Wednesday, July 11, 2012

Market diseconomy

The ever creative Waldemar Pawlak has been the goat of this blog before. Now he's back. His latest idea is so infuriating I've even been riled from my non-blogging slumber. Deputy Prime Minister and Economy Minister Pawlak wants to mess with the market, but not in a good banks-are-back-stabbing-bastards kind of way but rather of the could-ruin-the-game-forever sort.

Poland's construction companies were once the envy of the lot when everyone pondered the likely impact of billions of euros of EU funds and billions of zloty of public money combined with the utter lack of road infrastructure. Surely the money would start rolling in.

But a combination of self-defeating public procurement laws that encourage companies to bid too low and likely a large dollop of hubris has led some of the biggest to the brink of doom.

Enter Pawlak. The good sir Pawlak says the companies should be saved from their own mistakes. At first, he suggested the troubled ones should be nationalised a la General Motors in the US. It's not their fault after all, he says. After realising the troubling implications of a state buying up private companies, he has changed tack.

Now Pawlak says that one beleaguered builder needs 'only' PLN 500bn and that the state can buy bonds issued by that company. The ever generous Pawlak even says the state could pay above-market prices. How nice.

To the rescue comes…Jacek Rostowski, finance minister. When asked whether the construction companies should be saved, the usually garrulous Rostowski says "no." When asked whether builders' bonds should be bought, the answer is "no."

It's troubling that Pawlak can't see that if Poland were to bail out every private company that got into trouble, it would eventually be back in the not-too-ancient past when the state did indeed call all the shots, to everyone's ill fortune.

I'm not a market purist, but it seems to me a little deterrent might go a long way, not just for Poland's builders but perhaps for the world's banks as well.

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