Poland unemployment dulls consumer demand.

A look at the chart above shows Poland's GDP and inflation statistics along with changes in the country's unemployment rate. The statistics characterize the past decade, 1996 to 2005.

What is obvious from this rendering is that there is something quite different about the unemployment statistics.

Although Poland has been struggling with unemployment for the past decade - the average rate of unemployment in Poland for the decade is 16.5 percent - there were years in the recent past where the unemployment rate was quite low.

In 1990, for example, the unemployment rate was officially reported at 1.5 percent. And even in 1991, unemployment, at 7.1 percent, was more manageable than what it has become.

The unemployment rate - now the highest in Europe - is of concern because it has a direct negative effect on consumer demand. Sluggish consumer demand in turn stifles growth. Average GDP growth for the decade is 4.3 percent (using International Monetary Fund statistics). And for 2005 the IMF predicted back in Sep tember of 2004 that Poland's GDP would grow 5.1 percent. Poland's central bank initially had a similar idea (5 percent), but in mid-June 2005, the bank said 2005 GDP growth would be more like 3.7 percent.

At least three separate factors combine to sustain Poland's high unemployment and the dismal effect it has on the country's consumers.

The first is the difficulty of introducing efficiencies into an economy that was in the past centrally, and oppressively, controlled. A massive center-oriented bureaucratic structure - and the mindset that goes with it - made decisions, solved problems, and generated plans with a seriously limited fund of information. Thus, inefficiencies are introduced and maintained, among them extremely high unemployment.

Obviously, a government and an economy needs a degree of centralization. But without the experience of judging how far to move toward decentralization, and the efficiencies it can bring, an additional layer of inefficiency is introduced.

The second factor is an external one. Poland is clearly recognized for its talented workforce and ambitious entrepreneurs. But all over Europe, in part because of the global economic slowdown, and now higher oil prices, sources of investment are drying up. This means that investment that would normally come Poland's way is on hold further dampening growth, adding to unemployment and lackluster consumer demand.

The third factor also relates to growth, and it is a familiar tale. Declining GDP sends a message to local businesses to cut back - on inventory, on hiring, on expansion in general.

And, in fact, a statistic developed by Poland's national statistics office, called the retail-sentiment index declined in July 2005, according to Interfax, the Russian news service. The retail-sentiment index weighs retailers who are optimistic against those who are pessimistic about prospects for the near term. Interfax said that only 16 percent of retailers surveyed expected improvement and 23 percent were looking at decline.

Poland is obviously not helpless in adjusting its economy to the profound changes it is experiencing. But it does take time and imagination. The consensus is that Poland will have a leadership role as the European Union (EU) solves its integration problems and develops fully.

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