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.