The agenda of Poland's outgoing ruling party, Law and Justice (PiS) was generally based on centralized control and financial nationalism. Many assumed this stance was rooted in ideological conviction.

But that's not necessarily so. "The Polish case demonstrates that business may also sometimes unexpectedly push for greater state interventionism in the economy," says Marek Naczyk, an associate professor of Comparative Social Policy at Oxford University. 

A coalition government led by Donald Tusk, leader of the largest opposition Civic Platform party, or PO, was sworn in on December 13 after winning the October 15 elections. The party, last in government from 2007 to 2014, was by and large economically liberal. But it has since shifted to the left , promising to maintain PiS policy on universal welfare benefits, hiking public sector pay and not promising tax cuts to the nascent middle class. 

But it's how it chooses to deal with the domestic banking community that will show where the new government's priorities lie. Given its need to restore judicial independence, media freedoms and repair relations with the EU, it may have less inclination to take on the bankers who supported PiS.

Naczyk says that Poland has hugely benefited from foreign direct investment (FDI) in manufacturing industries, and that creating "national champions" has helped create jobs. In the long run, this has strengthened Polish democracy and its capacity to play a reliable role in European integration, he says. 

Poland's bankers and their influence

But while strategic policy moves undoubtedly matter, in the Polish case the driving force behind the rise of financial nationalism — not only under PiS, but also under the previous PO governments — was a mobilization of Polish managerial elites, particularly bankers,Naczyk believes.

"It was not PiS politicians who triggered the 'repolonization' of Poland's heavily foreign-controlled banking sector. Rather, it was Polish bankers who did it," he says. 

"They successfully pressed government actors to create new development institutions — Polish Investments for Development (PIR) in 2011 and the Polish Development Fund (PFR) in 2016 — to support the growth of Polish-owned 'national champions,'" he adds.

As is the case in other dependent market economies in Central and Eastern Europe, the Polish banking sector had been overwhelmingly controlled by foreign capital. This became a problem during the global financial crisis of 2008 when foreign parent banks started trying to claim their Polish subsidiaries' excess liquidity in order to improve their own positions.

Naczyk says the Polish-born top managers of these subsidiaries, like the outgoing prime minister, Mateusz Morawiecki, typically resisted such attempts and became concerned about their lack of managerial autonomy. Key decisions were not made in Poland but in the parent company's foreign headquarters. Managers also bristled at the negative macroeconomic impact of excessive foreign ownership of banks, since decisions made in foreign headquarters could lead to credit crunches in Poland. 

"It is bankers themselves who managed to co-opt leading PiS politicians to further their own, much better defined, agenda for developmentalism,” Naczyk says.

New party, same strategy?

Unlike PiS, PO has refrained from openly politicizing the Polish economy's excessive dependence on foreign capital in recent years, according to Naczyk. 

"Yet I do not expect the PO-led government's effective approach to foreign capital to be significantly different from the PiS approach," he says.

Political parties that will be part of the new coalition government have never used the term "re-polonization" because of its nationalist and illiberal connotations, he says.

But the PO-led government is likely to continue supporting some forms of "economic patriotism" while, at the same time, trying to attract greater FDI, Naczyk believes. 

Developing toward a dead end

Previously, these Polish bankers had stressed developmentalist approaches, which turned out to be half-baked, says Jan Boguslawski, a political economist at Sciences Po Paris.

Developmentalists see policy as a tool for shifting a nation's economy up the global supply chain, for example by focusing on companies and sectors that have the potential to become market leaders. It often requires quite authoritarian methods as it usually focuses on some sectors at the expense of others, needing, therefore, to mitigate socio-political fallout. 

In Poland, the PiS-led government after 2015 set up channels for selecting "National Champions," the main one being the investment fund PFR (Polish development fund). 

But today, Poland is still a laggard in terms of investments that boost domestic competitiveness in the long run, including research and development (R&D), education and the green transition, he notes.

The country currently spends less than 1.5% of GDP on R&D — roughly half the average of Western Europe — while low private investment rates and declining public education expenditures, accompanied by a stagnant demography and a bias toward the elderly in social policy, all hinder a pro-innovation climate. 

PO likely to tread same path as PiS

Bogulslawski doesn't anticipate any major policy changes in the financial sector now that a PO-led government is in place. 

For PO, re-privatizing banks such as Pekao and Alior would not be strategically advantageous. It would provide PiS with political ammunition, and the new government will gladly take the opportunity to take control over some of the largest financial institutions in the country, he says. 

"PO may incrementally scale down the developmentalist agenda that flourished under PiS," Boguslawski says. They've shown a preference for channeling more resources towards private sector involvement, he adds.

Edited by: Kristie Pladson