patterns of economic development under socialismtitle: patterns of economic development under...
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FINAL REPORT T ONATIONAL COUNCIL FOR SOVIET AND EAST EUROPEAN RESEARC H
TITLE :
PATTERNS OF ECONOMI CDEVELOPMENT UNDE RSOCIALIS M
AUTHOR :
Professor Marvin R . Jackso nDepartment of Economic sArizona State Universit y
CONTRACTOR :
Arizona State Universit y
PRINCIPAL INVESTIGATOR :
Professor Marvin R . Jackso n
COUNCIL CONTRACT NUMBER :
800-1 2
DATE :
April 198 9
The work leading to this report was supported by funds provided b ythe National Council for Soviet and East European Research . Th eanalysis and interpretations contained in the report are those o fthe author .
EXECUTIVE SUMMARY
A . Introductio n
The research in this project has sought answers to three questions :
1) In the time period 1950 to 1985, have patterns of economic developmen tin the communist-ruled countries of Eastern Europe differed from those i ncapitalist countries?
2) Have the patterns of two less developed communist-ruled countries ,Bulgaria and Romania, differed from the common experience of that group ?
3) Have Bulgaria and Romania exhibited any significant variations tha tmight suggest the limits to policy under the common institutiona lframework of communist political arrangements and socialist economi cinstitutions ?
The research findings are compiled in a 400 page manuscript now bein gedited for publication . This final report includes the introductory chapte rand summaries of the nine substantive chapters of the manuscript . The chaptertitles are :
II. Bulgaria and Romania : Past and Politics .III. Growth Patterns of National Product .IV. The Sources of Growth .V. Investments and Capital Accumulation .VI. Labor Force and Consumption .VII. Industrialization Patterns .VIII. The Contributions of Agriculture .IX. Foreign Trade and The CMEA .X. Challenges of World Markets .
B . Some Concepts and Theory .
The designation, "communist-ruled countries" has been chosen in place o f"socialist countries" because it is really communist rule that determines an drestricts choices of institutions and policy . What is more important is thatthe inquiry, mostly concerned with facts and their meanings, be directe daccording to the existing body of theoretical-conceptual literature on th eexpected economic effects of communist rule . These are discussed in Chapter I(enclosed) and again at the beginning of each chapter of the report .
There is also a question of whether there are theoretical grounds fo rexpecting the impact of communist rule to be different in Bulgaria and Romania ,proxies for less developed countries . As will be explained shortly, being mor eor less developed has an impact on the development process which is independen tof institutional arrangements . Are there effects dependent on communist rule ?
This question and a related one, are there conceptual or theoretica lgrounds for expecting a different impact of communist rule on two seemingl y
iii
similar countries like Bulgaria and Romania, are discussed in Chapter II .
The term, "development pattern", means the characteristics of economicgrowth, including its sources and sectoral composition, and the main structura lchanges taking place in a national economy over a period of time . If develop-ment patterns are representative of economic systems, they must be measured onthe basis of sufficient samples . In the project, the capitalist countries ar eusually taken to be the members of OECD, plus some East Asian and LatinAmerican developing countries . At times the sample shrinks to the Wester nEuropean and even only the Southern European countries .
The sample for the communist-ruled countries nearly always includes th esix East European members of CMEA, often also the Soviet Union, and less oftenYugoslavia .
A major research problem is how to decide if development patterns ar e"different" . Differences are sometimes presented as arithmetic averages acros ssample countries in each group . However, as often as has been possible ,statistical tests are used to address the problem that nearly every importantdevelopment pattern varies systematically with the level of GNP per capita andsometimes with other factors such as country size (in the case of foreigntrade) . For example, growth rates of GNP tend to decline as the level of GN Pper capita rises . So it would be biased to conclude that communist-rule dcountries tend to grow faster merely on the grounds that average growth i shigher than for capitalist countries .
Whenever possible the research employs a statistical regression t o"normalize" data for differences in the level of GNP before drawing conclusion sabout system differences . This involves estimating an equation of the for m
INDICATORi = an + bn* YCAPi + cn* POPi + d n* DUMj + en ,
where INDICATOR is the nth pattern, a growth rate or a structural statistic ,for the ith country, YCAP is national product per capita, POP is country siz ein terms of population, DUM is a dummy variable for the jth system or countr ygroup, and e is an error term . Differences in systems or country groups ar eestimated by the value and significance of the coefficient, d .
A major part of the project is devoted to collection of a data set t otest differences . Data cover about 40 countries and more than 30 variables fo rthe period from 1950 to 1985 . In order to manipulate data more easily, the yhave been reduced to average values for five year periods (1950 to 1955, 195 5to 1960, etc) . The usual sample set for testing differences between communist -ruled and capitalist countries is 256 observations . This sample is sometime sused to test differences between Bulgaria and Romania, and the other communist -ruled countries . When data unique to communist-ruled countries is used, test sare made with a 50 observation sample only for the communist-ruled countries .
Comparisons of growth rates involving communist-ruled and capitalis tcountries are always based on western estimates of GNP, industrial output, an d
iv
agricultural output for the former countries and official statistics for th elatter . When Bulgaria and Romania are compared with other communist-rule dcountries, primary use is made of official statistics of net material produc t(NMP), gross industrial output (GIO), and gross agricultural output (GAO) .Some comparisons are also made with western estimates, and are always s odesignated .
C . Principal Findings
Summary Table 1 provides an overview of the main quantitative evidenc egenerated and explored in the research . The major finding is that from 1950 t o1985 communist-ruled countries grew less rapidly than capitalist countries a tany given level of income, a result attibutable to a combination of lowe rgrowth of productivity, labor force, and investment) This was despite greate rshifts of labor out of agriculture and higher rates of investment, highe rparticipation rates, and higher education rates . There was no difference i ngrowth rates of exports and imports .
A second major finding is that communist-ruled countries have been "over -industrialized" . Shares of investment and labor force in industry, particu-larly heavy branches, have been larger than for a typical capitalist country a tthe same level of income, while shares in services have been smaller .
Other major findings concern the comparison of Bulgaria and Romania wit hthe other communist-ruled countries . Bulgaria and Romania grew faster at agiven level of income per capita than the others, exhibiting higher growth o fproductivity, investments, exports and imports (but not labor force), an dgreater shift of labor out of agriculture . 2 At the same time, neither in-dustrial output nor agricultural output grew faster in Bulgaria and Romani athan in the other countries . This suggests that the faster growth in Bulgariaand Romania was derived from the effects of shifting resources from agricultur eto industry (and perhaps was connected to relative pricing in the two sectors) .
A second major finding in the case of Bulgaria and Romania is that mos tof their margin of faster growth compared to the other communist-ruled coun-tries was generated in the earlier years of communist rule . In 1976-80 and1981-85 their behavior is more typical . This is consistent with the view tha thigher performance is connected to the (diminishing) possibilities of shiftin gresources from agriculture to industry .
Many other minor findings and numerous qualifications in the methods, th edata, and the results are reported below .
1 This conclusion is based on western estimates of GNP for communist-rule dcountries and corrected growth rates of investment, as explained in the body o fthe report .
2Similar results are obtained when growth is measured in both GNP and NMP .Bulgarian and Romanian data in the two cases show no unusual deviations unti lthe 1980s in the case of Romania .
v
Summary Table 1
DIFFERENCES IN GROWTH AND STRUCTURE :COMMUNIST-RULED VS CAPITALIST COUNTRIES AN D
BULGARIA/ROMANIA VS OTHER COMMUNIST-RULED COUNTRIE S
----------------------------------------------------------------------------- ------------------------------------------------------------------------------ -Communist -Ruled
Bulgaria/Romani aPeriod
versus
versus Com-or Year
Capitalist Growth or Development Pattern
munist-Ruled----------------------------------------------------------------------------- -
1950-85 lower 1) Growth of gross national product higher1950-79 same la) Stability of GNP1950-79 same lb) Retardation of growth1950-85 lower 2) Growth of productivity (GNP) higher -
converged *
1950-85 3) Growth of net material product higher1950-85 4) Growth of productivity (NMP) higher-
converged*1950-85 lower 5) Growth of fixed capital invest- higher
ment s1950-85 6) Growth of net investment s
("accumulation fund")higher
1950-85 higher 7) Rate of gross investmen t1950-85 8) Rate of net investment same
("rate of accumulation" )1950-85 lower 9) Growth of occupied population same1950-79 higher 10) Participation rate s1975,
1980 higher 11) Secondary education rates1950-79 same 12) Growth of total population1975,
1980 lower 13) Fertility Rates1950-80 data
problems14) Net international migration rates
1950-85 lower-converged*
15) Share of urban population same
1950-85 lower 16) Total internal migration rate s1950-85 lower 17) Net rural to urban migration
rat e1950-80 lower 18) rural to urban commuting rat e1960-80 lower 19) Urban to urban migration rat e1975,
1980 higher 20) Physicians per capit a1975,
1980 higher 21) Nurses per capita
1975,
1980 higher 22) Infant mortality1980 higher 23) Air pollutio n1980 same 24) "Physical Quality of Life "1950-85 higher 25) Percentage shift of labor forc e
out of agriculturehigher
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Summary Table 1 (Continued )
Communist -Ruled
Bulgaria/Romani a
Period
versus
versus Com-or Year
Capitalist Growth or Development Pattern
munist-Ruled----------------------------------------------------------------------------- -
1950-85 higher-converged*
26) Share of labor force in agriculture same
1950-85 higher 27) Share of labor force in industry same
1950-85 lower 28) Share of labor force in services same
1950-85 same 29) Growth of industrial output same
1950-79 same 29a) Stability of industrial outpu t
1950-79 higher 29b) Retardation of industrial growt h
1950-85 higher 30) Share of "heavy industry" of industria llabor forc e
1980 higher 31) Energy consumption
1980 higher 32) Consumption of metal s
1950-85 same 33) Growth of agricultural output same
1950-79 lower 33a) Stability of agricultural output
1950-85 lower 34) Share of animal products in agri-cultural output
lower
1950-85 lower 35) Net agricultural exports higher
1950-85 lower 36) Fertilizer per hectare
1950-85 same 37) Specific crop yield variation s
1950-85 same 38) Growth of total exports higher
1950-85 same 39) Growth of total imports higher
1950-85 lower 40) Ratio of imports to GNP higher
1950-85 lower 41) Ratio of total imports to tota lexports
same
1950-85 lower 42) Change in terms of trade same
1970,
1975 greater 43) Trade diversion
------------------------------------------------------------------------------ -* Deviations usually vary over the period from 1950 to 1985 . When significan tsystem differences disappear by the 1980s, a convergence is indicated .
D . Main Differences between Communist-ruled and Capitalist Countries .
From 1950 to 1985 average growth rates of western-estimated GNP for th ecommunist-ruled countries tend to fall more than one percentage point belo wthose for the capitalist countries, once differences in per capita income ar e
normalized . Otherwise, there are no differences in stability of growth or th e
tendency of growth to retard . About half of the difference in GNP growth ratesis due to lower growth of factor productivity and the rest to lower facto rgrowth and change in labor structure .
vii
The communist-ruled countries exhibit lower growth rates of occupiedpopulation at a given level of income, even though participation rates in thelabor force are higher and grow faster . However, they have greater shift o flabor out of agriculture at given levels of income per capita .
Average growth of investment in fixed capital, a proxy for capita lgrowth, is similar for both groups of countries after official growth rates ar ecorrected to correspond with western-estimated GNP growth . But when differ-ences in income per capita are considered, the growth of investment is lower i ncommunist-ruled countries . Limited evidence suggests that greater shares o fincome are invested in communist-ruled countries .
Growth of industrial output is not higher in communist-ruled countrieswhen it is measured by western estimates and differences in levels of GNP percapita are considered . While growth rate retardation is somewhat higher, ther eis no difference in stability of growth . In spite of this, communist-rule dcountries are "overindustrialized" . Not only are investment and labor forc eshares in industry higher, but they are especially high compared to shares inservices and to shares of the population urbanized . Within industry, commit-ments to "heavy" industry (processing of industrial and energy materials an dheavy manufacturing) are still high by capitalist standards .
The growth of agricultural output has not been significantly differen tacross systems when per capita income is considered, but the stability o fgrowth has been less under communist rule . Animal products average smallershares of output in Eastern Europe than in Western Europe . Eastern Europ eproduces 20 percent higher gross output per capita of total population than inWestern Europe, using 80 percent more arable and crop land per capita of tota lpopulation and 50 more persons occupied per hectare with about half as man ytractors and 20 percent less fertilizer per hectare . At the same time, inWestern Europe domestic consumption standards are higher and the coverage o fimports by exports also higher . Therefore, it is quite possible that wastageand lower terms of trade are problems for agriculture under communist rule .
The communist-ruled countries still provide too few service workers t oback up each person in industry and, at the same time, provide relatively fewurban living accommodations for those in industry, forcing many to commute o rlive in temporary quarters .
Higher investment rates imply lower shares of national income allocatedto consumption in the communist-ruled countries . Private consumption, espe-cially services, is relatively most neglected . The ICP of 1975 estimatesprivate consumption in Romania to be only 50 percent of Spain, with Yugoslaviaat 56 percent, Poland 71 percent and Hungary 77 percent . Housing standards ar efar behind, especially in Romania, although in Bulgaria more space per capitais provided than in either Hungary or Yugoslavia . Romania is also the leas tadequately supplied with sales personnel and sales facilities .
Although simple average growth rates are higher in earlier five-yea rperiods in communist-ruled countries, there are no differences in the growt hrates of exports and imports due to system when differences in incomes pe rcapita are considered . Still, in 1975 and 1980 the ratio of imports to GNP ,
viii
measuring foreign trade dependency of communist-ruled countries, is, respec-tively, only 67 percent and 56 percent of that of a typical capitalist country .Low trade dependencies of the 1950s have not been made up .
Directions of trade are also influenced . According to Fink, turninginward among the communist-ruled countries reached a peak in 1955-62 . Sinc e1960, their real trade with "nonsocialist" countries has grown faster than wit h"socialist" countries . Nevertheless, by 1970 Hewett shows there remain largetrade diversion among CMEA countries in which their trade with Western Europea ncountries is only 20-30 percent of normal capitalist trade . Diversion is eve ngreater in machinery, according to Slama . All in all, communist rule pushe sup shares of machinery and industrial raw materials, and pushes down shares o fconsumer manufactures and food products .
Communist-ruled countries (with Yugoslavia an exception) also have lowe rratios of commodity imports to commodity exports than capitalist countries whe nmeasured on a similar CIF :FOB basis . This is attributed to weakly develope dinternational capital institutions and lower levels of invisible earnings .
E . Bulgaria and Romania Versus Other Communist-Ruled Countries .
A division of subject is followed in this section and the one following .Here the emphasis is on shared traits of Bulgaria and Romania that set them of ffrom other communist-ruled countries .
According to the regression analysis, Bulgaria and Romania have statisti-cally significant, higher NMP and GNP growth from 1950 to 1985 for a givenlevel of income per capita than the other communist-ruled countries . Thismeans that only part of their higher (simple unqualified) average is becaus ethey have lower income per capita . Behind their higher growth rates o fnational product are all of the following statistically significant differ-ences : higher productivity growth in the 1950s and 1960s, higher growth o ffixed capital investments, greater labor shift out of agriculture, and highe rgrowth of exports (and imports) .
At the same time, they do not have statistically significant highe rgrowth of labor, something that might have been expected . More interesting ,they do not have higher growth of industrial and agricultural output . Theiraverage growth rates are higher, but only because of their lower levels o fincome per capita .
This raises a major question . If the two main sectors of the economy ,industry and agriculture do not grow faster (than accounted for by incom edifferences), how can NMP or GNP grow faster? There are two possibilities ."Services", that is all other sectors besides industry and agriculture, coul dhave grown faster . But such an explanation does not fit the evidence tha tBulgaria and Romania are the two most "overindustrialized" communist-rule dcountries in the late 1970s and 1980s .
The other possibility which "fits" the facts is that higher nationa lproduct growth comes from a greater labor shift in the cases of Bulgaria an d
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Romania . It appears likely that the "elasticity" of NMP or GNP growth wit hrespect to labor shift is higher in Bulgaria and Romania than in other coun-tries . Evidence is that their residual productivity growth is unusually hig hat the same time that their difference in labor shift is unusually high, in th e1950s and 1960s . Also, there is a good explanation of why the "elasticity" o fgrowth for labor shift was high . This could come from initial productivity o flabor in agriculture compared to industry being lower in Bulgaria and Romaniathan in the other communist-ruled countries .
This explanation of the "difference" of Bulgaria and Romania woul dexplain why their productivity growth relative to other communist-ruledcountries falls in the 1970s and 1980s . The economic gains from being "les sdeveloped" at the time communist rule was imposed are not enduring, lastingonly until labor is shifted out of agriculture and relative prices are changed .Possibly the only enduring influence of initial backwardness is that th eBulgarian and Romanian people have up to this point not protested openl yagainst their communist rulers in any measure corresponding to the ineptness o fthose rulers' policies .
F . Bulgaria Versus Romania
The comparative measurement of Bulgarian and Romanian growth require scorrecting Romania's early official data from the bias of 1950 weights. Whenthis is done, the same pattern of comparative growth emerges in virtually al lgrowth indicators . Bulgaria does better in the 1950s and 1960s, especiallyfrom 1955 to 1965, and Romania does better from the early 1970s to 1979 . It isevident from official NMP, western GNP, industrial output, agricultural outputand foreign trade .
How much Romania catches up in the 1970s hinges not just on the variou snumbers, but on how much one believes that Romanian output and income figure sare politically exaggerated . The indicators, corrected for early technica lbiases, show the same overall growth by 1985, based on 1950 and Bulgaria' srelative progress with a prewar base .
Bulgaria's better overall performance in the 1950s and 1960s is connectedwith its ability to generate larger shifts of labor out of agriculture andhigher export growth and not on higher growth of labor and investments .Investments grow at similar rates in both countries, but from a differen tcombination of factors . In the early 1950s Bulgaria had a higher investmen trate which then increased more slowly than Romania's . Its investment growthdepended on the growth of national income . In Romania's case, where nationa lincome grew more slowly, investment growth also depended on the more rapidlyincreasing share of investment in national income .
Bulgaria's larger shares of investment in national income in the earl y1950s may be due to faster and better establishment of communist rule an dsocialist institutions . Most certainly it also reflects Soviet discriminatio nin favor of Bulgaria . At the end of the war, Bulgaria, with an econom ysuffering far less war damage, received small net capital transfers from theSoviet Union . But Romania lost goods in reparations and other payments to th e
x
Soviet Union in 1944 and 1945 worth an estimated third of its capital stock .From 1947 to 1957 both countries receive roughly the same absolute sums o fSoviet credits, which meant more relative help to smaller Bulgaria . Inaddition, surprisingly large shares of investments available to Romania in th elater 1940s and early 1950s were wasted in the defunct, first Danube-Black Se a
Canal and in a massive program to increase petroleum output . By Stalin's deat hanother factor came into play . From 1953 to 1957, according to Romaniandomestic statistics, the volume of imported machinery used for investments fel l50 percent to only 17 percent of what was available .
In the 1950s and early 1960s, Bulgaria pushed investments in agriculture ,replacing labor and increasing productivity so that equalization of income s
with industry was possible quite early . By the mid-1960s agricultural outpu tper head of total population was 40 percent more than in Romania, providin ghigher consumption standards and food exports .
In 1950 Bulgaria already had larger shares of industry in food processin gand Romania larger shares in the processing of industrial materials and energy ,both specializations as much influenced by nature as policy . While Romaniaalso had a larger initial machinery branch, that difference virtually disap-peared in the subsequent major priority put by both countries on the branch .Since 1965 the elasticities of branch growth are similar in both countries .
Romania's relative progress in the 1970s was partly Bulgarian slowdow nand partly acceleration of Romania's economy following a gradual rise of th eshare of national income invested . Romania's turn West made little differencesince better Bulgaria terms of trade in the 1970s gave way to better ones fo rRomania in the early 1980s . Romania did face greater temptation from westerncredit . But a positive result of the relative westward orientation was tha tRomanian exports to the West of manufactured goods are more to its comparativ eadvantage and have served to keep its market shares in OECD imports fro m
falling as much as Bulgaria's .
There are important differences in the economics and politics of Bulgari aand Romania . Romania's agricultural organization is a succession of increasin gcentralization and limitation of the private sector . Bulgaria's heralded"agro-industrial complexes" are failures, but now it might be turning to acombination of cooperative and private share-cropping that could work . Neithercountry successfully implemented decentralizing reforms in industry and foreig ntrade, although Bulgaria could now be making hesitant progress towards tha tend . All in all, the Bulgarian economy is better organized even withou treforms . The Bulgarian polity shows a certain reason . Yet it would be wrongto overlook the fact that both economies suffer major structural deviations an dwould face extreme strain if opened to greater competition from the world . Andthis necessary step toward changing development into maturation is held bac kpolitically in both countries by the same combinations of forces - veste dinterests, fear of worker and consumer discontent, and, above all, fear o f
losing control over people's movements and thoughts . Bulgaria has not yet sunkto the depths of Ceausescu's scarred land, but without major changes, Romania' spresent may be Bulgaria's future .
xi
CONTENTS
EXECUTIVE SUMMARY
iii
CONTENTS
.
.
xiii
LIST OF TABLES
.
. xv
Chapter I .
INTRODUCTION . 1
I-A .
The Research Proposal
.
.
.
. 1I-B .
Conceptual and Theoretical Questions
. 2I-C .
Some Empirical Issues
.
. 6
Chapter II .
OVERVIEW :
PRECONDITIONS AND POLITICS
.
. 1 2
II-A .
The Issues
. 1 2II-B .
The Preconditions
.
.
. 1 2II-C .
The Politics of Communist Rule .
.
.
. 1 4II-D .
The Impacts of Past and Politics on Economic Development
. 1 6
Chapter III .
GROWTH PATTERNS OF NATIONAL PRODUCT .
. 1 7
III-A .
Issues and Measurement Problems
. 1 7III-B .
Systemic Effects on Growth Rates .
.
.
. 1 8III-C .
Bulgaria and Romania Versus Other Communist-Ruled Countries .
. 20III-D .
Bulgaria Versus Romania 2 0
Chapter IV .
THE SOURCES OF GROWTH
. 23
I V-A .
The Issue
.
. 23IV-B .
Plans and Growth of National Product .
. 23IV-C .
Aggregate Production Functions .
. 2 5IV-D .
Systemic Differences in Sources of Growth
. 2 6IV-E .
Bulgaria and Romania Versus Other Communist-Ruled Countries
. 2 9IV-F .
Bulgaria Versus Romania
. 2 9
Chapter V .
INVESTMENT AND CAPITAL ACCUMULATION
.
. 3 2
V-A .
Conceptual and Measurement Problems 32V-B .
Systemic Comparisons of Investment and Capital Accumulation
. 32V-C .
Bulgaria and Romania Versus Other Communist-Ruled Countries
. 3 3V-D .
Bulgaria Versus Romania
.
. 35
Chapter VI .
LABOR FORCE :
GROWTH, STRUCTURE, AND CONSUMPTION
. 3 8
VI-A .
Labor Force Growth .
. 38VI-B .
Changes in Labor Force Structure and Urbanization
. 39VI-C .
Comparisons of Consumption Standards .
.
. 42
CONTENTS (Continued )
Chapter VII .
INDUSTRIALIZATION PATTERNS
. 4 4
VII-A .
Conceptual and Measurement Problems Across Systems .
. 4 4
VII-B .
Systemic Effects on Industrial Growth Rates
.
. 4 4
VII-C .
The Overall Role of Industry in Communist-Ruled Countries
. 47VII-D .
The Branch Structure of Industry .
. 47VII-E .
Bulgaria Versus Romania .
.
.
. 49
VII-F .
Comparative Industrial Institutions in Bulgaria and Romania .
. 52
Chapter VIII .
PATTERNS OF CHANGE IN AGRICULTURE .
. 55
VIII-A .
Theory and Concepts about the Effects of Communis tRule in Agriculture
.
.
. 55VIII-B .
Systemic Differences in Agricultural Performance
.
.
.
. 55VIII-C .
Bulgaria and Romania Versus Other Communist-Ruled Countries
. 57
Chapter IX .
SYSTEMIC EFFECTS ON FOREIGN TRAD EAND ISSUES WITHIN THE CMEA
.
.
.
. 65
IX-A .
Concepts of Foreign Trade Development under Communist Rule
. 65IX-B .
Empirical Analysis of Systemic Effects on Foreign Trade
.
. 65IX-C .
Bulgaria and Romania Versus Other Communist-Ruled Countries
. 69
IX-D,
Bulgarian and Romanian Institutional and Policy Commitment sto CMEA
.
.
.
.
. 75
Chapter X .
THE CHALLENGES OF WORLD MARKETS
. 77
X-A .
The Issues
.
.
.
.
.
.
.
.
. 77
X-B .
Growth Rates of "Nonsocialist" Trade Since 1960
. 77X-C .
Commodity Patterns of Bulgarian and Romanian Nonsocialist Trade
. 78
X-D .
Competition in Western Markets
.
.
.
. 79X-E .
Balances of Payments and Import Capacity .
. 83
X-F .
Institutions for Access to Western Markets
. 84
Chapter XI .
SUMMARY AND CONCLUSIONS :
BARRIERS TO MATURITY
.
. 87
XI-A .
From Growth to Maturity 87
XI-B .
The Need for Reforms and Barriers to Maturity .
. 87
XI-C .
Summary of Structural Deviations
.
.
. 8 8
XI-D .
Structurally Induced Disequilibrium in Communist-Rule dCountries 8 8
XI-E .
Comparison with the Southern European Capitalist Countries
. 89
XI-F .
Interaction of Structural and Political Barriers to Maturin gin Bulgaria and Romania
.
. 90
REFERENCES CITED
.
. 93
xiv
LIST OF TABLES
Summary Table 1 . Differences in Growth and Structure : Communist-Ruledvs Capitalist Countries and Bulgaria/Romania v s
Other Communist-Ruled Countries .
. .
. vi
I-1 . "Normal" Variations of Economic Structure
9
III-1 . Percent Average Annual Growth of GNP 1 8III-2, Identification of Time Shifts in GNP Growth, 1950-1985 .
. 1 9III-3 . Ratio of Growth in GNP to Growth in NMP .
. 2 1
IV-1. Plans for NMP Growth and Their Fulfillment
. .
. 24IV-2. Regression Experiments on Sources of NMP Growth .
. 27IV-3. Regression Experiments on Sources of GNP Growth .
. 28IV-4 . Comparison of Data on Growth of "Factor Inputs" ,
Communist-Ruled and Capitalist Countries, 1950 to 1985 .
. 3 0
V-1 . Trends of Accumulation Rates, 1950-1984 .
. 3 4
VI-1 . Indicators of Overindustrialization and Underurbanization
• . 4 1
VII-1 . Comparisons of the Official Growth Rates of Industria lProduction of the Communist-Ruled Countries, 1950 to 1985
. 45VII-2 . East-West Differences in Industrial Structure, 1964-66 .
▪ . 4 8VII-3 . Elasticity of Branch of Industry Growth for CPEs, DMEs, an d
LDCs from 1966 to 1973 and 1973 to 1980 49VII-4 . Relative Output Growth of Branches by Five-Year Periods .
• . 50VII-5 . Comparative Shares of Exports in Industrial Outpu t
of Communist-Ruled Countries, 1970-1984
.
• . 5 2
VIII-1 . Comparative Agricultural Output per Capita, 1966 to 1982 . ▪ . 56VIII-2 . Coverage of Agricultural Imports with Agricultural Exports ,
Eastern and Western Europe, 1970 to 1981 . . .
. 57VIII-3 . Variability of Wheat Yields and Rainfall in Selected Countries ,
1950 to 1980 .
. 58VIII-4 . Growth of Agricultural Output in Bulgaria and Romani a
Compared to Eastern Europe by Five-Year Periods, 1950 to 1985 . 5 9
IX-1. Comparison of the Changes in Major Foreign Trade Variable sacross Systems by Five-Year Periods, 1950 to 1985
▪ . 6 6IX-2. Per Capita Foreign Trade of Selected Countries . .
▪ . 6 8IX-3. Deviations from Estimated Normal Import Dependency .
▪ . 7 1
X-1 . Estimated Ratios of Foreign Trade with the West to GNP in 1980
and 1985 for the Communist-Ruled Countries .
. .
• . 8 0
xv
1
Chapter I . INTRODUCTION
I-A . THE RESEARCH PROPOSA L
As originally proposed and accepted, research under this contract wa s
directed to three questions : (1) In the time period 1950 to 1985, have
patterns of economic development in the communist-ruled countries of Easter n
Europe differed from those of capitalist countries? (2) Have the patterns o f
two less-developed communist-ruled countries, Bulgaria and Romania, differe d
from the common experience of that group? (3) Have Bulgaria and Romani a
exhibited any significant variations that might suggest the limits to polic y
under the common institutional framework of communist political arrangement s
and socialist economic institutions?
The accepted proposal was to review published research covering bot h
quantitative and historical-narrative approaches, and, as necessary and wher e
feasible, to extend and supplement such research . The objectives have been
achieved . The research results are reported here, in other working papers an d
publications, and in a 400 page manuscript being edited for publication .
Following the presentation of theoretical and methodological questions i n
the remainder of this section, the substance of research findings will b e
described in the remaining sections covering major aspects of economic develop-
ment, each of which summarizes a chapter in the full manuscript, as follows :
Chapter II .
Bulgarian and Romanian Overview .Chapter III . Growth Patterns of National Product .Chapter IV .
The Sources of Growth .Chapter V .
Investments and Capital Accumulation .Chapter VI .
Labor Force and Consumption .Chapter VII . Industrialization Patterns .Chapter VIII . The Contributions of Agriculture .Chapter Iv .
Foreign Trade and the CMEA .Chapter X .
Challenges of World Markets .Chapter XI .
Summary and Conclusions : The Barriers to Maturity .
2
I-B . CONCEPTUAL AND THEORETICAL QUESTIONS
I-B-1 . Why "Communist-Ruled" Countries ?
The designation, "communist-ruled countries" has been chosen in place of
"socialist countries" or "CPEs" because it is really communist rule tha t
determines and restricts choices of institutions and policy . Yugoslavia and ,
less since 1968, Hungary are not CPEs . Besides, the effort to monopolize th e
term "socialist countries" by ruling communist parties should be recognized as
propaganda .
"Communist rule" is a political system based on the following elements
[Comisso-86, 20] : (1) a single Marxist-Leninist party with a monopoly o n
political power, (2) a highly centralized, hierarchically organized state and
economy, (3) a lack of differentiation between state-governmental and economi c
institutions, and (44) a politically penetrated form of sovereignty in whic h
party interests rather than national or economic interests govern policy .
I-B-2 . The Expected or Theoretical Effects of Communist Rul e
This project concerns mostly facts and their meaning . Still, an attemp t
is made to direct empirical inquiry according to the existing body of theoreti-
cal-conceptual literature on the expected economic effects of communist rule .
According to this literature, there are five main reasons why the structure o f
development might be different under communist rule :
(1) Preexisting Conditions . It is possible that communist rule tend s
to occur more in countries that have abnormal structures . It has been
suggested that Eastern Europe, as part of the periphery, had stunted
industrial sectors, slanted foreign trade and overly large agricultur e
sectors .
3
(2) Economic Ideology . The Marxist view of extended reproductio n
calls for a faster growth of the means of production than the means o f
consumption and an even faster growth of the means of production for th e
means of production (investment over consumption, heavy industry ove r
light industry) . The Marxist view of services considers them relativel y
less important, but at the same time calls for widely distributed publi c
health and educational services .
(3) Political Ideology and Power . Under the concept of capitalis t
encirclement, national and ideological security calls for reduced depen-
dence on imports from capitalist countries, on national sources of defens e
materials and equipment, and on reduced and controlled personal contact s
and information flows . These are all devices that also enhance the powe r
of the ruling group over others in the system .
(4) Economic Centralization . Central administration can pus h
resources into sectors and branches considered to be "advanced" faste r
than market forces can in capitalist countries . That is, there is th e
possibility that economic structures will resemble what policy makers i n
communist-ruled countries perceive as the directions the advanced capital-
ist economies are headed and so have structures more advanced than thei r
development levels .
(5) Decision Rules and Rent Seeking . The combination of an irration-
al price system and the typical success indicator system lead to excessiv e
requests for capital (projects that are too large, too capital intensiv e
and too numerous), while central capital allocation according to the abov e
mentioned priorities puts too much capital in too few projects in the hig h
priority areas . Second, an irrational price system and the typica l
success indicator system make it not only difficult to identify ad-
4
vantageous foreign trade but also provide reduced rewards for engaging in
it . Third, import competition poses unwelcome threats to managers an d
workers, while export markets are poorly understood, require extra work
and bring politically unwelcome contact with foreigners . And, fourth ,
central planners favor activities that are easier to control from the
center, including domestic over foreign activities, while trying t o
influence outcomes through capital allocation instead of increase d
efficiency, and through education and general health services rather than
more effective personal incentives .
The system's combination of objectives and decisionmaking arrangements can
be predicted to have an impact on the pattern or structure of both nationa l
income and national product, while the net effects on growth rates are unclear :
(1) Predicted Changes in National Income or the uses of national
product compared to an economy under capitalist rule at a similar level o f
economic development are : (a) An increase in the share of national income
invested in physical capital and a decrease in the share consumed ; (b) o f
the share of national income consumed, an increase in the share of public
(social) consumption and a decrease in the share of private (individual )
consumption ; (c) of the share of private consumption, an increase in th e
share of goods and a decrease in the share of services ; (d) of the shar e
of services in consumption, an increase in the share of public services
and a decrease in the share of private services .
(2) The Predicted Effects on Production, compared to a similarl y
placed capitalist country are : (a) Of the output shares of the thre e
broad sectors of production, increased share of industry, decreased shar e
of services and possibly decreased share of agriculture ; (b) a similar
5
relative shift in the structure of labor and capital inputs, but with a n
even greater relative shift in the shares of capital (increased i n
industry, decreased in the others) ; (c) of the output shares in industry ,
a relative increase in the shares of so-called heavy industries and a
relative decrease in the shares of light industries (including foo d
processing) ; (d) an even greater relative shift of capital shares to heav y
industry and a smaller relative shift of labor to heavy industry ; (e) a
smaller relative share of population living in urban areas ; (f) a smaller
relative share of national product exported and a smaller relative shar e
of imported goods for all national uses .
(3)Predictions about Growth will depend on a balance of particula r
factors including : (a) how much the investment rate (or the Marxis t
"accumulation rate") changes ; (b) capital :output ratios ; (c) the shift of
resources out of agriculture when there are disequilibrium values o f
marginal products ; (d) economies of scale ; (e) costs of taking ove r
foreign technology ; (f) labor force growth ; and (g) incentives for labor .
I-B-3 . The Expected Differences in Bulgarian-Romania nPatterns and Other Communist-Ruled Countrie s
As will be explained shortly, Bulgaria and Romania would be expected t o
grow faster just like other less-developed countries . It is a differen t
question if communist rule has different effects on less-developed than o n
more-developed countries . For example, communist rule seems always to get th e
process of development started, something that cannot be said for capitalism .
Initially, it might be especially useful for forcing people to accept educatio n
and public health when ethnic and religious barriers inhibit change .
Class structures and social cultures vary with the level of development .
Would the resulting influences be different if communist rule is imposed in an
6
already developed society like that in the GDR compared to a peasant societ y
like that in Bulgaria or Romania? Is "new socialist man" more likely wher e
working class consciousness already exists or where working class and middl e
class corruption has not penetrated ?
I-B-4 . Should Bulgaria and Romania Differ from Each Other ?
While Bulgaria and Romania have shared many influences, they also have
differences . Size and diversity of natural resources are obvious . Other
differences in historical political and economic culture are more difficult to
document, but appear to have been important . And since its imposition ,
communist rule in both countries has been different in terms of both externa l
commitments and internal structure and style . Both shared and differentiated
influences are discussed in more detail in Chapter II, "Overview : Past and
Politics" that surveys recent Bulgarian and Romanian history and contemporary
political development .
I-C . SOME EMPIRICAL ISSUES
I-C-1 . What Are "Development Patterns" ?
The term "development pattern" is used in the title of the project an d
appears in each thematic question . A development pattern means the charac-
teristics of economic growth, including Its sources and sectoral composition ,
and the main structural changes taking place in a national economy over a
period of time . The limits of inquiry are suggested by the chapter title s
listed above, and their content .
Each chapter follows roughly the same format . First, conceptual and data
problems are identified . Then follow three sections, each of which focuses o n
the empirical evidence to answer one of the three main research questions
7
listed above . One can see that if there is only one "pattern" in each chapter ,
with the three comparative dimensions at least 24 answers must be summarized .
But, indeed, there are more .
I-C-2 . The Problem of Representative Sample s
Another concern is how one decides if development patterns are representa-
tive of economic systems . The tendencies common to groups of countries, th e
capitalist and the communist-ruled, can be identified only on the basis of a
sufficient sample of both . In this project, the capitalist countries ar e
usually identified by the members of OECD, plus some East Asian and Lati n
American developing countries . At times the sample shrinks to the Western
European and even only the Southern European countries .
The sample for the communist-ruled countries nearly always includes th e
six East European members of CMEA, often also the Soviet Union, and less ofte n
Yugoslavia . But it never includes less-developed communist-ruled countries .
It is possible that, by not including more LDCs, capitalist and communist -
ruled, that biases are introduced into estimates [see Birkett-86a] .
I-C-3 . When Are "Differences" between Groups and Countries Significant ?
A third problem is how one decides if development patterns are "dif-
ferent" . Differences are sometimes merely those in the arithmetic averages o f
sample country-groups . This is admittedly deficient and not just because th e
significance of differences in sample means is untested . The deeper problem is
that nearly every important development pattern varies systematically with th e
level of GNP per capita and sometimes with other factors such as country siz e
(in the case of foreign trade) . For example, growth rates of GNP tend t o
decline as the level of GNP per capita rises . So it would be biased to
8
conclude that communist-ruled countries tend to grow faster merely on th e
grounds that average growth is higher than for capitalist countries . As often
as possible the research employs a statistical regression to "normalize" dat a
for differences in the level of GNP before drawing conclusion about system
differences .
The methodology incorporates the approach of Hollis Chenery who identifie s
statistical patterns of economic development common to a large number o f
countries by cross-country regressions [Chenery and Syrquin-75] . Theoretical-
ly, behind such patterns are the joint effects of similar technological change s
on the supply side and of similar income elasticities on the demand side .
According to this view, if all countries began with similar initial resourc e
endowments and adopted similar institutions, each would have nearly the sam e
economic structure at any given level of economic development .
Specifically, what this means is demonstrated by Table I-1 which i s
adopted from Chenery and Syrquin . In their case, the commonly expected
patterns of economic development are estimated on the basis of a cross-countr y
data set by fitting a regression equation of the form ,
(1)
INDi = YCAP n , POPn
where IND i is one of the indicators in Table I-1, n is a country in the sample ,
YCAP is gross national product per capita measured in U .S . dollars of a given
year, and POP is country population . The theory of the model says that th e
indicator changes with changes in the level of economic development, a s
measured by YCAP, and in the scale of economic activities, as measured by POP .
It is expected that observations for individual country data in the sampl e
will be scattered around the regression surface . Such deviations could resul t
from differences in resource endowments (including neighboring countries) an d
from both systemic and policy differences reflecting country institutions .
9
Table I- 1"NORMAL" VARIATIONS OF ECONOMIC STRUCTURE
--------------------------------------------------------- ---------------------------------------------------------- -Predicted values at different per capita GNP, US$ 1964
----------------------------100
300
500
800
1000--------------------------------------------------------- -Structure of production (% )a . Primary share 45 .2 26 .6 20 .2 15 .6 13 . 8b . Industry share 14 .9 25 .1 29 .4 33 .1 34 . 7c . Utilities share 6 .1 7 .9 8 .9 9 .8 10 . 2d . Services share 33 .8 40 .3 41 .5 41 .6 41 . 3
Labor allocation (%)65 .8 48 .9 39 .5 30 .O 25 . 2a . Primary share
b . Industry share 9 .1 20 .6 25 .8 30 .3 32 . 5c . Services share 25 .1 30 .4 34 .7 39 .6 42 . 3
Population (% )a . Urban share 22 .0 43 .9 52 .7 60 .1 63 . 4
Gross national product (%)19 .5 23 .O 24 .4 25 .5 26 . 0a . Export ratio
b . Import ratio 21 .8 24 .3 25 .4 26 .3 26 . 7c . Investment rate 15 .8 20 .3 22 .0 23 .4 24 . 0d . Government revenue 15 .3 20 .2 23 .4 26 .8 28 .7
--------------------------------------------------------- -Source : Hollis Chenery and Moises Syrquin, Patterns ofDevelopment1950-1970 (London : World Bank and OxfordUniversity Press, 1975), Table 3 .
Thus, Iceland might not be expected to have "normal" commitments of resource s
to agriculture and Albania, because of its import substitution policies, woul d
not be expected to have "normal" ratios of exports or imports to GNP .
The focus of research under this contract can now be more precisel y
identified . First, have the communist-ruled countries exhibited an economi c
development pattern that differs from that characteristic of capitalis t
countries?
This possibility is illustrated by data on the "normal" decline o f
expected growth rates for capitalist countries as GNP per capita increases, an d
the overall deviation from this pattern of the communist-ruled countries, whic h
suggest that communist rule has depressed growth rates at a given level of GN P
1 0
compared to capitalist rule . This illustration of different developmen t
patterns will be further discussed and necessarily qualified below .
I-C-4 . TheQualityand Comparability of ExistingInformation about Communist-ruled Countrie s
A major part of this project was devoted to collection of a data set t o
test differences . It covers about 40 countries and more than 30 variables fo r
the period from 1950 to 1985 . In order to manipulate data easily, most serie s
have been reduced to average values for five year periods (1950 to 1955, 1955
to 1960, etc) . The usual sample set for testing differences between communist -
ruled and capitalist countries is 256 observations . This sample is sometimes
also used to test differences between Bulgaria and Romania, and the other
communist-ruled countries . In this case, tests also use a smaller sample of 5 0
observations only for the communist-ruled countries .
As expected there are many problems of comparability of data from com-
munist-ruled countries which are discussed at length in the full researc h
manuscript . A few observations are merited here .
In the early part of the research great effort was committed to findin g
the best measures of comparable US dollar values of the GNPs of all countries
in the sample . This is reported in an earlier publication of the author an d
not repeated here [Jackson-87a ; also see Marer-85] .
Poor quality data always make it more difficult to explain and qualif y
results . Take a simple example, that of how to handle two data sets, officia l
and western estimates . Not only does this double the number of tables and th e
work of regressions, but it turns out that the growth of communist-rule d
countries is slower in western estimated GNP than in official statistics . Bu t
no conclusive judgment of which data set is more biased is possible at thi s
time (the evidence is reported in more detail) .
1 1
There is major problem in deciding what is the best way to estimate th e
comparative levels of per capita GNP that are used in the regressions . As is
known, meaningful exchange rates do not exist for most communist-ruled coun-
tries . More important, not all of them have had comparable studies of purchas-
ing power parity . If fact, not one good study is available for Bulgaria an d
this remains a point of major qualification to the research presented here [se e
Marer-85 and Jackson-87a] .
There is the special problem of Romanian data . They are more biased than
data for other communist-ruled countries, including Bulgaria . Some of the
early technical problems can be overcome in the Romanian data, but there is n o
way to judge the degree of political bias since the late 1970s .
The last point . An effort is made to survey as much existing work b y
other scholars as possible . It offers valuable insights and is incorporated a s
fully as possible . But doing so tends to make explanation more complicate d
because of differences in data, samples, time periods, and methodologies .
Unfortunately, some of the best work has not been replicated and improved b y
its authors .
1 2
Chapter II . OVERVIEW : PRECONDITIONS AND POLITIC S
II-A . THE ISSUE S
The chapter provides a necessary chronological overview of Bulgaria and
Romania in order to tie together the following material that is organized b y
separate economic problems and treated analytically . Three issues are covered :
political and economic development up to the Second World War, the effects o f
the War on the Bulgarian and Romanian economies, and the emergence and subse-
quent development of communist rule in each country .
II-B . THE PRECONDITIONS
1) Bulgaria and Romania before communist rule shared similar climates, th e
Orthodox religion, subordination to several hundred years of Ottoman rule ,
delayed emergence of modern states, predominant occupation in farming and rura l
dwelling, and low levels of productivity and income compared to nearly al l
other European people .
Differences there were, too . Bulgarians had been ruled directly by th e
Turks, who exterminated their boyar class . Romanian boyars survived to rule
under the Turks and then led the country's 19th century nationalist revival ,
offering traditional leadership of its peasants . Both had large minorities ,
especially after 1918 . But Bulgaria's minority was largely Turkish and Moslem ,
while the Germans and Hungarians in Romania could turn to "mother" European
states more highly developed than Romania . And while Romania's capital was fa r
more developed in all respects than Sofia, Bucharest also had economically an d
culturally successful minorities vying with ethnic Romanians .
1 3
Romania also had more diverse natural resources, was larger and mor e
complexly developed than Bulgaria, but its very richness, together with larg e
and influential non-Romanian minorities, created fertile soil for nationalism ,
especially economic, and xenophobia . Bulgaria, on the other hand, had been
liberated by Russian intervention and while it looked in turn to Russia ,
Germany and again Russia as sponsor, Romania echoed the slogan of its Nationa l
Liberal Party, prin noi insine, figuratively "we can do it alone! "
It is more difficult to identify the behavioral consequences of shared an d
unshared preconditions because of the lack of scientific evidence to answe r
major questions . Concerning shared preconditions, for example, did Bulgarian s
and Romanians (and others under Turkish power, Orthodox religion, and Balka n
weather) acquire durable behavioral propensities that carried over to the ne w
institutional setting? Was unusually vigorous nationalism provoked by th e
combined influences of foreign domination, ethnic fragmentation, and Or-
thodoxy's willing subordination to it [Petrovich-80]? In politics, wer e
Bulgarians and Romanians unusually obsequious and cautious? Did they tend to
seek patrimonial sponsors and leaders in economics, too? Did they view th e
state under national leaders as obliged to direct national resources toward s
national goals? And, as peasants, did they have strong biases against commer-
cialism? It is tempting to view the pre-communist evolution of political and
economic cultures as providing potential sources of reinforcement of communis t
rule, especially its more nationalistic tendencies .
Concerning unshared preconditions, it is also tempting to see past source s
of different evolutions after 1944 . Were Romanians more prone to servilit y
because their boyars survived while the Bulgarian ones did not? Were they even
more biased against commercialism because commerce was more often in "alien"
1 4
hands? Were Romanians even more fearful of foreign intervention, because thei r
natural wealth, oil, was more tempting than Bulgarian land and sunshine?
2) On the eve of the war, Romania not only produced more agricultura l
output per capita, but it also had important beginnings of heavy industry ,
something entirely lacking in Bulgaria . But the Romanian economy had grown
more slowly . Already expanding at a faster pace, Bulgaria's less-develope d
economy progressed further during the war and responded quickly at its end ,
partly because of modest Soviet aid . Romania's economy suffered significan t
damage and lost in 1944 and 1945 to the Soviet forces goods valued at nearly
its 1945 GNP (see Chapter IX) . Bulgaria's communist party also took ove r
quickly and moved to establish socialist economic institutions more quickly
than in Romania's case .
II-C . THE POLITICS OF COMMUNIST RUL E
3) Both parties went through early leadership struggles, but whereas the
Stalinist Gheorghiu-Dej survived through the Khrushchev era, it was probabl y
Khrushchev that determined the succession of Zhivkov . While the Romanian
communist leaders struggled to promote industry and economic independence, th e
Bulgarians pushed both agricultural and industrial development, and increasing
trade with the Soviet Union . Soviet differentiation is clear enough . Not only
did equipment exports to Romania fall by half between 1953 and 1958, but after
1958 and until 1969 Romania had an export surplus with the Soviet Union, whil e
Bulgaria accumulated a large deficit .
By this time, although Khrushchev was gone, Zhivkov found no trouble in
quick alignment with Brezhnev, whose leadership style bore some resemblance t o
that of Zhivkov . In Romania Dej was also gone and Ceausescu was riding
1 5
Romanian defiance of the Soviet invasion of Czechoslovakia towards a persona l
dictatorship, now more and more like those in Albania and North Korea .
4) Zhivkov and Ceausescu, partly because they came into office so young ,
now share the longest terms of office in Eastern Europe and rule without th e
challenge or effective public protest that deposed party leaders in othe r
countries . What are the ingredients of their success and what have been th e
economic consequences of their rule?
As with the two countries' preconditions, one can emphasize either th e
similarities or the differences . The list of similarities is long enough .
Both legitimized early rule by a combination of being associated with hig h
social mobility [Connor-86, 51-59] and popular cause, Zhivkov in bettering th e
conditions of peasants and Ceausescu in defiance of Brezhnev . Both used the
party first secretary's job to fill offices with supporters, who have by no w
been removed from high office in both countries . Only Zhivkov and Ceausescu
remain . Recent events in Bulgaria now make it clear that Zhivkov, too ,
contrary to the views of Comisso [Comisso-86, 39], is a "patrimonial" part y
chief according to her definition :
"In patrimonial systems . . . the power of the party as a whole essentiall ydepends on and reflects a single individual [and] other members of th epolitical elite maintain their positions thanks to the patronage of th emain leader, who personally controls the allocation of political resource sto reward loyal followers . "
Both Zhivkov and Ceausescu master the musical chairs game of reorganiza-
tion and reassignment . Both suppress economic information and both are quic k
to denounce any hint of market socialism, while preaching the necessity o f
closer connections between productivity and personal incomes . Also, both must
now owe their survival to support groups whose immediate interests the y
protect . Neither those who provide Zhivkov his support nor those who provide
1 6
Ceausescu his are interested in change, economic or political . This is
understandable, given the probable gains and losses of reforms .
There are differences . Zhivkov is not known for nepotism on the famil y
scale of the Ceausescu's, because he lacks the large family for it . He permits
it on a grand scale in the party hierarchy . No cult of personality exists in
Bulgaria and others often share the rostrum, but nobody for long . Bulgarian
economic and social policies show signs that Zhivkov does seek and listen to
advice, thus avoiding the wild twists and inhumane turns of Romanian policy .
II-D . THE IMPACTS OF PAST AND POLITICS ON ECONOMIC DEVELOPMEN T
What may be more important is that as long as Zhivkov and Ceausesc u
survive at the top, there is little hope for the kinds of economic reforms
needed to stimulate better links with the non-communist world . The obstacles
that both leaders maintain will be in the end more important in the future in
both countries than either the obvious difference in their politics or thei r
economics . The economics now need to be seen in more detail and in compariso n
with other communist-ruled countries .
1 7
Chapter III . GROWTH PATTERNS OF NATIONAL PRODUC T
III-A . ISSUES AND MEASUREMENT PROBLEM S
There is no completely adequate way to resolve differences in the growt h
rates and the several alternative measures for the communist-ruled countries .
The evidence is examined in detail in the full manuscript, but not further i n
this chapter . In what follows, western estimates of GNP refer to those of th e
Project on National Income in East Central Europe [Alton-87] and the CIA [CIA -
82], which are used to estimate the numbers in Table III-1 .
As shown below, growth rates of GNP for a sample of over 40 countries fro m
1950 to 1985 depend on the level of GNP per capita . Thus, bias results from a
comparison of systems in terms of simple average growth rates without consider-
ation of the fact that less-developed countries ought to grow faster than more -
developed ones . In fact, there may be a progressive tendency for growth rates t o
fall with increases in per capita national income in the period, 1950 to 1980 .
Estimates of the Effects of Per Capita GNP on Growt h
I (1) GR = 10 .89 - 1 .13 LGLV
Adj R2 = O .1 5
[10 .99] [6 .88]
SEE = 2 .1 3(2) GR = 12 .13 - 1 .30 LGLV - 1 .22 CD
Adj R2 = O .1 9
[11 .84] [7 .77]
[3 .68]
SEE = 2 .08
I
(3) GR = 11 .16 - 1 .17 LGLV - 0 .64 BR
Adj R2 = 0 .1 6
[10 .92] [6 .95]
[1 .07]
SEE = 2 .1 3(4) GR = 11 .39 - 1 .20 LGLV - 0 .41 BL
Adj R2 = O .1 5
[10 .16] [6 .62]
[O .95]
SEE = 2 .1 3
where GR is the growth rate for each five-year period, _LGLV is the natural log of average GNP per capita i neach five-year period and CD, BR, and BL are dumm y
I variables, respectively, for communist-ruled countries, )= Bulgaria-Romania, and balkan countries . Values in
=brackets are T-statistics . I
1 8
Table III- 1PERCENT AVERAGE ANNUAL GROWTH OF GNP(calculated as least squares trend )
Country
51-55 56-60 61-65 66-70 71-75 76-80 81-8 5
-------------------------------------------------------------- -Communist-Rule dBulgaria 5 .6 6 .9 6 .3 4 .6 4 .4 1 .2 0 . 9Romania 5 .8 4 .O 5 .2 4 .4 6 .O 3 .8 2 . O
Czechoslovakia 2 .3 5 .4 2 .0 3 .5 3 .3 2 .2 1 . 3GDR 9 .O 5 .6 3 .0 3 .2 3 .5 2 .3 1 . 6Hungary 4 .3 3 .5 4 .2 3 .O 3 .3 2 .3 O . 9Poland 2 .8 2 .9 4 .4 3 .7 6 .4 O .9 1 . 2USSR 5 .3 5 .7 4 .6 5 .O 3 .9 2 .6 2 . 3Yugoslavia 2 .7 6 .0 6 .4 4 .6 6 .O 6 .0 1 . 2
Average CR* 4 .1 4 .9 4 .5 4 .O 4 .6 2 .6 1 . 4
Capitalis tAll* 4 .4 4 .O 5 .3 5 .4 4 .6 4 .1 2 . OSouthern* 6 .1 4 .3 6 .7 6 .3 5 .7 3 .6 2 .O---------------------------------------------------------------
* Unweighted average of listed countries : (a) the eightcommunist-ruled countries in this table ; (b) the capitalis tcountries in the O .E .C :D . plus Argentina, Brazil, Chile ,Uruguay, Mexico, Singapore, Hong Kong, Taiwan, South Korea an dMalaysia ; and (c) the Southern countries - Portugal, Spain ,Greece and Turkey .
Source : Calculations of the author from data of the CIA and th eProject on National Income in East Central Europe .-------------------------------------------------------------- --------------------------------------------------------------- -
III-B . SYSTEMIC EFFECTS ON GROWTH RATE S
1) Growth rates of eight communist-ruled countries for the sample period
are more than one percentage point less than growth rates for capitalis t
countries at the same level of GNP per capita . The tendency for lower growth
rates of the communist-ruled countries is concentrated in two periods, 1966-7 0
and 1976-80 . However, according to Pryor, over the period from 1950 to 1979
neither the retardation of GNP growth nor its stability depends on difference s
1 9
IDENTIFICATION OF TIMETableSHIFTS
III-2IN GNP GROWTH, 1950 TO 1985
(based on a sample of 42 countries)
---------------------------------------------------------------- ----------------------------------------------------------------- -Period >>
51-55 56-60 61-65 66-70 71-75 76-80 81-8 5---------------------------------------------------------------- -A. Effects on the tendency for higher growth rates to be as-sociated with lower levels of GNP per capita (based on a separat eregression on the data in Table III-1 for each time period) :
Constant
6 .86* 9 .12* 8 .92* 11 .66* 15 .06* 15 .35* 2 .76
LGLV
-O .46 -0 .87*-O .65 -1 .10* -1 .72* -1 .84* -0 .1 4
B. Effect on dummy variables for country groups (based on aseparate regression on the data in Table III-1 for each tim eperiod using LGLV and the respective dummy for a country group) :
CD -O .74 0 .40 -1 .17 -2 .00* -O .73 -2 .42* -O .7 2
BR 1 .10 O .64 O .18 -1 .43 -O .41 -2 .60* -O .5 9
BL 1 .58* O .57 O .57 -O .89 -O .22 -1 .98* O .06
C. Confidence interval around predicted growth rates (based on aregression on growth rates in Table III-1 using only dumm yvariables for time periods) :
Predicted NMP
7 .8
6 .4
4 .8
6 .3
6 .6
3 .8
1 . 6
+ 1 .65(SEE)
7 .7
7 .6
8 .5
8 .5
8 .O
7 .2
5 . 3Predicted GNP
4 .3
4 .2
5 .1
5 .1
4 .6
3 .8
1 . 9- 1 .65(SEE) 0 .9 O .8 1 .7 1 .7 1 .2 0 .4 -1 . 5
Communist-ruled countries with significant deviations :-high growth GDR-low growth (no countries)
----------------------------------------------------------------- -LGLV - natural logarithm of GNP per capita in U .S . dollars of1980 ; CD - dummy variable for eight socialist countries ; BR -dummy variable for Bulgaria and Romania ; BL - dummy variable fo rBulgaria, Romania, Greece, Turkey and Yugoslavia . * - significan tat the 90 percent level or more . SEE - standard error of th eestimate .----------------------------------------------------------------- ------------------------------------------------------------------ -
20
in economic system [Pryor-85] . Whether his result would be affected b y
increasing the sample to the number of countries and the longer time period
used in this study is not yet known .
III-C . BULGARIA AND ROMANIA VERSUS OTHER COMMUNIST-RULED COUNTRIES
1) The characteristics of Bulgarian and Romanian growth rates are tested
using both GNP and official NMP data . The test shows no significant differen-
ces between their growth rates and the growth rates of the sample of capitalis t
countries for the period 1950 to 1985 . Thus, they are exceptions to th e
tendency of other communist-ruled countries for lower growth rates at a give n
level of GNP .
This conclusion is reinforced in the test using official NMP .
2) Bulgarian and Romanian growth performance is also compared by five-year
periods . In GNP terms, Bulgaria does best in 1956-60 and 1961-65, whil e
Romania's best is 1971-75 . But, at any given level of GNP per capita, Bul-
garian growth rates are higher than the Romanian figures . A similar but more
erratic pattern shows up in the NMP data, except that Bulgaria's performance i n
1961-65 is not so good . Both countries suffer a deterioration of relative
performance in 1976-80 and 1981-85, indicating they began to behave more lik e
normal communist-ruled countries .
III-D . BULGARIA VERSUS ROMANIA
1) The pattern of each year's growth rate is also compared . Bulgaria and
Romania shared greatly fluctuating growth up to 1960 with Hungary and Yug o
slavia . From the mid-1960s Bulgaria began a period of stable, slightl y
declining growth that took place also in the GDR, the Soviet Union, Hungary and
2 1
Table III- 3RATIO OF GROWTH IN GNP TO GROWTH IN NMP
------------------------------------------------------------- -------------------------------------------------------------- -Country
51-55 56-60 61-65 66-70 71-75 76-80 81-85------------------------------------------------------------- -Bulgaria 80 86 103 82 86 79 87Romania 78 85 86 87 81 86 8 9
Czechoslovakia 78 93 104 86 90 93 9 8GDR 88 91 98 91 90 92 8 8Hungary 98 84 100 84 87 94 102Poland 77 84 94 90 87 98 10 6USSR 78 87 93 89 92 93 97Yugoslavia 94 89 96 96 101 100 103------------------------------------------------------------ -Source : Based on growth rates in Tables III-1 and III-4 .Average annual growth rates have been converted into equiva-lent indices of growth before calculating the ratios, o r(100+r )/(100+r2), where r 1 is the GNP growth rate and r 2 isthe NMP growth rate .------------------------------------------------------------- -------------------------------------------------------------- -
Czechoslovakia . Romania, Poland and Yugoslavia exhibited another pattern o f
more erratic, but up to 1975 increasing, growth, that then abruptly decreased .
2) The average variance of NMP growth rates in Bulgaria and Romania i s
very high in the period 1950 to 1960 . But as has been shown [Brada-86] ,
comparing variance without considering differences in average growth rates is a
biased measure of stability . When stability is measured in terms of th e
coefficient of variation, even in the period 1950 to 1960, Bulgaria and Romani a
fall into the middle range of communist-ruled countries, with more stabilit y
than either Hungary or Yugoslavia .
3) As shown above, Romania's official growth rates show no especiall y
large deviations from the western estimates . Still, no comparison is complet e
without special questioning of Romania's record . It is defective in two ways :
one technical and the other political . Technically the problem is tha t
Romanian growth up to 1975 is always measured in terms of early year prices .
22
In a comparison with Bulgarian NMP growth, 1950 = 100, Romania's official inde x
catches up and passes Bulgaria's in 1963 and grows 14 percent more by 1985 . An
alternative unofficial Romanian index using 1955 prices in place of 1950 prices
just for the period from 1950 to 1959 is available . When linked to th e
official index in 1959 the resulting index catches up with the Bulgarian index
in 1978 so both end up with just the same amount of NMP growth from 1950 to
1985 .
Such a "correction" still fails to consider the political biases o f
Romanian data . Clearly there is greater likelihood of overstatement of growt h
in Romania's official statistics in the later 1970s and 1980s . A carefu l
auditing of Romanian national accounts would surely show it to have had less
overall growth of national product than Bulgaria since 1950, but how much les s
would be simple guesswork at this point .
4) In a comparative political context, Romanian growth reached a low poin t
compared to Bulgarian growth in 1959, the year Soviet troops departed Romani a
and the year Bulgaria surged ahead in a "great leap forward" . Zhivkov's first
years in office were very good ones from this point of view, whatever the
causes . Romania did somewhat better in the early 1960s, but not so well after
the change of leadership and the years of challenging the Soviet Union .
Ceausescu had to wait until the early 1970s before conditions allowed Romani a
to take its own great leap, but the direction of the leap is doubtful .
2 3
Chapter IV . THE SOURCES OF GROWT H
IV-A . THE ISSU E
Growth rates vary statistically with the level of GNP (or NMP) per capit a
because the "sources of growth" - capital accumulation, labor force growth ,
etc . - also tend to vary with level of national product per capita . In the
research, growth of national product is assumed to come from three sets o f
factors : (1) factor inputs, defined broadly to include exports and shifts i n
labor, (2) environmental conditions and policies, and (3) a residual, calle d
"residual productivity" . The relation is statistically estimated as a produc-
tion function . In addition, the relationship between growth and plans fo r
growth is also explored .
IV-B . PLANS AND GROWTH OF NATIONAL PRODUCT
The relationship between growth rates and growth planned in medium-term ,
(normally) five-year plans is measured as the ratio of actual and planned siz e
of NMP in the final year of the plan, not the ratio of actual to planned growt h
rates . The latter is arithmetically ambiguous when growth rates are negativ e
or zero and otherwise distorts the degree of plan fulfillment .
Over the whole period from 1950 to 1985 average plan fulfillment i s
similar across the seven countries, with the best fulfillment record in th e
Soviet Union . One might expect Bulgaria and Romania to do rather poorl y
because of inexperienced planners, poor data and management systems, unstabl e
weather, etc . Instead their average plan fulfillment record is better tha n
Poland's and as good as Hungary's or Czechoslovakia's .
2 4
Table IV- 1PLANS FOR NMP GROWTH AND THEIR FULFILLMEN T
Plan
BUL
CZC
GDR
HUN
POL
ROM
SU **YUGPeriod--------------------------------------------------------------- -
A. Planned Average Growth Rate of NM P
1986-90 4 .30 3 .45 4 .55 3 .00 3 .50 7 .95 3 .95 ---1981-85 3 .70 2 .30 5 .10 2 .80 1 .67* 7 .10 3 .40 ---1976-80 7 .70 4 .90 5 .00 5 .55 7 .15 10 .50 4 .70 ---1971-75 8 .10 5 .10 4 .90 5 .75 6 .75 11 .50 6 .75 ---1966-70 8 .50 4 .25 5 .40 3 .70 6 .00 7 .00 6 .85 ---1961-65 8 .50 7 .40 5 .50 6 .30 6 .00 7 .00 6 .90 11 .901960-65 @1959-65
-- -9 .90
---6 .80
-- -6 .00
9 .807 .3 0
1958-62 8 .5 01958-60% --- 4 .20 ---1957-61 --- 9 .1 01956-60 --- 8 .00 8 .00 8 .50 8 .50 9 .9 01953-57 #1951-55
8 .5 0--- 10 .00 13 .00 10 .00
1950-55& --- 13 .401950-54% --- 18 .10 ---1950-54 --- 10 .30 ---1949-53 13 .10 8 .20
B. Ratio of Actual Average Growth Rate to Plan Average Growt hRate (see note of explanation) .
1981-85 100 .O 99 .5 99 .4 97 .3 97 .6 97 .5 99 . 51976-80 98 .6 98 .8 99 .1 97 .8 94 .4 97 .1 99 . 61971-75 99 .7 100 .6 100 .5 100 .5 102 .4 99 .7 99 . O1966-70 101 .1 102 .6 99 .9 103 .O 100 .0 100 .7 100 . 81961-65 97 .5 94 .9 98 .1 97 .9 100 .1 101 .9 99 .7 89 . 41960-65@ -- - 99 . 51959-65 98 .3 97 .6 99 .2 99 . 61958-621958-60%
100 . 1---
------ 102 . 8
1957-61 --- --- 94 . 91956-60 --- 99 .1 99 .2 98 .3 98 .5 99 . 31953-57# 99 .3 --- --- --- --- ---1951-55 --- --- 102 .8 --- 100 .8 101 . 21950-55& --- --- 99 . 51950-54% --- --- 90 . 61950-54 --- --- 97 . O1949-53 98 .O 99 .8
(Continued )
25
Table IV-1 (Continued )
--------------------------------------------------------------- ---------------------------------------------------------------- -
Plan
BUL
CZC
GDR
HUN
POL
ROM
SU **YUGPeriod--------------------------------------------------------------- -
C . Average Fulfillment in Percent - All periods .
All
99 .2
99 .3
99 .6
99 .4
98 .9
99 .5
99 .8
--- -
--------------------------------------------------------------- -
Actual average growth rates are based on beginning and endin gyear indices in order to conform to the meaning of the pla ntargets which have the same base . They differ from the leas tsquares growth rates reported in Chapter III . The "fulfillmen tratios" compare the reported size of NMP in the terminal yea rcompared to the planned size of NMP, not the annual realized an dplanned growth rates (comparison the latter can not be done whe ngrowth is negative and is misleading anyway .
Reconstruction plans are not included : Bulgaria 1947-48 ;Czechoslovakia 1947-48 ; Hungary 1947-50 ; Poland 1946-49 ; Romania1949 and 1950 .
(*) - Poland did not formally approve a five-year plan for 1981 -85 because of disruptions from marshal law ; the figure is anaverage of projections for 1981 and 1982 together with target sfor a three-year plan for 1983-85 . (**) - The first Yugoslav FYPfor 1957-61 had targets compared to 1939 . The from 1952 throug h1956 only annual plans were made . Subsequent plans were fo r1957-61 and 1961-65 . (%) - Hungary's first FYP for 1950-54 wa samended in 1951 with much higher targets . Also, a three-yea rplan was used for 1958-60 . (#) - Bulgaria completed 1FYP in fou ryears so 2FYP was for 1953-57 . (&) - Poland's first plan was fo rsix years . (@) - Romania abandoned 2FYP in 1959 for a six-yea rplan, 1960-65 .--------------------------------------------------------------- ---------------------------------------------------------------- -
IV-C . AGGREGATE PRODUCTION FUNCTION S
Growth sources are further explored by the estimation of productio n
functions on the combined time-series and cross-section data, identified i n
Chapter III . Estimates for comparison with capitalist countries are made usin g
GNP growth ; estimates using NMP growth provide intra-system comparisons . The
independent variables, referred to as "factor inputs", include investmen t
growth (a proxy for capital growth) and labor force growth, as well as export
2 6
growth and the shift of labor out of agriculture . Use of the latter two
variables in an aggregate production function is justified on the grounds that
they might account for part of total productivity change . The independent
variables to represent environment are size of population, level of national
product per capita, changes in terms of trade, and growth of GNP for OECD
countries . Policy variables are investment rate, share of imports from othe r
communist-ruled countries, and the ratio of imports to exports .
All "factor inputs" turn out to be statistically significant, but only th e
level of national product per capita among the environmental and polic y
variables is .
IV-D . SYSTEMIC DIFFERENCES IN SOURCES OF GROWTH
1) The regression on GNP shows about half of the difference in overal l
growth rates, measured in Chapter III, is due to lower growth of "residua l
factor productivity" in the communist-ruled countries . The estimates of tim e
shift suggest that the relative performance of communist-ruled countries
declined as they achieved higher levels of GNP per capita . This confirms
Burkett's study of comparative productivity levels in 1975 which suggests a
tendency for productivity among communist-ruled countries to decline with
increasing levels of development (even though the study found no evidence that
productivity was actually lower in communist-ruled countries [Burkett and
Skegro-88]) .
2) Comparisons are made of differences across systems in the growth o f
factor inputs and proxies for productivity . The communist-ruled countrie s
experience, comparatively, very high labor shift, averaging over 150 percent o f
the capitalist countries, and relatively high export growth . But average
27
Table IV-2REGRESSION EXPERIMENTS ON SOURCES OF NMP GROWT H
----------------------------------------------------------- ------------------------------------------------------------ -Regression
1
2
3
4
5
6--------------------------------------------------------------
Sample 54 54 54 54 54 5 4Adj . R2 O .69 O .71 0 .71 O .71 O .72 0 .72SEE 1 .47 1 .45 1 .43 1 .44 1 .42 1 .4 1
Constant 1 .54 1 .58 8 .39 1 .46 1 .51 7 .3 3[2 .67] [2 .81] [2 .55] [2 .60] [2 .72] [2 .20 ]
GI 0 .24 0 .22 0 .21 O .22 O .20 O .2 0[6 .19] [5 .68] [5 .19] [5 .43] [5 .09] [4 .77 ]
GL 0 .59 O .55 0 .54 0 .82 O .76 O .7 3[1 .92] [1 .82] [1 .81] [2 .52] [2 .34] [2 .26 ]
GX 0 .27 0 .23 0 .21 0 .25 O .21 O .2 0[4 .23] [3 .39] [3 .11] [3 .84] [3 .16] [2 .97 ]
LGSL O .38 O .3 3[1 .75] [1 .53 ]
LGLV -O .83 -O .7 1[2 .11] [1 .78 ]
BR 0 .99 O .87 O .7 8[1 .82] [1 .61] [1 .44]
- ----------------------------------------------------------- -GI - growth of gross fixed capital investment (least square sgrowth rate) ; GL - labor force growth ; GX - growth of tota lexports (least squares growth rate) ; LGSL - natural log of th edecreased percentage share of labor force in agriculture ; LGLV- natural log of the midyear value of NMP per capita measure din 1980 US dollars ; BR - unity for observations that areeither Bulgarian or Romanian and zero for all others .
Numbers in brackets are T-statistics .------------------------------------------------------------- -------------------------------------------------------------- -
export growth starts much higher and ends up lower than in capitalist coun-
tries . Average investment growth, once adjusted to eliminate probable overes-
timation, is about the same in both systems . Average labor growth is about 5
percent less in the communist-ruled countries than in the capitalist countries .
It remains in subsequent chapters to test the statistical significance o f
difference averages of "factor inputs" across systems .
28
Table IV-3REGRESSION EXPERIMENTS ON SOURCES OF GNP GROWT H
--------------------------------------------------------------------- ---------------------------------------------------------------------- -Regression
1
2
3
14
5
6
7
8----------------------------------------------------------------------Sample 25 14 25 14 254 254 25 14 25 14 254 25 14Adj . R2 O .57 O .66 O .67 O .67 O .67 O .68 O .68 O .6 9SEE 1 .57 1 .34 1 .33 1 .32 1 .3 14 1 .31 1 .31 1 .3 0
Constant 2 .35 1 .34 1 .30 3 .40 1 .41 1 .40 4 .28 3 .6 7[15 .78] [7 .50] [7 .40] [4 .61] [7 .70] [7 .76] [5 .43] [4 .37 ]
GI O .28 O .24 O .22 O .23 O .24 O .22 0 .22 0 .2 1[16 .41] [15 .35] [13 .90] [14 .49] [15 .26] [13 .66] [14 .09] [13 .28 ]
GL O .37 O .37 0 .39 O .33 0 .35 O .36 O .27 O .3 0[4 .74] [5 .38] [5 .69] [4 .72] [4 .95] [5 .21] [3 .79] [4 .09 ]
GX O .16 O .15 O .16 O .17 O .15 O .16 0 .1 5[8 .46] [7 .46] [8 .15] [8 .64] [7 .71] [8 .57] [7 .88 ]
LGSL 0 .23 0 .26 0 .17[2 .83] [3 .18] [1 .94 ]
LGLV -O .32 -O .44 -O .3 4[2 .88] [3 .74 [2 .24 ]
CD -O .35 -O .47 -0 .64 -0 .6 5[1 .66] [2 .20] [2 .89] [2 .97 ]
--------------------------------------------------------------------- -9
10
11
12
13
14
15
1 6--------------------------------------------------------------------- -Sample 254 254 254 254 254 . . . .(not reported) . -Adj . R 2SEE
O .671 .34
O .6 81 .3 1
3 .80[5 .07]
O .681 .3 1
1 .3 1[7 .51]
O .681 .3 1
3 .1 8[3 .92]
O .6 71 .3 4
1 .29[7 .18 ]
Constant 1 .34[7 .58 ]
GI O .24 O .23 0 .22 O .22 O .24[15 .47] [14 .66] [14 .03] [13 .84] [15 .27 ]
GL O .35 O .29 O .36 O .31 0 .3 9[4 .49] [4 .05] [5 .25] [4 .35] [5 .58 ]
GX O .17 O .16 O .15 0 .16 O .1 6[8 .63] [8 .49] [7 .71] [7 .83] [8 .28 ]
LGSL O .25 O .1 7[3 .10] [1 .96 ]
LGLV -O .38 -0 .29[3 .37] [2 .35 ]
BR -O .61 -O .91 -O .77 -0 .9 4[1 .60] [2 .36] [2 .03] [2 .46 ]
BL O .44 . .(not significant) . .[1 .77]
-------------------------------------------------------------------- -(Continued )
29
Table IV-3 (Continued )
---------------------------------------------------------------------- -GI - one-year lagged average growth of gross fixed capital investmen t(least squares growth rate) for each five-year period where investmen tgrowth rates for socialist countries have been corrected for the sam epossible overstatement as the ratio of growth of national product i nGNP terms to growth of national product in NMP terms ; GL - averag egrowth rates of labor force for each five-year period ; GX - one-yearlagged average growth of total exports (least squares growth rate) fo reach five-year period ; LGSL - natural log of the decreased percentag eshare of labor force in agriculture from beginning to end of each five -year period ; LGLV - natural log of the midyear value of GNP per capit ameasured in 1980 US dollars ; CD - unity for socialist countries an dzero for others ; BR - unity for observations that are either Bulgaria nor Romanian and zero for all others ; BL - unity for Balkan countrie s(Bulgaria, Greece, Romania, Turkey and Yugoslavia) and zero for others .Numbers in brackets are T-statistics .---------------------------------------------------------------------- ----------------------------------------------------------------------- -
IV-E . BULGARIA AND ROMANIA VERSU SOTHER COMMUNIST-RULED COUNTRIE S
Bulgaria and Romania have a higher residual productivity growth than th e
other communist-ruled countries in the regressions on NMP growth and account s
for nearly two thirds of their higher NMP growth, noted in Chapter III . The
regression results also hint that they have had even greater differences i n
marginal productivity between agriculture and industry than in the othe r
countries .
In regressions on GNP, Bulgaria and Romania show no significant differen-
ces in residual factor productivity compared to all capitalist countries . Bu t
they record less than other Balkan countries (Greece, Turkey and Yugoslavia) .
IV-F . BULGARIA VERSUS ROMANIA
1) Bulgarian NMP is compared to that in Romania by first calculating thei r
"expected growth", using the common production function for communist-rule d
countries and their own actual growth of "factor inputs" . Then the ratio of
30
Table IV-4COMPARISON OF DATA ON GROWTH OF "FACTOR INPUTS "
COMMUNIST-RULED AND CAPITALIST COUNTRIES, 1950 TO 1985
GNP Invest Invest Labor Labor
Pop ExportPeriod Growth Growth Growth Growth Shift Growth GrowthA. Average of all countries in sampl e51-55 4 .4 5 .6 5 .6 1 .13 3 .3 1 .3 6 .7 156-60 4 .O 5 .O 5 .O 1 .05 3 .9 1 .3 5 .7 661-65 5 .3 8 .5 8 .5 1 .25 4 .1 1 .5 6 .5 166-70 5 .4 6 .7 6 .7 1 .05 3 .9 1 .3 9 .9 671-75 4 .6 6 .2 6 .2 2 .00 3 .3 1 .2 6 .4 676-80 4 .1 3 .5 3 .5 1 .81 2 .7 .9 7 .7481-85 2 .O - .4 - .4 1 .40 2 .2 .9 5 .24
B. Average of all communist-ruled countries in sampl e51-55 4 .1 5 .1 7 .8 .99 6 .0 1 .3 9 .5756-60 4 .9 7 .4 9 .1 .71 6 .4 1 .1 12 .9361-65 4 .5 5 .2 6 .9 .76 6 .2 .8 9 .2866-70 4 .0 5 .7 7 .3 1 .08 5 .8 .7 8 .7 671-75 4 .6 4 .7 7 .1 .87 5 .9 .6 8 .9 576-80 2 .6 3 .9 5 .9 .67 3 .4 .6 5 .9 881-85 1 .4 -2 .9 -1 .8 .37 1 .5 .4 4 .1 3
C . Ratio of (B) to (A)** * * ** *
51-55 98 .7 97 .8 110 .9 99 .34 181 .6 100 .1 114 .1 556-60 104 .7 112 .2 121 .4 98 .34 164 .3 99 .2 138 .8 461-65 96 .2 85 .6 92 .7 97 .62 152 .1 96 .4 113 .7 166-70 93 .5 95 .7 103 .3 100 .18 147 .6 96 .9 94 .6971-75 100 .2 93 .1 104 .3 94 .59 181 .4 97 .4 112 .2776-80 93 .1 101 .9 111 .9 94 .54 126 .7 98 .2 92 .1 081-85 97 .0 88 .1 93 .2 94 .99 67 .9 97 .4 94 .83---------------------------------------------------------
* Ratios based on conversion of average annual growt hrates to growth indices . ** Adjusted investment growth i sbased on the official investment growth rate times theratio of GNP to NMP growth in Table III-3 .-------------------------------------------------------- --------------------------------------------------------- -
their actual to their "expected growth" is calculated . They perform similarly .
In two periods, 1951-55 and 1961-65, they do worse than expected and in onl y
one, 1956-60, better than expected . From 1966 on, they are just "normal "
communist-ruled countries in terms of "residual factor productivity . "
3 1
2) Bulgaria and Romania differ more from each other (and more from th e
other communist-ruled countries) in terms of the growth of "factor inputs" .
Bulgaria has greater labor shift, except in the 1970s, and export growth in al l
periods except 1971-75 . Its investment growth is higher in 1956-60, 1966-7 0
and 1981-85 . Only labor grows slower generally in Bulgaria than in Romania ,
but not in the period 1966-70 and 1971-75 .
3) The key to Bulgaria's ability to generate faster NMP growth than
Romania in the period up to 1970 is to be found in (a) why so much labor
shifted per unit of investment growth, and (b) why exports grew so much faste r
than NMP grew . The two ought be connected in Bulgaria's industrialization an d
agricultural development, as well as its foreign trade policy .
32
Chapter V . INVESTMENT AND CAPITAL ACCUMULATION
V-A . CONCEPTUAL AND MEASUREMENT PROBLEMS
1) Capital accumulation plays a key role in both western and Marxis t
economic growth theory . Therefore, it is surprising that western theory o f
capital accumulation and investment in communist-ruled countries is not well
developed, tending to concentrate on fluctuations of investment rather than
trends in growth and the share of national income invested .
2) There are major data problems because capital stock series are onl y
published for a small number of capitalist countries . The published data for
Bulgaria and Romania are considered rather poor quality . Investment growth, a s
already noted in Chapter IV, is probably overstated in the official statistic s
of communist-ruled countries (at least to the same extent as is the growth o f
industrial output) . In addition, statistics published on the share of nationa l
income invested, the "accumulation rate", are not comparable to similar data o n
gross investment rates in capitalist countries .
V-B . SYSTEMIC COMPARISONS OFINVESTMENT AND CAPITAL ACCUMULATION
1) Growth rates of investments in fixed capital stock, when adjusted for
likely overstatement, prove to be significantly less at a given level of GNP in
communist-ruled countries than in capitalist countries . But there is no
statistically significant difference in the overall stability of investmen t
growth .
2) Lower growth rates of investment in communist-ruled countries can b e
attributed partly to lower growth rates of GNP, observed in Chapter III . I t
remains a somewhat clouded issue if differences are also due to changes of
3
3 Estimation of the Effects of Per Capita GNP on Investmen t
(V-1) GI = 20 .4 - 2 .54LGLV - O .34CD
AdjR2=O .1 1[7 .36] [2 .54]
[O .38]
Observations=254
1
(V-2) GIK = 20 .2 - 2 .52LGLV - 2 .20CD
AdjR 2=0 .1 1[7 .51] [5 .73]
[2 .53]
Observations=25 4
(V-3) GI = 18 .7 - 2 .3OLGLV + 3 .21BR
AdjR2=O .12
I
[7 .00] [5 .22]
[2 .04]
Observations=254
1 (V-4)GIK = 17 .8 -2 .19LGLV + O .53BR
AdjR2=O .09[6 .70] [4 .99]
[O .34]
Observations=25
4 where GI and GIK equal, respectively, the official and"corrected" growth rates of fixed capital investment ,LGLV is the natural log of GNP per capita in 1980 U .S .dollars, CD is the dummy variable for communist-rule dcountries, and BR is the dummy variable for observation son Bulgaria and Romania .
Numbers in brackets are T-statistics
. investment rates across systems. There is weak evidence that communist-ruled
countries have higher investment rates than capitalist countries . Contrary to
Bergson, the rates seem high at all levels of income and not just in the earl y
stages of development .
V-C . BULGARIA AND ROMANIA VERSU STHE OTHER COMMUNIST-RULED COUNTRIES
1) Regression analysis shows that Bulgaria and Romania have investmen t
growth rates nearly 3 percentage points higher than other communist-rule d
countries at a given level of development . Their investment growth is als o
more stable than in either Hungary or Yugoslavia .
2) Accumulation rates measured in current prices show varying pattern s
across the communist-ruled countries . In the Soviet Union, they are almost
34
Table V- 1TRENDS OF ACCUMULATION RATES@, 1950 TO 1984
---------------------------------------------------------- ----------------------------------------------------------- -Value of Trend
Country 1950 Mean 1980 Slope CV** R2
Bulgaria 23 .5 26 .2 28 .0 .151 0 .17 .1 0Romania 15 .4 27 .1 33 .5 .604 O .17 .6 4
19 .2* 31 .2* .468* .51 *Czechoslovakia 16 .2 21 .O 24 .6 .280 0 .22 .28GDRHungary
(data available only for 1950-66).0721 .3 23 .5 25 .4 .136 O .22
Poland 26 .8 26 .5 26 .2 - .019 0 .19 .0 1Soviet Union 26 .0 26 .5 26 .8 .028 O .06 .03-----------------------------------------------------------@ the ratio of net investment to NMP used in current prices .* with estimated values for 1952-54 and 1957-58 .** Coefficient of variation (standard error/mean value) .----------------------------------------------------------- ------------------------------------------------------------ -
fixed at about 26 percent of national income from 1950 to 1985 . The average
for the whole period, 1950 to 1985, is also about 26 percent for both Bulgaria
and Romania . However, in Romania they began at exceptionally low levels an d
rose to exceptionally high levels by the end of the 1970s . In Bulgaria ther e
were higher initial values and only small increases .
A difference is revealed when accumulation in constant prices is compared .
Bulgaria and Romania had the highest rates of real marginal investment among
the communist-ruled countries, respectively 39 and 35 percent of the increas e
in real national income from 1950 to 1980 .
The two countries probably have followed different pricing policies, wit h
Bulgaria tending to reduce prices of investment goods compared to other good s
in national income more than Romania .
35
V-D . BULGARIA VERSUS ROMANIA
1) The capital stock indices for Bulgaria and Romania are tested fo r
consistency by comparison with data on new fixed capital investments put int o
place measured in constant prices . Both countries' data appear to be consis-
tent, showing a regular cycle centered on five-year plans . Bulgaria's data are
also consistent with that country's greater relative emphasis in recent year s
on capital retirements .
2) If Hungary and Poland can be considered along with Bulgaria and Romani a
as less-developed communist-ruled countries, it makes sense to compare th e
shares of imports in machinery and equipment invested . Romania's share fel l
rapidly from about 50 percent in 1950 to barely 15 percent in 1957, and then
rose to about 33 percent in the 1960s . This was about Poland's share at th e
time, suggesting that larger communist-ruled countries tended to more self -
supply .
Hungary at this time was importing about 45 percent, but nowhere as much
as the 75 percent recorded by Bulgaria . Then in the late 1960s, the shares o f
both Bulgaria and Romania began a steady decline .
In the last decade, Romania had the lowest ratio of growth of importe d
machinery to total investment growth in CMEA, and under the fanatical hand o f
Ceausescu, now imports only about 10 percent of its needs . It has reached an
apex of autarchy . Bulgaria seems to be also moving in this direction, althoug h
still very far from Romania's extreme position . In the last decade only th e
GDR had as low a ratio of the growth of imported machinery to total fixe d
capital investments as Bulgaria . And in the 1980s Bulgaria was importing onl y
about 40 percent of needs, suggesting a possible reversal of its traditiona l
policy of emphasizing import and CMEA specialization . Perhaps this reflect s
its own export difficulties .
36
3) Bulgaria has lower depreciation rates than does Romania, by estimates
of the ECE, but neither are at any extreme among the communist-ruled countries .
Still, probably as a result of having had high investment growth, Bulgaria has
the highest share of fixed assets under five years old and Romania ranks second
with Poland .
This has not kept capital productivity from falling at least as fast as in
the other communist-ruled countries . In fact, in 1981-85, Romania recorded the
greatest decrease in the group . One would expect capital productivity to b e
affected by the shares of equipment in investment and by the ratios of commis-
sioned assets to investment flows . But in neither regard do Bulgaria an d
Romania stand out .
14) Over the period from 1950 to 1979 the communist-ruled countrie s
allocated on the average 141 percent of gross fixed capital investments t o
industry, while the OECD countries averaged a much smaller 28 percent . It is
assumed that this difference is statistically significant, even though no tes t
has been made or reported by others .
The GDR and Romania led all communist-ruled countries in the 50 percent
share of investment allocated to industry, which, relative to labor in in-
dustry, implies more extreme policies in Romania . Bulgaria's share of 38
percent marks it more as communist-ruled than capitalist . In Chapter VI ,
following, evidence on labor shares will be added to contend that communist -
ruled countries are "overindustrialized", in 1980, at the cost of having far
too few resources in housing, trade and other services .
5) From 1950 on, investments grew at similar rates in Bulgaria and
Romania, but for different reasons . Bulgaria's growth came from faster growin g
national income, Romania's from a combination of slower growth of nationa l
income and rising investment rates . Also, the early year share of investment
37
available for agriculture and manufacturing industry was higher in Bulgari a
because such large shares in Romania around 1950 were wasted in the firs t
Danube-Black Sea canal project and in petroleum exploration .
38
Chapter VI . LABOR FORCE :GROWTH, STRUCTURE, AND CONSUMPTIO N
VI-A . LABOR FORCE GROWTH
1) The theory of systemic differences in growth of the total labor force
has had less theoretical consideration than the question of systemic differen-
ces in the structure of labor force allocation .
2) Comparable estimates of total labor force are not easy to find ,
especially for less-developed capitalist countries and the communist-ruled
economies . For example, the data are not published in the CMEA Yearbooks . A
problem is the comparable estimation of activity, especially for household
members in agriculture and for younger and older persons . The definition of an
active or occupied person varies considerably across countries .
3) The simple average growth of the labor force and population acros s
eight communist-ruled countries is much smaller than the average of the larger
sample of capitalist countries . Labor force growth turns out to be sig-
nificantly less, nearly one percentage point, for communist-ruled countries a t
a given level of GNP per capita .
4) While communist-ruled countries have lower fertility rates at give n
levels of income than capitalist countries, they have higher life expectancy
according to the author's regressions for 1975 and 1980 . Ceausescu's ofte n
cruel effort to force higher fertility caused a historically unprecedented ris e
in 1967 . Otherwise, even Romanian policy has not overcome other incentives fo r
small families .
5) Average rates of participation in 1970 and growth rates of participa-
tion from 1950 to 1979 were higher in communist-ruled countries than in
capitalist countries at a given level of income . The difference in participa-
39
tion rates was especially great for females and greatest for females i n
agriculture [Pryor-85] .
There is an unresolved problem of how much of the difference in femal e
participation in agriculture across systems is due to different statistica l
practices . One condition favoring high rates in communist-ruled countries i s
that relatively larger numbers of rural households may have a male living i n
town or commuting to town for work .
7) Good comparisons across systems of international migration rates ar e
unavailable . Estimates made in this study show generally lower rates i n
Eastern Europe than in Southern Europe . But in some periods and communist -
ruled countries international immigration rates are very high . Not surprising ,
this is the case for the GDR . Other communist-ruled countries have experienced
large losses during short periods of political disturbance or when minorit y
groups have left . Bulgaria's record of very high emigration in 1950-60 an d
again in 1970-75 reflects the latter phenomenon, whereas in the 1960s it ha d
almost no departures . Romania's commerce in people has provided a stead y
exodus that takes about 5 percent of its natural population growth and in som e
years produces a healthy amount of invisible foreign earnings .
8) Secondary education rates in regressions for 1975 and 1980 are highe r
in communist-ruled than capitalist countries at a given level of income . This
effect is stronger at lower than higher levels of income, suggesting a conver-
gence of systems [Burkett-86] .
VI-B . CHANGES IN LABOR FORCE STRUCTURE AND URBANIZATIO N
1) Over the whole period, 1950 to 1985, the shift of labor out of agricul-
ture averaged about 40 percent more each year in the eight communist-rule d
countries than in the larger sample of capitalist countries . Because much of
40
the difference is associated with different average incomes per capita, th e
statistical test just barely fails usually accepted levels of significance .
Bulgaria and Romania have much larger labor force shifts at a given level o f
income than either a normal capitalist country or the other communist-ruled
countries .
2) Turning to the resulting structure of labor force, the communist-ruled
countries, at a given level of development, have significantly larger shares o f
labor in industry and smaller shares in services (here, services include al l
the labor force not in industry, construction, agriculture and forestry) . They
also have significantly smaller shares of total population located as permanen t
residents in urban areas .
Romania leads all communist-ruled countries in its excessively high share
of labor in industry and its low share in services, given its level of develop-
ment . Bulgaria is in the second rank in terms of industry (roughly the same
distortion as Czechoslovakia, the GDR and Hungary) and shares second with
Poland in distortion of services .
"Overindustrialization" is measured in this study by two ratios : (1) in
terms of occupation as the overage of industrial labor compared to service
labor, and (2) in terms of location as the overage of industrial labor to urba n
population . In communist-ruled countries there too few service employees t o
support each industrial employee . And many work in industry for each on e
finding an apartment in town .
Romania has the greatest "overindustrialization" by either measure .
Bulgaria is second in the distortion of labor force shares, but ranks fairl y
low in terms of the distortion of industrial labor compared to urbanization .
3) Ofer notes errors in the theory that communist-ruled countries save on
the cost of urbanization by restricting employees in industry through the
4 1
Table VI- 1INDICATORS OF OVERINDUSTRIALIZATION
AND UNDERURBANIZATION
=========================================================== =
========= Ofer Jackson -
1940
1950
1960
1967
1975
1980
A. Ratio of Services Labor Share to Industrial Labor Share
Bulgaria 79 58 64 78 72 6 7Romania 83 70 59 77 72 7 3
Czechoslovakia 71 71 82 79 89 89GDR 68 63 68 70 72 7 2USSR 97 82 79 87 91 9 1Hungary 117 114 92 104 93 9 3Poland 100 71 63 72 77 7 9Yugoslavia 102 76 80 95 111 1 1 14
B. Ratio of Industrial Labor Share to Urban Population Shar e
Bulgaria 67 74 110 126 144 1 14 4Romania 79 100 88 113 196 19 2
Czechoslovakia 118 108 127 125 167 16 1GDR 112 106 106 109 133 13 5USSR 118 117 117 112 149 16 0Hungary 102 116 147 155 183 16 7Poland 89 121 116 126 158 15 5Yugoslavia 133 160 145 141 165 180---------------------------------------------------------- -Source : Calculated from Manuscript Tables VI-6 and VI-8 ,as the ratio of divergence from normal industrial share sdivided by the divergence from normal service labor o rurban population . Significance of country ratios has no tyet been calculated .---------------------------------------------------------- ----------------------------------------------------------- -
substitution of capital for labor [also see King and Brada-80] . Not only are
industrial labor force shares too large, but major cities have been closed t o
immigration, suggesting disequilibrium between demand and supply for urba n
places . In addition, not only are total internal migration rates rather low ,
but the component of urban-urban migration is extremely low according to th e
42
limited data for comparison with capitalist countries . Finally, there is also
evidence that the ratio of males to females in urban areas is rather high i n
the communist-ruled countries, suggesting that males had to move withou t
females because of the problem of finding housing .
4) There is evidence of large flows of labor commuting on a daily o r
weekly basis in the communist-ruled countries, but no good comparisons acros s
systems [Fuchs and Demko-77] .
VI-C . COMPARISONS OF CONSUMPTION STANDARDS
1) The direct evidence on consumption nearly all points in the same
direction, that per capita consumption is less in communist-ruled countries
than in capitalist countries at a given level of development . The Internation-
al Comparison Project shows the following per capita individual (or private )
consumption levels compared to Spain in 1975 : Romania - 50 percent, Yugoslavia
- 56 percent, Poland - 71 percent and Hungary 77 percent [Kravis-82] . However ,
no evidence has been found to test for the expected effects of changes in
levels of income .
2) Food consumption standards are discussed in Chapter VIII on agricul-
ture . Consumption of proteins and quality foods per capita is lower in Eastern
Europe than in Western Europe .
3) All comparisons of housing in Europe show Eastern European countrie s
behind in terms of space and amenities . According to data for the early 1970s ,
Romania's housing standards rank lower than in the other communist-ruled
countries (excluding Albania for which no data is available) in terms of spac e
per person or amenities . Bulgaria ranks better than Yugoslavia or Hungary .
4) The private service component of consumption is especially neglected
and has been shown to cost residents in communist-ruled countries additional
4 3
time shopping, moving from point to point, and in quality of goods provided .
Romania is by far the least adequately provided with sales personnel and sale s
facilities . Bulgaria, on the other hand, ranks at the top along with the GD R
and Poland [Pryor-77] .
The ratio of public to private services is increased in communist-rule d
countries . Therefore, residents are relatively better off in terms of educa-
tion and public health . But these advantages, as mentioned, tend to be erode d
at higher income levels .
4 4
Chapter VII . INDUSTRIALIZATION PATTERNS
VII-A . CONCEPTUAL AND MEASUREMENTPROBLEMS ACROSS SYSTEMS
Industrialization is a necessary but insufficient condition for economic
development, although it has been both necessary and sufficient under communis t
rule . As explained in Chapter V and VI, "overindustrialization" is a result .
This chapter turns to the branch consequences of such an emphasis . Here, the
study of industrial structure across systems is hindered by the lack o f
detailed sub-branch classifications and by problems of differences in the
valuation of branch output .
VII-B . SYSTEMIC EFFECTS ON INDUSTRIAL GROWTH RATES
1) It may come as a surprise that system makes no statistical difference
in overall industrial growth rates when the measure for communist-ruled
countries is western estimates . Bulgaria ranks the highest of a sample of OEC D
and communist-ruled countries in terms of the ratio of actual growth to tha t
expected on the basis of a regression of growth on level of GNP per capita .
Romania ranks with Greece and Spain by the same measure, although it is not
known if these individual country differences are significant .
Bulgaria's rank was earned primarily by exceptionally rapid growth in th e
1950s and 1960s, not in the 1970s and 1980s when it managed only an average
performance . Romania lagged Bulgaria by about five years, having a rather poo r
performance in 1951-55 and winding down in the later 1970s .
2) When measured from 1950 to 1979, retardation of industrial growth is
higher for communist-ruled countries than for capitalist countries . There is
45
TABLE VII-i .COMPARISONS OF THE OFFICIAL GROWTH RATES
OF INDUSTRIAL PRODUCTIONOF THE COMMUNIST-RULED COUNTRIES ,
1950 TO 1985
----------------------------------------------------------------- ------------------------------------------------------------------ -Five Year Time Period
Country
51-55 56-60 61-65 66-70 71-75 76-80 81-85 Ave *
----------------------------------------------------------------- -
Bulgaria 13 .7 15 .9 11 .7 10 .9 9 .1 6 .O 14 .6 10 . 3Romania 15 .1 10 .9 13 .8 11 .9 12 .9 9 .6 3 .8 11 . 1
Czechoslovakia 10 .9 10 .5 5 .2 6 .7 6 .7 14 .6 2 .7 6 . 8G .D .R . 13 .7 8 .7 5 .8 6 .6 6 .5 14 .9 14 .2 7 . 2Hungary 13 .2 7 .6 7 .5 6 .1 6 . 14 3 . 14 1 .9 6 . 6Poland 16 .2 9 .9 8 .5 8 .4 10 .4 4 .7 0 .3 8 . 3U .S .S .R . 13 .2 10 . 14 8 .6 8 .5 7 .4 4 .4 3 .7 8 . 0
B . Ratio of Growth Implied in WesternRecalculations to Official Gross Output@
.967 .975 .973 .975Bulgaria .974 .985 .970 .98 0Romania .935 .984 .966 .993 .969 .952 .984 .97 0Czechoslovakia .938 .989 .978 .975 .973 .981 .989 .975G .D .R . .980 .982 .979 .976 .970 .980 .977 .97 8Hungary .960 .979 .989 .974 .964 .991 .995 .97 9Poland .944 .980 .981 .981 .974 .961 .997 .974----------------------------------------------------------------- -
@ calculated as (1 + growth rate)/(1 + growth rate), so thenumber indicates the relative amount of output in the end year o fthe period implied by one growth measure compared to the other .Ratios of average growth rates varied from 0 .54 in Romania's cas eto 0 .68 in the cases of Bulgaria and the USSR .
Sources : Official data and Table VII-1 .
no significant difference in stability across the two groups . Bulgaria has th e
highest retardation indicator in the sample, whereas Romania shows non e
(through 1979) . They rank as moderately stable, given their rather hig h
average growth rates .
3) Western estimates of industrial growth of the communist-ruled countrie s
reduce the index of industrial output by about 3 percent at the end of an y
period . There is a constant deviation of western and official measures o f
46
Bulgaria's growth, but unusually large deviations in Romania's case in 1951-5 5
and 1976-80 .
4) As demonstrated in the box below, Bulgarian and Romanian officia l
industrial growth rates show no significant differences when compared wit h
official growth rates for the other communist-ruled countries, once th e
expected effect of levels of income per capita is considered .
=
Estimations of The Effects of Per Capita NM Pon Industrial Growth
(VII-1) IGR = 143 .72 -4 .81LGLV +O .33BR
AdjR2=O .7 1[12 .56] [10 . 148]
[O .48]
Obs = 56
1
_ (VII-2) IGR = 37 .52 -4 .14LGLV +O .26SL -O .13BR Adj R2=O .73 =[9 .22] [8 .12]
[2 .61] [- .19] Obs = 5 6
= where IGR is the growth rate of industrial output, LGLV
I is the natural logarithm of NMP per capita, SL is the
=shift of labor out of agriculture (see Chapter III), an d
I and BR is a dummy variable for observations on Bulgaria
I and Romania .
S
=
} Numbers in brackets are T-statistics .
A comparison of Bulgarian and Romanian official industrial growth rates is
biased by Romania's use of 1950 price weights for the period 1950 to 1959, as
already explained in Chapter III . According to alternative measures based o n
1955 prices, Romania's industrial growth fell behind Bulgaria's growth afte r
1950 and did not catch up until the 1970s, then ended in 1985 with the sam e
overall growth since 1950 .
47
VII-C . THE OVERALL ROLE OF INDUSTRYIN COMMUNIST-RULED COUNTRIES
1) In 1970 Bulgaria's per capita industrial output reached an estimated 80
percent of the Soviet level . Romania managed only 60 percent of the sam e
standard . Later estimates are not made .
By 1985 their relative commitments to industry, measured as percentag e
shares of inputs and outputs in the industrial sector equaled the most advance d
communist-ruled countries . Both had about 45 percent of labor, bigger share s
than Hungary, Poland and the Soviet Union . Romania's 45 percent allocation o f
capital stock was as large as that of the GDR, while Bulgaria's share exceede d
that of Czechoslovakia . Over 60 percent of their NMP was produced in industry ,
equal to that of the GDR and Czechoslovakia and greater than in Hungary, Polan d
and the Soviet Union .
7) Comparison of production functions for industrial output of communist -
ruled countries turns up statistically insignificant coefficients for bot h
Bulgaria and Romania [Brada-85b ; Kyn and Kyn-76 and -77] . The more limite d
comparison of partial productivity ratios of the communist-ruled countrie s
shows that Bulgaria and Romania still depend on much larger shares of outpu t
coming from increased inputs rather than increased productivity . In this
sense, as well as others, they remain less-developed communist-ruled countries .
VII-D . THE BRANCH STRUCTURE OF INDUSTRY
1) In addition to having greater shares of labor and investment allocated
to industry as a whole, structural comparisons made for the 1960s show th e
communist-ruled countries had industries long on shares of heavy branches ,
especially material processing, and short on shares for the food branch .
Bulgaria, a single exception, had a normal sized food branch by the standard s
of the capitalist countries .
48
TABLE VII-2EAST-WEST DIFFERENCES IN INDUSTRIAL STRUCTURE, 1964-6 6
(percent of employment )
---------------------------------------------------------- ----------------------------------------------------------- -Branch
Western Europe Eastern EuropeI
II
All Bul . Rom . Yug .* *-----------------------------------------------------------Food 11 .9 16 .8 12 .1 18 .4 9 .8 9 . 9Textiles 7 .3 12 .2 10 .8 11 .2 11 .1 15 .5*Clothing, footwear 8 .9 11 .8 7 .O 5 .2 5 .3 (* )Leather 0 .8 1 .6 1 .5 0 .8 4 .1 3 . 3Wood products 7 .1 9 .5 7 .2 5 .3 16 .5 10 . 0Paper 3 .8 1 .7 1 .3 1 .O 1 .5 1 . 9Printing 4 .6 3 .3 1 .2 O .9 1 .4 3 . 2Chemicals 6 .3 5 .6 5 .7 4 .2 5 .9 6 . OPetroleum, coal O .6 O .5 1 .2 O .5 2 .9 7 . 1Nonmetallic minerals 4 .8 5 .9 6 .7 6 .2 7 .3 8 . 8Metals, machinery 40 .2 27 .6 38 .O 25 .8 33 .6 33 . 5Other 3 .7 3 .5 7 .7 20 .5 0 .6 0 . 8
Total 100 .O 100 .O 100 .O 100 .O 100 .0 100 .O-----------------------------------------------------------I = developed countries ; II = less-developed countries ;All = average for Soviet Union and C .M .E .A . Six ; Bul =Bulgaria ; Rom = Romania ; Yug = Yugoslavia ; ** classifica-tion might not be consistent ; clothing and footwea rincluded with textiles .
Sources : United Nations, Economic Commission for Europe ,Structure and Change in European Industry . New York, 1977 .229 ; Statistiski godishnjak Jugoslavije [StatisticalYearbook of Yugoslavia] (Belgrade, 1971) 86 .---------------------------------------------------------- ----------------------------------------------------------- -
2) Data on the relative growth of branches since 1965 shows that foods ,
chemicals, and light manufacturing grew less compared to total industria l
growth in the communist-ruled countries than in either the developed or th e
less-developed capitalist countries . Both heavy manufacturing and machiner y
grew, relative to the total, faster in communist-ruled than in develope d
capitalist countries .
49
Table VII-3ELASTICITY OF BRANCH OF INDUSTRY GROWTH
FOR CPEs, DMEs, and LDCs from 1966 to 1973 and 1973 to 198 0
----------------------------------------------------------- ------------------------------------------------------------ -CPE
DME LDCBranch
66-73 73-80
66-73 73-80
66-73 73-8 0----------------------------------------------------------- -Food 81 .0 81 .4 91 .9 106 .1 87 .O 98 . 0Textiles 82 .4 84 .3 95 .7 84 .4 85 .4 83 . 8Clothing 93 .2 89 .7 77 .1 86 .5 82 .5 89 . 4Wood Prod . 86 .8 84 .8 100 .O 89 .7 80 .5 106 . 1Paper/Print 100 .0 83 .3 93 .8 101 .1 119 .6 87 . 3Chemicals 109 .3 100 .9 124 .2 106 .7 118 .5 96 . OMineral Prod 93 .1 88 .1 97 .6 97 .6 97 .9 110 . 6Basic Metals 84 .3 84 .9 96 .3 83 .5 90 .8 114 . 5Metal/Machinery 118 .2 117 .O 104 .O 104 .1 129 .9 115 . 2Light Mfg . 86 .1 88 .2 92 .5 97 .6 89 .2 92 . 6Heavy Mfg . 109 .6 106 .3 106 .6 101 .5 116 .9 106 . 3
Total 100 .0 100 .0 100 .0 100 .0 100 .O 100 .0----------------------------------------------------------- -Elasticity equals a branch's growth in the period divided b ythe total growth in the period .
Source : Author's calculations from C . Leechor, H . Kohli, S .Hur, Structural Changes in World Industry, (Washington DC :World Bank, 1983), 81-83 .----------------------------------------------------------- ------------------------------------------------------------ -
VII-E . BULGARIA VERSUS ROMANIA
1) Bulgarian and Romanian industrial structures are compared in terms o f
their different labor force shares by branches in 1950, 1965 and 1980 . To a
surprising extent, structural differences are the same in 1950 and 1980 . In
all three periods, Bulgaria had larger shares in the food branch, although it s
margin declines . Romania has larger shares in both the wood processing an d
machinery branches .
Comparisons of their branch growth elasticities suggest that difference s
in relative branch growth up to 1965 tended to make both industrial structure s
more alike . Since then branch elasticities are nearly the same . Largely
5 0
Table VII-4RELATIVE OUTPUT GROWTH OF BRANCHE S
BY FIVE-YEAR PERIODS*
------------------------------------------------------------ ------------------------------------------------------------- -
Period
51-55 56-60 61-65 66-70 71-75 76-80 81-8 5------------------------------------------------------------ -Energy-Bulgaria 1 .49 1 .13 1 .14 1 .11 0 .84 1 .10 1 .0 0-Romania 1 .15 1 .08 1 .34 1 .23 O .86 O .80 O .9 4Fuels-Bulgaria 1 .08 O .73 1 .34 1 .23 O .98 O .97 O .83*-Romania O .93 O .85 0 .77 O .77 0 .70 O .77 O .9 3Ferrous metals-Bulgaria 5 .36 1 .52 1 .90 1 .40 1 .09 O .98 O .9 1-Romania 0 .76 1 .46 O .90 1 .02 O .93 O .97 0 .9 6Nonferrous metal s-Bulgaria 1 .45 1 .27 O .97 O .76 -(not available) --Romania 1 .05 1 .08 O .98 1 .03 O .88 O .84 0 .8 3Machinery, metalworking
1 .45 1 .33 1 .23 1 .29 1 .18 1 .24-Bulgaria 1 .27-Romania 1 .38 1 .25 1 .15 1 .19 1 .25 1 .15 1 .08----------------------------------------------------------- -of which : electrical engineering, electronic s-Bulgaria 1 .71 1 .41 1 .49-Romania
1 .73 1 .46 1 .67 1 .45 1 .46 1 .19 0 .95----------------------------------------------------------- -Chemicals-Bulgaria 1 .40 1 .47 1 .25 1 .58 1 .12 1 .20 1 .12-Romania 1 .45 1 .33 1 .63 1 .50 1 .13 1 .01 O .99Building materials-Bulgaria 1 .71 1 .07 1 .24 .96 1 .01 1 .07 O .87-Romania 1 .25 0 .96 1 .10 1 .05 0 .88 1 .17 O .8 9Wood processing-Bulgaria O .83 O .73 O .76 O .76 0 .86 O .87 O .9 3-Romania O .90 1 .03 1 .06 O .88 0 .79 O .90 0 .9 4Paper and pulp-Bulgaria O .87 O .82 0 .98 1 .24 1 .15 O .91 O .9 5-Romania 0 .68 1 .00 1 .26 1 .11 O .84 O .90 0 .92Glass and ceramics-Bulgaria 1 .17 1 .58 1 .37 1 .11 0 .98 1 .03 0 .8 8-Romania 1 .04 O .98 O .94 1 .01 1 .06 1 .00 1 .0 3Textiles-Bulgaria *** *** 0 .75 0 .90 O .92 0 .96 O .9 4-Romania O .86 0 .80 O .86 O .97 O .96 1 .06 O .9 5Clothing-Bulgaria *** *** O .81 1 .11 0 .92 0 .86 O .9 8-Romania 0 .74 O .95 O .89 1 .02 1 .20 O .96 1 .32
(Continued )
5 1
Table VII-4 (Continued )
------------------------------------------------------------ ------------------------------------------------------------- -Period
51-55 56-60 61-65 66-70 71-75 76-80 81-85------------------------------------------------------------ -Leather-Bulgaria O .65 0 .88 0 .81 1 .02 0 .89 O .83 1 .0 8-Romania O .84 O .85 0 .85 0 .90 0 .84 0 .98 1 .0 9Printing-Bulgaria O .76 0 .75 O .72 1 .05 0 .79 1 .22 O .87-Romania 1 .04 O .99 1 .04 0 .81 0 .59 O .85 O .9 4Food s-Bulgaria O .76 0 .90 O .96 O .79 O .86 0 .87 0 .9 1-Romania 0 .84 0 .84 O .79 0 .78 0 .78 0 .85 0 .92------------------------------------------------------------ -* elasticity is branch growth in the period divided by th egrowth of gross industrial output . ** Coal only . ** *Bulgaria did not provide separate data for textiles an dclothing ; elasticity of the two branches were in 1951-5 5------------------------------------------------------------ ------------------------------------------------------------- -
because of sizeable increases in the shares of machinery branches, Bulgaria an d
Romania exhibit more structural change from 1970 to 1985 than the other
communist-ruled countries, according to a study by the Economic Commission fo r
Europe for the period, 1970 to 1985 .
2) The Soviet Institute for Economics of the World Socialist Syste m
estimates that Bulgaria and Hungary had the largest shares of industrial outpu t
exported in 1970, but by 1984 Bulgaria fell behind Hungary . Romania shared
last place with Poland both times, partly because larger country size i s
associated with lower trade dependence .
Bulgaria ranked second to Czechoslovakia in 1970 in terms of the share of
output of the machine building branch that is exported . By 1984 Hungary passed
both to lead the group, while Romania, once more, came in last place . Roma-
nia's position matched its very low share of imported machinery used i n
investments, considered in Chapter V . This does not preclude a few product s
for which Romania is a major exporter such as oil field drilling equipmen t
52
Table VII-5COMPARATIVE SHARES OF EXPORTS IN INDUSTRIAL OUTPU T
OF COMMUNIST-RULED COUNTRIES, 1970 TO 198 4
Total Industrial
MachinebuildingCountry
Output
Outpu t
1970
1980
1984
1970
1980
198 4---------------------------------------------------------- -Bulgaria 16 24 24 32 43 4 3Romania 11 13 14 11 14 1 5
Czechoslovakia 14 20 21 34 45 4 5GDR 12 17 19 21 32 3 1Hungary 17 31 32 29 49 47Poland 9 14 14 21 26 26
---------------------------------------------------------- -Source : O .T . Bogomolov, Strany sotsializma v mezhdunarod-nom razdelenii truda (Moscow : Nauka, 1986), 301 .
where it has ranked second to the U .S . Also, in 1975 it exported 81 percent o f
its output of diesel locomotives and 53 percent of freight and tank cars ,
specialties held by Romania in the CMEA . But the list of products of whic h
Bulgaria exported as much as 90 percent of its output is much longer . And it
is clear that Romania's industrial production is to a high degree only for sel f
supply, if even poorly for that .
VII-F . COMPARATIVE INDUSTRIAL INSTITUTIONS IN BULGARIA AND ROMANI A
1) Communist Romania inherited larger average enterprises than Bulgari a
[Jackson and Lampe-82, 493, 564-565], a tendency maintained under communis t
rule . The average enterprise, 1 .6 times larger in terms of employment i n
Romania than in Bulgaria in 1960, increased to 2 .9 times by 1985 . While
enterprise size tends to vary according to branch of industry, Romanian
enterprises are larger in all branches, although there are exceptions as in
ferrous metallurgy and the food industry .
5 3
By comparative data of 1965, neither Bulgaria nor Romania has had th e
concentration of very large enterprises (over 5000 persons employed) found i n
Hungary, Czechoslovakia, or the USSR [Economic Bulletin for Europe-70, 71] .
Bulgaria's industrial employment tends to be as concentrated in small enter -
prises (under 500 persons) as is the case in the GDR . All communist-rule d
countries in 1965 had larger enterprises than would be predicted on the basi s
of country sizes and other variables estimated for capitalist countries . The
variation ranged from 16 times larger in Czechoslovakia to 1 .9 times larger in
the GDR, with Romania at 9 times the predicted value and Bulgaria only 4 time s
[Pryor-73, 192-193] .
2) The "enterprise" is, of course, a unit of organization and not technol-
ogy, and even though it is defined the same way in both Bulgaria and Romania ,
as a unit that has both distinctive legal identity and independent accounting ,
without a detailed comparison of the decisionmaking rights vested in enterpris e
management, one ought not to draw any conclusions about the comparativ e
concentration of decisionmaking in the industry of the two countries . In this
respect, both countries have had highly centralized planning and managemen t
systems . Both announced reforms and decentralization in the 1960s, Bulgaria i n
1965 and Romania in 1969 [Spigler-73 ; Feiwel-77], but afterwards reverted t o
even more emphasis on improving the efficiency of central planning and large -
scale management [Allen-77 ; Jackson-77 ; Kaser-81] . A second reform effort ,
"new economic and financial mechanisms" in each case, coincided in late 197 8
[Jackson-81a,81b ; Kaser-82 ; Feiwel-82] . But in Romania, with its whol e
management system under extreme centralization since the 1981 foreign deb t
crisis, "reforms" have been the mere excuse to cut wages without delegatin g
decisionmaking authority or decreasing the inconsistency of central pla n
directives [Jackson-86b] . Bulgaria's leaders have not had to cope with crisis,
5 4
but they also failed to implement reform measures for industry that were
promulgated at the beginning of 1982 [Grosser-84 ; Spetter-84 ; Jackson-86a] .
Those measures met stiff resistance from workers on up to conservative part y
officials, so much so that one wonders how they ever managed to be approved in
the first place . From whatever sources, the spirit of reform acquired in 198 5
a new life that has seen a thorough reshuffling of top level bodies and
thousands of pages of laws, regulations and other instructions for introducing
central management through indirect financial instruments and state orders ,
along with a wholesale price system and exchange rate system designed to align
Bulgarian wholesale prices with international prices . However, the new system
is not free of contradictions and it remains completely unclear how it is bein g
introduced [Jackson-87a] .
55
Chapter VIII . PATTERNS OF CHANGE IN AGRICULTURE
VIII-A . THEORY AND CONCEPTS ABOUT THEEFFECTS OF COMMUNIST RULE IN AGRICULTUR E
Agriculture's role is often seen as an initial source of "contributions "
to economic development in the forms of capital transfers, workers, and foreig n
currency .
Under communist rule it has passed through several stages, includ-
ing (a) an initial land reform to gain political support from peasants, (b) a n
"exploitation" phase whose length and depth is even debated for the Sovie t
Union, but which appears to be even shorter in Eastern Europe, (c) a phase o f
significant commitment of material inputs in order to develop more productiv e
agriculture, (d) a fourth phase of emphasis on increasing quality foods, meat s
and fresh produce, and (e) a present phase emphasizing efficient production .
Throughout the period, the importance of private and cooperative institu-
tions has lent an element of nonconformity to the system, something also foun d
in the highly subsidized agriculture of capitalist countries . There is lackin g
a theory of agriculture under communist rule that links central planning/ad-
ministration to nonconforming farm organizations .
VIII-B . SYSTEMIC DIFFERENCES IN AGRICULTURAL PERFORMANC E
1) The Soviet Union and the communist-ruled countries in Eastern Europ e
presently produce about 60 percent of the American level of per capita outpu t
and 20 percent more than in Western Europe [Lazarcik-85, -81] . Yet domestic
consumption standards are quantitatively lower, even without considering thei r
lower quality standards, while the U .S . and Western Europe are also able to
cover far greater shares of agricultural imports with agricultural exports,
56
Table VIII- 1COMPARATIVE AGRICULTURAL OUTPUT PER CAPITA, 1966 TO 1982
(In percent of United States = 100 )
------------------------------------------------------------ ------------------------------------------------------------- -Country/area
66-70 71-75 76-80 81/ 2
------------------------------------------------------------ -Bulgaria 78 .7 76 .2 74 .6 73 . 6Romania 55 .5 59 .2 66 .8 58 . 7
Czechoslovakia 58 .8 62 .9 61 .7 56 . 3GDR 66 .1 70 .3 70 .8 71 . 5Hungary 81 .4 91 .1 92 .O 87 . 7Poland 65 .8 67 .2 61 .5 49 . 6Yugoslavia 53 .2 53 .7 53 .5 51 . 8Eastern Europe 63 .5 66 .1 65 .7 59 . 9USSR 63 .1 62 .6 59 .1 51 . 2Western Europe 52 .7 53 .3 51 .2 49 . 9USA 100 .0 100 .O 100 .0 100 .O------------------------------------------------------------ -Source : Gregor Lazarcik, "Comparative Growth of Agricul-tural Output, Inputs, and Productivity in Eastern Europe ,1965-82," in East European Economies : Slow Growth in the1980's, Vol . 1 . Selected papers submitted to the Join tEconomic Committee, Congress of the United States (Washing -ton DC : USGPO, 28 October 1985), 420 .
Wastage or statistical exaggeration must account for greater portions of outpu t
under communist rule .
2) It is shown by Pryor, using western estimates of the growth of agricul-
tural output for the period 1950 to 1979, that there has been no significan t
difference in growth rates across economic systems . But there has bee n
significantly greater instability of agricultural output in the communist-
ruled countries than in the capitalist countries . Brada's research suggests
that the source of instability of crop output was the especially high in -
stability of areas planted, not so much instability of yields [Brada-86] .
The author's research suggest that Bulgaria, Romania and Yugoslavia hav e
had unusual crop instability, compared to their weather . As shown in Tabl e
VIII-3, their yields are as unstable as annual rainfall . Other countries i n
5 7
Table VIII- 2COVERAGE OF AGRICULTURAL IMPORTS WITH AGRICULTURAL EXPORTS
EASTERN AND WESTERN EUROPE, 1970 TO 198 1
Country/area
70-72 73-75 76-78 79-8 1- -------------------------------------------------------- -Western Europe 58 .4 62 .1 64 .5 76 . 3Eastern Europe * 61 .5 52 .9 44 .8 33 .3----------------------------------------------------------Note : * Including the USSR and Yugoslavia ; EasternEuropean countries except for Hungary and Yugoslavia hav eimports evaluated on an F .O .B . basis that actually raisestheir rate of coverage .
Source : UN/ECE, Economic Bulletin for Europe, 35 :3 (June1983), 223 .
the sample studied, communist-ruled and capitalist, have had less crop in -
stability than rainfall instability .
3) Compared to Western Europe, Eastern Europe uses 80 percent more arabl e
and crop land per capita to produce only 20 percent more agricultural outpu t
per capita . In Eastern Europe (excluding the Soviet Union) about 50 more
persons are occupied on each hectare than in Western Europe . By contrast ,
Western Europe uses about twice the tractors per hectare and 3-4 times th e
tractors per person as the average for Eastern Europe and the Soviet Union .
Western Europe also applies about 20 percent more chemical fertilizer per
hectare . No comparative studies of combined input productivity in a larg e
sample of countries in both systems has been found in the research .
VIII-C . BULGARIA AND ROMANIA VERSUSTHE OTHER COMMUNIST-RULED COUNTRIE S
1) Bulgaria and Romania have higher average growth rates of gross output ,
but not net output, than the other communist-ruled countries . Their best year s
5 8
Table VIII-3VARIABILITY OF WHEAT YIELDS AND RAINFAL L
IN SELECTED COUNTRIES, 1950 TO 1980
------------------------------------------------------- -------------------------------------------------------- -Coefficient of Variatio n
Country
Wheat Yield# Rainfall Locatio n--------------------------------------------------------Bulgaria 15 .26 17 .54 Sofia
19 .53 RuseRomania 15 .42 18 .22 BucharestYugoslavia 14 .60 18 .55 Belgrad e
3 .27 LjubljanaPoland 10 .12 *21 .11 Warsaw
*16 .70 WroclawHungary 12 .65 19 .61 Budapes tCzechoslovakia 9 .00 *20 .10 Prague
Austria 9 .61 *16 .71 ViennaGreece 13 .45 *24 .44 AthensItaly
@ 8 .04 1 .77 Milan*19 .99 Palermo
Spain 16 .51 *27 .94 Madrid--------------------------------------------------------Coefficients of variation based on the standard errorsof the estimates around the least squares trend line onyields divided by the average yield during the periodfrom 1950 to 1984 .
- national average . @ - Yield variability significant-ly larger than corresponding rainfall variability ; * -rainfall variability significantly larger than cor-responding yield variability .------------------------------------------------------- -------------------------------------------------------- -
were in the late 1950s, the 1960s and early 1970s . In the last ten year s
comparative and absolute performance has declined . When differences in levels
of development are considered, Bulgaria and Romania do not generate sig-
nificantly higher growth rates of agricultural output .
The share of animal products in total agricultural output has risen in th e
Soviet Union and Eastern Europe, but remains on average lower than in Wester n
Europe . Bulgaria and Romania have typically produced very small shares, onl y
recently equal to the average of prewar Eastern Europe . It is possible that
59
Table VIII-4GROWTH OF AGRICULTURE OUTPUT IN BULGARIA AND ROMANIA
COMPARED TO EASTERN EUROPE BY FIVE-YEAR PERIODS, 1950 TO 1985(average annual rate of growth as least squares trend )
--------------------------------------- -Country/area 51-55 56-60 61-65 66-70 71-75 76-80 81-85----------------------------------------------------------- -BulgariaTotal Output 3 .1 7 .3 5 .2 1 .1 1 .7 1 . 14 0 . 2Crops 1 .1 7 . 14 6 .6 O .1 -O .4 -O .6 -2 . 1Animal 6 .5 7 .1 3 .6 2 . 14 14 .O 3 .3 2 . ONet Product 2 .7 6 .6 4 .7 -2 .1 1 .5 -4 .2 -3 . 4
RomaniaTotal Output 14 .8 4 .O -1 .1 1 .2 5 .5 2 .6 2 . 7Crops 6 .5 5 .8 1 .2 -0 .7 4 .5 1 .5 4 . 4Animal 4 .9 3 .5 1 .O 2 .9 6 .3 3 .5 1 . 4Net Product 5 .2 14 .7 -1 .O -2 .3 O .8 1 .3 3 . 2
East Europe*2 .8 4 .O 2 .3 1 .7 3 .9 1 .6 1 . 6Total Outpu t
Crops 2 .O 3 .5 2 .9 1 .O 2 .1 O .5 2 . 7Animal 3 .6 4 . 14 1 .8 2 .1 14 .9 2 .1 1 . ONet Product 2 .4 3 .3 O .6 -1 .O 1 .8 -O . 14 2 .7
---------------------------------------------------------- -* excluding Yugoslavia .
Sources : Gregor Lazarcik, "Agricultural Output and Produc-tivity in Eastern Europe and Some Comparisons With the USS Rand USA," in Reorientation and Commercial Relations of th eEconomies of Eastern Europe, a compendium of papers submit-ted to the Joint Economic Committee, Congress of the UnitedStates (Washington DC : USGPO, 16 August 1974), 337,339 ;"Comparative Growth of Agricultural Output, Inputs, andProductivity in Eastern Europe, 1965-82," in East EuropeanEconomies : Slow Growth in the1980's, Vol . 1 ., Selectedpapers submitted to the Joint Economic Committee, Congres sof the United States (Washington DC : USGPO, 28 Octobe r1985), 394, 396 ; and Research Project on National Income inEast Central Europe, Agricultural Output, Expenses an dDepreciation, Gross Product, and Net Product in Easter nEurope1965, 1970and1975-1986, OP-96 . (New York :L .W .Interna.tional Finance Research, 1987), 39, 40 .
60
natural conditions contribute to this result, but allocation priorities seem
more important .
2) Bulgaria and Romania are joined by Hungary as communist-ruled countries
with consistent records of export surpluses in agricultural products . On both
an absolute and a per capita basis, Bulgaria and Hungary far exceed Romania .
3) Production functions estimated in this research for crops in Bulgaria
and Romania turn up almost identical results . The growth of inputs of anima l
fertilizer, percentage of arable land irrigated, and average annual rainfall
appear to have been unrelated to output growth . Output per occupied person
increased O .47 percent in Romania with a 1 percent increase in capital pe r
person and 0 .10 percent with a 1 percent increase in chemical fertilizer pe r
hectare per person . For Bulgaria, the respective coefficients are 0 .40 and
O .11 .
4) In Bulgaria the share of total investments going to agricultur e
increased from 11 percent in 1950 to 30 percent in 1960 and then declined i n
1980 to 12 percent . In Romania, the share rose from 12 percent in 1950 to 2 0
percent in 1960 and then declined to 13 percent in 1980 .
When investment shares are considered in comparison to labor shares ,
Romania has always had the lowest ratio, about 33 percent until 1975 and rising
to 45 percent in 1980 . Bulgaria's ratio in 1960 was 54 percent, not as high a s
either in the GDR or Czechoslovakia and in 1980, 50 percent, which ranked
Bulgaria second to Romania at the bottom .
The author estimates that in 1960 Bulgarian fixed capital per hectare in
agriculture was only about 5 percent more than in Romania . A Polish specialist
put Romanian livestock per hectare higher than in Bulgaria in 1975, according
to Wädekin [1982] . He also finds that Bulgaria has the highest share of arabl e
land under irrigation in Europe, a figure which reached 29 percent in 1980 . At
6 1
that time Romania reported 21 percent, also far more than in the other com-
munist-ruled countries . But such investments have no statistical influence o n
crop production at the aggregate level, suggesting they have been ineffectivel y
used .
By 1980 Bulgarian and Romanian tractor horsepower availability per hectare
of agricultural land equaled Hungary's, but were far below the levels of th e
GDR, Czechoslovakia and Poland . Romania had lagged behind and only recently
improved its relative ranking . Bulgaria was also behind until the mid-1970s ,
although not as far as Romania .
5) From 1950 to 1972, Lazarcik estimates Bulgaria used over twice th e
material supplies per person occupied in agriculture as Romania . Yet the
Bulgarian levels were only from one third to one half those of Czechoslovakia .
With such low levels, it is not surprising that in the 1970s, such inputs gre w
at a far faster rate than in other communist-ruled countries . But the returns
obviously diminished since in both countries net output stagnated or declined .
In 1980 Romania ranked second only to Yugoslavia as user of the leas t
chemical fertilizers per hectare . Bulgaria uses 60 percent more per hectare ,
but still less than the average of East European communist-ruled countries .
Bulgaria, probably because of its extensive irrigation facilities, has th e
highest electric energy consumption rate and also has the highest use rate o f
plant protection chemicals of the East European communist-ruled countries .
6) By 1980 shares of occupied persons in agriculture equaled 30 percent i n
Romania and Poland, a lower 23 percent in Bulgaria and Hungary, and 11-1 4
percent in the GDR and Czechoslovakia . When adjusted to persons occupied pe r
hectare of agricultural land, differences across the communist-ruled countrie s
are quite small in 1980 . Only Romania and Poland recorded over 20 persons per
6 2
hectare, while the Bulgarian figure of 16 nearly equaled the 14-15 per hectar e
common to the GDR, Czechoslovakia, and Hungary .
The communist-ruled countries record both greater shares of total labo r
force in agriculture (shown in Chapter VI) and two or three times the labor pe r
hectare compared to capitalist countries . Part of this excess may reflec t
statistical practices, such as more generous definition of working females an d
other household members . Food shortages and housing shortages have encourage d
rural dwelling with urban occupation . The numbers reach half the rural labo r
force in the GDR, Czechoslovakia and Hungary, and most still work on household
agriculture in spare time . It is also the case that the average days worked b y
someone in agriculture have risen as capital and new technology is introduced .
On Bulgarian collective farms, average days worked increased 30 percen t
from 1952 to 1970 while numbers of persons working declined only 25 percent
(actually persons increased from 1952 to 1965 as collectivization was com-
pleted) . Romania, as testimony to its greater underinvestment and othe r
policy, experienced only an 8 percent increase in average days worked from 196 5
to 1980 when persons working on collectives decreased by 55 percent . Romanian
farm labor has also been poorer quality . In 1970 some 44,000 agricultural
specialists with secondary and higher technical education worked in Bulgarian
agriculture, while only 29,000 were recorded in Romania . The ratio per person
occupied was four time higher in Bulgaria than Romania .
7) In the 1950s through Eastern Europe, workers on state farms commonl y
were paid only about 75 percent of average industrial wages, something which
probably reflected in a large part differences in days worked per year . Wage
differences narrowed during the 1960s in all communist-ruled countries .
Larger income gaps were common for those on collective and private farms .
The GDR moved in 1952 to introduce systems of advance, guaranteed minimum
63
payments for collective farmers and soon followed Bulgaria and Hungary .
Romania did not do this until after 1970 . In Bulgaria, earnings of a collec-
tive peasant were only 30 percent of the average wage in 1953, but by 1955 the
income of a peasant family from all sources was 95 percent of a worker family' s
total . Romania lagged in this regard with income from agricultural work of a
peasant only 50 percent of the average worker's wage in 1965 and not muc h
higher in 1975 . However, with two-thirds of Romanian peasant household s
counting a wage earner by the latter date, family incomes from all sources wer e
more equal .
In a large measure, differences in incomes reflected differences in rea l
productivity between agriculture and other sectors . This, in turn, mirrored
the marginal allocation of capital and material supplies and comparativ e
education standards in each country .
8) Relative incomes received in agriculture in communist-ruled countrie s
have not reflected movements in relative producer prices in agricultur e
compared to industry because of the complex incidence of subsidies .
Relative producer prices in agriculture rose in at least three waves .
First, the extremely low prices first paid for compulsory deliveries wer e
eliminated in the 1950s. Then in the 1960s premium prices were introduced fo r
above-plan deliveries . A third wave came in the late 1970s and early 1980s
both to compensate for rising energy prices and to stimulate agricultura l
production .
The author has compared movements in the agricultural terms of trade i n
Bulgaria and Romania . From 1950 to 1960 Bulgarian agricultural producer prices
increased 81 percent compared to industrial producer prices . In the same
period, they increased relative to industrial prices 236 percent in Romania ,
witnessing how low they were in 1950 . After 1960 Bulgarian moved up more than
64
in Romania, up to 1977 the relative increases were 150 percent in Bulgaria an d
only 46 percent in Romania, and from 1977 to 1985, respectively, 49 percent an d
9 percent .
The introduction of cost accounting in Romania's large collective farms
came only in the 1970s, so little was known about the relationship of prices t o
costs . Since then in both countries it is known that, despite major relative
price increases, meat production and some crops chronically tend to cost more
than producer prices and must be subsidized .
65
Chapter IX . SYSTEMIC EFFECTS ON FOREIGN TRADEAND ISSUES WITHIN THE CMEA
IX-A . CONCEPTS OF FOREIGN TRADEDEVELOPMENT UNDER COMMUNIST RUL E
1) Western theory of the effects of communist rule on foreign trad e
extends the Soviet tendency towards autarchy to both a preference for com-
munist-block trade and relative autarchy in the multicountry communist worl d
after 1948 . In addition, Soviet readiness to supply industrial raw material s
and markets for finished manufactures, backed up by corresponding relativ e
price structures, is a major influence differentiating commodity structures .
2) Little has been written about the theoretical effects of syste m
differences on the growth rates of exports and imports . Simple average growth
rates for the sample of communist-ruled countries are higher in early five-yea r
periods and lower in later five-year periods than the average of the sampl e
capitalist countries . The regressions show no significant systemic effect s
when differences in the level of national product are considered .
IX-B . EMPIRICAL ANALYSIS O FSYSTEMIC EFFECTS ON FOREIGN TRAD E
1) Communist rule has the theoretically expected effects of maintainin g
abnormally low levels of foreign trade dependency as measured by imports ( a
condition which might have been inherited from the prewar capitalist world) .
In 1975 and 1980, imports of a typical communist-ruled country were, respec-
tively, only 67 percent and 56 percent of the levels expected for countries o f
such population size and per capita national income [Jackson-87a] .
2) The distribution of trade by groups of countries is influenced by bot h
policy and systemic factors . Among the former are restrictions on trade with
66
Table IX- 1COMPARISON OF THE CHANGES IN MAJOR FOREIGN TRADE VARIABLES
ACROSS SYSTEMS BY FIVE-YEAR PERIODS, 1950 TO 198 5
------------------------------------------------------- -------------------------------------------------------- -Ratio of
Change in
Period
Export
Import
Imports :
Terms ofGrowth*
Growth*
Exports@
Trade*------------------------------------------------------- -All Capitalist Countrie s
1951-55
138 .3
132 .1 129 .6 103 . 11956-60
132 .3
132 .9 126 .O 99 . 61961-65
137 .1
142 .5 129 .1 102 . 61966-70
160 .7
159 .4 128 .9 100 . 61971-75
136 .7
139 .O 127 .1 88 . 11976-80
145 .1
138 .8 127 .2 101 . 71981-85
129 .1
105 .6 114 .5 99 . O
All Communist Countries113 .1 106 . 21951-55 157 .9
160 . 71956-60 183 .7
194 .O 112 .9 96 . O1961-65 155 .8
149 .7 111 .0 98 . 81966-70 152 .2
156 .1 107 .6 98 . 81971-75 153 .5
162 .6 114 .O 95 . 91976-80 133 .7
122 .2 121 .5 95 . 31981-85 122 .4
99 .2 105 .3 98 . O
Ratio of all communist-ruled to all capitalist countrie s
1951-55 114 .1 121 .7 87 .O 103 . O1956-60 138 .8 146 .0 90 .0 96 . 41961-65 113 .7 105 .1 86 .O 96 . 31966-70 94 .7 97 .9 83 .0 98 . 21971-75 112 .3 117 .O 90 .O 108 . 91976-80 92 .1 88 .1 95 .O 93 . 81981-85 94 .8 93 .9 92 .0 99 .0--------------------------------------------------------* Growth from beginning year to ending year, @ averageof annual ratios calculated in current prices an dadjusted to a common CIF :FOB basis .
Computations of the author from official and interna-tional sources ; see Chapter III for more detail .
67
communist-ruled countries by capitalist countries, which declined in the 1960 s
and are virtual non-existent in a few like Austria and Finland . Communist -
ruled countries also began to search more actively for trade possibilities wit h
capitalist countries in the 1960s . Both factors account for Fink's findin g
that the highest levels of integration (or isolation) of' the communist-ruled
countries was in the period 1955 to 1962 . But on balance, western policie s
have played a smaller role in the country distribution of trade than policy an d
systemic factors on the other side .
Trade shares by "socialist" and "nonsocialist" country groups are in-
fluenced by both the relative growth of volume in constant prices and relativ e
prices . Evidence of' volume growth since 1960 shows that real exports an d
imports of the USSR and the six East European countries to other "socialist "
countries grew more slowly than to "nonsocialist" countries, with the excep-
tions of exports in 1966-70 and 1971-75 and imports in 1981-84 . Naturally, the
patterns of relative growth are more complicated at the CTN commodity level .
Official trade statistics show higher shares of intra-"socialist" trad e
than if trade flows were revalued at world market prices [Marrese and Vanous -
83] . In 1975, for example, the latter would have been anywhere from 79 percen t
to 95 percent of the shares measured in official prices .
Hewett's estimates for 1970 of the effects of CMEA compared to the EE C
shows that CMEA had strong trade diversion effects, with individual countrie s
in CMEA trading only 20-30 percent of the levels with Western European coun-
tries as would be expected in normal capitalist trade [Hewett-76] . Slama
applies a similar model to trade in machinery, finding that intra-CMEA trad e
was 5 .5 times expected levels in 1965 and still 2 .8 times in 1978, while East-
West trade was only about 12-18 percent of expected levels [Slama-83] .
6 8
Table IX-2PER CAPITA FOREIGN TRADE OF SELECTED COUNTRIES(current US dollars at official exchange rates )
---------------------------------------------------------- ----------------------------------------------------------- -Country
1975
1980
198 4---------------------------------------------------------- -
Bulgaria - imports 620 1089 141 9- exports 538 1171 1434
Romania - imports 251 594 335- exports 251 513 47 5
Czechoslovakia - imports 615 989 1105- exports 566 973 1109
GDR - imports 670 1140 1376- exports 599 1034 1490
Hungary - imports 682 860 75 8- exports 579 810 802
Poland - imports 369 537 286- exports 302 478 31 6
USSR - imports 145 258 293- exports 131 288 333
Yugoslavia - imports 360 676 522- exports 191 403 447
Austria - imports 1239 3234 2592- exports 992 2315 208 1
Greece - imports 588 1092 97 1- exports 252 533 49 1
Portugal - imports 410 939 790- exports 208 468 51 6
Spain - imports 452 906 745- exports 216 556 606
-----------------------------------------------------------
* Unadjusted for different evaluations of imports at CIFand FOB .
Source : UN, International Trade Statistics Yearbook, 1985 .---------------------------------------------------------- -
3) The commodity distribution of trade is different under communist rule .
Import and export shares of machinery and industrial raw materials have been
higher and those of manufactured consumer goods and food commodities smalle r
than in the trade of capitalist countries [Ofer-80] .
69
4) The total terms of trade of the average communist-ruled countr y
declined in every five-year period between 1950 and 1985 . The unweighted
average hides the different experiences of the USSR and the six East Europea n
countries . Their terms of trade improved from 1960 to 1970 with socialist an d
nonsocialist countries . Then all except Romania experienced greater decline s
in terms of trade with socialist than nonsocialist countries, a result largel y
of higher import prices for Soviet oil that, in turn, was exported as finishe d
products to nonsocialist countries .
5) The ability to import for a given level of commodity exports has bee n
significantly less for communist-ruled countries than for capitalist countries ,
despite the exception of Yugoslavia . Low import :export ratios in intra -
"socialist" trade reflect both the weakness of institutions for capita l
transfers among communist-ruled countries and the reduced earnings fro m
services and other invisibles . But the ratios are also lower in trade with th e
capitalist world and reflect not only typically low levels of invisibl e
earnings, but also weakly developed export capacities that are discusse d
further in Chapter X on world markets .
IX-C . BULGARIA AND ROMANIA VERSUSTHE OTHER COMMUNIST-RULED COUNTRIE S
1) Because Bulgaria and Romania have faster growth of national produc t
than the other communist-ruled countries, they would be expected to have faste r
growth of exports and imports (as this suggests, there are probably simul-
taneous equation biases in the estimates of Chapter IV) . Regression analysi s
shows this to be the case, even after correcting for the expected effects o f
differences in levels of NMP per capita .
A difference between the two is that Bulgaria had relatively higher expor t
growth, while Romania had relative higher import growth . Also, Bulgaria's
7 0
highest periods of growth came earlier before 1965, while Romania's highes t
periods of relative growth coincided with fast growth of NMP in the 1970s .
The real volume of exports to "socialist" countries grew twice as fast in
Bulgaria as in Romania from 1960 through 1975 . Similarly high growth rate s
characterized Hungary and Poland in the same period . After 1975, both Bul-
garian and Romanian trade with "socialist" countries increased only as fast a s
the average for all communist-ruled countries .
2) After correcting for the expected effects of population size and leve l
of national product per capita, Romania had one of the lowest levels of foreig n
trade dependency of the communist-ruled countries in 1955 and 1965 . In the
1975, while not reaching Yugoslavia's level, Bulgaria's dependency was almos t
as high as would be expected if it were capitalist .
Romania's foreign trade dependency rose from 1975 to 1980 and then fel l
abruptly in 1985 to levels similar to that of the Soviet Union . By contrast ,
Bulgaria experienced a fall in dependency from 1975 to 1980, but in 1985 again
reached levels about as high as would be expected for a similarly placed
capitalist country . It is the only communist-ruled country so doing .
Since the econometric analysis of dependency was done in terms of imports ,
some comment is necessary about export dependency . Bulgaria had a large trad e
deficit in 1975 and again in 1985, but an export surplus in 1980 . Romania als o
had a trade deficit in 1980, but a very large surplus in 1985 . So dependenc y
measured in export terms would tend to narrow the range of differences between
them .
3) Given that Bulgaria and Romania are less-developed, communist-ruled
countries, they ought to have had higher ratios of imports to exports than i s
their actual case . To the contrary, if intra-"socialist" trade flows are
7 1
Table IX-3DEVIATIONS FROM ESTIMATED NORMAL IMPORT DEPENDENC Y
1955 TO 1980
------------------------------------------------------------- -------------------------------------------------------------- -
Pryor
van Brabant JacksonCountry
1955
1955
1965
1975
1980
A. Actual divided by predicted normal import :GNP ratios :
Bulgaria .29 .48 .82 .95 .80Romania .25 .42 .47 .66 .7 3
Czechoslovakia .38 .65 .80 .77 .6 3GDR .38 .75 .69 .74 .60Hungary .40 .62 .76 .56 .5 1Poland .29 .63 .63 .70 .54USSR .22 .54 .46 .46 .40Yugoslavia* N/A N/A N/A 1 .18 .85Greece* N/A N/A N/A .87 .7 6Portugal* N/A N/A N/A 1 .04 1 .29Spain* N/A N/A N/A .88 .79Turkey* N/A N/A N/A .69 .65
B. 95 percent confidence intervals for the ratios in (A) :
Bulgaria .19- .46 .35- .66 .55-1 .49 .36-2 .37 .28-2 .3 1Romania .17- .41 .30- .56 .31-O .85 .27-1 .78 .26-2 .09
Czechoslovakia .24- .59 .48- .89 .55-1 .47 .29-1 .40 .23-1 .79GDR .25- .61 .55- .99 .47-1 .26 .28-1 .85 .21-1 .7 0Hungary .26- .62 .46- .85 .53-1 .41 .21-1 .44 .18-1 .47Poland .20- .47 .47- .86 .43-1 .14 .27-1 .76 .19-1 .55USSR .15- .37 .39- .72 .31-O .84 .18-1 .16 .15-1 .1 1Yugoslavia* .43-2 .94 .30-2 .4 4Greece* .34-2 .26 .27-2 .1 8Portugal* .39-2 .75 .46-3 .7 4Spain* .34-2 .28 .28-2 .2 6Turkey* .26-1 .87 .23-1 .92-------------------------------------------------------------- -
Notes : * Yugoslavia and the capitalist countries are include din the sample used to estimate the normal equation . Values ofimports of the communist-ruled countries are adjusted down i norder to compensate for the overstatement of intra-CMEA price sat official exchange rates by 20 percent in 1955 and 1965, 1 0percent in 1975 and 15 percent in 1980 . Yugoslav trade isadjusted by only half these amounts . Also, all but Hungary areadjusted up by 4 .5 percent from FOB to an estimated CIF basis .-------------------------------------------------------------- -
(Continued )
7 2
Table IX-3 (Continued )
-------------------------------------------------------------- -Sources : Calculations from information on the estimates o fPryor and van Brabant from Edward Hewett, "Foreign TradeOutcomes in Eastern and Western Economies," in East EuropeanIntegration and East West Trade, edited by Paul Marer and JohnMichael Montias (Bloomington IN : Indiana University Press ,1980, 46-47 . A description of Jackson's estimates is availabl efrom the author .------------------------------------------------------------------------------------------------------------------------------
revalued in world market prices, their ratios of imports to exports fall below
those of the more-developed communist-ruled countries .
Both countries' trade with "socialist" countries other than the Sovie t
Union has been balanced, if not annually then over short periods . In contrast ,
their Soviet trade has been highly unbalanced, often shifting from larg e
deficits to large surpluses . Significantly different capital transactions wit h
the Soviet Union were a major factor in their comparative development .
While Bulgaria acquired small capital transfers in 1944 and 1945, Romanian
capital losses through reparations and confiscations were possibly as much a s
30-50 percent of existing fixed capital and nearly a year's GNP at its 194 5
level . From 1947 to about 1957 known Soviet credits to both countries wer e
roughly equal, but favored Bulgaria because of its smaller size . During this
time, Romanian imports of equipment fell by nearly half from 1953 to 1958 [van
Brabant-74] . Again from 1958 to 1969, Romania received absolutely smaller
amounts of Soviet credits . Accumulated Soviet trade balances were negative fo r
Bulgaria until about 1969 while Romania's were mostly positive . After 1973 ,
Bulgaria accumulated even larger deficits, by 1985 more than $4,000 million
current US dollars . During this same period, Romania accumulated an expor t
surplus with the Soviet Union reaching $1,400 million .
73
It is possible that intra-CMEA trade balances reflect implicit pric e
adjustments or some effect of exchange rates . Otherwise, there is no good
explanation of why Romania would be a major Soviet creditor in the 1980s .
4) In the 1950s both Bulgaria and Romania objected to the relative pricing
structure emerging within CMEA . Like the Soviet Union, they were disadvantage d
by the high prices for machinery and the low prices for raw materials an d
foods . However, according to Kaser [Kaser-67], Bulgaria succeeded in obtainin g
special prices for its raw material exports . Romania failed to do so, some-
thing which must have added incentive for its relative shift of trade to th e
West in the early 1960s .
Already by 1955-60, Romania's share of "socialist" trade was only 7 3
percent, compared to Bulgaria's 87 percent . In estimated world market price s
the 1960 shares were even less for both, respectively 63 percent for Romani a
and 74 percent for Bulgaria . Both countries' "socialist" shares fell in the
1960s . In fact, the ratio of imports to exports in "nonsocialist" trade i n
1956-60 was higher in Bulgaria than Romania . In other words, it shifted
imports relative to export earnings even faster than Romania . Available
western credits added a stimulus to relative CMEA prices .
Still, Bulgaria's real exports to "socialist" countries grew faster tha n
to "nonsocialist" countries from 1965 through 1975, while its real imports fro m
socialist countries grew faster for even longer, from 1965 through 1980 . By
contrast, the only period that Romanian exports grew faster to "socialist "
countries than to "nonsocialist" was in 1976-80, while its imports fro m
"socialist" countries did so only in 1981-84 when Western imports by Ceauses-
cu's debt policy .
Since trade shares by country groups are calculated in current prices, th e
movements of prices affect them . Bulgaria's lowest "socialist" trade share
7 4
occurred in the mid-1970s ; then the effects of price increases for Sovie t
petroleum pushed it up to levels of the early 1960s . Romania's "socialist"
trade share reached a low point of 40 percent in 1980, then rose under the
combined influences of increased imports of Soviet petroleum, and both highe r
prices and volumes for food and oil field equipment exports .
Hewett's study of regional trade propensities in 1970 shows Bulgaria with
30 percent and Romania with 20 percent of the levels of trade with Western
Europe that would be expected had they been capitalist and not members of a
tariff union . Trade between Bulgaria and Romania was only 70 percent o f
expected levels of partners in a tariff union, but Bulgarian-Soviet and
Bulgarian-GDR trade were, respectively, five times and four times those levels .
Bulgaria and Romania both showed preferences for machinery trade wit h
other communist-ruled countries in Slama's study, but with Bulgaria's prefer-
ence a high 10 times the expected level and Romania's only about 2 times . In
fact, the dollar value of Bulgaria's imports of investment goods from com-
munist-ruled countries in 1980 were five times its imports from OECD countrie s
(a ratio similar to that of the GDR) . In contrast, Romania's ratio was
slightly over unity, the lowest of the communist-ruled countries .
5) Bulgaria and Romania in the 1970s had nearly balanced trade with othe r
communist-ruled countries in investment goods, something that reflected larg e
Soviet imports deficits in this category . Because of that, the other East
European countries all have export surpluses .
The ranking of Bulgaria and Romania in terms of per capita exports o f
investment goods to CMEA is very different . By 1985, Bulgaria reached the
levels of Czechoslovakia, only exceeded by the GDR . Romania had even lower pe r
capita levels than Poland, although not as low as the Soviet Union .
75
The commodity shares of Bulgarian and Romanian imports are similar and
vary little over the period, 1950 to 1985 . But export shares differ . Bulgaria
in every period had shares of food product exports twice those of Romania . In
turn, Romania had the higher shares of exports of industrial materials . Since
1971, Bulgaria also has higher machinery shares, while Romania has highe r
shares of consumer manufactures .
In Ofer's study of trade shares, Bulgaria is the exceptional country, th e
only country with higher than expected agricultural export shares and ne t
exports . It also far outperformed either Romania or Yugoslavia in the growt h
of machinery export shares and net exports . Data estimated by the ECE show
that since 1960 Bulgaria's food exports to other "socialist" countries hav e
grown faster than all such exports combined from the USSR and the six Eas t
European countries . Romania had only one period, 1976-80, of extra fast growth
of food exports to "socialist" countries .
The only product group that Bulgaria and Romania have faster export growt h
to "socialist" countries than the seven countries combined is machinery . In
this case, Bulgaria has had continually higher growth than Romania .
IX-D . BULGARIAN AND ROMANIAN INSTITUTIONA LAND POLICY COMMITMENTS TO CME A
Little is known about the detailed comparative institutional aspects o f
intra-CMEA trade at the country level, although information has been accumu-
lated about exports under so-called specialization agreements . In the mid -
1960s, Bulgaria led all other CMEA members in the shares of its CMEA exports o f
machinery and chemical covered by such agreements . By the 1980s, all European
members except the Soviet Union moved up to Bulgaria's levels, suggesting tha t
existing product lines of the each country acquired the designation of "spe-
cialized" . Even Romania, despite having a low level of participation in
76
multilateral specialization agreements, managed to acquire large shares o f
exports through bilateral specialization agreements and by dint of having lo w
levels of exports to CMEA in the first place . In any case, econometric tests
by Crane and Skollar show no connection between the establishment of an
agreement and the growth of a country's exports [Crane and Skollar-88], so
Bulgaria's early advantages should not be exaggerated .
Besides, Bulgaria and Romania share the problem of specializing in
products that are energy- and material-intensive . Only Bulgaria is successfu l
on any import scale with an alternative, that of electronics exports . But its
success has not led to the acid test of spillovers into world markets .
77
ChapterX .THE CHALLENGES OF WORLD MARKET S
X-A . THE ISSUES
Policy shifts in the West and the East promoted a "catching up" growth o f
foreign trade between the communist-ruled countries and the rest of the worl d
from the 1960s on . Why was this thrust not continued in the mid-1970s? Do
Bulgaria and Romania enjoy advantages as less-developed countries ?
X-B . GROWTH RATES OF "NONSOCIALIST" TRADE SINCE 196 0
1) As discussed in Chapter IX, the exports of the communist-ruled coun-
tries grew faster to the "nonsocialist" than to the "socialist" countries i n
1961-65 (the record before 1960 has not yet been processed) and again from 197 6
on to 1984 . Imports from "nonsocialist" countries exhibit an even mor e
impressive growth in real terms compared to those from "socialist" countries i n
the whole period until 1981-84 when credit and market competition reduce d
available hard currencies . There is a question of whether this growth is jus t
catching up or if it reflects better markets in the nonsocialist countries .
2) Bulgaria and Romania both averaged higher growth of real exports an d
imports with "nonsocialist" countries than the average communist-ruled country .
Whether this is due to their lower development levels has not been test . High
export growth to "nonsocialist" countries was the general rule among th e
communist-ruled countries in 1961-65, but afterwards only individual countrie s
managed extremely high growth rates as did Romania in 1966-70 and 1971-75 ,
Bulgaria in 1976-80, and the GDR in 1981-84 . Bulgaria and Romania lost th e
magic touch in the latter period .
7 8
Import growth from "nonsocialist" countries exhibited an even more mixed
pattern, with Poland highest in 1971-75, Romania in 1976-80, and Bulgaria i n
1981-85 . Each one did so by heavy borrowing so, given the problems of th e
other two, Bulgaria's present positions merits careful attention .
X-C . COMMODITY PATTERNS OF BULGARIA NAND ROMANIAN NONSOCIALIST TRADE
1) In every period since 1960 Bulgaria and Romania have higher than
average growth of their CTN 2 (fuels, industrial raw materials, chemicals )
exports to "nonsocialist" countries . The weaker side of both countries is CT N
3 (food and food raw materials) exports . Both also manage higher than averag e
growth in CTN 1 (machinery) and CTN 4 (manufactured consumer goods), wit h
Bulgaria better in the former and Romania in the latter . Analysis of compara-
tive growth in terms of models that estimate price and activity elasticities i n
the West is hindered by the poor quality of econometric results obtained for
Bulgaria and Romania [Vanous-81] .
2) Unlike growth, commodity share statistics are measured in current pric e
and, hence, show the effects of both price and volume movements . The largest
share of exports to "nonsocialist" countries for both Bulgaria and Romani a
since the 1960s is CTN 2 . Both have had rising shares of CTN 1, machinery, an d
steadily declining shares of CTN 3, foods, with this category reaching only 5
percent in Romania in 1981-85 . Instead, Romania increased its share of
consumer manufactures .
3) A contrast with export shares to "socialist" countries, discussed i n
Chapter IX, is useful . Both have exported twice as large a share of CTN 1
exports to "socialist" as to "nonsocialist" countries . Bulgaria also has twic e
the share of CTN 4 (consumer manufactured goods) in "socialist" exports .
79
Romania, on the other hand, has only half the share of CTN 2 in "socialist" a s
"nonsocialist" trade .
4) Imports from "nonsocialist" countries of both Bulgaria and Romania ar e
dominated by CTN 2, with it reaching 82 percent in Romania in 1981-85 . That
happened while Romania's CTN 1 (machinery) imports from "nonsocialist" coun-
tries fell from a high of 46 percent of all "nonsocialist" imports to only 9
percent in 1981-85 .
X-D . COMPETITION IN WESTERN MARKET S
X-D-1 . Comparative Dependency on World Markets .
1) The ratios of the dollar values of trade with "nonsocialist" countrie s
to country GNPs are estimated for seven East European countries in 1980 an d
1985 . A 10 percent export to GNP ratio is estimated in 1980 for Bulgaria ,
Romania, Yugoslavia and Hungary, with a lower 6 percent for the GDR, Czecho-
slovakia and Poland . Export ratios rose for five countries, reaching 1 4
percent for Yugoslavia and 11 percent for the GDR . Thus, neither Bulgaria no r
Romania have exceptionally high levels of exports per dollar of GNP .
2) Import dependency ratios show more variation in 1980 from a high of 1 7
percent for Yugoslavia to a low of 6 percent for Bulgaria, the GDR, Czecho-
slovakia and Poland . By 1985, it rose to 10 percent for Bulgaria and fell fro m
13 percent to only 8 percent for Romania, with two other countries, Yugoslavi a
and Hungary, with 11 percent each . Again, there is no special pattern fo r
Bulgaria and Romania .
X-D-2 . Exports to OECD Countries and Import Market Share s
1) By 1980 exports of eight communist-ruled countries (the six Eas t
European plus Yugoslavia and Albania) averaged 30 percent less per capita than
80
Table X- 1ESTIMATED RATIOS OF FOREIGN TRADE WITH THE WEST *
TO GNP IN 1980 AND 1985 FOR THE COMMUNIST-RULED COUNTRIE S
------------------------------------------------------------ ------------------------------------------------------------- -Country
Exports Imports19801985
1980
1985------------------------------------------------------------ -
Bulgaria 10 11 6 1 0Romania 10 12 13 8Yugoslavia 10 11 17 1 1Hungary 10 12 11 1 1GDR 6 11 6 7Czechoslovakia 6 6 6 5Poland 6 6 6 4---------------------------------------------------- -------* Either trade in convertible currencies or trade withnonsocialist countries .
Sources : Estimated from sources cited in Tables IX-2 and IX -
3 .------------------------------------------------------------ ------------------------------------------------------------- -
a small sample of four Southern European countries (Greece, Portugal, Spain an d
Turkey) . The exports of manufactured goods averaged $100 per capita for th e
communist-ruled countries and about $160 per capita for the others, an even
larger relative difference .
2) At the time East-West trade was opening up in 1965 the overall share of
imports of OECD countries supplied by the communist-ruled countries (including
the USSR) was just 3-4 percent . By 1973, the OPEC crisis, it had not increased
and from then until 1984 it changed from 3 .3 to 3 .5 because the share of Soviet
gas and oil deliveries had gone up . Without the Soviet Union, the combine d
shares of the others fell from 2 .1 percent in 1973 to 1 .5 percent in the early
1980s . Both the Southern European countries, three of which are now in th e
Common Market, and the Newly Industrializing Countries have done better in OEC D
markets than the communist-ruled countries . The share of the latter's export s
8 1
made up of manufactured goods (SITC 5-8) remained constant, while the share o f
fuels rose from 8 percent in 1973 to 24 percent in 1984 . So market share s
would have fallen even faster without Soviet oil to re-export .
3) Bulgaria's share of total OECD imports has fallen steadily and sinc e
1974 the share of manufactured goods within that total has gotten smaller .
Romania does somewhat better having a constant market share and a constan t
percent made up by manufactured goods .
A large portion, 70 percent, of Bulgaria's manufactured exports to OEC D
fall in the category of heavy manufactures . By contrast, Romania export s
larger shares of furniture, clothing, textiles and leather goods, suggestin g
more traditional comparative advantage .
X-D-3 . Comparative Terms of Trade and Prices .
1) In the late 1960s and early 1970s, the communist-ruled countries othe r
than the Soviet Union experienced declining terms of trade, while, by com-
parison, the Southern European countries did not . These relative position s
were reversed from 1973 to 1979 when the latter had to pay OPEC prices and th e
former, excluding Romania, still received the benefit of cheap Soviet . With
higher Soviet oil prices in 1980, their terms of trade were pushed down to 197 3
levels in "socialist" trade, but improved as refined oil products were sold i n
nonsocialist markets .
2) There is not much evidence on export prices received by communist-rule d
countries in world markets . Some on unit export values indicates that they
have received lower prices than the NICs for similar products [Poznanski-85 an d
unpublished calculations by the author from Eurostat data] . Also, Romania an d
Yugoslavia may have won their EEC exports by price discounting . Their unit
82
values received in the EEC are much lower than prices received by other Easter n
and Southern European countries .
X-D-4. Marketing Efficiency .
Whether lower prices are due to lower quality products or poorer marketin g
is not clear . Evidence of the latter, estimated as the ratio of actual t o
maximum potential export earnings in OECD, suggests that Hungary's losses have
been high following economic reforms (in 1969, 1977, and 1978), while Romania
and Poland both experienced greater losses in 1980 and 1981, when they were
under pressure to export at any cost . The country with the greatest relativ e
losses in the 1980s was the GDR . Unfortunately, since the OECD data do no t
include GDR exports to West Germany, its estimate might be biased .
A study by the Economic Commission for Europe [Economic Bulletin-81, -82 ]
found that Hungary and Romania alone maintained market shares in th e mid-1970s
by improving product structures, and Romania also by improving its countr y
structure . Then in the late 1970s, they also had disadvantageous produc t
structures . A similar study by the Vienna Institute [Dietz, Fink and Grosser -
88] for the period from 1981 to 1985 finds the GDR and Romania alone to have
positive overall competitiveness . A problem is that Romanian gains wer e
concentrated in fuels, chemicals and industrial materials, whose prices ar e
easily discounted, while its losses were in consumer and other manufactured
goods where product quality and market effort count . Bulgaria (with Hungary ,
Poland, Czechoslovakia) faced declining competitiveness in given products, as
well as an unfavorable product structure .
83
X-E . Balances of Payments and Import Capacit y
1) Bulgaria began to finance imports from the West before Romania ,
although by 1966 both accumulated equal gross total debts . By the early 1970s ,
Romanian gross debt rose over twice Bulgaria's, although neither arrived a t
risky levels by international standards .
After 1973, Bulgaria entered a six-year expansion of gross debt whic h
ended with it having the highest debt burden indicators of the communist-rule d
countries . It then averted a possible crisis through a combination of a
reduction of western purchases and large-scale sales of petroleum product s
based on Soviet oil imports . From the worst debt indicators, Bulgaria acquire d
a position as risk free as Czechoslovakia .
Romania's debt, largely derived from western machinery imports, stood i n
1980-81 at more than twice the gross totals of Bulgaria in 1979 . But while
Bulgaria's gross debt indicators in 1980 were worse than Romania's, its ne t
debts that really count for credit rating and ability to pay were much better .
In any case, as is known, Romania then joined Poland in having to reschedul e
hard currency debt payments .
2) A comparison of debt burden indicators for the communist-ruled coun-
tries and three Southern European countries (Greece, Portugal and Turkey )
suggests a very big systemic difference . The latter have much higher conven-
tional indicators of the burden of debts . Yet, they did not have the crise s
that actually unfolded in Poland, Romania, and Yugoslavia (and almost i n
Hungary and maybe in Bulgaria) . This demands an explanation .
One difference in that the less-developed capitalist countries generat e
much larger ratios of invisible earnings and other remittances to commodit y
imports than the communist-ruled countries, although Yugoslavia is an excep-
tion . This is to be accounted for by different degrees of openness, including
84
temporary migration rights . But easily measured factors have been only part o f
the difference since debt burden indicators including invisible earnings and
remittances with exports still show that in 1985 Greece, for example, had
nearly the same measured burden as Poland, and both Turkey and Portugal had
higher burdens than Hungary . Yet Poland and Hungary are suffering credi t
problems, not the others .
The remaining differences across systems are found in the weakness of
credit institutions, problems of information and business contacts, uncertaint y
about political processes and concern that institutional reforms in Easter n
Europe might result in significantly more disequilibrated economies .
X-F . INSTITUTIONS FOR ACCESS TO WESTERN MARKETS
Institutional changes to promote access of communist-ruled economies to
western markets include reductions of trade barriers in western countries ,
participation in international organizations, establishment of domestically
located, foreign joint ventures and of companies located in western countries ,
and reforms of domestic production and trade organizations .
1) Two capitalist countries, Finland and Austria, have virtually no forms
of discrimination against trade with the communist-ruled countries . Most other
Western European countries have dismantled discriminatory tariffs and specia l
quotas since 1965, although, of course, Eastern European countries face th e
obstacles of EEC trade barriers, as do other nonmembers [Smith-79] . The U .S .
extended MFN to Yugoslavia, Poland, Romania, Hungary and China (although sinc e
effecting its withdrawal from Romania) . Even Japan has reduced specia l
barriers . Yet in the opinion of experts [Wolfe-76 ; Kostecki-79 ; Poznanski-85 ]
some discrimination (rather obvious in the case of U .S . tariffs against non-MF N
countries) remains and is higher than it is for imports from the NICS .
85
2) The effort to reduce trade barriers has been one objective of member -
ship in GATT, now including Czechoslovakia, Yugoslavia, Poland, Romania, an d
Hungary, with Bulgaria awaiting approval of its bid for full membership [Jack-
son-87b] . But Poland and Romania were admitted on terms that make reciprocit y
nearly impossible, while Czechoslovakia, an original member, has a clearl y
nonconforming foreign trade regime . For the others, admitted on the basis o f
an effective tariff system, it remains to be seen if they actually enjoy equa l
market access .
In addition to GATT, most communist-ruled countries in Eastern Europe hav e
attempted to obtain some sort of special status with the EEC . Yugoslavia ,
first and most successful, still has quite limited rights and even less ha s
been granted to Romania . Bulgaria's request was refused outright [Yannopoulu s
and Shlaim-78] .
Bulgaria, Czechoslovakia and the GDR are not members of the IMF and th e
World Bank, while it would seem that Romania is no longer a welcome member o r
one in good standing . Whether the three other East-European members (Yugo-
slavia, Hungary and Poland) gain benefits that help their western trade, asid e
from credits and a chance to bid on projects, is questionable .
3) Yugoslavia, Romania and Hungary all instituted some form of domestical-
ly sited foreign joint ventures in the early 1970s . Bulgaria followed later in
the decade, but had to liberalize its laws in 1985 before achieving an y
success . Romania's first ambitious steps soon stagnated for lack of complemen-
tary domestic economic organization and political accommodation .
As of November, 1977, a compendium of companies organized in the Wes t
(basically OECD countries) by communist-ruled countries enumerates 35 fo r
Bulgaria and 29 for Romania [McMillan-78] . Bulgaria's relative effort look s
greater than Romania's . In absolute numbers, both rank above the GDR and
86
Czechoslovakia, but much below Poland and Hungary, and the USSR . By 198 3
Bulgarian companies in the West increased by 37 percent and Romanian companie s
by 24 percent, but Romania's low increase placed it near the bottom in numbers .
Romania's relatively greater effort is in LDCs where in 1983 it had the larges t
number of companies of all communist-ruled countries . [McMillan-87] .
4) In 1969 Romania undertook what appeared to be liberalizing changes in
the organization of foreign trade that increased the number of foreign trad e
organizations and placed more of them under the producing industrial central s
and large enterprises . But this step was subsequently reversed [Brada an d
Jackson-77] . Also, an announced application of the principles of a Ne w
Economic Mechanism to foreign trading in 1978 probably never got off the groun d
in the emergency measures applied since Romania's credit problems in 198 1
[Jackson-81a, -86b] .
Bulgaria also announced organization of a New Economic Mechanism in 197 8
which was supposed to have been applied to foreign trade in 1982 . This reform
effort was apparently delayed or suspended . Since 1985 a more serious effort
has been taken to decentralize foreign trade decisionmaking to the level o f
major industrial organizations together with revisions of the price and foreig n
exchange systems [Grosser-88b ; Jackson-88] . While this reform is one of the
conditions of Bulgaria's GATT application, it remains unclearly applied . So
far, there are no positive effects on export performance [Jackson-87] . I n
fact, there is a worrisome expansion of Bulgaria's hard currency debt whil e
exports are declining . There is also no indication that the Bulgarian Com-
munist Party will permit any economic or political glasnost, now recognized
even by Gorbachev to be a condition of economic reform .
87
Chapter XI . SUMMARY AND CONCLUSIONS : BARRIERS TO MATURITY
XI-A . FROM GROWTH TO MATURIT Y
Evidence presented in this research report supports a tentative conclusio n
that communist rule has failed to provide a superior means of economic develop-
ment . The growth surge of the 1950s and 1960s was based on nonrecurring growt h
sources . Besides it was not higher than would be expected in similarl y
developed capitalist countries . The slowdown in growth in the late 1970s and
1980s means there is little chance of catching up with Western Europe and
raises the possibility that communist-ruled countries will soon be overtaken b y
the NICs .
More ominous than the growth slowdown are increasing signs that Stalin -
inspired institutions not only have failed to routinize economic growth, the y
seem increasingly unable to cope with the arbitration of divergent domesti c
interests and to organize international interactions effectively . There is no
institutional maturity under communist rule .
XI-B . THE NEED FOR REFORMS AND BARRIERS TO MATURITY
Everyone, even reactionaries, agrees that some institutional change unde r
communist rule is needed . The formidable obstacles include political barrier s
such as ideology and vested interests, and the structural deviations identifie d
in this research . Structural deviations interact with political barriers ,
causing the latter to be higher than in structurally conforming economies .
88
XI-C . SUMMARY OF STRUCTURAL DEVIATION S
The communist-ruled countries have relied too much on physical capital and
raw materials, while underutilizing human resources . Now they are overin-
dustrialized . Too much manufacturing is really redundant, posing impediment s
to interaction with the rest of the world . It is not just that much productio n
cannot be exported for domestic gains because it is of poor quality compared t o
similar products in world markets . The problem is that much of what i s
available is simply the wrong products, most of it in heavy industry that is
also redundant and not export-competitive in the West . But the dimension of
structural malformation is higher under communist rule .
The system's initial advantages in mobilizing labor resources by mas s
education and public health, and by transfers of labor out of agriculture, hav e
passed and have now been offset by problems on the consumption side . Lack of
housing deters matching place of residence and place of work, and reduces
secondary urban-urban mobility of labor . Too few service workers per in-
dustrial worker increases real consumption costs and reduces labor produc-
tivity . Low shares of consumption mean incentives are lower than people' s
human capital, creating an incentive for economic emigration . Environmental
conditions have deteriorated below those in Western and Southern Europe .
XI-D . STRUCTURALLY INDUCED DISEQUILIBRIUMIN COMMUNIST-RULED COUNTRIE S
Until recently, evidence of structural malformation was suppressed b y
planning and central controls so it could only be detected by statistica l
comparisons . Now the evidence comes from Yugoslavia, Hungary and Poland a s
overt inflation higher than any in Western Europe, open unemployment, and ope n
resistance of workers to wage and job readjustments . More open borders in
Hungary and Poland also reveal the increasingly large numbers of people who
89
would seek jobs in the West . Finally, the failure to restructure export s
remains, as before, an open record of misconstructed economies .
The lesson of these three countries is that if the economies of th e
communist-ruled countries were opened to anything like world competition, ther e
would result massive losses, plant closures, and unemployment . If consumer s
and workers were open to free competition with the rest of the world, ther e
would result massive pressures for import of goods and a potentially large -
scale exodus of people that could only be suppressed by closed borders i n
Western Europe and North America .
XI-E . COMPARISON WITH THE SOUTHERNEUROPEAN CAPITALIST COUNTRIES
A lesson in comparative economics can be learned by considering what ha s
happened in Southern Europe . Here countries also faced serious challenges i n
the 1970s, not the least of which were political . Dictatorships ended in
Portugal and Greece in 1974 and in Spain in 1975 just at the height of th e
first OPEC-induced crisis . The subsequent stabilization of their democrati c
politics brought all three into the European Community as full members, Greec e
in 1981, and Portugal and Spain in 1986 . Turkey's path, with military coups in
1960, 1977, and 1980, remains less clear .
There is no doubt that the need for structural change crossed syste m
boundaries [Donges and Schatz-85] . Nearly every recent report on Southern
Europe by either the ECE or the OECD has raised the issue [see OECD-83] .
Still, they have broken through economic barriers that existed around 1970 t o
achieve levels of development converging on the rest of Western Europe . Their
basic organizations, firms and governmental units carry out domestic develop-
ment, with incentives and means of arbitration, not suppression of the diver -
gent interests of domestic groups and individuals . They have a similar ability
90
to interact with the rest of the world, to acquire and assimilate information
from it, while continuing through those markets to match average growth rates
of the most-developed countries . This is what the institutions of a "mature "
society should be capable of and of which there is no sign in Eastern Europe .
XI-F . INTERACTION OF STRUCTURAL ANDPOLITICALBARRIERS TO MATURING IN BULGARIA AND ROMANI A
Relative to urban housing and services, Bulgaria and Romania are the most
"overindustrialized" of all communist-ruled countries . Both have too muc h
heavy industry, Romania more than Bulgaria, and it adds low levels of foreign
trade dependency . Since 1965 Bulgaria has neglected development of agricultur e
and light industry . A big problem for Bulgaria is how can high levels of trad e
with CMEA be turned from impediments to advantages in western markets wher e
skills, institutions and comparative advantages are all different .
Most signs of disequilibrium have been suppressed in Bulgaria and Romania .
A spate of consumer price increases took place in the early 1980s, but recentl y
the main evidence in both countries is queues, poorly stocked shops, and blac k
markets for foreign currency . There is no question that conditions have been
much worse in Romania than Bulgaria . If one could calculate both the time an d
the money required to obtain goods in the Romania economy since 1982, one would
probably find Romanians as poor as Albanians, while facing enormous variation s
in the real costs of goods because of the unpredictability of supplies . Even
the old ways of providing for oneself have broken down .
Interfirm supplies have also been more chaotically managed in Romania .
How far Bulgaria has implemented reform measures calling for wholesale trade a t
negotiated prices remains unclear . It is suspected that they have not gone far
and that supplies are still distributed by a central allocation authority .
9 1
Romania's foreign trade was out of control on both the export and impor t
sides in the late 1970s . Since then, imports have been suppressed and export s
forced to the point of upsetting production and consumption . In the last two
or three years Bulgaria's hard currency imports have experienced an amazin g
increase, suggesting that neither central authorities nor new reform measure s
are in control .
One may only speculate how many Romanians and Bulgarians would have bee n
gastarbeiter if their borders had also been open . The only actual emigration
of any magnitude from Bulgaria and Romania has centered on ethnic groups - Jew s
and Germans from Romania, Turks and other Moslems from Bulgaria . These group s
surely would have participated actively in any copying of Yugoslav conditions .
Also, a large ethnic Romanian exodus could be predicted by the numbers who hav e
left illegally since the 1960s .
Nothing so dramatic as the end of dictatorship has taken place in Bulgari a
and Romania . Instead, Ceausescu's authority has gotten increasingly oppressiv e
and capricious in terms of all indicators, including the management of informa-
tion flows across borders . Bulgaria has passed measures requiring elections
with multiple candidates of enterprise managers and local officials, and ope n
praise of personalities has been outlawed . Still, there is no doubt abou t
Zhivkov's paternalistic role . As far as he can be effective, there will be n o
risking of political control and stability in the country by radical reforms .
And there is no sign that information policies have been changed or tha t
contacts with foreigners are any less restricted than they were a decade ago .
9 3
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