Comparative Analysis of Poland, Slovenia, and Hungary

By: Joshua DunnGuangyu Zhou

BackgroundPoland

Shock Therapy－ Help speed up the transition to a market economy－ The price controls on products and restrictions on imports were Population: 38,441,588 Republic

Slovenia Most productive out of all of Yugoslavia’s Republics after Independence－ The wealthiest nations in Europe － Grown since its independence from Yugoslavia－ Include a well-developed economic infrastructure and a well-educated labor force Population: 2,000,092 Parliamentary Republic

Hungary Self-Sufficient－ First multi-party elections country in 1990－ Succeeded in transforming its command economy into a market economy－ Both foreign ownership and foreign investment in Hungarian firms－ Economic growth as one of the newest member countries of the European Union since 2004 Population: 9,976,062 Parliamentary Democracy

6 Institutional FrameworksAllocation MechanismForms of Ownership of Land and CapitalRole of PlanningTypes of IncentivesIncome RedistributionRole of Politics

Allocation MechanismPoland

Command Market Transitioned in 1990 Used “shock therapy” to transform into a market economy－ Shock therapy 　 program around 1990 -> the most well developed countries in Europe－ Remained stable during the recent economic recession－ Transitioned to a democratic state in 1990 by liberalizing its economy the privatization of

companies to increase its economic growth.Slovenia

Command Market Independence from Yugoslavia in 1991 as one of the several Yugoslav Republics－ Success through trade and enterprise－ After independence from Yugoslavia, pursued towards international trade and foreign

investment from other countriesHungary

centrally planned Market Privatization occurred from 1990 to 1994－ Command economy to a market economy ->gradual methods and not through the use of

“shock therapy”－ Before the transition, most of Hungary’s economy was mostly based on producing and exporting goods solely to the USSR (Union of Soviet Socialist Republics)－ Most of the economy’s firms are privatized

Forms of Ownership of Land and CapitalPoland

Capitalist Was not completely privatized, agricultural infrastructure was

underdeveloped－ only small and medium state owned companies are privatizedSlovenia

Capitalist Foreign investors contributed to economic growth of the country

Socialism High taxes and state control slowed growth

Hungary Capitalist

Located in the center of Europe which allowed for high economic activity through imports and exports

Role of PlanningPoland

Shock Therapy Program – Balcerowicz Plan Decontrol of most prices to prevent inflation Removed foreign exchange controls Privatization occurred over the first few years

Slovenia Gradual Transition for Privatization

Most successful economy out of all of Yugoslavia’s Republics－ Banking, telecommunications, and public utility sectors－ Restrictions on foreign investment are removedHungary

State Privatization Agency (SPA) Government sold state property instead of giving to people for free Substantial privatization occurred

Types of IncentivesPoland

Economic Reforms Demand for health care, education, and employment led to government

action in mid 2000s－ Remove price controls and several subsidies to industry－ Open their market to the foreign investorsSlovenia

Dependence on foreign investors－ Faced to other EU countries, particular in Germany, Austria, Italy, and France

Socialist policies hinder participation in economy－ High taxes

Hungary Exports－ including machinery, vehicles, food, beverages, tobacco, crude materials,

manufactured goods, fuels and electric energy－ Export to Germany, Austria, Italy, France, U.K., Romania, and Poland

Income RedistributionPoland

Individual tax rate – Between 18% and 32% Shock therapy contributed to increased inequality Rawlsian

Slovenia Individual tax rate – Between 16% and 41%

Considerable and steady equality of income Austrian

Hungary Individual tax rate – Between 18% and 36%

High social security taxes and poverty Rawlsian

Role of PoliticsPoland

Government imposing economic reform－ tax system, government expenditure and banking system Poland’s political stability allowed for more foreign investment－ No laws that limit or prohibits foreign investment, participation and control

Slovenia Government encouraged economic activity－ government spending on education and maintenance on highway

Hungary Managing debt – Cutting expenses on programs Political corruption is an issue

Bribery－ Ranks 46th out of 180 countries in transparency international－ Corruption perception index 6.1 of 10, with higher scores indicating less corruption

9 CriterionLevel of OutputGDP GrowthComposition of OutputDegree of Static EfficiencyDegree of Dynamic EfficiencyMacroeconomic StabilityEconomic Security of an IndividualDegree of Economic EqualityDegree of Economic Freedom

Level of Output

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

GDP per capita

PolandSloveniaHungary

GD

P pe

r ca

pita

1. Each country experienced GDP growth2. Declined from 2008 to 2009

GDP Growth

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-10

-8

-6

-4

-2

0

2

4

6

8

GDP Growth

PolandSloveniaHungary

Gro

wth

(%

)

1. All 3 countries experienced growth throughout the 2000s2. Poland did not experience a significant decline3. Slovenia and Hungary experienced a decline from 2007 to 2009

Composition of OutputOutput (% of GDP)

Country Military Agriculture Imports Exports

Poland 1.91 4.5 38 35

Slovenia 1.45 2.6 47.6 60.2

Hungary 1.47 4 73 70.4

1. Poland’s agricultural infrastructure is underdeveloped2. Slovenia’s exports influenced GDP growth since 20003. Hungary’s location allowed long term economic growth

Degree of Static Efficiency

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5

10

15

20

25

Unemployment (% of Labor)

PolandSloveniaHungary

% o

f La

bor

1. Poland’s unemployment very high during early 2000s2. Hungary’s racial inequality causing unemployment3. Slovenia’s employment stable

Degree of Dynamic EfficiencyPoland

Surplus Labor Unemployment Recently had the most GDP growth in Europe

Slovenia Well-educated work force Highly dependant on foreign trade

Hungary Located in central Europe Highly dependant on exports

Ranking: Slovenia Hungary Poland

Macroeconomic StabilityGDP per capita

Rates in all three countries were steadily growing with Slovenia having the highest GDP per capita

Unemployment Poland and Hungary had problems with unemployment in the

previous 10 years Slovenia held a stable employment rate

Inflation Each country held stable inflation rates

Exchange Rate Volatility Hungary’s currency (Hungarian Forint) lowered from 282/US$

in 2000 to 202/US$ in 2009 Poland and Slovenia’s currencies lowered slightly but remained

stable

Macroeconomic StabilityLabor force participation rate

Ranking: Slovenia Poland Hungary

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

10203040506070

Employment Rate (%)

PolandSloveniaHungary

% o

f La

bor

Economic Security of an Individual

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5000

10000

15000

20000

25000

30000

GDP per capita (Adjusted for inflation)

PolandSloveniaHungary

US$

- All countries have similar GDP per capita rates- Slovenia has the highest rate

Economic Security of an IndividualUnemployment rate

Slovenia has the lowest, Hungary has the highestHealth

Life Expectancy Poland: 76.1 years - Slovenia: 77.3 years - Hungary: 74.8 years

Infant Mortality (per 1000 live births) Poland: 6.5 - Slovenia: 4.2 - Hungary: 5.3

Ranking: Slovenia Poland Hungary

Degree of Economic EqualityGini Coefficient

Poland: 34.9 Slovenia: 28.4 Hungary: 24.7

Ranking: Hungary Slovenia Poland

Degree of Economic Freedom

2000 2001 2002 2003 2004 2005 2006 2007 200850

55

60

65

70

75

80

Economic Freedom Index

PolandSloveniaHungary

- Slovenia’s state of control limits economic freedom- Poland’s economic reforms- Hungary’s location

- Ranking:- Hungary- Poland- Slovenia

Possible PoliciesPoland

Reform agricultural infrastructure to help lower unemployment

Maintain GDP growthSlovenia

Lower taxes to attract more foreign investorsLower state control to allow for higher economic growth

Hungary Impose policies to lower or eliminate racial inequality to

lower unemploymentConsider income redistribution and lowering taxes on

social security programs