Poland’s miraculous resurgence in the 1990s is among the best-kept secrets of the global economy (Exhibit 1). The former Soviet satellite stands alone in having made the harrowing transition from the managed stagnation of communism to the high-growth mode of capitalism.
Recently, the McKinsey Global Institute undertook a study of the Polish economy—an aggregate survey of the agricultural and manufacturing sectors, as well as a detailed analysis of general-merchandise retailing and of housing construction.1 The study shows that the country’s success has been founded on tight fiscal discipline, together with capital and product market reforms ensuring that all businesses compete on equal terms and thus quickly capture the benefits of rising productivity. As a result, Poland has attracted a large amount of foreign direct investment, which has propelled its rapid economic growth and gave it the ability to weather the 1998 global financial crisis (Exhibit 2).
Even Hungary and the Czech Republic have seen their per capita gross domestic products decline since the downfall of the Soviet satellite regimes in 1989. But Poland’s per capita GDP has surged by 16 percent (Exhibit 3) and is now nearly 50 percent higher than Russia’s. Unemployment has fallen to around 10...