Michael Shafir's Report on
Just like the rest of Eastern Europe after the war, the Romanian economy based on the Soviet-type economic system. Politically Romania became a satellite of the USSR. Although at the Romanians readily accepted the change they soon became aware of its inefficiencies and failures. They attempted to modify the systems to better suit their needs. However, they dared not stray too far from the Soviet ideology for fear of retaliation from the Soviet Union. The hesitation to offend the USSR soon passed and Romania began to truly change the institutions so that Romania's economy could recuperate from the blows that it received under the Soviet-type command economy.
The Soviet Union pressured Romania to pursue policies of industrialization and collectivization. The economy was to be centrally controlled through a hierarchical system with the Romanian Communist party at the top to guarantee that the Soviet Union had final say. There were long term and short term plans created by central planners. In a short-run the economy was coordinated by the sequence of annual plans. The long run growth targets were supposed to be implemented through five or six year plans. Although initially the economic planning was a carbon copy of the central planning in the Soviet Union, Romania soon discovered that modifications needed to be made.
The 1960's brought the period of "modernization". The reform begun during this time was based on the principles of transformation, consolidation, and the containment of the communist influences in the Romanian economy. However, it was only in 1967 that a draft of the economic reforms was truly formed, but it was only partially implemented at that time. Part of the plan was that a new strata was to be created between the economic ministries and enterprises in the hierarchy of the central planning system. This level would consist of the 'centrals'. They were to be in charge of the fulfillment of the economic plan created by the government bodies. They were to be subject of the central planning but they were to retain certain autonomous economic units which were to have money and materials of their own. The centrals were to consist of groupings of enterprises. Although in many respects they were freed from government control they still had to answer to the ministries (under whom they were controlled and regulated.)
Another segment of the 1967 reform had to do with price controls. The reformers had concluded that many products and enterprises were not profitable in the economy. Therefore, they determined that the new economy should have its production (among other functions) based on real production costs. Thus it was necessary to have a flexible mechanism to implement prices based on a more capitalistic approach to the economy and determination of prices. The centrals, in their new found power, were allowed to somewhat modify the prices so that they would reflect the real production costs involved.
New institutions were also created and the existing institutions were altered so that they could suit the new economic procedures. These measures created conflict between Romania and the Soviet Union. For example Khruschev showed his displeasure through the fact that he wanted Romania to supply the agricultural products to the industrially advanced members in COMECON . He did not want Romania to participate in COMECON on an industrialized level, thus a transformation in the economy would be difficult at best to truly stimulate. This attempt to stunt industrial growth had not been the first for the Soviet Union. As a result, Romania turned away from the Soviet Union and looked to the West for trade and political support on a considerable scale. This was not the first time that Romania had looked elsewhere for assistance but in the 1960's this turning away from the Soviet Union showed a split between the Romanians and Soviets.
The leaders of Romania knew something had to be done in order to break the ties that Romania had to the Soviet Command Economy. Both Dej and Ceausescu attempted to de-Sovietize Romania. During this period the constitution of Romania was even altered in order to try and change the economy. In 1969 Article #5 of the constitution was changed so that the national economy was described as "socialist, based on socialist ownership of means of production." Article #4 made the Grand National Assembly the "supreme organ of state power." However the candidates of the Grand National Assembly were still nominated by the Socialist Unity Front which was directly linked to the Communist party.
In 1973 a further step towards economic reform was taken. Joint Party- state bodies were created to control the economy. However, this did not diminish the control that the party had over the economy, instead it actually increased the Party's direct involvement in the decision-making.
In 1978 an attempt at further decentralization was made as an extension of the reforms which were attempted in 1967. It consisted of a four part plan which would improve efficiency through greater autonomy. The first step would be to take power away from the centrals and enterprises and transfer it to the central organizations which were lower in the hierarchy of "planning management", making them more powerful. However, the enterprises would be allowed to have more power in plan-making. Banks would increase their credit activities but bank regulation would also be increased. The second step would consist of the self management of the firms at all the levels of production.
In some respects the individual enterprises would be responsible for controlling themselves and their individual production. Part three of the plan was originally part of the 1967 plan but was never implemented. However, in 1978 it was decided that profit sharing was an integral portion of the reform in the economy that it was attempted. Part three also helped the firms towards the goal of efficient production. The last and final step was had to do with the modification of the economic indicators in the economy. Instead of being solely reliant on the gross output value to plan the future activities of the economy, planners were to use net production as an indicator of future production. Net production would be equal to the total output minus the raw material expenditure.
The above reforms were implemented in stages. However, there existed a problem of price deterioration which was never completely rectified during the reform. After the reform's implementation there still remained problems. The question of the reduction of central control remained. There arose problems with the centrals and enterprises and their autonomy from the central planning mechanism. However, as a result of the plan's implementation the national investment rose during this period.
Romania has not been yet fully transformed itself. It is still reliant on the agricultural sector of its economy to maintain its economy. The steps taken during the various reforms were steps in the right direction. However, they were not enough to considerably change the state of affairs in Romania.
Romania has much to do before it can compare with the Western World economically. Like the rest of the Eastern Bloc it realized too late the negative ramifications of the Communist regime's idea of a Command Economy and was unable to revert back to its previous economic conditions.