaryBulgariaDenmarkSwedenUKCzech RepEurozonePoland

Poland unemployment ratePer cent

1990 95 2000 05 10

0

5

10

15

20

25

Poland GDP growthAnnual % change

1980 85 90 95 2000 05 12

-10

-8

-6

-4

-2

0

2

4

6

8

Sources: IMF; Thomson Reuters Datastream; European Commission

Forecast

Workers at the Lenin Shipyard, Gdansk 1980. Photo:AFP

‘We were running in thedirection of the wall, butfortunately we were still faraway when our neighboursstarted to hit it’

Irena Eris: scent of success

FINANCIAL TIMES FRIDAY JUNE 25 2010 ★ 3

Poland: 30 Years After Solidarity

Lending picksup in linewith economy

Pawel Gierynski saw apotentially lucrative butrisky opportunity for hisinvestment fund, helping ina management buy-out ofthe Polish affiliate of Gmac,the finance arm of troubledGeneral Motors.

So his Abris Capital Part-ners started to hunt forbanks willing to lend themoney to make the dealhappen.

“I went to every bank inPoland. Generally, therewas a lot of interest, but alack of faith that we wouldbe able to close the transac-tion,” says Mr Gierynski, apartner in the firm.

In the end, Abris decidedto finance 534m zlotys ofthe 700m zlotys transactionnot through banks butthrough a debt placementusing the Warsaw StockExchange’s new Catalysttrading platform for corpo-rate and government bonds.

The transaction showsthe continued risk-aversionof the banking sector,which has become muchmore conservative in thewake of the global eco-nomic crisis.

Polish banks scrambled tobuild up their balancesheets, setting off a war fordeposits, and reined in theirlending.

The result has been astrong improvement in thesector’s capital adequacy

ratio, from 11.2 per cent atthe end of 2008 to 13.3 percent at the end of last year.

Now sitting on a cashpile, banks are starting tolend again, cautiously. Realestate developers, whichhad found it almost impos-sible to obtain funds lastyear, are now able to do so,albeit on tougher conditionsthan before the crisis.

Krzysztof Pietraszkiewicz,head of the Polish BankAssociation, expects lend-ing to increase by 8-10 percent this year.

“The banking sector isreviving. Banks are becom-ing more and more active,”says Janusz Dedo, presidentof the Polish affiliate ofHSBC.

Despite the crisis, Polishbanks managed to turn aprofit last year, reporting a

gain of 8.7bn zlotys, a fall of36 per cent from 2008, butstill decent in the light ofthe enormous losses seenby banks in western Europeand the US.

“There were difficulties,but no bank had a seriousproblem, and none reporteda loss,” says Mr Dedo.

A key to banks’ resultswas the overall perform-ance of Poland’s economy,which with growth in 2009of 1.7 per cent was the onlyEuropean Union countrynot to fall into recession.

However, banks have stillseen their number of prob-lem loans grow from 4.5 percent of their portfolio at theend of 2008 to 7.6 per cent atthe end of last year.

Riskier credit card loansare in worse shape, withnon-performing loans ofmore than 12 per cent.

Polish banks have tradi-tionally been more conserv-ative than their counter-parts in more developedcountries, and did not dab-ble much in exotic financialinstruments that ruinedmany larger institutions.

The Financial Supervi-sion Authority, the bankingregulator, has also broughtin several recommendationsdesigned to restrict foreigncurrency lending, whichmakes up more than 60 percent of outstanding mort-gages.

Despite the concerns ofthe banking regulator, for-

eign currency borrowing isstill popular, with eurosnow competing with loansdenominated in Swissfrancs.

The overall outlook forPolish banks is fairly posi-tive, with Mr Pietraszkie-wicz expecting profits torise by 20-25 per cent in2010.

The economy is againexpected to expand by morethan 3 per cent this year,one of the fastest rates inthe EU, and the long-termgrowth rate will be fasterthan the wealthier econo-mies of western Europe fora generation.

The level of assets to GDPfor the banking sector is 85per cent, much less than inwestern Europe, whilemortgage debt to GDP is17.5 per cent, again farbelow the level in old EUcountries.

“The level of debt is notvery high at all,” saysIwona Kozera, banking ana-lyst at Ernst & Young, theconsultancy.

While Polish banks areperforming well, the widercrisis has had an impact onthe sector, as some corpo-rate parents have beenforced to sell their profita-ble Polish operations.

Germany’s WestLB sold(pending regulatoryapproval) its Polish subsidi-ary to Abris and IDMSA, abrokerage, as part of aneffort to restructure inorder to qualify for EU aid.

The profitable BankZachodni WBK, the coun-try’s fifth largest and a sub-sidiary of Ireland’s troubledAIB, is being put up forsale, with a long line ofbanking groups interestedin taking it over.

However, the governmentappears to want the bank tostay in Polish hands, a reac-tion to the perceived riskduring the crisis of havingan overwhelmingly foreignbanking sector.

Stanislaw Kluza, the headof the Financial SupervisionAuthority, said in a newspa-per interview: “In Poland,70 per cent of the bankingsystem belongs to foreign-ers, compared with an EUaverage of 27 per cent.”

“In times of crisis, how-ever, such a structure of themarket involves a certainlevel of risk, especiallywith possibility of a with-drawal of capital.”

BankingInstitutions remaincautious, but cashis easier to find,writes Jan Cienski

ContributorsJan CienskiWarsaw Correspondent

Neil BuckleyEast European Editor

Adam EastonBBC Correspondent,Warsaw

Andrew BaxterCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

For advertising details,contact: Regina GillPhone +49 69 1568 5161Fax +49 69 5964 478E­mail regina.gill@ft.com oryour usual representative.

State keen as mustardto cut role in business

There is something un-usual about the Parczewmustard and vinegarfactory and it has noth-

ing to do with its line of tastycondiments – rather, the smallcompany’s ownership structureis an anomaly; Parczew is thelast food company still ownedby the Polish state.

Not for long, though. Thecompany is being put up for saleby the state treasury, which ishoping to get rid of almost allthe more than 800 companies itstill owns, retaining significantstakes in only about 20 large,strategic companies.

The prospect of change is ter-rifying Parczew’s 46 workers.“I’m afraid I’ll lose my job,”says a middle-aged womancleaning out a ketchup bottlingline. “We are managing, and weshouldn’t change what works.”

Stanislaw Jarosz, a managerbrought in to turn round thecompany after it almost wentbankrupt at the beginning ofthe decade, is proud of the factthat no employee has ever beenlaid off.

The treasury has been contentnot to interfere as long as Parc-zew, located in the small eastern

Polish town of the same name,does not make a loss. A newowner may not be so forgiving.

It is a worry shared by manyother workers in state-ownedcompanies, but the governmenthas decided to risk the wrath oflabour unions and is pushingahead with one of the mostambitious privatisation pro-grammes since the end of com-munism in 1989.

One reason is a desire to movecompanies ranging from tinyParczew to large enterprisessuch as Energa, a power genera-tor, into the private sector.About 20 per cent of Poland’seconomy remains under statecontrol, and the government’sgoal is to push that closer to the10 per cent that is the norm indeveloped countries.

However, the economic crisishas also exposed the risk of hav-ing too much of the economy inforeign hands, and has bluntedthe government’s privatisingzeal. Strategic companies wherethe government has a signifi-cant – and often controlling –stake such as PKO BP, the coun-try’s largest bank, and PKNOrlen, the leading oil company,are not heading for completeprivatisation.

Instead, groups that remainunder state control will be de-politicised and run along mar-ket lines, with the goal of turn-ing them into companies withEuropean and even globalpotential, says Adam Jasser, aneconomic adviser to DonaldTusk, the prime minister.

Another government goal is toraise about 25bn zlotys (€6bn,

$7.4bn, £5bn) this year fromasset sales, vital if public debt isto be kept below 55 per cent ofgross domestic product, a levelat which the law triggers auster-ity measures.

“This year is crucial for suchbig projects,” says AleksanderGrad, the treasury minister. Sofar this year, the treasury hasraised 7.5bn zlotys. “The role ofthe state in the economy willfall significantly.”

While Parczew will not makemuch a dent in the debt, someof the crown jewels of Poland’sstate capitalism will.

At the beginning of the year,the treasury sold a 10 per centstake in KGHM, the copperminer, worth 2bn zlotys and inMay, the government, togetherwith Eureko, the Dutch insurer,sold a 30 per cent stake in PZU,central Europe’s largest insur-ance company in an 8bn zlotysIPO, the largest in Europe sinceDecember 2007.

The treasury is now focusedon the privatisation of much ofthe chemical and electricityindustry.

Hopes of selling chemicalplants have so far been frus-trated, in part because of thepoor condition of some compa-

nies, and in part because theprice demanded by the govern-ment has been too high. Theprivatisation of the electricitysector seems to be doing better.

The treasury plans to sell 52per cent of Tauron, the coun-try’s second largest generator,in an initial public offering atthe end of June worth 5.2bnzlotys.

Last year, PGE, the country’slargest utility, sold a 15 per centstake on the Warsaw StockExchange (WSE) for 6bn zlotys,the largest IPO in Europe in2009. The government hopes tosell an additional 10 per cent ofPGE this year, but only if theshare price returns to the 23 zlo-tys of last year’s IPO.

The arrival of so many largecompanies is proving to be aboon to the WSE, adding liquid-ity and intensifying interestfrom both foreign and domesticinvestors.

“These successful IPOs showthat there is high demand,” saysLudwik Sobolewski, president ofthe stock exchange.

Mr Sobolewski will soon get toexperience the thrill of an IPOfirsthand. The treasury plans tosell the exchange, currently 98per cent state-owned, by the endof this year. There, the goal isless to make money than toensure the future of the WSE,currently central Europe's larg-est exchange.

PrivatisationJan Cienski explainswhy Parczew andmany other companiesare to be sold bythe government

Turnround manager: StanislawJarosz is proud that no employeeat the Parczew Vinegar andMustard factory has ever beenlaid off Jan Cienski

Companies thatremain under statecontrol will bedepoliticised and runalong market lines

Pietraszkiewicz: sees revival

‘There weredifficulties but nobank had a seriousproblem and nonereported a loss’

4 ★ FINANCIAL TIMES FRIDAY JUNE 25 2010

Poland: 30 Years After Solidarity

Profile ITI builds media empire on video cassettes and snack foods

The ITI Group has been a roaringsuccess story of Poland’s transitionfrom communism to a democratic freemarket economy. It started out sellingvideo cassettes with a sideline in snackfoods and developed into the country’sleading media company.

It is the region’s biggest mediagroup, encompassing TVN, Poland’sleading private broadcaster, Multikino,the country’s second largest cinemachain, and Legia Warsaw, its mostrecognised football club.

ITI was created in 1984 under thecommunist state­sanctioned Poloniascheme, which had been set up toattract foreign capital. Its founders,Mariusz Walter, a former state TVeditor, and Jan Wejchert, abusinessman, started out in a flat piledhigh with video cassettes on Warsaw’seastern river bank.

They had an eclectic entrepreneurialapproach. Apart from videos andpotato crisps, they sold electronicgoods, advertising and bakingproducts.

Along with the third partner, BrunoValsangiacomo, they began to focus onmedia and entertainment, creating theTVN channel in 1997, which shapedthe fledgling democracy’s free media.

When Mr Wejchert died last year,Leszek Balcerowicz, the architect ofPoland’s economic transition, describedhim as a man who “co­developed freemedia, made contributions toculture . . . and also acted in favour ofcivic society in Poland”.

Markus Tellenbach, TVN’s chief

executive, says risk­taking andinnovation are “in the DNA of thecompany”.

TVN has countered the challenge offragmentation, he says, by creatingearly its own thematic channels, suchas Poland’s first 24­hour news channel,TVN24, in 2001.

TVN now has a higher urban peak­time audience share than either thepublic broadcaster, TVP, or privately­owned rival, Polsat. The keys to thatsuccess, Mr Tellenbach says, arelocally­produced shows and Polish

versions of popular formats such asStrictly Come Dancing.

Poland’s ability to avoid recessionlast year lessened the effects of theindustry­wide advertising crisis.Advertising revenues, which fell off acliff last year, have already returned togrowth.

TVN’s innovation has been rewardedby Polish consumers keen to catch upwith their western Europeancounterparts.

Mr Tellenbach says: “The Poles areextremely savvy and price­sensitive,but they are willing to spend money on

new technology. This market is racingtowards high definition.”

In a country with 13.8m households,1.5m flat screen HD television setswere sold in the past year.

TVN has expanded its core business,investing in Onet.pl, the country’sleading online portal, and launching itsown digital satellite platform, N, in2006.

Satellite television’s market sharehas almost doubled in the last threeyears, helped in part by the fact thereare only four main free TV channels inPoland.

Competition is cut­throat with fourbig satellite providers. N expects to befree cash flow positive in 2011 and hasattracted more than 1m customers.

“We will be the fastest growing. Weare the ones that drive innovation andI believe that consolidation will occurdown the road,” says Mr Tellenbach.

Innovations include a premium HDsubscription package that you canswitch off when you go away onholiday.

Mr Tellenbach says his next focus iskeeping up with mobile and onlinetechnological change.

“The television set is not going to bereplaced because to have a big screenand HD is a unique experience, but itis no longer the single [focus of]attention,” he says.

“Whatever the consumer embraceswe want to be there with ourproducts.”

Adam Easton

TVN’s MarkusTellenbach: ‘Polesare extremelysavvy and pricesensitive, but theyare willing tospend money onnew technology’

Chopin strikes chord

Poland is one of Europe’s mostmusic­loving nations, yet it hasproduced only one truly outstandingcomposer, Fryderyk Chopin. Hisgenius was of such a high calibre,however, that he has become thecountry’s international calling card,and the Polish government hasembarked this year on a globalcampaign to celebrate Chopin on the200th anniversary of his birth, writesJan Cienski.

“I see this year as an opportunitynot just to promote Chopin . . . but topromote Poland – how to managethis event for Poland’s benefit,” saysWaldemar Dabrowski, the head of theChopin 2010 committee and aformer culture minister.

“Thirty years ago, Solidarityshowed that something washappening here – that was when thebattle for central Europe began. Thisis the first time since then that sucha strong signal to the rest of theworld has come out of Poland.”

The government has spent about$100m on refurbishing sitesassociated with Chopin and creatinga multimedia museum dedicated tothe composer in a palace in centralWarsaw.

Zelazowa Wola, the manor house50km from Warsaw where Chopinwas born, has been spruced up witha new concert hall and a restaurant– controversial for some purists whoobjected to the daring modern design– aimed at the thousands of peoplea day who make the pilgrimage tothe site.

“It used to make sense to go toZelazowa Wola for only half an hour,because there were no toilets, norestaurants and nothing to do there,”says Mr Dabrowski.

The celebration has been trulyinternational, a mark of Chopin’sglobal appeal, and many of the40 committees dedicated topromoting Chopin sprang up withoutany Polish intervention.

Events have ranged from aninaugural concert in Warsaw inJanuary by Chinese pianist LangLang, to piping the composer’s musicon to the floor of the New YorkStock Exchange. Asia, where Chopinis enormously popular, has beeninundated with concerts.

In Warsaw recently, musiciansplayed all 22 hours of music writtenby the composer in the Chopin Open,which attracted more than 25,000people to the Polish capital – a cityChopin called home before moving toFrance in 1831, following the defeatof an uprising against Poland’sRussian occupiers.

“This Chopin year is importantbecause it will focus attention on ourwhole culture, and we do havesomething to be proud of,” said AniaKlewinska, attending the Chopin openwith her son and husband, who saidthe performance had piqued hisson’s interest in classical music.

The more than 2,000 eventsaround the anniversary continue inAugust with a Chopin and his Europefestival, followed by a Chopin contestin October.

The year ends with a recital of thecomposer’s favourite operas on NewYear’s Eve inWarsaw.

Additionalreportingby IwonaSarjusz­Wolska

FryderykChopin livedin Warsawbefore movingto Francein 1831

Private universities face lesson in harsh facts of life

University education has been one ofdemocratic Poland’s biggest successes– training a generation of people whohad been left out under communismand giving them the skills to competein a market economy.

Over the past two decades, hun-dreds of institutions have sprung upto meet pent-up demand for educa-tion, which has given the country oneof the largest non-public universitysystems in the world. Almost onethird of students attend private uni-versities – much more than in otherEuropean countries.

“We are radically different,” saysStefan Jackowski, a professor at theUniversity of Warsaw. “There is nocomparison with any other universitysystem. It is very unusual.”

But now Poland’s atypical system –the result of the entrepreneurial driveof many professors – is running into

trouble. This may have implicationsfor the country’s attempt to shift frombeing an economy dependent oncheap labour to one based on knowl-edge and technology, as it strives tocatch up with western European liv-ing standards.

The problem is that most privateuniversities, as well as many publicones, have very low standards, andfocus on teaching easy subjects suchas marketing and social studies,which give students a diploma but notmuch technical knowledge usable inan advanced economy.

“There is a not a good matchbetween the university system andthe needs of business,” says ThomasLaursen of the World Bank.

Added to that, the university sys-tem is bracing itself for a demo-graphic crunch, as falling birth ratesover the past two decades lead torapidly falling numbers of new stu-dents. Because most older peoplealready have diplomas, there are fewpools from which to draw new stu-dents, and remaining students aremore demanding.

“People used to come for a piece ofpaper, but now we’re seeing studentsdemanding much higher standards,”

says Jan Szafraniec, rector of theBogdan Janski Higher School, a pri-vate university that teaches manage-ment, politics and sociology.

Michal Debski, a high school stu-dent trying to decide where to attenduniversity, says: “When people seedegrees from some of the privateschools, they just laugh.”

The result is going to be a crisis inhigher education.

“We will have a big reduction in thenumber of young people going to uni-versity,” says Bohdan Wyznikiewicz,deputy director of the Gdansk Insti-tute of Market Economics, which hasprepared a report on the state ofPoland’s post-secondary educationsystem for the ministry of highereducation, together with Ernst &Young, the consultancy.

“Everything indicates the weakerschools will have to band together ordisappear. The number of suchschools has already peaked, he says.”

The study found a litany of prob-lems. In addition to more than half ofstudents taking undemanding sub-jects, many universities rely on part-time professors who do little morethan lecture and then run on to theirnext job. Two-thirds of Polish profes-

sors have more than one teaching job.There is also a significant imbal-

ance in research and developmentspending – 25 public universitiesreceive 84 per cent of funding, whilethe remaining 106 public and 325 pri-vate universities get the rest.

Research tends to be parochial; con-cerned with purely Polish issues, andis rarely published in internationaljournals. Although university is theo-retically free, about 60 per cent ofstudents pay for their studies.

Even the country’s two best publicuniversities, the Jagiellonian in Kra-kow and the University of Warsaw,are in the fourth centile in the rank-ing of world universities produced byShanghai Jiao Tong University.

That is not to say that all ofPoland’s higher education is woeful.The larger public universities haveexcellent medical schools, and areas

Higher educationJan Cienski says thesystem faces a crisis asstudent numbers fall

Big namesfrom past– where arethey now?

Lech WalesaThirty years ago, Lech Walesawas a 36-year-old electricianwho had been fired from theLenin shipyard in Gdanskbecause of his involvement inlabour agitation. Whenshipyard workers went onstrike in August 1980, MrWalesa quickly joined, andwith his charisma and simplepeasant’s way of speaking, hebecame the leader of the newunion movement. Mr Walesawas interned when martiallaw was declared on December13 1981. He was awarded theNobel peace prize in 1983 andended up leading Solidarity in1989 round-table negotiationsthat ended the Party’smonopoly on power. Althoughhe is credited withbeing one of the mainfigures in freeingPoland fromcommunism, his1990-1995 presidencyis widely seen as adisappointment. Hisauthoritarian streakended up splittingthe Solidaritymovementandallowedthe post-communi

sts a swift return to power.Since his 1995 election defeat,the former president hasbecome an internationalspeaker and enthusiasticadvocate of innovativetechnologies. Mixed withoccasional threats to return topublic life (although polls givehim very little support), hespends much of his timedefending his reputation fromattacks by right-wingers. Theyaccuse Mr Walesa of being asecret police stooge who soldout the country by striking adeal in 1989 with thecommunists under whichPoland’s former rulers escapedprosecution.

Andrzej GwiazdaOne of the founders of non-communist labour unions in1978, and Lech Walesa’sdeputy in 1980, the luxuriouslybearded Andrzej Gwiazda hadalways been a prickly non-conformist. He spent the 1970sbattling the communistauthorities, and much of the

1980s under internment. Hefiercely opposed Mr

Walesa’s decision to opennegotiations with thecommunists, and tookno part in the round-table talks of 1989. Hedid not make a career in

either business or inpolitics,

returning towork in

ship con-struction.Togeth

er with Anna Walentynowicz,the crane operator whosedismissal sparked the 1980strike and who died in theApril 10 crash of the Polishgovernment airliner, MrGwiazda has been one of MrWalesa’s fiercest critics. Hesees 1989 as a betrayal, andalso feels the 1980 strike wasprovoked by the secret police.Long a marginal figure, hewas given Poland’s highestdecoration by Lech Kaczynski,the former president, in 2006.

Henryka KrzywonosA tram driver, HenrykaKrzywonos was one of thepivotal figures in creatingSolidarity and eventuallybreaking the back of Polishcommunism. She started asympathy strike of Gdansktransport workers in 1980,telling her passengers: “Thistram is going no further.”When shipyard workers underLech Walesa were consideringending their sit-in following

successful negotiations withthe authorities, she persuadedthem not to forget about lesspowerful workers also onstrike. “If you abandon us, wewill be lost,” she said. “Theywill leave the shipyard alone,but small plants will becrushed like bugs. Don’t stopthe strike.” The shipyardworkers decided to stay outuntil all labour demands weremet, leading to the creation ofthe national Solidarity union,where she became one of theleaders. Mrs Krzywonos neverwent into politics, insteadrunning a foster home fortroubled children in Gdansk.

Tadeusz FiszbachTadeusz Fiszbach, thecommunist first secretary inGdansk region, was one of thegovernment negotiators withstriking workers in 1980.Workers quickly concludedthat the bald apparatchiksympathised with their aims.He was viewed with suspicion

by the communist hierarchy,and following his opposition tothe declaration of martial lawin 1981, was shuffled off toHelsinki as trade attaché. In1989, he ran for parliament,and was one of the fewcommunists to gain thesupport of Solidarity leaders.He advocated the dissolutionof the Communist Party andthe return of its property tothe state – a stance that didnot endear him to comrades.When the Party officiallybecame a social democraticparty, Mr Fiszbach left with 40MPs to start a party free fromthe communist past. Hisattempt failed, and he turneddown an offer from Mr Walesato run for president in 1990.Since then he has been anambassador and a universitylecturer on diplomacy.

Bogdan BorusewiczBogdan Borusewicz is one ofthe most senior members ofSolidarity still active in

politics. A historian, MrBorusewicz was arrested inthe 1960s for distributing anti-communist leaflets. He thenwent on to become one of thekey organisers of free labourunions on the Baltic coast,and was one of the mainplanners of the 1980 shipyardstrike. He spent much of the1980s underground, resistingcapture by the communistsafter martial law. Indemocratic Poland, MrBorusewicz became apolitician, and is currently thespeaker of the senate. He hasbeen an active defender ofLech Walesa againstaccusations that the formerpresident was a communistcollaborator.

Who’s WhoJan Cienski profilesfive leading playersin the events of 1980

Pole position: (clockwise fromtop left): Bogdan Borusewicz,Andrzej Gwiazda, HenrykaKrzywonos, Tadeusz Fiszbach;(below left): former presidentLech Walesa

epa, Corbis, eyevine, Getty

such as computer science and mathe-matics are at a very high level.

Some private universities have alsomanaged to break out of mediocrity.Kozminski University, a businessschool, is Poland’s highest-rankingprivate university – ranked 42nd inthe Financial Times’ 2009 EuropeanBusiness Schools listing.

The goal is to drag the rest of theeducation system to the same stand-ard of international competitiveness,vital if Poland is to continue attract-ing high levels of foreign investment,and to produce its own European orworld-scale companies.

Despite the opposition from manyuniversity rectors, Barbara Kudrycka,the higher education minister, hasdecided to push ahead with creating agroup of elite universities, and ofcharging students who want to studya second area of specialisation.