Economic_History_anim.gif (3797 bytes)   ROMANIA 

 


ROMANIA'S TURBULENT ECONOMY
(1970-1985)


by Michael Dean

 

 

Introduction:

Throughout this period, Romania undergoes a transformation of gargantuan proportion in terms of its economy. Under the leadership of the notorious Nicolae Ceausescu, the country was forced to adopt his doctrine of intense industrialization. Ever since he assumed the position of first secretary of the Romanian Communist Party in 1965, he went to great lengths to discredit his opponents and even some of his colleagues. Anyone who stood in the way of his ideals, was summarily swept aside. It is therefore not incorrect to state that Romania's economic policy was not really that of the country's, but rather that of one man; Nicolae Ceausescu.

 

1. Early 1970's:

The policies of the Ceausescu regime, were directed toward broad mobilization, rapid economic development, and tight social control. The goal was to promote "multilateral development", that is according to author Ronald H. Linden, " the achievement of a modern, multifaceted, industrially based economy no longer confined to the second class status of producer of primary materials." Ceausescu proceeded on a path designed to expand the nonagricultural sector as rapidly as possible, using natural and human resources, as well as international opportunities.

 

Initial targets were set very high and often revised upward; goals that were expected to be reached in the Five Year Plan, were subject to fulfillment in four and one half years. For the period of 1970-1975, the industrial growth was the most rapid in the region. Net material product grew by more than 11% annually between 1971 and 1975. Of that 11% growth per year, industry accounted for 14% and transportation and communication for 11%. Industry also took the largest portion of investment during this period, almost 58%, compared to that of agriculture, which only received 16%. In order to achieve this rapid expansion, the Romanian economy initially relied primarily upon its own resources. The demand for workers were met by drawing from the agricultural labor force; while financial demands were met by restricting consumption. For example, from 1971 through 1975, only 8.4% of all funds were invested into industries pertaining to the production of consumer goods. Despite this though, most indicators did show some improvement in the standard of living during this period. However, it still remained the second lowest in Eastern Europe. In line with the industrialization plan, Romania also spent very little on defense. In fact from 1971 till 1973, it had the lowest defense expenditures as a percentage of GNP in East Europe.

 

At the same time, Ceausescu was also making bold moves to establish contact with nonsocialist partners. Romania began participating in the General Agreement on Tariffs and Trade (GATT) in 1971; joined the IMF and World Bank in 1972; and in 1973 became the first CMEA country to receive generalized trade preferences from the European Economic Community (EEC). By 1974, the trade with capitalist countries exceeded the Romanian trade with its fellow CMEA states.

 

2. Period from 1975-1985:

The brief euphoria that was felt during the early 1970's, expired rapidly from 1975 onwards. The intense industrialization process had taken its toll on the Romanian economy, as well as on the population. The rates of growth of Gross National Product began to slip in 1975, and proceeded to fall well into the 1980's. Growth in labor productivity also started to fall and by 1980, had fallen to half of its 1970-75 rate. The labor pool by this time was totally exhausted, making it difficult to shift more workers from agricultural areas. By 1978 Romania's trade balance with capitalist countries reached a deficit of nearly $800 million. At the same time the government began to increasingly take advantage of outside sources of funds, as for example loans from both the IMF and the World Bank. In the oil sector alone, the demands for growth of heavy industry had resulted into escalating imports of crude oil; from 5.1 million tons in 1975, to 12.5 million tons in 1979, and to 14.6 million tons in 1981.

 

The impact on the standard of living was disastrous. Power cuts and energy restrictions were instituted in 1979 and food rationing became common from 1981. Overall retail prices jumped by 17% in 1982 and the price of agricultural goods rose by almost 35%. Ceausescu's response to this fast accelerating debt and dismal standard of living, was to institute a revolutionary new Five Year Plan. The demands that were put forward in this plan were ludicrous. In spite of its pitiful state agricultural production was planned to grow by 4.5% - 5% annually. Production of oil and natural gas was to double, while that of coal was to triple. Foreign trade growth was supposed to reach 12% per year, with exports accounting for most of the growth. All of this was to be achieved by suppressing domestic consumption. A 40% reduction in the domestic consumption of energy was envisaged; investment levels, personal consumption and the growth of individual income, were all to be reduced.

 

In the meantime, Ceausescu placed all the blame on his "inept" ministers, firing some of them and reshuffling the others. This action also proved useful in preventing anyone from growing too politically strong to oppose him. Ceausescu also approached the international community, demanding that Romania's debt obligations be re-negotiated. After some concessions were made, Ceausescu boldly proclaimed that with his new plan, Romania could cut its debt by 50% by 1985. This was not to be.

A comparative look at the level and growth of consumption, between Bulgaria and Romania, clearly reflect why Romania had the lowest living standards, with the exception of Albania, in East Europe. In 1960, the levels of consumption in Bulgaria and Romania were almost the same.

This suggested that both countries had equal standards of living. By 1975 however, the Romanians were doing miserably in comparison to their Bulgarian counterparts. After that it just became worse.

 

 

LEVEL AND GROWTH OF PERSONAL CONSUMPTION 
LEVELANNUAL % GROWTH
% OF BULGARIAROMANIA (ACTUAL)
19751971-19751981-1985
A. CONSUMPTION PER CAPITA
TOTAL 71.0
Meat Products 7.9  2.3
Milk Products  3.71.3
Oils and fats 3.92.0
Vegetables 89.05.4 1.5
Sugar products62.51.02.5
Fabrics74.04.64.3
Eggs146.68.60.5
Footwear125.03.20.0
B.STOCKS PER 1000 PEOPLE
Automobiles30.016.415.3
Televisions74.012.13.8
Refrigerators55.012.2 7.0
Washing Mach.39.08.18.9

 

 

The Romanian people endured extreme hardship during this period, and some vain attempts were made to ease the social tensions. Miners were given a substantial pay increase, while farmers were granted larger subsidies. The feelings of discontent were however too deep, and the strict oppression that Nicolae Ceausescu had forced upon his people, would inevitably rise up against him and end with his execution.

 

SOURCES:

  • 1. TABLE: Romania in the 1980's by Daniel N. Nelson Westview Press: 1986 Page 291, 292

  • 2. Communist States and International Change by Ronald H. Linden Allen&Unwin Press: 1987, Pages 47-122

 

 

 

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