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Wealth redistribution won't solve Poland's demographic crisis

Poland is the sixth largest nation in the European Union, yet it has been struggling against negative demographic trends for more than 20 years. Between low fertility rate and emigration, Poland’s population is set to decrease by an estimated 5.3 million people by 2050. So far, the efforts taken by successive Polish governments since 1990 – which have focused on economic incentives to have more children – do not seem sufficient to arrest this trend. Most recently, the new Polish conservative government launched a welfare program called “Family 500+’” – an income support program for parents raising children that has been criticized by the liberal Left as well as pro-free market organizations.

Poland’s shrinking population

Poland, a Central European nation of more than 38 million people, experienced its last baby boom in mid-1980s. The fertility rate reached 2.42 in 1983 despite the decade holding nothing but political and economic instability. But between 1991 and 2003, the fertility rate dropped by 0.85 and reached the lowest level of 1.22, roughly where the nation’s total fertility rate (TFR) has remained until this day. The fertility lows have been attributed to higher socio-economic instability and cultural changes of the 1990s and early 2000s.

Low fertility is not the only problem facing Poland. This country suffers from mass emigration to other Western countries. It is true that emigration from Poland is not a recent phenomenon, but after Poland joined the European Union in 2004 going abroad in search for better economic conditions became easier than ever. During the first 10 years of EU membership, two million Poles left the country – often to the UK, which enjoys far greater economic freedom. That contrasts with Poland where, according to a report by the Warsaw Enterprise Institute, most citizens declared that the reason they refrain from having more children are poor economic conditions, or fear that their material conditions may worsen – along with the lack of a proper partner or the necessity of changing their lifestyle once they have a child, which shows the importance of both economic and cultural issues in the nation’s declining population.

Measures taken by Polish government against the demographic crisis

A set of measures has been taken by this and past Polish governments as incentives to the parents to have more children. Many of them were typical welfare state actions similar to those that were implemented in Western European countries. These measures included mandating up to 26 weeks of paid parental leave, an allowance of 500 zlotys ($123 U.S.) for each child a month for households that meet income guidelines, a one-time grant of $247 U.S. upon the birth of each child, the equivalent of one-year parental leave ($247 a month) for people who can’t benefit from parental leave due to their working situation, and an income tax relief of $274-$665 a year for each child.

However, these benefits entirely ignore non-financial causes of low fertility. The Polish Ministry of Family, Labor and Social Policy enumerates the following possible reasons: change of culture and beliefs, higher level of individualism, and a focus on self-realization rather than family life. These cultural factors were clearly determinative, since family incomes experienced visible growth within last 20 years.

Poland’s new conservative government, elected in 2015, promised greater concern for families, highlighted by the fact that the government renamed the Ministry of Labor and Social Policy to the “Ministry of Family, Labor and Social Policy.”

Should Poland rely on welfare solutions that have already been implemented in neighboring countries with poor or mixed results, or should we come up with something original and courageous that allows families to flourish apart from the controlling hand of the state?

The Law and Justice (Prawo i Sprawiedliwość) Party’s campaign slogans promised “solidarity,” which the party seems to equate with wealth redistribution. Its new program “Family 500+” consisted of granting the 500 zloty family allowance to second and all subsequent children up to the age of 18, and extended the subsidy to existing families rather than newborns. The amount of 500 PLN is relatively high, equal to roughly one-third of the recently increased minimal wage. At the beginning, the flagship project of the new government was highly criticized by the opposition which however did not propose any other solution to the demographic problems and after a couple of months claimed that the program should be even extended to the first child.

Mixed consequences of 500+

After more than a half-year of the new welfare program, its consequences are beginning to trickle in. First of all, Polish families show both a slightly higher level of consumption and a lesser lever of debt. An increasing number of births have been reported. The National Health Fund reported an increase of 16,000 births in 2016 compared to 2015. This trend may result from both, a better financial conditions of the family together with the feeling of economic security that was given to parents by the ‘500+’ program – or they may come from a better “family climate,” a cultural change which may be observed in Poland due to the political leadership’s greater emphasis on families and child-bearing.

Nevertheless, the “Family 500+” program has also some unexpected effects. One of them is the fact that it induced low-income mothers to leave their work and stay at home with their children full time. This pressured employers to increase salaries – but it may also result in seeking a cheaper workforce from other countries. In 2016, about a million Ukrainians worked in Poland which equals to approximately one-third of all the immigrants in Poland in 2016, and the number of guest workers from Eastern Europe is constantly increasing. As with all welfare programs, Poland will see the higher tax rate – levied upon foreign-owned businesses – discourages overseas investment and, if extended to native businesses, saps economic vitality. Simultaneously, it increases households’ dependency upon the state.

The attitude that the government will take care of one’s family is a threat to liberty and responsibility for all Polish citizens. Subsequent liberal governments may be encouraged to increase this subsidy, increasing taxes. Today, the income tax varies between 18 percent and 32 percent, not including a Value Added Tax (VAT) equal to 23 percent on most products. Additionally, contributions for pension funds, public healthcare, disability funds and so on are deducted from workers’ gross salaries. This contributes to the relatively low rate of entrepreneurship in Poland. Who is to say families may not benefit more from economic growth than redistribution of a shrinking economic pie?

Similar wealth redistribution policies, designed to encourage childbirth, have produced at best mixed results elsewhere in Europe. Germany’s high investment in pro-natalist policies did not produce a substantial change in that nation’s low birth rate. According to a recent PwC report on such policies, regardless of the substantial spending on pro-family policies throughout Europe, France remains the only country in the EU which has a fertility rate at replacement level. Furthermore, the report ignored the impact of cultural differences, in which the nation’s large Muslim population has many children while the once-Catholic, native-born French population continues to dwindle

A holistic response to a hedonistic culture

In this context, an important question appears: Should Poland rely on welfare solutions that have already been implemented in neighboring countries with poor or mixed results, or should we come up with something original and courageous that allows families to flourish apart from the controlling hand of the state? The Polish “Family 500+” program seems to be another welfare remedy which may bring another set of mixed results. However, it ignores the non-quantitative, cultural and sociological factors that influence attitudes toward child-bearing – factors like religious faith, a cultivated sense of selfless love, altruism, optimism and a belief in the future. This is the time for European governments to embrace a more holistic model that would reflect the entire human person, not just his basic financial needs.

(Photo credit: Bev Sykes. CC BY 2.0. This photo has been cropped.)


Marcin Rzegocki is a Ph.D. student at the Warsaw School of Economics. You can contact him at marcin.rzegocki@gmail.com.