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3.1.2 The Economic Inheritance of 40 Years of Communism


Academic Research paper and Study of the Economy of Romania and Romanian Business

It has often been highlighted that the economic initial conditions for the Romanian transition process were untypically “dire” (OECD 1998: 1). Many articles on Romania’s transition stress their importance for the following developments (e.g. Dăianu 2000; Maniu et. al 2001; Scrieciu & Winker 2002). The definite overview in this regard might be the IMF working paper by Demekas & Khan (1991). Accordingly, this chapter is nearly entirely based on their assessment.

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Other CEECs already gained first experiences with basic economic reforms in the 1960s and onwards, though to a differing degree. Some featured a political opposition and most had a larger expatriate community, which could help with foreign advice and assistance. Not so in Romania. Emigration had been subject to tight controls, even concerning interior migration. Cities with over 100,000 inhabitants remained virtually closed and the institutional design was Stalinist. Despite some few and insignificant reforms the Romanian economy remained „essentially unchanged” (ibid: 5) until the very end of Ceaușescu. The entire economy was centralized and private production property absent – with the unimportant exception of a few private farmers in the countryside. Prices and wages were centrally set and had no allocative function. Labor mobility was likewise controlled from the top. Most people were employed in enterprises (centrals) with 8,000 employees on average; some of them employed over 100,000 persons. Foreign trade was centralized, capital inflows restricted and unattractive.

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Output objectives were more and more unrealistic, what lead to a “vicious circle of tightening of controls, greater disorganization, and further tightening of controls” (ibid: 11). Main objective of the 1980s was the (p)re-payment of all foreign debt, which relied on large current account surpluses. As export performance was weak, these were achieved by substantial cuts in imports and household supply – in spite of a continuous population growth[1] – a quantitative and qualitative decline in investment and heavy taxation. The outcome of this economic policy was stagnation, low foreign reserves, the erosion of the capital stock and dramatic shortages of basic consumer goods. The industry got more and more energy intensive, so that energy was further diverted from households to industry. Demekas & Khan (1991) conclude in their IMF working paper:

“The economic legacy of Ceaușescu was an economy with an inefficient industrial structure and an almost totally obsolete capital stock, a completely disorganized system of production and distribution, a collectivized agricultural sector, a decaying infrastructure, and a population whose living standards had been forced steadily down to a level where even basic necessities – food, heating, electricity, medical attention – were hard to come by. There is little doubt that the initial conditions in Romania for the reform were far worse than those faced by the other reforming Eastern European countries”(Demekas & Khan 1991: 46ff.).

Footnotes

[1] Contraception and abortion were legally banned during the Ceaușescu era what resulted in the desired high fertility rates (3.7 in 1967, about 2.4 during the 1980s) which turned low only after 1990 (cf. Betea 2004: 250).