Truck and Barter: Poland's Auto Industry

May 18, 2004

Poland's Auto Industry

By Kevin

What happens when The Washington Post's automobile reviewer writes about Poland's integration into the EU? An exciting microeconomic drive through the country's economic development.

Although known for his off-topic auto reviews, Warren Brown makes Poland a sizzling hot topic, and keeps the reader's eyes squarely on the web page, until...:

Put another way, every car company doing business in Central and Eastern Europe increased market share last year. Automakers sold 479,000 cars and trucks in the region in 2003, a 25.6 percent increase over the number of new vehicles sold in the area in 2002, according to Global Insight's research. Polish consumers bought 55,276 new vehicles in 2003, a 16 percent increase over the number sold in 2002, according to the research.

(Emphasis added). Business has been so good in Poland that the laws of arithmetic have been broken--it is now possible for everybody to get a larger share of a pie. :)

(Side note: I've previously written about income percentiles, arguing that snapshots of income distribution give a distorted picture of low-income well-being. Now I realize, with Mr. Brown's help, the impossibly high standard of many who yearn for social justice: everybody must get an equal and ever larger share of income).

But back to the article, which outlines the course of Poland's economic development through foreign investment. It's worthwhile to note that, to start, Poles will earn far less than an average American or European salary. Some people will insist this is cruel exploitation of the poor that must be stopped. Others will insist that the only path to riches tomorrow is by exploiting the poor today:

The Delphi Krakow Technical Center employed 240 people when it opened in 1994. It now employs 2,400, the vast majority of them Polish nationals. It plans to hire more....

But car manufacturers and their suppliers see [Poland's] dismal wages and employment figures as blessings in disguise. As Barth noted, the automotive industry is a capital-intensive business. Such businesses are forever in pursuit of profits through the acquisition of talent, skills and quality production at the lowest possible price.

That makes Poland, with its large reservoir of existing and trainable technical talent, an attractive employer's market for companies like Delphi...

More jobs mean more money, and probably rising salaries. That turnabout could erode Poland's value as an employer's market but greatly increase its worth as a consumer market, Barth said.

That's right--Polish economic development is all about the Polish economy eventually pricing itself out of jobs, which will then relocate and perform their economic development function elsewhere.

Economic development is really about generating efficient and timely production facilities in diverse industries--combining non-human capital and human capital to get the best mix of price and quantity.

When Delphi no longer finds Poland as attractive as it once was, it will move some capital elsewhere. By then, other capital-investment opportunities, reflecting the higher real wages of Polish employees, will have entered Poland. This leads to a spiral of ever-higher wages. To many this seems counterintuitive, but the history of economic growth in societies respectful of markets and property requires us to take an optimistic stance towards our own pessimism.

Questions:Should Poles want job security at the wages they are currently earning? Aren't most far better off to let creative destruction wreak havoc?

Posted at May 18, 2004 03:41 PM

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