From shortly after WWII to April of 1992, Albania operated under a command economy. To understand the performance of Albania's command economy during this time frame one must understand the organization of a general command economy. The price system, information, motivation, and rationing in a command economy differs starkly from the price system, information, motivation, and rationing characteristics in a market economy. The price system in a command economy is organized by the government. The government plans what and how to produce. The lack of a market system, in what and how to produce, effects the supply of information too. In a command economy the price system does not provide accurate and timely information to producers and consumers. Surpluses and shortages result because of this. Producers and consumers are not motivated to change their behavior because the government set price changes are infrequent. Therefore differences in supply and demand do not disappear. Even if change did occur in price the rationing by producers would still not change. There would be no incentive for producers to change their behavior because they would not yield any of the benefits- the profits. The organization and performance of Albania's command economy can be divided into five periods; after WWII to 1945, 1945 to 1948, 1948 to 1960, 1961 to 1978, and 1978 to 1992.
At the onset of the closure of WWII, Albania imposed the Stalinist System. Albania's government, the Albanian Communist Party, took full control of the economy. In December 1944 they adopted new laws that provided for the implementation of strict state regulation of all industry and trade. Laws justifying the governmental seizure of property belonging to anyone thought to be an enemy of the people were etched in stone. In early 1945 the Albanian government confiscated Italian and German assets, revoked all foreign economic concessions, nationalized all public utilities and means of transportation, and created government sponsored consumer cooperatives. The Stalinist leaders pushed for the development of heavy industry ignoring Albania's comparative advantage in agriculture and light industry. By early 1947 the government had in place the institutional framework for a Stalinist economic system. Industries were nationalized, and the control of foreign trade and domestic commerce was seized. The Soviet accounting system was also introduced throughout Albania. Party adherents and teachers began teaching the population the economic catechism of Marxism-Leninism.
Between 1945 and 1948 Albania relied on the help of foreigners as well as its neighbor Yugoslavia. After WWII Albania depended heavily on foreign assistance. The United Nations Relief and Rehabilitation Administration gave Albania 26.3 million US dollars in aid during 1945 and 1946. Large amounts of seed and grain were also provided. In July 1946 Albania signed a treaty of friendship and cooperation with Yugoslavia. This treaty provided for the establishment of an agency that would coordinate the economic plans of both countries. It also called for the creation of a customs union and the standardization of the Albanian and Yugoslav monetary systems. In 1948 Albania abruptly cut these economic links with Yugoslavia after some disagreements had emerged.
Between 1948 and 1960 Albania relied on the Soviet Union. In 1948 the Soviet Union supplied the aid that Albania had lost from its break from Yugoslavia. Albania's factories became dependent on Soviet technology. New elements of the Stalinist economic system were adopted. This included the Soviet three process for drawing up the national economic plan. Albania also adopted the basic elements of the Soviet fiscal system. Under the Soviet fiscal system enterprises contributed to the state treasury and retained only an authorized share of earnings. The first five year plan (1951- 1955) focussed on mining and electric power production and transportation improvements. Shortfalls in agricultural production destroyed the plan. The government then began focussing on agriculture and consumer goods production. Although their efforts brought some success, in 1953 almost 70 percent of Albania's work force continued to work the soil. Albania conducted all of its foreign trade with the other communist nations. Over half of Albania's trade was with the Soviet Union. B 1960 the farm sector continued to suffer from low productivity. Albania's leadership was determined to concentrate on heavy industry. This decision lead to the break with the Soviet Union. Albania then turned to China for help.
Between 1961 and 1978 Albania depended on China's help. Albania's third five year plan (1961- 1965) deviated greatly from the Soviet's advice to concentrate on agriculture. The plan allocated 54 percent of all investment to industry. The plan aimed at increasing industrial production by 52 percent. The Soviet aid stopped and brought about a disruption in Albania's economy because China was unable to provide complete compensation for the aid stoppage. In 1962 the Albanian government introduced new cost cutting programs and resource conversation programs in order to prevent the economy from stagnating. When this did not work the government leaders attempted to reform their policy on agriculture. They increase the amount and quality of arable land. Agriculture, however, only grew 22 percent instead of the 72 percent goal. Industrial production only grew 14 percent. The failure of the focus on heavy industry production led to fear of a potential citizen resurrection. In the mid 1960s the Stalinist economic system was adjusted. Worker participation in decision making was allowed. The decision making power of the Council of Ministries was also decentralized. However resources were still allocated under a central plan. In 1966 the Albanian Party of Labor made drastic changes to job allocation and wages. Almost 15,000 jobs were cut, income taxes were eliminated, and salaries were greatly reduced. The fourth five year plan was administered between 1966 and 1970. It aimed for a 50 percent increase in industrial production. In 1967 the government aimed at improving self-sufficiency by developing a scientific and technical resolution. This worked well until in the early 1970s China reduced aid. The economy turned downward rapidly. This clearly showed that the Stalinist strategy failed to provide growth when aid was reduced. The fifth five year plan (1971- 1975) was also effected with a reduction in aid from China in 1972.
In 1976 the People's Assembly would not allow any foreign aid from a capitalist source. In 1978 China ended all aid to Albania. Albania's leaders then began promoting a system of autarky. However autarky was unsuccessful. Albania suffered two of its worst years in 1984 and 1985. By the late 1980s Communist governments in Eastern Europe were being demolished slowly. Capitalism was reintroduce into the region which influenced change in Albania. The coalition government fell and in 1992 the Albanian Democratic Party (ADP) took over the government, and introduced their economic reforms based on market economics.
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USAID- Albania 1998 Congressional Presentation