Poland meets the ugly investor

Issue 

By Grzegorz Peszko

CRACOW — The flow of foreign public funding from the West to eastern Europe should be called strategic investment rather than aid. The small amount of funds available mainly benefit the donor country and are allocated according to political and economic criteria which hardly include environmental ones.

Many of the donor countries or organisations are developing procedures for assessing the environmental impact of their projects. However, even sophisticated and detailed procedures are aimed at determining only direct environmental impacts, as measured at the end of the discharge pipe, and not at choosing the project which is more environmentally sound than others.

By the end of 1991, about 5000 joint ventures and foreign-owned projects were in place in Poland. Overall declared investment was US$690 million, with the average foreign capital share in joint ventures being less than $130,000. This is not much: Hungary, for instance, with only a quarter of Poland's nearly 40 million population, has foreign investments three times higher. Most investments in Hungary are small or medium.

In 1989, following suggestions from the International Monetary Fund and European Community, Poland liberalised import laws. The trade with Western countries skyrocketed.

Besides car makers, Poland is also attracting multinational food and consumer goods corporations ready to slice out a market share in packaged foods, detergents or baby goods.

These are not large, strategic investments. Most companies would rather exploit Polish market

opportunities through trade, establishing networks to sell products manufactured elsewhere. This is, for instance, the case with the French car manufacturer, Renault, which will invest US$50 million in sales networks in Poland.

Eastern European countries continue as markets for low quality products which often violate regulations and standards in their country of origin. They include a variety of products harmful to human health.

The classic example was pesticides bought by the EC in the United States and delivered to Poland as aid. Later it turned out that most of these pesticides were either prohibited or severely restricted in the EC and the US.

So far foreign investors have shown little interest in transfer of modern technology and know-how. Instead of technology being transferred to Poland, a significant outflow of Polish technology has been observed.

There are many cases reported of licences, market information and patents being taken over from Polish companies by joint venture partners free of charge and transferred to the West to make profits there.

The transfer of polluting technologies to eastern Europe is perhaps the best known problem. There have been a great number of cases of technologies which were removed from Western markets because of adverse environmental impact. The markets in Western countries are shrinking for such technologies either under the pressure of consumers or due to legal constraints.

The new foreign market is treated as an external sector of the home country economy, where the external costs can be dumped. The extreme example of companies looking for this kind of difference in market opportunities have been Electricité de

France, Siemens and Belgatom, which tried to install nuclear technology in Poland — as a result of a long debate, Poland has decided not to develop nuclear technology for power generation.

Other examples of polluting technology transfer are the production of detergents containing phosphates (Unilever) and sprays and cooling devices containing CFCs.

Some of the least desirable commodities to enter the Polish market were Western toxic wastes. A 1990 report by Greenpeace documented more than 60 examples and 46,000 tons of Western toxic waste destined for Polish soil.

So far a short-term perspective has dominated among foreign investors. They have expected very high rates of return and have not aimed at long-term establishment in the Polish market.

Too often they have been attracted by opportunities to extend the market life of outdated and depreciated equipment and installations; to extend the life of products and technologies that have become unmarketable in their home markets for environmental reasons; and to exploit undervalued natural resources.

Most governments in central and eastern Europe are allowing their countries become sinks for environmentally unsound products and technologies. Eastern Europe may replace the Third World as a dump for the external costs of Western European industrial growth.

These governments cannot always make sovereign decisions. The decay of the former structures of regional integration makes their bargaining position on the world market and in international institutions very weak. Indebtedness, economic crisis, the loss of traditional export markets, the disintegration of traditional links of economic cooperation and capital and technological shortages

all make these countries particularly vulnerable to the pressures from the international institutions and larger Western countries.

If these governments search for funds on the capital market, they can hardly find money for "environmental" projects. Environmentally unsustainable projects usually attract more attention as yielding more immediate monetary gains. Motorways are receiving more funds than railways.

Environmental sustainability becomes a victim of a typical market failure.
[Grzegorz Peszko is from the Cracow School of Economics and is involved in environmental politics.]

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