Control of Capital Against the Middle Income Trap

Abstract

Developing countries now significantly advanced in development, which include Poland, have much lower productivity of production factors, including workforce productivity. Among the reasons for that, essential is the unfavorable division of labor in the global value creation chain. Such a condition in the post-socialist countries results from several important factors, among them accelerated privatization, mainly with the participation of foreign capital, as well as the structure of foreign direct investments. The national economy is dominated by foreign corporations that invested labor-intensive production processes in these countries, using cheap labor. The subordinate role of local production has been strengthened by the globalization process. These countries may be caught in the trap of medium development, and currently operate in a peculiar lower league of the world economy. The inferior role of local subcontractors is due to the fact that they do not participate in the capital ownership of companies and thus have little influence on the power of international corporations. Improving their position requires an active policy of states, including the control of gross capital flow structure.