Wyższa Szkoła Finansów i Prawa w Bielsku Białej · 2018-08-24 · Bielsko-Biała School of...

Bielsko-Biała School of Finance and Law Wyższa Szkoła Finansów i Prawa w Bielsku-Białej

SCIENTIFIC JOURNAL Zeszyty Naukowe

Academic Quarterly Publication No 3 (2016)

Wydanie czasopisma (Zeszytów Naukowych Wyższej Szkoły Finansów i Prawa w Bielsku-Białej) w języku kongresowym angielskim finansowane jest w ramach umowy 733/P-DUN/2016 ze środków Ministerstwa Nauki i Szkolnictwa Wyższego przeznaczonych na działalność upowszechniającą naukę.

BIELSKO – BIAŁA 2016

2

Scientific Council Prof. Jerzy Osiatyński (the President)

dr Tomás Vicente Ballesteros, Prof. de Derecho Procesal

Prof. Rudolf Brabeck

doc. ing. Martin Bugaj, Ph.D.

prof. h. c. doc. JUDr. Maria Bujnakova, CSc.

Prof. Jerzy Ciemniewski

Assoc. Prof. Gabriela Dobrovicova, PhD.

Assoc. prof. Jacek Dworzecki

Prof. Vilhjálmur Egilsson

Prof. Jarosław Figwer

Prof. Helena Żakowska-Henzler

Assoc. Prof. Maria Kiovska, PhD.

Assoc. prof. dr Rajmund Mirdala

Prof. Stanislav Mraz

Assoc. prof. Jan Ostoj

Prof. Stanisław Owsiak

Prof. Massimiliano Piras

Prof. Daniel Stavárek

Prof. Jana Štofková

doc. ing. Michal Tvrdoň, Ph.D.

Assoc. prof. David Zámek

Editor in Chief

Assoc. prof. Jacek Binda

Field Editors

dr Ryszard Bełdzikowski

dr Jarosław Storczyński

dr Elżbieta Rak-Młynarska

dr eng. Stefan Senczyna

Statistical Editor

Assoc. prof. Danuta Jama

Language Editor

Agnieszka Smyrska

ISSN 2084 – 1809 eISSN 2543-411X GICID: 71.0000.1500.1631

All rights reserved!

Copying, reprinting, disseminating in whole or in part without permission of the Publisher is

prohibited.

Papers published therein were provided by authors as complete and finished work.

The Publisher cannot be held liable for the graphic material supplied.

The printed version is the original version of the issued journal.

Bielsko-Biała School of Finance and Law University Press

ul. Tańskiego 5, 43-382 Bielsko-Biała;

tel. (33) 82-972-12,15, fax (33) 82-972-21; www.wsfip.edu.pl

Printed by: UPR PASJA, 43-300 Bielsko-Biała,

ul. Partyzantów 44, tel.:+48 33 499 00 47

3

TABLE OF CONTENTS

FINANCE AND ACCOUNTING

Papers

Jacek Binda ATMs Decline or Development of E-banking Services .. 5

Iwona Łuka, Jacek Binda The Interchange Fee

Impact on the Development of Non-Cash Transactions .......................... 18

Dorota Kędzior Reserves and Accruals According to IAS

and Polish Accounting Standards - Similarities and Differences ........... 32

Jan Ostoj 16 Years of the Euro Area – Increase of GDP

and Payment Balance (Preliminary Data Analysis) ............................... 48

Anna Piotrowska Changes in the Employment and Incentive

Scheme as Elements of Corporate Restructuring Based

on the Example of PKP Cargo ................................................................. 69

Leon Podkaminer Growth Slowdown Endangers

the Economic Cohesion of the European Union ...................................... 87

Elżbieta RakMłynarska, Halina Łapińska Mutual Foreign

Investments Within the Visegrad Group in 2011-2014 .......................... 102

Katarzyna Świetla, Krzysztof Jonas Determination

of the Financial Result in the Insurance and Reinsurance

Companies Considering the Accounting Act ......................................... 121

Adam Żabka, Beata Hoza The Stability of Tax Revenue

in Local Government Units in Years 2005-2014 ................................... 138

LAW

Papers

Anna Ibek, Monika Suchojad Theoretical Basics

of the Scientific Evidence in Criminal Proceedings .............................. 160

4

INTERNAL SECURITY

Papers

Janusz Mika A Phenomenon of the Conflict in Education

for Security – an Example of the Czech Republic (part 2) .................... 178

Jacek Dworzecki, Barłomiej Bąk Use of Selected Instruments

of Management for the Improvement of Economic Security

in National Energy Sector Research Report....................................... 195

INFORMATION TECHNOLOGY

Papers

Janusz Berek Implementation of IT Systems in Management ............ 229

Scientific Journal WSFiP Nr 3/2016

5

DOI: 10.19192/wsfip.sj3.2016.1

Jacek BINDA

ATMS - DECLINE OR DEVELOPMENT

OF E-BANKING SERVICES

Summary

The paper is devoted to one of the channels of electronic banking – terminal banking. It

presents the efforts of banking sector towards reducing the presence of cash in the

financial turnover and lowering the costs of cash transactions thanks to development of

high-tech ATM devices. The author points to the dynamics of changes related to the

advances in this particular channel of contact, draws attention to the risks

accompanying this form of contact and presents alternative forms of communication

between a bank and its clients. The paper quotes data obtained from the Polish National

Bank, the Polish Banks Association and EAST.

Key words: e-banking, terminal banking, electronic money, ATMs

Introduction

The end of the 20th century was a period of sudden transformation in

functioning of companies all over the world. The period is now referred

to as ‘post-industrial revolution’ or ‘information revolution’. The

dynamics of these changes called upon companies a new style of

operations which required greater flexibility in order to achieve success

on the market. Strategic elements of the new order became: information

management (IM) and knowledge management (KM).

The style of communication between market participants was also

transformed. The processes using convergence of teleinformation

technologies and electronic media systems started to dominate and

became significant attributes of the new economic phenomenon known

as net-based economy. It was the catalyst of dynamic changes leading to

technical convergence of products and their markets as well as to

Jacek BINDA, Bielsko-Biała School of Finance and Law, Department of Finance and

Information Technologies, e-mail: [email protected]

Jacek Binda

6

liberalization of the market of electronic business services (including

electronic banking services).

Against this background electronic banking has been developing

dynamically and this development, which started about fifty years ago,

exerted a strong social impact changing the way we live all over the

globe. The paper concentrates on changes on the market of ATMs which

is a vital channel of contact between a bank and its clients and it also

discusses the situation on the Polish market and enumerates changes that

have taken place due to the introduction of EMV standard. The author

uses his own research as well as literature sources.

1. The beginnings of e-banking

The term electronic banking (or e-banking, i-banking, on-line

banking, home banking) is often presented in literature as a mode of

conducting banking operations from outside the premises of the bank1.

E-banking is also defined as a tool for interaction between a bank and its

customers enabling exchange of services and information through

electronic channels and tools integrated with organizational and technical

structure of the bank2. Another frequently encountered interpretation of

e-banking focuses on complex application of information and

communication systems for facilitating customer service3. Yet another

interpretation highlights the possibility of applying electronic

telecommunication devices (including wireless) to render bank services

remotely. In the literature on the subject e-banking is also defined as

a holistic concept of functioning of a bank which assumes in its

operational policy application of information systems to improve and

speed up customer service and, at the same time, to speed up cashless

money turnover.

1 Dziuba, D. Wirtualizacja dzialalności gospodarczej w oparciu o sieć Internet.

W stronę gospodarki usieciowionej. Warszawa, Wydział Nauk Ekonomicznych UW,

1998. 2 Stryczyński, J., Zarzycki T., Bank ery gospodarki elektronicznej, Bank, nr 9, 2000. 3 Janc, A., Kotliński G., Determinanty wykorzystania bankowości elektronicznejw

rozwoju wybranych usług bankowych, A. Gospodarowicz, Zastosowanie rozwiązań

informatycznych w bankowości. Wrocław, Wydawnictwo AE, 1999.

ATMs decline or ebanking services development

7

According to the Electronic Banking Council4, an organization

operating within the Polish Bank Association, e-banking is understood as

a set of banking services facilitating access to accounts thanks to ICT

devices such as telephone, computer or ATM. The term was also defined

in Article 29 point 1 of the Act on Electronic Payment Instruments of 12

September 2012, which says that under a contract for electronic banking

services the bank shall be under obligation to provide access to funds

held on the account via wire or wireless communication devices used by

the holder, and also to perform other actions ordered by the holder5.

As results from what was said above, unequivocal definition of the

term electronic banking is impeded by dynamic processes occurring at

the meeting point of the world of finance and technology. Easy access to

new technologies such as laptops or smart phones and the drive of

companies to render services 24/7 from every place on earth, makes this

term even more complicated to define. Having said that however, all the

above quoted definitions and interpretations point to the supportive role

of ICT solutions in speeding up the turnover of cashless money and

improving the communication processes between:

clients and banks,

banks and their organizational units,

financial institutions and banks.

It can be thus said that e-banking aims at modifying the existing

system of financial settlements towards reducing or even eliminating

paper money. These aims are being implemented by conducting

communication both inside the bank premises and also outside through

ICT solutions supported by bank management systems6.

The diversity of definitions and interpretations of the analyzed issue

also results from the range of implementation of ICT solutions in banks

4 Electronic Banking Council was established in 2004, it facilitates the cooperation

between banks and representatives of the world of business and administration. 5 Journal of Laws 2012 item 1232 was binding in Polish legal system since 2002 and

was waived on 7 October 2013 by the Act of 12 July 2013 amending the Payment

Services Act and certain other Acts. Subsequent amendments to the Act were

introduced on 28 November 2014 (Journal of Laws 2014, item 1916). 6 Knosala R., Komputerowe wspomaganie zarządzania przedsiębiorstwem, Warszawa,

PWE, 2007.

Jacek Binda

8

and bank services. Taking this into account, the term e-banking can be

considered:

in a complex way – as an entirety of teleinformation processes related

to the basic function of bank activity and also to accompanying

activities such as: marketing, distribution, safeguarding the

communication between the user and the bank,

in a simple way - as …a form of providing bank services by means of

remote access channels available thanks to ICT technologies without

the need of face to face contact of the client with the bank staff ….7,8.

The common element of all quoted definitions is EDI (Electronic

Data Interchange) which means the exchange of text and graphic

information between ICT devices with minimum human assistance.

Taking the above into account it can be stated that electronic banking has

the following characteristics:

no need of physical presence in the bank,

24/7 availability of services,

none or minimal need of intervention from bank staff,

limited contact of the bank staff with clients,

virtualization of some services,

automation of order processing.

The difficulties in providing a coherent definition of e-banking may

be explained by over fifty years of its dynamic development. It was in

1964 when the first electronic ATM termini connected to the central

computer system were introduced. The synergy of technological,

economic and social transformations triggered further changes leading to

virtualization of cash operations.

2. The role of ICT technologies in development of e-banking services

Past centuries witnessed various transformation periods such as the

Renaissance or Enlightenment. Other kinds of transformations such as

progress in science and information technologies has had a considerable

impact on our civilization. The rise of economy communicated with the

7 Nosowski, A., Technologie informacyjno-telekomunikacyjne jako katalizator zmian,

[in:] Bankowość elektroniczna, A. Gospodarowicz, pp. 19-35. Warszawa, PWE, 2005. 8 Infovide, www.infovide.pl/docs/, 2005.


9

net9 is closely related to the possibilities of ICT technologies and to the

degree of their uptake what allows for effective consumption or the so

called network effect10. The processes are accompanied by emergence of

new segments and the loss of importance of existing ones. The dynamics

of changes as well as strong competition between teleinformation

companies for stable competitive advantage have led to the creation of

a wide spectrum of services. Electronic transactions on the world stock

markets produce the domino effect – the reactions of stock markets

resulting from their respective behaviour are only delayed due to

different time zones. These examples show how considerable is the

impact of information technologies on all layers of life all over the globe.

Hence the expressions: global information village, information highway

or information society. It is a consequence of noticing the importance of

teleinformation technologies as an integrator of electronic and

information technology capabilities which allows for offering wider and

wider range of information services, including typical ICT services.

Technological progress is a driving force behind the development of

information society, it transforms almost all aspects of people’s

existence. Technological boom, which we are witnessing, is a resultant of

development tendencies within equipment, software and means of

communication.

The pace of growth of modern technologies carries a number of

challenges and dilemmas for business environment, mainly with respect

to management styles. The world of business dictates the speed to the

information revolution in management because it uses state-of-the-art

solutions in which knowledge is a tool of strategic importance. New

technologies, especially telecommunication technologies play essential

role with respect to:

9Treated in a multi-faceted way as: a system of new principles explaining the

functioning of business entities on the market, behaviour of business entities in

considerably new conditions, economy seen as a subject i.e. defining how business

entities operate within IT sector. 10 The so called net effects embrace: the fax effect (the more users of the net the more

valuable the net becomes for the users), achieving desired results by means of

dissemination, increasing efficiency by means of decentralization. See also Kelly, K.:

Nowe reguły nowej gospodarki, WIG-Press, Warszawa, 2001.

Jacek Binda

10

combining design, production, supply, sales, administration, technical

services of companies and office which allows for creation of

organizations integrated electronically,

electronic surveillance system leading to improvements such as cost-

effectiveness or labour efficiency,

combining networks of suppliers, materials and spare parts or

companies and manufacturers, wholesalers and retailers which

generates savings with respect to storage on each phase of production,

distribution and allows for prompt reaction to day-by-day changes in

the demand for goods or services,

greater flexibility within development and production of new models

of goods, which is sometimes defined as the economy of scale.

Dynamic development of new technologies considerably influences

the structure of the economy (emergence of new sectors of industry and

services), internal structure of organizations, management style and the

kinds of ties between companies. There are tendencies towards horizontal

linking of design, production and marketing in contrast to the Taylor’s

system of vertical and hierarchical control. The flow of information

inside and outside the company becomes more uninhibited and new

channels of communication are being created.

Introduction of information technologies into business activity is one

of the most difficult undertakings because these technologies radically

change the very foundations and principles of business as they apply

knowledge from the field of cybernetics and Information Technology.

The factors which determine the technological development are

subordinated to the following principles:

Moore’s law11 – technologies and technological conditionings age

disproportionately fast as compared to planning processes, financing

and development of infrastructure which will render the services,

Metcallfe’s law – the value of a telecommunications network is

proportional to the square of the number of connected users of the

system.

Taking the above into account, it can be said that the economy has

changed more into the last decade than in the previous five decades. The

11 Gordon Earle Moore – co-founder of Intel Corporation.


11

pioneers of these changes were companies who first spotted the

opportunities in ICT technologies. In 1999 American companies invested

in innovation in teleinformation technologies as much as 5% GDP12. But

the later financial crisis slashed the forecasts for 2009 investments in IT

from 4,2% GDP to about 0,9% GDP. Part of investment plans was

cancelled; another part was postponed (especially in Europe) due to the

dollar exchange rate. A British research centre Gartner Group published

a study which argued that in the first quarter of 2009 about 42% of

companies reduced their budget on maintenance and development of IT

environments as compared to 200813. Increase in IT expenditure was

observed in the years 2012 - 2014. However, in the following year the

figures were corrected and the total expenditure on IT projects in 2015

amounted to only 3.5 billion dollars. The expenditure was 5,5% lower

than in 2014. The situation was caused by strengthening dollar14,

Image 1. IT expenditure

Source: own work based on14

12 Stępień, A. J., Atrakcyjność wirtualnej gospodarki [in]: Zarządzanie organizacjami

gospodarczymi w warunkach globalizacji, p. 328. Łódź, Politechnika Łódzka, 2000. 13 Waszczuk P., http://www.computerworld.pl/news/346414/Gartner.Budzety.na.IT.

mniejsze.o.4.7.proc.html 14 Forecast Alert: IT Spending, Worldwide, 2Q15 update. Gartner, Inc. and/or its

Affiliates, Gartner, Inc. and/or its Affiliates, 2015.

Jacek Binda

12

The dynamics of IT sector growth in the long perspective depends on

the global economic situation and on the way the IT tools are used.

According to OECD experts the growth in investment in IT will be

triggered by the growth in interest in special business applications,

modern and highly specialized communication systems and IT

outsourcing services.

The factors determining the shape of this sector are offshoring15

and outsourcing16 of selected business processes. Their share market is

translated into development of local teleinformation sector. The main

providers of IT offshoring services are Central-Eastern Europe countries.

IT departments of companies have, thus, the choice of services rendered

by local or foreign providers whenever they have to put in practice their

corporate strategic development plans.

The previously predominant concern about high costs of

development of new IT solutions has been replaced by deep confidence

that IT functions equip the services with considerable added value.

A KPGM study showed that for 33% of respondents the aforementioned

added value is more significant that the cost aspect (23% of respondents).

The reason behind purchase of IT outsourcing services, in the opinion of

respondents of the KPMG study, is related to cost cutting programmes

(26% of respondents). The second and third important aspects were:

improving the quality of services (21%) and access to knowledge and

know-how (19%)17.

3. The market of IT services in Poland

Against this background the situation of Poland, especially in the

post crisis period, looks promising. It can be even forecasted that if the

present pace of growth does not slow down, Poland may be the second

main player in the ECE countries. The most important group of the

recipients of IT services in Poland are big companies (50%). Higher

expenditure on IT can also be observed in dynamically developing areas

of public and local administration. The analysis of the industry situation

15 Offshoring – a shift of certain business processes (production and services) to another

country in order to cut costs. 16 Outsourcing – some parts of an organisation are extracted from its structure and their

functions are passed on to external entities to take care of. 17 kpmg.com/pl/OutsourcingIT, 2015.


13

carried out by PMR shows considerably high value of the ratio: 38,7%

(increase by 1.4% as compared to 2014), so the condition of IT sector in

Poland is healthy. PMR also emphasizes that the biggest segment of IT

sector is the equipment. Its share, together with income from mobile

phones sales stands at about 60%.

Further increase in expenditure on IT is expected due to dynamically

developing cloud computing. ABSL report for 2015 shows that the share

of IT services in Poland in the value of IT market amounts to 29%. The

share of the same services in the global market is about 1.7%18. Such

positive results can be, to some extent, credited to the financial sector

(24% of the market share), then there is administration (20,5%) followed

by media and communication (16.4%)19, Image 2. The forecasts for the

IT market and cloud computing predict that in 2016 the market will reach

the value of 207 billion dollars. Performance of ICT market, according to

Central Statistical Office, is equally optimistic. By 2020 the share of

companies from this sector will constitute about 9.5-13.1% of GDP, now

the value stands at about 5%.

The ratios for Poland and the EU show dynamic processes of

computerization of small and medium-sized enterprises. In Poland these

companies contribute about 50% to GDP20. This sector of companies is

also one of the main recipients of modern electronic bank services (for

example cashless transactions). And although these companies do not

employ a large number of dedicated IT specialists (just like in other EU

countries), the technologies of electronic data exchange with external

entities are widely used there (ratio about 71%). The functionalities are

most frequently used for contacts with public administration (about 71%)

and for payment orders (about 53,3%)21.

18 Rynek IT w Polsce 2015. Prognozy rozwoju na lata 2015-2020., PMR, 08.2015. 19 Poland IT Services Market 2014–2018 Forecast and 2013 Analysis. IDC, IDC CEE

Black Book, Q3/2014. 20 The sector of small and medium-sized enterprises generated 47.6% of Polish GDP in

2010, in 2011 micro-enterprises generated 29.6% of Polish GDP, medium-sized and

small 10.4% and 7.7% respectively. 21Maturity of B2B electronic system in Poland on the example of exepriences from

implementation of measure 8.2 of Operational Programme Innovative Economy 2007-

2013, 2013.

Jacek Binda

14

Image 2. Structure if IT services market in Poland (value focus)

Source: own work based on22

Wider and wider access to new technologies (especially the Internet)

speeds up the development of electronic banking solutions. In the future

the structure of IT market will be gradually evolving from

equipment/hardware segment to service segment. The effect of such

evolution will be launch of the National Cloud Computing in 2020.

These prospects have a serious influence on shape and pace of

changes occurring on the market of bank services and especially

electronic services as banks concentrate their efforts on development of

mobile applications which will allow mobile payments. The

functionalities of devices and channels through which banks are going to

target wide audiences are being intensively expanded. The role and place

of a mobile channel in the strategy of banks is also changing, the mobile

channel becomes a natural extension of the Internet strategies of banks.

However, thus defined strategy requires advanced technologies opening

access to mobile banks services.

A KPMG report Efficiency of IT organization in banks stated that in

2010 neither commercial banks nor cooperative banks in Poland planned

any considerable reductions of investments in IT in their budgets (as

22 Rynek IT w Polsce 2015. Prognozy rozwoju na lata 2015-2020, 08.2015.


15

compared to the previous year)23. The analysis of the results presented in

the report proved on the contrary, the budgets even foresaw increased

operational expenditure on IT solutions, whereas other investments were

slightly reduced or frozen. Banks, despite visible economic slowdown,

did not give up on IT projects with the view of future profits to be

generated thanks to building competitive advantage and stable position

on the market. In search of cost-cutting opportunities banks started to

outsource IT operations which resulted in lowering the costs of IT

departments and better usage of internal resources. It should be noted that

IT staff of Polish banks make up only 4-9% of the total number of bank

workforce. According to KPMG it is a value much below the world

average which amounts to about10%.

Other constituents of bank strategies which help to build a stable

market position and competitive advantage are: IT service model and

customer satisfaction surveys. These constituents offer a valuable

feedback for banks with respect to their offer of products and services

and efficiency of ways of accessing existing and potential clients. As the

KPMG report reads, about 96% of digital consumers use bank services

and 72% of them use electronic banking while outside home. These

findings prove that banks are right implementing elements of IT service

model and conducting customer satisfaction surveys. IT technologies

have allowed banks to overcome the time and place barrier in rendering

their services. The results of studies commissioned by the bank sector

help to measure the level of maturity of banks and assess the quality of

their customer care24.

Nevertheless, the development of teleinformation services is

gruesome and risky in economic sense. It takes a chain of technical

solutions and related services whose universality and usefulness is

connected to social availability of modern technology, measured by

price, demand and scale of the enterprise (economy of scale)25. Their

share of benefits for companies in the total value of benefits fluctuates

and depends on the sector, current condition of the company or social

23 Tomkiewicz M., http://www.computerworld.pl/news/354863/Polskie.banki.nie.beda.

oszczedzac.na.IT.html, 2010. 24 Bankowanie i klikanie. Czego doświadcza i oczekuje od banku polski klient cyfrowy,

2015 KPGM Advisory Spółka z o.o., 2015. 25 Economies of scale – creates the so called experience curve through reduction of

fixed costs per unit and maximizing the market share.

Jacek Binda

16

demand for particular solutions. New business models related to

provision of IT services may also have considerable impact on the

achieved results. Their flexibility, user-friendliness and affordable price

may be of strategic importance. A new business model based on

a technology which allows to render services on a cloud is a good

example. Among many benefits of this solution is reduction of costs on

the customer’s end because he only pays for using the infrastructure (for

range of the usage and the time spent). The main advantages of the

solution are its functionality and cost flexibility. It is also worth

mentioning, though it may seem obvious, that only such undertakings

have a chance to obtain a healthy return on investment which enjoy full

social acceptance.

Conclusions

The market of ATM devices is constantly evolving despite the

advances in elimination of cash money in favour of electronic money. It

stems from the fact that the original function of an ATM being nothing

more than just a cash dispenser was enriched by a portfolio of other

electronic services. The issue of providing security for the operations

made by use of ATMs is also a vital engine for introducing changes. And

the switch from magnetic strip cards towards EMV solutions may be

a good example here. The American card market is the leader in the

dynamics of progress occurring in the field of instruments of cashless

turnover. In the light of the figures quoted throughout the paper the

assumption that the ATM market is constantly developing is given

credibility. This development goes in two directions; firstly, the costs of

cashless turnover are reduced; secondly, the levels of functionality and

security of using ATM devices increase.

Literature

[1.] Bankowanie i klikanie. Czego doświadcza i oczekuje od banku

polski klient cyfrowy, KPGM Advisory Spółka z o.o., 2015.

[2.] Dziuba, D., Wirtualizacja dzialalności gospodarczej w oparciu

o sieć Internet. W stronę gospodarki usieciowionej. Warszawa,

Wydział Nauk Ekonomicznych UW, 1998.

[3.] Forecast Alert: IT Spending, Worldwide, 2Q15 update. Gartner,

Inc. and/or its Affiliates, Gartner, Inc. and/or its Affiliates, 2015.


17

[4.] Janc, A., Kotliński G., Determinanty wykorzystania bankowości

elektronicznej w rozwoju wybranych usług bankowych,

A. Gospodarowicz, Zastosowanie rozwiązań informatycznych

w bankowości. Wrocław: Wydawnictwo AE, 1999.

[5.] Kelly, K.: Nowe reguły nowej gospodarki, WIG-Press, Warszawa,

2001.

[6.] Gordon Earle Moore – co-founder of Intel Corporation.

[7.] Knosala, R., Komputerowe wspomaganie zarządzania

przedsiębiorstwem. I. Warszawa, PWE, 2007.

[8.] kpmg.com/pl/OutsourcingIT, 2015.

[9.] Nosowski, A., Technologie informacyjno-telekomunikacyjne jako

katalizator zmian, [in:] Bankowość elektroniczna,

A. Gospodarowicz, pp. 19-35. Warszawa, PWE, 2005.

[10.] Rynek IT w Polsce 2015. Prognozy rozwoju na lata 2015-2020,

PMR.

[11.] Stępień, A. J., Atrakcyjność wirtualnej gospodarki [in:]

Zarządzanie organizacjami gospodarczymi w warunkach

globalizacji, pp. 328. Łódź, Politechnika Łódzka, 2000.

[12.] Stryczyński, J., T. Zarzycki., Bank ery gospodarki elektronicznej,

Bank, nr 9, 2000.

[13.] Tomkiewicz M., http://www.computerworld.pl/news/354863/

Polskie.banki.nie. beda.oszczedzac.na.IT.html, 2010.

[14.] Waszczuk P., http://www.computerworld.pl/news/346414/Gartner.

Budzety.na.IT. mniejsze.o. 4.7.proc.html, 2010.


18

DOI: 10.19192/wsfip.sj3.2016.2

Iwona ŁUKA,

Jacek BINDA

THE INTERCHANGE FEE IMPACT ON THE

DEVELOPMENT OF NON-CASH TRANSACTIONS

Summary

The purpose of the paper is to present the influence of legally regulated interchange fee

amount on non-cash turnover. The larger number of point of sale terminals has resulted

in the increase in a number and amount of non-cash transactions, what minimally

enables banks to compensate for the reductions of revenues due to the above mentioned

fee.

Key words: non-cash transactions, interchange fee, payment cards, POS terminals.

Introduction

In the present era of high market competition, a struggle to win

customer's attention and reduction of cash transactions costs, non-cash

transactions become a strategic solution - a subject of continuous work

and improvements leading to the streamlining of operations, speed,

access and primarily the security of non-cash transfers. Economic,

political, demographic, social, cultural, technical, technological, and legal

conditions have considerable influence on the development of cashless

transactions. The emphasis is on a fast regulation implementation,

referring to the safety of the banking sector as well as the consumers. The

risk connected with non-cash turnover becomes more relevant over time

to the overall banks activity and soon may become one of the most

important risks, next to credit risk. The demand for services linked to the

non-cash transactions continues to grow, as well as the social influence

on the turnover's participants – a positive feedback loop. With reference

Iwona Łuka, Cooperative Bank in Jasienica. Jacek Binda, Bielsko-Biała School of Finance and Law, Department of Finance and


The interchange fee impact on the development…

19

to Polish market only, it should be noticed that about 66 per cent of Poles

owns payment cards, however, about 95 per cent of Poles uses them1.

Despite the fact, that the dynamics of non-cash card transactions (as

one of the non-cash operations channels) continues to grow and delights

increasing public confidence, only in the recent years unfavourable card

transactions charge has been altered (reduced). The interchange fee for

many years has put Poland in the adverse light and place among EU

countries. The first actions concerning the fee reduction have been taken

by the National Bank of Poland (NBP), and in years 2012-2013 The

Polish Bank Association (ZBP) and card organisations joined. Though,

lack of compromise indicated the need to start work on the law regulating

and reducing the amount of the interchange fee2. The work resulted in

Resolution from 20 September 2013 amending the Act on payment

services. Initiated by the Act activities finally resulted in 1 July 2014

turn, indicating the moment of reducing unfavourable from merchants'

point of view and Polish image, the interchange fee3.

1. The development of non-cash transactions, including card

payments

The beginning of the card market development in Poland most often

is associated with the appearance of the first cash machine. Whereas

among card instruments at the beginning of the 60s that were mostly used

by the foreigners, Diners Club cards were prevailing. They were accepted

in about 500 sites in Poland, especially in hotels, restaurants, and also in

selected shops. In the 1980s of Bank Pekao was the forerunner in terms

of payment cards issuing. Increased demand for the types of instruments

as well as a rising number of performed operations with the use of the

instruments resulted in isolating in 1990 out of Orbis company

1Tomasz Koźliński, Zwyczaje płatnicze Polaków, the National Bank of Poland

Department of Payment System, Warsaw, May 2013. 2 Binda J., Interchange fee for non-cash transactions on Polish and European market,

12th International Scientific Conference Under The Auspices Of Ministry Of Finance

Of The Slovak Republic Globalization And Its Socio-Economic Consequences 2012,

Department Of Economics The Faculty Of Operation And Economics Of Transport And

Communications University Of Žilina, ISSN 1336-5878, Rajecke Teplice10-11.10.2012 3 Binda J., Wpływ opłaty interchange na rozwój operacji bezgotówkowych w Polsce,

Scientific Journal of Bielsko-Biała School of Finance and Law, ISSN 2084-1809, pp. 7-

25, no 1/2012.

Iwona Łuka, Jacek Binda

20

a department dealing with payment cards acceptance, forming Polcard

company. Banks competition for forming customers' market of the card

instruments caused the issuing of the first Visa card4 by BIG S.A.

(Business Initiatives Bank) in 1991. Ipso facto, Poland has quickly

become up to date with the latest technologies and modern bank

instruments.

Polish legislation in a precise way defines the term of a payment card

as: 'a card identifying the issuer and an authorized holder, entitling to

cash withdrawal or cash payment, and in case of the card issued by

a bank or an institution legally authorized to credit granting- also to cash

withdrawal or payment by credit use'5. In the Act on electronic payment

instruments6, the legislator indicates inter alia: the rules connected with

issuing and use of the electronic payment instruments, including the rules

linked to the issuing of e-money instruments. It notices not only the

holder's rights concerning the instruments, but also parties'

responsibilities regarding contracts of electronic payment instruments7.

A payment card is one of the most common e-instruments of

payment, allowing for fast access to money collected in a bank account.

It enables to make non-cash payments for goods and services and

transactions in a cash machine, as well as by electronic funds transfer.

Considerably, it shortens and enables monitoring of the clearing cycle

unlike other payment transactions. The Act also precisely specifies non-

cash turnover due date, understood as clearing based on non-cash or

electronic payment.8 Transactions made by the mentioned above

payments are recorded as book entries of the bank accounts.

Non-cash payments for goods and services, cash machine

transactions, ICT network payments, become more common in Poland.

Non-cash turnover may influence faster money circulation, hence

reducing payment delays. The advantage of non-cash turnover may also

4Bankier.pl Bank; Millenium: 20-lecie wydania pierwszej w Polsce karty

płatniczej (pol.).,. 30.04.2016. Source: press reports. 5The Banking Act of 29 August 1997 (Journal of Laws from 2015, item 128,

consolidated text). 6 Journal of Laws from 2002 no 169, item 1385, as amended text, effective date 12

October 2003. 7 The Act on electronic payment instruments from 12 September 2002 (Journal of Laws

from 2002 no item. 1385, as amended). 8 Żukowska H., Żukowski M., Obrót bezgotówkowy w Polsce, Wydawnictwo KUL

Lublin 2013 https://www.kul.pl/files/1225/public/obrot.pdf 08.04.2016.

http://www.bankier.pl/wiadomosc/20-lecie-wydania-pierwszej-w-Polsce-karty-platniczej-2366898.html


https://pl.wikipedia.org/wiki/Język_polski

https://www.kul.pl/files/1225/public/obrot.pdf


21

be its security9, linked to the payment guarantee, no need for cash

transport and relatively low level of fraud (mainly connected with formal

transaction completion)10.

Every year, the number of card payment holders increases, Chart 1.

Chart 1. The number of payment cards issued in relation to the number

of population in Poland in years 2013-2015

Source: own description based on the National Bank of Poland data11 (referred to as

NBP) and Central Statistical Office of Poland data12.

Popularisation of card instruments may have an impact on the

consumers themselves, as well as prompt them to spend more than using

cash (the access to all cash and other pecuniary assets in the budget

account or access to credit), Chart 213.

9 However recently, a lot of attention has been paid to limiting criminal activities

concerning e-payment and the instruments enabling realisation of non-cash transactions 10M. Żukowski, Pieniądz i system bankowy [in:] Ekonomia: zarys wykładu,

Wydawnictwo Uniwersytetu Marii Curie-Skłodowskiej, Lublin 2007, pp. 214-215. 11 http://www.nbp.pl/home.aspx?f=/systemplatniczy/karty_platnicze.html 12 http://stat.gov.pl/podstawowe-dane/ 13 op.cit H. Żukowska, M. Żukowski, Obrót bezgotówkowy …

http://www.nbp.pl/home.aspx?f=/systemplatniczy/karty_platnicze.html


22

Chart 2. The average number of issued payment cards per person in Poland

in years 2013-2015

Source: own description based on NBP data14

In 2014 the increase of issued cards was recorded by 1 410 k y/y,

reaching the value of 36 068, 8 k. However, the drop in the number of

cards was observed in 2015 (35 209 k), what could have been linked to

the appearance of the new access channels to banking, that is for

example, mobile banking and reduction of funding incurred by banks to

promote the payment cards Chart 3.

Chart 3. The number of card transactions in years 2013-2015 (cash and non-cash)


14 http://www.nbp.pl/home.aspx?f=/systemplatniczy/karty_platnicze.html


23

The end of the year 2015 resulted in the further increase in the

number of card transactions both cash and non-cash. The following

quarters of the year 2015 caused the periodic increase in transactions to

reach quantity of 893611768 cash and non-cash transactions altogether in

IVQ. The increase in the number of transactions at the end of 2015

however was lower than in the same period of the preceding year and

was equal to 21% y/y, Chart 4.

Chart 4. The number of non-cash transactions in years 2013-2015


The number of non-cash transactions in 2014 increased by about 41

% y/y, whereas further growth was observed in 2015 (28% y/y).

Together with the growing popularity of the ATM cards, the problem

of regulating fee amount appeared, connected with the use, mostly

incurred by the commercial and retail sites. The main burden of costs

linked to the use of the mentioned above card instruments was incurred

by the acquirer. The interchange fee, compared to other EU countries was

regarded as one of the highest and was equal to about 1,5–1,6% of the

transaction amount17 in years 2011-2012.

15 Ibid. 16 Ibid. 17Analiza skutków obniżenia opłaty interchange w Polsce, the National Bank of Poland

August 2015.




24

The first action aimed at reducing the interchange fee was taken by

the National Bank of Poland, and in years 2012-2013 also by the Polish

Bank Association and card organisations. However lack of compromise

pointed to the need of work on the act regulating and reducing the

mentioned fee. It resulted in the act indicating steps connected with the

diminution process of the interchange fee amount (1 July 2014). The

above process determined the fact that from 29 January 2015 in Poland,

the interchange fee amount may not be higher than 0,2% of the national

unit transaction value for debit cards, and 0,3% for credit cards.

The actions taken have considerably changed Poland's international

position, from the country where the interchange fee was one of the

highest in Europe and higher than the average one in EU countries to the

leading country position with one of the lowest fees.

2. The benefits for the entities' groups resulting from

the interchange fee reduction concerning payment cards

The introduction of the regulatory indication concerning threshold

interchange fee amount had an enormous impact on the shape of the non-

cash turnover by means of the payment cards. From 29 January 2015 in

Poland the interchange fee may not be higher than 0,2% of the

transaction value for debit cards, and 0,3% for credit cards.18. The main

objective of the interchange fee reduction was reduction of the high

acquirers' payment cards costs, what resulted in the increase of the total

number of non-cash acquirers of the card transactions, as well as small

and medium retail outlets handling payment cards, without worrying

about high transaction costs, Chart 5.

18 Binda J. Amendments to the law of payment services impact to the development of the

non-cash transactions, Zylina 2015.


25

Chart 5. The number of the acquirers owing POS terminals in years 2013-2015

and projected number of POS terminals.


In 2014 a substantial increase of the acquirers was noticed by about

16,33% y/y, while in 2015 the increase at the level of about 15,27% y/y

was observed. The growing trend is still maintained, therefore it can be

stated that the interchange fee reduction have had an impact on the

growing number of the acquirers owing POS terminals. The quarterly

analysis of the acquirers number increase who own POS terminals in

years 2014 and 2015 seems to confirm the above argument, Chart 6.

Chart 6. The number of the acquirers owing POS terminals broken down by

quarter


19https://www.nbp.pl/systemplatniczy/obrot_bezgotowkowy/prognoza2014-2020.pdf


26

The National Bank of Poland acquirers' data show that the largest

percentage of the acquirers' increase was observed in II Q 2015, hence in

the period of the reduced level of the interchange fee validity, Chart 7.

Chart 7. The number of the retail and service outlets accepting payment cards in

years 2013-2015

Source: own description based on NBP data

Reducing the interchange fee for the payment cards in Poland was

successful and a periodical increase of the retail and service sites

accepting the payment cards may be observed. In 2013 the number of the

sites was equal to 253,6 k, and 295,4 k in the subsequent year, to reach

astonishing 342 k in 2015 (the increase by about 35% in the period of

2013-2015), Chart 8.

20 Ibid.


27

Chart 8. The number of POS terminals 2013-2015


The forecast from ETS model is characterized by the linear trend and

anticipates the increase of the POS terminals number by the end of the

2020 up to about 500 k devices22. As charts number 8, 6 and 7 illustrate

the number of POS terminals is still growing, moreover it exceeds

predicted threshold values. From year to year, the non-cash turnover rises

(regarding transactions number and values). More and more users settle

liabilities by means of terminals due to speed, low cost (unlike ATM

machines that frequently charge commissions from users) and safety

compared to cash. Whereas the acquirers gain profits as increased

turnover, since a card holder has no need to verify the amount of cash in

a wallet.

The spread of the payment cards has been connected with

overcoming social and psychological barriers, resulting from long-term

cash use. The consumers got used to the new payment instrument and

mainly treat it as the instrument enabling an easy access to a bank

account cash. E-money may pay a significant role in the development of

specific consumer payment habits.

21M. Kozakiewicz, M. Kwas, Prognoza wybranych wskaźników rozwoju obrotu

bezgotówkowego na lata 2014−2020, work commissioned by the National Bank

of Poland, 18 December 2014. https://www.nbp.pl/systemplatniczy/obrot_

bezgotowkowy/prognoza2014-2020.pdf 28.04.2016. 22 Ibid.


28

3. The interchange fee impact on individual non-cash turnover

participants

The reduction of the interchange fee was supposed to benefit to the

payment cards holders by reducing the goods and services prices. The

reducing was also suppose to cause the money to be kept by the acquirer

rather than the issuer's bank. The acquirer was to share the money with

the consumers by means of the goods and services price reduction.23

However, taking into consideration the prices formation on the Polish

market after the introduction of the interchange fee reducing regulation, it

can be seen that the above situation had no occurrence. The fee was used

as a mechanism to disseminate the non-cash POS transactions24.

Resulting from the fact benefits can be analysed at various levels. For

a consumer, it particularly results in lower prices of goods and services,

the possibility of making all transactions by a card, simpler and faster

access to funds collected in a bank account. As far as banks are

concerned, the interchange fee transition resulted in IIIQ 2015 (the end of

quarter) in deterioration of about 2 587 m zlotys y/y of banking activity

result.25 So far the advantages provided to banks by the interchange fee

have been primarily transferred to the acquirers. The increase in both

number and value of the non-cash transactions at sites owing POS

terminals, is also the effect of the interchange fee reduction, Chart 10.

23Analiza skutków obniżenia opłaty interchange w Polsce, the National Bank of Poland,

August 2015. 24Meeting of the Finance Commission from 17 April 2013

http://orka.sejm.gov.pl/Zapisy7.nsf/wgskrnr/FPB-162 28.04.2016. 25Kotowicz A., Informacja o sytuacji banków w okresie I-IX 2015, UKNF Warszawa

2015. https://www.knf.gov.pl/Images/RAPORT_O_SYTUACJI_

BANKOW_III_2015_tcm75-43906.pdf 28.04.2016.


29

Chart 9. The number of the non-cash transactions performed in the country

in years 2013-2015 (in millions)

Source: own description based on National Bank of Poland data.

Chart 10. Non-cash transaction value in Poland in years 2013-2015 (m)

Source: own description based on NBP data.

The increase of the transaction value in 2014 by 22% y/y. and in

2015 at the level of 14% y/y. confirms a considerable social acceptance

for non-cash financial transactions and new banking instruments. The

rise in the number and transaction value has allowed banks to

compensate at some extent for the revenues reduction resulting from

lowering of the interchange fee.


30

Conclusions

The introduction of the regulation concerning the interchange fee

amount considerably influenced the number of non-cash transactions as

the amount restrictions above which a card transaction could have been

performed has disappeared. The acquirers receive the largest benefits of

the reduced interchange fee, who have not lowered the prices of goods

and services, contrary to the legislative expectations. While banks have

noticed a dramatic fall in the revenues due to the interchange fee. The

rise in the number and value of non-cash transactions at some extent has

enabled the compensation of the losses of the non-cash settlements. The

actions taken by the legislator, the National Bank of Poland, the Polish

Bank Association regarding further regulation as well as the expansion of

the instruments and non-cash transactions are convergent with the actions

taken in the EU with the reference to the elimination of the financial

settlements of the black economy and non-cash transactions costs

reduction.

Literature

[1.] Bankier.pl Bank Millenium: 20-lecie wydania pierwszej w Polsce

karty płatniczej (pol.).,. 30.04.2016. Source: press reports.

[2.] Binda J., Amendments to the law of payment services impact to the

development of the non-cash transactions, Zylina 2015.

[3.] Binda J., Wpływ opłaty interchange na rozwój operacji

bezgotówkowych w Polsce, Scientific Journal of Bielsko-Biała

School of Finance and Law, ISSN 2084-1809, pp. 7-25, nr 1/2012.

[4.] Binda J., Interchange fee for non-cash transactions on Polish and

European market, 12th International Scientific Conference Under

The Auspices Of Ministry Of Finance Of The Slovak Republic

Globalization And Its Socio-Economic Consequences 2012,

Department Of Economics The Faculty Of Operation And

Economics Of Transport And Communications University Of

Žilina, ISSN 1336-5878, Rajecke Teplice10-11.10.2012.

[5.] Kotowicz A. Informacja o sytuacji banków w okresie I-IX2015,

UKNF Warszawa 2015 [in:] https://www.knf.gov.pl/Images/

RAPORT_O_SYTUACJI_BANKOW_III_2015_tcm75-43906.pdf,

28.04.2016

[6.] Koźliński T., Zwyczaje płatnicze Polaków, Narodowy Bank Polski

Departament Systemu Płatniczego Warszaw, May 2013.



https://pl.wikipedia.org/wiki/Język_polski


31

[7.] Analiza skutków obniżenia opłaty interchange w Polsce, the

National Bank of Poland, August 2015.

[8.] Żukowska H., Żukowski M. Wydawnictwo KUL Lublin 2013,

Obrót bezgotówkowy w Polsce, J. Górka Aspekty ekonomiczne

obrotu bezgotówkowego https://www.kul.pl/files/1225/public/

obrot.pdf 08.04.2016.

[9.] The Banking Act of 29 August 1997 (Journal of Laws from 2015,

item 128, consolidated text ).

[10.] The Act of 12 September 2002 on electronic payment instruments

(Journal of Laws from 2002 no169, item 1385, as amended).

[11.] http://www.nbp.pl/home.aspx?f=/systemplatniczy/karty_platnicze.

html

[12.] http://stat.gov.pl/podstawowe-dane/

[13.] http://www.nbp.pl/home.aspx?f=/systemplatniczy/karty_platnicze.

html; https://www.nbp.pl/systemplatniczy/obrot_bezgotowkowy/

prognoza2014-2020.pdf

[14.] http://orka.sejm.gov.pl/Zapisy7.nsf/wgskrnr/FPB-162 28.04.2016r






32

DOI: 10.19192/wsfip.sj3.2016.3

Dorota KĘDZIOR

RESERVES AND ACCRUALS ACCORDING TO IAS

AND POLISH ACCOUNTING STANDARDS -

SIMILARITIES AND DIFFERENCES

Summary

The aim of this paper was to show the similarities and differences of reserves and

accruals according to international and national accounting standards. The concept,

purpose, recognition, measurement and presentation of reserves in the financial

statements were presented. Overview of issues was made on the basis of IAS 37, Polish

GAAP No. 6 and Polish Accounting Act.

Key words: reserves, accruals, Polish GAAP No. 6, IAS 37, Polish Accounting Act

Introduction

The situation both in Poland and in the world is becoming less

predictable. There are more spectacular bankruptcies (e.g. the bankruptcy

of Lehman Brothers in 2008) therefore the balance sheet item as reserves

is of increasing importance. Due to the estimated nature it may be

manipulated by the managers and it causes management of financial

results by using reserves. They are particularly related to over or

underreporting of reserves, creating fictional reserves or abandoning their

creation. These actions forced institutions, which define accounting

standards, to the necessity of legal solution revisions in terms of reserves.

This resulted in the release of IAS (International Accounting Standard)

371 by the Committee of International Accounting Standard and

longstanding work of International Accounting Standards Board related

to the problems of reserves ended up in publishing Polish accounting

Dorota Kędzior, chief accountnt in BrilliantModule Ltd. in Skawina. 1 IAS 37 Reserves, liabilities and assets, International Financial Reporting Standards

(IFRS) 2011, vol. A, International Accounting Standards Board, Accountants

Association in Poland, Warszawa 2011 (further as IAS 37).

Reserves and accruals to IAS and Polish Accounting Standards…

33

standard no. 6 Reserves, accruals of interim costs, contingent liabilities2,

for which the base is IAS (International Accounting Standard as well as

the Accounting Act3).

The aim of this paper is to present peculiarities of reserves

functioning and accruals based on Polish and international accounting

standard. The first part of the paper contains definition of the concept,

purpose and the rules of creating reserves and accruals. Valuation of the

reserves and their influence on financial result is a very important matter.

The reserves are estimates therefore determining their value may cause

measurement difficulties. This position influences the shape of financial

result as well as the material situation of the individual. Both IFRS and

Polish GAAP determine the conditions for the creation and recognition in

the accounts of reserves and accruals. The difference results from the

reserves criterion and accruals recognition. However, it has no impact on

the presentation of the balance sheet but there is different record on the

accounts.

1. The purpose, the definition and the rules for reserves and accruals

creation in the scope of IFRS and Polish legislation

Reserves and accruals were settled in Polish regulation in the

Accounting Act and in Polish GAAP no 6. Whereas in IFRS4 these issues

are regulated in IAS 37 Reserves, contingent liability and contingent

assets no 12 related to deferred income tax, IAS no 19 defining the

reserves for employees’ benefits.

There are two rules in case of reserves creation: prudent valuation,

income and costs matching. Pursuant to art. 7 act 1 of the Accounting Act

parent rule while creating reserves is the principle of prudent valuation

according to which the value of the assets cannot be overstated and the

value of liabilities understated. This rule limits the phenomenon in

formation of excessive reserves. Although they are revealed in the

conditions of uncertainty, we should be aware that uncertainty does not

2 National Accounting Stanard no 6, Reserves, accruals of interim costs, contingent

liabilities. Attachment to the Act no 7/08 Accounting Standards Board dated 14.10.2008

(further as Polish GAAP no 6). 3 Accounting Act dated 29.09.1994 about accounting, Journal of Law of 2016, item

1047 dated 19.07.2016 with amendments (further as UoR). 4 International Financial Reporting Standards (IFRS) 2011, vol. A, International

Accounting Standard Board, Accountants Association in Poland, Warszawa 2011.

Dorota Kędzior

34

justify the creation of excessive reserves. The reserves are created in

order to make their shots during the reporting period which they actually

relate to. It results from the matching principle which means: the links

between incomes and expenses of the period to which they are related5.

Currently due to large variability of economic processes the need for

reserves creation derives from consideration of risk existence and

uncertainties, in other words the best render of economic reality in the

financial statement according to the concept of True and Fair View 6.

Both the Accounting Act and IAS 37 define similar reserves concept

as liabilities whose amount or payment date is uncertain. Reserves are the

security units against expected, future expenses and their creation is

justified by the need of presenting the most actual financial result7.

There is some discrepancy in defining the concept in case of

accruals. Pursuant to the Accounting Act, the accruals are the reserves

directly related to operating activities8. The costs of outstanding

agreements and invoiced deliveries and services should not be

considered. Whereas IAS 37 defines accruals as the liabilities to be paid

for goods and services which have been received or made but they have

not been paid, invoiced. Accruals require to be estimated but the degree

of their uncertainty in timing or amount of future expenditure is much

smaller than in case of reserves9. It should be noted that between IAS and

Polish Accounting Standards there are discrepancies related to the

criterion of reserves recognition and accruals. In IAS this criterion is the

degree of certainty in the implementation of obligation and in the

Accounting Act is a type of activity which is related to obligation10. In

case of reserves creation, related to the incidents directly connected with

the operating activity, we are dealing with accrual costs. Whereas the

occurrence directly related to operating activity and financial operations

oblige to create reserves11. IAS clearly indicates that the reserves should

5 R. Niemczyk, Reserves of enterprises, Publisher Legis, Warszawa 2011, p. 43. 6 M. Chalastra, Cross-subsidization and the concept True and Fair View, Management

and Finance, R. 10, no 4, part 3 (2012), p. 160. 7 R. Niemczyk, Reserves …, op. cit. pp. 40-41. 8 Polish GAAP no 6, pt. 1.6. 9 IAS 37 Reserves, liabilities and assets, International Financial Reporting Standards

(IFRS), 2011, vol A, International Accounting Standards Board, Accountants

Association in Poland, Warszawa 2011, par. 11. 10 KRS no 6, pt. 1.6. 11 KRS no 6, pt. 2.3.


35

be distinguished from commercial obligations and accruals, as in the case

of reserves there is the phenomenon of uncertainty regarding the date

incurred or amount of future expenditure. It is believed that the division

for “reserve-reserve” and “reserve-accrual costs” in Polish legislation is

resulted from applying the accounting records on the account

classification of the expenses by the type and functional layout.

Recognition of reserves in burden of operating expenses on the account,

accrual is driven by the fact that the reserves for liabilities are not yet the

costs according to the nature and convention so-called closed circle12.

While in the Anglo-Saxon model, where the IFSR derives from, there is

lack of cost by type accounts. It allows to recognize all the reserves on

one reserve account in functional layout regardless of the type of

activity13.

2. Reserves and accrual recognition on the basis of IAS and Polish

Accounting Standards

Reserves creation and recognition derives from the legal acts both

international and national. The Accounting Act does not specify the

nature of the occurrence which would be a condition for reserves

creation. Article 35 d of the Accounting Act shows the examples of

reserves creation such as14: guarantees, warranties, credit operation, the

effects of ongoing legal proceedings. The condition of the reserves

creation mentioned above in IFAS are similar according to Polish GAAP

the reserves and accruals are created when15:

the individual has present obligation (legal or customary) the benefits

resulting from the past,

it is likely that the obligation will result in the use of existing or future

assets of the individual,

it is likely to estimate the amount of the obligation enforcement in

a reliable way.

12 S. Hońko, International Financial Reporting Standards and accounting Act,

Part 10 – Reserves, liabilities, accruals, www.rachunkowosc.com.pl, 10.12.2014. 13 Ibidem. 14 MSR 37 Reserves, liabilities, accruals, the author S. Sojka, Difin, Warszawa 2007,

p. 52. 15 Polish GAAP no 6, pt. 3.2.

Dorota Kędzior

36

Legal obligation is defined as the obligation resulted from the

contract (referred directly or indirectly) legislation or other legal

operation. In the second place customary abating obligation has been

mentioned as: ‘defined way of proceeding in the past, publication of

proceeding rules or current statements which enterprise transferred to the

third parties that accepts specific duty and the enterprise raised

reasonable expectation in the third parties that fulfills this obligation’16.

The reserves and accruals should not be created on the cost of the future

activities of the individual. Only the obligations that arise from the past

events exiting independently for the future individuals’ operations are

recognized as reserves17.

Between IAS and National Accounting Standards there is

discrepancy in the records of some reserves relating to direct operating

activities. In national legislation, accruals understood as the reserves, are

included in the costs of operating activities. If we have to deal with the

occurrence of direct operation then the reserves are created and the other

operating costs are activated, in case of the financial operations financial

costs are increased.

If the occurrence relates to other risk, such as the overall risk of

doing business, the extraordinary loss is increased. It results from

different criteria for reserves and accruals recognition as it has been

mentioned in the previous section of this paper. Reserves and accruals

can be used only in accordance with the purpose for which they were

created. In the situation where there is a risk cessation which defines

accruals creation there would be the reduction of operating activities.

In case of termination of all or part of the unused reserves relating to

indirect operations or financial activities or occurrences related to the risk

other than overall risk of doing business, there is an increase in other

operating and financial incomes or extraordinary gains.

3. Reserves valuation in terms of international and national

accounting standards and their impact on the financial result

Reserves are estimated category which valuation should result from

the best possible knowledge of the management and are based on existing

16 P. Jabłoński, The essence of financial reserves in the enterprise, Economic Studies of

Łódz region, Łódź 2013, no 10, p. 72. 17IAS 37 Reserves, …, the author S. Sojka, op. cit., p. 31.


37

experience. Valuation of reserves and accruals which are the reserves is

similar both in IFAS and Polish GAAP. As the nature of reserves results

from the risk and uncertainty therefore it is important to use proper

valuation method. Materiality should be taken into consideration in case

of reserves valuation. If there is a change in money value in time it has

significant effect on its level, in this situation the amount of the reserves

should reflect the updated value of the expenses18. The interest rate

determined before the taxing is used to discounting, with the high-quality

corporate bonds by rating agencies or government bonds depending on

the preferences of the enterprise defined in accounting policy.

Discounting growth of reserves value is recognized as borrowing cost19.

To estimate the reserves for employees’ benefits actuarial method is

recommended. It is associated with the occurrence of numbers of

variables such as macro-economic conditions, employees’ turnover and

others therefore this task should be outsourced to actuary. As it involves

additional costs for the individual, in practice in smaller companies, it is

the task for accounting and financial department. In case where the

reserve applies to collection of many positions, the estimated method is

used in valuation “expected value”. The method involves consideration in

estimated amount of obligation all possible weighted results with their

assigned probability20. In this case the appropriate rating of the

probability of specific occurrence is important as it affects the reserves

amount. If the reserves valuation relates to a single obligation then the

most probable result can be a reliable estimation of the obligation. The

individual should consider higher and lower results from the most

probable21.

In case of reserves valuation conduct, the following factors should be

included22:

uncertainty and risk accompanying to many occurrences,

the effect of change money value during the time,

future occurrences that may be expected on the basis of reasonable

conditions,

18 IAS 37 Reserves,, …, the author S. Sojka, op. cit., p. 35. 19 IAS 37, pt. 60. 20 Financial accounting with the IFRS, Z. Messnera (ed.), PWN, Warszawa 2007,

p. 290. 21 Polish GAAP no 6, pt. 4.5. 22 Accounting …, op. cit., pp. 291-292.

Dorota Kędzior

38

the effects of introduction of new legal provisions,

expected return part or all of the expenses necessary to settle the

reserves by the third party,

profits from the expected liquidation of the assets should not be

considered in the reserves valuation.

Reserves value should be verified and adjusted at every balance sheet

date. Reserves valuation is intrinsically linked to the trend of financial

result which is the key information contained in the financial statement.

Its size depends on the measurement of many categories such as for

example valuation methods of assets and liabilities, concept of capital

preservation and definition of economic occurrences. Hence in business

practice there are temptations of active shaping the financial result using

different accountant techniques. In the literature of the subject the most

noted techniques of influence on financial result by the use of reserves

are the methods such as23:

‘great bath’ cost,

creation of fictional reserves,

profits smoothing.

The first method mentioned above involves the creation of a single

high reserves to reduce costs and show profits in the future. The

technique of creating fictional reserves, as its name suggests, is based on

creating fictional reserves during prosperity period and using them in

downturn24. To this operation, in most cases, the reserves related to the

costs of basic activities are used. The techniques for profits smoothing

causes that while the company achieves high results, created reserves

lower the results and they are terminated in downturn.

The purpose of such procedure is to reduce the variability of the

results and reporting them approximately to the expected size25. For the

value of financial result the enterprise can also be influenced by the use

23 L. Poniatowska, Reserves for liabilities as the tool of business policy, Research

Bulletin of Szczecin University no 757, (2013), p. 122. 24 Ibidem. 25 L. Poniatowska, Accounting Policy in terms of reserves for liabilities and its impact

on shaping financial result, Economic Studies, Publisher of Economic University in

Katowice 2014, vol 201, p. 262.


39

of other techniques. A. Levitt, former Chairman of SEC (Securities and

Exchange Commission ) lists such profit management techniques as26:

one-time policy of writing off costs in tough economic times, this

strategy aims to reduce the current financial results to increase the

profits in the future,

creative acquisition accounting, it involves escalating costs during the

period of airing another entity to increase potential future profits,

misuse of materiality principle in accounting, the aim of this operation

is the awareness in erroneous accounting or ignoring errors in

financial statement under the assumption that their importance is not

significant,

inadequate recognition of revenue, we have to deal with this

phenomenon when the revenues were revealed too early.

4. Presentation and recognition in terms of IFRS and Polish GAAP

Information related to reserves recognition contained in financial

statement according to IFRS are consistent with the national regulation.

Among the reserves for liabilities there are: deferred tax reserve (long-

term one), reserves for pensions and others (long and short-term one) and

other reserves (long and short- term). In additional note one must provide

the information about reserves creation, the value at the beginning and

the end of the period, additional reserves created during the year

including the increases used and unused amount during the year27. One of

the most important requirements related to recognition is showing

terminated and unused reserves. The aim of such operation is to prevent

the hiding of certain expenses. The reserves should be used for the

purpose for which they were originally created28. The explanatory notes

reveal additional nature of the obligation and expected incomes of

economic benefits, information about all relevant uncertainties related to

the amount and the date of their income, the main assumptions

considered in reserves estimation, when it is justified as well as the

26 M. Kędzior, Profits management in the time of economic crisis, [in:] Reporting and

auditing in economic crisis, (ed.) B. Micherdy, Economic University in Kraków, 2009,

p. 184. 27 Polish GAAP no 6, pt. 5.1. 28 IAS 37 Reserves , …, red. S. Sojaka, op. cit., p. 37.

Dorota Kędzior

40

amount of expected return asset.29 IFRS and Polish GAAP give the

possibilities for those who prepare financial statements not to reveal, in

the additional note, the data on reserves if it could seriously weaken the

position of the individual in disputes with other parties. In such case the

company should present, in the financial statement, the general nature of

the dispute.

The reserves can be variously classified. In most cases the reserves

are divided into balanced and non-balanced one. Balanced sheet reserves

are recognized and include the reserves such as: capital, deferred income

tax, the obligation (reserves sensus sticte). While non-balanced sheet

reserves create the reserves for financial investments, claims and

depreciation of fixed assets30. M. Gmytrasiewicz also lists the division of

the reserves according to the degree of transparency that means explicit

and hidden reserves. Explicit reserves are created due to the applicable

regulations and recognized in financial statement while hidden reserves

are created when the assets are valuated blow their actual value and the

liabilities valuation is overstated31. Another key division is creation the

reserves due to the obligation of their recognition that is mandatory and

optional reserves. The example of mandatory reserves is the deferred

income tax for pension scheme. The optional reserve is the reserve on

reserve capital which is created in accordance with the Commercial

Companies Code to cover specific losses and expenses32.

Table 1 shows the type of recognized reserves in financial statement

for the companies with WESI20 (WIG20) index based on the explanatory

notes to the financial statement in 2015. Six entities, that are financial

institutions, have been eliminated from the analysis. The presented

reserves have been grouped into four categories: reserves resulting from

the regulation on employees’ benefits, business reserves, reserves for

other operations and the reserves related to the investment and financial

activities.

29 Polish GAAP no 6, pt. 5.2. 30 R. Niemczyk, Reserves of individuals …, op. cit., pp.63-64. 31 M. Gmytrasiewicz, Reserves in accounting, Difin, Warszawa 2001, p. 14. 32 P. Jabłoński, The essence of reserves …, op. cit., p. 74


41

The classification is based on studies of E. Walińska and B. Bek-

Gaik33. If the company, in the position “other reserves” has not

determined precisely its nature it was not the subject of further analysis.

Presented data shows a large variety in created reserves. Each of the

analyzed companies showed the reserves in the category of employees’

benefits. More often there are accruals within the meaning of the

Accounting Act such as salary reserves, reserves for unused annual leave,

bonuses, etc. Reserves related to redundancy benefit pension schemes,

jubilee benefits, Company Social Benefit Fund, coal allowance etc. have

been estimated on the basis of actuarial methods. The group of business

reserves also includes a number of recognitions. As the companies from

mining and energy industry dominate in the summary, there are often

repetitive types of reserves such as the reserves for compensation of

losses in litigation (reserve associated with the non-contractual use of

land), the reserves related to mines decommissioning often by legal rules,

the reserves related to gas emission for exceeding the free of charge

authorization. In the third category there are mainly the reserves for

litigation. Orange Inc. gave the information in the statement that it does

not reveal individual litigations as it could affect the outcome of the

ongoing litigation which is also allowed by Polish GAAP no 6 and IAS

37. The investment activities and financial reserves were only shown by

Asseco Poland Inc. and Eurocash Inc. The financial statements of listed

companies, which are the subject of the analysis, have been drawn up

according to IFRS and audited by the auditors of so-called The Big Four

(except LPP Inc.). The data on the reserves included in the analyzed

statements are quite extensive, it may result from the use of IFRS and the

work standards of renowned auditors.

33 E. Walińska, B. Bek-Gaik, Reserves and essentials category shaping financial result

of companies, Research Bulletin of University in Szczecin, no 50, 2012, p. 364.

42

Doro

ta K

ędzio

r

Table 1. Reserves recognition for non-financial public companies of WSEI (WIG20) in 2015

Company’s

name

Reserves for employees’ benefit

liabilities Business reserves

Other reserves related to

occurrence operations

Reserves

related to

investment

and financial

business

Asseco

Poland Inc.

Reserve for post-employment

benefits, reserve for unused annual

leave, reserve for bonuses for

employees and Board of Directors

Reserve for warranty repairs

Reserve for

losses on long-

term IT

contracts

CCC S Inc. Reserve for jubilee benefits Reserve for warranty repairs,

reserve for litigations

Cyfrowy

Polsat Inc. Reserve for salary

Reserve for license, reserve for

distribution costs, reserve for

interconnection costs settlements

Reserve for warranty repairs,

reserve for litigations, reserves for

the restoration of the original

state, reserves for onerous

contracts

Enea Inc.

Reserve for employees’ benefit

liabilities, reserve for pension

scheme, reserve for right to

a preferential consideration for

having energy after retirement,

Reserve for non-contractual use of

the land, reserve for the

remediation of the landfill, reserve

for the certificates of energy

origin, reserve for the purchase of

Reserve for the other reported

claims

43

Reserves a

nd a

ccruals to

IAS a

nd P

olish

Acco

untin

g…

reserve for deduction on Company

Social Benefit Fund for retired

workers, reserve for coal

allowance, reserve for jubilee

benefits, reserve for voluntary

redundancy

the rights to CO2 emission,

reserve for liquidation of the

mining plant

Energa Inc.

Reserve for pension schemes and

others, reserve related to energy

rate, reserve for Company Social

Benefit Fund, reserve for jubilee

benefits

Reserve for the remediation and

liquidation costs, reserve for

obligation related to gas emission,

reserve related to the obligation of

certificates remitting

Reserve for litigations

Eurocash

Inc.

Reserve for unused annual leave,

reserve for salary

Reserve for premium payment to

franchisee, reserve for liabilities

related to the commission of

agency warehouse

Reserve for the cost of the

advertising and marketing, media

liability reserve, reserve for

litigations, reserve for liabilities

for consultancy and auditing,

reserve for transport costs

liabilities, reserve for rent

liabilities, reserve for

modernizations

Reserve for

interests

KGHM

Polish

Copper Inc.

Reserve for jubilee benefits,

reserve for pension admission and

post-mortem scheme, reserve for

coal equivalent and others

Reserve for the cost of mine

liquidation and other

technological plant, and

liquidation costs of fixe assets


44

Doro

ta K

ędzio

r

Lotos Inc.


reserve for post-employment

benefit, reserve for bonuses

liabilities, reserve for prizes,

reserve for unused annual leave,

reserve for salary obligations

Reserves for the costs of

liquidation and reclamation of

crude petroleum and natural gas

mines and reserve for unused

refinery installations

Reserve for litigations, reserve for

contingent liabilities payment

arising from the contracts

LPP Inc.

Reserves for pension scheme and

others, reserve for unpaid salary,

reserve for unused annual leave

Reserve for supplementary

payment to rental contacts, reserve

for gift cards and coupons

Reserve for investments sales,

reserve for sale of marketing

services

Orange

Poland Inc.


reserve foe pension admission

scheme, reserve for salaries,

reserve for the cost of employment

termination


costs of fixed assets liquidation

PGE Inc.


reserve for pension admission

scheme, reserve for coal equivalent

and rate, reserve for Company

Social Benefit Fund, reserve for

medical care

Reserve for costs restoration,

reserve for shortage of CO2

allowance, reserve for the

remitting of property rights,

reserve for contractual property

use


property tax

45

Reserves a

nd a

ccruals to

IAS a

nd P

olish

Acco

untin

g…

PGNiG Inc.

Reserve for jubilee benefit,

reserves for pension admission

scheme, reserves for salary, reserve

for unused annual leave, reserves

for employees’ benefits related to

contract termination

Reserve for liquidation costs of

wells, reserves related to

environmental protection, reserve

for contractual use of landfill,

reserves for prospecting liabilities

aboard, reserve for certificates of

energy origin and efficiency

Reserve for OCCP fine

PKN Orlen

Inc.

Reserve for jubilee and post-

employment benefits

Environmental reserve, reserve for

CO2 emission and energy

certificates


Tauron

Polish

Energy Inc.

Reserve for pension scheme and

others, reserves for employees’

rate, reserve for Company Social

Benefit Fund, reserve for coal

equivalent, reserve for jubilee

benefits

Reserve for liquidation costs of

mining plants, reserve for

restoration costs, dismantling and

liquidation of fixed assets,

reserves for onerous contracts

from joint ventures, reserve for

gas emission liabilities, reserve for

obligation to submit certificates of

energy origin, reserve for

contractual use of properly


Source: own elaboration based on annual repots in 2015: methodology based on the research of E. Walińska, B. Bek-Gaik, Reserves

and essentials category shaping financial result of companies, Research Bulletin of University in Szczecin, no 50, 2012, p. 365.

Dorota Kędzior

46

Conclusions

On the basis of the regulatory review of IAS 37 and Polish GAAP no

6, it can be concluded that they are largely similar in the areas of the

issues as the concept of reserves, the rules, the purpose of their creation,

valuation and recognition of financial statements. Greater differences

have been observed for accruals. In the Accounting Act accruals are

defined as different liabilities (art.39 act 2 pt.1) and reserves (art.39 act 2

pt2). IFRS on the recognition stage treats the liabilities related to current

business, future benefits to employees, warranty benefits as reserves

because their recognitions in IFRS depends on the degree of

implementing obligations. While in Polish legislation, the nature of the

reserves, depends on the business type.

Reserve, as estimated value, has significant effect on shaping the

financial result. A large margin of discretion in the valuation and

recognition can be used to manipulate the financial result therefore

valuation of this item is carefully analyzed by the auditors examining the

financial statements, which is best presented in the reality according to

the True and Fair View concept.

National Accounting Standards and in IFRS clarify many unclear

issues in reserve and accruals. It can be said that the issue of reserves is

difficult and important subject, having significant impact on financial

situation of the enterprise.

Legal acts

[1.] The Accounting Act of 29.09.1994, Journal of Law of 2016 item

1047 of 19.07.2016 with amendments.

[2.] Polish Accounting Standard no 6, Rezerwy, bierne rozliczenia

międzyokresowe kosztów, zobowiązania warunkowe. Attachment to

act no 7/08 Committee of Accounting Standards of 14.10.2008.

[3.] International Financial Reporting Standards (IFRS) 2011, vol. A,

International Accounting Standards Board, Accountants

Association in Poland, Warszawa 2011.


47

Literature

[4.] Chalastra M., Subsydiowanie skrośne a koncepcja True and Fair

View, Zarządzanie i Finanse 10.4, part 3 (2012): 159-184.

[5.] Gmytrasiewicz M., Rezerwy w rachunkowości, Difin, Warszawa

2001.

[6.] Hońko S., Międzynarodowe Standardy Sprawozdawczości

Finansowej a ustawa o rachunkowości, Part 10 – Rezerwy,

zobowiązania warunkowe, bierne rozliczenia międzyokresowe,

www.rachunkowosc.com.pl, 10.12.2014.

[7.] Jabłoński P., Istota rezerw finansowych w działalności

przedsiębiorstwa, Studia Ekonomiczne Regionu Łódzkiego 10,

2013: 69-80.

[8.] Kędzior M., Zarządzanie zyskami w dobie kryzysu ekonomicznego,

[in]: Sprawozdawczość i rewizja finansowa wobec kryzysu

ekonomicznego, B. Micherda (ed.), Uniwersytet Ekonomiczny

w Krakowie, Kraków 2009.

[9.] IAS 37 Rezerwy, zobowiązania warunkowe i aktywa warunkowe, S.

Sojka (ed.), Difin, Warszawa 2007.

[10.] Niemczyk R., Rezerwy jednostki gospodarczej, Wydawnictwo

Legis, Warszawa 2011.

[11.] Poniatowska L., Polityka rachunkowości w zakresie rezerw na

zobowiązania i jej znaczenie w kształtowaniu wyniku finansowego,

Studia Ekonomiczne 201, Wydawnictwo Uniwersytetu

Ekonomicznego w Katowicach (2014): 255-265.

[12.] Poniatowska L., Rezerwy na zobowiązania jako instrument polityki

bilansowej, Zeszyty Naukowe Uniwersytetu Szczecińskiego nr 757

(2013): 117-124.

[13.] Rachunkowość finansowa z uwzględnieniem MSSF,

Z. Messner (ed.), PWN, Warszawa 2007.

[14.] Walińska E., Bek-Gaik B., Rezerwy jako istotna kategoria

kształtująca wynik finansowy spółek, Zeszyty Naukowe

Uniwersytetu Szczecińskiego, Finanse. Rynki finansowe.

Ubezpieczenia, 50, (2012): 359-374.


48

DOI: 10.19192/wsfip.sj3.2016.4

Jan OSTOJ

16 YEARS OF THE EURO AREA – INCREASE OF GDP

AND PAYMENT BALANCE

(PRELIMINARY DATA ANALYSIS)

Summary

The paper makes an attempt at description of the impact of monetary integration on the

most important macroeconomic indicators of the Euro area against the background of

those countries which retained their national currency. As the main indicator

describing changeability of economic growth in the EU countries the author assumed

the average annual real GDP growth calculated in relation to the base value of GDP in

2003. The profile of payment balance (BPM5) of selected countries focuses on relations

resulting from financing of trade turnover account balance by balance of the financial

account and, particularly on direct and portfolio investments. The analysis was

conducted in the context of basic relationships from the theory of the optimum payment

area.

Key words: gross domestic product (GDP), currency exchange rate, export import

balance

Introduction

Upon entering the Euro area first member states only disposed of the

theory of optimum currency area. The theory was fairly logical and it

helped to avoid a number of mistakes in the initial phase of creating the

monetary union still, it was far from being perfect. At the moment it is

already possible to evaluate to what extent integration processes met the

expectations of particular countries. No doubt, the GDP growth is in the

centre of attention as it is the measurement of economic growth of

a country and also, indirectly, of the prosperity of its citizens. The second

equally important yardstick of development of the Euro area are the

Jan Ostoj Bielsko-Biała School of Finance and Law, Department of Finance and


16 years of the Euro area…

49

changes in the payment balance of countries which provide answers to

questions on the condition of their economies which are assessed from

the perspective of export of excessive capital or extent of their mutual

dependence.

1. The Euro area versus economic growth

1.1. Belonging to the Euro area and GDP Dynamics of the ‘Big

Twelve’ countries

From the perspective of the undertaken research topic it is necessary

to answer the question whether there is a link between adopting Euro as

the currency and the condition of national economy expressed by the

GDP growth. For this purpose average annual real GDP growth of the

major twelve EU countries, which in 2000 introduced Euro as their

currency, was compared. As the reference point year 2003 was taken

(2003 = 100). The solid line represents changeability of current real GDP

against its base level (Image 1). The thin solid double line reflects the

average annual real GDP growth of all 28 EU member states1.

1 Source: own calculations based on Eurostat data, http://ec.europa.eu/eurostat/

tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115 (access

16/05/2016).

Jan Ostoj

50

Image 1. GDP growth of the twelve countries which adopted Euro as their

currency in 2000.

Source: own calculations based on Eurostat data, http://ec.europa.eu/eurostat/tgm/table.

do?tab=table&init=1&plugin=1&language=en&pcode=tec00115 (access 16/05/2016).

Image 1 shows that in most of the countries the GDP growth in 2015

was similar as compared with the year 2003 (112-117%). It does not

mean, however, that the paths leading to this state were identical for all

the countries. For instance, in 2008 Finland saw the highest growth of

117% and Germany second lowest growth (the lowest belonged to Italy).

But in 2015 the positions of these countries were completely reversed.

The highest average annual real GDP growth in 2015 saw Austria and

Germany (2003 = 100). In case of Germany the dynamics in the period

2011-2015 were considerably higher than EU2 and EA3 average. Austria

is a country which stood out from this group of countries. Its average

annual real GDP growth in the examined period (2003=100) was always

higher or comparable with average annual real GDP growth of EA and

EU.

Studying the changeability of average annual real GDP growth in the

European Union (EU-28) and the Euro area (EA-19) it can be observed

2 European Union countries. 3 Euro area – monetary union countries.


51

that the GDP growth dynamics of EU-28 are always higher (double line)

than the corresponding value for EA-19 (solid line). It must not be

forgotten though, that the average of EA-19 is considerably lowered by

Greece and Italy. These two countries are an exception to the upward

trends of the monetary union members. In Italy despite initial growth

(2003-2007), GDP growth shrank in the examined period by three

percentage points to about 97% as compared to the year 2003. In Greece

the fall was even bigger (15 percentage points to the level of about 85%).

Undoubtedly, in the final years of the research period (2012-2015) these

two countries were responsible for considerable decrease of average

annual real GDP growth of the Euro area. Nevertheless, it can be seen

that before 2008 in Italy and Greece the dynamics of real GDP were on

the rise but still the GDP dynamics of EU-28 countries were slightly

higher than in EA-19 countries. Without any doubts, this situation was

triggered by dramatic slowdown of German economy. The slowdown

was also observed in Italy and other countries and it seems that such slow

down is a characteristic feature of initial phase of entering the monetary

union. Hence, on the basis of the above analysis it cannot be

unequivocally assumed that being a member of Euro area causes slowing

down of GDP growth in the long-term perspective.

1.2. GDP dynamics of new members of the Euro area

To complete the above analysis, it is important to include in the study

the changeability in the average annual real GDP growth in the countries

that joined the monetary union later than in 2000. To assure continuity of

the scientific argument the referential values for the average annual real

GDP growth of all 28 EU member states, all 19 EA member states and

selected EA-19 countries with respect to countries that joined the Euro

area later than in 2000 (Image 2).

Jan Ostoj

52

Image 2. Average annual real GDP growth in selected EA countries.



Moreover, in Image 2 the first year of changeability in the average

annual real GDP growth in respective countries one year after entering

the monetary union is expressed by segments of a double line

incorporated in the graph. The vertical line marks the beginning of the

financial crisis of 2008.

Even a rough analysis of changeability in the average annual real

GDP growth shows that countries that entered the monetary union before,

during and after the 2008 recession were hit by the crisis. ‘Old’ members

of the Euro area such as Germany or Austria saw the decrease in

dynamics of annual real GDP growth as compared to 2003. Similar

situation could be observed in the whole EU and EA (the fall was rather

insignificant i.e. 3-5 percentage points). However, there were countries

that experienced much more dramatic falls. Latvia and Estonia as

countries outside the monetary union had seen very high dynamics of

annual real GDP growth (140-150%, 2003=100); in the time of crisis

their GDP growth was lower by 25-30 percentage points. Slovakia also


53

outside the Euro area, had enjoyed GDP growth of more than 40%, and

suffered a fall of 8 percentage points when the recession came.

Image 2 also shows the Slovenia’s entry into the Euro area in 2007

did not protect its GDP fall in 2008. Slovenia’s GDP suffered more than

Slovakia’s which at that point in time was still outside the monetary

union. On the contrary, when Malta adopted Euro as it currency in 2008

it did not have a bigger impact on its real GDP than on GDPs of Estonia

or Latvia, which at that time still retained their national currencies. Thus,

it is impossible to put forward a thesis that membership in the monetary

union strengthens or weakens a country’s resistance to financial crisis.

More important is rather specific and characteristic for a given period

conditioning for the countries’ respective economies. One the other hand,

one may not claim that belonging to the EA does not have any impact on

intensification or alleviations of the effect of financial crisis in a given

country. For sure, such impact does exist but for the time being in light of

the specific factors which determine the framework of functioning of

a given country, this impact is of secondary importance.

From the perspective of the final result i.e. the average annual real

GDP growth in 2015 as compared with year 2003, it is clear that the

growth was much higher in case of countries which entered the monetary

union later than the first twelve countries. The average annual real GDP

growth for ‘the first twelve’ was in the range 112%-118%, whereas

dynamics of the rest of EA members reached the level of 122%- 159% of

the accepted base (2003). The only exception here was Cyprus whose

initial real GDP growth exceeded 120%, but later fell to the average

value for all EA states. Such situation may be explained by the fact that

countries entering the monetary union after 2003 generally represented

lower level of economic development than ‘the first twelve’, they were

the runners-up hence they had more space for faster growth. Moreover,

relatively low GDP of these countries did not have a considerable

influence on the joint GDP of Euro area with respect to their adoption of

Euro currency.

The analysis conducted above also reveals the costs of entry into the

monetary union i.e. the slowdown of real GDP growth in the first couple

of years after adoption of Euro currency. This phenomenon could be

observed in Slovakia and Estonia. In case of Malta, Slovenia and Cyprus

it cannot be stated clearly as the date of their entry into Euro area

coincided with the global financial crisis. Latvia, on the other hand,

adopted Euro in 2014 so for the moment it is to early to determine the

Jan Ostoj

54

changeability of its average annual real GDP growth. After 2010 (the end

of crisis) it can be observed that dynamics of average annual real GDP

growth accelerate faster in case of new EA members. The ‘old twelve’

(including referential countries Germany and Austria) show smaller GDP

growth. Out of the new members only Slovenia broke away from the

positive trend and entered the path of accelerated growth as late as in

2013. Summing up, the thesis that may be assumed here is that being

a member of the monetary union has an undisputed impact on the

economy of a given country in the long-term perspective.

1.3. Dynamics of GDP growth in EU countries which retained their

local currency

In the context of the present analysis one should also take a closer

look at the average annual real GDP growth of the EU countries which

have not adopted Euro as their currency. In order to provide

comparability with the results of analysis conducted above, as the

referential values the dynamics of real GDP growth of Germany, Austria

and Slovakia were adopted. The results of the analysis are presented in

Image 3.

Image 3. Average annual real GDP growth in EU countries which retained their

local currency.




55

Image 3 reveals a strong relation between average annual real GDP

growth of developed countries and developing countries. Unlike

developing countries, in developed countries slower dynamics of GDP

growth can be observed. Thus, a reasonable approach of pairing countries

with similar level of development was applied.

As it is widely known, highly developed countries are characterized

by considerably high GDP per capita. Such countries are for example

Great Britain and Sweden, they both refrained from adopting Euro as

their currency. In the long perspective the two countries showed better

potential of real GDP growth (2012-2015), than Germany or Austria. The

‘running-up’ countries such as Poland, Romania or Czech Republic (with

the exception of Hungary) enjoyed even bigger average annual real GDP

growth than Great Britain and Sweden. It leads to a conclusion that the

main factor that determines high potential of growth of a given economy

is a relatively low level of its development at the start, and membership

in the Euro area is of secondary importance here. A proof which may

support this thesis is the fact that Slovakia, which has been a member of

EA since 2009, showed exactly the same average annual real GDP

growth as Poland which, till this day, retains its national currency. Thus

in the discussed area one may formulate the following conclusions:

highly developed countries (GB, Sweden) which retained their

national currencies in the long-term perspective show better potential

of their real GDP growth than countries which belong to the EA from

its very beginning (Germany, Austria);

in general refraining from adoption of Euro did not immunise

countries against shocks of recession – all non-Euro countries noted

a decrease in real GDP dynamics (with only one exception – Poland);

it is not a rule that retaining the national currency in the long-term

guarantees high increase in real GDP growth as seen on the example

of Poland and Slovakia (high dynamics of GDP growth) and Great

Britain and Hungary (low dynamics of GDP growth).

1.4. Costs of entering into the Euro area

Adoption of new solutions in economy always entails certain, widely

understood costs of their implementation. That is why it is vital to ask

a question whether the first twelve countries that adopted Euro as their

currency indeed paid the price in the form of slowdown of their real GDP

growth. The answer to this question is presented in Image 4.

Jan Ostoj

56

Image 4. Real GDP Dynamics in selected countries of ‘the first twelve” of EA

(1997=100) current prices

Source: own calculations based on Eurostat data, www. http://ec.europa.eu/eurostat/

data/database (access 01/05/2016).

The graph above shows that adoption of Euro had a considerable

impact on the economic growth of the first twelve after the year 2000.

Introduction of Euro currency in non-cash transactions as of 1 January

1999 did not bring about ad hoc effects in the growth of GDP of EU

member states. On the contrary, it can be stated that GDP in terms of

current process went up. However, already in the year 2000 in most of

the countries slowdown in GDP growth was observed. Real GDP

growth also decelerated as current prices went up. The second wave of

impact on the economic growth of monetary union countries came on 1st

of July 2002 when the national currencies were ultimately discontinued

and replaced by cash Euro. After 2002 further slowdown of growth

calculated in GDP current prices was observed in majority of EU

countries. In 2003 in Germany the slowdown was counted in absolute

terms which means that taking into account inflationary push the drop in

real GDP was even more dramatic. The exception from this rule were

Greece and Spain that later, in times of financial crisis suffered the most.

Summing up this part it can be claimed that entry into the monetary

union meant for many countries a slowdown in their GDP growth. In

case of Slovakia and Estonia a similar phenomenon can be observed

(Image 2).


57

2. Efficiency of mechanism of national currency protection

2.1. GDP versus dynamics of local currency exchange rate

In the environment where national currencies are in operation,

a natural protection against asymmetric shocks, a drop in demand for

domestic production, is weakening the national currency’s exchange rate

against currencies of other countries or other currency areas4. This

protective mechanism counteracts GDP falls resulting from demand

shocks. Data necessary for assessment of usefulness of this mechanisms

are presented in Image 5.

As it is widely known, in 2008 the European Union as a whole as

well as majority of its countries experienced considerable decreases in

their real GDPs – as results from the top section of Image 5. As the base

year for calculations the author assumed the year 2000. The same year

was assumed in evaluation of changeability of exchange rates of national

currencies (apart from Slovakia and Romania for which countries the

base years were 2003 and 2007 respectively5). It was possible to evaluate

real strengthening or weakening of currency of a given country to

a reference point of the base rate of the year 2000 (100 € expressed in

national currency). The bigger deviation of a national currency upwards

from the base value of 100 the bigger its depreciation to Euro. Image 5

4 According to the classical theory of optimum currency areas, exchange rate of

a national currency reacting to changes in economic environment is a vital element of

asymmetric shocks absorption. It means that fluctuations of a real exchange rate reflect

the existence of the shocks and extent of their neutralisation. (See for example: Mundell

R. A.,1961: A Theory of Optimum Currency Areas, American Economic Review, 51

(4), pp. 651-656). It should not be overlooked however that these mechanisms have

their limitations: if an economy relies on import of resources weakening of the

exchange rate will alleviate the demand shock as it makes the export offer cheaper but

at the same time it makes import more expensive (e.g. fuels) and production less

profitable. Moreover, contemporary currency markets are closely interconnected and

investors on these markets rely mainly on technical analysis. Hence, the exchange rates

are more and more a derivative of specific situations on currency markets rather than

changes in the real sphere (see for instance: De Grauwe P. (2000): Exchange Rates in

Search of Fundamentals: The Case of Euro-Dollar Rate, CEPR Discussion Paper, 2575;

Canzonerii M.B, Valles J., Vinals J. (1997): The Exchange Rates as an Instrument of

Macroeconomic Adjustment: Empirical Evidence and Relevance for European

Monetary Union, Banco de Espana, Economic Bulletin, pp. 61-68. 5Due to lack of access to earlier data.

Jan Ostoj

58

shows the efficiency of the protective mechanism in the studied period. It

shows fluctuations of GDP and changeability of national currencies to

Euro in the same period.

Image 5. Dynamics of GDP in selected EU countries and Dynamics of exchange

rates of national currencies of selected countries to Euro.

Source: own calculations based on data on GDP dynamics:Eurostat, www.

http://ec.europa.eu/eurostat/data/database (access 01/05/2016) - exchange rates as of 31

December of the examined year – according to Polish Statistical Yearbooks, currency

calculator http://www.money.pl/pieniadze/kalkulator/ and Poland 1989 - 2014, Central

Statistical Office, Warszawa 2015, p. 16-19. *Slovakia – since 2009 in the Eurozone –

since 2009 dynamics of national currency = 100.

http://ec.europa.eu/eurostat/data/database

http://www.money.pl/pieniadze/kalkulator/


59

Image 5 shows that British Pound reacted in the most dramatic way

with respect to its GDP decrease. The exchange rate of GBP to Euro fell

by 50 percentage points when compared with the year 2006. This

however, did not stop the British average annual real GDP growth from

slowing down by 5 percentage points. Similar situation could be

observed in Sweden. Consistent depreciation of national currency,

though not as dramatic as in case of GB and Sweden, was observed in

Romania and Hungary. On the other hand, in Slovakia and Czech

Republic the opposite processes took place: their currencies strengthened

in the year before the crisis.

Poland was the only European country with its national currency still

in operation which experienced stable GDP growth in 2008 when the

foreign currency was depreciated. However, taking into account the

situation in other European countries it does not offer sufficient grounds

for a statement that the mechanism of protection of national currency

against external shock is equally effective in all conditions.

Looking at the above graphs it cannot be inferred that the exchange

rate mechanism is a sufficient tool for protection of the economy against

external shocks. The reasons for this may be found in specific factors

conditioning the decrease of GDP dynamics, concurrent depreciation of

comparable currencies and the level of openness of the studied economy.

Also increased mobility of flows on financial markets helps to reflect

genuine current situation on the market not the situation in the real

sphere.

It is worth mentioning that resistance to external shocks depends also

on income and price flexibility of world demand for exported goods, and,

from the perspective of the exporter, on material structure of demand.

2.2. Openess of the economy – demand for export

It seems that full explanation of the phenomenon of the resistance of

economy to external shocks can be found somewhere else. One of the

channels transmitting such shocks is dependence of a country’s economy

on external demand i.e. demand for export. The level of this dependence

is measured by the share of export value in the value of GDP of that

country. Image 6 contains comparison of shares of export in national

GDPs on the example of Germany, Poland and Slovakia6.

6 Comparable data available for analysis since 2011.

Jan Ostoj

60

As it can be seen the share of export in GDP in case of Poland and

Germany in the studied period (2008) was similar and amounted to

33,8% and 38,4% respectively. In Slovakia this share was considerably

bigger in the same year (71,0%)7. Hence, the thesis about the impact of

openness of the economy on efficiency of the currency protection

mechanism is confirmed. However, in the period before 2008 the Slovak

crown was getting stronger what would suggest that the protective

mechanism was not working or was under the influence of the situation

on financial markets which to some extent resulted from the fact that

Slovakia was due to enter the Euro area.

Image 6. Share of export in GDP of Poland, Slovakia and Germany.

Source: own calculations based on: Bilans płatniczy Polska w latach 1994-2013.

http://www.nbp.pl/home.aspx?f=/statystyka/bilans_platniczy/bilansplatniczy_r-

BPM5.html; Table of most important macroeconomic indicators in Slovakia. The

Embassy of the Republic of Poland in Bratislava; data obtained from Slovakian Central

Statistical Office, the National Bank of Slovakia and the Slovakian Ministry of Finance.

http://www.bratyslawa.msz.gov.pl/pl/wspolpraca_dwustronna/wspolpraca_gospodarcza

/sytuacja_gospodarcza/gospodarka_slowacji_w_pierwszym_kwartale_2015_roku?chan

nel=www; Die Deutsche Zalungsbilanz fur das Jahr 1999, Deutsche Bundesbank,

Monatsbericht March 2000; Die Deutsche Zalungsbilanz fur das Jahr 2002, Deutsche

7See: The Ministry of the Economy of the Republic of Poland, Trade and

Investment Section of Polish Embassy in the Republic of Slovakia.

rig.katowice.pl/files/Słowacja.docx (access 05/05/2016).

http://www.nbp.pl/home.aspx?f=/statystyka/bilans_platniczy/bilansplatniczy_r-BPM5.html

http://www.nbp.pl/home.aspx?f=/statystyka/bilans_platniczy/bilansplatniczy_r-BPM5.html

http://www.bratyslawa.msz.gov.pl/pl/wspolpraca_dwustronna/wspolpraca_gospodarcza/sytuacja_gospodarcza/gospodarka_slowacji_w_pierwszym_kwartale_2015_roku?channel=www




61

Bundesbank, Monatsbericht March 2003; Die Deutsche Zalungsbilanz fur das Jahr

2004, Deutsche Bundesbank, Monatsbericht March 2005; Die Deutsche Zalungsbilanz

fur das Jahr 2007, Deutsche Bundesbank, Monatsbericht March 2008; Die Deutsche

Zalungsbilanz fur das Jahr 2010, Deutsche Bundesbank, Monatsbericht March 2011;

Die Deutsche Zalungsbilanz fur das Jahr 2011, Deutsche Bundesbank, Monatsbericht

March 2012; Die Deutsche Zalungsbilanz fur das Jahr 2013, Deutsche Bundesbank,

Monatsbericht March 2014; Die Deutsche Zalungsbilanz furdas Jahr 2014, Deutsche

Bundesbank, Monatsbericht March 2015.

Looking from another perspective though, low share of export in

British GDP (25,8%8) and sharp depreciation of the British Pound in

2008 (Image 5) seem to support the thesis that the protective mechanism

was inefficient in this particular case.

3. Resistance to endogenic sources of over-production crises in the

Euro area

The main reason for over-production crisis is on one hand

accumulation of savings which may not be transformed in global demand

and, on the other, mandatory investment in stock. In such situation the

economy is unable to purchase the goods it manufactured.

In order to dispose of the problem it is necessary to export the

surplus of over-production. Then the exporting country gets positive

foreign trade balance. At the same time however, the country must assure

foreign residents financing for the purchase of goods which constitute

positive export-import balance. To this aim there is a number of tools

such as paid transfer of savings abroad in the form of loans granted to

foreign residents, purchase of proprietary rights and laws e.g. bonds,

licenses, permits, concessions and other laws including proprietary rights

to land, manufacturing facilities etc.

Such activities are included in the payment balance. The item export-

import balance is entered in the current account while savings transfer for

the disposal of foreign residents is entered in the financial account. From

this perspective it would be interesting to take a closer look at these

figures in selected EU countries (Image 7). The graph shows that the

mechanism of over-production is successfully applied by Germany. Over

13 years of existence of monetary union Germany doubled its positive

8 See: Statistical Yearbook of the Republic of Poland 2015, year LXXV Warszawa,

p. 885.

Jan Ostoj

62

foreign trade balance with respect to GDP i.e. GDP export. It certainly

was made easier thanks to the removal of currency exchange rate

mechanism within the monetary union. Nowadays (2015) the share of EU

member states in German export is as high as 66%9, in the first two

quarters of 2015 half of export volume went to the EA countries10.

Image 7. Share of export-import balance in GDP (Poland and Germany)

Source: own calculations based on: Eurostat, www.

http://ec.europa.eu/eurostat/data/database (access 01/05/2016) Bilans płatniczy Polska

w latach 1994-2013. http://www.nbp.pl/home.aspx?f=/statystyka/bilans_platniczy/

bilansplatniczy_r-BPM5.html; (Access 04/05/2015);Die Deutsche Zalungsbilanz fur das

Jahr 1999, Deutsche Bundesbank, Monatsbericht March 2000; Die Deutsche








Zalungsbilanz furdas Jahr 2014, Deutsche Bundesbank, Monatsbericht March 2015.

9 http://www.informatorekonomiczny.msz.gov.pl/pl/europa/niemcy/ ministerstwo spraw

zagranicznych (access 13/11/2016). 10http://www.bankier.pl/wiadomosc/Rekordowe-wyniki-niemieckiego-handlu-

7277308.html


http://www.informatorekonomiczny.msz.gov.pl/pl/europa/niemcy/


63

Thus, an important question arises: how a country with ‘negative

export-import balance year after year’ is going to pay for the import

surplus over its own export? There is a number of solutions to do so but

the most important one is to acquire rights to obtain revenues on the

importer’s territory. It is reflected in ‘financial flows’ in financial

account of payment balance, this position also includes foreign direct and

portfolio investments. In case of positive balance of direct investment

account, foreign residents invest more in the country than local residents

abroad: there is an inflow of aggregated foreign savings to the country.

When the balance of direct investment is negative the situation is reverse.

Changeability of financial flow balances on the example of Poland and

Germany is presented in Image 8.

Image 8. Poland and Germany – share of flows in financial account in GDP

Source: own calculations based on Eurostat data:

http://ec.europa.eu/eurostat/data/database (access 01/05/2016); Bilans płatniczy Polska

w latach 1994-2013. http://www.nbp.pl/home.aspx?f=/statystyka/bilans_platniczy/

bilansplatniczy_r-BPM5.html; (access 04/05/ 2015); Die Deutsche Zalungsbilanz fur

das Jahr 1999, Deutsche Bundesbank, Monatsbericht March 2000; Die Deutsche








Jan Ostoj

64


Zalungsbilanz furdas Jahr 2014, Deutsche Bundesbank, Monatsbericht March 2015.

Image 8 indicates that before creation of the monetary union

Germany saw a per saldo inflow of foreign capital (balance of financial

flows was positive and amounted to 1,7% GDP). The inflow of savings

to Germany facilitated accumulation of undeveloped reserves of savings

generated in this country. At the moment these reserves are invested

abroad and their outflow reaches 9% of GDP. It is obvious that such

situation is only possible thanks to considerable demand for German

investments and loans, and especially loans for that matter. The credit

granted by German residents amounted to 90% of financial flows in

payment balance of Germany (2007); in the two-year period 2012-2013 it

was about 40-20%11.

Introduction of common currency meant the removal of the

protective mechanism in the export-import area (depreciation of national

currency leads to increase of export and reduces import). But it must not

be overlooked that such protection of exchange rate has application in the

realm loans granted in foreign currencies. Depreciation of the borrower’s

currency makes the loan much more expensive. Similarly, depreciation of

importer’s currency makes import uneconomical. It is a very

unfavourable situation for a country with considerable surplus of export

over import e.g. Germany whose economy before the creation of the

Euro area felt strongly any limitations in trade balance as well as in

demand for loans financing the purchased goods. The demand decides

about the level of development of surpluses of free capital. It should also

be highlighted that at the moment Germany is in possession of

a considerable excess of free capital thus the country is determined to

locate this excess in foreign investments. Such pressure sometimes

translates into high risk investment decisions. According to information

found on the website www. Forsal.pl, the German Institute of Economic

Research (DIW) established that in the period 2006–2012 German

companies lost more than 600 billion Euro12 in failed foreign

11 Own calculations based on: Die Deutsche Zalungsbilanz fur das Jahr 2007, Deutsche

Bundesbank, Monatsbericht March 2008 and Die Deutsche Zalungsbilanz fur das Jahr

2013, Deutsche Bundesbank, Monatsbericht March 2014. 12 See: http://forsal.pl/artykuly/715631,niemcy-mistrz-nieudanych-inwestycji-zagrani-

cznych.html (access 13/11/2016).


65

investments. It means that statistically each German household lost

15.000 Euro which is an equivalent of ¼ of the price of a luxury car

Porsche Cayenne13.

Poland seems to be in an opposite situation. With the appearance of

the Euro area the balance of direct foreign investments in Poland

lowered, then rose to reach a stable level of 3-5% in the period of 2002-

2006 (Image 8). Foreign investments in Poland reached their peak in the

times of crisis as at that moment Poland appeared to be a low risk

country. In such favourable conditions it was possible to finance the

surplus of import over export. Initially Poland was a leading importer of

foreign capital (maximum balance of financial flows reached 8,8% GDP

in the studied period) but in 2013 the ratio went down to 0,8% PKB. The

sustainable export-import balance (0,7% of GDP) indicates healthy

condition of Polish economy in 2013 as regards international flows. From

a subordinate position Poland has become an equal partner in

international trade and financial flows.

Conclusions

Reassuming the above deliberations one may formulate a number of

conclusions. Between 2003 and 2015 most of the ‘Big Twelve’ monetary

union countries showed similar average annual real GDP growth. At the

end of the day the best performers in this respect are Germany and

Austria. Spain has started to overcome the effects of recession after

a continuous fall in real GDP in the period 2008-2013. In Greece the

crisis brought about a dramatic fall of real GDP (by 30 percentage points)

to freeze at the level of 85% of the result achieved in 2003. In Italy yet

another situation could be observed – the initial growth was stopped at

the level slightly above the figure achieved in 2003. Examination of such

diversified situation in particular countries did not allow the author to

formulate a premise that entry into the Euro area was a factor that

stimulated spreading of the crisis. However, it is a characteristic feature

that average annual real GDP growth in the monetary union area is

always lower than identical ratio for all members of the European Union.

Countries which entered the Euro area before, during and after the

global recession were hit by the crisis to similar extent as far as their

GDP is concerned. For Slovenia joining the Euro area meant the fall of

13Ibidem.

Jan Ostoj

66

its real GDP. Malta’s entry into EA in 2008 seemed to have no impact at

all on its GDP. In Estonia and Latvia which at that time still had their

national currencies in operation the fall in real GDP was also observed.

When Slovakia and Estonia adopted Euro after the crisis it did not

provoke any fall in their real GDP in contrast to 2008 when the two

countries experienced a serious fall. Nevertheless, both Slovakia and

Estonia saw a considerable slow down of GDP growth after they adopted

Euro.

In case of all members of the monetary union (the first twelve and

the rest) regardless of the economic situation in Europe and in the world,

right after the entry of the country into the common currency area at least

a slowdown in real GDP growth could be observed. One may then

conclude that in the studied period slowdown in the real GDP was the

price countries had to pay for becoming the member of the common

currency area.

Moreover, the study has shown the developed countries such as

Great Britain and Sweden which retained their national currency, in the

long perspective saw better potential of real GDP growth than Germany

or Austria. In general, however, keeping the national currency and the

possibility to apply the protective mechanism did not immunise EU

countries against external shocks. All countries, except Poland, noted

some kind of real GDP growth slowdown. It is also not a rule that

retaining national currency guarantees fast growth of real GDP in the

long-term what can be seen on the example of Poland and Slovakia (high

dynamics of real GDP growth) versus Great Britain and Hungary (low

dynamics of real GDP growth).

The mechanism of protecting exchange rate against external shock

does not work in all economic conditions and it cannot be compensated

by other factors such as decrease in exchange rates of concurrent

currencies, the extent of openness of a given economy, increased

mobility of flows on financial markets as well as the extent of income

and price flexibility of world demand for goods in the international

turnover. Introduction of a common currency removes the protective

mechanisms in the export-import area but not only there. It results in the

growth of export of highly developed countries which are able to

manufacture products which are at the same time better in quality and

less expensive. Common currency also creates better conditions for

development of surplus capital by means of granting more credits for the

purchase of these goods


67

Literature

[1.] Canzonerii M.B, Valles J., Vinals J., The Exchange Rate as an

Instrument of Macroeconomic Adjustment: Empirical Evidence and

Relevance for European Monetary Union, Banco de Espana,

Economic Bulletin, 1997.

[2.] De Grauwe P., Exchange Rates in Search of Fundamentals: The

Case of Euro-Dollar Rate, CEPR Discussion Paper, 2575, 2000.

[3.] Mundell R. A., A Theory of Optimum Currency Areas, American

Economic Review, 51 (4), 1961.

[4.] Polska 1989 - 2014, a report from Central Statistical Offie,

Warszawa 2015, (www.stat.gov.pl).

[5.] Polskie 10 lat w UE, a report from the Ministry of Foreign Affairs,

Warszawa 2014.

Sources of data

[1.] Eurostat. Real GDP growth rate – volume; Hyperlink to the table:

http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin

=1&language=en&pcode=tec00115; Date of extraction: 16 May

2016 20:47:42 CEST.

[2.] Eurostat. GDP and main components (output, expenditure and

income) [nama_10_gdp];

[3.] http://ec.europa.eu/eurostat/data/database; Extracted on 01.05.16.

[4.] Polish Statistical Yearbooks for the period 2008-2014.

[5.] Die Deutsche Zalungsbilanz fur das Jahr 1999, Deutsche














http://www.stat.gov.pl/


Jan Ostoj

68

[12.] Die deutsche Zalungsbilanz fur das Jahr 2014, Deutsche


[13.] Table of most important macroeconomic indicators in Slovakia.

The Embassy of the Republic of Poland in Bratislava; data obtained

from Slovakian Central Statistical Office, the National Bank of

Slovakia and the Slovakian Ministry of Finance.

http://www.bratyslawa.msz.gov.pl/pl/wspolpraca_dwustronna/wsp

olpraca_gospodarcza/sytuacja_gospodarcza/gospodarka_slowacji_

w_pierwszym_kwartale_2015_roku?channel=www (access

4/05/2016).





69

DOI: 10.19192/wsfip.sj3.2016.5

Anna PIOTROWSKA

CHANGES IN THE EMPLOYMENT AND INCENTIVE

SCHEME AS ELEMENTS OF CORPORATE

RESTRUCTURING BASED ON THE EXAMPLE

OF PKP CARGO

Summary

The paper presents an example of restructuring in the area of employment and incentive

scheme, which was conducted in one of the Polish companies operating in the transport

industry. It shows the changes in the remuneration system, the level and structure of

employment, and their impact on labour productivity and financial results of the

analyzed entity.The analysis was conducted as a case study using data included in

annual reports of the audited company. The aim of the paper is to draw the reader’s

attention to the significance of controlling labour costs in the process of a company’s

management.

Key words: labour costs, corporate restructuring, labour efficiency

Introduction

PKP Cargo was spun off from the Directorate of Cargo Services of

PKP - the Polish state railways, pursuant the Act of 8 September 20001.

The main area of PKP Cargo activities is providing domestic and

international cargo services but the company also offers intermodal

transport, sidings, logistic, forwarding and traction services, transhipment

as well as maintenance and repair. PKP Cargo has been a market leader

for years, it is a holder of a number of safety certificates authorising it to

carry out rail freight operations in Germany, Belgium, Czech Republic,

Anna Piotrowska, a doctoral student of the Cracow University of Economics. 1 Act of 8 September 2000 on commercialisation, restructuring and privatisation of state

railways company ‘Polskie Koleje Państwowe’, Journal of laws of 2000, No 84, item

948 as amended.

Anna Piotrowska

70

Austria, Slovakia and Hungary2. The high-level target of the company is

the growth of its value and maintaining the leading position on the Polish

market and consistent expansion into European markets.

Initially, in 2001, PKP Cargo employed nearly 53,000 workers taken

over from the PKP Directorate of Cargo Services. It turned out that

adjusting such extensive manpower to the size of the market and raising

the efficiency of the staff would be the biggest challenge in the

restructuring process which was due to start. The process was a necessary

element of the intended IPO on Warsaw Stock Exchange which

eventually took place in 2013.

To what extent successfully conducted restructuring in employment

and incentive scheme impacts financial efficiency of a transport

company? What economic and social difficulties must be overcome on

the way? The aim of the paper is presentation of restructuring of labour

costs and its impact on financial bottomline of an organisation. The

analysis refers to the period from 2007 to 2011 when PKP Cargo was still

a state company but preparations for IPO were already under way. The

work makes use of analytical method based on comparison of a chain of

occurrences and financial relations in the studied organisation.

Methodology of research is based on case study and ratio analysis.

1. Changes in the volume and structure of employment

An indispensible element of labour costs analysis is measurement of

quantity of employment. Image 1 clearly shows the decline in the volume

of employment from 44,070 in 2007 to 24,464 in 2011. The most

dramatic wave of redundancies took place in 2008/2009 (reduction by

23,57% y/y). In a five year perspective the volume of employment was

thinned by 44,49%, and as compared with the state as of the beginning of

the company’s activity, by 53,74%.

2Ocena funkcjonowania Rynku Transportu Kolejowego i Stanu Bezpieczeństwa Ruchu

Kolejowego w 2012 r., Office of Rail Transport, Warszawa 2013, p. 9.

http://www.utk.gov.pl/pl/analizy-i-monitoring/oceny-roczne [25.04.2016].

http://www.utk.gov.pl/pl/analizy-i-monitoring/oceny-roczne%20%5b25.04.2016

Changes in the employment and incentive scheme…

71

Image. 1 Levels of employment in PKP Cargo in 2007-2011

Source: Own work based on Z tradycją w nowoczesność. 10 lat PKP Cargo, p.102 and

PKP Cargo Logistics annual report 2011, p. 64.

Dynamics of employment may also be measured by means of staff

turnover ratio i.e. mobility of workers expressed in per cent. Negative

values of total staff turnover (Table 1) show that between 2007 and 2011

more workers left the company than joined in. The lowest ratio can be

observed in 2009 (-23,57%), and the highest in 2007 (-2,26%) before

implementation of the restructuring processes.

Table 2. Staff turnover ratio in PKP Cargo

2007 2008 2009 2010 2011

Ratio of total staff

turnover -2,26% -14,48% -23,57% -7,13% -8,55%

Source: Own work based on www.pkp-cargo.pl

The next stage of labour costs analysis is examination of the structure

of employment with respect to selected criteria. The most popular is the

analysis in accordance with education, sex and the character of

44 070

37 687

28 804 26 750

24 464

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

2007 2008 2009 2010 2011

http://www.pkp-cargo.pl/

Anna Piotrowska

72

responsibilities3. The ratio of employment structure is calculated as

a quotient of the number of a particular group of workers and total

number of workers, multiplied by 100%4.

As far as education of workers is concerned, the most numerous

group had secondary school education – their share in total number of

employees amounted to 45%. As shown in Table 2, the second biggest

group constituted workers with vocational education: in 2007 this group

made 43,25% of total workforce; in 2011 this figure was 38,96%. At the

start of the analyzed period the third most numerous group of workers

were people with elementary school education (6,86%), and the number

of workers with university degree amounted to 5,71%. By 2011 the

situation was reverse in case of the two last groups of employees: staff

with higher education outnumbered those with elementary education by

3%.

Table 3. Structure of employment in PKP Cargo in accordance with education [%]

2007 2008 2009 2010 2011

Higher 5,71 7,00 7,47 8,12 8,89

Secondary 44,20 43,99 45,75 45,88 46,25

Vocational 43,25 42,51 40,42 39,70 38,96

Elementary 6,84 6,50 6,35 6,31 5,90

Source: Own work based on PKP Cargo annual reports for 2008-2011.

The above findings are confirmed by another analysis carried out by

PKP Cargo on the occasion of the company’s 10th anniversary. In this

study different professional groups were taken into account5. Since the

foundation of the company, the proportion of white collar jobs increased

from 13,6% in 2001 to 19,7% in 2011. Likewise, number of blue collar

workers decreased from 86,4% in 2001 to 80,3% a decade later. The blue

collar jobs in PKP Cargo include: rolling stock crews, shunter teams,

technical revision and traction squads.

3 G. Łukaszewicz, Kapitał ludzki organizacji. Pomiar i sprawozdawczość, PWN,

Warszawa 2009, p. 121. 4 Statystyka pracy. Wybrane zagadnienia (ed.) P. Ulman, Wydawnictwo UEK, Kraków

2015, p. 49. 5 M. Ryczkowski, P. Sitkiewicz, Z tradycją w nowoczesność.., op.cit. , p. 103.


73

Table 3 presents the analysis of employment structure with respect to

age of employees. The dominant group, as it can be seen, were workers

between 46 and 55 years of age; young people, below 25, constituted the

smallest group of workers. A systematic process of aging of the

workforce can be observed between 2007 (average age 47) and 2011

(average age 49). The fall of the proportion of young people in the

workforce and increase of the number of workers above 56 years of age

is rather an unfavourable trend.

Table 4. Structure of employment in PKP Cargo in accordance with age [%]

2007 2008 2009 2010 2011

below 25 years 1,03 1,64 0,87 0,64 0,85

26-35 years 6,67 7,01 6,21 5,62 5,4

36-45 years 27,92 26,83 25,68 22,93 21,92

46-55 years 54,98 54,42 58,88 59,83 59,41

above 56 years 9,41 10,1 8,35 10,98 12,41

average age 47,0 46,9 47,2 48,1 48,8


The changes presented above resulted from natural processes as well

as intended HR transformations in PKP Cargo. The company closed 2008

with net financial loss of 178,7 million PLN, but critical year was 2009

when the loss amounted to 497,5 million PLN. In the second half of 2008

the process of relocation of staff to other entities of the PKP group was

begun. In the very year almost 6 thousand employees were moved to:

PKP PLK, PKP Intercity and PKP Regional Transport. In 2009 the

process was continued and affected more than 1,200 employees6. In 2009

a considerable cost reduction was achieved because:

about 4 thousand of the employees were placed on inactive leave,

what resulted in 40% savings on wages,

reduction of basic salary by 5% in case of staff who were outside the

corporate collective labour agreement,

collective redundancies in the company’s headquarters,

6 Ibidem, p. 104.

Anna Piotrowska

74

non-extension of temporary labour agreements,

introduction of the Voluntary Leave Programme: employees who

decided to join the programme were entitled to compensation for

termination of their work contract, they also received additional

severance payment.

Total cost of the employment optimisation programme for that period

amounted to 250 million PLN. The programme considerably influenced

PKP Cargo’s financial result.

Retraining and relocation of staff was continued, to a smaller extent,

in years 2010 and 2011. In 2010 a couple of hundreds of staff were

transferred to entities of PKP Cargo Logistics Group; in the first half of

2011 more than 2 thousand work contracts were terminated. The changes

affected mainly blue collar workers and managers on executive level.

Another strongly reorganised area of the organisation was the

Department of Finance and Accounting. In 2012 the process of service

centralisation was initiated in: internal audit, recovery, HR and payroll,

finance, bookkeeping and controlling. To support these processes the

company initiated Voluntary Relocation Programme7.

2. Changes in remuneration structure

One of the most important factors impacting labour costs in an

organisation is the remuneration scheme. In 2007 the existing pay system

was completely maladjusted to the company’s reality. The organisation

employing more than 44,000 staff had a pay policy which was a heritage

from the old political and economic system. At that time the company

was unable to take on professional staff and pay them the usual market

wages.

Calculation of pay was a major challenge for payroll because of very

complicated system of additional allowances: for work in harmful,

worsened, hazardous conditions, coal benefit, kilometre allowance for

drivers, length-of-service allowance, allowance for working at night etc.

The remuneration structure of PKP Cargo also included a wide range of

bonuses: hourly bonus, percentage-based bonus, point-based bonus,

7 http://www.kurierkolejowy.eu/aktualnosci/14037/PKP-SA-Program-Dobrowolnych-

Odejsc-i-Relokacji.html [09.09.2013].

http://www.kurierkolejowy.eu/aktualnosci/14037/PKP-SA-Program-Dobrowolnych-Odejsc-i-Relokacji.html

http://www.kurierkolejowy.eu/aktualnosci/14037/PKP-SA-Program-Dobrowolnych-Odejsc-i-Relokacji.html


75

quota-based bonus, extra-time bonus8. It should be noted that as many as

85,5% of the total number of PKP Cargo workforce belonged to trade

unions9, which means that transformations in the field of remuneration

scheme without consent of union authorities was practically unfeasible.

Summary of the most important changes in the pay system in PKP

Cargo in 2007 – 2011 is presented in Table 4. Implementation of SAP

accounting software replaced the circulation of paper documents. Before

restructuring period PKP Cargo consisted of 43 organisational units

scattered all over the country and employed more than 44,000 staff. As

the result of restructuring processes the number of units was reduced to

11, and the number of employees to 24,000. The reduction of

employment was achieved thanks to migration of staff to various entities

within the group. It was necessary to enter into books past occurrences

(remuneration adjustments, payroll accounting among newly created

entities)10. Implementation of professional system of performance

appraisal helped to design a training scheme which was tailored to the

needs of the personnel. The training programme was outsourced to a PKP

training institution CS Szkolenie i Doradztwo. The trainings offered to

PKP Cargo personnel included vocational, computer, managerial as well

as health and safety courses and among tutors and coaches were

specialists from railway companies, university lecturers and scientists of

railway research and development units11.

8 http://finanse.nasze-zyski.pl/pkp-cargo-wyplatuje-sie-z-siatki-plac,21366,1,0,0.html

[07.09.2013]. 9 M. Ryczkowski, P. Sitkiewicz, Z tradycją w nowoczesność. 10 lat PKP Cargo, PKP

Cargo Logistics 2011, p. 198. 10 http://www.gavdi.pl/pl-PL/Strefa-wiedzy/Case-studies.aspx?PID=10083&Action

=1&NewsId=180 [07.09.2013]. 11 http://www.csid.pl/index2.php?p=2&s=3 [07.09.2013].

http://finanse.nasze-zyski.pl/pkp-cargo-wyplatuje-sie-z-siatki-plac,21366,1,0,0.html

http://www.csid.pl/index2.php?p=2&s=3

Anna Piotrowska

76

Table 5. Changes in the incentive scheme in PKP Cargo.

Area Before restructuring After restructuring

Document

circulation

Accounting documents

circulating in paper form

SAP financial and accounting

system

Performance

appraisal and

staff training

programme

Performance appraisal

and staff training

programme did not exist

Implementation of

performance appraisal

scheme, training programme

was outsourced and executed

by an entity belonging to PKP

group – CS Doradztwo

Additional

allowance

Large number of various

additional allowance

which made calculation

of pay very complicated

Reduction of the number of

allowances, some were

incorporated into basic

salaries

Remuneration

structure

Basic salary + additional

benefits: 85%

Bonus fund: 15%

Basic salary + additional

benefits: 86,5%

Bonus fund: 13,5%

Bonus system Unconditional

Payment of bonus linked to

the financial result of the

company

Structure of

bonus system

Fixed part: 97%

Discretionary part: 3%

Fixed part: 80%

Discretionary part: 20%

Source: Own work based on PKP Cargo annual reports and www.pb.pl

The biggest wave of modifications hit the remuneration scheme.

Following renegotiations of the corporate labour agreement, a large

number of additional allowances was incorporated into base salaries. The

proportion of bonus fund in total remuneration was diminished from 15%

to 13,5%. Moreover, the incentive element of the bonus was increased

from 3% to 20%. It was decided that the discretionary part of the bonus

would be linked to the positive net financial result of the company. In


77

case of the management level 100% of bonus was linked to performance

and achievements of executives12.

The next aspect of the remuneration scheme reorganisation was the

level of wages and salaries. The average wage including benefits went up

from 3310,10 PLN in 2007 to 4061,10 PLN in 201013. In each

consecutive year in the study average gross remuneration in PKP Cargo

was higher than average remuneration in the Polish economy. The

biggest discrepancy could be observed in 2008 and 2010 (26% and 27%

respectively in favour of PKP Cargo), the smallest discrepancy occurred

in 2009 (17%). Earnings in PKP Cargo were on average higher than

average earnings in Polish transport and logistics sector: in 2007 higher

by 6% and in 2010 by 22%14. Although earnings in PKP Cargo were

rising faster than average annual inflation in the period 2007-2010, it did

not translate into better living standards for all employees. In order to

increase the level of identification of a regular employee with the

company, additional bonuses related to the process of company

privatisation were offered: payment of privatisation bonus in company’s

shares or guarantee of a long-term employment.

3. Analysis of labour costs and their structure

The analysis presented above offers an outlook on the situation in

PKP Cargo with respect to remuneration and incentive system in the

period 2007-2011, however in order to get a wider perspective it was

necessary to conduct ratio analysis of labour costs.

The main source of revenue for PKP Cargo in the analyzed period

was sales of transport services (more than 90% of total revenues). Other

activities generating revenue were: traction services (2%), sales of goods

and materials (1,3%) and also rent of locomotives, service of railway

sidings, repair of railway rolling stock, preparation of expert reports and

running railway museums. In 2011 remuneration and employee benefits

were the main expenditure in the company’s operations (29,8%)15.

12http://www.pb.pl/1725807,88433,porozumienie-pkp-cargo-zwiazki-zawodowe

[07.09.2013]. 13 M. Ryczkowski, P. Sitkiewicz, Z tradycją w nowoczesność., op. cit., p. 153. 14 Zatrudnienie i wynagrodzenia w gospodarce narodowej w 2010 r., Central Statistical

Office, Warszawa 2011, p. 35. Due to lack of available data for 2011, the comparison

focuses on the period 2007 - 2010. 15 Raport roczny 2011, PKP Cargo Logistics, p.27.

http://www.pb.pl/1725807,88433,porozumienie-pkp-cargo-zwiazki-zawodowe

Anna Piotrowska

78

Table 6. Share of remuneration costs in total costs of operations

2007 2008 2009 2010 2011

Costs of operational

activities [million of PLN] 5 557,9 5 694,0 4 341,3 4 577,7 4 698,6

Remuneration and employee

benefits

[million of PLN]

1 763,0 1 901,0 1 355,2 1 354,8 1 402,2

Ratio of remuneration costs

in costs of operational

activity

31,72% 33,39% 31,22% 29,60% 29,84%


The relation of remuneration costs to all prime costs is presented in

Table 5. The relative share of remuneration costs in all costs ranged from

30 to 34% despite gradual reduction of workforce from 44,000 in 2007 to

24,000 in 2011. It should be emphasized that a lot of staff employed in

the examined period were professionals with higher education, in

addition rising average age of workers and, consequently their work

experience, forced the company to pay them more and more in seniority

bonuses. Furthermore, despite the reorganisation in employment, the

average pay was systematically going up surpassing average pay in the

Polish transport sector.

Table 6 contains figures related to profitability of labour costs which

is calculated as a quotient of financial result and labour costs multiplied

by 100%16. The data made available in PKP Cargo annual reports show

that: each 1 PLN paid for remuneration and benefits generated 0,44 gr of

net profit in 2007; 9,4 gr net loss in 2008; 36,71 gr net loss in 2009; 4,57

gr net profit in 2010 and 28,43 gr net profit in 2011. Negative values of

profitability ratio in 2008 and 2009 resulted from the situation that these

two trading years closed with net losses (178,7 million PLN and 497,5

million PLN). Moreover, in 2009 the company had to bear the heaviest

load of costs of employment optimisation (250 million PLN). Although

in 2011 the company financed from its own means another Voluntary

16 A. Szałkowski, Zarządzanie zasobami ludzkimi w organizacji opartej na wiedzy,

University of Economics, Kraków 2008, p. 130.


79

Leave Programme (90 million PLN)17, it was then when labour costs

were characterised by the greatest efficiency.

Table 7. Labour costs profitability in PKP Cargo

2007 2008 2009 2010 2011

Gross profitability

of remuneration 1,52% -8,51% -33,51% 5,09% 24,17%

Net profitability

of remuneration 0,44% -9,40% -36,71% 4,57% 28,43%

Profitability of human

capital 104,28% 87,59% 87,65% 104,33% 126,07%

Added value of human

capital

[PLN]

41 717,8 44 182,3 41 240,8 52 841,1 72 257,2


The ratio of human capital profitability informs about the profit

obtained from each 1 PLN invested in human capital18. Investments in

human capital were the most efficient in 2011 and the least efficient in

the times of global recession 2008-2009. The smallest profit of 41 240,79

PLN fell on a single PKP Cargo employee in 2009; the biggest sum of

money per employee (72 257,19 PLN) was generated in 2011. The rising

trend with respect to human capital added value gives an indication that

profitability of an average employee of PKP Cargo increased in the

period 2007-2011.

The next group of ratios important in the study of labour costs is

connected with labour productivity (Table 7). PKP Cargo annual reports

show fluctuations of average labour costs per one employee: in 2007 the

sum was about 40,000 PLN; in 2009 it rose to 47,000 PLN to reach

57,000 PLN in 2011. The fall of the nominal value of employment was

accompanied by still high value of labour costs in 2009 and 2010

(1 355,2 million PLN and 1 354,8 million PLN respectively).

Furthermore, the labour costs in 2011 were even higher due to co-

17 PKP Cargo Logistics Raport Roczny 2011, p. 26. 18 A. Szałkowski, Zarządzanie zasobami ludzkimi… , op.cit., p. 130.

Anna Piotrowska

80

financing the Voluntary Leave Programme from the company’s own

means. Secondly, PKP Cargo Group saw an increase in work

productivity: from 116,000 PLN in 2007 to 192,000 PLN in 2011. The

increase in productivity was brought about by the implementation of

a project Methodology of Employment Determination in Entities of PKP

Cargo, which facilitated adjustment of employment levels in particular

divisions with respect to required effort and the level of the workload.

New effort norms took into account modernisation and specialisation of

work stations as well as technology (e.g. equipping locomotives in GPS

systems)19.

The ratio of increase of labour productivity is calculated as the

relation of increase in wages (or increase in labour costs) to the increase

of labour productivity (or increase in labour costs)20, amounted to

102,71% in 2008. The optimum value of this ratio should fit in the range

from 0 to 1, thus in 2008 the increase in wages overtook the increase of

work productivity in PKP Cargo. The situation improved in the following

years; in 2011 the ratio stabilised at 90,84%.

Table 8. Ratio of work productivity in PKP Cargo [%].

No. 2007 2008 2009 2010 2011

1.

Average labour costs

per 1 employee [thousands

of PLN]

40 50 47 50 57

2.

Work productivity in PKP

Cargo group [thousands

of PLN ]

116 129 125 153 192

3.

Dynamics of growth of

personnel costs per head

(previous year=100,00)

- 125,00 94,00 106,38 114,00

4.

Dynamics of growth

of labour productivity

per 1 employee

- 121,70 96,90 122,40 125,49

5. Ratio of payment for labour - 102,71 97,01 86,91 90,84

19 PKP Cargo Logistics. Raport Roczny 2011, p. 61. 20 N. Grzenkowicz, J. Kowalczyk, A. Kusak, Z. Podgórski, Analiza ekonomiczna

przedsiębiorstwa, Wyd. Naukowe Wydziału Zarządzania Uniwersytetu Warszawskiego,

Warszawa 2007, p. 182.


81

productivity growth (o) [3:4]

6.


consumer prices [data:

Central Statistical Office]

102,50 104,20 103,50 102,60 104,30

7.


personnel prices per 1

employee/deflator [3:6]

- 119,96 90,82 103,69 109,30

8.


productivity of personnel

costs [4:7]

- 101,45 106,69 118,05 114,81

9.

Growth rate of labour

productivity per1

employee/deflator [4:6]

- 116,79 93,62 119,30 120,32

10. Account in current prices

(o1) - 148,87 94,08 33,08 68,91

11. Account in fixed prices (o2) - 92,00 296,01 16,46 36,48

Source: Own work based on PKP Cargo annual reports for 2008-2011 and www.gus.pl

The meter of payment for growth in labour productivity is a subject

to modifications as it depends on current prices (o1) and fixed prices (o2).

The overview of such modified factors shows that according to current

prices, in 2011 PKP Cargo employees participated in 69,91% of effects

of labour efficiency growth. For each 1% of labour efficiency growth

there was 0,69% increase in personnel costs. When calculated in

accordance with fixed prices, remuneration with benefits rose by 9,30%,

which means that employees’ participation in labour efficiency growth

was in fact 36,48%.

Summing up the analysis of ratios linked to labour productivity in

PKP Cargo, attention must be drawn to changes in labour productivity

related to changes in average personnel costs per one employee and the

changes in efficiency of personnel costs. In the analyzed period both of

these factors almost always were on the rise (except 2009 when the costs

of personnel per one employee fell by 6%) what was a favourable

situation for the employer as well as employees.

Anna Piotrowska

82

4. Impact of restructuring on the company’s financial results

Key ratios offering information on financial profitability of PKP are

presented in Table 8. In 2007 net profit of 7,8 million PLN was made and

positive values of EBITDA (303,9 million PLN) as well as cash flow

(319,8 million PLN) were noted. However, the years that followed (2008

and 2009) ended with net financial loss (178,8 million PLN and 497,5

million PLN respectively). This dramatic fall in the company’s

profitability resulted from sudden decrease of orders on transport of

freights in the times of deepening financial crisis. Another reason was the

costly process of company’s restructuring. Much better results were

achieved in the years 2010 – 2011 thanks to improvements in transport

performance. The net profit of 2011 was also influenced by negative

income tax which arose due to recognition of assets from deferred tax for

unused tax loss from previous years. The management also decided to

reverse provisions for railway travel facilities for employees, pensioners

and members of their families.

Table 9. Profitability of PKP in 2007-2011

2007 2008 2009 2010 2011

Absolute profitability ratios [million PLN]

EBITDA 303,9 234,2 -149,3 389,3 666,6

Profit from sales 75,5 -235,9 -167,2 58,7 365,5

EBIT operational

result -8,1 -76,5 -449,0 76,1 356,5

Net financial result 7,8 -178,8 -497,5 61,9 398,6

Cash flow 319,8 131,9 -197,8 375,1 no data

Relative profitability ratios[%]

ROS 0,1% -3,3% -11,9% 1,3% 7,9%

ROE 0,3% -6,4% -25,6% 2,8% no data

ROI 0,2% -3,9% -11,9% 1,5% no data

Source: Own work based on PKP Cargo annual reports 2008-2011.

Despite the fact that the main role in PKP Cargo’s restructuring

processes was played by optimisation of remuneration and employee


83

benefits costs, certain other actions cannot be overlooked. In the period

2007-2011 the following steps were also undertaken:

reduction of facilities from 42 to 10,

reduction of the number of locomotives (3524 in 2007 versus 2525 in

2011) and increase of workload on those that remained, increase in

gross average tonnage on trains (from 1,229 tonnes in 2008 to 1,346

tonnes in 2011),

halving the number of rolling stock maintenance units,

termination of lease and hiring agreements of unnecessary property

(reduction of leased area from 1,513 ha to 849 ha),

reorganising sales department and change of customer service

approach21.

The factors mentioned above considerably impacted financial

efficiency of the company what was reflected in profitability ratios. Each

1 PLN from sales generated in 2007 1 gr of net profit, but in 2008 3 gr of

net loss, and in 2009 almost 12 gr of net loss. In 2010 1 PLN of revenue

from sales brought PKP Cargo slightly more than 1 gr of net profit, and

in 2011 almost 8 gr of net profit. Another positive phenomenon was

changes in profitability of equity: in 2009 1 PLN of equity brought 25 gr

of net loss but a year later almost 3 gr of net profit22.

5. Impact of employment optimisation on the company in the years

to come

Costs of employee benefits are one of the most important

constituents of costs in the whole operational activity at PKP Cargo: in

2012 the costs amounted to 32% of all operational costs, in 2014 they

rose to 42%, to fall again to 33% in 2015. Almost 2/3 of employee

benefits costs were spent on remuneration but in the period 2013-2015

a considerable amount of money was spent on programmes related to

employment optimisation23.

21 http://www.pkp-cargo.pl/pl/about/472/23/Informacje-o-firmie.html [14.09.2013]. 22 Due to lack of reliable complementary data on structure of PKP Cargo equity for

2011, ROE and ROI indicators were not calculated for this year. 23PKP Cargo annual reports for 2013-2015, https://www.pkpcargo.com/pl/relacje-

inwestorskie/informacje-finansowe/raporty-finansowe/ [15.05.2016].

http://www.pkp-cargo.pl/pl/about/472/23/Informacje-o-firmie.html

https://www.pkpcargo.com/pl/relacje-inwestorskie/informacje-finansowe/raporty-finansowe/


Anna Piotrowska

84

The most important event in the most recent history of PKP Cargo

Group was the debut of the parent company on the Warsaw Stock

Exchange. The public offering of 1,42 billion PLN turned out to be the

first success of a cargo company in the whole European Union. On the

first day of trading the company’s shares traded at 80,20 PLN (an

increase of 18% as compared to the share price from IPO which was 68

PLN per share). The stock market debut was preceded by signing the

agreements finishing the collective disputes between trade unions and

PKP Cargo and implementation of the Employee Guarantee Treaty. The

2013 financial results included costs of 209,2 million PLN related to

payment of a single discretionary bonus and a single benefit in order to

finance employee shares scheme.

In 2014-2015 PKP Cargo Group initiated the Voluntary Leave

Programme. The programme cost the company 265 million PLN in 2014

and in 2015 more than 70 million PLN. In total, thanks to all employment

thinning programmes implemented in 2015, more than 4,000 people left

the company which should bring the company as much as 130 million

PLN in savings per year in consecutive reporting periods24. It should be

highlighted the despite nominal reduction in employment PKP Cargo still

offers training programmes for train drivers and promotes the revival of

the railway trade. It is planned that by 2020 the company will employ

about 2,000 train drivers in order to bridge the generation gap which is

more and more visible due to the trend of aging of the staff.

Consistent costs discipline is necessary to survive in a dynamic

environment which is not favourable for PKP Cargo. The demand for

energy coal is falling, the demand for aggregates and steal is rising, it is

expected that there will be dynamic development of intermodal transport

(economic growth, development of sea ports).

In 2013-2015 there was a considerable slide in outsourcing costs –

thanks to reduction in transport costs, costs of using property and rolling

stock, lower rates of access to railway infrastructure paid to PKP PLK.

At the same time the company had to meet the challenge of

modernisation of railway tracks. Access to infrastructure makes about

15% of operational costs in PKP Cargo Group, that is why all related

fluctuations have a considerable impact on the company’s bottomline.

24 Management board’s report on activity of PKP Cargo Capital Group for 2015, p. 67.

https://www.pkpcargo.com/pl/relacje-inwestorskie/informacje-finansowe/raporty-

finansowe/ [15.05.2016].




85

Success of the IPO and optimisation of employment are just

a starting point to the implementation of the company’s strategy for the

years to come25. It is necessary to diversify the portfolio of transport

services due to the decrease in demand for energy coal, exploit the

potential of modernisation of transport corridors and extend the range of

intermodal services. PKP Cargo strives towards achieving the position of

a key operator of international railway traffic across Poland.

Conclusions

The conducted analysis showed that as the result of the undertaken

restructuring activities PKP Cargo successfully entered Warsaw Stock

Exchange. The optimisation was paid predominantly from the company’s

own resources and it put a heavy load on the company’s financial result

especially in 2009. Among positive outcomes in the area of labour costs

one should mention the increase in workforce productivity and

remuneration productivity. Costs optimisation was accompanied by

liquidation of unproductive assets, reorganisation of the company’s

facilities and outsourcing of certain tasks. Between 2007 and 2011 a loss

of domestic market share in freight (from 75,7% in 2007 to 62,9% in

2011) was observed. But even before 2007 when the market share was

still higher, the company practically did not generate any profits (data for

the period 2003-2007). But thanks to restructuring processes resulting in

reduction in employment, reduction of the number of facilities and

extending the scope of operations on international markets, the company

managed to achieve and maintain healthy condition. In the context of

PKP Cargo’s debut on Warsaw Stock Exchange which took place on 30

October 2013, it should be added that its IPO was valued at 1,42 billion

PLN which was one of the highest values of initial offerings in Poland

that year. The historic opening of the first trading session of PKP Cargo

was at 80,20 PLN/per share, which was more than 18% with respect to

IPO26. PKP Cargo is a notable example of thorough and well-thought

optimisation which healed the internal condition of the organisation and

gave rise to expansion onto European markets.

25https://www.pkpcargo.com/media/507479/cargo20-prezentacjia-strategii-pl.pdf

[03.04.2016]. 26Sprawozdanie Zarządu z działalności PKP Cargo S.A. w 2013, Warszawa 2014 , p. 6.

https://www.pkpcargo.com/media/507479/cargo20-prezentacjia-strategii-pl.pdf

Anna Piotrowska

86

Legal acts

[1.] Act of 8 September 2000 on commercialisation, restructuring and

privatisation of state railways company ‘Polskie Koleje

Państwowe’ Journal of Laws of 2000, No 84, item 948 as amended.

Literature

[1.] Grzenkowicz N., Kowalczyk J. ,Kusak A., Podgórski Z. (2007),

Analiza ekonomiczna przedsiębiorstwa, Wyd. Naukowe Wydziału

Zarządzania Uniwersytetu Warszawskiego, Warszawa.

[2.] Łukaszewicz G., (2009), Kapitał ludzki organizacji. Pomiar

i sprawozdawczość, PWN, Warszawa.

[3.] Ryczkowski M., Sitkiewicz P. (2011), Z tradycją w nowoczesność.

10 lat PKP Cargo, PKP Cargo Logistics.

[4.] Szałkowski A. (2008), Zarządzanie zasobami ludzkimi

w organizacji opartej na wiedzy, University of Economic Cracow.

[5.] Statystyka pracy. Wybrane zagadnienia (ed). Ulman P. (2015),

Wydawnictwo UEK, Kraków.

[6.] Urząd Transportu Kolejowego, Ocena funkcjonowania Rynku

Transportu Kolejowego i Stanu Bezpieczeństwa Ruchu Kolejowego

w 2012 r., Warszawa, 2013.

Websites

[1.] www.finanse.nasze-zyski.pl

[2.] www.gavdi.pl

[3.] www.gus.pl

[4.] www.kurierkolejowy.eu

[5.] www.pkpcargo.com

[6.] www.pkp-cargo.pl

[7.] www.pb.pl

[8.] www.utk.gov.pl

http://www.finanse.nasze-zyski.pl/

http://www.gus.pl/

http://www.kurierkolejowy.eu/

http://www.pkp-cargo.pl/

http://www.pb.pl/


87

DOI: 10.19192/wsfip.sj3.2016.6

Leon PODKAMINER

GROWTH SLOWDOWN ENDANGERS THE

ECONOMIC COHESION OF THE EUROPEAN UNION1

Summary

It is argued that European integration has not fulfilled its chief economic

promises. According to official documents and in compliance with post-Keynesian

economic interpretation of major long-term trends characterizing the Euro area, the

output growth has been increasingly weak and unstable. Productivity growth has been

following a decreasing trend. Income inequalities, both within and between the EU

Member States, have been rising. This sorry state of affairs is likely to continue – and

likely to precipitate further exits, or eventually, the dissolution of the Union. However,

this outcome is not unavoidable. A better integration in the EU is possible, at least in

theory. Also the negative consequences implicit in the existence of the common currency

could be neutralised. However, the basic paradigms of the economic policies to be

followed in the EU would have to be radically changed. First, it follows from

considerations presented that the unconditional fiscal consolidation provisions still in

force would have to be repelled. Second, ‘beggar-thy-neighbour’ (or mercantilist) wage

policies would have to be ‘outlawed’.

JEL codes: F15, F43, E62

Key words: European Union, integration, disintegration, economic growth,

productivity, race to the bottom

1. Economic integration has not fulfilled its promises

Under the provisions of the Maastricht Treaty, European economic

integration has been further advanced. The introduction of the euro

crowned the process of internal liberalisation of trade within the EU and

facilitated the creation of an area of ever freer movements of capital,

Leon Podkaminer – Vienna Insitute for Comparative Economic Studies, assistant

professor of Bielsko-Biała School of Finance and Law. 1 A version of this text (titled Economic Disintegration of the European Union: Not

unavoidable, But Probable) appears in Acta Oeconomica, Vol. 66 (S1) pp. 49-61

(2016).

Leon Podkaminer

88

labour and services throughout the continent. There are many possible

measures of advances in economic integration. Perhaps the most

unproblematic of these measures is the share of mutual trade in the EU

aggregate GDP. Figure 1 shows the mutual exports as a percentage of

euro-area (EU-12) GDP since 1960.

Figure 1. Mutual exports as a percentage of EU-12 GDP

Source: AMECO.

Economic integration (just as internal economic liberalisation or

globalisation) is generally assumed to be conducive to economic growth

(even if it is now often admitted that it may have unwelcome – but

transient – distributional effects). Tighter integration has been expected

to promote faster overall productivity growth – for example through

increased competition and more efficient utilisation of scarce resources.

The European integration has failed to deliver on these promises. In

actual fact economic growth in the integrating Europe has been slowing

down secularly, since approximately the mid-1970s (see Figure 2).

Growth rates follow a declining trend which – if continued – would push

the EU-12 into permanent recession. In addition, growth has become

increasingly volatile, with violent ups and downs, and recessions

climaxing around 1993, 2003, 2009 and 2012. One may bear in mind that

the short-lived recessions in 1975 and 1981 could have been the

aftermaths of the oil embargoes (1974, 1979) and the associated

shortages severely affecting the ‘supply side’. Beyond such shortages

0

5

10

15

20

25

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Growth slowdown endangers the economic cohesion…

89

materially affecting production, the oil shocks had negative consequences

for inflation, income distribution and – especially – private investment2.

The deep slumps in 1993 and 2009 cannot yet be viewed as

‘exogenous shocks’. These slumps were ‘endogenous’. They were the

consequences of the economic ‘architecture’ consciously designed by the

European economic elites. In 1993 the recession was the consequence of

the crash of the Exchange Rate Mechanism; in 2009 it was the near-

collapse of the EU’s financial sector operating by the rules enacted by the

EU policy-makers. It may be added that the second-dip recession of 2012

was provoked by the ‘fiscal consolidation’ hysteria gripping the euro-

area decision-makers. Finally, it is worth observing that the introduction

of the euro (since 1998) and the full internal trade liberalisation (Single

European Market, since 1993) did nothing to accelerate and smooth out

GDP growth.

Of course, the euro area consists of high-income countries. The

neoclassical growth theory predicts that growth in such countries slows

down ‘naturally’. Is then the situation illustrated by Figure 2 fairly

‘normal’? There are two arguments against such an interpretation. First,

observe that until 1973 growth was very fast. The growth slowdown

started abruptly, just as the Bretton Woods system was terminated

(starting the era of liberalisation). That event seems decisive. For it is

rather difficult to assume that in 1973 the West European countries

suddenly reached the levels of developments beyond which they could no

longer grow as fast as before. Secondly, the applicability of neoclassical

growth theory to situation at hand is very problematic. The effects

predicted by that theory are derived under many assumptions which are

hardly satisfied here. For example, the neoclassical growth theory

assumes full employment all along. But that assumption had been

satisfied until 1973. Since then high (if variable) unemployment has

persisted.

2 Actions by the OPEC cartel produced fundamental uncertainty: would the energy

prices/supplies be allowed to return to ‘normal’ levels, or would they rather stay at

‘abnormal’ levels more or less indefinitely? Under such uncertainty the best approach to

taking (irreversible) investment decisions (involving technology choice: energy-saving,

or traditional) could be of a wait-and-see sort.

Leon Podkaminer

90

Figure 2. Growth rates of real per capita GDP for EU-12 and Germany since 1961

Source: AMECO.

2. Is the weakening labour productivity growth responsible for

the slowdown of output growth?

Labour productivity has also followed a declining trend (see Figure

3). This outcome is usually considered a paradox. A number of

commentators and researchers have pondered on the ongoing

productivity growth slowdown. Given the (apparent) acceleration of

technological progress and the rather obvious advances in applied

research and innovation activities, the labour productivity growth

slowdown is considered a paradox. The solutions to the paradox

sometimes forwarded suggest that output (and productivity) have been

systematically underestimated by the statistics3. Others tend to disagree

with the mismeasurement thesis without yet offering a coherent

explanation of the paradox4 (e.g. Byrne et al., 2016).

Robert Gordon (2015) is the most vocal representative of the

‘supply-siders’ who suggest that the technological progress has not

3 See Mokyr, J. (2014), ‘Secular Stagnation? Not in Your Life’, [in:] C. Teulings and R.

Baldwin (eds.), Secular Stagnation: Facts, Causes, and Cures, VoxEU.org eBook or

Feldstein, M. (2015), ‘The U.S. Underestimates Growth’, Wall Street Journal, 18 May. 4 Byrne, D., Fernald. J.G. and Reinsdorf, M.B. (2016), Does the United States have

a productivity slowdown or a measurement problem? Brookings Papers on Economic

Activity, Conference Draft, 10-11 March.

-6

-4

-2

0

2

4

6

8

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015


91

prevented the weakening of labour productivity growth. He then goes as

far as to blame the post-2008 stagnation itself on the slower growth

(since 2004) in potential output ‘emanating from the behaviour of

productivity’. The implication of this seems to be that the supply side

needs further ‘structural reforms’, stronger deregulation, more labour

market flexibility etc. so as to strengthen productivity growth and thus

contribute to faster growth of output5.

However, the results of an econometric examination6 of the links

between labour productivity and output growth for 22 countries (for

which long-term data are available), for West Germany (years 1960

through 1991), for unified Germany (years 1991-2015) and also for

a larger set of countries (years 1991, or 1995, through 2015) indicate that,

generally, productivity does not ‘cause’ output. Much more often the

causation seems to be running in the opposite direction: from output (or

its growth rate) to productivity (or its growth rate). This finding, though

inconsistent with the ‘mainstream’ ideas on the sources of long-term

economic growth, is reminiscent of the classical Kaldor-Verdoorn Law7.

The progressing slowdown in output growth at the global level, initiated

in the mid-1970s (amid the wholesale change of economic policy

paradigms), may have been mirrored – and followed – by the progressive

slowdown in productivity growth (and that despite the indisputable

acceleration of technological progress). Productivity growth slowdown

cannot be the cause of the overall slowdown of output growth in the EU.

5The older economic literature was concerned with the concept called ‘Baumol Disease’

(Baumol 1967). The concept stipulates that the labour productivity in the service sector

could be expected to grow at lower speed than in manufacturing. Because the GDP

share of services increases with affluence it was concluded that the overall labour

productivity growth had to slow down with rising income. However, empirical evidence

does not support the concept (see e.g. Triplett and Bosworth, 2003). The ‘disease has

been cured’ as the inter-sector links have been strengthening (with rising contents of

services as intermediate inputs in the production of non-services and rising contents of

non-services as intermediate inputs in the production of services). 6 Podkaminer, L., The slowdown in labor productivity growth is an effect of economic

stagnation rather than its cause, Acta Oeconomica, forthcoming. 7 Kaldor, N., Causes of the Slow Rate of Economic Growth in the United Kingdom,

Cambridge University Press, Cambridge.

Leon Podkaminer

92

Figure 3. Real productivity (GDP per employed person) growth rate for EU-12

since 1961

Source: AMECO.

3. Is an excessive degree of income redistribution the problem?

Can it be that productivity and output growth slowdown has been the

price for increased income convergence – greater income equality? The

answer is No. The dispersion of per capita incomes across the EU

Member States has been increasing (see Figure 4). One observes sigma-

divergence instead of sigma-convergence.

As can be seen in Figure 4, in terms of per capita income the ‘old’

EU has shown divergence rather than convergence (excluding a brief

period of the recession-related income convergence in 2009). The same is

true for the extended EU.

The increase in income inequality has been even more pronounced in

individual EU Member States: ‘It is the within-country, not the between-

country dimension, which appears to be most important. Inequality in

Europe has risen quite substantially since the mid 1980s8.’

8 Bonesmo Fredriksen, K., Income Inequality in the European Union, OECD Econ.

Dept. Working Paper, No. 952, p. 2.

It is rather obvious that the growth slowdown cannot be attributed to the intensified

shortages of labour: unemployment has been high since the early 1980s. Neither can it

be attributed to intensified shortages of exhaustible natural resources. The continuing

-4

-3

-2

-1

0

1

2

3

4

5

6

7

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

With W. Germany With Germany Liniowy (With Germany)


93

Figure 4 Standard deviation of per capita national incomes (in 1000 PPS,

population-weighted) since 1993

Note: EA = euro area.

Source: AMECO.

4. Central and East European new Member States: trapped in

integration

The economic history of the Central and East European new Member

States of EU is still quite short. Nonetheless, economic growth of these

countries – under progressing integration into the EU – is not really

impressive. The post-accession boom (2003 through 2007) was fairly

short – and ended in deep recession (see Figure 5). The post-recession

growth has been anaemic. There are good reasons to expect their growth

to be rather slow in the future9. These countries have come to depend,

economically, on the West European core (primarily Germany). The pace

(and sources) of their economic growth have been adjusting to those of

Germany. In the medium term they will not grow much faster than

Germany – and the German economy is very likely to stagnate10.

secular decline in commodities’ terms-of-trade indicates that commodities are becoming

less scarce, not more (see e.g. Mollick et al. 2008). 9 Podkaminer, L., The euro area’s secular stagnation and what can be done about it.

A post-Keynesian perspective, Real World Economics Review, Issue 70. 10 The 2009 recession was certainly ignited by the global financial and economic crisis.

But slow post-crisis growth in the Central and East European new EU Member States

cannot be easily blamed on global developments. Unlike the euro area, the US – and

many other (also high and middle-income) countries – experienced faster and more

pronounced post-crisis recoveries.

0

1

2

3

4

5

6

7

8

1993 1997 2001 2005 2009 2010 2015

UE-28 UE-15 EA-12

Leon Podkaminer

94

Figure 5. Real rates of growth of output per capita for the 10 NMS

Source: AMECO.

5. The reasons of the failure

For some authors the economic failure of the EU can be directly

attributed to the principles first introduced in the Maastricht Treaty and

later reiterated in a series of Fiscal Compacts or Pacts. Combined with

the common currency (and the common monetary policy embodying the

tradition of German central banking) the Maastricht fiscal rules have

eventually suppressed output growth, generated internal imbalances –

and thus paved the ground for the internal economic disintegration of the

Union11.

The vicious dynamics behind the developing economic drama can be

concisely described as follows. First to come is the set of fiscal rules

setting narrow limits for public sector deficits. The fiscal rules are to

apply universally – without regard for national specificities. Thus

a country (such as Germany) which is capable of producing output in

excess of the needs of its private sector (be it private consumption or

private investment) cannot rely on the public sector to absorb the excess

private sector savings by means of deficit spending. It is thus left with no

other easy option than to run trade surpluses. For such a country running

trade surpluses becomes a way of supporting domestic growth (and of

keeping its own unemployment in check). Of course, for a country to be

11 Laski, K., Podkaminer, L., The basic paradigms of EU economic policy making need

to be changed, Cambridge Journal of Economics, Vol. 36, No. 1.

-6

-4

-2

0

2

4

6

8

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014


95

capable of running trade surpluses there must be some countries capable

of running trade deficits. It is understood that for countries running trade

deficits this implies not only accumulation of foreign debt – but also the

suppression of domestic output growth and additional unemployment (to

be associated with persistent fiscal deficits).

At this stage it is important to consider the way the common

currency facilitates the rise of cross-country imbalances. One currency,

one monetary policy, and one policy interest rate have very different

economic implications for various members of the same group. The

policy interest rate has been tuned to the average inflation rate calculated

for the whole area. That would be fine if inflation (and inflation histories)

were similar across the whole area. But in fact they have been very

different. In consequence, for countries with inflation persistently higher

than the average the real interest rates have tended to be low (or even

negative) while – at the same time – the real interest rates may be

prohibitively high in countries with much lower inflation. As Figure 6

shows, until 2008 the real interest rates in Germany were consistently

higher than elsewhere. Of course such differential developments

favouring Germany’s partners could not persist indefinitely. As soon as

the boom supported by low real interest rates collapsed (under the weight

of accumulated domestic and foreign debts) the real interest rates in

countries that had had higher inflation become high (in many cases

excessively high). It is at this stage that the initial boom turned into

recession.

Leon Podkaminer

96

Figure 6. Real long-term interest rates (spread over Germany)

Source: AMECO.

The moral to this story is that the principle ‘one size fits all’ does not

work in practice. The common monetary policy has been destabilising

growth and inflation: strengthening inflation (and growth) in countries

experiencing a boom while suppressing inflation (and growth) in

countries experiencing deflation and output slump. Importantly, as the

consequence of differential developments in real interest rates (and

inflation), the countries with traditionally low inflation (and,

consequently, weak growth in wages, such as Germany) have been

gaining cost-competitiveness advantages vs. their higher-inflation

partners (see Figure 7).

Figure 7. Nominal unit labour costs

Source: AMECO.

-10

-5

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ireland Greece Spain Italy Portugal

0

20

40

60

80

100

120

140

160

180

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Germany Ireland Greece

Spain Italy Portugal


97

That way the low-inflation (and weak-growth) countries have

become reliant on ever rising trade surpluses –while the higher-inflation

countries that had earlier priced themselves out of international

competition have been forced to reduce their trade deficits (see Figure 8)

– as a rule hand in hand with persisting depression (or even recession).

Figure 8. Net external lending as a percentage of GDP

Source: AMECO.

6. A better integration in the EU is possible

A better integration in the EU is possible, at least in theory. Also the

negative consequences implicit in the existence of the common currency

could be neutralised. However, the basic paradigms of the economic

policies to be followed in the EU would have to be radically changed12.

Two, closely related aspects are of crucial importance: first, the

rejection of the unconditional fiscal consolidation provisions still in

force; second, the prohibition of ‘beggar-thy-neighbour’ (or mercantilist)

wage policies.

The latter issue is obviously important because unduly restrictive

wage policies which consequently lead to large trade surpluses not only

suppress growth in countries which fail to follow suit (and thus run trade

deficits and accumulate foreign debts) but also because the suppressed

12 Laski, K., Podkaminer, L., The basic paradigms, op. cit.

-20

-15

-10

-5

0

5

10

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Germany Greece Spain Portugal

Leon Podkaminer

98

wages (as e.g. in Germany or Austria) are responsible for overall weak

growth in countries implementing the internal ‘wage moderation’

strategy. In practice, the ‘beggar-thy-neighbour’ policy is also a ‘beggar-

thyself’ policy13.

Rejection of the unconditional fiscal consolidation provisions is

equally important for countries (again, such as Germany) whose private

sector tends, on a permanent basis, to save much in excess of its own

investment. Without the ability to run trade surpluses (but which never

can be sustained indefinitely) such countries must either experience

depression, or allow public sector deficits to absorb the excessive private

savings14 (Laski and Podkaminer, 2013).

7. Globalisation is not helpful

Sometimes there have been allusions to the possibility (and even

desirability) of each and all EU Member States taking over the German

economic policy of repressed wages, balanced public finances and

sizeable trade surpluses (necessarily vs. the rest of the world). This

proposition is an economic mirage if only because it stipulates the

existence of a global economy capable of indebting itself to the EU

indefinitely. Otherwise, the EU acting internationally as a much greater

Germany is unlikely to be accepted by the United States. Very likely the

latter country would retaliate in kind, or adopt protectionist measures.

Besides, the economic strategy relying on repressed wages (and thus

repressed domestic demand) guarantees weak overall output growth (as

the bulk of GDP consists of non-tradable domestically produced goods

and services).

Expectation that the outside world – especially in the conditions of

advancing globalisation – is somehow capable of helping the European

integration is not well grounded. In actual fact the whole global economy

is suffering from a malaise that is not very much different from the one

affecting Europe. Progressing globalisation turns out to have been

13 Laski, K., Podkaminer, L., Common monetary policy with uncommon wage policies:

Centrifugal forces tearing the euro area apart, Intervention. European Journal of

Economics and Economic Policies, Vol. 8, No. 1. 14 Laski, K.,Podkaminer, L., Net private savings in relation to the government’s

financial balance: some basic principles of macroeconomics disregarded by the

European Union’s economic policy makers,[in:] Ó. Dejuán, E. Febrero and J. Uxó

(eds), Post-Keynesian Views of the Crisis and its Remedies, Routledge.


99

associated with the growth of global output becoming progressively

weaker and more unstable (see Figure 9).

Figure 9. Global trade/GDP ratio and global per capita real GDP growth rate

Source: World Development Indicators.

Expanding world trade has failed to accelerate global growth. Rather,

the expanding trade may be argued to have contributed to the output

growth slowdown15. The possible reasons for the unexpected (but

econometrically well-grounded) conclusions are partly similar as in the

EU case. First, under progressing capital account liberalisation individual

countries are quite likely to run trade surpluses (or deficits) much longer

than would be possible under less free capital movements. This makes

the growth process much more unstable. Second, under progressing trade

liberalisation there is a tendency for countries to engage in wage and tax

competition. Individual countries try to outsmart the competitors. But

when all engage in the race to the bottom, no one is going to win – and

all are likely to lose.

15Podkaminer, L., Does trade drive global output growth?, Bank & Credit, Vol. 45,

No.4.

-4

-3

-2

-1

0

1

2

3

4

5

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

Trade/GDP, global growth rate

0

5

10

15

20

25

30

35

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

Global GDP per capita

Leon Podkaminer

100

Concluding remarks

The existence of the European Union is of vital importance to the

Europeans – and especially for the Central and East European nations.

Without the EU these nations would once again find themselves, alone,

in a grey zone between their all too mighty neighbours. Essentially, the

Central and East European nations do not have a (good) alternative to

staying in the UE. But, as the Brexit has proved, some of the ‘old’ EU

members may well contemplate exiting. Whether they eventually choose

to leave may depend on many factors. Continuing economic stagnation

may well prove a decisive factor.

It must be understood that the EU cannot prosper within the confines

of self-imposed limitations that have little economic justification,

theoretical and practical. Unless the basic paradigms of economic policy

for the EU are overhauled, the EU will remain a stagnant area convulsed

by recurring economic (and then social and political) crises. Sooner or

later these crises will give rise to further exits or would even precipitate

the dissolution of the Union.

Whether the radical change happens before it is too late is of course

highly uncertain. In any case it should be the duty of Central and East

European politician – and also economists – to voice their concerns over

the overall orientation of the economic policies of the Union.

Literature

[1.] Baumol, W.J. (1967), Macroeconomics of Unbalanced Growth:

The Anatomy of Urban Crises, American Economic Review, Vol.

57, No.3, pp. 415-26.

[2.] Bonesmo Fredriksen, K. (2012), Income Inequality in the European

Union, OECD Econ. Dept. Working Paper, No. 952.

[3.] Byrne, D., Fernald. J.G. and Reinsdorf, M.B. (2016), Does the

United States have a productivity slowdown or a measurement

problem?, Brookings Papers on Economic Activity, Conference

Draft, 10-11 March.

[4.] Feldstein, M. (2015), The U.S. Underestimates Growth, Wall Street

Journal, 18 May.

[5.] Gordon, J.R. (2015), Secular Stagnation: A Supply-Side View,

American Economic Review: Papers & Proceedings 2015, Vol.

105, No. 5, pp. 54-59.


101

[6.] Kaldor, N. (1966), Causes of the Slow Rate of Economic Growth in

the United Kingdom, Cambridge University Press, Cambridge.

[7.] Mollick, A.V., J. Faria, P. Albuquerque and M. Leon-Ledesma

(2008), Can globalisation stop the decline in commodities’ terms of

trade, Cambridge Journal of Economics, Vol. 32, No. 5, pp. 683-

701.

[8.] Mokyr, J. (2014), Secular Stagnation? Not in Your Life, [in:] C.

Teulings and R. Baldwin (eds.), Secular Stagnation: Facts, Causes,

and Cures, VoxEU.org eBook.

[9.] Laski, K. and Podkaminer, L. (2011), Common monetary policy

with uncommon wage policies: Centrifugal forces tearing the euro

area apart, Intervention. European Journal of Economics and

Economic Policies, Vol. 8, No. 1, pp. 21-29.

[10.] Laski, K., Podkaminer, L. (2012), The basic paradigms of EU

economic policy making need to be changed, Cambridge Journal of

Economics, Vol. 36, No. 1, pp. 253-270.

[11.] Laski, K., Podkaminer, L. (2013), Net private savings in relation to

the government’s financial balance: some basic principles of

macroeconomics disregarded by the European Union’s economic

policy makers, [in:] Ó. Dejuán, E. Febrero and J. Uxó (eds), Post-

Keynesian Views of the Crisis and its Remedies, Routledge.

[12.] Podkaminer, L. (2014), Does trade drive global output growth?,

Bank & Credit, Vol. 45, No. 4, pp. 311-330.

[13.] Podkaminer, L. (2015a), The euro area’s secular stagnation and

what can be done about it. A post-Keynesian perspective, Real

World Economics Review, Issue 70, pp. 1-16.

[14.] Podkaminer, L. (2015b), Central Europe: Trapped in Integration?,

Acta Oeconomica, Vol. 65 (Suppl. 1), pp. 83-106.

[15.] Podkaminer, L. (2017), The slowdown in labor productivity growth

is an effect of economic stagnation rather than its cause, Acta

Oeconomica, forthcoming.

[16.] Triplett, J.E. and Bosworth, B.P. (2003), Productivity Measurement

Issues in Service Industries: “Baumol’s Disease” Has Been Cured,

Federal Reserve Board of New York, Economic Policy Review,

September.


102

DOI: 10.19192/wsfip.sj3.2016.7

Dr Elżbieta RAK-MŁYNARSKA

Dr Halina ŁAPIŃSKA

MUTUAL FOREIGN INVESTMENTS

WITHIN THE VISEGRAD GROUP IN 2011-2014

Summary

The aim of this study is the presentation of a direct foreign investment scale in Visegrad

Countries in 2011-2014 based on an analysis of the statistical data from the available

domestic and foreign sources and the literature research. It is necessary to answer the

question if the Visegrad countries use appropriate factors which stimulate the

expansion and what barriers cause that those investments increase very slowly. The

process of integration with the EU and the creation of an association that supports

common business of Poland, the Czech Republic and Hungary were aimed at

strengthening of the economic cooperation among them, including the investment

development. Indeed, there has been a considerable increase in foreign investment, but

the capital flow among the member countries was and still is relatively small. The

Visegrad countries should take advantage of the geographical proximity, cultural

similarities and common interests to accelerate the economic development through the

mutual economic cooperation.

Key words: foreign direct investment, Visegrad Group

1. Determinants of the investment development in the countries

of Central and Eastern Europe

The factors which determine the inflow of the direct foreign

investment1 in the growing markets, including the countries of Central

Elżbieta Rak-Młynarska PhD, Halina Łapińska PhD, Bielsko-Biała School of Finance

and Law, Department of Finance and Information Technologies. 1 Foreign investments may be divided into Foreign Direct Investment (FDI) and capital

investment. Foreign Direct Investment, according to the Organisation for Economic

Cooperation and Development (OECD) stands for an investment done by the resident of

one country (referred to as an direct investor) in order to obtain a long-term benefit from

capital employed – a resident of another country (defined as a direct investment

enterprise*) www.nbp.portal, (accessed 10.08.2016).

Mutual foreign investments within The Visegrad Group…

103

and Eastern Europe are numerous, and the most important are the

resources of relatively well educated and disciplined labour, a stable

macroeconomic situation, which brings a chance for long-term

investment and profits, the central location against the biggest markets,

particularly the German market, and most importantly, the European

Union membership, which brings an opportunity to exercise of the

privileges of the common market. The conditions of funding determined

by the monetary policy of the main central banks and the tendency to risk

and searching for the markets offering high return rates should be

remembered. A greater tendency to risk contributes to the inflow of the

capital into the growing markets (including the markets of the Central

European countries). It can be noted that not all the growing countries

experience capital mobility in the same amount, which results from the

diversity and impact of internal factors attracting the capital, including

the degree of flow liberalization, the quality of the institution and

production factors2.

2. Investments within the Visegrad Group

The EU membership brings an opportunity of an unfettered flow of

capital among the Member States. This opportunity may also be taken by

the “new EU” Member States – including Poland, the Czech Republic,

Slovakia, Hungary and Romania. In these countries there may be noticed

a systematic growth of the value of the mutual foreign investments.

The Polish entrepreneurs focus on the Czech Republic and Slovakia,

which are the neighbouring countries of Poland in the south.

Nevertheless, an increasing interest in Hungary is also noticeable. The

changes on these markets may be followed by analysing the data

provided by the National Bank of Poland.3

The data from 2014 indicate that the total value of domestic

enterprises’ investments in the Czech Republic was 6,087 billion zloty, in

Slovakia – 0,911 billion zlotys, in Hungary – 1,412 billion zlotys. In

Table 1 there have been presented the changes in the value of the Polish

investments from 2011 till 2014.

2 http://unctad.org/en/PublicationsLibrary/wir2014_overview_en.pdf world investment

report 2014, accessed 5.06.2016 http://www.nbp.pl/publikacje/zib/z, (accessed

29.11.2016).

http://unctad.org/en/PublicationsLibrary/wir2014_overview_en.pdf%20world%20investment%20reoprt%202014

http://unctad.org/en/PublicationsLibrary/wir2014_overview_en.pdf%20world%20investment%20reoprt%202014

Elżbieta Rak-Młynarska, Halina Łapińska

104

Table 1. The changes in the value of the Polish investments in the territory

of the Czech Republic, Slovakia and Hungary (2011-2014).

* the negative result means the withdrawal of the Polish capital. The positive result

stands for the outflow of the Polish capital (the increase of the value of the foreign

investments in a specific country).

Source: kurencja.com.pl, (accessed: 24.08.2016).

In the last few years there has been a significant decrease of

investment in the Czech Republic, and in 2012 there was actually

a withdrawal of the capital, which involved a weaker condition of the

Czech economy. Over the following years the Polish investors returned

to the Czech Republic, and in 2013 and 2014 the Polish foreign

investments in this country increased by 385 million zlotys. The Polish

entrepreneurs invested eagerly also in Slovakia, where the value of

investment in the analysed period increased by 543 million zlotys, in

Hungary (+ 883 million zlotys).

The data on the inflow of the foreign direct investments in Poland

allow an assessment of the attractiveness of the Polish market from the

point of view of the investors, including those from the immediate

environment.

Geographical

area

The changes

of the Polish

direct invest-

ments in 2011

The changes

of the Polish

direct invest-

ments in 2012

The changes

of the Polish

direct invest-

ments in 2013

The changes

of the Polish

direct invest-

ments in 2014

The Czech

Republic

+ 345.7 million

zlotys

- 36.4 milion

zlotys

+ 245.1 million

zlotys

+ 156.7 million

zlotys

Slovakia + 36.8 million

zlotys

+ 350.3 million

zlotys

+ 106.7 million

zlotys

+ 49.3 million

zlotys

Hungary - 24.1 million

zlotys*

+ 865.9 million

zlotys

+ 214.9 million

zlotys

+ 41.2 million

zlotys


105

Tabela z osobnego pliku

Przy tworzeniu PDF


106

According to the data of the National Bank of Poland, in the

analysed period - from 2011 till 2014 - only in case of the Czech

Republic there was an outflow of investment (- 129 million zlotys). The

other countries invested their capital in Poland: Slovakia - 710 million

zlotys, Hungary – 1716 million zlotys.

3. Polish-Slovakian and Slovakian-Polish cooperation

The economic cooperation between Poland and Slovakia is

implemented on the basis of the economic bilateral agreements, i.e. the

Agreement between the Republic of Poland and the Slovak Republic on

the avoidance of double taxation with regard taxes on revenue and

property of 18.08.1994 and the Agreement between the Republic of

Poland and the Slovak Republic on support and mutual protection of

investments z 18.08.1994.

The National Bank of Slovakia in 2014 noted the value of the Polish

direct investments in Slovakia at 208.6 million euros, of which 96.8

million euros are ownership interest and reinvested earnings and 305.4

million euros are debt instruments. The total value of the Slovakian

investments in Poland at the end of 2014 was 182.7 million EUR

(including 144.8 million euros of investment in the ownership interest

and reinvested earnings and 37.9 million euros in debt instruments).

Among the Polish companies investing on the Slovakian market the

ones worth mentioning are the companies connected with automotive and

distribution of market goods (clothes, agri-food products, household

appliance, building materials). The biggest investors are: Maspex

Wadowice – the production and distribution of beverages, Asseco Poland

– IT consulting and software sales, Merkury – the distribution of building

materials and furnishing articles, and Black Red White – production and

distribution of furniture. There has also been an intensive development of

store chains selling clothes and footwear – RESERVED, Gatta, Top

Secret, Wojas, CCC, Bonprix, Cropp Town, House Shop). In Slovakia

there have been opened the branches of the consulting companies and

debt collection agencies (Kruk) and the first online bank – mBank.

Another activity field is the development of the store chain

Textilmarket, which belongs to the Polish company ADESSO, which

opened three stores in Slovakia in 2014. Also, the companies which had

invested in Slovakia earlier have been developing, e.g. the investment of

the company Versaco, operating in Slovakia since 2007. The company,


107

which is a producer of hubcaps will invest 1.5 million euros within five

years and is going to create 60 new workplaces.

The data presented by the National Bank of Poland and the National

Bank of Slovakia do not fully reflect the activity of the investors on both

markets, because after the first investment the investors create branches

in a given country, which are legal entities of this country and the

investments done by them are not considered foreign investments.

Table 3. Leading investors from Poland operating in Slovakia

Name of the

investor

Type of activity

(according to the

Polish Classification

of Businesses Code)

Activity (category) Company

Adesso Wholesale and reatail

trade

clothes and footwear

sales Textilmarket

BRE Bank S.A.

(Commerzbank) Financial services banking mBank

Asseco Information

technologies

IT consulting and

software sales

Asseco

Slovakia

Elemental

Holding Waste management

recycling and trade in

recyclable materials and

deliveries of the

material to smelters and

foundries

Collect Point

sp. z o.o. S.K.A

Source: http://www.msz.gov.pl/pl/p/bratyslawa_sk_a_pl/aktualnosci/polsko_ slowacka_

wspolpraca_ gospodarcza, (accessed 24.08.2016).

The investment cooperation from the Slovakian side has been

developing very slowly. However, there has been noticed an interest of

the Slovakian entities in the Polish energy and construction sectors. And

from the Polish companies’ side – the distribution of consumer goods.

Since 2011 in Poland there have been actively operating about 10

Slovakian companies (compare Table 3), e.g. HB Reavis that has won

a tender for a reconstruction of the Warszawa Zachodnia Train Station,

Eset that belongs to the fastest growing IT companies in Europe

(antivirus software) and J&T (private equity) that invests mainly in the

tourist industry. The companies that invested in Poland are: Vahostay –

a construction company (participates in a consortium that is building the


108

Gdańsk Oil Terminal), KOAM - a producer of vehicle components and

devices, Trade Trans Invest - a forwarding company, Asset Portfolio

Servicing – a debt collection agency (belongs to the capital group Slavia

Capital), and Accace – a consulting company4.

Table 4. Leading investors from Slovakia operating in Poland

Name of the

investor

Type of activity

(according to the Polish

Classification of

Businesses Code)


Accace Professional, scientific

and technical activities

Accounting and

bookkeeping; tax

consultancy

Accace Sp. z o.o.

- Warszawa

Asset Porfolio

Servicing

Office administrative

activities

Office administrative

activities, including

support activities

APS Poland SA -

Wrocław

EKOSERVIS

SLOVENSKO

spol. s r.o.

Water supply, sewage

and waste management

and remediation activities

Materials recovery

EKOSERVISPOL

Sp.z o.o. - Nowy

Targ

ESET, spol.

s r.o.

Information and

communication

IT software and

consulting, and

related activities

Eset Polska Sp.

z o. o. - Kraków

HB Reavis Construction Construction projects

related to buildings

HB Reavis Poland

Sp. z o.o. -

Warszawa

I.D.C.

Holding, a.s.

Wholesale and retail

trade; repair of vehicles

and motorcycles;

Wholesale of food,

beverages and

tobacco products

I.D.C. Polonia

S.A - Kraków

KOAM

S.R.O. Production

Production of

components and

accessories for

vehicles;

KOAM SP.

Z O.O. - Skoczów

SLOVNAFT

Wholesale and retail

trade; repair of vehicles

and motorcycles;

Other specialised

wholesale

Slovnaft Polska

S.A. - Kraków

4http://www.msz.gov.pl/pl/p/bratyslawa_sk_a_pl/aktualnosci/polsko_slowacka_

wspolpraca_gospodarcza, (accessed 24.08.2016).


109

Name of the

investor

Type of activity


Classification of

Businesses Code)


Trade Trans

Invest A.S. Transport and storage

Support activities for

transportation

Przedsiębiorstwo

Spedycyjne Trade

Trans Sp. z o. o. -

Warszawa;

Rentrans Cargo

Sp. z o.o -

Szczecin; Trade

Trans Log Sp.

z o.o. - Warszawa

Vahostav-SK

a.s. Construction

Construction of

residential and non-

residential buildings

Vahostav-PL Sp.

z o.o. - Warszawa

Source: List of Major Foreign Investors in Poland - December 2015

http://www.paiz.gov.pl/publikacje/inwestorzy_zagraniczni_w_polsce pobranie

2.09.2016

The total value of the Slovakian investments in Poland at the end of

2012 according to the National Bank of Slovakia (NBS) was 123.2

million EUR (including 66.4 million EUR of the equity capital

investments), which gave Poland the sixth place among the countries

where Slovakia invested the most of FDI. According to the Polish

Information and Foreign Investment Agency (PAIIZ), the biggest

Slovakian investors in 2013 were: the Slovnaft refinery (a member of the

MOL Group), the producer of vehicle components and devices KOAM,

the forwarding company Trade Trans Invest and the debt collection

agency Asset Portfolio Servicing (belongs to the capital group Slavia

Capital).

Taking into consideration the scope of the Slovakian investments in

2011-2014, Poland was on the fourth place among the countries, where

the Slovakian capital is invested. The main investors are the financial

group Penta i J&T and the development company HB Reavis. Tatry

Mountain Resort - the company operating in the tourist industry,

a member of the J&T Group, has bought a ski resort in Szczyrk and the

Silesian Funfair. The Slovakian investors show a great interest in the

Energy and construction sectors. The Slovakian company E-Group has

announced an intention of building a wind power plant in Poland and

Germany, where the company plans to invest over 100 million EUR.


110

One of the factors restraining the development of a closer

cooperation is the transport infrastructure on the border of both countries.

From the Polish side to the border with Slovakia there have been

executed road investments which helped to improve the road transport

and in the Žilina Region the missing segments of the motorways D1 and

D3 to the Polish and Czech borders need to be built. The lack of those

segments is a serious communication barrier, e.g. for the tourist traffic.

4. The Polish-Czech and Czech-Polish cooperation

Similarly to Slovakia, the cooperation with the Czech Republic is

based on the economic bilateral agreements, i.e. the Agreement between

the Government of the Republic of Poland and the Government of the

Czech Republic on avoidance of double taxation with regard taxes on

revenue and property, of 24 June 1993 and the Agreement between the

Republic of Poland and the Czech Republic on promotion and protection

of investments prepared in Budapest on 16 July 1993.

In 2010 - 2014 there was a definite decrease in the investment

commitment in the Czech Republic, which was a result of the weakness

of the Czech economy. However, there may be noticed that the Polish

investors returned to the Czech Republic in 2013, which resulted in an

increase in the Polish foreign investment in 2014 by 385 million zlotys.

Nevertheless, when analysing the information and data related to the

trade and foreign investments, in the long run it may be noticed that in

the recent years Poland and the Czech Republic have strengthened their

cooperation. After the period of interest of the investors from Western

Europe there came the time to catch up and finishing the construction of

the transport corridors from the south to the north of Europe is supposed

to help. Creating the image of Central Europe as an area of cooperating

countries with a developed network of mutual investments will

encourage the investors from other countries to invest their capitals in

this area5.

5 See more: Zeszyty Naukowe DWSPiT. Studia z Nauk Społecznych, 2014 (7), p. 119–

137, J. Walczak, Czeskie inwestycje zagraniczne w Polsce po 2004 roku. Zarys

problematyki.


111

Table 5. The leading Polish investors in the Czech market

Investor industry Investment

Value

Branch

Name in the

Czech

Republic

Investor’s

Share

PKN Orlen refinery,

chemistry 373 million € Unipetrol a.s. 62,99%

Synthos S.A. rubber 195 million € Synthos

Kralupy a.s. 100 %

PKN Orlen

(Anwill S.A.

Wloclawek)

PVC and

copolymers 34 million €

Spolana

Neratovice

a.s

100 %

Asseco Poland information

technologies 8 million €

Asseco

Central

Europe

100 %

AB S.A. Wrocław information

technologies 30 million €

AT

Computers

Holding a.s.

100 %

BRE Bank S.A.

(Commerzbank) banking 29 million €

mBank –

BRE Bank 100 %

MCI Management travel agencies 73 million € Invia CZ a.s. 50,01%

Source: http://www.publicproc.eu/ckeditor/kcfinder/upload/files/2_Inwestuj%C4%99%

20 w%20Republice%20 Czeskiej%20(1).pdf, accessed: 2.09.2016

Apart from the entities listed in the table, in the Czech market there

are other Polish actively investing companies, which operate in different

industries:

food industry - Tymbark-Maspex S.A. – has bought the biggest Czech

producer of juices and other beverages, Walmark and Mokate S.A. –

the purchase of the second biggest tea producer – the company Zláty

Dukat,

automotive: VAB Tychy – has bought and modernized the plant

producing car bodies for Škoda in Hranice in Moravia, and built a new

plant in Rapotín near Šumperk (the compression station for car

bodies),

mobile telephony : TelForceOne S.A. – has purchased C.P.A. Czech

s.r.o. (the store chain selling accessories for mobile telephony under

the trade name Teletorium), oraz One-2-One S.A. – the purchaser of


112

Advanced Telecom Services s.r.o. from Prague, which specialises in

the products for mobile telephony, e.g. SMS messaging services,

power engineering - Tauron Polska Energia – the foundation of

a company which sells electrical energy.

To make the cooperation on an international scale effective, it is

necessary to provide appropriate conditions for its development,

primarily the investment in the infrastructure networks, particularly

energetic and gas networks, which should become a part of pan-European

North-South connections. It is important insofar that the cooperation

between the Czech Republic and Poland bodes well for the future, as

shown by the figures related to the mutual investments. According to the

Ministry of Industry and Trade of the Czech Republic in Poland there are

about 480 Czech companies, Polish capital exceeds 20% of the shares6. It

refers mainly to the energetic and fuel, chemistry, food and information

industry.

According to the information by the Ministry of Economy of the

Republic of Poland the Czech companies investing in Poland invest their

capitals most willingly in the energetic, food and transport sector. In

Table 6. there have been listed the Czech companies which invested in

Poland in 2015.

The Polish-Czech cooperation has been developing intensively in the

energetic and raw materials industry, in terms of mining conditions and

geological works on both sides of the border. One of the main reasons for

the interest on the Czech side is the depletion of their own coal resources.

Even in case of the Polish mines intended for liquidation, the

maintenance of extraction seems profitable for the Czech companies7.

The result may be mutual mining of natural resources, i.a. by Jastrzębska

Spółka Węglowa and NWR Group (New World Resources) that belongs

to one of the richest Czech – Zdenek Bakala. Other areas of cooperation

in the mining industry are investments aimed at the reactivation of the

mine in Dębieńsko and doing geological research, which bodes an

effective mining in the future. The mines Dębieńsko in Czerwionka-

6 T. Elżbieciak, Polska i Czechy odkrywają się na nowo, 12.04.2013, [online]

http://www.wnp.pl/ wiadomosci/czechy-i-polska-odkrywaja-sie-na-nowo,194848_

1_0_0_0_2.html, (accessed 13.08.2016). 7 O. Filipowicz, Polsko-czeska współpraca gospodarcza. Fakty. Tendencje. Potencjał,

18.10.2010, [online] www.wnp.pl, (accessed 25.08.13).


113

Leszczyny and Morcinek in Kaczyce were bought by the company NWR

Karbonia.

Another example of investment in the mining industry is the

purchase by the Czech Industrial and Energetic Holding (EPH) of the

coal mine Silesia in Czechowice-Dziedzice that belongs to the Kampania

Węglowa. The coal mine obtained additional funds of about 108 million

euros and since 2012 the coal has been mined.

The Polish-Czech cooperation develops also in terms of the natural

gas transport. Since 2011 there has been active a gas interconnector of

the length of (50 km on the Polish side and 10 km on the Czech side), of

the capacity of 0.5 billion m3, which joins the gas systems of Poland and

the Czech Republic. The investors are a Polish Gas Transmission System

Operator Gaz-System and the Czech Transmission System Operator

Net4Gas from RWE Group8.

Table 6. The leading investors form the Czech Republic in Poland

Investor’s

Name

Type of activity


Classification of

Businesses Code)


Advanced

World

Transport

Transportation and

storage

Railway transport of

goods

AWT Rail PL Sp.

z o.o. - Rybnik

ČEZ, a. s..

Production and supply of

electrical energy, gas,

steam, hot water and air

for air conditioning

systems

Production,

transmission and

distrubution of electrical

energy

ČEZ Poland

Distribution B.V. -

Skawina

EPH Mining and quarrying Coal mining

Przedsiębiorstwo

Górnicze SILESIA

Sp. z o.o. -

Czechowice-

Dziedzice

Kofola

Holding a.s. Production Production of beverages

Kofola Sp. z o.o. -

Kutno

Metrostav

a.s. Construction

Construction works for

roads and railways

Metrostav S.A.

Oddział w Polsce -

Bielsko-Biała

8 Ibidem.


114

Investor’s

Name

Type of activity


Classification of

Businesses Code)


PENTA

INVESTM

ENTS

Professional, scientific

and technical activities Management consulting

Penta Investments

Sp. z o.o. -

Warszawa

TCHAS

SPOL S R

O

Construction

inżynieria lądowa

i wodna; Budowa

budynków;

TCHAS POLSKA

SP Z O O -

Warszawa


http://www.paiz.gov.pl/publikacje/inwestorzy_zagraniczni_w_polsce (downloaded

2.09.2016).

The development of the Polish-Czech economic cooperation is also

determined by the execution of the investment in infrastructure networks,

including energetic and gas networks, and also road and railway designs,

which improve the transport of people and goods.

5. The Polish-Hungarian and Hungarian-Polish cooperation

The cooperation between Poland and Hungary is based, similarly as

in case of Slovakia and the Czech Republic, on bilateral economic

agreements:

the Agreement between the Republic of Poland and the Republic of

Hungary on support and mutual protection of investments (Signed:

1992-09-23; Effective date: 1995-06-16);

the Convention between the Republic of Poland and the Republic of

Hungary on the avoidance of double taxation with regard taxes on

revenue and property. Published: 1995/125/602 Journal of Laws9.

The Hungarian market is relatively small, but at the same time it

gives an opportunity to the Polish export companies for an international

expansion. According to the Hungarian Central Statistical Office Poland

is the fourth biggest exporter in Hungary (after Germany, Austria and

China) and the second biggest supplier of food and agricultural products

in Hungary. The export of Polish furniture, clothes, leather products,

9 http://budapeszt.msz.gov.pl/pl/wspolpraca_dwustronna/informacje_ekonomiczne/

country_profile/, (accessed 18.08.2016).


115

construction materials and cosmetics to the Hungarian market has been

developing very intensively.

The Polish-Hungarian trade in 2015 reached a record level of about 8

billion euros, and at the beginning of this year it maintained the upward

trend. Poland is the fourth trade partner of Hungary. The Hungarian

companies that decided to invest in Poland may talk about success, as

well as the Polish ones that invest in Hungary, but there are very few of

them. The level of mutual Polish-Hungarian investments is not satisfying

yet.

The most prospective areas of cooperation between Poland and

Hungary are innovative, energetic, transport, machine-metal, chemistry

and construction sectors.

General merchandise with Hungary involves primarily: food

products, alcoholic beverages and soft drinks, plastic and rubber

products. However, the dominant products exported to this country

products are:

mechanical and electrical devices (1.3 billion euros)

vehicles and equipment (753 million euros, an increase by 36%)

base metal products (659 million euros, an increase by 12%)

The export reached the value of 4.5 billion euros and increased by

11% compared with 2014.

Hungary exports mainly machines and mechanical appliances, plastic

products and light industry products to Poland.

The biggest investors in Hungary are Germany (about 25%),

Luxembourg (about 14%), Holland (ok. 12 proc.), Austria (11,5%.),

France (over 4%) and USA (2,5%). The significant share of Luxembourg

and Holland results from subsidizing of the investments by subsidiaries

of the international companies settled in those countries. Almost three

quarters of those investments were placed in the services sector and over

20% were invested in the processing industry, mainly in the automotive,

IT, pharmaceutical and food industry.

When it comes to the Polish investments in Hungary they are located

mainly in the food, IT and medical services sector. Their value in 2014

was slightly over 351.1 million euros. Taking into consideration the

Polish companies investing in Hungary, the main investors are Fakro,

Bella, or Solaris. However, the Polish investors emphasize that the

problem may be caused by the high and still increasing bankruptcy rate

of the Hungarian companies, problems with unreliable contractors and


116

unclear law procedures of the public orders. The Hungarians count on an

increase in trade between Hungary and Poland, because the Hungrian

Eximbank has opened a special credit line of 492 million euros for the

Polish-Hungarian economic projects10.

The leading Polish companies on the Hungarian market are Bella

Hungaria – a Hungarian company of Toruńskie Zakłady Materiałów

Opatrunkowych, which has been operating there since 1996 r.; Solaris

Bus & Coach – which realised a contract for the delivery of trolleybuses

and 7 other projects.

According to the data of the National Bank of Poland the outflow of

the capital due to the Polish investments in Hungary in 2014 was 9.8

million EUR in total (to compare: 52.3 million EUR in 2013, 206.9

million EUR in 2012, -5.8 million EUR in 2011, 37.2 million EUR in

2010).

Table 7. The leading investors from Poland operating in Hungary

Source: https://hungary.trade.gov.pl/pl/inwestycje/1628,kto-i-gdzie-inwestuje.html

(accessed 2.09.2016).

The Hungarian investments were realised mainly in the business

services sector, and also in the processing industry, particularly

processing of crude oil, and IT, production of pharmaceuticals and

mining industry. In the analysed period (2010-2014) almost one third of

10 http://businessinsider.com.pl/wiadomosci/rekordowa-wymiana-handlowa-polska-

wegry-8-mld-euro/le6m28l

Investor’s

Name

Type of activity

(according to the

Polish Classification

of Businesses Code)


Toruńskie

Zakłady

Materiałów

Opatrunkowych

Production

Production of cotton wool,

dressings and surgical

threads.

Bella

Hungaria

Grupa Kęty Production

Production of paper and

paperboard products.

Production of plastic

products.

Production of semi-finished

aluminium products.

Aluprof

Hungary


117

the Hungarian FDI was located in Central-Eastern Europe. Most

Hungarian investments took place in Central America, Croatia, Belgium,

Switzerland, Luxembourg, Slovakia, Cyprus, Bulgaria and Romania11.

The Hungarian companies invested in Poland three times more than the

Polish ones in Hungary. In our country there are companies like Gedeon

Richter – a pharmaceutical company, the developer TriGranit, or the fuel

tycoon MOL, listed on the Warsaw Stock Exchange.

The Hungarian investors are attracted by the economic and financial

stability in Poland, well-prepared cadre and commitment of the local

governments – good cooperation with the local authorities. The size of

the Polish market is also significant, as well as the availability of

funding, which is currently better than in Hungary, where it is much

more difficult to obtain funds for large investments due to strongly

reduced banks’ activity.

On the other hand, a serious obstacle are high prices of real estate in

Poland, therefore the investors in this sector rather aim at the Hungarian

market, which is considered cheap when purchasing assets like shopping

centres or office buildings. Nevertheless, an inflow of the Hungarian

capital to Poland is expected, because the fast economic development

caused that the large Polish market is attractive to the Hungarian

companies12.

11 https://hungary.trade.gov.pl/pl/inwestycje/1628,kto-i-gdzie-inwestuje.html 12 http://finanse.wnp.pl/polska-wegry-inwestycje-moga-byc-wieksze,193513_1_0_2.

html; (accessed 10.06.2016).


118

Table 8. The leading investors from Hungary operating in Poland

Investor’s

Name

Type of activity


Classification of

Businesses Code)


BorsodChem

Rt. Production

Production of basic

chemicals, fertilisers,

nitrogen compounds,

basic plastic and rubber

products

Petrochemia-

Blachownia

S.A. -

Kędzierzyn -

Koźle

E-Star

Alternative

Plc

Production and supply of

electrical energy, gas,

steam, hot water and air

for air conditioning

systems

Production, transmission

and distribution of

electrical energy

E-STAR

POLSKA SP

Z O O -

Warszawa

Gedeon

Ritcher LTD Production

Production of basic

pharmaceutical substances

Gedeon

Richter

Polska Sp.

z o.o. -

Grodzisk

Mazowiecki

TriGranit

Development

Corporation

Construction Other specific

construction works

TriGranit

Development

Sp. z o.o. -

Warszawa


http://www.paiz.gov.pl/publikacje/inwestorzy_zagraniczni_w_polsce (accessed

2.09.2016).

When analysing the Hungarian investors’ activity on the basis of the

data of the National Bank of Poland (NBP), there may be noticed some

fluctuation: in 2014 the inflow of the Hungarian investments to Poland

was 105.5 million EUR in total, which in comparison with 2013 means

a very high increase (in 2013 there was reported an inflow of investments

of 23 million EUR), but the level of 2012 has not been reached yet, when

the Hungarian investments were 183.4 million EUR13.

13 http://budapeszt.msz.gov.pl/pl/wspolpraca_dwustronna/informacje_ekonomiczne/

country_profile/


119

Conclusions

The Visegrad countries, valued for the geographical proximity,

economic and cultural similarities, and common interest, which results

from the affiliation to the same region, have now an opportunity to

accelerate the economic development through mutual economic

cooperation – this region exactly was treated lightly due to different aims

of the Visegrad Group14. Currently it is important to undertake common

promotion action in the EU countries to build up a positive image of the

Visegrad countries. Primarily, the actions of these countries should be

emphasized not only in terms of the political, cultural and social

cooperation15, but in the economic area in the first place – which

provides a stable economic environment and a possibility of attracting

investors who can significantly accelerate the economic development of

those countries.

A positive aspect is the development of the cross-border cooperation

at the local government level: counties and boroughs, where multiannual

actions broke barriers like: culture differences, different patterns of

conduct and mentality; or a restricted access to information on the

partners16. However, the economic cooperation is an area where there is

a lot to do left and the effectiveness of these actions depends on the

decisions made at the highest level of government. The main barriers in

the economic development and cooperation are fiscal arrangements,

fluctuating demand and different structures of internal markets in given

countries. Therefore, the participation of particular countries of the

Visegrad Group in mutual trade indicates a slow upward trend, but the

level of direct investments is relatively small, because the investors do

not see any greater benefits resulting from transferring the capital abroad.

14 The Visegrad Group was created in 1991 to simplify the process of joining the

Western Europe structures by the Memeber States, mainly NATO and EU. Due to the

fact that the second of these aims was reached in 2004, further existence of the group

lost its meaning, particularly that the Western Europe Big Four did not have too many

common aims in the foreign policy. 15 http://www.europakarpat.pl/index.php/pMenuId/8/pDocId/138/pCmd/1 16 https://www.researchgate.net/publication/305347670_Polsko-czeska_ wspolpraca_

transgraniczna_ w_Euroregionie_Beskidy_ Wybrane_problemy; (accessed 30.11.2016).


120

Literature

[1.] Bożyk P., Międzynarodowe stosunki ekonomiczne PWE, Warszawa

2008.

[2.] Rynarzewski T., Zielińska – Głębocka A., Międzynarodowe

stosunki gospodarcze. Teoria wymiany i polityki handlu

międzynarodowego. Wydawnictwo Naukowe PWN, Warszawa

2006.

[3.] Świerkocki J., Zarys międzynarodowych stosunków gospodarczych,

PWE Warszawa 2004, www.nbp.portal,

[4.] http://businessinsider.com.pl/wiadomosci/rekordowa-wymiana-

handlowa-polska-wegry-8-mld-euro/le6m28l

[5.] https://hungary.trade.gov.pl/pl/inwestycje/1628,kto-i-gdzie-

inwestuje.html

[6.] List of Major Foreign Investors in Poland - December 2015

http://www.paiz.gov.pl/publikacje/inwestorzy_zagraniczni_w_pols

ce

[7.] http://unctad.org/en/PublicationsLibrary/wir2014_overview_en.pdf

world investment report 2014,

[8.] Raport Atrakcyjność Inwestycyjna Europy 2014. http://www.ey.

com/PL/pl/Issues/Business-environment/European-Attractiveness-

Survey-2014,

[9.] Raport Atrakcyjność Inwestycyjna Europy 2015.

http://www.ey.com/PL/pl/Issues/Business-environment/European-

Attractiveness-Survey-2015,

[10.] http://www.publicproc.eu/ckeditor/kcfinder/upload/files/2_Inwestuj

%C4%99%20w%20Republice%20 Czeskiej%20

[11.] http://www.europakarpat.pl/index.php/pMenuId/8/pDocId/138/pC

md

[12.] http://budapeszt.msz.gov.pl/pl/wspolpraca_dwustronna/informacje

_ekonomiczne/country_profile/,

[13.] http://businessinsider.com.pl/wiadomosci/rekordowa-wymiana-

handlowa-polska-wegry-8-mld-euro/le6m28l

[14.] http://finanse.wnp.pl/polska-wegry-inwestycje-moga-byc-wieksze,

193513_1_0_2.html

[15.] O. Filipowicz, Polsko-czeska współpraca gospodarcza. Fakty.

Tendencje. Potencjał, 18.10.2010, www.wnp.pl

http://www.ey.com/PL/pl/Issues/Business-environment/European-Attractiveness-Survey-2015

http://www.ey.com/PL/pl/Issues/Business-environment/European-Attractiveness-Survey-2015

http://www.wnp.pl/


121

DOI: 10.19192/wsfip.sj3.2016.8

Katarzyna ŚWIETLA

Krzysztof JONAS,

DETERMINATION OF THE FINANCIAL RESULT

IN THE INSURANCE AND REINSURANCE

COMPANIES CONSIDERING THE ACCOUNTING

ACT

Summary

The procedure of determining the financial result in the insurance companies

significantly differs from the rules set for a typical entity. The paper, using the example

of the report-the profit and loss account presents the principles for determining both the

technical and overall profit and loss account discussing individual categories. The

paper has indicated categories concerning revenues and costs specific only for the

insurance companies.

Key words: insurance company, financial result, financial reporting

Introduction

The financial result is a category which has virtually always been in

the centre of attention of each entrepreneur, even if it was calculated for

own use. Currently, a process of capital multiplying is the base of the

market management. The capital multiplying manifests itself in obtaining

favourable economic results by individuals, expressed by profits,

preservation of liquidity, and maximizing of the market unit value1.

In Poland, the measurement of categories for the financial result of the

typical entity can be done in two ways, what is expressed by two variants

of a profit and loss account – a single- step variant and a multiple- step

variant. Although it loses its significance nowadays, in favour of the cash

Katarzyna Świetla D.Sc., Krzysztof Jonas, PhD, Department of Financial Accounting

Cracow University of Economics. 1 B. Micherda, K. Świetla, Współczesna rachunkowość, wybrane problemy

metodologiczne, Difin, Warsaw 2013, p. 10.

Katarzyna Świetla, Krzysztof Jonas

122

flow account, it is still one of the essential information sources about the

entity, and the financial result is still the most frequently used synthetic

measure of a company's operations outcomes.

The aim of the following article is to present the principles for

determining the financial result in the insurance and reinsurance

companies and to discuss individual categories of financial report. In

order to achieve the objective, the patterns of a profit and loss account

have been used, published as the annex to the Accounting Act, as well as

the analysis of the current legislation and literature of insurers

accountancy have been employed. Regulations applicable in the

European Union have been omitted, as their analysis exceeds the frame

of this study. A comparison of Polish and international regulations in this

field will be a subject of a separate article.

1. The profit and loss account in the insurance and reinsurance

company

According to Article 45 of the Accounting Act2, the financial report

consists of a balance sheet, a profit and loss account, and additional

information including an introduction to the financial report as well as

further information and explanations. However, according to Article 64,

paragraph 1, of the Act, if an entity is the subject to annual audit

(concerning insurance and reinsurance companies) one also makes

a statement of changes in the equity capital and the cash flow account.

Whereas insurance and reinsurance companies, under Article 49 of the

Act are additionally required to make the report of the entity's activity.

The patterns of individual elements of the financial report regarding

insurance and reinsurance companies are published as the annex No 3 to

the Accounting Act. The profit and loss account is determined by one

variant– there is no option of choice as in case of 'common' entities. In

the profit and loss account, revenues, expenses, gains and losses as well

as additional costs of the financial result for the current and previous

financial year are shown separately. Therefore using the pattern of the

financial report element, is the simplest way to follow the procedure of

determining the financial result in the insurance and reinsurance

companies.

2 Journal of Laws from 2016, item 1047.

Determination of the financial result in the insurance…

123

The financial result is – in the simplest terms – the difference

between total revenues and total expenses. If there is a surplus of total

revenues over total costs, then it is referred to as profit ( a positive

result), otherwise there is a loss ( a negative result ). The formula would

have been adequate enough to determine its value, however in

accountancy, a way of reaching the final result is primarily important,

therefore a presentation of categories comprising the financial result.

Since the profit and loss account illustrates revenues and expenses

categories divided by business areas, it allows for the accurate

investigation of the financial result formation process3.

In the insurance and reinsurance companies, the financial result is

determined slightly differently than in a case of a classic entity.

According to Article 44 of the Accounting Act, the financial result

consists of the following components4:

the insurance technical result,

the difference between revenues and expenses of investment activities,

not part of the insurance technical result,

the difference between other revenues and expenses,

the extraordinary operations result,

the obligatory income tax charges of the financial result, where the

entity is a taxpayer, and payments equivalent to the financial result

based on separate regulations.

Investigating the types of activity, the insurance company's financial

result consists of the following partial results5:

the technical activity result (insurance and remaining technical one),

the investment activity result,

the other operating activity result,

the extraordinary activity result.

The profit and loss account of the insurance and reinsurance

company, actually includes three various reports. According to Article 9,

3Olchowicz, A. Tłaczała, Sprawozdawczość finansowa według krajowych

i międzynarodowych standardów, Difin, Warsaw 2008, p. 259. 4 Journal of Laws from 2016, item 1047. 5 M. Lament, Ocena wypłacalności zakładu ubezpieczeń a system informacyjny

rachunkowości, CeDeWu.pl, Warsaw 2013, p. 165.


124

paragraph 1 of the Act on insurance and reinsurance activity6, the

insurance company in Poland may conduct operations only within

a single insurance department. The whole insurance is divided into two

departments:

I Department - life insurance – includes 5 insurance groups,

II Department – other personal insurance and property insurance –

includes 18 groups7.

Therefore, the insurance company conducting operations within

I insurance department is responsible for:

life insurance technical account, (one model) and

overall profit and loss account (the second model ).

The insurance company conducting operations within II insurance

department is responsible for :

property insurance technical account and other personal ones (the

third model) and

overall profit and loss account (the same model as for I department).

As can be seen, every insurance company prepares two-part profit

and loss account. One more option is possible in case of the reinsurance

company, this entity as the only one, may conduct activity in both

departments at the same time – then three-part profit and loss account is

prepared, which comprises of two technical result accounts and one

overall. The sequence of demonstrating the insurance company activity's

segments, in determining net profit, can be illustrated as follows:

(table 1)

6 Journal of Laws from 2015, item 1844. 7 More concerning the statutory insurance classification and the types of insurance in

the specific groups of groups can be found in: [Krasodomska, Jonas, 2016, p. 36,37] and

[Sułkowska, 2013, p. 60].


125

Table 1. The segments of the insurance company's activity in determining net

profit

Insurance company I department Insurance company II department

Insurance activity Insurance activity

Investment activity Other technical activity

Other technical activity Technical result

Technical result Investment activity

Other operating activity Other operating activity

Operating activity profit/loss Operating activity profit/loss

Extraordinary activity Extraordinary events

Gross profit/loss Gross profit/loss

Income tax

Other compulsory profit reductions (loss

increase)

Income tax

Other compulsory profit reductions (loss

increase)

Net profit Net profit

Source: own description

2. Life insurance technical account, property insurance account and

other personal insurance

The first part of the profit and loss account of the insurance and

reinsurance company includes revenues and expenses that are the result

of basic activity. The reports outcome is to determine the technical result,

which in the insurance companies I department is established in 3

segments: the insurance activity, the investment activity, the other

technical activity, while in the insurance companies II department, it is

established in 2 segments: the insurance activity and the other technical

activity. The reports vary as far as the approach to the investment activity

is concerned. In the insurance companies I department, the investment

activity is presented together with the basic insurance activity, however

in the insurance companies II department it is included in the overall

profit and loss account (it is not a part of the technical result)8.

It is worth mentioning that the insurance activity result is formed by

comparing revenues (adjusted to revenues of a given period) and

8 M. Stępień, K. Jonas, A. Szkarłat, [2004] Rachunkowość zakładów ubezpieczeń, zbiór

zadań, Wydawnictwo Akademii Ekonomicznej w Krakowie, Cracow 2004, p. 92.


126

expenses of the activity (also adjusted to expenses of a given period ).

Revenues and expenses are adjusted by enclosing in a report a change in

the adequate technical provisions. The following tables demonstrate the

structure of the life insurance technical account (table 2) and the property

insurance and other personal technical account (table 3).

Table 2. The structure of the life insurance technical account

Revenues Expenses

Gross premium written

-a reinsurer's share in premium

+/-change in the provision of premiums

and for gross unexpired risk

+/- change in the reinsurer's share in

premiums' provision

Compensations and benefits gross paid

- a reinsurer's share in compensations and

benefits

+/- change in compensations and unpaid

benefits provisions

+/- change in a reinsurer's share in

compensations and unpaid benefits

provision

Acquisition costs

Administrative costs

Reinsurance commissions and share in

reinsurers' profits (minus position,

decreasing acquisition costs)

Deposits Investment activity expenses

Unrealized gains on deposits Unearned losses on deposits

Net deposits revenues after taking into

account costs transferred to overall

profit and loss account

Other technical revenues Other technical expenses

+/- Change of other technical provisions of own share (after taking into account

reinsurer's share)

+/- Bonuses and rebates of own share, change in provisions included

+/- Change in equalisation provision

Source: own description based on the Annex No 3 of the Act from 29 September 1994

on accountancy, Journal of Laws from 2016 item 1047 of a consolidated text.


127

Table 3. The structure of the property and other personal insurance technical

account

Revenues Expenses

Gross premium written

- a reinsurer's share in premium

+/- change in the provision of premiums

+/- change in the reinsurer's share in

premiums' provisions

Compensations and benefits gross paid

- a reinsurer's share in compensations and

benefits



provision



provision

Acquisition costs

Administrative costs

Net deposits revenues after taking into

account costs transferred to overall

profit and loss account

Reinsurance commissions and share in

reinsurers' profits (negative position,

decreasing acquisition costs)

Other technical revenues Other technical expenses

+/- Change of other technical provisions of own share (after taking into account

reinsurer's share)

+/- Bonuses and rebates of own share, change in provisions included

+/- Change in equalisation provision

Source: own description based on the Annex No 3 of the Act from 29 September 1994

on accountancy, Journal of Laws from 2016 item 1047 of a consolidated text

2.1. Revenues and expenses of insurance and other technical activity

The entry 'gross premium written' includes amounts due in the

reporting period of the insurance and reinsurance contracts, regardless if

referring to the subsequent reporting periods integrally or partially. The

entry considers inter alia9:

premiums calculated of coverage provided in the reporting period,

which actual settlement will occur in the subsequent reporting periods,

single premiums, pension contributions included, in terms of life

insurance, single premiums of bonuses and rebates provisions for

policy holders, if it is included in the insurance contracts,

9 Journal of Laws from 2016, item 562, annex No 2, subparagraph 2.


128

additional contributions concerning interim, quarterly or monthly

payments and additional payments of the policy holders for the costs

incurred by the insurance company,

in case of co- insurance, part of contributions per the insurance

company,

assignors' reinsurance contributions, including the entry into the

assignor's portfolio, after withholding unearned insurance

contributions, withdrawn of portfolio for the insurance companies

( the assignors).

Contributions are shown together with all the supplements for the

periods overdue, after deduction of reversing entries, refunds, discounts,

all rebates, taxes and other 'par fiscal' charges.

The entry 'reinsurers' share in gross premium written' consists of

reinsurance premiums paid or payable, due to the insurer in the reporting

period. The entry ' change in provision of premiums and for gross

unexpired risk' includes the difference between the provisions at the end

of the reporting period and the beginning of the period, in terms of gross.

The entry 'reinsurers' share in change of premiums provision' recognises

the difference between the provisions10 at the end of the reporting period

and, the beginning of the period in terms of the reinsurer's share. By that

means so called earned premium- net of reinsurance is determined (the

name is not included in the report however the procedure calculation is

executed).

The category 'Net deposits revenues after taking into account costs

transferred to overall profit and loss account' includes the revenues of

investments covering provisions for capitalised value of annuities and

bonuses and rebates provisions. In the property and personal insurance

technical account the position appears as positive amount (+) and in the

overall profit and loss account as negative amount (-).

The last item of the insurance and reinsurance company revenues

refers to 'the other technical revenues'. It includes income from the

principal insurance activity, that accompanies the basic revenue that is

the insurance premium. It contains inter alia:

10 Both provisions, though gross unexpired risk provision is not included in the

designation.


129

cession fees and handling fees,

due payments for issuing the certificates, proof of insurance

duplicates,

accrued interest for delays in the payment of contributions,

interest of retained deposits by assignors (only occurs with the

reinsurer),

reduction in allowance for uncollectible accounts from insurance and

agents,

insurance inflows previously written off to the financial result,

amortized and outdated insurance payables

exchange gain from insurance and reinsurance settlement.

The main category of expenses are compensations. It is the amount

due to the injured party to compensate for damages as a result of specific

event included in the insurance contract11. Compensations include12:

all payments and charges made in the reporting period from damages

and benefits for injuries and accidents occurred in the reporting period

and previous periods, including all liquidation of damages costs, debt

collection recourses, and incurred costs in order to obtain grants, as

well as litigation costs reduced by received reimbursements,

recourses, all reclaims and subsidies,

compensations and co-insurance benefits, partially related to the

insurance or reinsurance company,

compensations and benefits settled by the assignors attributed to the

insurance or reinsurance company.

The item 'reinsurers' share in compensations and paid benefits gross

paid ' refers to compensations and benefits paid in the reporting period,

attributed to reinsurers' share within outward reinsurance. The entry

'change in compensations and unpaid benefits provisions' recognizes the

difference between the provisions at the end of the reporting period and

at the beginning of the reporting period in terms of gross. The position

'reinsurers' share in the change in compensations and unpaid benefits

provision' refers to the difference between the provisions at the end of the

11 Rachunkowość finansowa zakładów ubezpieczeń, pojęcia, zadania, [2003], A.

Karmańskiej (ed.), Difin, Warszawa 2003. p.124. 12 Journal of Laws from 2016, item, 562, annex No 2, subparagraph 8.


130

reporting period and the beginning of the period in terms of the

reinsurer's share.

The acquisition costs include all direct costs connected with

acquiring and reaching the insurance or reinsurance contract. They

contain inter alia13:

financial intermediaries' commissions (paid after premiums collection

by the insurance company),

salaries including mark- ups of the acquisition employees,

medical examination costs,

certificates and expertises costs concerning the insurance risk

evaluation,

issuing policies costs and contract inclusion into the portfolio costs,

advertising and promotion costs of the insurance products,

general costs connected with applications examination and policies

issuing.

Acquisition costs in terms of the direct insurance or inward

reinsurance incurred during the reporting period are adjusted for the

change in deferred acquisition costs as well as value of costs not incurred

yet but relating to earned premiums14 in the reporting period.

Administrative costs contain all insurance or reinsurance activity

costs, not included in the acquisition costs, compensations or the

investment activity costs. They are connected with the collection of

premiums, portfolio management of the insurance and reinsurance

contracts and the general company management. They include inter

alia15:

office maintenance costs, postal and telecommunication activity costs,

consumption energy and material costs and external services costs,

depreciation of tangible fixed assets and intangibles,

salaries including mark-ups,

business trips expenses,

advertising costs.

13Journal of Laws from 2016, item. 562, clause 2, subparagraph 19. 14It applies to the earned premium of own share mentioned before. 15 Journal of Laws from 2016, item 562, clause 2, paragraph 1,subparagraph 22.


131

Since the administrative costs are common for the whole company,

while preparing the technical insurance account according to the

insurance groups or accounting classes, they should be divided in

accordance with the rules set in the insurer's accounting policy.

The last category of costs connected with the principle insurance or

reinsurance company activity are the other technical costs. They

particularly contain16:

payments due to Insurance Guarantee Fund, the supervision costs of

the insurance and reinsurance activity, the Financial Ombudsman 's

agency activity costs, for Polish Motor Insurers' bureau and

membership charges to Polish Insurance Association,

payments due to Volunteer Fire Department Association of the

Republic of Poland,

exchange losses resulting from flat rate settlement for damages paid of

the insurance contracts concluded by the insurance company and

accounted for under the direct claims settlement,

allowance for prevention fund or prevention activity costs if the

insurance company does not constitute the fund,

value of allowances for uncollectible accounts of direct insurance and

reinsurance,

exchange losses from direct insurance and reinsurance,

other costs of own share included in the premium calculation.

Reinsurance commissions and shares in the reinsurers' profits' are

included in the insurance activity containing the acquisition costs,

though, it is a negative position decreasing acquisition costs. The entry

shows commissions received from outward reinsurance as a specific

reimbursement of damages of raising premiums provided to the reinsurer.

The reinsurance commissions are settled exactly as the acquisition costs.

The change of other technical provisions of own share (after taking

into account reinsurer's share) is the category correcting the basic

revenues and the insurance activity costs. In mathematical terms it is the

difference between all the other provisions17 at the end of the reporting

16 Journal of Laws from 2016, item 562, annex No. 2, subparagraph 14. 17Apart from premiums' provision, compensations and unpaid benefits provision,

bonuses and rebates provision and equalisation provision.


132

period and the beginning of the reporting period, after taking into account

the reinsurers' share in both cases18.

Bonuses and rebates of own share including the change of provisions

– contain bonuses and rebates paid or credited to the policy holders

according to the agreement. Additionally, the entry also shows the

decreasing or increasing value of provision of own share19.

The item 'change in equalisation provision' contains the difference

between the provision value at the end and beginning of the year. The

provision only occurs in the property and other personal insurance. It is

worth mentioning that the equalisation provision is the only provision in

the technical- insurance system, created and clarified only once a year,

moreover, it is the provision without the reinsurer's participation.

2.2. Revenues and costs of the investment activity

Revenues and costs of the investment activity are illustrated in

a great detail as in the technical life insurance account and in the overall

profit and loss account. The table 4 shows each types of revenues and

costs, which have been investigated later in the following chapter.

Table 4. Revenues and costs of the investment activity

Revenues Costs

Deposits revenues including:

property deposits revenues

revenues from deposits in subsidiaries

revenues from other financial deposits

positive result from revaluation

of deposits

positive result from realisation of

deposits

Investment activity costs, including:

property maintenance costs

other investment activity costs

negative result from revaluation

of deposits

negative result from realisation

of deposits

Unrealized deposits gains Unrealized deposits losses

Net revenues from deposits after taking

into account costs, transferred to the

overall profit and loss account

Source: own description based on Annex No.3 of the Act from 29 September 1994 on

Accountancy, Journal of Laws from 2016 item. 1047 a consolidated text.

18 Rachunkowość finansowa… 2003, p. 218. 19 Rachunkowość finansowa… 2003, p. 317.


133

Revenues from the investment activity are acquired from conducting

investment policy and placement of funds held. One can distinguish inter

alia: [Jonas, 2015, p. 67] revenues from bonds, stocks, shares, and other

securities, real property, bank deposits, loans etc. The deposits revenues

record should be kept by denoting revenues: realized and unrealized ones

including the exchange loss from individual types of deposits, separating

the national and foreign revenues, from subsidiaries deposits, not covered

technical provisions deposits and covered provisions deposits for

capitalized values of annuities and provisions for bonuses and rebates.

The investment activity costs are defined as the internal and the

external costs resulting from the investment activity led by the insurer.

The costs include inter alia: deposits management costs, bankers' and

brokers' commissions, depreciation and real property maintenance costs,

excluding depreciation and real property maintenance costs used for own

purpose.

In the investment activity 'deposit revalidation result' can also be

distinguished, shown on the revenues side (positive) or on the costs side

(negative). Within the negative result value of write-offs due to

impairment loss on deposits created in the reporting period is shown, and

within the positive result solution of the early created write-off is

indicated. The similar category is 'deposits realisation result', including

gain or loss, which is noted by the insurer resulting from sale or deposits

realisation including transaction costs (e.g. buyout of securities by the

issuer).

The revenues also contain 'unrealized deposits gains' comprising the

positive revaluation of deposits assets covering technical provisions.

Similarly, costs illustrate unrealized deposits losses' including the

negative revaluation of deposits.

The last entry linked to the investment activity is ' net revenues from

deposits after taking into account costs, transferred to the overall profit

and loss account' category, including revenues from deposits of the

insurer's available funds. The category is shown as a negative position in

the technical life insurance account and as a positive one in the overall

profit and loss account.

3. The overall profit and loss account

The overall profit and loss account includes the whole of insurer's

activity, however partial results of the segments that are the subject of the


134

technical accounts constitute the one entry as the technical result. The

overall profit and loss account of the insurance company II department

displays the investment activity, other operating activity and

extraordinary gains and losses, while in the insurance company

I department only extraordinary gains and losses are applicable. Lack of

the separate segment of the financial activity is the characteristic feature

of the report. Hence revenues and costs are calculated either to the

investment activity or to the other operating activity. The table 5

illustrates the general structure of the overall profit and loss account,

common for both insurance departments as well as for the reinsurance

activity. Since the investment activity segment has been described earlier,

below only the other operating activity and the extraordinary events have

been defined.

Table 5. The structure of the overall profit and loss account.

The technical result of the property and personal insurance, and life insurance

Deposits revenues* Investment activity costs*

Unrealized gains on deposits* Unrealized loss on deposits*

Net revenues from deposits after taking

into account costs, transferred from life

insurance technical account

-

Deposits revenues after taking into

account costs, transferred to technical

account of the property and personal

insurance**

-

Other operating revenues Other operating costs

Extraordinary gains Extraordinary losses

- Income tax

- Other statutory reductions in profit20

*the entries filled in the property and other personal insurance company, in the life

insurance companies are 'zero' entries

** the entry described in the technical account of the property and other personal

insurance

Source: own description based on the annex No. 3 to the Act from 29 September 1994

on the Accountancy, Journal of Laws from 2013, item 330 a consolidated text

20 The entry includes a compulsory settlement with the budget charging the financial

result.


135

The segment of the other operating activity, apart from common

entries, also includes revenues and costs characteristic for the insurance

and reinsurance company. They are [Journal of Laws from 2016, item.

562, annex No. 2, subparagraph 20 and 21 and Journal of Laws from

2015, item. 1844]:

revenues and costs from average agent's activity21, and

other revenues and financial costs (other – except for the costs

included in the investment activity),

revenues and costs from acquisition activity for Voluntary Pension

Funds,

revenues and costs from implementing direct loss adjustment,

other revenues and operating costs.

It is worth noticing that within the other operating activity, included

revenues and costs are calculated in common entity to the financial

activity segment. It is due to the fact that the investment activity

functions as the financial activity segment in the insurance company.

Other revenues and financial costs , that occur during activity and are not

connected to the investment activity (e.g. the current account

maintenance charges) are listed within the segment of the other operating

activity.

The segment of the extraordinary events includes standard events for

each entity , and resulting form events occurrence under the company's

supervision e.g. as extraordinary losses caused by flood, fire or frost, and

as extraordinary compensation for damages caused by the forces of

nature. Only one difference can be noticed, that may occur only in the

insurance company. There are the revenues (extraordinary gains) from

granted and paid on company's own compensations for damages that are

extraordinary losses. It should be mentioned that despite the amendment

of the Accountancy Act in 2015 [Journal of Laws from 2015, item. 1333]

that transferred the extraordinary events to the other operating activity

segment of common entities, in the insurance and reinsurance companies

the entry has remained unaltered.

21An average agent is an individual or a legal entity, that based on the contract

substitutes the specific insurance or reinsurance company in the territory or abroad in

case of damages or accidents included in the coverage.


136

The last category of the overall profit and loss account is income tax,

that decreases gross financial result to net financial result. It is worth

noticing that the insurance company is the entity due to the object of the

activity, that mandatory determines deferred income tax, therefore

'income tax' position includes tax due for the specific period with the

adjustment concerning the change in assets and provisions from deferred

income tax.

The net financial result (profit or loss ) being the profit and loss

account result must be identical with profit/loss shown in the balance

sheet, in the 'equity capital' group.

Conclusions

The procedure of determining the financial result in the insurance

and reinsurance companies substantially differs from a standard one due

to the distinct type of activity. Moreover, it changes depending on the

insurance department, that is conducted by the entity. It is reflected in the

profit and loss account, that presents the procedure of determining the

financial result. All results in three variants of the profit and loss account

determination – two for the insurance companies, and the third one for

the reinsurance companies, which are able to conduct activity in both

insurance departments at the same time. Different from the typical is also

the report layout because of its two parts and lack of the financial activity

segment. The knowledge of the rules concerning the determination of the

financial result and formulating the profit and loss account in the

insurance and reinsurance companies enables its profound analysis and

the identification of the sources of its origin.

Literature

[1.] K. Jonas, Rachunkowość zakładów ubezpieczeń, [2015] Debet s.c.,

Cracow.

[2.] J. Krasodomska, K. Jonas, [2016] Raport roczny jako źródło

informacji o wynikach działalności instytucji finansowej,

CeDeWu.pl Platinum, Warsaw.

[3.] M. Lament, Ocena wypłacalności zakładu ubezpieczeń a system

informacyjny rachunkowości, CeDeWu.pl, Warsaw.

[4.] B. Micherda B., K. Świetla, [2013] Współczesna rachunkowość,

wybrane problemy metodologiczne, Difin, Warsaw.


137

[5.] I. Olchowicz, A. Tłaczała, [2008], Sprawozdawczość finansowa

według krajowych i międzynarodowych standardów, Difin,

Warsaw.

[6.] Rachunkowość finansowa zakładów ubezpieczeń, pojęcia, zadania,

[2003] A. Karmańska (ed.), Difin, Warsaw.

[7.] Regulation of the Minister of Finance of 12 April 2016 on specific

accounting policies of insurance and reinsurance., [Journal of Laws

from 2016, item. 562].

[8.] M. Stępień, K. Jonas, A. Szkarłat, [2004] Rachunkowość zakładów

ubezpieczeń, zbiór zadań, Wydawnictwo Akademii Ekonomicznej

w Krakowie, Cracow.

[9.] Współczesne ubezpieczenia gospodarcze, W. Sułkowska (ed.),

[2013] Wydawnictwo Uniwersytetu Ekonomicznego w Krakowie,

Cracow.

[10.] The Accounting Act of 29 September 1994 ,[Journal of Laws from

2016, item. 1047] a consolidated text.

[11.] The Act of 23 July 2015 on change of the accounting Act [Journal

of Laws from 2015, item. 1333].

[12.] The Act of 11 September 2015 on the insurance and reinsurance

activity [Journal of Laws from 2015 item. 1844].


138

DOI: 10.19192/wsfip.sj3.2016.9

Adam ŻABKA

Beata HOZA

THE STABILITY OF TAX REVENUE IN LOCAL

GOVERNMENT UNITS IN YEARS 2005-2014

Summary

Implementation of tasks assigned to local governments requires assigning them to

sources of funding to finance expenses associated with their performing. Revenues

generated from assigned to local government sources, in accordance with the tax rules,

should be efficient and stable. The aim of the study, which was summed up in this paper,

was therefore to analyse the stability of the own revenues of local government units. The

study was conducted using methods of statistical analysis of indicators of tax revenues

per capita of municipalities, counties and voivodeships.

Key words: stability, tax revenue, local government

Introduction

The function and development of local government units of each

level requires efficient and first of all stable sources of budgetary income.

The term stability with reference to public finances is difficult to define1.

The essence of stability of public finances has not been defined precisely.

The definition by J. Sulmicki, who claims that “by the notion of financial

stability we should understand the absence of the threat of financial

crises”, is the closest to the concept of this paper2. Avoiding a crisis in

terms of public finances means the state capability to extinguish various

Adam Żabka PhD, Beata Hoza PhD, Bielsko-Biała School of Finance and Law,

Department of Finance and Information Technologies. 1 K. Łaski, Mity i rzeczywistość w polityce gospodarczej i nauczaniu ekonomii, INE

PAN, Warszawa 2009, p. 66. 2 K. Łaski, Mity i rzeczywistość w polityce gospodarczej i nauczaniu ekonomii, INE

PAN, Warszawa 2009, p. 66.

The stability of tax revenue in local government units…

139

financial liabilities, especially the capability to subsidize the legal

persons who implement public tasks3.

When it comes to local government units founding of their activities

is based on four pillars4:

their own incomes,

tax shares which are state budget revenue (PIT and CIT) 5,

subsidies,

grants.

The basic group of the income of local government units are the own

revenues which consist mainly of taxes and local fees. Pursuant to Act on

local government income (art. 3 point 2) this group should also include

the share in PIT and CIT which raises common doubt because:

tax revenues are not transferred to the account of local government

units,

local governments do not have any power of taxation relating to those

taxes.

K. Surówka describes shares in PIT and CIT as a kind of subsidies,

dependent on total economic situation6, which are offered to the local

government instead of the statutory subsidies7. The element which cannot

be ignored is the issue of political influence on the structures of those

impositions.

3 J. Sulmicki, Stabilność rynków finansowych a wejście Polski do strefy euro, Warsaw

School of Economics, Warszawa 2005, p. 7. 4 K. Znaniecka, A. Walasik, Zasady budżetowe w warunkach kryzysu finansów

publicznych [in:] Owsiak S. (ed.) Nowe zarządzanie finansami publicznymi

w warunkach kryzysu, PWE, Warszawa 2011. 5 Act of 13 November 2003 on revenue of local government units (Journal of Laws

2003, No. 203 item 1966 as amended). 6 Revenues from PIT and CIT demonstrate significantly higher fluctuations than

revenue from property tax which is the main source of municipalities’ own incomes,

see. A. Żabka, Wpływ cyklicznych wahań koniunktury na dochody JST [in:] Polityka

rozwoju regionu. Koncepcja- procedury administracyjne – finansowanie, K. Malik

[editor], Wydawnictwo Naukowe "Akapit”, Opole 2010. Compare: J. Neneman, P.

Swianiewicz, Koncepcje, warianty i konsekwencje wprowadzenia PIT-u komunalnego

w Polsce, Ekspertyza BGK, Warszawa 2013, p. 15. 7 See: K. Surówka, Koncepcje zasilania finansowego poszczególnych szczebli

samorządu terytorialnego w Polsce, Samorząd Terytorialny, 1997, No. 12.

Adam Żabka, Beata Hoza

140

Local governments’ own incomes are replenished with transfers from

the state budget in the form of subsidies or grants. The amount of those

transfers is to the largest extent dependent on the financial situation of the

local government unit, determined on the basis of tax income rate per

capita. In this paper such incomes will not be discussed because they are

derivative incomes in relation to local governments own incomes.

Stability of incomes generated from particular sources becomes truly

meaningful during the period of economic downturn when the dynamics

of economic development is stemmed.

1. Tax revenue rates for local government units

The basis for determining the dynamics of change of local

governments own incomes were values of tax revenue rates per capita,

determined obligatorily for all local government units on the basis of the

Act on tax revenues of local government units. Tax revenue indicators

are designated via dividing the tax revenues by the number of residents

of a municipality (indicator G), county (indicator P) or voivodeship

(indicator W) respectively. The value of the indicator is determined on

the basis of the budget implementation statement of the local government

units on the basis of the revenues that a unit may obtain by fully8

exploiting the potential of the income sources mentioned above. This

provision refers only to municipalities because the local taxes, the

amount of which is determined by the district council9 (so called limited

power of taxation), constitute only the source of municipalities’ incomes.

The notion of the tax revenue is specified by the Act on local government

incomes for municipalities, counties and voivodeships separately.

As far as municipalities are concerned, the combined incomes from

the following sources10 are the basis for determining the tax revenues:

8 In order to determine tax revenue, the income that a unit might obtain, having

determined local tax rates at their highest level, decided by the Decree of the Minister of

Finance annually without tax reliefs and liability breaks, is assumed [art. 32 of the Act

on revenue of units of local governments …, Journal of Laws of 2003 No. 203 item

1966 as amended]. 9 Act of 12 January 1991 on taxes and local fees (Journal of Laws1991 No. 9 item 31,

art. point 1). 10 Art. 20 of the Act on revenue of units of local governments …(Journal of Laws of

2003 No. 203 item 1966 as amended).


141

property tax,

agricultural tax,

forest tax,

vehicle registration tax,

tax on civil law transactions,

personal income tax paid in a form of tax card,

stamp duty revenues,

incomes from maintenance fees,

natural persons tax revenue share,

corporate income tax share.

The term population means the number of residents who actually live

on the territory of a given local government unit or the territory of state

according to the state of 31st December of the year preceding the base

year, determined by the chairman of the Central Statistical Office11.

The way of determining the tax revenue indicator that was adopted for

municipalities has one essentials drawback from the point of view of the

purpose of this study, it does not account for the incomes from

municipality properties management, so mainly the sales, perpetual

usufruct or property leasing classified in section 700 of budget

classification12. When it comes to municipalities which have at their

disposal properties attractive for investors, their revenue can form

a significant part of the budget13.

As far as counties and voivodeships are concerned, the definition of

the notion: tax revenue is definitely shorter due to the smaller range of the

own income of the budgetary units mentioned above. They do not possess

the sources of budgetary incomes in a form of local taxes, however, the

revenues generated from fees which are the source of income for counties

and voivodeships represented respectively 13.12% in 2014 and 5.96% of

11 Art. 2 of the Act on revenue of units of local governments …, Journal of Laws of

2003 No. 203 item 1966 as amended. 12 The Decree of the Minister of Finance of 2 March 2010 on detailed classification of

revenue, expenditures, expenses and incomes and financial means from foreign sources.

(Journal of Laws of 2010, No. 38 item 207). 13 The following municipalities can be cited as examples: Rewal (24%), Karpacz (18%),

Ustronie Morskie (15%). Source: the municipalities’ budget execution statement.


142

the budgetary revenues of those units14. The shares in taxes representing

state budget revenues: PIT and CIT are significant sources of the counties

and voivodeships revenues, apart from the external transfers. When it

comes to both described units the total revenues from personal income tax

share and corporate income tax share are referred to as tax revenues for

the sake of calculation of indicators P15 and W16.

The most important disadvantage of the construction of indicators G,

P and W, is the way of calculating them which is based on “revenues

shown for the year preceding the base year in reports form the local

government units”17. It means that tax revenue indicators are two year

delayed with respect to the financial situation of the local government

unit, because the value of indicators for 2016 is determined on the basis of

the budget implementation statement for 2014. In the case of the

retrospective analysis the significance of this fact is of minor importance.

2. Analysis of revenue situation of municipalities

The tax revenue indicators of 2477 municipalities have been analysed.

The municipalities which do not have their full history of the period

studied i.e. those which were established after 2005 were omitted.

The overall assessment of the revenue situation of municipalities can

be made on the basis of the tax revenue indicator calculated for all the

municipalities together, so the indicator Gg. The dynamics of the value of

indicator Gg in the studied period have been presented in line graph 1.

14State budget implementation statement for the period from 1st January to 31st

December 2014. Information concerning the budgets of local government units

implementation, Warszawa 2015. 15 Art. 22 point 4 of the Act on revenue of units of local governments … 16 Art. 24 point 5 of the Act on revenue of units of local governments … 17 Art. 32 point 1 of the Act on revenue of units of local governments …


143

Line graph 1. Dynamics of the value of indicator Gg

Source: The author’s own elaboration on the basis of the statistics of the Ministry

of Finance www.mf.gov.pl

It should be remembered that the value of the indicator of tax

revenue per capita is determined on the basis of the budget

implementation statement in year n-2, therefore, the situation presented

in the diagram 1 for year 2011, covers the financial situation of the

municipality in 2009. The downturn of the dynamics of tax revenue18 of

municipalities can be noticed in 2008, i.e. the first year of economic

collapse. During the following year, only once in the period of time

studied, 3% of tax revenue decrease was noted measured year by year.

Taking into account the changes of economic environment exerted by the

crisis and relatively high base values in the preceding years, it should be

claimed that tax revenues are sensitive to economic fluctuations. During

the period prior to economic downturn the indicator had shown higher

dynamics of an increasing tendency. Occurrence of economic downturn

affected the decrease of the indicator. However, it is important to note

that since 2011 (taking into account two year shift of the value of

indicator in relation to the income drawn) the dynamics of the value of

indicator Gg is running at a very stable level. It is confirmed by the rating

18 For the values of indicators G and Gg the population of a given municipality is vital.

This is, however, a parameter of much less fluctuation, and in the case of indicator Gg,

where the tax revenue is divided by the total number of residents of a country, its

fluctuation is practically irrelevant from the point of view of the results.

11,06

1,16

1,28

1,5

1,621,58 1,6

1,71

1,82

1,92

2,03

1

1,09 1,1

1,171,08

0,971,01

1,07 1,06 1,06 1,06

0,9

1,1

1,3

1,5

1,7

1,9

2,1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

year/year 2005 - basis year


144

grades of the municipalities in Poland awarded by Fitch Ratings agency.

In most cases these are BBB grades19, which means greater likelihood

that the changes of factors and economic conditions may influence the

ability to fulfil financial obligation timely20.

An additional analysis of the revenue changeability in relation to its

direction allows to claim that in the vast majority of cases the increase of

revenue of municipalities is faced. The confirmation of this statement has

been show in graph 1.

Graph 1. The directions of changeability of the dynamics of tax revenue indicators

of municipalities during the studied period.



During the analysed period there was only twice a situation when the

tax revenue indicators were lower then during the previous year, namely

in 2011 and 2012. This reflects the situation in matters of the revenues of

municipalities in the years 2009 and 2010, i.e. the initial years of the

economic downturn and results from the decline of the personal income

tax share21. The factor which additionally influenced the decline of

income from this source was the reduction of the tax progression by

introduction of two threshold tax scales. In the remaining years the vast

19 http://www.fitchpolska.com.pl/pl/ratings-and-research/public-finance/issuers.html 20 https://www.fitchratings.com/web_content/ratings/fitch_ratings_definitions_and_

scales.pdf; p. 9. 21 Source: The author’s own elaboration on the basis of the budget implementation

statement of the local government units in the period 2005-2014.

60

5

16

6 43

2

56 82

17

61

13

39

18

1

24

0

18

7 38

3

18

71 2

31

1

20

45 2

42

1

23

95

71

6

11

38

22

96

22

37

22

90

20

94

0

500

1000

1500

2000

2500

3000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

nu

mn

er o

f m

un

icip

aa

liti

es

decrease increase


145

majority of municipalities increase their tax revenue in comparison with

the previous year.

The detailed analysis of the fluctuation value of the indicator of tax

revenue for particular municipalities show that for the vast majority of

units the dynamics of tax revenue fluctuate ranging from (1 – 1.2). The

detailed data was presented in table 1.

Table 1. The structure of municipalities according to the criterion of the value

of dynamics of fluctuation of indicators G

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage of municipalities [%]

Dy

nam

ics

of

tax

rev

en

ue

ind

ica

tor

1.4 – 1.5 0.2 0.4 0.3 0.8 1.3 0.2 0.7 0.6 4.0 0.8 0.2

1.3 – 1.4 0,9 1.6 0.9 3.5 5.9 0.2 1.0 1.6 7.3 1.2 1.1

1.2 – 1.3 3.1 6.9 3.8 18.3 18.9 0.8 1.8 6.4 15.1 3.1 1.6

1.1 – 1.2 14.0 36.9 26.8 56.1 42.2 2.8 6.3 36.7 30.3 20.1 12.7

1.0 – 1.1 56.6 47.0 50.5 18.2 27.3 24.7 32,7 46.8 28.7 66.1 68.4

0.9 – 1.0 21.7 5.2 14.7 1.8 2.7 62.9 37,3 6.0 4.8 6.0 13.3

0.8 – 0.9 2.1 1.1 2.1 0.3 0.4 7.4 10,7 0.8 1.3 1.1 1.5

0.7 – 0.8 0.4 0.3 0.5 0.1 0.1 0.5 2.7 0.1 1.6 0.2 0.4

total 99.0 99.4 99.6 99.1 98.8 99.5 93.2 99.0 93.1 98.6 99.2



The analysis of data concerning the changeability of tax revenue

indicators during the studied period shows that the vast majority of

municipalities demonstrate stable tax revenue. Except three years: 2006

(statement from 2004), 2011 (statement from 2009) and 2012 (statement

from 2010) the revenue of majority of municipalities (71 – 83% of all

municipalities except the period 2011-2012) is characterized by the

dynamics ranging from 1 – 1.2. The detailed analysis for the particular

municipalities shows that range22 of indicators of tax revenue per capita

fluctuates from 0.02 to 4.52. In the set of municipalities studied there are

some municipalities where a sudden (year by year) and significant

decrease was noted (even 14 times) or decrease (by 81% in comparison

with the previous year) of the tax revenue indicator. The average value of

the fluctuation of the tax revenues determined as the median of the

22 Measured by the standard deviation of the value of indicators G in the studied period.


146

standard deviation of the dynamics of indicators G during the analysed

period was merely 0.11; which means that the average fluctuation of the

dynamics of revenue amounted to 11 % annually. The fluctuation for

25% of all the municipalities studied (1st quartile) was determined at the

level 0.08, and 3rd quartile at the level of 0.15. The results obtained show

that the municipalities were equipped with the stable sources of

financing. Larger fluctuations can be observed in minority of units,

therefore in the case of the vast majority of municipalities we can talk

about stability of their revenue during the analysed period.

3. Analysis of the situations of cities with county rights

Cities with county rights are special units of administrative division of

a country; therefore an individual research was conducted for them. Due

to the differentiation, frequently encountered in the statistics, the analysis

will be carried out for ten cities with more than 300 000 inhabitants and

for 55 cities with a number of inhabitants below this quantity separately.

To keep the accuracy of the analysis, it is important to stress the fact that

in the case of cities with county rights only the indicator of incomes

generated from sources assigned to municipalities was analysed; the

indicator corresponding to the revenue of the county part was omitted.

According to the scheme adopted, the analysis begins with a presentation

of dynamics of directions of tax revenue fluctuation per capita. The value

of this amount for the cities with a number of residents up to do 300

thousand was shown in graph 3.


147

Graph 211. Directions of fluctuation of tax revenue indicators of the cities with

county rights with up to 300 thousand residents during the analysed period.



The numbers presented in the graph allow drawing a conclusion that

cities with the county rights generate more stable revenue from tax

sources than the municipalities. In vast majority of cases the increase of

tax revenue per capita can be noted. Only in 2011 the majority of such

units noted the decrease of the indicator in a proportion almost

corresponding to the municipalities: 69% of cities with county rights

noted the decrease of the indicator, whereas in the case of municipalities

the amount was 71%. In the case of the units which were analysed, there

was only one year when the majority of them noted the decrease of the

indicator. In the following year 2012 the cities whose indicator increased

in comparison with the previous year overwhelmed. This may result from

the fact that the cities with county rights are usually bigger units, with

more developed entrepreneurship than municipalities. They often

function as local socio-economic centres.

61 1 1 3

38

19

0

62 1

4954 54 54 52

17

36

55

4953 54

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

nu

mn

er o

f th

e ci

ties

decrease increase


148

Table 2. Structure of cities with county rights with up to 300 thousand residents

according to the criterion of the dynamics of fluctuation of indicators G

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage of cities with county rights with a number of residents up to 300 thousand [%]

Dy

nam

ics

of

tax

rev

en

ue

ind

ica

tor

1,4 - 1,5 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

1,3 - 1,4 0,0 0,0 1,8 3,6 1,8 0,0 0,0 0,0 1,8 0,0 0,0

1,2 - 1,3 3,6 0,0 3,6 16,4 1,8 0,0 0,0 1,8 5,5 0,0 0,0

1,1 - 1,2 16,4 52,7 40,0 63,6 21,8 0,0 5,5 38,2 9,1 9,1 7,3

1,0 - 1,1 69,1 45,5 52,7 12,7 69,1 30,9 60,0 60,0 69,1 87,3 90,9

0,9 - 1,0 7,3 1,8 1,8 1,8 5,5 63,6 27,3 0,0 9,1 1,8 0,0

0,8 - 0,9 1,8 0,0 0,0 0,0 0,0 3,6 1,8 0,0 1,8 1,8 1,8

0,7 - 0,8 1,8 0,0 0,0 0,0 0,0 1,8 5,5 0,0 0,0 0,0 0,0

total 100 100 100 98,2 100 100 100 100 100 100 100



Both the analysis of fluctuation dynamics of the tax revenue

indicators of cities with county rights with up to 300 thousand residents

and the analysis of municipalities lead to similar conclusions. In this case

there is even greater concentration of the indicators. During the period of

relative economic stability, which correspond to data from 2014-201623

in the table, the parameters of tax revenue fluctuation indicators of the

vast majority (69.1-90.9%) were placed within one range. This shows

their significant homogeneity as far as their ability to generate tax

revenue is concerned.

The situation of cities with county rights with less than 300 thousand

inhabitants is very similar as far as the directions of dynamics of the

indicators value are concerned. Data presenting the directions of the

dynamics fluctuation of the tax revenue indicator per capita is presented

in graph 4.

23 The value of the indicators from this period is determined on the basis of the budget

implementation statements in the period 2012-2014.


149

Graph 3. Directions of the dynamics fluctuations of the tax revenue indicators

of cities with county rights with the number of inhabitants up to 300 thousand

during the analysed period.



The first compelling observation is prevalence of increase of the tax

revenue indicator per capita. During the period under consideration there

were eight years when practically all units noted the increase of

revenue24. However, in the case of year 2011 all units of this kind noted

the decrease of the indicator. It may result from the fact that the biggest

enterprises which are CIT payers, are most frequently located on the

territory of metropolis, and precisely the corporate income tax is the

subject of the biggest fluctuations caused by disruptions of dynamics of

economic situations. As for the cities with the number of inhabitants up

to 300 thousand the majority (in this case all) units noted a decrease of

the indicator for only one year. It shows the ability of these units to return

promptly to the increase path.

24 Year 2010 was also included, when one of the cities noted the increase of the

indicator.

0 0 0 01

10

4

0

3

0 0

10 10 10 109

0

6

10

7

10 10

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

nu

mn

er o

f th

e ci

ties

decrease increase


150

Table 3. Structure of the cities with county rights with more than 300 thousand

residents according to the criterion of the dynamics of fluctuation of indicators G

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage of cities with county rights with more than 300 thousand residents [%]

Dy

nam

ics

of

tax

rev

en

ue

ind

ica

tor

1,4 - 1,5 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

1,3 - 1,4 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

1,2 - 1,3 0,0 0,0 0,0 50,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

1,1 - 1,2 0,0 20,0 90,0 50,0 10,0 0,0 0,0 20,0 0,0 0,0 0,0

1,0 - 1,1 100,0 80,0 10,0 0,0 80,0 0,0 60,0 80,0 70,0 100,0 100,0

0,9 - 1,0 0,0 0,0 0,0 0,0 10,0 100,0 40,0 0,0 30,0 0,0 0,0

0,8 - 0,9 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

0,7 - 0,8 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0

total 100 100 100 100 100 100 100 100 100 100 100



The comparison of the cities with county rights with a number of

residents exceeding 300 thousand leads to drawing conclusions

concerning even greater homogenization of those units than in the case of

the cities with county rights with a number of residents up to 300

thousand. Partially it results from a small number of such cities.

However, in the case of four years studied, all units fell into one range of

the dynamics fluctuation of changes of indicator G. Tax revenues of local

government units of this type show a considerable stability.

4. Analysis of revenue situation of counties.

379 counties possessing a full history of indicators P in the studied

period were analysed. Similarly to the municipalities the study began

with the analysis of the general situation of counties on the basis of the

research of the dynamics of indicators Pp during the period under

consideration. The graphic depiction of the dynamics of the counties’ tax

revenue indicator was show in line graph 5.


151

Line graph 2. The dynamics of the value of indicator Pp



The tax revenue of counties is more changeable than the tax revenue

of municipalities analysed before. This results form the fact that the

notion of tax revenue in the case of counties is definitely a narrower

notion than in the case municipalities and the revenues included in the

definition of this term (PIT and CIT share) are characterised by

changeability caused by fluctuation of business cycle25. This causes

achievement of relatively high dynamics of indicator Pp during the

period of prosperity and significant decreases during economic downturn.

The average tax revenue indicator per capita during the period under

consideration almost tripled (2.85). It is significantly more than in the

case of municipalities (2.03). It should be emphasized that whereas in the

case of municipalities the increase of indicator on the 203% figure means

the increase of its nominal value by 767.15 PLN, when it comes to

counties the increase by 285% means the increase of tax revenue per

capita by 129.60 PLN. The biggest dynamics of the tax revenue growth

of counties took place during the period 2005-2008 (having regard to two

year time shift between the values of indicator Pp and the revenue

achieved). During this period the value of indicator increased by 245% in

25 See: Żabka A., Wpływ cyklicznych wahań koniunktury na dochody JST [in:] Polityka

rozwoju regionu. Koncepcja – procedury administracyjne – Finansowanie edited by K.

Malika, Wydawnictwo Naukowe „Akapit”, Opole 2010.

11,15

1,55

1,78

2,21

2,452,29 2,25

2,442,54

2,652,85

11,34

1,15

1,241,11

0,94 0,981,08 1,04 1,04 1,08

0,7

1,2

1,7

2,2

2,7

3,2

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016



152

comparison with the year 2003. The analysis of the dynamics year by

year confirms the conclusions concerning significant changeability of the

studied parameter. In comparison with the municipality indicator the

growths during the initial period as well as the falls in the period of

economic downturn reach higher amplitudes. It is difficult to speak of

stability of indicator, Pp in the post-crisis period, as was the case with

indicator Gg. The next stage of the analysis of counties revenue, as

happened with municipalities will be conducting a research on directions

of fluctuation of these units’ revenue. The results of the examination

were presented in graph 6.

Graph 4. Directions of fluctuation of the dynamics of indicators of counties tax

revenue in the analysed period.



The analysis of directions of fluctuation, the direction of fluctuation

dynamics of the amount of counties’ tax revenues shows quite

a considerable “unambiguousness” of directions of such dynamics,

understood as conformity of the directions of changes determined for the

overwhelming majority of counties. In the period of prosperity

practically all units note increase of tax revenue in comparison with the

previous year, when it comes to economic downturn (year 2011, which

corresponds to the situation of counties in 2009) in the case of 96% of

counties there was a decrease of tax revenue in comparison with the

previous year, whereas in the case of municipalities there were 71% of

such units. This results from a narrow catalogue of counties revenue in

comparison with municipalities, especially the revenue taken into

6 1 3 1 1

362

165

229

10 9

373 378 376 378 378

17

213

377350

369 370

0

50

100

150

200

250

300

350

400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

nu

mn

er o

f co

un

ties

decrease increase


153

account for determining the value of tax revenue indicators. This causes

more vulnerability of the counties’ own income to the fluctuation of

economic situation. It should be emphasised that the analysis of revenue

of counties shows their high stability, which results from a big share of

subsidies and grants in the structure of counties revenue26.

Table 4. Structure of counties according to the criterion of value of fluctuations

dynamics of indicators P

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage of counties [%]

Dy

nam

ics

of

tax

rev

en

ue

ind

ica

tor

1,4 - 1,5 1,3 33,2 0,3 0,5 0,0 0,0 0,0 0,0 0,0 0,0 0,0

1,3 - 1,4 1,8 52,0 1,1 8,7 0,5 0,0 0,0 0,5 0,3 0,0 0,0

1,2 - 1,3 7,7 9,0 22,7 76,8 12,7 0,0 0,3 5,5 0,5 0,3 0,0

1,1 - 1,2 62,0 1,6 63,6 13,2 61,5 0,8 0,8 59,9 11,6 12,1 29,6

1,0 - 1,1 25,1 0,5 11,6 0,5 25,1 3,7 54,9 33,5 79,7 85,0 68,1

0,9 - 1,0 1,3 0,0 0,3 0,3 0,3 50,9 41,7 0,5 7,4 2,1 1,6

0,8 - 0,9 0,3 0,3 0,5 0,0 0,0 43,8 2,1 0,0 0,0 0,0 0,8

0,7 - 0,8 0,0 0,0 0,0 0,0 0,0 0,8 0,0 0,0 0,3 0,5 0,0

total 99,5 96,6 100 100 100 100 99,7 100 99,7 100 100



The analysis of data concerning the fluctuation of tax revenue in the

period under consideration shows a bigger dispersion of counties’ tax

revenue than was the case with municipalities. The spread of the

dynamics of the indicator of counties’ tax revenue for the majority of

units has fluctuated within the range of 0.8 – 1.5, whereas in the case of

municipalities has fluctuated within the range of 0.9 – 1.2.

The detailed analysis for particular counties shows that the spread27

of tax revenue indicators per capita fluctuates within the range of 0.1 to

0.41. The tax revenues of counties have much greater stability in a long

period of time than municipalities, in spite of the fact that the range of

26 In 2015 the share of counties own income was 33.3%. An analogue indicator for

municipalities was 49.6%. Source: the budget implementation of the local government

units for the year 2015: www.mf.gov.pl 27 Measured by the standard deviation of the dynamics of the value of indicators P in an

analysed period.


154

fluctuation of tax revenue indicators is greater in short periods of time (as

data in table 2 presents). As for counties no such spectacular annual

dynamics of tax revenue fluctuation can be noted as in the case of

municipalities. The highest annual tax revenue indicator which has been

noted amounted to 2.35. The average value of tax revenue fluctuation

determined as a median of standard deviation of the dynamics of

indicators P in the analysed period was merely 0.13; which means that

the average fluctuation of dynamics of revenue amounted to 13 % per

year. The fluctuation for 25% of all municipalities examined (1st quartile)

was determined at the level of 0.12, whereas 3rd quartile at the level of

0.14. The results obtained show that the tax revenues of counties are

characterised by the greatest stability. It should be emphasised that the

revenues analysed which are the basis for calculation of tax revenue

indicator P, make less than 30% of counties tax revenues, therefore the

revenues from these sources do not determine to the largest extent the

total revenues of those local government units.

5. Analysis of the situation of local government voivodeships

As far as the territory is concerned the biggest local government units

are voivodeships. As a result of administrative reform, instead of the

existing forty nine voivodeships, sixteen voivodeships of regional nature

were created. Similarly to the units that have been analysed so far, they

heave been equipped with the sources of tax revenue in a form of

Personal Income Tax share (PIT) and Corporate Income Tax share (CIT).

The amount of tax revenue of counties per capita is measured by

indicator W, which is different for each voivodeship. The average value

of tax revenue per capita set down for all voivodeships determines the

value of indicator Ww. The dynamics of indicator Ww in the analysed

period was presented in line graph 3.


155

Line graph 3. Dynamics of the value of indicator Ww



Having analysed the data presented in the graph it can be noticed that

the tax revenue of the voivodeships undergoes the highest fluctuation of

all local government units. The dynamics of the increase of tax revenue

of voivodeships after a significant increase until year 2010, declined and

have proceeded in so called lateral trend. When it comes to

municipalities and counties the increase trend was clearly marked after

a slight collapse of dynamics in 2011. The observation that in the case of

voivodship we deal with three periods of the decrease of the indicator

values measured year by year is equally important. In the remaining

cases there were only two of them. However, the current values of

indicator of tax revenue per capita in voivodeships should be placed

between municipalities (indicator 2.03 in relation to year 2005), and

counties (indicator 2.85 in relation to year 2005). The dynamics of the

increase of the indicators studied expressed in relative terms however,

gives a misleading picture of the situation because the increases of the

indicators value measured in absolute values show that the municipalities

indicators gain most value 767.1528; the corresponding figures are 129.6

for counties and 80.83 for voivodeships respectively.

28Measured as a difference in values of the indicator between years 2016 and 2005. As

in the case of counties and voivodships.

1

1,79 1,811,94

2,44

2,72

2,432,23

2,46 2,462,33

2,42

1

1,01 1,07

1,261,11

0,9 0,921,1

1 0,951,04

0,5

1

1,5

2

2,5

3

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016



156

The next stage of analysis is the study of directions of fluctuation of

the tax revenue indicators per capita of the voivodeships in the analysed

period. The results were presented in graph 5.

Graph 5. Directions of fluctuation of the dynamics of indicators of voivodeships’

tax revenue in the analysed period.



As it could be observed in graph 5, the voivodeships are

characterised by the least stability of revenue of all the local government

units analysed. During the analysed period in the case of municipalities

as well as the counties, the years when the revenue increased prevailed in

the vast majority of units. As far as voivodeships are concerned there are

fewer periods of this kind. Additionally, when it comes to voivodeships

there is no regularity in directions of the fluctuation of dynamics of

revenue. The most glaring example of these phenomena is the period

from 2012 to 2014, when the situation changed radically within

a relatively short period of time. The magnitude of changes that the tax

revenue of voivodeships underwent in an analysed period should be

looked at more closely. This data was presented in table 5.

0

8

6

0 0

1312

2

11

43

16

8

10

16 16

34

14

5

1213

0

5

10

15

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

nu

mn

er o

f vo

ivo

esh

ips

decrease increase


157

Table 5. The structure of voivodeships according the criterion of the value of the

dynamics of the fluctuation of indicators W

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage of voivodships [%]

Dy

nam

ics

of

tax

rev

en

ue

ind

ica

tor

over 1,8 31,25 0 0 0 0 0 0 0 0 0 0

1,7 - 1,8 25 6,25 0 0 0 0 0 0 0 0 0

1,6 - 1,7 6,25 0 0 0 0 0 0 0 0 0 0

1,5 - 1,6 18,75 0 0 0 0 0 0 0 0 0 0

1,4 - 1,5 18,75 0 0 12,5 0 0 0 0 6,25 0 0

1,3 - 1,4 0 0 0 37,5 12,5 0 0 6,25 0 0 0

1,2 - 1,3 0 0 12,5 37,5 0 0 0 18,75 0 6,25 0

1,1 - 1,2 0 6,25 12,5 12,5 43,75 0 0 31,25 0 18,75 6,25

1,0 - 1,1 0 37,5 37,5 0 43,75 18,75 25 31,25 25 50 75

0,9 - 1,0 0 37,5 25 0 0 31,25 18,75 12,5 43,75 12,5 6,25

0,8 - 0,9 0 12,5 6,25 0 0 50 43,75 0 25 6,25 12,5

0,7 - 0,8 0 0 6,25 0 0 0 6,25 0 0 6,25 0

0,6 - 0,7 0 0 0 0 0 0 6,25 0 0 0 0



In the case of voivodeships the table was extended to include

additional values of the dynamics of fluctuations of the indicator studied

for two reasons: to include all voivodeships and due to the wide range of

the dynamics of indicators W. As in the case of the analysis of the

directions of the dynamics of the fluctuations, it is difficult to point out

any regularity. There is a wide range of the dynamics of fluctuations.

Such a situation would be explicable when it comes to numerous

municipalities which have many sources of tax revenue at their disposal;

therefore their potential to generate revenue differs greatly. As far as

voivodeships are concerned such a great range should not take place. Tax

revenue of voivodeships shows a greater instability in a long period of

time than in the case of municipalities and counties. The analysis of data

in table 3 shows the greatest range of the most frequent fluctuations of

the tax revenue indicators of all local government units. The highest

annual tax revenue indicator amounted to 1.96. The average value of the

fluctuation of tax revenue determined as a median of standard deviations

of the dynamics of indicators W in a studied period, however amounted

to 0.028; which means that average fluctuation of the dynamics of


158

revenue was 13 % per year. This is the highest indicator among the units

analysed. The fluctuations for 25% of the studied community of

municipalities (1st quartile) was determined at the level of 0.32, and 3rd

quartile at the level of 0.22 – these are the highest results of the local

government units.

Conclusions

The analysis carried out in his paper allowed drawing a number of

conclusions concerning the tax revenues of local government units. The

most important conclusion is the one concerning the purpose of this

paper i.e. the title stability of local government units’ tax revenue. It

should be noted that when it comes to municipalities and cities with

county rights, it is possible to talk about the stability of tax revenue. With

the rise in the number of inhabitants and therefore the socio-economic

potential of the municipality, its tax revenue stability increases and thus

cities with county rights are characterised by more stable revenue than

municipalities, and metropolises (cities with county rights with the

number of residents over 300 thousand) outbalance, in terms of their

stability, cities with the number of residents up to 300. It may result from

the fact that the cities with county rights frequently perform a function of

local development centres, thanks to this they cumulate diversified

activities both social as well as economic internally. It leads to the

increase of resistance to all economic disturbances, it does not, however,

totally eliminate their influence. This situation is similar in the case of

metropolises, with even higher intensity because they act as regional

centres.

The analysis of tax revenue indicators of counties and voivodeships

per capita shows that those units demonstrate significantly greater

fluctuations of revenue than municipalities and cities with county rights.

This situation may result from a very narrow catalogue of revenue

recognised for tax revenue indicators calculation and great sensitivity of

revenue, earned from Personal Income share (PIT) and to a larger extent

Corporate Income Tax share (CIT), to the fluctuations of economic

situations.

Legal Acts

[1.] Act of 13 November 2003 on revenue of local government units

(Journal of Laws 2003, No. 203 item 1966 as amended).


159

[2.] Act of 12 January 1991 on taxes and local fees (Journal of

Laws1991 No. 9 item 31).

[3.] The Decree of the Minister of Finance of 2 March 2010 on detailed

classification of revenue, expenditures, expenses and incomes and

financial means from foreign sources. (Journal of Laws of 2010,

No. 38 item 207).

Literature

[1.] Łaski K., Mity i rzeczywistość w polityce gospodarczej i nauczaniu

ekonomii, INE PAN, Warszawa 2009.

[2.] Sulmicki J, Stabilność rynków finansowych a wejście Polski do

strefy euro, Warsaw School of Economics, Warszawa 2005, p. 7.

[3.] Surówka K, Koncepcje zasilania finansowego poszczególnych

szczebli samorządu terytorialnego w Polsce, Samorząd

Terytorialny, 1997, No. 12.

[4.] Znaniecka K., Walasik A., Zasady budżetowe w warunkach kryzysu

finansów publicznych [in:] Owsiak S. (ed.) Nowe zarządzanie

finansami publicznymi w warunkach kryzysu, PWE, Warszawa

2011.

[5.] Żabka A., Wpływ cyklicznych wahań koniunktury na dochody JST

[in:] Polityka rozwoju regionu. Koncepcja- procedury

administracyjne – finansowanie, K. Malik (ed.), Wydawnictwo

Naukowe „Akapit”, Opole 2010. Compare: J. Neneman, P.

Swianiewicz, Koncepcje, warianty i konsekwencje wprowadzenia

PIT-u komunalnego w Polsce, Ekspertyza BGK, Warszawa 2013.

Others

[1.] State budget implementation statement for the period from 1st

January to 31st December 2014. Information concerning the

budgets of local government units implementation, Warszawa

2015.

[2.] Information of the Ministry of Finance on the tax revenue

indicators for particular municipalities, counties and voivodeships

for the period from 2005 - 2016, www.mf.gov.pl

[3.] http://www.fitchpolska.com.pl

[4.] www.mf.gov.pl


160

DOI: 10.19192/wsfip.sj3.2016.10

Anna IBEK

Monika SUCHOJAD

THEORETICAL BASICS OF SCIENTIFIC EVIDENCE

IN CRIMINAL PROCEEDINGS

Summary

The paper is a theoretical consideration on the scientific evidence in a criminal

proceeding, presented as following: the explanation of the term “scientific evidence”,

the review of the existing definitions of scientific evidence (i.e. by methodological,

methodical and normative enumeration), a proposal of a general, classic definition of

the scientific evidence. It also shows criteria to identify the “correctness” of the

scientific evidence, from inter-subjective controllability and communication, validation

of the test method, interpretation of the results of its application with the use of

a likelihood ratio, up to a critical analysis of Frey’s standard and Daubert’s standard.

The paper concludes with a discussion on selected concepts of the scientific evidence

assessment for the purposes of criminal proceedings.

Key words: scientific proof, test method, standard, validation.

Introduction

The aim of this paper is to consider the term “scientific evidence”,

particularly: (1) an analysis of already existing concepts of the scientific

evidence and a proposal of the best way of understanding the term

“scientific evidence”, (2) establishing of characteristics and features of

the scientific evidence, (3) establishing of methodological and logical

criteria to identify “correctness” of the scientific evidence, (4)

establishing the rules and the way of evaluating the scientific evidence

for the purposes of criminal proceedings. It should be emphasized that

the issue of the scientific evidence in the specified areas is relatively

Anna Ibek MA, an assistant and doctoral student of the Department of Forensic

Science, Criminology and Police Sciences at Andrzej Frycz Modrzewski Kraków

University; Monika Suchojad MA, a doctoral student at Andrzej Frycz Modrzewski

Kraków University.

Theroretical basics of the scientific evidence…

161

complicated, often ambiguous, and primarily it is interdisciplinary,

somewhere among the theory of a criminal proceedings, general

methodology of science and logic, forensics and other disciplines (e.g.

genetics). The last one should be associated with the identification

techniques of people and things, which are part of forensic sciences. For

these reasons, the presented consideration cannot “claim right” to

a complex elaboration of theoretical basics for the scientific evidence, but

they only explain this issue from the perspective of the four mentioned

areas of knowledge.

1. Explanation of the term “scientific evidence”

Let us start with the explanation of the components of the term

“scientific evidence”. The interpretation of the word “evidence” in the

discussed context does not seem to be significantly problematic1:

“evidence” means “proof”. Evidence is the information that meets two

conditions. First of all, the information must be appropriate as

a prerequisite for court proceedings in the evidence reasoning in a given

case. Secondly, the information must be relevant for the resolution of the

case. Evidence reasoning is a thought procedure which involves the

acknowledgment of factum probandum (opinions on factual evidence),

on the basis of factum probans (opinions on demonstrative facts). More

broadly, it can be stated that these are thought procedures that happen

when interpreting factual findings, which involves (1) the

acknowledgement of some factual evidence on the basis of demonstrative

facts or (2) generating the hypotheses on the basis of the known factual

or demonstrative evidence or (3) the test of hypotheses, also on the basis

of the known factual or demonstrative evidence.2 The relevant evidence

is associated with, following R. Kmiecik, the evidence ...which may be

“useful” in practice (relevant evidentially) for establishing the

substantive facts3.

It is worth noting that regardless of the type of context, whether it is

legal or only empirical, the information involved in the evidence

1 It should be stated that the theory of a criminal procedure involves several concepts of

“evidence”. For the purposes of this paper the most common and standard meaning of

this term has been taken into consideration. 2Ibidem. 3R. Kmiecik (ed.), Prawo dowodowe. Zarys wykładu, Kraków 2005, p. 113.

Anna Ibek, Monika Suchojad

162

reasoning (the evidence itself as well) has three fundamental features:

apart from the mentioned relevance, it consists also of credibility and the

power of evidence, although it does not constitute the evidence itself. It

becomes the evidence when it is used for argumentation, reasoning or the

chain of reasoning, thanks to which, apart from the conclusion, it is

possible to identify the sources of uncertainty or doubtfulness when

assessing the credibility, relevancy and the power of evidence4. It should

be remembered that this evidence is of special nature, because it is aimed

at assessing the facts, not establishing them, as the rule says.5

Much more complicated and also a crucial problem is understanding

of the “scientific nature”. The attempt of solving it by a reference to

some “demarcation line” between science and non-science is generally

impossible due to lack of a clear criterion related to a prospective course

of this line.6 What remains is a reference to some minimum (and

relatively uncontroversial) set of requirements that allows the specified

terms to be considered scientific7, and acceptance of the fact that the

scientific nature, which is typical for those terms, is gradable. In other

words, some terms may be more or less scientific than others (e.g. due to

a different level of the methodological advancement of a given

discipline). As a minimum set of requirements in the theory of criminal

proceedings and forensics, for a long time8 there have been considered

inter-subjective communicability and controllability of terms9. In other

words, firstly, those are terms that may be expressed with words

comprehended literally, i.e. without metaphors, comparisons and other

4 M. Suchojad, Sieci wnioskowań, (in:) J. Konieczny (ed.), Analiza informacji

w służbach policyjnych i specjalnych, Warszawa 2012, p. 43. 5 M. Ilnicki, Dowód z opinii biegłego w postępowaniu apelacyjnym w procesie

cywilnym, Edukacja Prawnicza, 2013, no 4, p. 16. 6 J. Konieczny, Metodologiczna charakterystyka kryminalistyki, Katowice 1984, p. 15. 7 E.g. according to the definition by D. Caudill&Lewis Laure: science is a product

which arises through combination of observations and experiences in real conditions as

well as norms, conventions and expectations of the scientific circles. As cited in: D. M.

Risinger, The Irrelevance, and Central Relevance, of the Boundary between Science

and Non-Science in the Evaluation of Expert Witness Reliability, (in:) P. Roberts (ed.),

Expert Evidence and Scientific Proof in Criminal Trials, Farnham 2014, p. 117-118. 8Some authors see the origins of these requirements in rationalism of enlightenment.

See: K. Ajdukiewicz, Zagadnienia i kierunki filozofii. Teoria poznania. Metafizyka,

Kęty-Warszawa 2003, p. 49. 9 J. Konieczny, op. cit., p. 16–17; M. Zieliński, Poznanie sądowe a poznanie naukowe,

Poznań 1979, p. 130 – 143.


163

half measures of expressing thoughts. Secondly, only such a statement

may “lay claim to the scientific title”, the fairness or unfairness of which

actually everyone can become aware of, provided that this person is

confronted with appropriate environment.10 Another difficulty arises,

bearing in mind that characteristics of scientific nature may be assigned

to an activity or a result of this activity. Scientific proof as a statement

(therefore – a certain result), which considers a single fact does not

belong to science11, provided that forensic sciences belong to nomothetic

science.12

The remaining thing to consider is the act that brings the result. This

act may be treated as a method (a way of conduct). Does a test method

have a scientific nature? Yes, and it will be confirmed by numerous

arguments, legitimising the existence of a scientific method. Having

noticed that the method may be defined – like the statements – inter-

subjectively communicable and inter-subjectively controllable, there can

be no objection to the acknowledgement that the scientific nature

assigned to a specified method is also gradable, like in case of the

statements. The starting point for further consideration are the following

observations. The scientific proof is the forensic evidence that is:

the information that may be applied as a prerequisite for a court

proceeding in the evidence reasoning when establishing factual

findings in a criminal proceeding,

the information is significant in a specified case,

10 K. Ajdukiewicz, op. cit., pp. 49 – 50. 11An interesting issue often discussed in literature is the correlation between science and

law. For example, D. Nelken puts it this way: the relationship of science and law should

be considered in three different concepts: 1) the attitude of the trial pathology which

allegedly considers multi-functionality of legal proceedings system and private proof in

the proceedings; 2) approach of competing institutions which regard law and science as

strong and often competing entities, which in many areas require close co-operation and

symbiosis; 3) approach of conflicting discourses developed by theoreticians of

continental system who base their divagations on inquisitive model of the process and

the rule of appointing experts by court according to which (discourses) there is

a discrepancy between science and law, because on one hand, legal system uses the

scientific legacy (for example the issue of scientific credibility), and on the other, law

and science continually compete with each other and each strive for its own (better ?)

hybrid solutions. D. Nelken, A Just Measure of Science, (in:) P. Roberts (ed.), op. cit.,

pp. 26-28. 12 J. Konieczny, op. cit., p. 44.


164

the source of the information is a legal expert,

the level of its scientific nature is determined by the features of the

method that has been used by the legal expert to obtain the

information.

It should be noticed that the first two points relate to every evidence,

the next one refers to all experts’ reports in general, and the last point,

however it is understood, is specific to the scientific proof. Therefore, it

is the method by which the scientific proof (as information) was

obtained. As a result, it is already known that the method must meet the

conditions of inter-subjective communicability and controllability.

2. Defining the scientific proof

The increased interest in the issue of the scientific proof dates back

to the 1980s. and 1990s.13 Due to several reasons, including gross

judicial mistakes, revealing extreme negligence of the assessors, and

others, a quality breakthrough in the criminal expertise took place, and

one of the goals of the implemented changes was the end of “guerrilla” of

experts’ work.14 It was rightly concluded that imposing strict, scientific,

methodological requirements on the expertise will improve the situation.

There are different definitions of a scientific proof. The simplest

trials of defining is enumeration, which indicates specified pieces of

evidence as parts of fields of certain sciences. An example of such

a definition is a list that covers: biological and chemical evidence,

fingerprints, motion traces, traces of tools used, traces of firearms, and

contested documents. The decision on acknowledgement of the results of

such a test is on the court’s side, which governed by certain standards,

admits the given evidence (see below).15 Generally, this definition is

13 In late 1990s the model of Case Assessment and Interpretation (CAI) was introduced,

and later (in 2009) a report from activities of National Academies of Science on

strengthening of the position of scientific proof in the United States was published, what

caused a considerable interest in the notion of scientific proof and this interest resulted

in a considerable amount of valuable scientific output which arose particularly on the

common law tradition. U. Simmross, Appraisal of scientific evidence in criminal justice

systems: on winds of change and coexisting formats, Law, Probability and Risk, 2014,

13 (2), p. 105. 14 D. Dwyer, Judicial Assessment of Expert Evidence, Cambridge 2008, p. 232. 15Such solution is propagated by: L.R. Netzel, T.F. Kiely, S. Bell, Evidence: Origins,

Types, and Admissibility, (in:) S.H. James, J.J. Nordby, S. Bell (ed.), Forensic Science.


165

acceptable. However, a strong objection is evoked by considering certain

fields of knowledge as scientific. These are: dactyloscopy, traceology or

forensic graphology. Moreover, the indication of a specified expertise as

scientific proof, taking into consideration only its admissibility, is not

fully satisfactory.16

The scientific proof may also be characterized by defining through

postulates. A proper example may be a set of requirements aimed at the

expert’s method, which should be described and validated and its

application should be under control so that every properly trained expert

obtains the same results, within the known level of the method’s

restrictions.17 In other words, the method may be controlled by its

description, known results of validation, training and authorisation of the

personnel who apply the method, as well as the maintenance of the

essential equipment, its calibration, the use of proper comparative

materials, definite and familiar way of the results interpretation, the

results check, carrying out of the test by competent experts and finally

the perpetuation of the test results, including the printouts generated by

the apparatus.18 However, these are not the only remarks, because apart

from the requirements related to the method, the cited authors formulate

numerous further conditions relating, e.g. the quality of the laboratory

procedures, general training of experts, security and storage rules of the

test material, the form of reports, details on the particular areas of

expertise etc., therefore one can talk about defining through postulates.

The basis of the reasoning in the course of expertise should be

scientifically justified generalisations19 i.e. general statements,

considered true, entitling to conclusions in a particular direction

An Introduction to Scientific and Investigative Techniques, Boca Raton 2014, pp. 31–

35. 16Similarly i.e. through enumeration of the scientific proof is defined by: E.J.

Imwinkelried, The Methods of Attacking Scientific Evidence, New Providence 2014. 17 B. Caddy, P. Cobs, Forensic Science, (in:) P.C. White (ed.) Crime Scene to Court.

The Essentials of Forensic Science, Cambridge 2004, p. 13. It is worth noticing that this

approach is almost identical to the approach of J. Konieczny (as cited by J. Kmita). See:

J. Konieczny, op. cit., p. 17. 18 B. Caddy, P. Cobs, op. cit., pp. 13–14. 19One example of such generalisation is a quote from the printing studies: accuracy of

UZCT-DLT technology in tests amounts to 92%. See: A. Ibek, Generalizacje

w rozumowaniach dowodowych, Studia Prawnicze. Rozprawy i Materiały, 2012, nr 1

(10), p. 54.


166

(speaking figuratively, from a prerequisite/prerequisites for court

proceedings to the conclusion, so called evidence-based argument of the

expert’s opinion).20 Such generalisations may be well-justified scientific

statements, a consequence of rules of some science, they may also be the

result of the expert’s professional experience, provided that the

experience has its source in the scientific knowledge.21

Others postulates, which seem crucial, related to the scientific proof

were formulated by Ch. Champod and I.W. Evett. The authors do not

refer to the admissibility or controllability of the evidence but its

interpretation. Their proposals are as follows: (1) The scientific proof

must be interpreted within the frames determined by the circumstances of

the case. The expert formulates a hypothesis, the probability of which is

dependent on (relevant) factors, which influenced the formation of the

test material. There may be included e.g. the type of surface from/to

which the micro traces were transferred, the choice of the data base in

case of establishing the matching of DNA profiles (if the origin of the

suspect is known), or other circumstances related to the trace. (2) The

scientific proof may be interpreted with two statements, and speaking

more strictly: at least two statements. In other words – there should be

competitive research hypothesis formulated, one accordant with the

content of the indictment act (the accused is the culprit), and the other

which is contradictory to the first one (the accused is not the culprit).

Only in such cases it is possible to identify properly the probability of

both hypotheses (if there are more than two required, the case becomes

more complicated, but the sense of establishing of the probability

remains the same). (3) It is essential for the author to consider the

questions like: what is the probability of the evidence in case of

acceptance of a given hypothesis?. The answer is given by calculation

and submitting to the court the credibility quotient, the crucial value

specific to the scientific proof.22

20Generalisations used in evidence reasoning may have various origins e.g. they may

come from personal experiences of the subject of reasoning, from general knowledge

accepted in a given community etc., they may also come from science. On the topic of

generalisation see: T. Anderson, D. Schum, W. Twining, Analysis of Evidence,

Cambridge 2005, p. 262 and next. 21 Ibidem, p. 270. 22Ch. Champod, I.W. Evett, Evidence Interpretation: a Logical Approach, [in:] A.

Jamiesson, A. Moenssens (eds.), Wiley Encyclopedia of Forensic Science, Chichester

2009, Vol. 2, pp. 971–972.


167

For obvious reasons there is no space here for explaining the

meaning of the credibility quotient, which is not specific to the forensic

science anyway. For the purposes of this paper it is sufficient to

acknowledge that the credibility quotient is the ratio between “a chance

of guilt” a posteriori and “a chance of guilt” a priori or in other words, it

is the factor that indicates how many times more one of the hypothesis is

probable, formulated in the test, against the competitive hypothesis.23

It is difficult to deny the legitimacy of the presented postulates of Ch.

Champoda and I.W. Evetta. Equally, it would be difficult not to notice

that they are suggestions highly inflated. They eliminate from the list of

scientific proofs all the expertises, which so far have not had the

calculation of the credibility quotient in their areas of knowledge.

Generally, this is no loss, and it is better to accept the fact that e.g. the

traceological or cheiloscopy expertise nobody will be able to title

a scientific proof, due to the difficulty in assessing the probability

a priori of a hypothesis.

It is worth mentioning the invention – if not a solution, then

a circumventing at least – of a mentioned problem. The expert transfers

the establishing of the output probability a priori to the court. The expert

prepares proposals of a certain value as various options, and the decision

is left to the court. For example, a possibility that the culprit is an

unknown resident of the town A (where the crime was committed) is X1,

the culprit is a resident of the county B (where A is located) is X2, the

culprit is a resident of the voivodship C (where B is located is X3, etc).

The expert submits the justification for each of the presented

possibilities, but the credibility quotient is calculated after indicating

which of the output possibilities should be taken into consideration. The

expert may also calculate this figure for each of the analyses variants, but

leaving the decision on the use of one of them to the court.24

There is another argument - against the acknowledgement of

calculating the credibility quotient as a fundamental aim of the scientific

23 In Polish literature more on this topic see: P. Wolańska- Nowak, Interpretacja

wyników ekspertyzy, [in:] J. Wójcikiewicz (ed.), Ekspertyza sądowa. Zagadnienia

wybrane, Warszawa 2007, pp. 576–580. 24 D.H. Kaye, Interpretation, [in:] J.A. Siegel, P.J. Saukko (eds.), Encyclopedia of

Forensic Sciences, Amsterdam 2013,Vol. 1, p. 137. Practical issues related to

presentation of probability calculus in court are discussed in: M. Redmayne, Expert

Evidence and Criminal Justice, Oxford 2004, pp. 57–93.


168

proof – in some cases the knowledge of its level is unnecessary for the

court. In case of the mentioned so called CAI model of expertise (Case

Assessment and Interpretation), created in order to rationalise costs of the

expertise and reduce unnecessary work of the expert, the purpose of

a detailed assessment of the aims of the expertise is forecast. It turns out

that actually most of them, but not all, require the calculation of the

credibility quotient. Particularly, these are the ones that, according to the

expert, are aimed at explanation of some issues, especially those

concerning the investigative decisions (which may refer to e.g. the cause

of death, the course of a road accident, a tax fraud mechanism etc.).25

Should such expertises be “automatically” excluded from the set of the

scientific proofs? It seems they should not, but it requires a reduction of

the requirements defined Ch. Champoda and I.W. Evetta, possible to

accept without a loss for the scientific level of the expertise (see below).

It is worth adding that in literature there are some interesting

explanations aimed at simplifying the comprehension of the relatively

complicated issues of the scientific proof, through taking up particular

actions spread over time. Therefore, U. Simmross divides those actions

into: (1) short-term: improving of the legibility of the experts’ opinions,

concentration on the establishing of the probability instead of dogma,

interest of potential members of the trial in the scientific proof through

inviting them to debates or co-editing of the papers; (2) medium-term:

improvement of the education and implementation of trainings, clarifying

the terms and concepts in the field of Bayes’ theory, searching of new

multidisciplinary PT (proficiency tests) and CE (collaborative exercises)

concepts26; and (3) long-term: extending – at the level of school

education – the scope of consideration on the reasoning models,

analysing the similarities and differences in terms of the assessment of

the evidence in various countries, taking advantage of the statistics acquis

with the reduction of the statistical assistance in the criminal proceeding

at the same time.27 It seems that activities of this type – but others also –

25 G. Jackson, P.J. Jones, Case Assessment and Interpretation, [in:] A. Jamiesson, A.

Moenssens (eds.), Wiley Encyclopedia of Forensic Science, Chichester 2009, Vol. 2, pp.

495 - 496. 26Generally speaking, proficiency tests and collaborative exercises are control and

certification procedures of experts. See for example: J. Hebenstreit, Zapewnienie jakości

w laboratoriach sądowych, [in:] J. Wójcikiewicz, op. cit., p. 597. 27 U. Simmross, op. cit., .p. 111.


169

may be beneficial socially, at least due to the fact that recently there have

been a lot of discussion on the lack of proper competence and

qualifications of experts, which may be caused by an easy access to the

function, because of the insufficient legal regulations.28 As J.

Wójcikiewicz rightly states: ...the propagation of the Daubert’s standards

(see more below) among Polish judges (but also experts!) could only be

a benefit for the Polish judicial system.29

3. The accessibility of scientific evidence

For many years the discussion on scientific evidence has been

dominated by the problem of its accessibility, the criteria of which

determined its scientific nature. There are two criteria; they have their

genesis in judicature of the American courts and are known as Frey’s

standard (test) and Daubert’s standard (test).30 If an expertise “passed”

the test, then it was accessible in the trial and obtained the status of

a scientific proof. The central point of the Frey’s standard was

establishing if “scientific rules and discoveries”, used in the expertise,

obtained “the general approval in the area they belonged to”.31 Seventy

years later the judicature in the Daubert’s case was more extended and

covered the following issues, as the conditions of the expertises

accessibility: testability (or falsifiability) of the applied knowledge by the

assessor, the knowledge of the mistake level of the method applied in the

expertise (the diagnostic value of the method), its previous (in relation to

the time of the expertise) description in the review science literature, and

also analogically like in case of the Frey’s standard, the general

acceptance of the applied knowledge in the expertise.32

28 E. Gruza, Fakty i mity, czyli kilka słów o zbrodni doskonałej, Edukacja Prawnicza,

2014, no 11, p. 11-13. The issue on entitlements and qualifications of experts was also

discussed by: J. Wójcikiewicz, Temida nad mikroskopem, Toruń 2009; J. Widacki (ed.),

Badania poligraficzne w Polsce, Kraków 2014; J. Wójcikiewicz (ed.), Iure et Facto,

Kraków 2006. 29 J. Wójcikiewicz, op. cit., p. 23. 30 The names refer to two cases: Frye v. U.S. (1923) and Daubert v. Merrell Dow

Pharmaceuticals (1993). More in:. D.L. Faigman, M.J. Sacks, J. Sanders, E.K. Cheng,

Modern Scientific Evidence. The Law and Science of Expert Testimony, Eagan 2010–

2011 Edition, Vol.1, p. 4. 31Ibidem, p. 8. 32Ibidem, p. 43. It should be added that after the judgement in Daubert case, some courts

and court commentators had more remarks in addition to the original four, which should


170

Both mentioned standards were broadly discussed in literature, but

they did not solve the matter of accessibility (and also the concept) of the

scientific evidence. This was caused by two reasons. Firstly, the

considered standards show a strong “flexibility”, which led to the

formation of four approaches: (1) Daubert - rigorous, (2) Daubert –

liberal (permissive), (3) Frey – rigorous, and (4) Frey – liberal.33

Secondly, it turned out that particular American courts considered the

role of judges in screening of the opinions of experts differently. Some of

them took an active role in the screening of the evidence, while others

were involved only a little or at all.34

It may be stated that neither Frey’s standard nor Daubert’s, despite

their great global significance, did not bring a possibility of emerging

a clear definition of the scientific evidence. Moreover, it may be noticed

that nowadays the consideration of those standards gain a historical

nature. With the answer to the Daubert’s case the American legislator

implemented in 2000 amendments to the Federal Evidence Rules and the

rule 702, significant to the concept of the scientific proof obtained an

interesting meaning: “If the scientific, technical or other specialised

knowledge will support the jury (trier of facts) in comprehending or

establishing of the evidence, then the witness called as an expert (…)

may testify (…), if (1) the testimony is based on sufficient facts or data,

(2) the testimony is the result (product) of reliable rules and methods, and

(3) the witness applied the rules and methods reliable in relation to the

facts in the case.”35 It should be stated at the same time that the reliability

is considered here as infallibility and repeatability of the results.36

Apart from the mentioned Daubert’s and Frey’s standards

a significant role in terms of the assessment criteria of the scientific proof

was played by “the precedented statement of the Dutch Supreme Court of

27 January 1998, issued on the basis of a traceological expertise (…)

facilitate the decision on inadmissibility of evidence. See: D.L. Faigman, M.J. Sacks, J.

Sanders, E.K. Cheng, op. cit., p. 17 and next. 33 Ibidem, p. 3. 34 Ibidem, p. 3. 35As cited in: E. Beecher-Monas, Evaluating Scientific Evidence. An Interdisciplinary

Framework for Intellectual Due Process, Cambridge 2007, p. 4. 36This infallibility has nothing in common with the rule of infallibility of the criminal

proceedings in Polish legal system (fair trial or due process), nor with the Anglo-Saxon

understanding of the rule of infallibility. See: P. Wiliński (ed.), Rzetelny proces karny

w orzecznictwie sądów polskich i międzynarodowych, Warszawa 2009.


171

[which] established (…) some standards of the assessment of the

evidence through the expert’s opinion: if the expert is an expert in their

field, what methods they use and why they claim that those methods are

sufficiently credible; if they are qualified enough to use those methods

competently.”37

4. Towards general definition of scientific evidence

Summarising this part of considerations i.e. an attempt to define

scientific evidence, it should be noticed that the notions known so far are

arrived at in four different ways: calculation, methodological, methodical

and normative. The calculation method was excluded from the analysis

as theoretically futile. In methodological aspect the most important seems

to be the issue of inter-subjective controllability and communication of

the research method, in methodical aspect - the issue of interpretation of

results of the expertise; in normative aspect - the problem of admissibility

of evidence. These aspects are not separable. The main consequence of

the last remark is possibility of acceptance the requirements of rule 702

in its contemporary wording are embraced by two preceding aspects:

methodological and methodical. Summing up, the most important

methodological requirements are:

inter-subjective controllability of the method applied in the expertise

and inter-subjective communication of results,

using in inferences generalisations formulated on the basis of accurate

empirical research;

methodical requirements –

interpretation of expert research results within the circumstances of

the case,

in an expertise testing of at least two competing hypotheses,

formulation of final conclusions of the expertise together with the

likelihood ratio.

The set of these requirements may be treated as an early definition of

a scientific evidence. However, there are prospects for making further

generalisations with special emphasis on the research method as the most

37As cited in: J. Wójcikiewicz, op. cit., p. 8.


172

constitutive element of scientific proof. In order to exploit these

prospects one should turn to the notion of the quality of the expertise.

To assure high quality of the expertise it is necessary to meet

a whole range of requirements related to work in laboratory, qualification

of experts, applied procedures which are regulated by ISO norms. The

question of method in international standard is under the requirement

that: full validation of all technical procedures is necessary before they

are applied in particular cases or internal verification of procedures

validated earlier in other laboratories.38 Fundamental significance of the

validation should be emphasised. It may be understood (in the most

concise meaning) as ...statistical determination of method parameters

conducted in order to confirm that it is suitable to be applied in specific

objectives.39 It should be noticed that the validation of the method gives

way to determination of the likelihood ratio.

5. General definition of scientific evidence

The search for general definition of scientific evidence may be

summarised using a classical definition in the following way: scientific

evidence is an expertise (genus) conducted by means of a method which

meets all assumed quality criteria (differentia specifica). In this context

the element of relativisation of the concept of scientific evidence to

legislative body. In this case the justification comes from court ideology

called in Polish legal system principle of free appraisal of evidence.

Admission and evaluation of expertise belongs to the legislative body

and, at least theoretically, one can imagine a situation in which a court,

on one hand, admits a tacky expertise and, on the other, rejects

a professionally prepared one. The court may overlook the validation of

the method, level of error or standardisation and settle for unreliable and

dubious opinion like the author of the manuscript x1 is person A40, but

the court may also enquire about a number of other issues such as: how

many times is the hypothesis the author of the manuscript x1 is person

38 A.R.W. Jackson, J.M. Jackson, Forensic Science, Harlow 2008, p. 12. 39 W.J. Tilstone, Assuring Quality in the Crime Laboratory, [in:] A. Mozayani, C.

Nozigilia (eds.), The Forensic Laboratory Handbook, Totowa 2006, p. 221. 40 The main opponent of the principle of forensic individualisation in Polish literature

seems to be J. Konieczny. See: J. Konieczny, Kryzys czy zmiana paradygmatu

kryminalistyki ?, „Państwo i Prawo”, 2012, z. 1 (791), p. 3 – 16.


173

A more probable than the author of the manuscript x1 is not person A,

taking into account circumstances of a given case.

In acceptance by the legislative body of certain qualitative criteria

lies the essence of scientific evidence. One should remember however,

that these criteria are not polar, their division is not dychotomic what

stems from the thesis of gradability of scientific extent of a given

process. Thus, maybe it would be a good idea to harmonise criteria which

determine identification method as being scientific or unscientific

through creation of a universal, widely accepted catalogue of qualitative

criteria which could assist court in the process of evaluation of a given

evidence. A good example in this respect may be the activities of

European Network of Forensic Science Institute (ENFSI) which focus on

propagating among all member laboratories the principles of good

practice and international standards assuring high quality of research

and competences of persons conducting them.41

6. General criteria of evaluating scientific evidence

Observations and conclusions presented above in an obvious way

impact the solution of the problem of methodological and logical criteria

that condition accuracy of scientific evidence. Most of all, these criteria,

in practice, must be individualised. It is a consequence of a well-known

old truth that there are no general rules that determine the strength of

evidence in particular cases (to be more specific they exist but on the

grounds of legal principle of evidence evaluation which in Polish

criminal proceedings do not occur). J. Bentham in 1825 wrote that

finding infallible rules for evidence, rules that secure relevance of

particular decisions is, by nature, absolutely impossible42. Nevertheless,

there are certain proposals concerning general criteria for evaluation of

scientific evidence.

One of the proposals seems to be the most complete as it offers

a general concept of evidence analysis.43 This proposal consists of five

elements: (1) identification and examination of the theory proposed for

explanation of occurrences, evaluation of the impact of explanation for

the hypotheses built on the grounds of the theory; (2) examination of data

41 J. Widacki (ed.), Kryminalistyka, Warszawa 2012, Edition 2, p. 194. 42 As cited in: T. Anderson et al., op. cit., p. 226. 43 E. Beecher-Monas, op. cit., p. 1.


174

which support or undermine the proposed theory; (3) formulation of

assumptions which support the theory in the context of obvious gaps

between data and the theory; (4) examination of the method which was

used to conduct the expertise; (5) evaluation of probability which links

the hypotheses with data that exist in the case. This concept deserves

approval as it embraces all conditions discussed above which are put on

scientific proof. An inquisitive reader may also notice that no expertise

based on traditional forensic comparative research will pass the test

prepared by E. Beecher-Monas.

Other conditions for accuracy of scientific evidence are proposed by

P.G. Giannelli and E.J. Imwinkelried.44 In their opinion reliability of

evidence depends on three factors: (1) the level of theory validation; (2)

the level of research technique validation; (3) appropriate application of

this technique in particular case. It should be added that the authors

understand validation as the ability to measure the value it is supposed to

measure and identify it with precision. While infallibility, in their

opinion, is the repeatability of results of the same measure by means of

the same method. It should be noticed that such concept of validation is

not divergent with the approach of W.J. Tilstone presented above, as it

comes down to provision of statistical profile of a theory or method. The

authors do not reveal what level of theory validation is satisfactory to be

applied in scientific evidence. However, at the moment it does not

constitute a major problem as it is the mere significance of paying

attention to the importance of validation that really matters. The authors

write though that satisfaction of the third condition depends on the set of

tools used by an expert, application of appropriate procedures and

sufficient qualifications both of the expert and reviewer of the obtained

results.45 One can risk a statement that remarks of P.G. Giannelli and E.J.

Imwinkelried should be treated as reference to the modern standards with

respect to the quality of expertise.

Conclusions

With the knowledge of some methodological basics of issuing court

opinions and awareness of general methodology of sciences one may,

without much difficulty, formulate various lists of criteria for

44 P.G. Giannelli, E.J. Imwinkelried, Scientific Evidence, Newark 2007, Vol. 1, p. 2. 45 Ibidem, p. 3.


175

appropriateness of scientific proof. The criteria can be general but they

can also be ‘customized’ for the needs of a particular expertise and from

the point of view of the process side interested in the results of the

expertise. Two issues seem to be out of any dispute: (1) the pre-origin of

all questions on accuracy of a scientific proof is the fact that 100%

reliable research methods do not exist, the main problem with scientific

evidence is thus coping with uncertainty. There is no other segment of

knowledge apart from science which would better define uncertainty.

The question is not whether science should be present in court but rather

what science should it be; (2) the recipe for success of scientific evidence

does not exist either if this success is to be understood as admission and

approval of the expertise. The success always depends on the level of

aspirations to take certain decisions by the legislative body, and the level

of aspirations is, in turn, shaped by knowledge and experience of the

legislative body, by professional standards that exist in the legislative

body’s professional environment. It is also known that the level of

criteria may be, and in reality frequently is, higher or lower, what in

reality translates into success or failure of a given scientific evidence in

criminal proceedings.

Literature

[1.] Anderson T., Schum D., Twining W., Analysis of Evidence,

Cambridge University Press, Cambridge 2005.

[2.] Ajdukiewicz K., Zagadnienia i kierunki filozofii. Teoria poznania.

Metafizyka, Wydawnictwo ANTYK – FUNDACJA ALETHEIA,

Kęty- Warszawa 2003.

[3.] Beecher-Monas E., Evaluating Scientific Evidence. An

Interdisciplinary Framework for Intellectual Due Process,

Cambridge University Press, Cambridge 2007.

[4.] Caddy B., P. Cobs, Forensic Science, [in:] P.C. White (ed.) Crime

Scene to Court. The Essentials of Forensic Science, Royal Society

of Chemistry, Cambridge 2004.

[5.] Champod Ch., Evett I. W., Evidence Interpretation: a Logical

Approach, [in:] A. Jamiesson, A. Moenssens (eds.), Wiley

Encyclopedia of Forensic Science, Wiley, Chichester 2009, Vol. 2.

[6.] Dwyer D., Judicial Assessment of Expert Evidence, Cambridge

University Press, Cambridge 2008.


176

[7.] Faigman D. L., Sacks M. J., Sanders J., Cheng E.K., Modern

Scientific Evidence. The Law and Science of Expert Testimony,

West, Eagan 2010 – 2011 Edition, Vol.1.

[8.] Giannelli P. G., Imwinkelried E. J., Scientific Evidence,

LexisNexis, Newark 2007, Vol. 1.

[9.] Gruza E., Fakty i mity, czyli kilka słów o zbrodni doskonałej,

„Edukacja Prawnicza”, 2014, no 11.

[10.] Hebenstreit J., Zapewnienie jakości w laboratoriach sądowych,

[in:] J. Wójcikiewicz, Ekspertyza sądowa. Zagadnienia wybrane,

Oficyna Wolters Kluwer Business, Warszawa 2007.

[11.] Ibek A., Generalizacje w rozumowaniach dowodowych, „Studia

Prawnicze. Rozprawy i Materiały”, 2012, no 1 (10).

[12.] Ibek A., Rozumowania dowodowe w toku dokonywania ustaleń

faktycznych. Pomiędzy logiką, procesem karnym i kryminalistyką,

Andrzej Frycz Modrzewski Kraków University 2015, an

unpublished doctoral thesis.

[13.] Ilnicki M., Dowód z opinii biegłego w postępowaniu apelacyjnym

w procesie cywilnym, „Edukacja Prawnicza”, 2013, no 4.

[14.] Imwinkelried E. J., The Methods of Attacking Scientific Evidence,

LexisNexis, New Providence 2014.

[15.] Jackson A. R. W., Jackson J. M., Forensic Science, Pearson,

Harlow 2008.

[16.] Jackson G., Jones P. J., Case Assessment and Interpretation, [in:]

A. Jamiesson, A. Moenssens (eds.), Wiley Encyclopedia of

Forensic Science, Wiley, Chichester 2009, Vol. 2.

[17.] Kaye D. H., Interpretation, [in:] J.A. Siegel, P.J. Saukko (eds.),

Encyclopedia of Forensic Sciences, Elsevier/Academic Press,

Amsterdam 2013,Vol. 1.

[18.] Kmiecik R. (ed.), Prawo dowodowe. Zarys wykładu, Zakamycze,

Kraków 2005.

[19.] Konieczny J., Metodologiczna charakterystyka kryminalistyki,

Silesian University Publishing House, Katowice 1984.

[20.] Konieczny J., Kryzys czy zmiana paradygmatu kryminalistyki ?,

„Państwo i Prawo”, 2012, z. (791).

[21.] Nelken D., A Just Measure of Science, [in:] P. Roberts (ed.), Expert

Evidence and Scientific Proof in Criminal Trials, Ashgate,

Farnham 2014.

[22.] Netzel L. R., Kiely T. F., Bell S., Evidence: Origins, Types, and

Admissibility, [in:] S.H. James, J.J. Nordby, S. Bell (eds.), Forensic


177

Science. An Introduction to Scientific and Investigative Techniques,

CRC Press, Boca Raton 2014.

[23.] Redmayne M., Expert Evidence and Criminal Justice, Oxford

University Press, Oxford 2004.

[24.] Risinger D. M., The Irrelevance, and Central Relevance, of the

Boundary between Science and Non-Science in the Evaluation of

Expert Witness Reliability, [in:] P. Roberts (ed.), Expert Evidence

and Scientific Proof in Criminal Trials, Ashgate, Farnham 2014.

[25.] Simmross U., Appraisal of scientific evidence in criminal justice

systems: on winds of change and coexisting formats, “Law,

Probability and Risk”, 2014, 13 (2).

[26.] Suchojad M., Sieci wnioskowań, [in:] J. Konieczny (ed.), Analiza

informacji w służbach policyjnych i specjalnych, C.H.Beck,

Warszawa 2012.

[27.] Tilstone W. J., Assuring Quality in the Crime Laboratory, (in:) A.

Mozayani, C. Nozigilia (eds.), The Forensic Laboratory

Handbook, Humana Press, Totowa 2006.

[28.] Widacki J. (ed.), Kryminalistyka, C. H. Beck, Warszawa 2012,

edition 2.

[29.] Widacki J. (ed.), Badania poligraficzne w Polsce, Oficyna

Wydawnicza AFM, Kraków 2014.

[30.] Wiliński P. (ed.), Rzetelny proces karny w orzecznictwie sądów

polskich i międzynarodowych, Oficyna Wolters Kluwer Business,

Warszawa 2009.

[31.] Wolańska- Nowak P., Interpretacja wyników ekspertyzy, [in:] J.

Wójcikiewicz (ed.), Ekspertyza sądowa. Zagadnienia wybrane,

Oficyna Wolters Kluwer Business, Warszawa 2007.

[32.] Wójcikiewicz J. (ed.), Iure et Facto, Wydawnictwo Instytutu

Ekspertyz Sądowych, Kraków 2006.

[33.] Wójcikiewicz J., Temida nad mikroskopem, Dom Organizatora,

Toruń 2009.

[34.] Zieliński M., Poznanie sądowe a poznanie naukowe, Adam

Mickiewicz University Poznań Publishing House, Poznań 1979.


178

DOI: 10.19192/wsfip.sj3.2016.11

Janusz MIKA

A PHENOMENON OF THE CONFLICT

IN EDUCATION FOR SECURITY

–AN EXAMPLE OF THE CZECH REPUBLIC

(Part 2, continuation)

Summary

Security belongs to the basic qualitative standards of citizens’ life in every country.

It is a very frequently discussed question involving education for security. The paper

presents a concise analysis of the phenomenon related to the conflict of education for

security using the example of the Czech Republic.

Key words: education, security, education for security, conflict, country, national

security

During conflicts one often comes across a phenomenon of

transferring the conflict into counterirritants. It is easier to cope with

them than to tackle the problem of the increase in the needs which are

related to “the intense hunger”. The aim of creating the counterirritants is

sometimes temporizing. As a rule, expanding the conflict assumes

heterogeneity of the objectives which are being achieved.

The tactics of gaining allies1 is an attempt to improve one’s position

and at the same to weaken the position of the opposing party by obtaining

moral and active support from outside i.e. the people who are not

involved in the conflict.

The party which has no power and influence prefers escalation of

socially accepted behaviours such as: discussion or protest2.

Janusz Mika, a lieutenant colonel, reserve, the graduate of the University of National

Security in Warsaw, associate, professor of Bielsko-Biała School of Finance and Law,

the Faculty of Internal Security. Bielsko-Biała School of Finance and Law, the Faculty

of Internal Security, [email protected] 1Frequently used in conflicts. 2Trying not to cause strong tension.

A phenomenon of the conflict in education for security…

179

On the other hand the powerful party wants to create a high level of

emotional tension unilaterally to bring the conflict to a close and prefers

so called controlled escalation. It manifests itself in the following modes

of behaviour: the party imposes conditions, reveals the differences and

protects its personal interests, depreciates the importance of the opposing

party’s point of view, emphasizes one’s identity, reveals and specifies the

feelings, etc.

One of the slightly different methods of strategic behaviour of

preventive results, used in the process of managing the conflict, is

a conscious change of the conflict conceptualization3 in order to decrease

or liquidate the level of the feeling of frustration. The positive aspect of

the conflict reconceptualization is an assumption of more positive

attitude to the opposing party. The negative side, however, is a dismissal

of the necessity to solve the conflict.

There are five basic directions of the conflict reconceptualization:

perceiving the conflict in a less abstract category, i.e. in a way that

makes it easier to solve the conflict;

changing the conflict in such a way which will decrease the feeling of

threatening one’s own identity;

striving for weakening the polarization of the positions held by the

conflicting parties, expressed by the utterance: “we or them” or “all-

or-nothing”;

dividing a large conflict into several smaller ones, relating to fewer

people, fewer problems, rules, etc.;

realizing the fact that in spite of the conflict the relationship with the

other party may be or is co-operative.

One of the reasons of the conflict escalation is the parties’ aggression

which the conflicts are often accompanied by. To manage the conflict

constructively the knowledge gained during researches on aggression and

methods of controlling it should be applied. Application of both: the

knowledge and the methods enables the party to mange the conflict.

3The conflict reconceptualisation.

Janusz Mika

180

There are five basic styles of the conflict management:

imposing (competing);

avoiding;

compromising;

accommodating;

solving problems (collaborating).

The presented styles are a kind of space where every person can be

placed depending on his personal tendency to react to the conflict. In the

conflict situation the disputants react in a certain way, although they are

not always aware of that. 4

The vertical dimension reveals the degree of concentration on oneself

and the degree of assertiveness5 with respecting the interests and rights of

the other people. The horizontal dimension shows how willing the person

is to co-operate and how important the relationships with other people are

to the individual.

Assertive, self-confident people are likely to treat the conflicts as the

competition situation, or collaboration, and co-operation. However, the

people with a low degree of assertiveness will avoid or mitigate the

conflicts, they will try to accommodate to the existing situation. The

combination of these two dimensions enables the individual to determine

one’s own individual style of reacting in a conflict situation and handling

the conflict. In a nutshell, those styles are as follows.

Competing is the basis of domination and fight. It is frequently

described in the category of exerting pressure and using “win-lose”

tactics. It is an egocentric pursue to meet one’s needs at the expense of

the other party. The basis for this approach is an assumption: “to win at

all costs” and following the principle that “all ways of acting are good if

they lead to achieving a set goal”6, often including manipulation.7 People

who strive for power or have power over the others are more likely to

manipulate other people. Competing can be applied when:

there is a need for quick, decisive action;

4Especially interpersonal conflict. 5The notion “assertiveness“ is understood as a tendency to pursue one’s own interests

and rights – and, if necessary, protecting them. 6Further Clausewitz, Carl. Vom Kriege , Berlin 1832. 7Including the deceitful tactics of resolving the conflict.


181

unpopular decisions are introduced;

incompetent people are to be eliminated.

Avoiding, also called withdrawing, isolation and escape takes place

when one party is not helping the other party to reach its goals and is not

assertively pursuing its own. This style is typical for people who prefer to

withdraw from the conflict rather than try to solve it in a constructive

way. People avoid conflicts in different ways. If the opposing party is

more powerful, people withdraw and give up pursuing their own rights

and interests. However, when the individuals have the edge, they impose

their opinion regardless which party is really right. As a result of such

approach both parties lose because postponing solving the conflict means

creation of a new conflict situation. The avoiding tactics may be used

when:

the issue is trivial and there are more important matters which have to

be tackled;

there is no possibility of winning;

there are chances of more advantageous solution of conflict at a later

date;

more time is needed to get prepared better for the negotiations;

there is a risk that the solution adopted will cause other conflicting

problems.

A compromise is based on the assumption that in a given argument

each party gains and loses. In this case we search for a common ground

of agreement. It is a resultant of two tendencies: “to protect one’s own

interests” and “to co-operate”. Objectively, from the organisation’s point

of view, it is the best solution. The most desirable result of a compromise

is equal concessions of the claims made. A compromise may be

appropriate for scenarios where:

the conflicting party is equally powerful;

there is a need to gain an advantageous solution within a short time;

it is possible to solve a complicated argument;

the co-operation or competing has not been efficient so far.

Accommodation is the opposite of competing. This as an action

taken for the benefit of the other party. The party of “accommodation”

approach sacrifices its goal to enable the other party to meet its needs. It

can be effective for preserving future good relations with the other party.

Janusz Mika

182

Similarly to people who apply the style of “avoiding”, mitigating people

are convinced that an argument is an evil and a threat. Using

“accommodating” approach is not always a favourable situation for the

party. Accommodation is mainly used in the following situations:

when a mistake was made and we have the courage to admit it;

it is more necessary for the other party to win;

the conditions are created for a favourable solution to the contentious

issues;

there is a big risk of lose;

to create an opportunity for both the subordinate and the supervisor to

learn from their own mistakes.

Collaborating is the most desirable approach of solving conflicts. It is

based on the paradigm: “win-win” and aims at meeting the needs of both

parties to an optimal extent. In majority of cases a solution satisfying

both conflicting parties can be found. It does not have to be related to

equal concessions of both parties and fair distribution. The collaboration

can be described as a suitable relation when the arguments of both parties

are important and the mutual agreement is sought by taking into account

the interests of the other disputant during the decisions making process.

Having realized what is one’s individual style of reacting to the conflict,

enables the party to manage and control the course of conflict and the

negotiations conducted.

Conflict resolution is a significant issue in education. A conflict

appears in almost every area of human activity, taking sometimes the

form of armed conflicts8. In spite of the fact that conflict may play

a number of positive roles, we still search for the ways of regulation and

solving conflicts. It mainly results form the negative consequences which

this phenomena is usually accompanied by.

Regulation and solving conflicts relate to such clashes which could

not be prevented. Solving the conflict is getting rid of the factors that led

to its occurrence and abandoning hostile actions directed against the

other party. Regulation is a conscious impact on the course of conflict

made by the party involved or by the participants in order to limit its

8 Of economic, independence, national or religious background.


183

violence and intensity as well as to shorten its duration.9

Admitting the need to introduce regulations usually takes place when

the parties realise that they are not able to settle the argument to their

own benefit themselves. Making them settle the argument is an essentials

element of negotiation.10

Limiting the violence and intensity of conflict can be obtained via,

among others, the following actions:

Limiting the range of conflict i.e.: the number of its participants and

the litigious matters,

Limiting the number of means of fighting, technical measures and

kinds of actions taken,

Defining the opponent clearly,

Establishing relationships between the parties which will prevent them

from possible mistakes or misunderstandings,

Presenting the opponent and his actions objectively.

The ability to resolve conflicts and countermeasure various forms of

offensive actions, including violence and aggression, has a close relation

to the human safety and the functioning of human in extreme conditions

such as armed fighting.

One of the most primitive and most common methods of handling

a conflict is deterrence which is to prevent a group from taking actions,

the costs of which will overweigh all possible profits.11 Applying

a method of deterrence is aimed at bringing about a fear of consequences.

This method is only effective when the party is fully capable of

implementing it. Otherwise it can make the party seem ridiculous,

indecisive and may jeopardize its authority.

When the conflict occurs, an agreement should not be feigned but the

9 Limiting negative conflict consequences and changing the conflict form a destructive

into constructive phenomenon. 10More on negotiations: Mika, Janusz. Komunikace mezi uchazeči o zaměstnání

a pracovníky Oddělení pro zprostředkování zaměstnání na Úřadu práce v Karviné. In:

Zarządzanie i komunikacja społeczna w edukacji. Kontekst, struktura, środowisko.

Toruń: Adam Marszałek, 2010, pp. 141-158. ISBN 978-83-7611-753-9. 11The cold war between the Union of Socialist Soviet Republic and the United States of

America may be an example of using such a strategy. Each party threatened the

opposing party with total destruction if it decides to make a nuclear attack. The

perspective of a total annihilation was supposed to deter the rival from using the nuclear

weapon. None of the parties wanted such a “madness" to happen.

Janusz Mika

184

parties should start settling it. A conflict which was dampened down

comes back like a boomerang. It can appear unexpectedly and the

individuals may be taken by surprise by its intensity and consequences.

The destructive conflicts which cause chaos and hinder co-operation are

most dangerous because they lead to negative emotions and fighting

against each other. Those are the conflicts which should be settled

actively and their spontaneous escalation should be prevented.

Efficient conflict settlement is determined by self-control and

abilities to distance oneself. According to Niccolo Machiavelli the one

who adjusts his conduct to the circumstances and orders his temper to be

obedient, wanders the least12.

Recognition and analysis of one’s own style of reaction in a conflict

situation can be useful for handling the arguments and conflicts. The

style of reaction is a learnt ability which can be improved. As far as

effectiveness is concerned, there are no unambiguously good or bad

styles of reaction to the conflict situations. The assessment of a given

style depends on its adequacy to the situation in which it takes place13.

A description of different styles of reacting to conflict coincides with the

description of styles of conflict management presented hereinbefore.

One of the ways of resolving conflicts is influencing the processes

which were elicited by the conflict and serve keeping and intensifying

conflicts 14 .

The first step that leads to overcoming the conflict is identification of

the parties which are involved in conflict situations.

In some environments there is a common view that the conflict

develops and solidifies when the conflicting parties do not understand

each other and have misperceptions of each other. If they are enabled to

enter into mutual contacts, the false stereotypes could be verified or

rejected, and possibly the conflict could be settled.

Practical examples show that in many cases those ways are failing.

The areas of the contact of antagonist groups representatives and nations

become fronts of the fights. The opportunities of communication and

discussion are not taken. If so, they are used to attack the opponent who

is not listened to, no importance is attached to the opponent’s arguments.

12Machiavelli, N., Książę. Rozważania nad pierwszym dziesięcioksiągiem historii Rzymu

Liwiusza, PIW, Warszawa 1984, p. 211. 13 The external conditions impose the choice of a certain style. 14 So called "symptomatic treatment".


185

It happens that "open door policy" and increasing the opportunity to

communicate accompany moves which touch the essence of conflict and

are effective.

Another way of combating conflicts can be an attempt to shape

positive attitudes towards sides of the conflict via presenting positive

information about them. As psychological research and life practice

showed, conveying such information is pointless15. In a conflict situation

such information is ignored, their recipients question the authenticity of

the information and distort the information easily. Even if the information

is believed, it is shortly forgotten. This method may be applied in

a situation preceding the conflict and in a situation of recognising

a potential conflict.

There are some opinions that conflict can be defused by the contact

of the leaders. They have more chances to reach an agreement in a course

of a calm debate than big communities excited by the conflict16. This

method like every method has some obvious disadvantages. In a situation

of the strong conflict escalation a room of manoeuvre of the leaders is

very limited. The leaders can be exposed to attacks from the individuals

from their own party who require them to gain certain compromise and

concessions from the opposing party. The parties may always feel

dissatisfied with what has been achieved. Only the leaders with a great

authority, large influence and on the top of the situation can conduct

effective negotiations heading for elimination of a conflict.

"A comprehensive way" of curing a destructive conflict consists in

attempt to get rid of all factors which contribute to escalation and

sustaining of the conflict. Social conditions that intensify the state of

mental excitement, action of leaders and opinion-forming groups who

encourage to fight and resistance are such factors17.

The “counter conflict actions” are neutralising such leaders,

precluding the actions of opinion-forming groups, who envenom the

conflict, whet the reluctance and hostility towards one of the parties. It

could be achieved by propaganda means,18 as well as administrative

15 Regardless of the source. 16This method is particularly recommended in international relationships between the

states. 17They proclaim the ideology of fight – thus helping to shape the attitude of opposition. 18This is a task of the apparatus of psychological actions, PSYOPS. Further Mika, J.,

Uplatnění doktrinálních principů informační války a psychologických operací ve válce

Janusz Mika

186

ones, in extreme cases also via police means19.

“Comprehensive” measures of eliminating conflicts have been

known for a long time. They have always been used by those individuals

who had certain powers at their disposal and were trying to prevent or

derail processes leading to destabilization of the social order in a country.

Moves towards pacifying the situation include:

undertakings provided for weakening the feeling of economic

frustration of various groups;

foiling the political actions which can capture imagination by setting

the emotions to rocking.

Comprehensive actions are not efficient during longer period of time

if they are not accompanied by the undertakings leading to handling the

essence of the conflict. The above phenomena require treating the causes

not the symptoms.

Resolutions of the conflicts which are caused by real clashes, require

correct diagnosis of those disputes and joint quest to overcome them.

Accrued prejudices, hostility, stereotypes and distrust, described above as

the “psychology of fight”, have to be dealt with.

In a social psychology there is an opinion20 that the main way of

solving a conflict between groups, is arising a situation when the two

opposing parties have the same, very important goal which cannot be

achieved by one party individually. The necessity to combat a common

enemy can be such a goal which led to violent arguments elimination

many times and thus the old conflicts21 were stopped. The method of

“common enemy”22 was used by Adolf Hitler, who united the German

society ravaged by clashes caused by the economic crises against Jews

and communists. Subsequently Hitler also found external enemies.

Looking for “a common enemy”, as a way of solving conflicts has

a significant disadvantage, although it may be efficient for a short period

a postkonfliktní stabilizaci Iráku. In: Postkonfliktní stabilizace-příklad Iráku. Univerzita

obrany Brno, 2007. p. 73-82. ISBN 978-80-7231-249-8. 19 Which was used in the former Yugoslavia’s countries. 20E.g. M. Sherif is a typical representative. 21E.g. during the Second World War, the creation of Russian, English and American

alliance. 22Internal enemy.


187

of time. Apart from moral aspects of such solutions23, it is nothing more

but replacing one conflict with another one, not necessarily safer and

easier to win.

Having analysed the phenomenon of conflict two basic strategies24

can be mentioned: soft and tough. The soft strategy concentrates on

affecting and modifying the process of reaching an agreement by the

conflicting parties. Moderation and mediation are the methods which,

among the others, are applied in such strategies. The tough strategy

consists in influencing the conflicting parties by controlling the results of

the conflict which is being solved. The combination of mediation and

arbitration or alternatively different forms of pure arbitration are

frequently used. The existence of a common goal based on a common

interest can play a certain role in elimination of a conflict, provided that

such a goal is really important and highly regarded by both parties. This

goal ought to be clearly defined25 and valid26. There should be a general

conviction that it can be reached only by acting together. The levels of

debates should be created in order to reach common goals. Each

uncontrolled form of debate may progress to a fight forum. However,

there are opinions that not every controlled form of debate deserves

participation in it. In a situation when distrust blocks action taken to

solve the conflict, “a third party”27 can play an important part. If "the

third party” has prestige, some power28 and the competences to

understand the conflict, it can contribute to transforming the destructive

conflict into a constructive one. A mediator is not a judge who is to assess

and discipline the conflicting parties. The mediator’s basic function is the

assistance in finding the levels at which the solutions may be found

which will satisfy the majority of the forces involved.

A conflict does not necessarily mean hostility. Each situation can be

23Mika, J., Ethical Coincidence of Modern Adult Education. In 6th International

Scientific Symposium on Business Administration. GLOBAL ECONOMIC CRISIS AND

CHANGES. Restructuring Business System: Strategic Perspectives for Local, National

and Global Actors. Karviná: Slezká univerzita v Opavě, Obchodně podnikatelská

fakulta v Karviné, 2010. p. 762-768. ISBN 978-80-7248-594-9. 24Vojenská strategie. Univerzita obrany, Ústav strategických studií. Ministerstvo obrany

České republiky, 2008. ISBN 978-80-7278-475-2. p. 9-57. 25In order to be noticed by everyone. 26 Requires immediate actions. 27Usually mediators. 28Social, political.

Janusz Mika

188

considered separately from people and groups related to it. The common

as well as the contrary interests are hidden in every conflict. The

common interests keep the negotiations going. Every time people

exchange their views in order to change their relationships, they attempt

to negotiate. Every discussion leading to preparation and adopting

a common and agreed attitude towards a specified conflict deserved the

name: “negotiation”.

The ability to conduct a debate and negotiation does not concern only

politicians, diplomats, servicemen, managers. It is also needed in

everyday contacts between people: with subordinates, superiors, with

representatives of authorities and social organisations, in contacts with

local people e.g. during implementation of peacekeeping and stability

missions.29

A negotiating dialogue is a clash of contradictory arguments, views

or interests in a situation when the parties try to impose each other their

own will. The parties involved in negotiations lead a dispute involving

presenting proposals and demands. They are estimated by the other party

and subsequently consent is given or a counter-proposal is put forward.

The success in negotiation depends, among the others, on the attitude

towards the conflict.

Negotiations are a way of solving a conflict. To conduct negotiation

the conflicting parties have to be organized. The personalities of

negotiators determine the style of negotiations chosen and applied.

The cooperative style called “the soft style” is characterised by the

friendly behaviour of the participants. The aim of negotiation is an

agreement and the person who takes on this style can make concessions

in order to maintain the contacts or even accept one-sided loses for the

benefit of an agreement.

In case of a competitive style also called “a tough style” the partners

are the opponents. The aim of each party is a victory. The negotiating

person usually does not trust the partner and maintains his position

firmly, demands concessions as a condition for sustaining contacts. Such

a person may manifest aggressive behaviour, use threats and even

violence.

29Further Mika J., Uplatnění doktrinálních principů informační války

a psychologických operací ve válce a postkonfliktní stabilizaci Iráku. In: Postkonfliktní

stabilizace-příklad Iráku. Brno: Univerzita Obrany Brno, 2007. ISBN 978-80-7231-

249-8, p.78.


189

A matteroffact style, which is described as "a principled style”, is

characterised by the fact that the aim of negotiation is obtaining

a reasonable result in a relatively good atmosphere. This style is based on

criteria independent from subjective wishes of the partners which are

favourable for both parties. People who prefer this style solve the

problem together with their partners and look for various possible

solutions. They do not use threats but are open to persuasion and are

convinced by justified arguments not pressure.

The choice of a certain style and procedures in negotiation situation

is determined by a variety of factors interacting with one another.

Generally two basic groups of factors can be given: situational and

personal. These are also factors determining the conflict resolution. The

following situational factors can be enumerated:

symmetry or asymmetry – related to the similarity of both negotiating

parties, as far as their status, resources and accessibility of the desired

goods are concerned;

shortage of time or its access; time pressure on one party or

negotiations with time pressure on both parties;

degree and kind of the partners’ involvement – direct or indirect

commitment;

the subject matter of the talks – contents of negotiations e.g.

negotiations on political, economic, organizational, interpersonal

issues, etc.;

social and cultural context – i.e. the language and communication

changes within different communities, cultural community of the

negotiators, possible differences and the action taken in connection to

those factors;

presence or absence of audiences during negotiation;

the venue of negotiations – negotiation on one’s own territory

enhances domination behaviours and achieving better results of

negotiations;

Janusz Mika

190

interpersonal distance – physical space between partners; the distances

are different depending on culture30 of a given community and its

norms;

the gender of negotiators – the results of research show that women

are more open to persuasion (it is conditioned by the process of their

upbringing);

the age of partners – basically, it is easier to influence young people

with little life experience31; the older the individual gets, the system of

a person’s attitudes becomes grounded and less susceptible to

modification;

the education of negotiators – the level of knowledge they possess;

people who are experienced, have broader knowledge and objectively

a greater chance for satisfying negotiations;

the communication barriers e.g.: lack of efficient system of

communication; the physical barriers of communication should be

anticipated and eliminated, if possible; there are many psychological

problems which have to be dealt with.

The personal factors connected with individual features of the

negotiating parties constitute another large group. This group contains

individual knowledge of each party, concerning the abilities to conduct

negotiations. The personality features of negotiators, predispositions,

preferences, temperamental and intellectual traits, interpersonal skills,

psychophysical features and the types of attitudes, represented by the

participants of negotiations.

Depending on special situations connected with the organisational

phase and the course of the process of negotiations, conducting

negotiations requires using various techniques and tactics.

In the first stage of negotiations, at the beginning of a discussion, the

techniques showing the negotiator in a good light in order to gain the

sympathy and trust of the other party and also demonstration of the

power seem to be the most rational. The technique which has to be used

in this stage is first of all a technique of “the first impression effect” i.e.

30Further Vybíral Z., Psychologie komunikace. Portál s.r.o. Praha, 2009. ISBN 978-80-

7367-387-1. p. 88. 31Furhter Farková M., Dospělost a její variabilita. Grada Publishing. Praha 2009. ISBN

978-80-247-2480-5. p. 44.


191

presenting yourself and your own team and institution.

In the second phase the abilities to control the course of negotiations

are the most crucial. Depending on the situation, the negotiator will have

to decide on the choice of certain procedures and the choice of

psychological techniques.

In the third stage of finalising the conflict, the preventive techniques

which counteract entering a new conflict situation may turn out to be

efficient. These are the following procedures:

“above goal ” procedure;

procedure of “protest abstraction”;

persuasive skills.

The techniques of reduction of dissatisfaction with the results of

negotiations include persuasion, modelling dissatisfaction, encouraging

the partner to articulate his dissatisfaction.

The parties which participate in negotiations are aware of the fact

that concluding an agreement is a factor changing the current situation.

The agreement negotiated may be assessed in various ways by various

environments. All the above may cause different interpretations of the

arrangements made. If the problems are of a deeper character or there is

a far-reaching change of a situation, renegotiation of the agreement

concluded is necessary.

While the conflict is being resolved, the fact that self strengthening

conflict situation requires time, patience and sometimes the mediator’s

help should be taken into account. The mediator who is personally

involved in the conflict is not a subject to the same conditions as the

conflicting parties. His perception is not disrupted and the opportunities

of a dialogue are not usually limited. He can understand better the

messages conveyed by each party and play the role of an interpreter. It

sometimes helps to overcome a mutual hostility and leads to a direct

dialogue. It also helps to limit the conflict and find the way to resolve it.

A failed mediation may compromise not only the mediator but also the

idea of the mediation itself.

It is difficult to imagine that a fight and dispute will ever be

eliminated from the international relationship. Heraclitus32 considered the

32 Heraclitus of Ephesus, 550-480 BC (Herakleitos ho Ephesios), a Greek philosopher,

belongs to the group of Ionian philosophers of nature. He was born in Ephesus in Ionia,

the coasts of Asia Minor. The author of cosmological, political and theological papers.

Janusz Mika

192

dispute as “the father of all things”. Conflicts and disputes dynamise and

drive actions.

It could be said that psychological actions became a permanent

fixture of all wars and armed conflicts. They are an integral part of

military operations. Wars as extreme forms of conflicts cannot be

eliminated from social relationships. The analysis of armed conflicts

fought all over the world shows that the negotiations may be one of the

crucial ways of peaceful (political) conflict resolution. Inefficiency of the

actions undertaken by the countries responsible for resolving the conflict

in a peaceful way in former Yugoslavia was caused by the lack of

coordination of political and diplomatic efforts and the negotiating

actions. Unfortunately, the ability to negotiate is not appreciated in

a military environment; it should become an element of professional

qualifications. Apart from developing specialist competences, the

abilities to use the methods, techniques and means of social

communications should be shaped. The abilities to enter into contacts,

solve problems, form the relationships between people, resolve conflict

situations, and establish intercultural and interreligious communication

are of substantial importance. The above abilities should be included in

the military education curricula. Numerous examples show that the

military interventions aimed at restoring and maintaining peace were not

always fully efficient. It is also an evidence of insufficient

communication skills not only in the stages preceding the outburst of

military conflicts but also during the conflicts.

Literature

[1.] AAP-6 Terminologický slovník pojmů a definic NATO. Praha:

OOS/Úř OSK SOJ 2010.

[2.] Clausewitz C., Vom Kriege, Berlin 1832.

[3.] Farková M., Dospělost a její variabilita. Grada Publishing. Praha

2009. ISBN 978-80-247-2480-5.

[4.] Kołodko G., W. Wędrujący świat. Warszawa 2008. Prószyński

i S-ka SA, Warszawa 2008.ISBN 978-83-7469-712-5.

[5.] Machiavelli N., Książę. Rozważania nad pierwszym

dziesięcioksiągiem historii Rzymu Liwiusza, PIW, Warszawa 1984.

[6.] Mencl V.; Hájek A.; Otáhal M.; Kadlecová, Erika. Křižovatky

20.století. Světlo na bílá místa v nejnovějších děinách. Naše vojsko,

Praha 1990. ISBN 80-206-0180-5.


193

[7.] Mika J., Andragogika płaszczyzną edukacji dla bezpieczeństwa

pracowników organizacji zhierarchizowanych (przykład Republiki

Czeskiej), [in:] Zarządzanie kryzysowe, Tom II, Diagnoza

rozwiązań praktycznych w zakresie bezpieczeństwa wewnętrznego.

Legnica: Państwowa Wyższa Szkoła Zawodowa w Legnicy, 2012.

ISBN 978-83-61389-73-6.

[8.] Mika J., Ethical Coincidence of Modern Adult Education, [in:] 6th

International Scientific Symposium on Business Administration.

GLOBAL ECONOMIC CRISIS AND CHANGES. Restructuring

Business System: Strategic Perspectives for Local, National and

Global Actors. Karviná: Slezká Univerzita v Opavě, Obchodně

podnikatelská fakulta v Karviné, 2010. ISBN 978-80-7248-594-9.

[9.] Mika J., Etyka w edukacji dorosłych – andragogice, [in:] Śląska

Policja, Kwartalnik Policji Garnizonu Śląskiego. Katowice:

Stowarzyszenie "Śląska Policja", 2011, No. 2, ISSN 2082-594.

[10.] Mika J., Historicko-filozofická východiska vzdělávání dospělých

v době globalizace, [in:] Globalizácia a jej sociálno-ekonomické

dôsledky - vydaný ako mimoriadne číslo elektronického časopisu

Podniková ekonomika a manažment, 2012, Žilina: Žilinká

univerzita v Žiline, 2012. ISSN 1336-5878.

[11.] Mika J., Informační válka a internet-strategický problém

budoucnosti (Information Warfare and Internet-Strategic Problem

of Future), [in:] Internet a bezpečnost organizací. Zlín: Univerzita

Tomáše Bati, 2007. p. 35-. ISBN 978-80-7318-548-0.

[12.] Mika J., Komunikace mezi uchazeči o zaměstnání a pracovníky

Oddělení pro zprostředkování zaměstnání na Úřadu práce

v Karviné, [in:] Zarządzanie i komunikacja społeczna w edukacji.

Kontekst, struktura, środowisko. Toruń: Wydawnictwo Adam

Marszałek, 2010. p. 141-158. ISBN 978-83-7611-753-9.

[13.] Mika J., Krizová komunikace v rámci součinnosti Policie České

republiky a Policie Polské republiky v situacích mimořádných

ohrožení osob a prostředí, [in:] Teoria i praktyka działań

komunikacyjnych w poradnictwie i terapii. Toruń, 2013

Wydawnictwo Adam Marszałek. ISBN 978-83-7780-683-8.

[14.] Mika J., Manpower in the process of Strategic Management in the

Czech Army, [in:] Security Revue 2007. ISSN 1336-9717.

Janusz Mika

194

[15.] Mika J., Uplatnění doktrinálních principů informační války

a psychologických operací ve válce a postkonfliktní stabilizaci

Iráku, [in:] Postkonfliktní stabilizace-příklad Iráku. Brno:

Univerzita obrany Brno, 2007. ISBN 978-80-7231-249-8.

[16.] Mika J., Kyselák, J., Příprava odborníků pro oblast ochrany

obyvatelstva a krizového řízení na Univerzitě obrany v Brně, [in:]

Security Revue 2007. ISSN 1336-9717.

[17.] Mika J., Olak, Antoni. Społeczne postrzeganie zagrożeń, [in:]

Bezpieczeństwo w warunkach globalizacji-wybrane zagadnienia,

Jurčák, V., Mika, J., Olak, A., Wyższa Szkoła Biznesu w Ostrowcu

Świętokrzyskim, Ostrowiec Świętokrzyski, 2014. ISBN 978-83-

936652-9-7.

[18.] Mizia C., Znaki czasu w edukacji teologicznej kościoła

starokatolickiego w Republice Czeskiej, [in:] Acta Humanica,

Fakulta humanitných vied Žilinskej Univerzity, Katedra

Pedagogických štúdií, Žilina, 2012. ISSN 1336-5126.

[19.] Morris M., Co nesmíte vědět! 2012, vyd. Bratislava: ARIMES.

ISBN 978-3-98114301-4-1. Překlad z německého originálu Was sie

nicht wissen sollen! ŽÁČKOVÁ, Zuzana 2012.

[20.] Mulinen F., Příručka mezinárodního humanitárního práva pro

ozbrojené síly. Magnet-press, s.p. Praha 1991. ISBN 80-85434-30-

X.

[21.] Rašek A., Bezpečnost-věc veřejného zájmu, [in:] Bezpečnostní

budoucnost České republiky-otázky, výzvy, problémy. CESES.

Ministerstvo obrany České republiky. 2005. ISBN 80-7278-306-8.

[22.] Telcová J., Úvod do pedagogické psychologie. Informace, Brno

2002. ISBN 80-8656-13-X.

[23.] Urban O., České a slovenské dějiny do roku 1918. Svoboda, Praha

1991. ISBN 90-205-0193-2.

[24.] Vojenská strategie. Univerzita obrany, Ústav strategických studií.

Ministerstvo obrany České republiky, 2008. ISBN 978-80-7278-

475-2.

[25.] Vybíral Z., Psychologie komunikace. Portál s.r.o. Praha, 2009.

ISBN 978-80-7367-387-1.

[26.] Zahradnik S., Ryczkowski M., Korzenie Zaolzia. PAI. SA. PAI-

press. Warszawa. Praga, Trzyniec 1992.


195

DOI: 10.19192/wsfip.sj3.2016.12

Jacek DWORZECKI

Bartłomiej BĄK

USE OF SELECTED INSTRUMENTS

OF MANAGEMENT FOR THE IMPROVEMENT

OF ECONOMIC SECURITY IN NATIONAL ENERGY

SECTOR -RESEARCH REPORT

Summary

The paper discusses the issues of functioning of management and supervisory boards

and the use of audit tools in companies from Polish energy sector. The text provides

a summary of survey on functioning of supervisory boards and how they apply audit

results in their supervisory and counselling activities.

Key words: management, audit, energy sector, security, corporate governance

Introduction

When analyzing media reports of the last couple of years one can

make a statement that Polish public opinion has been regularly informed

on irregularities in functioning of state business entities. Stories of

amateur-like management as well as examples of inefficiency and

maladministration have been exposed and shamed especially in

independent mass media. Undoubtedly, wrong decisions taken on

executive level, implementation of inappropriate solutions and taking for

granted unreliable data and information as well as ill correlation with the

market of services or recipients was caused by inept application of

available control instruments. The present study is devoted to the issue of

functioning of supervisory boards in Polish companies from energy

sector with special emphasis on the application of audit as a tool for

conducting day-to-day activities of these advisory bodies. The paper

Dr Jacek Dworzecki, associate professor at Bielsko-Biała School of Finance and Law. Bartłomiej Bąk MA, Katowice School of Economics.

Jacek Dworzecki, Bartłomiej Bąk

196

presents results of a survey conducted among executives and supervisory

boards members of companies whose main objective is to assure stable

and high-quality energy supplies. The authors hope that the text will be

of special interest for experts who are scientifically and professionally

concerned with security issues (especially energy security); specialists in

public sector management, students of managerial sciences, internal

security and state security as well as for everybody who holds these

issues close to their heart.

1. The energy sector in Poland - outline of subject matter

Energetic security is an immanent element of strategic planning in

each democratic and dynamically developing country. To achieve

sustainable development, for each state it is necessary to put the issue of

producing and distributing energy as its top priority. Energetic sector is

a sine qua non condition for efficient functioning of a national economic

system. Nowadays, development of a country is closely related to the

access to energy, and long-term forecasts (up to 2040) for the global

economy predict its annual average growth of 2,8%. Considering the

increase in efficiency of energy production, it is foreseen that each year

the growth in energy sector shall accelerate by 1,1%.

In Poland the production of primary energy relies predominantly on

fossil fuels. Among fossil fuels the most important is coal (bituminous

and lignite), which satisfies about 56% of Poland’s demand for electrical

energy. Government analysts predict that consumption of primary energy

in our country in the second half of 21st century will be rising by 1.5%

per year.

Use of selected instruments of management…

197

Chart no 1. Structure of demand for primary energy in Poland (by sources

– in %).

Source: authors’ own work based on data from Mix energetyczny 2050. Analiza

scenariuszy dla Polski, a report published in Warsaw in 2011 by the Ministry of

Economy, p. 7.

Entities in the National Power System (NPS) are responsible for

continuity and stability of the energy supplies but they are all separate

organisational units, they are supervised by separate institutions and are

governed by separate legal regulations. Within NPS there are three

underlying subsystems:

producers of energy;

entities that service and maintain the transmission grid;

distributors of energy.

Among manufacturers there are: baseload power plants, industrial

power plants, combined heat and power plants (CHPs), hydroelectric

stations, solar and wind power stations, biomass and biogas plants. The

energy produced by these institutions and entities is distributed through

the transmission grid (with varying technical parameters of 750 kV, 400

kV or 220 kV) by the monopolist on the Polish market PSE S. A.1 The

end user, the consumer of energy is supplied through distribution

network with low transport parameters of 110 kV and medium and low

voltage. The advancements in technology of all industry sectors,

development of information technologies as well as growing

consumerism generate bigger and bigger demand for energy supplies.

The forecasts show that in 2030 Poland will need 217,4 TWh of energy.

1 Polskie Sieci Elektroenergetyczne S. A.

Coal; 56%

Natural gas; 13%

Biomass and wastes; 6%

Oil; 25%


198

Table no 1. Forecast of demand for energy in Poland (in TWh).

Area of demand 2015 2020 2025 2030

Final energy 115,2 130,8 152,7 171,6

Energy sector 11,6 12,1 12,7 13,3

Waste in transport

and distribution 13,2 13,2 15,0 16,8

Net demand 140 156,1 180,4 201,7

Own needs 12,8 13,2 14,2 15,7

Gross demand 152,8 169,3 194,6 217,4

Source: authors’ own work based on data from Prognozy zapotrzebowania na paliwa

i energię do 2030 –a report published in 2009 by the Ministry of Economy.

The main resources for the Polish energy sector are fossil fuels which

are ninth biggest natural resources on our planet volume-wise. Naturally,

in structural approach the most important manufacturing component of

electric power (more than 90%) are bituminous and lignite coal.

Table no 2. Electrical energy production in Poland by energy source (2010-2013).

Source of energy 2010 2012 2013

GWh % GWh % GWh %

Bituminous coal 87 799 55,7 80 524 49,7 81 568 49,6

Lignite coal 48 651 30,9 54 054 33,3 56 150 34,1

Gaseous fuels* 4797 3,0 6259 3,9 5247 3,2

Other fuels** 4954 3,1 3991 2,4 3968 2,4

From pumped water 568 0,4 428 0,3 558 0,3

Renewable sources

of energy: 10 889 6,9 16 879 10,4 17 066 10,4

biomass/biogas 6305 4,0 10 094 6,2 8622 5,2

water 2920 1,8 2037 1,3 2439 1,5

wind 1664 1,1 4747 2,9 6004 3,7

Photovoltaic cells . . 1 0,0 1 0,0

Total 157

658 100

162

139 100 164 557 100

* Natural gas – methane and nitrogen rich, gas from methane recovery from mines,

natural gas accompanying the crude oil.

** Oil as an energy source, diesel fuel, non-organic industrial and communal waste.

Source: authors’ own work based on data from the Energy Market Agency PLC.

The structure of the energy sector in Poland has been subject to

systematic changes since 1997 when all sectors of Polish economy

initiated an important transformations phase. The original consolidation


199

of energy companies belonging to the State Treasury has been replaced

by a more vertical structure. At the same time the privatisation processes

are under way. Due to the consolidation and transformation processes of

energy capital groups, a considerable concentration of potential has been

achieved. According to data from the Polish Energy Regulatory Office,

three major energy manufacturers (PGE, Tauron and EDF) dispose of

more than a half of current installed capacity and make more than two

thirds of energy in Poland. The biggest players on the energy market in

Poland are:

PGE Capital Group operating more than 40 power plants and CHPs, 8

operators of distribution networks, 7 energy retailers and a number of

lignite mines;

Tauron Polska Energia Capital Group, the biggest distributor of

energy whose distribution grids cover 17% of the territory of Poland;

Enea Capital Group covering the western and northern-western

territory of Poland. Enea operates the coal power plant in Kozienice;

EDF Capital Group - a French-based global energy giant, in Poland

this group holds 10 % of Polish energy market and 15 % of network

district heating;

PAK Capital Group (a group of power stations in Pątnów-Adamów-

Konin), the second biggest entity manufacturing energy from lignite

coal. PAK consists of four CHPs located in the vicinity of Konin;

Energa Capital Group which operates 47 hydroelectric stations and

a coal power plant in Ostrołęka. In addition to production, turnover

and distribution of energy, Energa also conducts activities related to

street lighting, design, material supplies, network implementation,

specialised transport as well as hotel and IT services.

In a nutshell, the profile of energy sector in Poland presented above

shows that this segment of national economy will require, in the near

future, a considerable amount of investments. This is due to the fact of

natural wastage of infrastructure of power plants and transmission grids.

In Poland 40% of energy generators has already been in operation for

more than 40 years and 15% is more than 50 years old, which means they

should be turned off without delay. It should also be noted that the

process of modernising of Polish energy sector is regulated by the EU

requirements. Especially important are regulations regarding reducing the


200

emissions of particulates and oxides of nitrogen as well as carbon

dioxide.

2. The role of corporate governance as a body initiating control

activities

Corporate governance holds a real sovereignty and control over an

institution. It imposes a set of limitations which, in substance, generate

added value for its smooth functioning and sustainable growth. Corporate

governance foresees frequent activities of audit nature and decision

taking mechanisms in circumstances which are not provided in any form

of agreement or contract.

When analyzing financial reports of state-owned companies

cooperating with the energy sector (including mining companies) it can

be presumed that corporate governance is definitely underused. This

situation may be explained by archaic perception of this instrument as

a form of sovereignty and rigid supervision over an institution by its

owner and other stakeholders. In private sector slightly different

approach may be observed. Private entities are obliged by law to apply

and respect external audit instruments thus they seek new solutions for

more efficient application of corporate governance. The essence of

corporate governance is providing an institution (i.e. capital group,

corporation, holding etc.) with efficiency of performance thanks to which

the interests of investors and other stakeholders are protected on

appropriately high level. Among operational targets of corporate

governance the following must be emphasized: identification and

elimination of activities undertaken by dominant shareholders

(executives) which lead to abuses and weakening of the condition of the

enterprise. In practice, corporate governance is based on formal and

informal standards in force in business environments. The most

important, of course, are solutions formalized and contained in legal acts

in force in the European Union or in legislation of a given country. The

most frequently applied solutions are worked out by regulatory bodies of

central administration or professional circles, they may also be

formulated as internal regulations of a capital group. The system of

corporate governance is particularly useful in case of entities functioning

as capital groups or holdings.

Leaders of a capital group should concentrate their activities on

initiatives that recognize interests of creditors and partners with minority


201

stakes and at the same time respect all regulations in force and the code

of conduct within corporate governance. All decisions both of

operational and strategic nature should reflect deep concern for

sustainable development of the capital group and the notion of internal

corporate cooperation should be based on balancing of interests of

shareholders and stakeholders. The most important aspect of efficient

utilization of corporate governance seems to be conducted in accordance

with the rule of division of ownership and management functions.

At this point it should be noted that in all institutionalised entities

(i.e. partnerships, corporations, state administration and local government

institutions etc.) different kinds of verification instruments are applied.

As audit allows for a more rational exploitation of potential, the present

paper also concentrates on selected kinds of internal and external audit.

Audit is an instrument which actively, independently and objectively

examines efficiency of internal control system and processes of risk

management in entities of a capital group. Audit assures effective flow of

operations, brings added value to the organisation as it points to

weaknesses and suggests improvements. Audits also provides

information on how to achieve higher quality of resources, manufactured

goods or services.

3. Methodological assumptions of the study

The aim of the study whose outline results are presented therein was

to design a corporate governance model consisting of audit instruments

and verification of this model in the companies from the Polish energy

sector. The intended outcome of the study was related to two aspects.

Firstly, the authors wanted to arrive at evaluation of the currently used

audit solutions of corporate governance in state-owned companies.

Secondly, they wanted to formulate hints on how to modify this

instrument so that it could be more efficiently applied in the above

mentioned companies. The authors postulated that achievement of this

objective would also produce advantage of practical nature: a set of

optimum solutions for improvement of efficiency in management of

entities in the sector which constitutes a pillar of Polish economy. The

general objective of the study is complemented by a number of specific

sub-goals including:

identification of factors impacting efficiency of activities undertaken

by members of supervisory boards in energy sector companies;


202

definition of a desired professional profile of a member of supervisory

board from the perspective of needs of an organisation from the

energy sector;

identification of audit matrix and audit fields as an integrated way to

apply the existing potential in information and decision taking

processes in different aspects of a company’s activity;

determination of the best possible form of audit to support corporate

governance in energy companies;

identification of factors impacting efficiency of corporate governance

in energy sector.

An impulse for taking up this particular issue were cognitive and

practical aspects as well as the authors‘ own experiences acquired on

their respective professional paths. Hence, the main objective of the

study was formulated in such a way that the obtained results could

become a useful constituent of a tool for formulation of feasible and

effective recommendations for supervisory boards within corporate

governance.

4. Research problems and hypotheses

Conducting scientific research leads to solution of certain cognitive,

theoretical or practical problems. J. Apanowicz states that scientific

problem formulated in a research work must in its substantive and

logical content provide the possibility for determination of the subject

matter of the research and formulation of a chain of theses (problem

questions, specific questions) in the presumed scientific problem2.

The main scientific thesis of this paper, understood as ‘a study to

determine the extent and quality of a certain lack of existing knowledge

as well as goal and boundaries of scientific research’3, is that within

corporate governance in establishments of the energy sector in Poland

there is considerable deficiency in application of audit as an instrument

of control. The main thesis is complemented by the following specific

questions:

2J. Apanowicz, Metodologiczne uwarunkowania pracy naukowej, Warszawa 2005,

Diffin, p. 69. 3J. Pieter, Ogólna metodologia pracy naukowej, Warszawa-Wrocław 1967, PAN, p. 67.


203

Specific question 1:

what factors influence the efficiency of supervisory boards’ activities

in the Polish energy companies?


what professional competences should a member of a supervisory

board posses?


which forms of audit are currently the most common in the control

and supervisory processes in the companies of Polish energy sector?


which forms of audit are, in the opinion of boards’ members, the most

desirable in the process of corporate governance support of energy

sector?

In reply to such formulated questions, the following hypotheses may

be ventured:

General hypothesis:

[…] corporate governance is an indispensable instrument of

management control in companies of Polish energy sector and its

efficiency relies on proper cooperation between members of supervisory

boards with management boards and on appropriate application of audit.

Specific hypothesis 1:

the efficiency of supervisory boards in energy companies in Poland

depends on close cooperation with top executives of these companies,

the foundation of this cooperation is a free flow of reliable

information about the condition of the company.


knowledge and orientation in the sector as well as relevant experience

in management are key professional competences which must

characterize the members of supervisory boards in energy companies.


in their supervisory activities supervisory boards most frequently use

the instrument of financial audit.



204

financial audit is not the only form of control within corporate

governance in the Polish energy sector.

4.1. Research methods and techniques

While preparing and conducting this scientific research the following

methods and techniques were applied:

diagnostic survey: questionnaires, expert opinion surveys and

document analysis. In the questionnaire section the questions were

answered anonymously, the questionnaire included statistical part and

the main part with closed questions4. The questionnaire was

distributed to respondents in printed or electronic version and the

respondents were not in direct contact with the pollster. The expert

opinion survey was conducted as guided conversation based on

a previously prepared scenario. The document analysis included

quantitative analysis (with use of analysis sheet) and qualitative

analysis (with use of computer software)5;

analysis of literature on the topic (from Polish and foreign sources),

including specialist periodical literature on ownership supervision,

corporate governance and audit;

4 The questionnaire was divided into two parts. The first contained statistical section

with 5 basic pieces of information on respondents (sex, age, education, years of

professional experience, years as a member of a supervisory board), the second part

contained 14 closed questions related to the topic of the study i.e. functioning of

supervisory boards, efficiency of using audit in corporate governance, professional

competences of board members etc. The respondents, who filled in their answers

anonymously, in case of 12 questions (on functioning of supervisory boards) could

choose more than one answer. 5 A document in the study could be any artefact (of material nature) which expresses

a thought, vision, mission, achievement or proposal and serves to recreate actual

performance or condition of a given organisational structure in legal form and even

a customarily prepared document. Thus, it is an extremely important, vast and detailed

source of material on a company, organisation, state or local institution. Examination of

this material may help to establish actual picture of facts, occurrences and

achievements. The method of document examination in its essence relies on collection,

selection, description and scientific interpretation of facts that the author finds

interesting. It is an analysis in which constituents of a given occurrence or process are

decomposed and interpreted.


205

case study method6 which included selected aspects of functioning of

Tauron S. A. capital group;

participant observation (active participation in supervisory board

meetings of an entity from Tauron Plc. group);

method of data examination (statistical correlations, documents, legal

acts in force and internal regulations – statutes, instructions,

ordinances etc.).

The methods and tools applied in the study did not require pre-testing

as they have been successfully used for years in many social sciences

(management, security sciences etc.). Respondents were presented with

a brochure with basic information about the study, its general and

specific assumptions and objectives, information on the pollsters,

recipients of the study results and other factors correlated with the

project.

With respect to the allowed volume of the paper the authors were

only able to present results from the survey conducted within the

diagnostic poll. Full report will be presented in the form of a monograph.

4.2. Scope of research and formal limitations

The research consisted of several stages. The first stage was the

analysis of available literature sources from Poland and abroad on

contemporarily applied management instruments with special emphasis

on energy sector. The authors paid special attention to texts on corporate

governance and ownership supervision. It should be noted that while the

issues of management in state administration institutions or in enterprises

functioning in other sectors of Polish economy are well represented in

literature, the problem of management in energy companies is hardly

ever written about.

The next step of analytic nature undertaken in the study was

examination of legal acts regulating the functioning of energy sector. In

order to accurately present the results of the study it is vital to understand

legislation relevant to the subject matter of the study.

Within the third phase of research thorough analysis of the

specificity of the environment of the Polish energy sector was conducted.

6Apanowicz J., Zarys metodologii prac dyplomowych i magisterskich z organizacji

i zarządzania, Gdynia 1997, WSAiB, p. 42.


206

The analysis included examinations of national energy policy, its

implementation and directions for future development of the sector.

The last phase of the diagnostic poll was: the questionnaire and

expert opinion surveys7. The obtained results were confronted with

theoretical assumptions and verification of hypotheses allowed for

development of a set of recommendations for improvement of corporate

governance activities in companies of the Polish energy sector.

The scope of the subject matter included the activities of the

supervisory boards in energy companies with special emphasis on

efficiency of implementing corporate governance and application of audit

as a instrument of control. The study embraced three national capital

groups (Tauron Polska Energia Plc, ENEA Plc. and Polska Grupa

Energetyczna – PGE Plc.) which, in total, are responsible for 96% of the

Polish energy output .

4.3. Study group

The questionnaire, addressed to members of supervisory boards, was

filled in by 61 persons (52 men i.e. 85,2% and 9 women i.e. 14,8%). The

return of distributed questionnaires amounted to 78% which allowed for

reliable analysis of the collected data. All returned questionnaires were

filled in correctly. In the statistical section the respondents had to choose

one of five age categories. It turned out that the biggest age group of

respondents was 41-50 years (34,2%). The pie chart below presents the

profile of respondents in accordance with age.

7 The diagnostic poll was conducted by B. Bąk between January 2014 and December

2015 (questionnaires and expert opinion surveys). The poll was conducted on the

territory of Poland but predominantly in the provinces of Silesia, Little Poland, Lower

Silesia, Great Poland, Lubusz and West Pomeranian where the biggest energy

production plants are located.


207

Chart no 2. Age of respondents (%).

Source: author’s own work.

All respondents were holders of higher education diplomas and most

of them were graduates of technical schools (first and second cycle

university programmes: 65,9%).

Chart no 3. Academic titles of respondents (%).


As regards the question of seniority, it must be emphasized that vast

majority of respondents had considerable length of professional

experience. As many as 54,3% ticked the box 21-35 years.

up to 30

years; 2,60%

31-40 years;

17,10%

41-50 years;

34,20%

51-60 years;

29,50%over 61

years;

16,60%

Licencjat;

1,00%

Inżynier;

11,20%

Magister;

33,10%

Magister

inżynier;

54,70%


208

Chart no 4. Years of professional experience of respondents (%).


The last question of the first section of the questionnaire concerned

the experience (in years) of respondents in sitting on supervisory boards.

The answers provided to this question proved that respondents were

experienced supervisory board members. More than 42% had been sitting

on the board for at least 11 years. Respondents’ respective lengths of

experience on supervisory boards are presented in detail in the chart

below.

Chart no 5. Years of experience on supervisory boards (%).


4.4. The analysis of answers to the questionnaire

In the main section of the questionnaire for members (presidents) of

supervisory boards of companies on Polish energy market there were 14

up to 10

years; 1,70%

11-20 years;

34,70%

21-35 years;

54,30%

over 36

years; 9,30%

up to 5 years;

42,30%6-10 years;

36,80%

11-15 years;

42,30%over 16

years; 3,10%


209

questions (113 possible answers). The questions referred to three main

areas:

functioning and evaluation of corporate governance;

the most effective form of audit used by supervisory boards;

professional competences of supervisory boards members.

In the first question the respondents were asked to point to factors

which, in their opinion, hinder the efficiency of supervisory boards’

activities. Here the respondents could tick more than one answer out of

nine provided. The most frequent replies to this question were: lack of

reliable information from the management, insufficient level of

cooperation with the management, no time for discussion about the most

vital issues for the company. Detailed distribution of provided answers is

shown in Chart no 6.

Chart no 6. Answers provided by respondents to the question: What factors, in

your opinion, hinder the efficiency of your work on supervisory board? (it was

possible to tick more than one option).

A. No time for discussion on issues important for the company.

B. Bureaucratic duties.

C. Regulatory restrictions.

D. No reliable information from the management.

E. Inefficient board meetings.

F. Dominant position of the chairperson.

G. Lack of cooperation with the management.

H. Dominant position of the President of the Board.

I. Others.


0%

5%

10%

15%

20%

25%

30%

35%

A. B. C. D. E. F. G. H. I.

25,58%

11,63%

2,33%

30,23%

16,28%

4,65%

27,91%

4,65%

11,63%


210

The above data proved that the most important aspect of functioning

of supervisory boards in energy sector according to their members is

smooth, unhindered and based on good will flow of information between

management and members of supervisory board who control the day to

day activities of the legal entity (enterprises, partnership, corporation or

capital group). Additionally, answers to the first question show that

presidents of the board and chairpersons of the supervisory boards are not

necessarily eager to cooperate and maintain dialogue on the issues

important for effective management of the organisation. Thus,

consideration should be given to the current mode of conducting board

meetings in the energy sector as a considerable part of respondents

pointed to low efficiency of cyclical meetings of management with

members of supervisory boards.

In the second question the respondents were asked to tick committees

(working teams) that exist in the supervisory board they represent. There

were nine options the respondents could choose from (more than one

option could be selected).

Chart no 7. Answers provided to the question: What committees exist in the

supervisory board you represent? (more than one option could be selected).

A. Audit committee.

B. Remuneration committee.

C. Strategy committee.

D. Risk committee.

E. Appointment committee.

F. Restructuring committee.

G. Others. Please specify.

H. There are no committees.


0%

10%

20%

30%

40%

50%

60%

70%

80%

A. B. C. D. E. F. G. H.

6,98%0,00%

18,60%

4,65%9,30%

4,65%0,00%

74,42%


211

In the light of the above data it can be assumed that in almost ¾

supervisory boards surveyed there are no specialised working teams

(committees) and, as a consequence, 75% of supervisory boards members

do not participate in any constructive activities which would define the

current doctrine of functioning of the organisation and would determine

the directions of future development.

The second most frequently selected answer was the strategy

committee. 18,60% of respondents confirmed the existence of such

a committee in their supervisory board. However, such low rate of

strategy committees in the companies of Polish energy sector contravenes

the main assumption behind the existence of supervisory boards as

bodies providing consultancy and support in management and strategic

planning processes.

The third most popular answer was appointment committee, this

option was selected by 9,30% of respondents. The tasks of appointment

committee include evaluation and verification of candidates for key

positions in the organisation. It comes as a surprise then, that such a low

proportion of energy companies engage members of supervisory boards

in such an important aspect of company management. One can even risk

a statement that the role of supervisory boards in day to day running of

many organisations in energy sector is deliberately marginalised. This

statement is even further reinforced by the fact that none of the

respondents seemed to have participated in the works of remuneration

committee whose job is to verify the remuneration for members of the

board of directors and, if necessary, amend their work contracts. This is

yet another argument that many supervisory boards are in reality

excluded from the process of corporate administration.

The third question referred to major challenges for supervisory board

members in the upcoming year. The replies, although very descriptive

and subjective, all shared a concern for financial bottom line, business

strategy and improvement of performance.


212

Chart no 8. Replies provided to Question 3: What are the major challenges for you

as a member of supervisory board in the upcoming year? (more than one option

could be selected).

A. Business strategy .

B. Improvement of business results.

C. Risk management.

D. Economic environment.

E. Regulatory requirements.

F. Planning of succession.

G. Remuneration of key people in the organisation .

H. Relationship with the board of directors.

I. Time limitations.

J. Others.


The third major area of challenge indicated by the respondents was

the issue of economic environment and its impact on the condition of the

company functioning in the free market reality. Thus, the respondents

said they would concentrate their efforts in the year to come on solutions

aimed at cost cutting, creating conventional and unconventional

distribution networks, improving the quality of service, promoting their

goods and services.

Question number 4 was connected with remuneration (scope of

annual income), the respondents receive as members of supervisory

board in a company from energy sector. The most frequently pointed to

scope was below 30,000 PLN (44,19%). In the second place (30,23%)

was the scope between 30,000 PLN and 40,000 PLN.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

A. B. C. D. E. F. G. H. I. J.

48,84%

32,56%

16,28%

30,23%

6,98%

0,00%2,33%

23,26%

2,33%0,00%


213

Chart no 9. Replies provided to Question 4: What is the annual income of

a member of supervisory board in your company?

A. More than 150,000 PLN.

B. 120,000 PLN – 150,000 PLN.

C. 100,000 PLN – 120,000 PLN.

D. 70,000 PLN – 100,000 PLN.

E. 50,000 PLN – 70,000 PLN.

F. 30,000 PLN – 40,000 PLN.

G. Less than 30,000 PLN.


As indicated above, the level of remuneration of supervisory board

members in energy companies is comparable to remuneration offered by

state-owned companies from other sectors of the economy. Therefore one

can formulate a thesis that belonging to the circle of experts sitting on

supervisory boards is treated as an honour and symbol of certain prestige,

a chance to mingle with the best executives in the sector and, last but not

least, as additional source of income.

Question number 5 also revolved around the issue of remuneration.

This time, however, the respondents were asked what is the proportion of

income of supervisory board member with respect to income offered to

members of boards of directors in the company.

0%

10%

20%

30%

40%

50%

A. B. C. D. E. F. G.

0% 0%

9,30%

0%

16,28%

30,23%

44,19%


214

Chart no 10. Replies provided to Question 5: Please indicate the proportion of your

income as a supervisory board member with respect to income offered to members of

boards of directors in your company.

A. more than 20 %.

B. 18 % – 20 %.

C. 16 % – 18 %.

D. 14 % – 16 %.

E. 12 % – 14 %.

F. 10 % – 12 %.

G. Less than 10 %.


Answers to question 5 show that remuneration of more than a half of

respondents amounted to less than 10% of remuneration of the president

or other executives from management board. 16% of respondents

admitted remuneration of more than 20% of remuneration offered to

members of executive boards in their capital group. Taking into account

the observations presented above, one may reflect that considerable

discrepancies in remuneration of supervisory board members negatively

impact the atmosphere between them and members of the board of

directors.

In Question 6 the respondents were asked to evaluate communication

along the line management – supervisory board.

0%

10%

20%

30%

40%

50%

A.B.

C.D.

E.F.

G.

16,28%

2,33% 4,65% 9,30%9,30%

9,30%

48,94%


215

Chart no 11. Replies provided to Question 6: Please provide evaluate the

communication along the line management – supervisory board. More than one

option could be selected.

A. Smooth and clear communication.

B. Insufficient transparent communication.

C. Supervisory Board passes to Management Board shareholders’ criteria.

D. Supervisory Board clearly defines their information needs.

E. Management passes all reliable information to Supervisory Board.

F. Periodical clogs in information flow occur.

G. Supervisory Boards provides Management with feedback on their

(management’s) proposals.

H. Cooperation between Supervisory Board and Management generates added

value.


After analysis of responses provided to Question 6 one gets a picture

that satisfies both groups: members of management and members of

supervisory boards. More than a half of respondents (55,81%) remarked

that supervisory boards members clearly define their information needs

and nearly 40% admitted that communication with management is

satisfactory and transparent. Undoubtedly, such relationship may be

achieved thanks to high level of professionalism on both sides.

Question 7 referred to major expectations with respect to supervisory

boards in energy sector in Poland. The most frequent response was

connected with competences and expertise of their members. As many as

62% of respondents regarded this factor as the most important

requirement.

0%

10%

20%

30%

40%

50%

60%

A. B. C. D. E. F. G. H.

39,53%

11,63%16,28%

55,81%

34,88%

9,30%

32,56%27,91%


216

Chart no 12. Replies provided to the question 7: Please specify major requirements

with respect to members of supervisory boards. More than one option could be

selected.

A. Competences and expertise.

B. Knowledge of regulatory environment of the group.

C. Appointing Management Board as a Team in accordance to the needs of the

group.

D. Motivating the management team.

E. Non-exceeding the powers.

F. Decision taking powers.


The next two most popular options i.e. knowledge of regulatory

environment and motivating the management team were chosen by only

25,58% each. At this point it must be emphasized that the issue of the

knowledge of formal, legal, organisational and economic reality of the

energy sector is currently an inherent criterion for selection of candidates

to supervisory boards. On the contemporary global competitive market of

electric energy providers there is no room for wrong short-sighted

decisions as it brings high risk of regress for the company. Experts with

years of professional experience in the relevant sector guarantee

protection against business risks and threats and, should they materialize,

come up with appropriate reaction. Only one in four respondents thought

that the role of members of supervisory boards was stimulating or

motivating the management. The mere fact of being on executive

position in a well established organisation (often a market leader) is in

itself a key driver for increased efforts. Only 20,93% of respondents

ticked the option which referred to decision taking powers of the

0%

10%

20%

30%

40%

50%

60%

70%

A. B. C. D. E. F.

62,79%

25,58%

16,28%

25,58%23,26%

20,93%


217

supervisory board. This undoubtedly stems from the well grounded

awareness about counselling (not managing) role of a supervisory board.

In Question 8 respondents were asked to choose competences and

personality traits which make a desired profile of a member of

supervisory board. There were 11 variants they could choose from. It

turned out that professional experience in management is the most highly

valued merit in members of supervisory boards in Polish energy sector (it

was chosen by 48,84% of respondents). The chart below presents

answers to Question 8 in detail.

Chart no 13. Replies provided to Question 8: Specify the desired profile of a member

of supervisory board. More than one option could be selected.

A. Professional experience in management in relevant sector.

B. Knowledge of various business models and spreadsheet structures.

C. Ability to express autonomous opinions.

D. Resistance to pressure from other board members in the process of taking

decisions vital for the organisation.

E. Good orientation in the energy sector.

F. Ability of proper assessment of the information package received from the

management – is it sufficient in order to take a given decision.

G. Qualifications and experience allowing for monitoring of management

process.

H. Awareness of the fact that the board works for the highest benefit of the

group.

I. Eagerness to engage in the workings of the board.

J. Disposing of sufficient amount of time to fulfil obligations of a supervisory

board member.

K. Professional fulfilment and drive for professional development.


0%

10%

20%

30%

40%

50%

A. B. C. D. E. F. G. H. I. J. K.

48,8

4%

25,2

8%

20,9

3%

30,2

3% 44,1

9%

32,5

6%

16,2

8%

20,9

3%

18,6

0%

16,2

8%

0%


218

The second most often chosen answer was the orientation in the

energy sector (44,19%). This in combination with the leading answer is

not a surprise because market (sector, industry) and its reality sets the

course for functioning of the entities within. Thus, the knowledge of the

market and its processes is the most valuable ingredient of qualifications

for candidates applying for a place on a supervisory board. The next most

popular answer is also interrelated with the previous two – the ability of

proper and prompt assessment of information before taking an important

decision and analysis of all incoming signals from the corporate

environment. It was an important constituent of a good supervisory board

member for 32,56% of respondents. Also resistance to pressure is an

indispensable skill of a manager acting as an advisor on supervisory

board. This point of view was represented by 30,23% of respondents.

Question 9 concerned the most important determinants conditioning

the efficiency of supervisory boards’ activities. Respondents could tick

more than one out of 7 options. The most votes went to an option which

in itself points to variety of competences of members of supervisory

boards. This variety allows for a real possibility of exercising supervision

over an organisation and monitoring of its results. Responses to this

question exposed an important skill of members of supervisory boards

namely the skill of asking the right questions.

Chart no 14. Replies provided to Question 9: Specify the most important

determinants conditioning the efficiency of supervisory boards’ activities. More than

one option could be selected.

A. Knowledge of business model of the organisation and understanding of its

processes.

0%

10%

20%

30%

40%

50%

60%

A. B. C. D. E. F. G.

51,16%

58,14%

32,56%

13,95%

30,23%

13,95%9,30%


219

B. Presence of adequate and diversified competences in members of the board

which allow for exercising supervision and monitoring its results (very

important skill: ability to ask the right questions).

C. Absence of conflict of interests – what determines the level of objectivity of

the members of the board.

D. Attentiveness to reliable flow of information between management and

supervisory board which is a prerequisite for execution of the duties of the

board.

E. Ability to set challenges/goals for the management.

F. Non-exceeding their competences by the members of the supervisory board.

G. Remuneration adequate to the extent of efforts/contribution.


More than a half of respondents (51,16%) held the view that the

knowledge of the company’s business model and processes occurring

within is the vital element for efficiency of a supervisory board. It seems

obvious as nowadays it is difficult to imagine functioning of

a commercial institution manufacturing and selling its products without

understanding the market processes. One in three respondents (32,56%)

pointed to the necessity of guarantee that there is no (widely understood)

conflict of interests in case of members of supervisory boards so that they

could take unbiased decisions without any external burdens. Also more

than ⅓ of respondents (30,23%) claimed that the ability to set

organisational and business challenges for the management, is very

desirable and should characterize the supervisory board members in

Polish energy sector companies.

In Question 10 supervisory board members were asked about the

usage of audit in their work. The two top options (41,86% each)

suggested that audit is a tool which helps to improve operations, creates

added value and allows for more efficient management of the

organisation.


220

Chart no 15. Replies provided to the Question 10: Why does corporate governance

use audit? More than one option could be selected.

A. Audit is required by law.

B. It is a tool that monitors quality of services.

C. It is a tool that improves operations and creates added value.

D. It is an effective tool for better management of a company.

E. Corporate governance does not use audit.


As it could be seen, audit in its various forms is an immanent

instrument of control which is successfully used by Polish supervisory

boards in corporate management. One in ten of respondents (11,63%)

answered that application of audit is prescribed by law. Exactly the same

proportion (11,63%) admitted that in the company he/she represents the

audit was not used at all.

The essence of Question 11 was to point to the kind of audit which

had been, so far, most frequently used in the management process by the

company the respondents represented. The first position here was

occupied by financial audit, more than half of respondents (48,84%)

selected this particular option.

0%

10%

20%

30%

40%

50%

A. B. C. D. E.

11,63% 13,95%

41,86% 41,86%

11,63%


221

Chart no 16. Replies provided to the Question 11: What kind of audit is most

frequently used in your organisation? More than one option could be selected.

A. Financial audit.

B. Legal audit.

C. Loyalty audit.

D. Strategic audit.

E. IT audit.

F. Efficiency audit.

G. Communication audit.

H. HR audit.

I. Logistic audit.


Regardless of the fact that answers provided to Question 11 fully

support hypothesis 3 from an earlier section of the paper, financial audit

which is an examination based on domestic and international financial

revision standards, is nowadays vital in business environment which

seems to place more and more emphasis on corporate responsibility and

governance. A quarter of respondents (27,91%) pointed out that their

organisation used efficiency audit i.e. examination of efficiency of

a company’s performance from the point of view of the most important

criteria. Hence, also hypothesis 4 is confirmed by responses to Question

11. The essence of this form of control is supposition that each

organisation is supposed to operate bearing in mind set goals, cost-

effectiveness and the drive to obtain maximum results from efforts as

well as investments. The issue of compliance with law of the

organisational solutions in a company i.e. legal audit, was in the third

place with 18,60% of provided answers.

0%

10%

20%

30%

40%

50%

A. B. C. D. E. F. G. H. I.

48

,84

%

18

,60

%

2,3

3%

9,3

0%

13

,95

%

27

,91

%

6,9

8%

6,9

8%

2,3

3%


222

Question 12 surveyed the way in which supervisory boards use the

tool of audit. The answers showed that members of supervisory boards

come in contact with audit documents of audits commissioned by the

management boards (46,51%). Own initiative in commissioning audits

was shown by a third of respondents (30,23%).

Chart no 17. Replies provided to Question 12: Please specify how does your

supervisory board use the tool of audit? More than one option could be selected.

A. Supervisory board commissions audit procedures.

B. Supervisory board studies results of audit commissioned by the management

board.

C. Supervisory board uses the information provided by internal audit.

D. Supervisory board does not use audit.

E. Supervisory board monitors how audit is used by the management.

F. Audit is used only to a limited extent.


One in five respondents (23,26%) used information about the

condition of the company provided by internal audit departments. At this

point it must be emphasized that internal control is of vital importance

for realisation of goals of the organisation. It helps to easily adapt to

constantly changing economic environment, counteracts wastage of

resources and reduces costs of operations. Modern internal control not

only protects assets of the organisation but also contributes to their

multiplication and improves bottom line.

Question 13 referred to the kind of audit which best supports

corporate governance. Respondents could choose more than one out of

0%

10%

20%

30%

40%

50%

A. B. C. D. E. F.

30,23%

46,51%

23,26%

11,63% 11,63% 16,28%


223

nine options. This question reflected assumptions of previously

mentioned hypotheses 3 and 4 and was closely related to Question 11.

Chart no 18. Replies provided to Question 13: Which forms of audit, in your

opinion, best support corporate governance? More than one option could be

selected.

A. Financial audit.

B. Legal audit.

C. Loyalty audit.

D. Strategic audit.

E. IT audit.

F. Efficiency audit.

G. Communication audit.

H. HR audit.

I. Logistic audit.


The above chart shows that most respondents chose financial audit

and efficiency audit (46,51% each) as the most valuable for corporate

governance. Hence, the methodological assumptions set forth by the

authors concerning maximising financial results and development of

companies are once again confirmed.

It should not be overlooked that introduction of internal audit to units

of public finance sector resulted from adjusting Polish legal system to

requirements of the European Union. Early initiatives undertaken with

respect to internal audit were focused on verification of activities within

financial economy. Other important areas of a company’s activity which

had considerable influence on a company’s performance tended to be

0%

10%

20%

30%

40%

50%

A. B. C. D. E. F. G. H. I.

46,51%

30,23%

0,00%

27,91%

9,30%

46,51%

4,65% 4,65%

0,00%


224

ignored. Amendment to the Polish act on public finance8 brought about

transformation of previously applied controlling solutions into new

auditing approach. The new audit concept did not concentrate any more

on verification of procedure compliance and management methods but on

cause-result analysis which is a key factor in evaluation of results

obtained by the company. In this context compliance audit was replaced

by efficiency audit.

A third of respondents (30,23%) thought that legal audit should be an

important element of control activities undertaken in entities of Polish

energy sector. It should be observed that legal audit embraces both legal

states and relations occurring in the area of activity of a given company,

also in its corporate status. Legal analysis of activities undertaken by

authorized decision makers, including compliance with the European

law, is a sine qua non condition for state institutions but it is also

a symbol of modern times.

Strategic audit occupies the third position in answers to Question 13

(27,91%). The respondents saw this tool as a very important form of

supporting corporate governance. It is yet another signal of changes in

the existing doctrine of controlling and inspection activities in state

companies. In this context the following questions must be asked:

at which point the company should pause to obtain a reliable

evaluation of its condition?;

what is the best method of reliable verification of the position of the

company on the services market?

what activities ought to be undertaken to improve the position of the

company in its business environment or to bring the company closer

to the environment it aspires to?

Answers to these questions may be found in strategic diagnosis

which refers to elementary issues of soundness of competitive advantage

evaluation and to the executive level whose decisions directly translate

into unique development path of the company.

The last question of the survey concerned the determinants

conditioning efficiency of corporate governance. The respondents could

choose a number of options out of 11 suggestions.

8Act of 27 August 2009 on public finance (Journal of Laws 2009, No 157, item 1240).


225

Chart no 19. Replies provided to the question: Please specify the determinants of

efficiency of corporate governance. More than one option could be selected.

A. Composition of the supervisory body and number of its members.

B. Functions of the supervisory body.

C. Length of tenure.

D. Frequency of meetings.

E. System of information flow.

F. Committees and teams.

G. Cooperation with auditors.

H. Procedure of appointing new members.

I. Selection criteria (knowledge, experience, independence).

J. Role of chairperson of the supervisory body.

K. Work conditions (remuneration, efficiency appraisals).

Source: authors’ own work.

In light of the above information it should be highlighted that for

respondents the functions of supervisory body were the most vital for

efficiency of corporate governance (48,84%), next important

determinant, as viewed by the respondents, were criteria for selection of

new members of supervisory organs (39,53%). Clear determination of

responsibilities of a supervisory board is a pre-condition for optimum

cooperation with the company’s management, stakeholders and

shareholders. Wide range of powers assures effective functioning of the

board for the benefit of bottom line and sustainable development of the

company.

Knowledge, relevant experience and independence are the main

criteria which should characterize candidates to supervisory boards in

Polish energy companies. The respondents, members of supervisory

0%

10%

20%

30%

40%

50%

A. B. C. D. E. F. G. H. I. J. K.

32,56%

48,84%

0,00%

6,98%

30,23%

2,33%

11,63%11,63%

39,53%

4,65%

30,23%


226

boards themselves, who know the sector like the back of their hand,

expressed the view that the most important factors for candidates to

supervisory boards were: professional experience acquired in relevant

sector, understanding of mechanisms and processes that power the sector

as well as autonomy and ability to take prompt and independent

decisions.

32,56% of respondents replied that the composition of supervisory

board, the information flow from decision makers and supervisory body

(30,23%) and working conditions of supervisory board members

(30,23%) are the main factors which quantify the efficiency of corporate

governance.

Information is the basis underlying functioning of each business

entity on contemporary, global and very dynamic services market.

Multiplicity and wide availability of sources of obtaining data is

increasing alongside the technology advancements and deficit of

information may lead to the fall of a market player. The volatile

environment of a given organisation forces equally dynamic adaptation

of this organisation to constantly changing conditions and fast decision

taking process facilitates this adaptation and boosts competitive

advantage.

Work conditions is a set of factors which characterizes a given work

environment and which result from the work process. Work conditions

are closely related to the execution of work and impact its quality and

efficiency. Thus, it is not surprising that respondents pointed to this

factor as one that considerably impacts the quality of functioning of

supervisory boards in Polish energy sector.

Conclusions

The evaluation of responses to the questionnaire includes the sum of

all undertaken activities (analytical, empirical, comparative etc.). Thanks

to multi-faceted approach to the subject matter it was possible to collect

information directly relevant to the research problem and to verify the

assumed hypotheses. The authors wish to stress that due to strictly

defined publishing requirements for papers appearing in Scientific

Journal of Bielsko-Biała School of Finance and Law, the paper could

present only a part of the obtained results of research. Nevertheless, it is

just enough to formulate meaningful conclusions.


227

The research concerned the behaviour of decision makers

(management board members) and supervisory board members who co-

create supervision mechanisms. Moreover, special emphasis was put on

audit and its application and on new solutions of corrective and

counteracting character. In the context of leading research problem of the

paper the results of the questionnaire prove the thesis that within

corporate governance in companies of Polish energy sector, audit is an

underused controlling tool. Such situation may be caused by conservative

and stereotypical behaviour of decision makers and lack of trust to the

whole range of available forms of control e.g. efficiency or strategy

audit. The obtained results, however, allow for a positive outlook for the

future. There is a visible trend towards new efficiency solutions which

not only help to verify current performance of a company but also

contribute to long-term strategies of sustainable development and its

direct environment.

The collected results of the survey related to all four detailed

problems. The most important factors conditioning the efficiency of

supervisory boards, as indicated by the respondents, were reliability of

information flow between management and supervisory board and the

quality of cooperation between these two organs. As regards the second

detailed problem, the respondents pointed to two most valued

characteristics of a member of supervisory board in the energy sector in

Poland. The characteristics were closely correlated with the industry and

included professional experience in management in energy sector and

orientation in the sector.

In the context of the third detailed question as the most frequently

used controlling tool half of the respondents indicated financial audit

which seems to have become an indispensible tool in contemporary

inspection initiatives of companies from the energy sector. Other most

commonly selected forms of audit were efficiency and strategic audit.

With respect to the main hypothesis which was verified by the

presented research it can be said that it was explicitly confirmed. The

respondents in their answers seem to agree with the thesis that

……corporate governance is a vital element of management control in

the Polish energy sector and its efficiency depends on close cooperation

between members of supervisory board and top executives as well as on

creative application of audit.

As far as detailed hypotheses are concerned, the obtained results

allowed to confirm suppositions 1, 2 and 3, and in response to hypothesis


228

4 about other effective form of control undertaken within corporate

governance in energy companies, efficiency and strategy audit were the

most commonly selected options. A valuable discovery of the research in

authors opinion is identification of new trends and tendencies with

respect to traditionally used control solutions.

It should be hoped that the obtained results will serve as a basis for

further consideration in this matter and will translate into a new

perception of the role of supervisory organs of companies operating in

energy sector and will facilitate their work what, in consequence, may

improve efficiency of functioning of such entities on local and

international service market.

Legal acts

[1.] Act of 27 August 2009 on public finance (Journal of Laws 2009,

No 157, item 1240).

Literature

[1.] Apanowicz, J., Zarys metodologii prac dyplomowych

i magisterskich z organizacji i zarządzania, Gdynia 1997, WSAiB.

[2.] Apanowicz, J., Metodologiczne uwarunkowania pracy naukowej,

Warszawa 2005, Diffin.

[3.] Pieter, J., Ogólna metodologia pracy naukowej, Warszawa-

Wrocław 1967, PAN.


229

DOI: 10.19192/wsfip.sj3.2016.13

Janusz BEREK

IMPLEMENTATION OF IT SYSTEMS

IN MANAGEMENT

Summary The first part of this paper presents the definition, the essence and the characteristics of

IT system. Computer features, which may include perfect IT system, have also been

listed. The second part of this paper is devoted to IT systems which assist the

management. Here the author mainly presents the aspects related to the reasons for

which management IT systems are applied in the enterprises. Software architecture

description which assists the management has also been introduced. The author

presents functionality of the integrated management IT system and its characteristic

features. The last part of this paper deals with the level of current use of information

and communication technology in Polish enterprises.

Key words: IT systems, functionality of management IT systems, integrated IT systems,

software architecture, description assisting the management

Introduction

Fast development of information and communication technologies is

constantly affecting the enterprises’ function. Today the use of IT

systems in the enterprises is a must. Their appropriate implementation

into business process allows to optimize many economic decisions taken

by managers. Very often there is also a classic model of sharing software

in business practice. It means that a computer program for the user is

installed on the desktop or central company computer. However, more

and more often so-called 'on demand software' is being used. These are

ASP services connected with renting computer programs via the Internet.

Software user is exempt from the license fee and only bear the costs

associated with the software usufruct, in proportion to its use1. This is

Janusz Berek MSc Eng., Silesian University of Technology. 1 Wikipedia, https://pl.wikipedia.org/wiki/Application_Service_Provider, [24.02.2016].

Janusz Berek

230

cost-effective and convenient method to implement innovative solutions

in the process of enterprise management. According to many researchers,

the development of ASP service has significantly affected the inception

of SaaS (Software as a Service)2, this service is also often defined as '

software as a service'. It is said to be newer, better and cheaper solution

than ASP3. Innovative IT solutions, tailored to the business specificity,

undoubtedly contribute to the increase level of quality management and

affect its development in positive way. The aim of this paper is to draw

attention to the increasing importance of IT systems in the enterprise

management as well as their impact on the proper company development.

For drawing the article up the analysis of the literature of the subject and

chosen computer systems have been used.

1. The definition, the essence and the feature of IT system

The notion of information system' in Polish language has been used

since the seventies of the 20th century4. This term is differently defined.

One of the proposal is the definition, given by W. Domiński, he describes

IT system as 'information one5, where data processing is carried out by

computer system'. As IT systems in management the author defines the

systems 'which aims are to support the managing process and the

economic management of the organizational units at different levels'6. In

turn, J. Stanik and P. Kwiatkowski treat IT systems as information

system within the framework of which the total or partial data processing

2 J. Marshall, SaaS: Taking the Worry Out of Service, Financial Executive, September,

no 9, p. 51. 3M. Małyszko, SaaS as the method of e-service Polish Agency For Enterprise

Development, Warszawa 2008, p. 4. 4M. Kuraś, Information systems vs IT systems – what, apart from the name, differs this

two objects?, Research Bulletin of Cracow University of Economics, no 770, Krakow

2009, p. 259. 5IT systems, according to the same author is temporarily and spatially extracted

information processing system which is a collection of intentionally related elements

such as: data sources, the methods of their collection and processing, information flow,

material resources and people realizing this processing as well as destination of

information. 6 E. Niedzielska (ed.), Introduction to IT, State Economics Publishing, Warszawa 1993,

p. 147.

Implementation of IT systems in management

231

is carried out with the use of computer techniques7. According to

T. Wierzbicki the essence of the IT system is type of computers'

application in information processes - with such a selection of the devices

and software having regard the requirements of the surrounding and

possibilities of human teams with specific inputs, using the methods

(technology) to obtain the outputs realizing the aim of information

process'8.

The ideal IT system possibly includes the following information

functions9:

data interpretation,

modeling processes,

indicate the possibility of action,

suggest variant selection, decision,

assessment and selection of the best solution.

The above functions should be tailored to the specific needs in the

enterprise. Table 1 shows the characteristics of IT system.

Table 10. Characteristics of IT system

Feature Information system

Domain

data recorded, transmitted, stored,

searched, processed,…, provided to

customers

Aim of action, created outputs structures of ultimate data, adapted

report

System category artificial system (artifact)

Components Artificial system (artifacts), abstract

data, methods and systems

Problems solving category

well-structured IT specialists

problems formulated according to the

needs of data recipients

7 J. Stanik, P. Kwiatkowski, Assurance of IT systems quality, ‘Quality assurance

concept’, materials from VI Conference of ORACLE users and developers, ‘IT systems

in the Internet age’, Zakopane, 24-28 October 2000. 8 T. Wierzbicki, IT in management, PWN, Warszawa 1986, p. 151. 9 M. Kuraś, IT systems…, dz. quote., p. 264.

Janusz Berek

232

Feature Information system

The method of testing, analysis and

system creation hard methods

System owner head of information systems and

production managers

‘World-view’ (Weltanschauung ) need to perform delegated tasks

Data data identified according to the

model of the old organization

Techniques and ‘technology’ TI as computer techniques

Methods quantitative methods supported by

computer technique

Technique and ‘technology’ computer technology as

a complement to available t.o

Organization inherited organization where IT

system is adjusted

People People learning new technical

solutions

Human role Human treated as technical

element

Source: M. Kuraś, System informacyjny a system informatyczny - co oprócz nazwy różni

te dwa obiekty?, Zeszyty Naukowe Uniwersytetu Ekonomicznego w Krakowie, no 770,

Kraków 2009, p. 269.

The above characteristic proves that IT systems should be treated in

technological (software) sense.

As it has been mentioned in the introduction contemporary business

reality causes the necessity to implement IT systems into management.

Nowadays their use is increasingly gaining of importance.


233

2. IT systems assisting the management

IT systems are currently used in production, commercial, service and

advisory areas of the enterprise. The main reason for using IT systems in

the management are10:

significant increase of information resources-huge amount

of unprocessed and unfiltered information in companies,

very specialized information resources-nowadays the vast majority

of workforce is only able to master the knowledge of the selected and

narrow discipline.

the increasing globalization-the companies transform into

international organizations and their staff resources become scattered.

The aim of the IT systems is to merge dispersed structures of the

enterprise.

Figure 1 shows sample IT system supporting the enterprise in its

management.

10 W. Susłow, Od organizacji do systemu informatycznego. Modelowanie i analiza

systemów informatycznych, w1, http://moskit.weii.tu.koszalin.pl/~swalover/MiASI_

w1.pdf, [24.02.2016].

Janusz Berek

234

Figure 1. Sample architecture of IT system assisting the management in medium-

sized and large enterprises

Source: A. Kaszuba-Perz, Zastosowanie informatycznych systemów zarządzania

w małych i średnich przedsiębiorstwach jako przejaw technologicznej modernizacji,

Zeszyty Uniwersytetu Rzeszowskiego no 26, Wydawnictwo Uniwersytetu

Rzeszowskiego, Rzeszów 2012, p. 262.

Architecture of IT system, presented above, creates integrated

management system consisting of apparent systems where links and

relationships work in many dimensions.

To all elements of the architecture an integral figure is given by

database system using so-called data warehouse as well as system of

internal and external communication11.

11Ibidem, p. 261.

Accounting and

financial system

Controlling

system

Supply and

procurement management

system

Final product

management system – sales and

distribution

Technical preparation

of production

Production

management

system.

Technology

Human resources

management

system

Customers

relationship management

system. Marketing

Development management system

Enterprise’s strategy- planning

Su

bsy

stem

of

dat

a do

wnlo

adin

g a

nd g

roup

ing

Gen

erat

ing

sub

syst

em (

po

ssib

ly)

dat

a sh

arin

g i

n f

orm

of

the

rep

ort

s an

d s

tate

men

ts

Input– economic

policy, prosperity, global phenomena,

technical progress

Input– information from the

surrounding

(economic issues, market analysis,

information about

competition etc.).

Output – information

for customers, suppliers,

competitors etc. also mandatory

(publishing) statements

and reports resulting from

legal provisions

ORGANIZATION

INTERNAL PROCESSES


235

Integrated management IT systems are the systems where12:

there is a possibility to run selected system function from the user’s

workstation,

there is the same interface for user within entire system,

data input to the system is done only once, these data are

automatically updated and the access to them are available to all

system users.

Nowadays there are versatile systems available on the market which

can be customized (parameterized) to the needs of certain enterprises.

Integrated management IT systems are related to the category of so-

called transactional systems which are suitable to recording and

processing of current economic situation such as invoices recording,

purchasing and inventory documentation13. The functions of integrated

management IT systems, in most cases, are divided into functional areas

which are consistent with the main tasks carried out by the company.

Their general division usually looks as follows14:

area related to finance,

area for logistics,

HR and payroll area,

production area.

Figure 2 shows sample functionality of integrated IT system

management.

12 P. Lech, Zintegrowane systemy zarządzania ERP/ERP II. Charakterystyka,

wykorzystanie w biznesie, wdrażanie, Difin, Warszawa 2003, pp. 7-8. 13 Ibidem, p. 8. 14 Ibidem, pp. 9-10.

Janusz Berek

236

Figure 2. Functionality of integrated IT system management

Source: W. Susłow, Od organizacji do systemu informatycznego. Modelowanie

i analiza systemów informatycznych, w1, http://moskit.weii.tu.koszalin.pl/~swalover/

MiASI_w1.pdf, [24.02.2016].

The content of the functional areas mentioned above may

substantially vary depending on the system purpose and its size.

Data function

Storage management,

product/customer

relation, location

Demand programming

Strategy planning

External data: Customers’ orders,

return orders

External data:

production reserves

Database Coordination function

Production scheduling

Manufacture Resource

Planning

Sales/marketing

planning

Customer service/

communication

function

Customer order status

Reserves availability,

products, location

Return cargo status

Control function

Customer service level

Sales completion

Carriage

implementation

System function


237

The features which should be characteristic to integrated IT system

management are15:

integration,

versatility,

multi-accessibility,

openness,

scalability,

consistency of users interface,

modularity.

Figure 3 shows sample architecture of IT system in enterprise

including IT systems, business processes and management levels.

Figure 3. Architecture of IT system in enterprise including IT systems, business

processes and management levels

Source: I. Szydłowski, Wybrane aspekty wdrażanie systemów informatycznych, Zeszyty

Naukowe Zachodniopomorskiej Szkoły Biznesu, Szczecin 2000.

15 P. Lech, Zintegrowane systemy…, dz. quote., p. 11.

HR

Tactic decisions

MIS management

information system

Strategic decisions DSS

decision support system

Operational decisions TPS

transaction processing

system

Source of information

Low level management

Middle management

Accounting Finance Sales and

marketing Production

Top management

Equipment Software Data collection Networks,

telecommuniactions

IT

SY

ST

EM

S

BU

SIN

ES

S P

RO

CE

SS

ES

OA

S o

ffic

e au

tho

risa

tion

sy

stem

s S

E e

xper

t sy

stem

s

Janusz Berek

238

IT management systems have been evolving for years. Figure 4

shows the evolution of IT systems supporting the management.

Figure 4. Evolution of IT systems supporting the management

Source: the author’s view based on: W. Susłow, Od organizacji do systemu

informatycznego. Modelowanie i analiza systemów informatycznych,

http://moskit.weii.tu.koszalin.pl/~swalover/MiASI_w1.pdf, [24.02.2016].

Tele-Info reports show that among benefits obtained by the

entrepreneurs due to application of IT systems supporting the

management, are16:

possibility to obtain reports and analysis quickly (90% respondents),

increase the quality of customer service (82% respondents),

16 A. Kaszuba-Perz, Zastosowanie informatycznych systemów zarządzania w małych

i średnich przedsiębiorstwach jako przejaw technologicznej modernizacji, Zeszyty

Uniwersytetu Rzeszowskiego no 26, wydawnictwo Uniwersytetu Rzeszowskiego,

Rzeszów 2012, p. 263.

Registration and transaction systems - SET

Information and decision systems- SID

Decision support systems- SWD

Integrated IT systems - ZSI

IT management systems- SIK

Expert systems - SE

Artificial intelligence systems - SSI


239

improvement of the efficiency in the procurement process (60%

respondents),

reducing the cost of staff maintenance (82% respondents),

reducing financial costs (20% respondents),

increase of sales incomes (20% respondents),

reducing production costs (38% respondents).

A wide range of benefits received by the enterprises from the use of

IT systems supporting management causes the increase of ICT in

companies.

3. The use of ICT in the enterprises

The data, published by Central Statistical Office, related to the use of

ICT in enterprises shows that in this field the tendency is growing or

staying on a similar level in relation to previous years. Figure 5 shows

the participation of the enterprises with the Internet access.

Figure 5. Enterprises with the Internet access according to the categories size

Source: Central Statistical Office, Społeczeństwo informacyjne w Polsce w 2015 roku -

opracowanie sygnalne, Warszawa 2015, p. 1.

As Figure 5 shows the highest percentage with the Internet access is

among large and medium-sized companies. As for the Internet

connections the enterprises mostly used broadband connections ( fixed or

mobile). However, it can be noticed that mobile broadband connections

92

,3%

98

,9%

99

,8%

91

,8%

99

,0%

99

,6%

91

,4%

98

,4%

99

,5%

86%

88%

90%

92%

94%

96%

98%

100%

102%

Small Medium Large

2013 2014 2015

Janusz Berek

240

made via modem or 3G phone is significantly increasing. The results are

shown in figure 2.

Figure 2. The use of Internet connections in the enterprises

Selected types of Internet

connections

2013 2014 2015

in %

Mobile broadband connections via

modem or 3G phone 44,0 61,0 61,5

Broadband connection( mobile and

fixed) 82,6 90,4 91,9



In 2015 a total of 7,3% companies have benefited from the cloud

computing17 services. The highest percentage has been recorded by large

enterprises. In relation to 2014 this rate increased by 1,5%. Figure 6

shows the use of cloud computing service in 2014 and 2015 including

enterprise’s categories size.

Figure 5. Enterprises using cloud computing service in 2014 and 2015 according to

categories size



17Cloud computing – data-processing model based on the use of the service given by the

service provider. Functionality is understood as the service provided by software. It

means no need to buy license or necessity to install and administer the software.

Source: Wikipedia, https://pl.wikipedia.org/wiki/Chmura_obliczeniowa, [25.02.2016].

5,8% 4,5%

10,6%

18,7%

7,3%5,6%

13,4%

24,7%

0%

5%

10%

15%

20%

25%

30%

Total Small Medium Large

2014 2015


241

According to IDC (International Data Corporation) analysis almost

41% of systems supporting the management, which are in Polish

companies, belong to SAP SE18 solutions. Second place in terms of

market share is given to ERP software providers. The leading role on the

Polish market is taken by Comarch company from Cracow which

controls 12,5% of the market of integrated systems supporting the

management.19.

Conclusions

The above analysis leads to the following conclusions:

the use of IT systems is caused by the rapid growth of IT resources in

enterprises as well as their high specialization and progressive

globalization process,

modern architecture of IT systems is formed by integrated systems,

integrated management IT system is characterized by: possibility to

run selected system function from the user’s level, an unitary interface

for all system users, single data implementation to the system and the

possibility of access to it by all the users,

universal IT systems customized to the companies’ needs are more

often available,

functions carried out by integrated management IT systems are

divided into functional areas, convergent with the main tasks of the

company,

in enterprises it is possible to use IT systems and services with no

need to buy the license, necessity to install and administer the

software,

the available reports show that enterprises largely benefit from the use

of IT system supporting the management,

18 SAP SE (germ. Systemanalyse und Programmentwicklung, eng. Systems Applications

and Products in Data Processing) – German IT enterprises founded in 1972, based in

Walldorf, providers of business software.

ERP. Source: Wikipedia, https://pl.wikipedia.org/wiki/SAP_SE, [25.02.2016]. 19ITWIZ, http://itwiz.pl/idc-sap-liderem-rynku-erp-polsce-comarch-najwiekszym-

polskim -dostawca/, [25.02.2016].

Janusz Berek

242

according to data, published in 2015 by Central Statistical Office,

related to the use of ICT in enterprises the tendency in this area is

growing or staying on a similar level in relation to 2013 and 2014.

Literature

[1.] Central Statistical Office, Społeczeństwo informacyjne w Polsce

w 2015 - opracowanie sygnalne, Warszawa 2015.

[2.] ITWIZ, http://itwiz.pl/idc-sap-liderem-rynku-erp-polsce-comarch-

najwiekszym-polskim-dostawca/, [25.02.2016].

[3.] Kaszuba-Perz A., Zastosowanie informatycznych systemów

zarządzania w małych i średnich przedsiębiorstwach jako przejaw

technologicznej modernizacji, Zeszyty Uniwersytetu

Rzeszowskiego no 26, Wydawnictwo Uniwersytetu

Rzeszowskiego, Rzeszów 2012.

[4.] Kuraś M., System informacyjny a system informatyczny - co oprócz

nazwy różni te dwa obiekty?, Zeszyty Naukowe Uniwersytetu

Ekonomicznego in Krakowie, no 770, Kraków 2009.

[5.] Lech P., Zintegrowane systemy zarządzania ERP/ERP II.

Charakterystyka, wykorzystanie w biznesie, wdrażanie,

Wydawnictwo Difin, Warszawa 2003.

[6.] Małyszko M., SaaS jako metoda świadczenia e-usług, Polska

Agencja Rozwoju Przedsiębiorczości, Warszawa 2008.

[7.] Marshall J., SaaS: Taking the Worry Out of Service, Financial

Executive, September, no 9.

[8.] Niedzielska E. (red.), Wstęp do informatyki, Państwowe

Wydawnictwo Ekonomiczne, Warszawa 1993.

[9.] Stanik J., Kwiatkowski P., Zapewnianie jakości systemów

informatycznych „Koncepcja zapewnienia jakości”, materiały z VI

Konferencji użytkowników i developerów ORACLE „Systemy

informatyczne w dobie Internetu”, Zakopane, 24-28 October 2000.

[10.] Susłow W., Od organizacji do systemu informatycznego.

Modelowanie i analiza systemów informatycznych,

http://moskit.weii.tu.koszalin.pl/~swalover/MiASI_w1.pdf,

[24.02.2016].

[11.] Szydłowski I., Wybrane aspekty wdrażanie systemów

informatycznych, Zeszyty Naukowe Zachodniopomorskiej Szkoły

Biznesu, Szczecin 2000.

[12.] Wierzbicki T., Informatyka w zarządzaniu, PWN, Warszawa 1986.


243

[13.] Wikipedia,

https://pl.wikipedia.org/wiki/Application_Service_Provider,

[24.02.2016].

[14.] Wikipedia, https://pl.wikipedia.org/wiki/Chmura_obliczeniowa,

[25.02.2016].

[15.] Wikipedia, https://pl.wikipedia.org/wiki/SAP_SE, [25.02.2016].

Wyższa Szkoła Finansów i Prawa w Bielsku Białej · 2018-08-24 · Bielsko-Biała School of...

Documents

Transcript of Wyższa Szkoła Finansów i Prawa w Bielsku Białej · 2018-08-24 · Bielsko-Biała School of...