Jan Cienski in Warsaw -

Donald Tusk, Poland's new prime minister, wants to unleash a "third phase" of Polish pro-market liberalism that will free the economy from the clutches of red tape and create the jobs and opportunities needed to attract back the hundreds of thousands of migrants who left for better jobs in Ireland and the UK. However, Tusk admits he'll have to dose out these market-friendly ideas in packages that are acceptable to the public.

"I think we are entering the third phase of Polish economic freedom, of Polish liberalism," Tusk told bne during a recent interview in his office. He was at ease, cracking jokes with his staff and leaning forward to make the point that without swift action, the economic miracle that has transformed Poland from a grey and destitute socialist state into a modern European democracy with a fast growing economy could be endangered.

"The word deregulation is not an empty motto," says Tusk. "For many years I have been trying to convince Polish public opinion that deregulation should become Poland's national priority. Poles encounter unneeded administrative barriers everywhere."

Those regulations have been larded on by parliament after parliament since the economic revolution in 1989, when under the guidance of then-finance minister Leszek Balcerowicz, Poland adopted the liberal rule that whatever was not forbidden by law was allowed. "That was a golden age of freedom for us," says Andrzej Blikle, head of a family-run bakery and delicatessen firm. "Since then it's become a lot worse."

The excess of regulation is slowly strangling the Polish economy. In the World Bank's latest "Doing Business" report, an annual tally of how easy it is to operate a business in a given country, Poland fell to 74th place in the world, dropping from the not-particularly-exalted ranking of 68th the year before. That gives it the second-worst ranking in the EU after Greece. The report focused in particular on the difficulty of getting a building permit, which in Poland takes 30 procedures and 300 days, double the OECD average.

"We have to recognize that an economy freed of unneeded regulations is more effective," says Tusk. "Determination is needed, because there is a regulation fetish. It comes from a naïve belief that for every social and economic problem there is a law or a regulation. Often people who have influence over legislation in Poland do not understand that every new law and regulation is a quiet attack on freedom and on the ability of the country to develop."

Hurting growth

The consequences of that belief are already being felt in the Polish economy. Although growth in 2007 is expected to be about 6.5%, 2008's growth looks to be about a percentage point less. Over the last couple of years Poland has been a magnet for foreign investment, pulling in about $14bn in 2006 and an expected $19bn in 2007. But Poland pulls in less investment per capita than its smaller and less-regulated neighbours like Slovakia. A new study on the attractiveness of a country for foreign investors by AT Kearney, the consultancy, found that Poland had slumped from fifth place last year to 22nd.

"We have to eliminate regulations and unneeded institutions, and to reduce spending on bureaucracy," says Tusk. "Before the end of the year, I will propose the creation of a special parliamentary commission whose only work will be to eliminate unneeded regulations and laws. Statism is an incurable disease which must be constantly battled."

The new prime minister's vision of a country unfettered by excessive regulation is a stark contrast to the views of his predecessor, Jaroslaw Kaczynski, who saw a powerful state as the best way of rooting out corruption and fairly spreading the gains of economic growth throughout society. "Most of the activities of the past government were motivated by a lack of trust and a will to control as much economic and public life as possible," says Tusk "That approach also had practical consequences, namely the lack of privatisation which stemmed from a doctrinaire lack of trust in private ownership, because it is by definition beyond government control. We want to be an alternative to that type of thinking."

Although Tusk talks a lot about liberalism, his sense of what the Polish public can accept has been tempered by the political bruising he took two years ago during the presidential elections at the handle of Lech Kaczynski, Poland's current president and the former PM's twin brother. Lech Kaczynski narrowly won by scaring voters that Tusk's liberalism would impoverish them. Now Tusk plans to dose out market friendly ideas in acceptable packages.

As he admits, it makes no sense to be ideologically pure and then lose elections. "I am very interested that the Polish economy be based on rationality, but I do understand that while moving in that direction, we have to gain the acceptance of those who feel endangered," he says. "A key for Poland is to maintain a long-term social agreement on a market economy and private property."

That means early promises by senior members of Tusk's Civic Platform party that the new government would sell almost all of the 1,200 companies it still controls are likely to be much more cautious in practice.

If the same caution extends to preserving the power of the bureaucracy, Tusk will disappoint the hopes of the millions who voted for him, and the millions more who have been converted by his affable nature to give him the highest popularity of any Polish politician since 1989. It will also mean that Poland will fall behind in its race to catch up to west European living standards within a generation.

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