How Poland Built a Trillion-Dollar Economy

0:00 This is a story about going home again. The narrative of Europe in recent years has too often been about lack of growth. But there are exceptions. It turns out that Poland is one of the world's fastest growing economies. And although it's now attracting its best and brightest to come home to build their businesses, tough challenges still lie ahead. Born and raised in Warsaw, Aleksandra Pedraszewska followed a well-trodden path for young, ambitious Poles and went abroad.

0:34 -I wanted to study abroad. And I started looking around, and my objective was getting the best education that I can get. So I left in 2013 to study at Cambridge. I didn't really make a choice after studies about which country I want to live in. It was very much driven by the opportunities, what could I do in different countries. And for me, it was natural to stay in the UK. Westin: But that was then. Now the well-trodden path is heading in the other direction.

1:06 Poland is booming. Its economy topped one trillion dollars last year. And this year, it will be invited to the G20 summit. And its count of citizens living abroad, a figure that was steadily climbing after it joined the EU in 2004, peaked in 2017, and has been dropping ever since, although Poland's national statistics agency adjusted its methodology in 2022. Among those returning is Pedraszewska. -I think a lot has changed. And especially for people like me, with the backgrounds like I had, I wanted to work on the edge of new technologies.

1:43 I really wanted to be exposed to the best R&D, the best teams that are building effectively the future of what the technology sector is. I don't think that these opportunities were as obvious 10 years ago and as available as they are now. -Actually, our performance started in 1989. Westin: Andrzej Domanski is Poland's Minister of Finance and Economy. -And in 1989, we had GDP of 67 billion US dollars.

2:17 Last year, GDP of Poland reached one trillion. There was only one country in that period that had a higher pace of growth, and it was China. Westin: What were the things that drove that performance over that long period of time? -Well, first of all, the reforms of the early 90s, strong institutions that were established here at that time. Of course, the entrepreneurship spirit of Polish people who helped in this process.

2:54 And of course, with no doubt, joining European Union in 2004. And frankly, we are often asked, "What is the most important sector "or most important company of Polish economy?" And it's very difficult to say. And I perceive it as a strength of Poland, because we are really well diversified. Polish economy is well integrated with other European Union economies.

3:24 We are well integrated with global value chains. At the same time, we are quite an important market of 37 million people. So we have strong domestic markets. So there are many engines of Polish GDP growth. Westin: Drivers of Poland's economic growth include a range of services, as well as manufacturing. More recently, the Russian invasion of Ukraine has led to a sharp uptick in defense spending, projected to account for almost 5% of GDP in 2025, the highest in the EU.

3:59 Its digital industry is also growing fast. McKinsey estimates the current $44 billion sector will grow to $123 billion in 2030, accounting for 9% of GDP. That's Pedraszewska's domain. She co-founded VividQ, a British company developing holographic display technology in 2017. But on her return to Poland, she started Vastpoint, a venture capital firm focused on tech startups in Central and Eastern Europe. -The startup scene is very vibrant.

4:30 And when I think about this word, I think it really represents what's currently going on. I think that this ambition and this certainty that whatever is being built from here or by Polish teams has this potential of becoming a global solution. Westin: Yet for all the optimism around Poland, there are some warning signs ahead. Maciej Albinowski is an economist at the Institute for Structural Research in Warsaw. -The main short-term challenge for Poland is to consolidate public finances.

5:00 Although public debt is still at moderate level of around 60% of GDP, and public debt is safe in Poland, we are running large deficits. Last year it was around 7 percent of GDP. So it is clearly not sustainable over the longer term. And we need to come up with a way to rationalize public spending, probably raise some taxes and probably we need to face the fact that elevated military spending requires some tax hikes.

5:37 We don't want to start consolidating our public finances when we are under external pressure because then it's more painful. -We spent close to 5 percent of our GDP on defense. This is close to 50 billion euro per year. So, of course, we run high deficit. We take some steps to lower it gradually. We believe that we are not in the position to cut spending on defense.

6:13 Westin: Another challenge lies in demographics for Poland as in much of the Western world. -By 2050, our labor force will shrink by about 20 percent. So this is one large factor. Secondly, the average age of an employee is increasing. And it also matters for the productivity. While older workers can certainly work with modern technologies, they may need some more support than younger workers.

6:43 So we need to invest more in policies that allow upskilling, reskilling, adjusting skills to these new technologies. And currently we are not doing much in this direction. Westin: How do you address that economically? -So we are running many programs that are supporting Polish families with some additional income. We have also started an in vitro program. Already 13,000 children were born thanks to this program in Poland.

7:21 And I want to say, personally, that we are really proud that after 8 years of very right wing government that stopped this program, our government reintroduced it. And we already have, as I said, 13,000 young Polish people because of that. But it's not enough. We need to create new incentives for people to be more willing to go to work. And our government is doing that.

7:51 Westin: Foreign investment is both an opportunity and a challenge for Poland. Many foreign investors have become more confident in the sustainability of the Poland story. But Domáski says the war in Ukraine has made some wary. -We see that some investors, especially, from non-European investors are a little more reluctant to invest in especially eastern parts of Poland recently. That being said, Poland will be the biggest, of course, apart from Ukraine, beneficiary of peace in Ukraine.

8:25 So we want just and lasting peace for Ukraine. First of all, of course, to... We need to end this brutal Russian aggression. It would be also very good for Polish economy. Foreign direct investments were absolutely crucial in building strength of Polish economy. And this is no... it's a matter of fact. It's not an opinion, because of the investments from other European countries.

8:58 Of course, U.S. investors. Right now we see more and more interest from Asian investors investing in Poland. -We certainly need to invest more in research and development. We need to invest in our academic sector. We also need to rethink our educational policies both aimed at children and adults because this is what more successful Western economies are doing.

9:28 And in Poland, so far we relied much on competitive labor supply, on cheap labor costs. But if we want to reach a higher level of wages, if we want to converge to, not to 50% of German wages, but to 80% or 90%, we certainly need to invest more in education, in research and development, and in other pro growth policies.

9:59 We are quite satisfied with our present growth trajectory. So we may not be well-motivated to invest in research and development, to invest in new educational policies because so far it's good. But in future, current growth model of Polish economy may not be sufficient. Westin: As they say, getting to the top is one thing, staying there is another. Poland's growth is a success story. But its next test will be sustaining it.

10:31 -A lot of the success of Poland so far has been, unfortunately, playing catch up. I think once you join, you know, 20 biggest economies in the world or 20 economies with the biggest GDP per capita, it really becomes about... what is the limit of your growth and where do you need to seek it if playing catch up isn't going to work out that well anymore. Westin: But in the end, for Poland, as it is for many countries, the key is making sure that the best of the brightest can go home again and stay there.

11:10 -I could have stayed in London, raised a fund there. I could have thought about maybe moving to the U.S. and effectively starting over. But I decided to take a step, which I don't think is a step back, but step into something entirely new, but just in the place which I used to call home when I was a child. So it feels really special to be able to do that. It feels also really special because I don't feel like I have to give up on anything.