Sunday, 29 November 2009

The presidents of Poland after 1989

I hope you will find this biased post both informative and funny.

I found the picture above in Muzeum Czwartej RP on Spieprzaj Dziadu – a Polish page modelled on wikipedia, which is a humorous encyclopedia of the gloomy times when Twin brothers were in power. The site set up during this murky period has been kept up until know, as the temporary occupational government is ruling the country. I surmise the image must have been put up there by the double (Russian and German) agent, whose granddad was in the Communist Party of Poland before WW2, whose parents formed a post-war lumpen-intelligentsia and who currently reads Gazeta Wyborcza and worships Adam Michnik, or maybe another representative of dark forces of evil.

You would be right to say the sense of humour consisting in poking fun at someone’s height is rather lowbrow, but tell me, why is such argument raised most often by the ones who also claim that Third Republic of Poland is just a PRL in disguise – last I heard was on Thursday, when I had a doubtful pleasure of attending the lecture by professor Adam Glapiński, currently economic advisor of Polish head of state (yes, the same one, who pokes out to the right), who stood in for my regular lecturer. I left the lecture after forty minutes…

Wojciech Jaruzelski formally can be included here, however I would not place him before Lech Wałęsa, as he had not been elected by citizens, but by the Houses of Polish parliament under the power-sharing deal in 1989. His term in office lasted around seventeen months and he was replaced by Lech Wałęsa in December 1990.

The first nation-elected president of independent Poland hails from poor family and completed only a vocational school. He gained international publicity after he established himself as a leader of strike in Gdańsk Shipyard in 1980 and then as a leader of Solidarity Trade Union. His contribution to the fall of communism is undeniable, but his presidency was a string of slip-ups and blunders. Sorry to say that, but in spite of his charisma he wasn’t an eligible person to hold an office of president of Poland. His style of exercising power was featured with unpredictable moves and litigiousness. He was defeated in the run-off of presidential ballot in 1995 by a tiny per cent of votes. Before his defeat, he offered to shake his successor’s leg, afterwards the result of the ballot was called into question.

As it turned out, Aleksander Kwaśniewski took office as president of Poland for two terms (ten years). Unlike his predecessor, he took up studies on University of Gdańsk, but he did not graduate from it, because he had not get all credits and consequently could not pass a master’s exam. He later explained himself he had been to busy with other stuff like activity in PZPR – like all people who joined the party in seventies and eighties, he did not believe in the system, but was just an opportunist. The fact the he didn’t manage to complete his studies is not reprehensible, unlike what he did later – he lied about his education, claiming he had graduated. In 1999 he became infamous for his overindulgent behaviour on the cemetery in Kharkov, where Polish officers who had died during WW2 are buried – to put it bluntly he paid homage to them after getting canned. On the other hand, his presidency was not a throwback to communist, he saw through the reforms aimed at moving Poland along and did not block the reforms pushed ahead by Jerzy Buzek’s government (unlike current president, who vetoes almost every legislation proposed by Donald Tusk's government). He was a zealous advocate of integration within European Union and one of reputable figures in international politics. He was the only president of Poland to speak foreign languages – he speaks fluently Russian and French, when tipsy, his English is good enough to deliver a series of lectures in US universities without getting his tongue twisted. At the end of his term he threw support for Orange Revolution in Ukraine, reconciled with Mr Wałęsa after Pope’s death and pardoned some of his henchmen embroiled in numerous scandals which marked the years of Democratic Left Alliance rule . In 2007 the became the leader of electoral campaign of Lefts and Democrats, in the meantime getting pissed two times, what must have impinged on the results of elections. Later on he withdrew from active politics.

Lech Kaczyński took over as president of Poland in 2005. He is said to be the most partial president of my country and in this respect outran both his predecessors, not without reason he is called “a president of his brother”, just operated through remote control. His term witnessed an unparalleled event in the world history – he and his twin brother held the positions of respectively president and prime minister at the same time. His presidency had been running smoothly as long as his brothel was a prime minister. But after Jarosław Kaczyński and his pals from the cabinet screwed everything up, Lech decided to knock back four bottles of wine with Donald Tusk and called early elections. The main occupation of the president in the next two years was bickering with the ruling Civic Platform. Lech Kaczyński was repeatedly accused of struggling drinking problem. I first heard it in 2006 from a man whose friend is in president’s entourage, then the rumours were exposed by eccentric politician of Civic Platform – Janusz Palikot, the same one who staged an event during which president’s doctoral thesis was ridiculed. The current head of state is an associated professor of Stefan Wyszyński University in Warsaw, but despite his academic degrees his command of foreign languages is commonly thought to be poor. Only in line with the accounts of his sidekicks, president is “proficient in English” and even corrects interpreters. The only substantiated case of such situation was when he corrected incompetent interpreter, who translated “holenderski” as “dutch” (a nie Nederland?). After all, as the first lady said, last year they celebrated thirty years of learning English together, the only result of three decades of efforts are uncontrollable bouts of giggling whenever Donald Tusk is speaking English.

To conclude, will the next president be the one we would be proud of?

Friday, 27 November 2009

Twoja stara też jest na fejsbuku... And some thoughts on life, opportunities, psychology and blogging

Masz już fejsa? I’ve got one. Jesteś już na fejsie? I’ve been there, for more than two years, but I’ve never received so many e-mails with requests to accept someone’s invitation, mostly from my friends from primary and middle school, most of whom I haven’t seen for months.

It seems that Poles have conquered facebook, relished on it and have become a part of international community. In terms of popularity the website, traced back to one of US universities, outran first Polish social networking portal (currently ailing) and is about to beat off nasza-klasa.

Looking at the inflow of new people into facebook I came up with a comparison to a park. Once there was a nice nook in the middle of the life-bustling city. Few people, including me used to walk there, breathe the fresh air, contemplate the beauty of the nature. Some time later the news that such place existed were spread far and wide. The park was flooded with more and more visitors, handset-ridden mothers with shrieking children in prams began to stroll there, middle- and high-school teenagers would hang around there in the afternoon, sipping beer and then tossing empty cans between flowers, shrubs became a hang-out for the local riff-raff. The place, once a shelter from the city groan, became a noisy cluster of outlandish, self-styled trendsetters, who could boast about being there and mingling.

I don’t consider my friends from teenage years a riff-raff, but what has happened seems out of place for me, as I remember the English origins of the site. One similarity is strikingly true – facebook has been all the rage in the recent months, but I can’t understand where’s the reason to show off – two years ago some of us could swank about a profile there, cause few people had heard about it. Now what’s the point if everyone has it?

Another, indirect analogy is a stock exchange. Usually the small and inexperienced investors discern the opportunity to gain high profits, on the basis of past figures, when the upward trend is about to reverse. The same happens now and is even backed by such “gurus” like Warren Buffett. Investment funds advertise themselves and encourage people to put their money into the most aggressive equity funds. Now, when the growth potential reached its limits and the most reasonable market observers are insecure about the future. What I’ve written above is one of the most common mistakes, in finance and in life. Opportunities should be seized when they’re scarce. What few people have is rare and thus more valuable. This applies also to professional qualifications. And buy stocks when the blood spills on the trading floor! It’s all about psychology, about choices, which are often flawed.

A Polish gullet weekly “Wprost” issued a “Technology insert” a few weeks ago. One of the articles was titled “Czy można się zakochać na facebooku?” My answer is short – no, one cannot fall in love on facebook, it is impossible like in case of skype, gadu-gadu, e-mail, IRC, webcam or any other contraption. All those inventions are designed to facilitate communication between people who know each other, but for some reasons can’t meet face to face. Dear reader, be mindful of my view on it – I don’t believe you can fall in love with someone’s profile on social networking service, you can’t have cybersex via webcam.

After all maybe I should be happy, cause my friend count on facebook increased. But my elation has been so big that I removed the link to the blog from my profile – I don’t care how many visitors a day my blog has. I back the quality of the readers, not the quantity. I’d love to know that people think over what I write here and I’d appreciate more comments, mostly from the shy Poles, daunted by the foreign language I suppose. A comment left by you is a piece of your mind given to me. It may be a disagreement, a challenge or a commendation, may be nasty and stingy, but if you post those few words or sentences it means you have your own opinions, considerations and are ready to share them and so you’re open-minded.

Meanwhile I thought about a Christmas gift for myself and one of the proposals is “removing myself” from and nasza-klasa on Christmas Eve. How about that?

Sunday, 22 November 2009

Trust your intuition

I’d been waiting for a moment like for the last two and a half years. Around quarter past two today something prompted me to head for the railway crossing and take the camera. As I was approaching the destination, still being more than a hundred metres away from it, I heard the double horn of the train. I rushed towards and then through the platform, as late as I could I stopped and took the camera out of my pocket, turned it on and zoomed in. My hands must have been quaking after a sprint and the photo could have been sharper, I could also snap it around a half a second earlier, but all in all I managed to capture the alignment.

The “fast” train from Kraków perfectly coincided with the unit consisting of three Okęcie-bound engines. My goal was to take the picture exactly the moment the fronts of two engines were in one line, which requires a lot of precision and is a rare phenomenon. Still, it’s not what I saw on one sunny Thursday in March 2007, when the front of commuter train heading for Radom, rear of Kraków – Suwałki fast train and front of the Siekierki-bound coal train’s engine aligned in one line twenty metres north from the level crossing in NI, but I feel it under my skin that my patience will be rewarded one day.

Saturday, 21 November 2009

Effectiveness or justice – in taxation

During my studies I’ve almost always been taught those two things are mutually exclusive on the macroeconomic level. Nevertheless, economic policy-makers still strive for a fair balance between those two features people expect from the economy.

Today I’ve been pondering upon combining effectiveness and justice in taxation. Effectiveness is usually defined as obtaining as much as possible from the certain resources, or using as little resources as possible to obtain the certain effect. In case of taxes the effects might be collected revenues, the resources might be acted as by the taxation rate, but also costs of running the collection system, or the influence of taxation rate on economic activity. Justice, in turn, refers to the fair distribution or redistribution of goods, based on the given criteria. When it comes to taxes, the considered issue is the taxation system (the most popular ones are progressive and linear).

Still the most relevant criterion taken into account when speaking about effectiveness is the bearing, which the taxation rate has on economic activity. If taxes are low, people are more motivated to work and less likely to evade them – in such countries the level of redistribution is low, usually, because when a country is a tax haven, it draws capital from abroad and small per cent of big sums bring ample revenues. The theory of higher revenues from cutting taxes has been elaborated on by an economic advisor of Ronald Reagan – Mr Laffer, who devised a Laffer curve. Higher taxes are linked to the higher rate of redistribution and as it is argued – they tend to discourage people from working. Some critics of high taxes claim also they put people off earning more – here I can’t agree – cause there are thresholds, over which the additional income is taxed at higher rate, I think it never happens that the higher taxation rate applies to the whole income after exceeding a threshold.

There are plenty of criteria, according to which justice in taxation is perceived. In two most frequent ones the individuals should pay the same per cent of their income (flat tax) or the richer should pay higher share of their earnings (progressive tax). Flat tax is often misidentified with the system where everyone pays the same amount of money in a form of taxes. Such systems are the thing of the past these days – but in case of flat taxes the richer still pay more than the poor, but their burdens rise linearly.

As we went through with the theory, it is time to present my proposal for taxation system in Poland, which in my opinion is a fair combination of effectiveness and justice. I would put forward a flat tax with rate of around 18 – 22 per cent and annual tax allowance of 10 – 12 thousand złotys, with no other deductions and relieves (worth considering are different thresholds of deductible income for single taxpayers, couples and payers with dependants). Rings a bell? Yes, this is similar to the first proposals of American economists from the late seventies. This would introduce an element of justice – the system would be simple, would not discourage people from working and would give much less room for abuses and tax evasion. Under a new system, with the flat rate of 20 per cent and deductible amount of 10 thousand zlotys, the effective taxation rates for a payer:
- who earns 1 000 zł a month would be (12000-10000)*0,2/12000=3,33%
- who earns 2 000 zł a month would be (24000-10000)*0,2/24000=11,67%
- who earns 3 000 zł a month would be (36000-10000)*0,2/36000=14,44%
- who earns 8 000 zł a month would be (96000-10000)*0,2/96000=17,92%
- who earns 15 000 zł a month would be (180000-10000)*0,2/180000=18,88%
Such system would decrease the tax burdens for the poorest, provide the fair, “creeping” progression and would guarantee considerably low taxes for the richer. No deductions and exemptions would mean that tax declaration forms could, as proposed, consist of one page. Much could be saved on the tax collection system – just imagine most of those people currently working for IRS who carry papers from one pile to another and hinder your life, are sacked. The army of clerks given the boot would result in lower budget expenditures for tax collection apparatus. However, some of the saved money should be spent on enforcement tax police – in my opinion tax evasion should be severely punished and penalties should be severe enough to dissuade taxpayers from tax avoidance.

Why is it impossible to put my idea into practise?
Firstly, ordinary citizens perceive it unjust, though in my view this is the most just solution
Secondly, the rich prefer the systems which create the illusion of justice but give a lot of room for abuse, that’s why in the States a CEO of a big company has a lower effective taxation rate than his secretary – he can afford to hire a specialist who’ll reduce his income.
Thirdly, regarding corporate income taxes, there is a big business of tax advisory services, tax optimisation solutions and consultancy firms – such great lobby has a vested interest in the status-quo of the present complicated corporate tax law, on which they can make money.

Thursday, 19 November 2009

Achtung Baby!

The post appears accidentally – a speaker in the radio reminded me about the anniversary – one of the most remarkable albums of U2 and in the history of rock music was released exactly eighteen years ago.

The radio station played, predictably, the most renowned song form the album, the one you must be familiar with – One. Personally I think it’s the only U2’s popular song to be of real value – mostly those jewels are hidden somewhere in the latest tracks and only those who buy a CD can draw pleasure from listening to them. Achtung Baby also includes such examples of ear-catching sounds and magnificent lyrics.

The Fly – the first single from the album and the presage of the band’s music changeover. Being interpreted as a call from hell also depicts the rotten pop culture of the early nineties.

Until the end of the world
– a history of the last days of Judas Iscariot – no matter if you’re a believer or not, this is a masterpiece…

Ultraviolet (Light my way) – a broken relationship in brief.

Acrobat – the band have never got any higher – in case of music, but mostly in case of lyrics. It carries a big, emotional message, laying bare the hypocrisy, it’s a song about being a hypocrite, as once Bono said, but I see there a lot more – broken up relationships, doubts, religion, need for belonging, emptiness overcome by the hope, but above all feeling of being lost.

Tuesday, 17 November 2009

The first nation-wide day without debts

As an unwavering opponent of living in the red I can only acclaim the initiative of Polish financial firms and associations, taken in partnership with the biggest debt collection company, aimed at highlighting the problem which affects more and more Poles.

According to the estimations, about fifty per cent of Poles run up debts. They do it for different reasons – to improve their standard of living, to fulfil their dreams, to give their children a better future, to make ends meet or to pay off the earlier outstanding debts (which is a vicious circle in a way).

The scale of problem seems to be increasing – around 1,5 million of Poles default on debts or do not pay them in time. The bad debts hit bank’s portfolios and consequently balance sheets. Bank provisions and write-offs for bad debts are forecast to soar in 2010.

The mail goal of the action is to educate, along with the old principle “prevention is better than cure”. The organisers rightly put the insufficient financial knowledge down to the troubles indebted Poles get into. The biggest mistake of an average distressed debtor is trying to avoid contact with the creditor at all costs. It is not the point, from what I have learnt when I worked in a bank, the creditor will always be ready to negotiate – they want to recover their debts and avoid costs and formalities, which involves taking the collection into the court. So contact them, arrange the schedule of repayments, negotiate the terms of contract.

Having talked to some experts in the issue I came to two conclusions. First one is quite simple – in order not to fall in the trap of indebtedness we should change our consumer habits and not yield to the illusion of having something, despite not affording to buy it. A new TV, refrigerator or laptop bought on instalments is not yours until you pay it off. My second thought concerns education. I was not taken aback by the fact people cannot calculate the actual interest rate of a loan. The regulators, mindful of this obliged banks to include it (in Polish it is known as Rzeczywista Roczna Stopa Oprocentowania – RRSO, EN: annual percentage rate) in the prospectuses and contracts. The lack of strong mathematical skills may also explain unawareness of costs of credit. The borrowers sometimes do not realise they will have to give back much more than they had taken out. Still, it is not the most alarming fact yet. Much more shocking is what has been declared by many people who defaulted on their debts and their property has been foreclosed – those debtors had not realised they would have to pay it back. Mind-boggling dear reader? Yes, they thought it was a gift and they didn’t plan to return the money, not to mention paying the interest on it. Those are the poor, who fall into the trap and end up turned out of their flats. Not creditworthy, with bad credit history are rebuffed by the banks and become clients of loan sharks…

So once again education to move us forward!

Sunday, 15 November 2009

Of honesty

Took my first exam in this semester on Friday. For four months (since my bachelor’s exam in July) I had forgotten how it feels to be examined. Self-confident and laid-back I went in for it, what only proved my success in pursuit for not getting stressed-out before trifling event. A stupid exam is not challenging, there are plenty of more stressful situations in life. But it’s not the point yet.

The auditorium was full of students as I turned up, so I managed to find a seat in the upper part of the room. From the strategic point of view that was a bad decision – all the honest people sit usually close to the lecturer, those who are up to something take seats in the further rows. Soon all those guys and one girl who sat next to me set out to outbidding one another who was more unprepared. Such thing is in the students’ community a reason to boast about and gives a lot of room for lying. Not uncommon is that the one who moans “nic nie umiem, w ogóle się nie uczyłem/am” (EN: I have no idea about it, I haven’t learnt at all) the most, gets later on the highest grade. I can’t stand such hypocrisy and can’t stand taking proud in one’s laziness. Blatant laziness, cause my sitting for that exam lasted three hours and I found the test a pushover.

The more appalling thing is the social consent for cheating. In this respect Poles are very permissive and what in other countries (mostly Anglo-Saxon ones as far as I know) is regarded as disgraceful in Poland proves one’s resourcefulness. If you don’t let your friend look at your sheet you’re selfish, unfriendly rat-racer. I don’t get that concept of solidarity – I think I’m a friendly person – I help those who don’t know how to deal with a difficult issue, lend my notes to the ones who couldn’t be present at the classes. But an exam is a situation which requires a certain level of honesty – your grade in a course should reflect your knowledge dear reader, that’s why it’s unfair when a person who had a butcher’s at fellow student’s paper gets the same grade as someone who had sat for the test. It’s a kind of theft as well – it’s stealing someone else’s knowledge in order to get the better note, which can also be a measurable loss – those with better relative average stand a bigger chance for a scholarship and get higher scholarships. Students meanwhile are increasingly insolent – they clamour for the help, but in a thinly-veiled way – “can we check the answers” – they ask. Or maybe they’re really unsure whether they marked the correct one? (don’t be naïve!) In the last minute I gave in and helped those two people who sat next to me and whom I’ve never seen before and will probably never see again. As usual, I’m left with mixed feelings.

One of my professors once told when she had been to the States the lecturer could leave the room when their students had been writing and be sure they wouldn’t cheat. In Poland, in turn, the lecturer bring along their colleagues to have more people to scrutinise the students.

The permissiveness in Poland is fascinating. I don’t urge on denouncing on your neighbour who doesn’t pay taxes or chopped down a tree without notifying local authorities. I’m not in favour of putting the PRL motto “Kontrola dźwignią społecznego zaufania” (EN: Control is a leverage of social trust) into practice, but don’t perceive disobedience as a virtue.

I find it extremely hard to estimate the scale and harmfulness of the problem described above. It can’t be rooted out straight away and as person who’s grown up in this country I learnt to live with it. Well, yesterday I totally forgot about it and made use of beautiful weather – I washed the car, mowed the lawn before winter and tidied up the garden. Today for a change the rain is teeming down and thoughts of honesty returned…

Thursday, 12 November 2009

Recently bought

After months of getting round I finally went to the bookshop, looked out for a thick navy volume and bought it.

My wonderful copy knocked me back over 160 zlotys (after combining numerous discounts) – PWN Oxford Polish-English dictionary is indeed a bit pricey, but I consider it the best dictionary available on the market and the money spent on it as a profitable investment. Probably no other dictionary has been worked out so well, other publications don’t cover as many idioms, colloquial words and phrases. The work at least doesn’t omit the most problematic phrases (some time ago I coined a new definition of a dictionary – “a book which translates the obvious words, but somehow leaves out those very ones you don’t know”) and offers thousands of examples of usage of different words in different contexts. It’s not ideal of course – still it doesn’t offer a good translation of the word dziadostwo (much depends on how you understand the original word in Polish – what in my family is called dziadostwo doesn’t square much with the definition given by Słownik Języka Polskiego), moreover, it omits a Polish idiom przechodzić ludzkie pojęcie, what could be translated as “pass all beliefs”! As a would-be professional I wouldn’t carelessly rely on its translations of financial or economic terms.

The second item arrived today by traditional mail. I have to say I’m surprised with the quality of postal services – the book was delivered within four working days (sent by economical registered letter) and it wasn’t soaked up as many other letters had I received.

Tip of the Week by Jacek Koba is a record of the author’s advice given to his colleagues at Ernst&Young, where he used to work as a proof-reader. After having a flick through it I consider it a must for Poles who (will) often draw up writings in the corporate setting. Why is it worth buying? It lists errors often made by Polish writers, touches upon the words Poles tend to have problems with and gives advice on how to write in a plain and comprehensible English. The book is available at the auctions put up by this allegro user – a representative of Altravox publishing office. It cost me only 17,99 zł, which I find dirt cheap, not to mention delivery is free of charge. So, my dear schoolmates, log in to your allegro accounts and keep it under your desk when you’ll be pursuing your careers in consultancy firms…

Tuesday, 10 November 2009

An uncanny gift to drop bricks?

The organisers of the celebrations of the fall of Berlin Wall probably have not made allowances for the elements of chaos brought in by the former Polish president.

Lech Wałęsa, one of the most distinguished figures associated with the resistance against communism, as an icon of the Polish movement had the honour to push the first block of domino symbolising the wall which carved up the city. He pushed the block briskly and stepped back, knocking down a cameraman, but it could have happened to anyone…

Later on, in his speech he used a word “dyrdymały” to describe the content of the speeches of his predecessors, who insufficiently underlined Poland’s contribution in the downfall of the iron curtain. For everyone who knows the leader of strikes in Gdańsk shipyard it should not have come as a surprise.

In line with the diplomatic protocol each of the politicians spoke in their mother tongue. Some, like French and Russian presidents addressed the Germans in a few words in the hosts’ language. Our president, in spite of his long experience in politics, still has not mastered the difficult art of expressing himself. He should, however, realise his words are straight away interpreted into other languages. As I heard about dyrdymały, I immediately thought about the way of translating the phrase into English. I quickly came up with “talk rubbish”, which was later confirmed by my new Oxford PWN dictionary. The problem is that “talk rubbish” is not an example of official language, so the interpreter was put on the spot by the speaker. As the German interpreter rightly said “in such situation there is no time for thinking”. It seemed that the German who interpreted Wałęsa’s word into his native language knew the colloquial Polish word and as he claimed, had managed to get out of the slightly embarrassing situation and interpreted dyrdymały as “travialties”.

The missteps of our “silver-tongued” president are a good example of a challenge for the interpreters and translators. The former ones are in an unenviable position – I would not like to be in their shoes when Wałęsa speaks. The latter are also given a headache by the former president – as those who translate are not native Poles, they have to consult Poles to figure out what Wałęsa meant. But we can also get lost in the maze of the bizarre metaphors used by the man who had his part in tearing down the Berlin Wall…

Monday, 9 November 2009

The wall torn down

Even tough I’m pressed for time I can’t fail to mention the 20th anniversary of one of the most significant moments in the history of 20th century. Twenty years the inhabitants of East Berlin in the spontaneous act began to pull down the wall dividing the city and the Europe. The wall erected in 1961 symbolised not only the iron curtain, but also highlighted the weakness of the system. The concrete wall and barbed wire fence had to keep the East Germans in the socialist country, there was nothing else to prevent them from fleeing the oppressive system. The same frailty of the system gave rise to the fall of the Berlin Wall. The concrete, 156 kilometre long barrier, although it encircled West Berlin, indeed fenced off East part of the city. The Western one was free, the eastern enslaved…

Sunday, 8 November 2009

Polish pension system in brief

Following the recent uproar over government’s plans to take over a fraction of the pension insurance premium, which is currently transferred to the pension funds I decided to familiarise those of you dear readers, who still know little about the structure of the new Polish pension system with its basic assumptions and principles.

Disclaimer and warning: the picture is a bit subjective as the issue is one of the author’s hobby horses. Moreover author has a rather low opinion about the solutions put into practise in Poland.

It’ll take on a form of FAQ – so here we go!

1) How is it designed?
- The new, reformed system basically consists of three parts, called pillars. The first one is run by the national insurer, called ZUS, the second are private-owned pension funds. Participation in the first and in the second pillar is obligatory. The premium is divided and currently around sixty per cent goes to ZUS, the rest to the pension funds. As the replacement rate (last salary to first benefit ratio) under the new system will range from forty to fifty per cent, the employed are encouraged to save in the voluntary third pillar, in which the participants can save under pension schemes and on individual pension accounts, run by banks, insurance companies, or at brokerage firm.

2) How does it function?
- The money which flows to the first pillar is assigned directly for payments of current benefits. ZUS just keeps an account of what has been transferred into the system. The amount of the future benefit is subject to increments according to the political decisions, based mostly on inflation rates. The real money remains in the second pillar, where the companies managing pension funds invest it. Unfortunately the way they build their portfolios is not at their discretion, but they are constrained to buy certain types of securities in order to protect the future benefits. They can invest up to five per cent abroad, have up to forty per cent of stock in their portfolios, at least sixty per cent needs to be invested in government bonds… In the third pillar an employed person can either participate in the pension scheme, set up by their employer or choose an individual form of putting aside money – a bank account, an investment fund (there’s a choice of risk profile), taking out an insurance policy or buying stocks. The amount yearly set aside in the third pillar is at the present capped to over 9500 zlotys.

3) Who this money belongs?
- Good question! Firstly – what money? In ZUS you just have a book record, just a figure in the computing system. The money in the pension fund, managed by a private company is… a public money. You can’t just withdraw this money whenever you want just like in the United States, but if you pop off before you retire, you capital is inherited by the family members, but watch out – as much as possible is transferred into their pension accounts in pension funds. Only the money in the third pillar is available for you. You can pay it out whenever you want, but it entails the obligation to pay the capital gains tax. (The savers are exempted from the tax only if they don’t pay out money until they pension off).

4) Who has a right to decide what is being done with that money?
- For sure not you, dear reader. There’s no influence on the way ZUS is run, nor on the rate of increment. In the pension fund also there’s no possibility to control the investment strategy, which is greatly determined by the precautionary regulations. So if you feel the bear market is coming don’t call the fund manager and advise them to divest of stocks and buy bonds, just keep a cool head and see your money shrinking.

5) Yes, so how about investment strategies?
- ZUS doesn’t invest your money – as it has been written above. Pension funds managers build the portfolio on the basis of rather stiff guidelines. This means the returns of funds are very similar. The most idiotic thing in the OFE business are mandatory investments in government bonds, interest on which is paid from our taxes, so we pay to the state for the return on sixty per cent of portfolio’s makeup…

6) What are the costs?
- In case of ridiculous first pillar not as high as you’d think. In spite of all scandals with marble-laid head offices and luxurious holiday resorts, costs of administering the service of benefits account for around one per cent of managed sum – quite little. In OFE, pension companies charge currently (until the end of this year) a distribution fee of seven per cent of the premium, so out of each 100 zlotys paid into the fund only 93 are invested, the rest goes into managing companies… This is one of the biggest scams, done within the letter of law, pension companies did Poles out of around twelve billion zlotys within the last ten years. The management fees are reasonable and don’t exceed one per cent.

7) What are the incentives for the pension funds to invest the money effectively and what are the punishment if they fail to do so?
As the old Polish saying goes: “czy się stoi, czy się leży, siedem procent się należy” – the old adage, referring to socialist economy is, when paraphrased still up-to-date with the private-run pension funds. People are bound to transfer premiums to the funds, so the risk that they’ll take their money away doesn’t exist. Of course they can change the fund, but there’s no real competition on the market, so even if one goes away, another one comes up. There’s no carrot in the system, as the fees for managers are not dependent on the investment results. The stick also doesn’t work properly – the Polish regulatory body gives (on the basis of calculations) a minimum rate of return setting out the profit each fund has to fetch – this year in March 3Y minimum return was below zero. If it doesn’t it must pay into the fund to make up for the insufficient returns. Such situation took place only once in the history of the Polish system. According to the rule “don’t stand out, if it doesn’t pay off” their investment portfolios are very similar, so the choice of a fund smacks of a fiction…

8) What is the government trying to do?
They want to move some of the newly coming premiums to ZUS, rather than to OFE. Currently 19,52 per cent of the salary are paid as a pension insurance premium. 12,22 per cent go to ZUS, 7,30 per cent go to OFE. Under the new regulations, 15,22 per cent would go to ZUS and only 4,30 per cent to OFE.

9) What’s the purpose and what may it result in?
The main goal of course to have a cash injection to the budget in the lean times, in the long term it means accumulating the “book record of capital” and carrying on building a financial pyramid – it’s a major downside. It’s hard to say, whether the increments in the first pillar will be higher than returns in the second, but it’s almost sure that system’s running costs will be much lower – it’s a major upside. I see another positive aspect of the planned reform – the funds won’t be allowed to collect money for which they’ll buy government bonds. Minister Rostowski goes even further and suggest that funds shouldn’t buy government bonds at all and make profit only in the private sector. This is the wisest thing about our pension system ever said! The restrictions for the fund managers should be abolished and funds shouldn’t have gilt-edged securities in their portfolios. It’s better to issue less bonds (author is in favour of balanced budget at all and in his humble opinion state should issue any securities and run up any debts) and cut the taxes…

10) What else can be done?
I’m calling for more freedom, which means most of all responsibility for the taken decisions. Let me save for my pension on my own, put the money whenever I want or spend it however I want. But if in fifty years I was looking for the food in the rubbish bin – it would be my fault. Such scenario will never be realised as most of people consider it inhuman.

So how would be my ideal pension system look…?
The first pillar would be state-run, participation would be obligatory. Benefits from it would be just tiny “subsistence allowances”. As an element of redistribution, benefits would be equal, but premium would be collected on the principle of flat rate. The second pillar would be private and discretionary. Wish to hand your money over to professionals and pay them for management – go ahead, but not under constraint. Such normal system, based on the free-market rules would work much more effectively. My idea is rather unrealistic, so I’d opt for what has been applied in Sweden – citizens there are obliged to save in the private system, but instead of 15 uncompetitive funds, they have a choice of around 500 institutions offering a wide range of products, including long-term bank deposits, investment funds, insurance policies, etc.

Thank you for getting here. If you see any factual errors or have questions, let me know.

Tuesday, 3 November 2009

What was missed last weeks...

Was probably the golden Polish autumn – the warm and sunny days, when Poles can enjoy the last rays of sun which really heats the air up. This year, after a clement September, October brought the first attack of winter and temperatures below month’s average.

Yesterday I strolled through Pole Mokotowskie Park to search for the signs of golden autumn. The pictures outwardly bear out the view that this year nature also goes through the phase, but the sun wasn’t accompanied by the mass of hot air blown from over Sahara desert, but by the arctic air pumped into Poland by the high stationary east of my country…

Picture 1 – some trees are already bare, thanks to others the park is still ablaze with colours. In the background – some remarkable elements of Warsaw’s skyline – the big shopping mall Złote Tarasy (EN: Golden Terraces), Palaces of Culture and the skyscraper of Polish Airlines.

Picture 2 – panorama of colourful foliages east to the artificial pond in the middle of the park. Few people walk around – probably the weather put them off…

Picture 3 – an alley next to Polish National Library – notice the trees in the background, still much in leaf, in all shades of red, ginger and brown…

Picture 4 – a carpet made from maple’s leaves. Quality of the shot staggeringly good as for the photo taken against the sun

Picture 5 – here a comparison. The photo was taken last year, on 30 October. The temperature in the afternoon hit fifteen degrees. Yesterday it barely crept above zero and the feeling of cold was heightened by the gusty wind. What is quite surprising, this year the trees have more leaves than a year before, even in spite of cold October.

Picture 6 – I wonder what is the name of the tree which shed such almost white leaves…

Picture 7 – green, golden, yellow… And probably some other colours illuminated by the sun shining low from the sky. Behind the trees there’s the intersection of Al. Niepodległości and ul. Batorego.

Is it going to be chilly like this for the rest of the autumn? Forecasters said the oncoming winter is rather likely to be warm and wet, not windy, frosty and sunny. I’d sooner go for the former. If you realise how cold it is outside, such weather is not uplifting… I won’t abandon my hopes to see the golden Polish autumn, even in the second half of November. Well, eventually I might give in, when somebody promises me the onset of spring in February…

Sunday, 1 November 2009

Memento mori...

All Saints’ Day and the subsequent All Souls’ Day – the short period cut out from the contemporary life-centred culture when we bring back the memories of the departed ones. We focus on the past, but pass over the thought of what is inevitable for us – one day we’ll also pass away, but this moment is pushed into the distant future by most of people. As in case of all unpleasant thoughts, this one is also driven out of our minds…

For the past seven or eight months I’ve had several dreams of my death. They were usually set in the future. (below my description from the discussion on W-wa Jeziorki blog)

First one: Centre of Warsaw (pedestrian precinct along Centrum Department Stores. I walk slowly and all of the sudden feel the stabbing pain in my chest, somewhere around my heart, the pain knocks me down, I fall over, other passers-by also cringe, a moment later sky starts falling. My explanation - too much reading about the conspiracy theories of doomsday foretold on 21st December 2012 (the Mayan prophecy).

Second: I simply sit behind my desk in the office (I'm no longer a student), again I feel an unexpected pain in my chest, I slump forward on my desk, my co-workers scream something. Possible cause: premature death on heart attack?

Third: summer, sunny day, I mow the lawn in my garden, meanwhile chatting with my neighbour standing behind the fence. Suddenly it's getting totally dark - the big blackout comes, either I'm blinded by something or the sun goes off - impression just like if somebody turned off the light. The engine of the grass mower stops. Neighbour and I still talk to each other trying to comment on the phenomenon. After ten seconds the pain starts penetrating my body, from feet goes up to the heart, then blows me up - I had the feeling of the bomb exploding inside me. Explanation that the blade of mower caught on the extension cord wire doesn't seem plausible(?)

Three dreams had one thing in common - after my the moment I died in my dream I woke up with the real pain in the chest, it eased off after one - two minutes.

These last ones also have another element in common – an apparent dazzling flash I felt in my eyes just before waking up. The feeling resembles a situation when someone puts a camera in front of my eye and snaps, giving off a flash. I think I had two visions when I was crunched by a tree struck by a lightening – it leads me to the next explanation of the flash. Quite often it was accompanied by feeling of sinking into myself…

I still wonder what this all means. As a typically down-to-earth person I approach such things rather sceptically, but what we dream is conditioned on what is hidden is the darkest ends of our mind. It seems such theory is much more convincing than “harbinger” ones. I don’t think those dreams herald an oncoming decease. After all if our fate is written somewhere, we can’t change, so there’s also no need to worry about the future.

Nevertheless a dose of fear creeps up. It’s not the fear of death, rather of the unknown. It doesn’t paralyse my life, actually it doesn’t affect negatively my everyday activities. It causes only two things. Firstly, it doesn’t let me do, what around ninety nine per cent of people do – I can’t take for granted that nothing bad is going to happen. Secondly, it fills me with gratitude for each day which happened without an unfortunate event. I wonder how many other people experience such brainwaves…