Friday, July 11, 2008

europe view no 89



A plague on small businesses
Jul 10th 2008

A moving story of Polish bureaucracy

IN THE bureaucrats’ ideal world, people stay still. Movement creates unpredictability, uncertainty, confusion and the possibility that people will dodge taxes or defraud the taxpayer.

So in any country, the state creates a few obstacles to discourage too much flightiness. In Germany and many continental countries it is a minor misdemeanour not to register your home address with the authorities. You need official approval to change your name.

The Anglo-Saxon tradition is different, allowing people to stretch or shrink their names at will. Posh Anthony Lynton-Blair can become plebeian Tony Blair. You can even change your name to something completely different on a whim, so long as you don’t obtain money dishonestly as a result. Similarly, you don’t have to tell the British authorities where you live. But if you have a business, it must have a real address, available to anyone who asks, with a nameplate on the door showing the physical location.

But in the ex-communist countries that have failed to reform public administration (ie, most of them) the lingering control-freakery of the Bolshevik mindset and the legacy of the Ottoman, Hapsburg and Czarist bureaucracies make these requirements far more onerous.

Take for example, the rigmarole involved in moving a one-person business (owned by a friend of your columnist) from one district of Warsaw to another. The first stage is for the owner to change her personal ID card. That takes a month. Then the business owner goes to the municipal office in the place she is leaving and informs them of the move and the new address. That information makes its way at snail’s pace through the Polish bureaucracy to the other municipal office. It typically takes three to four weeks.

During this period the business is in limbo. It is not clear which is the legal address: the old one or the new one? Where should taxes be paid? Failure to comply involves time-consuming and even costly penalties.

When the municipal office is satisfied that the move is OK, the next stage is to go to the state statistical office and have officials there register the company change of address, and update the “REGON”—the state statistical number. Armed with that, and the new company stamp, the owner then has to go to her bank and write an annex to her company’s contract with it. Then the same procedure happens with her accountant. It is hard to see why this is a legal requirement.

If the company is still in business, the owner must take the title deed or rental agreement to the new premises, notarised, and then embark on changing the records at the tax office. Here, as with all the government offices mentioned, the opening hours are inconveniently short and often unpredictable, and the queues long. Knowing the right person can speed things up considerably. But not everyone wants that kind of friendship: obligations cut both ways. The applicant then fills out several forms, each lengthy and different, which are submitted to the offices dealing with value-added tax, income tax and so forth.

Once these are processed, the company can start worrying about its customers, costs, and what its competitors have been up to in the meantime. But one obstacle still remains: dealing with the ZUS social insurance bureaucracy. That is time-consuming too, but need not be done immediately.

It is worth noting that none of this—at least in the Warsaw offices dealing with your columnist’s friend—could be done online. Poland’s government talks happily about its plans for streamlining the state machinery. For the country’s long-suffering small businesses, they can’t start soon enough.


Marek Galinowski said...

Dear Sirs!
I dare to write to you, because wherever I have written to, I met either with disdainful silence or an answer, which bears testimony of total negligence and ignorant ness of the matter.
Polish middle class , never strong, what was worse, in the past , composed in a great measure of Jews and Germans, become during last war and after, totally destroyed, first by nazis (Jews) then by communists (liquidation of petty bourgeois).
Theoretically, upon the fall of the communism, there were created conditions to their redeployment. But then the state, which proved to be untouched, and remains the same, reminded itself that the “middle class” is an excellent milky cow, and become charging it with ever increasing burdens in various forms.
The first is “ZUS.” That is state owned Insurance Company, the payment to it is absolutely obligatory, and levied ruthlessly and pitilessly, with cruelty known in communist era. This levy has increased four times in recent five years and is still increasing. What is more, it is equal for everybody, that means is insignificant to ruling layer of society and is stifling to small street vendors, small shop keepers, single acting craftsmen, and so called “free lancing professionals” (like my person “technical texts translator”)
The second the rent charged by the premises owners especially state owned “Flat Cooperatives, whose appetite is insatiable
As a result, almost all kiosks on the suburb I live in, vanished, many locals have great adds “For hire” many shop pavilions are closed, many repair shops for computers and domestic appliances are existing no more.
Everything in official state propaganda that they promote development of “Small & Middle Enterprises” that there are European funds provided for their growth (no one knows where they really vanished). There are known to me many cases of young enterprising persons, who emigrated abroad (especially computer and electric appliances specialists) and this process is deepening.
When I liquidated my translating “office”, no related legal form contained a question why I become bankrupt and no office employee asked me such an “obvious” question.
There is conspiracy of silence in the medias, especially in comparison with ship yards case, who wasted over 7 billions PLN of tax payers money and nobody (in medias) accuses them for that.
Dear Sirs!
It would be of a great advantage, if you could bring this matter to the public attention, and disclose the double standard manner of treating its citizens by all Polish governments , so indulgent towards so called “working class” and so pity less and cruel to “Small bourgeoisie”
Your faithfully
Marek Galinowski
My address : 92-502 Łódź
Ul Haśka 8 m 10
Tel +48 [42}671 11 53
E-mail :

Anonymous said...
This comment has been removed by the author.
Marek Galinowski said...

Wednesday, September 10, 2008
I want to send you, a commentary my second letter to THE ECONOMIST, in hope of bringing to some attention, the situation of Small and Micro Enterprises, still disdained and discriminated, like in communist era , still regarded as “petty bourgeoisie”
Dear Sirs!
I dare to bore you with my letters, in my poor English, and concerning subject of little interest to you and your respectable and world wide known magazine.
The subject relates to difference of treatment of “Small & Middle Enterprises” in Poland which are almost discriminated, especially by tax and obligatory insurances charges, and highly protective treatment of “working class” for ex , recently “ship yards workers”
When one person belonging to small bourgeoisie is going to bankruptcy, no one helps him, there no financial or other help, no relieve of levies. When the ship yards are going to bankruptcy there is a great “hallo” in all medias, and they were promised further financial aid of more than one billion PLN, in spite that they wasted already more than 7 billions PLN.
It was tax payers’ money and in the situation when the building of highways is practically stopped, there are no money for stadiums for coming European Foot Cup which Poland is co-organizer , and many other investments which become delayed or suspended.

It would be of great advantage if you could bring to public attention this hypocritical comportment of Polish authorities, that un-profitable industry would stopped waste public money and “Small & middle Enterprises “ gained their due place in Poland, as they have in Western societies.

With all due respects
Marek Galinowski
P.S. I have no access to your up to date magazine, only to those, which were retired from circulation in British Council Library, ie after almost one year delay. So, I will be grateful, if you could notice me , by e-mail, whether my opinions and postulates were considered.
Marek Galinowski
My e-mail address :

Edward Lucas said...

Dear Mr Galinowski

Thank you for your comments. I tried to reply offline but the email you post here does not work. I will continue to cover the problems of SMEs in the region, and have done so extensively in the past, not least in my survey of Poland in 2006

I am sorry you cannot get hold of uptodate copies of the Economist. You can always read us online at (this is my personal website, not the magazine's)