Warsaw, 17th October 2023
Open letter from the President of the Union of Entrepreneurs and Employers to political leaders
If I may, I would like to interest you in the discriminatory challenges that small Polish companies have been facing in their very own country for the past 30 years.
Micro-enterprises, unlike large companies, cannot afford lawyers, accountants, lobbyists or PR specialists. No foreign ambassador will call the prime minister or any of the cabinet ministers when provisions of the law or administrative decisions limit the opportunities for microbusinesses to thrive. Regulations that for a large company may only mean hiring another lawyer or accountant, for smaller companies may mean their end. Small companies cannot afford yearlong battles in courts of law against civil servants. They do not a team of lobbyists and PR companies at their disposal to defend their image or gain direct access to decision-makers.
At the same time, micro-enterprises constitute a significant share of the Polish economy and play an essential social role. They generate more GDP and create more jobs than large companies do! Alas, both in state policies and the reality shaped by scientists and the media, micro-entrepreneurs are placed in a secondary position and are presented as obstacles on the road to growth. Micro- and small enterprises have played, do play, and will continue to play a considerable role in the development of Poland. The Polish people should be made aware of this role, and decision-makers ought to appreciate it.
In 2019 (the last year for which there is data available as of October 2023), the share of micro-entrepreneurs (companies employing no more than 10 people) in GDP was 30.6%, while for large enterprises (employing 250 people or more) the share in GDP generation was much lower: 22.7%. Microbusinesses are also the place where most jobs are in Poland! At the end of 2020, nearly 10 million people worked in the enterprise sector, including as many as 4.2 million in micro-enterprises. And only 3.2 million people worked in large companies.
There is insufficient data available on micro-companies in public statistics. And available data is published with a significant delay. The paucity of data suggests that state decision-makers are not invested in micro-entrepreneurs’ condition or potential for growth, which means that politicians and public authorities make decisions about microbusiness without necessary knowledge. When a body of key data on microcompanies describes the state of affairs from two years ago, and state policies often need up to two years to work in full effect, the period between the authorities’ decision and the assessment of that decision’s impact on micro-entrepreneurship lasts up to 4-5 years!!!
The Ministry of Finance has tools in the form of Uniform Control Files, which demonstrate the financial flows of enterprises. Based on this, one can create analyses, determine the economic situation in individual industries, exclude IT specialists from statistics (who are most often B2B contractors), and also recognise the real effects of the enforced economic changes and regulations. However, they are not made use of, and we basically have no idea why this is the case.
Polish scientists, politicians, and media frequently suggest that too many micro- and small enterprises hinder Poland’s development. In the media and social media alike, small business owners are usually portrayed as stupid, simpletons, exploiters, and fraudsters. Political leaders claim that if micro-entrepreneurs are unable to run a business in the conditions created by politicians, they are not suitable for business and should do something else!
What has been created is a business-unfriendly state where chaos rules supreme. Its main features include the lack of legal stability and economic mismanagement of assets owned. Businesses are up to their necks in chaos and regulatory roulette. One can never say what any given minister will come up with out of the blue or how a law will be enforced.
The legislator can wreck an entire industry with one legal act. And then the political class is surprised that micro- and small entrepreneurs are afraid to invest. There is no other way to increase domestic investment than legal stability and a sense of security of economic transactions.
It indeed is true that smaller companies are on average less efficient than larger ones – both in Poland and globally. According to Eurostat, in the case of entrepreneurs employing 0 to 9 people, the average annual turnover per employee amounted EUR 74,000. While in companies employing 250 people or more, the average turnover per employee came up to EUR 181,000. So yes, larger companies are more efficient. But if all florists in Poland merged into one corporation, their turnover per employee would not increase like that!
A kind of socio-economic experiment is underway, which involves forcing micro- and small companies to consolidate through significantly rising labour costs, eccentric games related to raising the minimum wage disproportionately to the average salary or tightening the tax screws in the form of the inability to deduct health insurance contributions. The political class openly despises micro- and small companies, and economists from the Ministry of Finance want to force them to merge with the use of brutal fiscal incentives.
Moreover, we have in Poland slightly more smaller entrepreneurs than is the EU average, and these smaller entrepreneurs employ on average slightly more people than they do in the EU. At the end of 2020, entrepreneurs employing less than 10 people constituted 94.6% of all entrepreneurs in the EU, while in Poland they constituted 95.2%. However, individual European economies vary significantly in terms of the share of small entrepreneurs in the total number of entrepreneurs. And there is no general pattern here. For example, in Germany in 2020, the share of entrepreneurs employing less than 10 people in the total number of entrepreneurs was 87.4% – that’s less than in Poland. But the same share in Italy was higher than in Poland and amounted to 95.4%.
Same goes for the share of smaller entrepreneurs in employment. In Poland, smaller entrepreneurs employ a larger proportion of people than on average in the EU. But EU member states differ greatly. At the end of 2020, the share of entrepreneurs employing fewer than 10 people in total employment in the EU was 32.9%, while in Poland – 34.5%. In Germany, smaller entrepreneurs employed a significantly smaller proportion of employees than in Poland, only 20.1%. But in Italy, smaller entrepreneurs employed a much larger share of employees than in Poland, as much as 44.1%.
Therefore, the frequently repeated conclusion that there are too many small companies in Poland compared to the most developed economies, and that this high share inhibits our country’s development is simply untrue. The relatively high number of micro-entrepreneurs is an adaptation to Poland’s economic conditions.
The large number of microbusinesses in Poland is probably an adaptation of Poles to, among other things:
- a significant dispersion of the population on the territory of Poland,
- decades necessary to accumulate the capital needed for development,
- underdevelopment of the financial sector in Poland,
- lack of large domestic companies based in Poland.
Compared to developed countries, Poland has a disproportionate number of people living in small towns and villages. The degree of urbanisation in Poland amounts to is 60% and 75% in the EU. We also have fewer multinationals with large resources of capital, machinery, patents and organisational knowhow. And there are many more similar factors that may cause Polish entrepreneurs to be more dispersed and smaller.
But what actually is dangerous for Poland’s development is the conviction that there will be more investment, higher efficiency, and better growth when the number of smaller companies is curbed. Limiting the number of small businesses will not lead to more growth! Micro-enterprises are a necessary complement to large companies, foreign and domestic alike. They provide work in smaller towns to people who do not plan to move to large cities. They provide work to people whose careers began all the way back in the Polish People’s Republic prior to economic transformation, and who cannot or do not want to acquire the knowledge and skills necessary to be employed in highly paid positions in large enterprises.
Socialist modernisers viewed small private farms as inefficient and believed that Poland would develop by limiting the number and ultimately getting rid of family farms. But large farms that were truly efficient only began to be established in Poland when favourable economic conditions appeared with the introduction of the free market and democracy after 1989.
Many politicians and scientists as well as the media share nowadays similar views when it comes to the role of micro-entrepreneurs. Yes, the size structure of enterprises in Poland differs from that in the most developed countries. We have a little more micro-enterprises than is the average in developed economies. However, the relatively large number of microbusinesses is not the source of the backwardness of our economy. It is the optimal adaptation to the operating conditions in Poland.
By interfering in the size structure of enterprises in Poland through administrative means, taxes, labour law etc., Polish authorities will achieve any more development potential. On the contrary, they will limit the growth we can have. Further subsidies for large foreign investors and increasing regulatory burdens on small entrepreneurs will slow down Poland’s development – not accelerate it!
Poland’s development is dependent on the creation of optimal conditions for earning, saving, and investing for all entrepreneurs. To achieve this, it is necessary to adhere to the following rules and fulfil the following requirements in particular:
- The public statistics system should provide more information about micro-entrepreneurs, and much faster. With the current digitisation of life and economic transactions, greater availability and timeliness of information does not require imposing further reporting obligations on microbusinesses. In fact, more information about microcompanies can and should be made available with reduced reporting obligations.
- When analysing existing and creating new regulations, one should consider the asymmetry in costs incurred to meet said regulations by large companies and micro-enterprises. The same regulations are often much more burdensome for smaller entities.
- When creating and enforcing socially beneficial regulations, their broad costs should be taken into account, including whether further enforcement of certain regulations will result in such a widespread agony of micro-entrepreneurship that we will incur new and significant economic, social, and budgetary costs.
For over 20 years, we have been conducting actions with the aim to advocate and promote knowledge about the Polish “economic anthill” and its significance for the socio-economic development of Poland. We will continue to do so. Our fight is not against corporations – we need them too. We wage war against discrimination of small Polish companies, whose importance for the economy I have tried to describe above.
President of the Union of Entrepreneurs and Employers