Economic development instruments employed following the closure of an industrial plant – the example of Polish municipalities

The specificity of the issue under consideration is related to the political and economic history of Poland and the political system changes that took place after World War II. ⁽¹⁾ In 1944–1989, the Polish People’s Republic (PRL) functioned under the sovereignty of the Union of Soviet Socialist Republics. This period, in addition to the unambiguously negative consequences of political oversight, was also marked in history by the rich state resources that were created, among other things, as a result of systemic efforts to industrialize the country (Lijewski 1978). Local governments, in their present form, did not exist at the time, and the lower levels of administrative structures were managed by national authorities delegated to do so. The event initiating the re-formation and functioning of Polish local governments was the political transformation in 1989. The then newly shaped systems of municipal self-government clashed with the newly shaped free market economy. Products and resources specific to the communist period – such as numerous state-owned industrial plants or state-owned farms (PGRs) – slowly, and to varying degrees, ceased to function after 1990, leaving many municipalities with a problem: on what to base further economic development? (e.g. Jałowiecki 2008; Dziemianowicz, Hausner & Szlachta 2000).

The political and legal conditions for the development of Polish municipalities have gradually changed over time. Initially, there was little government support for the privatization process and municipalities faced numerous problems. After the system transformation, Poland developed very slowly, due in part to the processes that took place as a result of it (Przybyciński 2015). Gradually, opportunities opened up, such as conducting foreign policy or starting a private business. The period of the highest GDP growth occurred after accession to the European Union in 2004 (data prior to 2000 not available; Figure 1). Poland is one of the main beneficiaries of cohesion policy on a regional scale, which allows for a reduction in development differences within the country and a narrowing of the gap with more developed European countries (Crucitti et al. 2023). ⁽²⁾ However, it is the local level of local government that is the constant beneficiary of successive investments from EU funds, ranging from the development of basic infrastructure to measures aimed directly at attracting investors, creating new jobs for local residents or using various types of economic development instruments. The available general statistics at regional and national level show economic growth; nevertheless, it is worth emphasizing that, at the local level, local governments are still struggling with many socio-economic problems, related to events such as the closure of large industrial plants (e.g. Jałowiecki 2008).

Figure 1.

GDP per capita 2000–2022 in Poland (PLN)

Source: own elaboration based on data from Statistics Poland

One way to influence local economic development is through the instruments that local government has been equipped with by law or has learned to shape over time. Economic development instruments, as a tool to be used locally, is a topic addressed in the literature – both in terms of their classification and their practical use. In the context of systemic transformation, A. Sztando (2000) examines the transfer of the phenomenon of state interventionism to the local level, which, in turn, is associated with the use of a number of new types of instruments aimed at the intentional creation of local economic development at the level of the local government directly responsible for it. W. Dziemianowicz & W. Jarczewski (2021, p. 14) define a municipal economic development instrument as “any conscious activity of local authorities aimed both directly and indirectly at supporting enterprises and/or stimulating entrepreneurship”. A. Sztando (1999) uses the concept of instruments for stimulating local entrepreneurship development and divides them according to the criterion of the form of influence. The range of economic development instruments used by Polish municipalities varies, and numerous examples of municipalities (e.g. Mielec, Walbrzych, Niepołomice) show that some of them are used successfully and over the long term in response to events that are beyond the control of local authorities, including liquidations of large business entities (Dziemianowicz, Hausner & Szlachta 2000; Jarczewski & Huculak 2011; Woźniak 2013).

The above-mentioned subject matter of the article refers to historical processes that may have overtones in the economic policies currently applied in Polish municipalities. In the context of topics related to long-term development processes that are also visible at the local level, both retrospectively and prospectively, the following issues are important: –

Local development, seen from the perspective of long-duration processes, is a set of events and their effects in the historical and present perspective; in the municipality – as a long-duration structure – the existence of certain structures, institutions and social behaviour is perpetuated (Domański et al. 2010). The adoption of certain patterns of behaviour, and their repetition over the long term, is related to the concept of coordination effects, which are included in the group of “increasing returns” derived from the concept of path dependence (Arthur 1994).

The events mentioned at the beginning of the article – such as the transformation and closure of an industrial plant – can cause a municipality to be thrown off its previous development trajectory (e.g. Gwosdz 2013). In the concept of path dependence, development can occur, among other things, according to the idea of self-reinforcement – when an event that puts a municipality on a new path is reinforced through repetition (Mahoney 2000; Pierson 2000).

The reproduction of a certain pattern of behaviour results in the permanent fixation of historical processes in the present (Arthur 1994; Martin 2009). Thus, if, as a result of the closure of an industrial plant, local authorities began to take specific actions and apply selected economic development instruments – aimed, for example, at attracting investors in specific industries, it can be hypothesized that such actions – with high probability – will continue. This may lead to a municipality-specific arrangement of actions related to the occurrence of a strong external stimulus, which also alludes to the basis of the theory of cumulative causality formulated by G. Myrdal (1957).

The purpose of this article is to verify whether the systemic transformation, and the closure of industrial plants caused by it, had an impact on the long-term economic policy (including the instruments used) implemented by Polish municipalities. Taking into account the fact that the processes of restructuring and bankruptcy of plants have often led to negative socio-economic consequences, it is reasonable to hypothesize that:

The closure of an industrial plant affects long-term local economic policies implemented in Polish municipalities.

Under the above hypothesis, it should be understood that municipalities affected by the processes of the closure of economic entities in their area consequently pursue a different pro-investment policy, and that they support residents and entrepreneurs already operating in their area to a different degree and/or extent, compared with municipalities that have not experienced such a closure.

Based on an analysis of the Location Quotient (LQ) ⁽³⁾ values for 1994, municipalities that were considered to specialize in the industrial sector were selected. A verification survey was then conducted in those 449 municipalities to determine: ⁽⁴⁾ 1)

whether there was a closure of an industrial plant in the municipality between 1990 and 2000;

The distinction between the two types of municipalities is important because the closure of an industrial plant may have led to changes in economic policy. The questionnaire was completed by representatives of 101 local governments, of which 60 units declared industrial plant closure (Map 1). In most of the analyzed cases, local governments declared that the plant was very important to the local economy.

Map. 1.

Municipalities that took part in the survey and their declaration on industrial plant closure

Source: own elaboration based on survey results (N=101) and previous desk research (Karpiński et al. 2013, 2015; reports on ownership transformations from 1990–1998)

In the analysis of the results obtained, a statistical method was used – the nonparametric Mann–Whitney U test – which indicated differences in the average ranks of the values achieved in the two compared groups. The use of specific economic development instruments was evaluated, as well as theses related to current local economic policy. Local government representatives were asked to confirm or deny the statements indicated, using the scale: (1) yes, (2) somewhat yes, (3) somewhat no, (4) no.

The evaluation of respondents, according to the key indicated above, was subjected to 15 elements of economic policy, by which are understood specific instruments of economic development, as well as being the approach used by local authorities, and related, among other things, to the purposeful direction of certain activities. The statements taken into account in the study were prepared on the basis of the literature review and research conducted to date in this area (Sztando 1999; Dziemianowicz & Jarczewski 2021). The analysed aspects of economic policy concerned: –

the model of entrepreneurship sought/supported by the municipality;

The analysed questions/statements refer to actions that can be taken by local authorities to shape favourable conditions for economic development, including by creating conditions for the development of entrepreneurship and shaping the local labour market.

The Mann–Whitney U test formally tested the hypothesis that the distribution of results obtained in the two groups of municipalities was the same. Although the results indicated that the vast majority of the instruments theoretically used more often by the group of municipalities that experienced industrial plant closure, at the same time, the results were statistically insignificant in a large part of cases (Table 1).

The test indicated statistically significant differences in the overall approach of municipalities to the economic policies implemented. Municipalities that experienced industrial plant closure years ago are now more likely to direct their activities towards attracting large strategic investors, as well as foreign investors. Instruments such as participation in investment fairs, the operation of business incubators and business service points at the municipality office turned out to be more specific to municipalities that experienced plant closure. The effects of job losses are probably more likely to be still visible in these municipalities, as the test results also indicated more frequent implementation of programmes aimed at activating residents.

The results obtained in this study are part of the discourse on the impact of shock events, such as plant closures, on local development; the timeliness of this discussion is still affected by the range of events that can lead to such socio-economic consequences (such as a pandemic or war) (Watts 1991; Beer et al. 2019; Tomaney, Pike & Cornford 2010; McCann et al. 2021). The results simultaneously indicated some differences in the approaches used by local authorities, which can be linked to the approaches indicated in the theoretical part of this paper, based on the perpetuation of certain behaviours and patterns that may have emerged as a result of the closure of plants (Mahoney 2000).

Municipalities experiencing the loss of a large employer in their area have often sought large-scale replacement investments for the existing plant (e.g. Jarczewski & Huculak 2011); the habituation to having a large entity operate in the municipality may be related, for example, to the specific competencies of residents (e.g. Beer et al. 2019). The same phenomenon – the habit of functioning in a particular monoculture – can also explain the currently lower support of local authorities for the development of self-entrepreneurship among residents of municipalities where plants have closed. Much of the international literature focuses on the impact of plant closures on the local labour market (Beer et al. 2019; Tomaney, Pike & Cornford 2010; Deacu 2016). So, it should not come as a surprise that municipalities experiencing closure still focus more strongly on activating residents in the labour market, since many of them have suffered the social effects of the crisis for decades (Tomaney, Pike & Cornford 2010; Jałowiecki 2008; Woźniak 2013).

It is interesting to note that the selected types of economic development instruments differ, but this is probably related to the factors indicated above. Investment fairs are events during which municipalities promote themselves to seek investors; M. Gebarowski (2010) notes that, due to their specificity (integration of various forms of communication), they are a completely separate instrument of economic promotion compared with the others. A study by W. Dziemianowicz (2016) shows that local governments – despite the fact that they use this form of communication with investors – do so relatively rarely compared with other types of economic instruments, which may indicate a greater determination to seek investors in the case of municipalities affected by the loss of a local employer.

The openness of local authorities to contact investors, including through the creation of investor service units in municipal offices, is one of the soft location factors considered in studies of investment attractiveness in local governments (Dziemianowicz 1998). Business incubators – as institutions that support the creation of companies – may have been created as a result of plant failure. Due to their nature, they are more often located in cities where larger and more significant industrial plants often operated (see Dziemianowicz et al. 2000).

It is worth noting that despite the lack of statistically significant differences, instruments are generally used more frequently in municipalities experiencing closure. The fact that these differences are not significant or that they fade over time can be linked to several factors.

First, tenure and who is currently in power in the municipality matters. Leadership models change over time and with successive terms of office, considering the range of actors involved in co-managing local governments (Swianiewicz & Klimska 2003). Individual municipal managers may have completely different visions for the development of the territorial unit they manage, even though they are based on the same local potential, and it is impossible to always speak of a willingness or ability to continue the vision of previous municipal leaders (eds Dziemianowicz & Szlachta 2016; Dziemianowicz 2023). Additionally, previous research on closures highlights the role of the individual and local leadership in responding to such events, as well as their ability to mobilize local resources through bottom-up efforts. The response is not always at a high enough level in each location. (Herod 1991; Watts 1991).

A lot of time has passed since the closure of the plant in the municipalities studied (sometimes more than 30 years) and, at the same time, it should be recognized that the level of human capital in the offices is steadily increasing, as is the range of economic development instruments used (compare eds Gorzelak & Jałowiecki 1996; Dziemianowicz & Jarczewski 2021). Organizations – including those such as municipal offices – are subject to the impact of the changing conditions in which they operate and, in accordance with the concept of the “learning organization”, should adapt to the conditions of the changing internal and external environment of the municipality (ed. Olejniczak 2012). In the period between the early 1990s and the present, the economic structure in the studied municipalities may also have diversified and, consequently, the range of economic instruments used. A separate question arises as to which instruments were successfully implemented in the long term, and which ones did not bring the expected results to the municipalities and were replaced by others. This is also considered in the concept of path dependence and positive or negative path anchoring moments (e.g. Martin & Sunley 2006).

The hypothesis posed at the outset was not unequivocally confirmed – that is, the results obtained by the Mann–Whitney U test indicated that there were no differences between the two groups of municipalities studied on many levels of economic policy. Such results lead to at least several conclusions – in substantive, methodological and conceptual layers.

The first conclusion concerns the implications of the research results obtained for local policy. The existing differences in the economic instruments used show the importance of shaping the local labour market. Although the article refers to a historical perspective, it should be noted that the issues raised are and will continue to be topical. Business closures may in the future be linked to events such as a pandemic, a war or technological developments (e.g. Beer et al. 2019). The survey also indirectly identifies the needs of municipalities to support specific directions of development, which can also be applied in the formulation of territorial policy objectives and ways of conducting them from a higher than local level.

The second conclusion concerns the need to continue the research undertaken and complement it with a historical perspective – namely, to consider the entire key period for the municipality, from the time of the plant’s closure to the present. The key question is whether the results of the study obtained are related to the changes that have occurred in policy over the years (i.e. the use of certain instruments has lost its importance over time) or whether the crisis situation caused by the closure of the plant did not cause local authorities to react and direct the economic policies of the municipalities.

Another aspect worth noting is that local economic development instruments are universal in nature – that is, they can be applied at different stages of municipal development, for different motives and in different socio-economic contexts. The fact that municipalities that have experienced the closure of an industrial plant do not use certain types of economic development instruments more often, for some reason, can be linked to the general multiplicity of events that have occurred since the early 1990s in Polish municipalities. At the same time, the fact that industrial municipalities were selected for the study does not mean that there might not have been other types of plants or PGRs on their territory that also closed during the transition period and influenced the range of economic development instruments used today (Olejniczak & Płoszaj 2008).

Another conclusion, closely related to the above, concerns methodological and conceptual dilemmas related to the subject of the study undertaken. At least two themes fall within this scope. First, the difficulties of studying historical processes and the need to trust respondents if the study is based solely on questionnaires and/or in-depth interviews. Second, individual attitudes, behaviour and socio-economic conditions are specific to each municipality. This leads to the conclusion that there is a certain advantage to the case study method, which also allows for more in-depth verification of historical processes – for example, through the search of archival materials. Further investigations should therefore include selected case studies, allowing for in-depth verification of the economic instruments used. The case studies could be selected on the basis of specific survey results – municipalities in which specific groups of economic instruments were repeated.