Excerpt from Cornel Ban, “Austerity, Stalinist-Style” forthcoming in East European Politics and Societies
During the postwar decades, ideologically opposed state managers from Washington to Beijing agreed on one thing: industrialization was the main engine of economic modernization (Rostow 1960; 1965; Haggard 1990; Wade 1990; Cullather 2000; 2010; Kohli 2004). State-led industrialization projects animated by nationalist ideologies were the main conduits for economic development outside the Euro-American core. Known as developmentalism, these projects had distinct regional characteristics: import substitution industrialization in Latin America and parts of Africa and South-East Asia, indicative planning in some of the export-led economies of Asia and centrally planned and state-owned economies in Eastern Europe, China and Vietnam (Oi 1992; Friedman 1996; Schneider 1997; Johnson 1999; Woo-Cummings 1999; Chibber 2003; Kohli 2004).
Postwar Romania was no exception to these trends. Between 1949 and 1989 the country pursued a state-led effort to overcome agricultural dependency on Western Europe and become an industrial middle-power. This shift also entailed a coordinated policy to urbanize the majority of its population, ensure full employment and universal access to social services, build a scientific superstructure and collectivize all high-yield farmland (Jowitt 1973; Chirot 1978). Without a doubt, from an economic and social standpoint, national-Stalinism successfully put Romania’s modernization on fast-forward and quickly ensured the basic economic needs of the overwhelming majority of the population (Chirot 1973; Ban 2009; 2011; Murgescu 2010).
The nationalist turn in Romania’s neo-Stalinist ideological orthodoxy led to a confrontation with the rest of the bloc in the mid 1960s. In 1963 RCP leaders defied the USSR’s plans to force Romania to focus on agriculture—which was seen as its competitive advantage—and posited a seamless equivalence between economic self-sufficiency and national independence (Tismaneanu 2003; Jowitt 1973). The result was the adoption of the ideological tenet that Romania should build a developmental state that maintained important parts of the Stalinist development model, while formulating a distinct nationalist trade and finance regime that included strategic cooperation with the West. This was translated into a continued commitment to centrally planned industrialization, but also to selective domestic liberalization and opening towards Western finance, trade, and technology. As the next sections show, the unwavering commitment to this local ideological artifact enabled both spectacular development and spectacular collapse (Ban 2011).
This “nationalist” edit of Stalinism contained systemic contradictions. On the one hand, even after the “thaw” experienced by other socialist states during the 1960s, Romania maintained a rigid centrally planned economic structure. While Hungary and Poland experimented with alternative forms of property, economic coordination and economic sourcing of political legitimacy (Comisso 1988; Berend 1990; Bockman 2011), in Romania the private sector was negligible, the economic system rested on largely unreformed central planning institutions, and the sources of the public budget depended almost exclusively on the profits of state-owned enterprises and wage taxes (Ionete 1993). In terms of the remunerative sources of legitimacy, the stress was on ensuring basic needs rather than on building proto-consumer societies as in Hungary, Czechoslovakia and Poland. Even during the boom of the 60s and 70s, household consumption of both private and public goods was subordinated to industrial development, and in speech after speech Nicolae Ceausescu stressed the ideological imperative of giving industrialization absolute priority. Furthermore, resistance to any market devices in inter-firm and employment relations was maintained. In contrast, other conservative East European regimes (post-1968 Czechoslovakia or East Germany) attempted to carefully balance full employment, individual consumption and industrialization priorities (Ulč 1978; Gitelman 1981; Fulbrook 2005).
These forms of Stalinist orthodoxy were in tension with the regime’s critical position towards the Soviets’ attempt to deepen East European economic trade and investment by decelerating Romania’s industrialization project. The corollary to this position was a strategic opening towards the West and the inclusion of “developed capitalist states” alongside socialist states in the standard ideological discourse on Romania’s foreign economic relations. Yet this opening bred a structural tension in Romania’s national-Stalinist developmentalism, as the realization of its ambitious objectives depended heavily on transfers of Western technology and trade with Western Europe. As Gomulka (1983) showed, the fact that Romania, Bulgaria and Yugoslavia had higher growth rates than other socialist states was largely thanks to their massive investments in the latest Western technologies and ability to draw upon a large “reserve army of labor” in the countryside (a strategy that has interesting similarities to today’s Chinese model). Indeed, as the Ceausescu regime became progressively estranged from Moscow after 1968, the ambition to industrialize necessitated an instrumental opening to trade with the West, a course that the regime pursued vigorously for nine years (1972-1981). Romania was unique also because of its early membership in the Bretton Woods institutions, beginning in 1972, which enabled it to access their financing on very generous terms. Nevertheless loans from these institutions as well as from private sources—then awash in petrodollar flows—remained scarce until 1978-1979.
The economic opening towards Western Europe was genuine. Beginning in the late 1960s the country’s increasing exports targeted both Western and Eastern markets, with the former absorbing more Romanian exports than the latter (Myant and Drahokoupil 2010: 43). To boot, during the 1970s Romania was the only Warsaw Pact country with a generalized trade agreement with the European Economic Community (Schroeder 1982). This agreement enabled the country to export more to the developed capitalist core in 1980 than it did to socialist states (Constantinescu 2000: 298). The country’s anti-Soviet foreign policy, its recognition of West Germany and its rapprochement with the United States during the Nixon presidency facilitated Western technology transfers in industries as diverse as automobiles, rail, aircraft, shipbuilding, chemicals and special steels. Romanian-West German, Romanian-French and Romanian-British joint ventures accounted for most of the major technology transfers of the 1960s and 70s (Brown 1982; Percival 1995; Steenhuis 2003). While the rest of the Soviet bloc depended heavily on outdated local designs, Romanian industry was churning out more updated versions of—among other sophisticated products—French and German-designed cars, trucks, helicopters, jets, and turbines. In this way, the growing interdependence with capitalist economies gave Romania a relatively modern industrial base, an outcome hard to foresee only two decades earlier.
The tension between Stalinist orthodoxy and the selective opening towards the West was important, but it should be stressed that unlike Poland and Hungary, two countries that also exported heavily in Western Europe, Romania did not dip deeply into the volatile pools of international finance. Crucially, the Ceausescu regime did not borrow excessively during the 1970s. Whether we look at the dollar value of its loans or at the burden of debt servicing as a proportion of total exports, Romania kept its foreign borrowing at prudent levels until 1978. Hungary and Poland, on the other hand, multiplied their foreign debt several times between 1972 and 1979, reaching much higher levels than Romania did (Kotkin 2010: 27). Romania only began borrowing on a large scale at a very inopportune time: in 1979 the interest rate shock triggered by the U.S. Fed made cheap development finance unavailable.
The Romanian developmental state consolidated during the tenure of Nicolae Ceausescu (1965-1989) yielded spectacular gains not only in terms of economic growth and complexity but also in improving the economic opportunities of the overwhelming majority of the population. But the tension between reliance on foreign capital and an uncompromising commitment to economic policy sovereignty and an energy intensive economic structure led the regime to adopt policies that eventually threatened its promise to deliver basic economic rights. Unfortunately for the regime, this policy turn and its consequences eventually contributed extensively to the dramatic anti-regime mass mobilization of December 1989 that pushed the uncivil society to withdraw its commitment to the regime.
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From Yanis Varoufakis. Oversimplified, granted, but isn’t oversimplification what the austerity discourse is doing?
A new take on Aesop’s tale, tailor-made for our ‘European Moment in History’, at a time when Europe’s collapse is being guaranteed by the dominance of the wrong narrative. What follows is an attempt at an alternative take; one that is more in tune with a decent future for Europe.
Once upon a time a Greek called Aesop told the story of the industrious ant and the profligate grasshopper.
Over the past two years, the Greeks have earned an international reputation as Europe’s grasshoppers, with the Germans in the role of the ants. Alas, the Greeks’ reputation has now spread westwards and even northwards (toward the Emerald Isle) as all sorts of non-Greeks are painted with the same paintbrush.
The now infamous bailout packages for Greece have propagated the view that the eurozone is divided simply between northern ants and southern grasshoppers. That with the warmth of the euro’s summer days behind us, now that the easy money from Wall Street and the City have disappeared, a winter of discontent has descended upon us all due to the grasshoppers’ idleness.
Thus the dominant story in Europe today is that, in the frozen mists of this awful winter, the southern grasshoppers are knocking on the northern ants’ doors, cap in hand, seeking one bailout after the other. The ants, understandably, are coy and will only respond if the grasshoppers promise to change their ways. In short, the stocks that the ants accumulated for the heavy winter are being endangered by hungry, careless grasshoppers who resist changing their profligate ways.
The problem (for those seeking to understand a Crisis) with attractive allegories is that the latter can be as much of a help as a hindrance. In this post I wish to argue that Aesop’s timeless tale, however appropriate it may seem at first glance, contributes more to Europe’s current problems than to their solution. My reason is simple: The ants and the grasshoppers are to be found in both Greece and in Germany, in the Netherlands and in Portugal, in Austria as well as in neighbouring Italy. But when we assume that all the ants are in the north and all the grasshoppers in the south, the remedies we introduce are toxic.
Yes, it is true, the Crisis has placed a disproportionate share of the burden on the back of Europe’s ants. Only Europe’s ants are not exclusively German or Dutch or Austrian; and nor are the grasshoppers exclusively Greek, Iberian or Sicilian. Some ants are German and some are Greek. What unites Europe’s ants, north and south, east and west, is that they struggled to make ends meet during the good times and they are struggling even more now during the bad times. Meanwhile, the grasshoppers, both in the north and in the south of Europe, lived the good life before the Crisis and are doing fairly well now, keen as always to privatise the gains and distribute the pain (to the ants).
So, in my take of the famous tale, if Aesop’s tale is the one we want to use in order to understand the eurozone debacle, we better get our ants and our grasshoppers right!
The Greek Ants: Hard working couples, holding two low productivity jobs (e.g. supermarket checkout assistants) before this Crisis, but who traditionally found it hard to make ends meet due to low wages, exploitative working conditions, a rate of inflation (for their lowly basket of goods and services) much above the official average (especially after the euro’s introduction boosted food and basic goods prices), massive pressure from banks et al to take loans out in order to provide for their kids that which the TV tells them no kid should be without and which their meagre wages cannot afford etc. Come the Crisis, members of their family lost their jobs, the rest lost parts of their earnings, bank loans were called in, taxes rose, they have to contemplate living without electricity (as the State tries to squeeze more tax out of them through the electrivity bill) the family’s prospects collapsed. Moreover, they are being painted as the villains of the (euro, even the global) piece.
The German Ants: Hard working but relatively poor people, in high productivity growth industries (e.g. VW factory workers), struggling to make ends meet both before and after the eurozone crisis. Their increasingly productive labour, and low, stagnant wages, meant that profit rates in Germany skyrocketed and were converted into surpluses whose size grew speedily partly due to a redistribution of income away from the German ants and toward their employers and partly because of the country’s greater net exports (which accelerated the cheaper German labour was becoming). Once created, these surpluses sought higher returns elsewhere, due to the low interest rates these surpluses induced in Germany. It was at that point that the German grasshoppers (the inimitable bankers whose aim was to maxinise gain in the short run out of zero effort ) looked south for a good deal.
After years of higher interest rates and large deficits, the eurozone’s south had managed to decrease the interest rate differential with the north. However, the differential was still there; especially for personal and credit cards loans where it was huge. Thus, German capital (produced by the German ants’ hard, cheap labour and directed by the irresponsible German grasshoppers) flowed south in search of higher returns. What happens when money floods in unexpectedly? Bubbles form. It is that simple. In Spain they took the form of real estate bubbles. In Greece the bubbles manifested themselves in the form of public debt, as the Greek grasshoppers (also known as Greek developers-) found it easier to grab the German capital flows via the accounts of the state, whose administrators were only too keen to shower the Greek grasshoppers with procurement contracts.
The precise form of the southern bubbles does not matter. They would burst asunder anyway, once the massively larger bubbles created by our transatlantic uber-grasshoppers (Wall Street) popped. What does matter is that the German ants could see that their hard work was not translating into a better life but into more drudgery and less purchasing power.
Never bailed out
Come the Crisis, the German ants were then told that they must tighten their belt again, at a time when they are falling deeper into a poverty trap. They were also told that their government is sending zillions to the Greek government. Since they were never told that the Greek government is not allowed to use this money to cushion the blow against the Greek ants (indeed, that the loans were given on condition that the blow against the Greek ants would be maximised so as to minimise the pain of the Greek and German grasshoppers), they were mightily puzzled: Why are we working harder than ever, taking home less than ever? Why is our government sending money to the Greek grasshoppers and not to us?
Meanwhile, the Greek ants were both desperate and indignant. The grasshoppers of both countries pointed the finger at them, calling them all sorts of names. Their puzzlement hit record levels when told that they had, in effect, threatened (through their profligate ways) to bring down civilisation-as-we-know it. They scratched their heads, thinking that there must be a mistake since they never had any good days during the supposedly good times. They had struggled then and they are struggling now, admittedly far more desperately. As for the bailouts, they simply cannot see them, as no one tells them that the mentioned zillions end up in Europe’s bankrupt banks, where they duly fall into bottomless black holes. And when they see Germans calling them thieves, corrupt, spendthrift, over-reachers, it is not hard to reach into collective memory for moments in history that make it ever so easy to become anti-German.
A less Aesopian take
Before the euro was established, a remarkable experiment took place simultaneously in Greece and in Germany.
In Germany, government, employers and the trades unions agreed to try to restore German competitiveness, employment and growth by reducing German wages and, thus, squeezing German inflation below that of the European average.
Meanwhile in Greece, the government of the time struggled to prepare the country for accession to the eurozone by also squeezing real wages, taking advantage too of the influx of migrants into the country.
The German experiment worked a charm and kept working even after the euro was created. Real wages fell and fell. Unemployment was slashed. The gleaming factories produced more and more for less and less. German goods flooded the markets and, at the same time, Germany’s success caused money to become even cheaper, flooding the surrounding eurozone countries, including Greece. Germany’s ants worked harder for less while Germany’s grasshoppers laughed all the way to their bank.
The Greek experiment worked well also, until Greece entered the euro. Once inside, the flood of cheap money from the outside, from Germany as well as from Wall Street, allowed the Greek grasshoppers, and their political allies in government, to borrow from the German ones (the banks) as if there was no tomorrow. Every time the Greek ants asked for some of the benefits of being in the euro, they were either paid off with cheapskate public sector jobs, paid for with borrowed money, or were told to go to the banks and borrow directly. On the back of European structural funds and rivers of borrowed monies, the Greek grasshoppers, in alliance with some German ones, got fatter and fatter while the Greek ants were struggling to make ends meet.
And then Wall Street collapsed for reasons of its own. When the collapse crossed the Atlantic, hitting the banks first and the eurozone’s public finances later, it was the Greek grasshoppers’ state that went belly up first. Someone had to be blamed. Europe’s grasshoppers found it convenient to fall back on the scoundrel’s last refuge: nationalism. Suddenly a war of words between Greeks and Germans, Northerners and Southerners, was staged that hides a terrible truth: No one was ever bailed out except for some of the grasshoppers of both the north and the south.
Moral of the story (All Aesop tales have one!)
Many think of Aesop’s parable as a morality tale whose purpose was simply to warn against sloth, laziness and an unhealthy disregard for the future. Alas, it was more than that. Aesop was sounding the alarm bell against both the grasshopper’s spendthrift ways and the ant’s extreme parsimony.
Today there is another wrinkle that needs to be added to his moral: That, when the ants and the grasshoppers are distributed across the division separating surplus from deficit nations within a badly designed monetary union, the stage is set for a depression that sets all against all in a vicious spiral from which only losers can emerge. A stage from which no one can be bailed out (even those who, like Germany, can bail out themselves, by leaving the eurozone, will be committing a form of slowburning, long run, suicide.
Our only option: To subvert the dominant narrative. Recognising the co-existence of neglected ants and over-pumpered grasshoppers throughout the eurozone is a good beginning.
The carnivores go for a strong version of the austerity thesis: if you cut spending and adopt structural reforms (make it easy to hire and fire folks, make it easy to set up a business or enter a profession) there is a good chance you can get growth and employment after some years of pain. For them, fiscal policy is in general a bad idea, whose effects wither out anyway because of the calculations of consumers and investors who figure out that fiscal stimulus means future taxes, making them cut consumption and investment in the middle of the crisis. Just stay the course and plug wax in your ears to screen off the cries of pain and the “you can’t end hunger through anorexia” slogan. When all is said and done people will eventually thank you for it. This argument is the most influential and is upheld by leading macroeconomists, the governments of large European countries and the ECB.
In contrast, the vegetarians are a little less sure about virtues of the austerity diet. Composed of an increasing part of macroeconomists and some policymakers, the vegetarians tend to sprinkle more doubts, footnotes and caveats on the virtues of austerity. In May 2012 even the hard-hearted Economist joined them. Nevertheless, they demand austerity and structural reforms for a different reason than the carnivores: they live in fear that bond market investors will ask for higher risk premia on sovereign bonds if states fail to reduce debt and deficits to levels that reassure bond investors that they will get their money back. This is the least bad option of the menu even if this means austerity in the short run.
Should all European countries let this fear guide policy decisions? The vegetarian answer is yes. All countries with high debt burdens face bad fiscal policy choices during periods of heightened risk aversion, irrespective of whether they still enjoy credibility with bond investors or not. Thus, austerity in highly indebted countries that can still borrow cheaply (Britain) is just another form of insurance policy against a costly bond market rebellion made possible by a volatile bond market. In highly indebted countries that are priced out of the bond market (Greece, Portugal), deficit-reducing austerity is the only choice if they want to ever borrow again.
Finally, enter the vegans. For them, there are two Europes and they have different choices on austerity. First, there is the Europe that can enjoy the taste of the buttery non-austerity diet at best and a slowdown in austerity at worst because they already have the confidence of the markets, low deficits and current account surpluses. These are the export-led economies of Germany, Austria, the Netherlands and Scandinavia. By contrast, the countries with low investor confidence (i.e. Southern Europe) should fast for another decade or so by cutting spending and adopting structural reforms, but the their cuts should be less savage and more staggered than those demanded by carnivores and vegetarians. The point is simple: you cant have austerity at the same time throughout Europe without an overkill in demand and a second recession bout. The Northern supervirtuous should spend more to compensate for the Southern Europeans forced into a monastic lifestyle.
The vegan critique is the most influential alternative. It’s the standard line in the FT, in the latest research done by the Summers and deLong and, more timidly, in some IMF research. Where does its hostility to the carnivore-vegetarian consensus come from? Well, say the vegans, in two years and a half of austerity, the countries that have tightened the GDP the most have had the largest drops in GDP. In Greece, for example, 8 percentage points of fiscal tightening cut the GDP by 12 percent. Modest tightening has been associated with modest growth. In short, small exercises in belt tightening lead to recessions and big exercises bring recessions (Wolf 2012). The fiscal contraction has a much more damaging effect on economic output when activity is depressed as it is now than it would do during a stronger stage of the business cycle. Fiscal austerity measures would reduce eurozone economic growth by one percentage point this year, according to Deutsche Bank. “That alone would not drive the eurozone into economic contraction, but we have a combination of fiscal austerity and a credit crunch. It is a self-inflicted recession – you don’t get the same combination of shocks elsewhere in the world.”
Vlad Nanca, Dacia – 30 Years (…), 2003
From monobank to central bank
Before 1989 the BNR was little more than a socialist commercial bank (monobank). Most of its activities consisted of managing state subsidies to the industry and all foreign operations were carried out through a separate state bank (Banca Romana de Comert Exterior). The BNR had lost its statute as a central bank in 1952, following a dramatic political purge during which the regime arrested its leadership on sabotage charges, fired its Western-trained economists and hired a new generation of economists with fresh Soviet degrees. In theory, the BNR was completely subordinated to the State Planning Committee and the Ministry of Finance. Yet de facto during the 1980s the BNR governing board remained completely subordinated to the whims of Ceausescu personally.
This situation changed radically after the end of the Ceausescu regime. With IMF and World Bank expertise, in September 1990 the BNR received a new statute (Legea no. 34/1991) which stipulated that financial flows between the government and state firms be henceforth carried out by commercial banks and that the main function of the BNR would be price stability, with the former objective playing a central role in the first press interview of the new governor, Mugur Isarescu. The new statute gave the bank a considerable degree of autonomy relative to the executive and, most importantly, almost complete control over its budget.
During the heterodox governments of the early 1990s both of these prerogatives were violated by cabinets. For example, in 1991, BNR was forced by to run real interest rates below inflation in order to feed cheap credit to unprofitable state companies. The IMF defended the BNR in 1993 against government pressures to subsidize loss making state firms, forcing them to borrow money at market interest rates. But eventually the government managed to force the central bank to demand the lowest interest rates on the market for strategic sectors (as opposed to firms) such as agriculture, energy, exports. All in all, the heterodox treated the central bank almost like a development bank.
On the road to central bank independence
As its epistemic superiority consolidated, the institutional vulnerability of the central bank was drastically reduced in 1998, with the adoption of a new statute (Legea no. 10/1998) that restricted government borrowing from the BNR by setting a market interest rate on central bank advances to the public budget and by capping the maximum amount of government deficit to be covered with central bank credit. The test of the political prowess of the BNR was came between 1998 and 2004 when the cabinet refrained from demanding central bank credit. Moreover, during this period the influence of central bank economists in the executive grew. The BNR chief economists Daniel Daianu became minister of finance in 1998 and governor Isarescu became premier in 1999 and presidential candidate for the hapless Convention in 2000. The reforms also turned this institution in one of the few clear winners of the 1997 “transformational recession,” with BNR reserves soaring from 600 million in 1996 to 2.6 billion in 1997 (Daianu 1999: 15). BNR’s increasing resources enabled it to attract the best graduates of DOFIN, Romania’s only graduate economics school endowed with some international reputation, while the Finance ministry was left with the second tier.
The 2003 reforms made under the EU integration calendar gave the central bank freedom from instruction from the cabinet, sole competence on determining the exchange rate regime, prohibited all direct credit to the public budget and gave the BNR complete control over its expenses and revenues. In ECB fashion, the BNR board was freed from the obligation to publish the minutes of its meetings. The BNR’s only political obligation was to submit an annual report to the Parliament.
BNR as epistemic power
Yet the BNR shaped economic policy in more subtle ways. Immediately after 1989, its greater control over its earnings enabled an entrepreneurial new governor (Mugur Isarescu) to endow the bank with a team of young macroeconomists selected from the elite niche of the department of mathematical economics. When drastic budget cuts and bad management deprived economics departments of economic journals and books, the BNR made access to the latest literature one of its priorities. By 1991 BNR sponsored scholarships abroad for its staff and funded the institutes who could assess the costs of industrial reconversion. The top economists in BNR and the governor himself were also star professors at ASE, the leading economics department. This was the result of the fact that the BNR’s generous budget allowed for the payment of competitive salaries for the elite of ASE economists. Moreover, by the late 1990s the BNR informally patronized its own private think-tank (CEROPE) staffed by economists that either worked for the BNR or had co-authored research projects with BNR economists in the past. CEROPE soon emerged as the leading and highly elitist voice of orthodoxy and served as a laboratory for preparing the macroeconomic dossier of Romania’s EU integration during the early 2000s.
(to be continued)
From the late 1940s to the mid 1970s the poor Southern periphery of Europe saw an unprecedented pace of industrialization under a variety of political regimes, ranging from authoritarian corporatism in Iberia to Stalinism in South-Eastern Europe. “All European Communist economies have stressed industrial growth,” wrote Daniel Chirot in the late 1970s, but “ Romania since 1958 has done so to an extraordinary degree. Romanian industrial production in recent decades has grown proportionately more rapidly than that of any other European country” (Chirot 1978). This happened despite some initial external adversity. Daniel Turnock claimed that the joint Romanian-Soviet companies set up after 1945 “had drained the country of raw materials to the extent of several times the amount of reparations actually agreed, all in return for Russian manufactures at inflated prices. It has been calculated that the various forms of exploitation accounted for eighty-six percent of the total national income between 1944 and 1948 (Turnock 1970: 546).
The Romanian regime’s claims to fame were neither completely unfounded, nor unacknowledged abroad. During the 1970s the international financial institutions and leaders of the “Free World” poured praise on Ceausescu’s regime for the swift pace of economic modernization. The numbers looked impressive indeed. According to recent estimates, between 1950 and 1973 Romania joined Yugoslavia and Bulgaria in achieving average annual growth rates that were above both the Central European and the West European average (Maddison 2006: 446-7). The industrial “take-off” gave the Romanian economy 68 percent growth rates per decade between 1950 and 1974. In relative terms, this put Romania in the same high-growth league as Germany and Yugoslavia. While other social countries, including USSR, failed to keep pace with GDP levels in Western Europe and fell further behind, Romania, Bulgaria and Yugoslavia made significant gains (Myant and Drahokoupil 2011: 12-13). This growth was a source of much nationalist pride and created opportunities for the regime to isolate the country’s dissident voices.
Much of the success was the result of high rates of investment. The percentage of industrial investment per GDP went up from 18 percent during the 1951-1955 period, to 34 percent between 1971 and 1975. Even with the difficulties in securing foreign loans after the debt crisis of 1982, net investment was still 27 percent of GDP and remained strong until 1989 (Ionete 1993: 227-228; Postolache 1991; Pasti 2006). Despite rampant inefficiencies, the investment policy paid off. Between 1950 and 1968 Romania’s industrial production index grew by over 545 points, compared to 378 in Spain and 362 in Greece (Chirot 1978: 457-499; Gomulka 1983: 291). During the first three postwar decades Romania industrialized faster than Spain, Greece and Portugal and nudged closer to the industrialization levels of East Germany and former Czechoslovakia (Turnrock 1974; Gomulka 1983). By the mid-1960s this former agricultural backwater of Europe had reached the average per capita industrial production of Europe from the early 1950s (Ionete 1993: 73; Bairoch 1982: 302, 331). When the regime collapsed 53 percent of the Romanian GDP was generated by manufacturing, a sector accounting for 25 percent of the country’s exports (Ionete 1993: 73; Murgescu 2010: 358).
As a result of steadily high rates of investment, technological imports and Eastern Europe’s biggest reserve army of labor relative to total labor force, early postwar industrial production grew proportionately faster than in any other peripheral European country between the Atlantic and the Black Sea. In 1989 the value of industrial production was 44 times bigger than in 1950, while the percentage of industrial workers increased fourfold to 38 percent of the labor force (Murgescu 2010: 341-2). Moreover, contrary to the popular image of Romanian neo-Stalinist development as relying exclusively on traditionalist sectors of steel and coal, the economy also experienced growing sophistication in engineering, high-end wood processing, and electronics (Cojanu 1997: 88-89). By 1983 the engineering sector was so developed that it ranked the tenth largest in the world (Georgescu 1985: 23).
Romania’s high growth rates depended to a great extent on increasingly competitive industrial output. The share of manufacturing in exports grew from 7 percent in 1950 to 60 percent in 1989, with around 60 percent of exports going to the more demanding consumers of Western Europe (Cojanu 1997). In sharp contrast to a predominantly agricultural profile during the 1960s, by the 1980s the increasing complexity of Romania’s exports resembled that of a relatively advanced industrial economy (MIT Economic Complexity Atlas).
From Misery to Social Welfare
High growth rates and an unprecedented boom in employment opportunities enabled a genuine social revolution. The breakneck pace of economic and social modernization experienced by most Romanians until the early 1980s gave the regime not just remunerrative sources of legitimacy, but also much of the rhetorical material for what Verdery aptly called “symbolic-ideological” compliance strategies based on favorable comparisons with pre-communist Romania (1991: 85-86). Indeed, national-Stalinism brought an end to a highly startified society that is hardly imaginable in Romania today. As Gaspar Miklos Tamas put it, the political systems anchored in some version of Bolshevik rule “accomplished many of the customary goals of bourgeois revolutions: industrialisation, urbanisation, secularisation, compulsory comprehensive education, magnanimous financing of art, science, technology, eradication of tribalism, edification of a gigantic infrastructure (railways, motorways, pipelines) and, perhaps most significantly, the relocation of the peasant population from mud huts into what is called in England “council estates”, in the US “housing projects”, in France HLMs.” (Tamas 2009: 20). In contrast with the poor record of the caste society of interwar Romania, under national-Stalinism infant mortality rates plummeted from the highest in interwar Europe (139 in 1000 live births) to significantly lower levels in the 1970s (35 in 1000) (Chirot, 1979). General mortality also declined dramatically in the 1960s and 70s owing to sustained policies that targeted better nutrition, better hygiene, and free access to modest, yet relatively modern and widespread healthcare facilities and services. Illiteracy, too, which afflicted around half the population in the late 1930s, was virtually eliminated.The number of doctors per 10,000 people increased from 1.1 in 1938 to 20 in the mid 1980s, while the number of hospital beds per capita was close to West German levels (Berend 1999: 197).
On the front of socio-economic rights, the contrast with the interwar period was stark. Despite significant investments in education (16 percent of public revenue between 1918 and 1938), almost half of the population of interwar Romania was illiterate in 1938 and only Albania and Serbia hosted fewer doctors per capita (1.1 doctors per 10,000, which was less than in India at that time) (Janos 2002: 99). Between 1871 and 1935 the infant mortality rate remained the highest in Europe (19.2 deaths per hundred) largely the result of poor nutrition and farm work during pregnancy. The death rate in the population as a whole was also the highest in Europe. Well into the boom years of the 1930s, the rural population remained dramatically disease-ridden, deprived of basic healthcare and constrained to live in precarious hygiene conditions (Hitchins 1994: 337). Literacy and access to medical services were on a level with other peripheral European countries (Yugoslavia, Turkey, Portugal) and behind both its immediate Western neighbors (Hungary, Poland) and non-European peripheral countries (Chile, Mexico) (Jackson and Lampe 1982; Ben-Ner and Montias 1991).
In what was once one of the most conservative gender cultures in Europe, female participation in the labor force became the highest in Southern Europe. Free kindergartens, affordable lending libraries, bookstores, cinemas, and theatres were also made widely available. Employee and welfare benefits came to be taken for granted and were topped by local innovations: subsidized basic goods and services and guaranteed full employment (Marginean and Zamfir 1998). Universal social citizenship was instituted, with the state and its enterprises sharing the costs of an expanded array of social security services (Zamfir, 1999). Romania also followed other socialist states in the world race to provide old age pensions as a de facto a citizenship right, while minimum wages were consistently set well above subsistence levels.
Weakly urbanized in 1950—even by the low standards of Iberia, Greece and Eastern Europe—Romania had narrowed the gap considerably by the 1970s (Davis 1972; Ronnas 1982; 1984; Enyedi 1986; Belkis et al 2003). Whereas urbanization was left to market forces in rapidly industrializing capitalist states, in Ceausescu’s Romania urbanization and industrialization policies were coordinated. As a result of industrial investments distributed relatively evenly throughout the country (Chirot 1979: 474-475), large numbers of urbanizing peasants experienced a remarkably short journey from rural poverty to indoor plumbing, central heating, mass tourism, and modern mass transit, based on an extensive rail network which in 1989 was the fourth largest in Europe, with electrified links accounting for 32 percent of the total network.
There is no doubt that national-Stalinist Romania was very effective at making a quick transition from a primarily agricultural economy to an industrial one. But the economic triumphs of industrialization would soon come to an end when the conflation of economic and political independence, the regime’s unifying political norm, was challenged by price shocks originating in the capitalist system. Ceausescu drew upon the national-Stalinist ideological repertoire to deal with the ensuing economic uncertainty and consequently decided to safeguard the industrialization program at the expense of compressing consumption to near-wartime levels, thus fueling the reactions that led to his regime’s fall less than a decade later.
(continued in previous posts on Heterodox)