Transition  Crime   

The time of Caritas in Romania (1990-1994)

by Inna Fikh

In this paper I would like to talk about Caritas, which played a very significant role in post-revolutionary Romanian life and its transitory period toward market-based system.  What was Caritas?  "Caritas was the largest and most far-flung of many pyramid schemes that sprang up in Romania during 1990-1994" (Verdery, 169).  First of all it is necessary to define what is a pyramid scheme. A pyramid scheme is a system of making money which requires an endless stream of people for success.  Individuals give money to recruiters and enlist fresh recruits to give them money.  Similar schemes developed in other Eastern European countries as well as Russia during the transition period. 

The founder of Caritas in Romania was Ioan Stoica.  He opened Caritas in 1992 as a limited liability company with assets of 100,000 lei. His claim was that the program will help Romanian people in the period of hard time, when the economy was changing its course sharply, abandoning the former planning version for the favor of the free-market. A person who deposited his money into Caritas was promised a return eight times his money in three month.  Initially only residents of Cluj could make deposits but they became financial agents for their friends and relatives elsewhere and the restriction was removed.  Any Romanian citizen was eligible to make a deposit into Caritas.  No doubt the terms of the project became very appealing to the Romanian population.  "A report attributed to the secret service claimed that 1.2 million people had deposited in the first five months of 1993-thus before the scheme really took off.  Figures were also given for the amount of money created by the system.  A November 1993 New York Times story quoted economists' estimates that the scheme had pulled in altogether $1-5 billion" (Verdery, 171).

Why did people deposited their money so readily into this newly created system?  For many the high returns seemed as the only way they were able to keep up with the economic conditions of the time.  "Inflation was running at 300% in 1993, a 40% drop in real income as compared with 1989, negative interest rates, and problematic access to credit and loans, especially for small producers" (Verdery, 172).  People invested their money into Caritas, hoping that they would get large enough returns to set up their own businesses, buy new houses and make a better living.  People were coming from Hungary, Germany, Moldova and Ukraine to deposit their money through friends.

Although many believed in the success of the Caritas, there were many more who were skeptical.  Caritas' fall was inevitable in 1994 when Stoica officially announced its end.  However Caritas had many diverse consequences and performed "varied social and cultural work" (Verdery, 174). 

There were several major economic effects:

1)       A new conception of money

2)       Capital formation and investment

3)       Massive redistribution of wealth

In her article about Caritas, Katherine Verdery talks about the impact of all the above effects upon Romanian people.  Under the socialist regime, people didn't have to worry about inflation, they didn't plan to make any profitable investments and for decades savings accounts earned a small interest, making negligible increases in wealth. 

After 1989, when the last Communist ruler was gone, Romania's economy started to implement market forces in its transition away from socialism toward capitalism.  Perceptions of wealth and its accumulation differ greatly under  the capitalist system from the socialist one.  "Market-based systems regulate the flow of wealth very differently from the planned economy of socialism" (Verdery, 181).  For one thing, in socialism most prices were determined by the 'central planner' and not by the forces of 'supply and demand'.  Due to a lack of adequate price system, the choice and availability of consumer goods was often times limited in the socialist system.  The system's mode of operation itself tended to sacrifice consumption, if favor of production and controlling the products produced.

With Caritas people could plan their future different from the past.  By investing their money into Caritas, people began to think about money differently.  "It enabled them to manipulate in their minds sums they had never imagined, to think about what they might do with such sums-to plan their expenditures-and to grow accustomed to thinking about larger and larger sums in a gradual way" (Verdiry,181).   During socialism, people believed that only money from work are acceptable thus making money earned from commerce, high-interest loans, interest from capital or investment unacceptable and 'dirty'.

The one positive effect of Caritas was precisely the idea that challenged such thinking.  Most people didn't understand how the Caritas worked, making it possible getting eight times more their deposit.  They saw that it worked for some (at least in the beginning) and they took it for granted because it worked.  Money was circulating through the establishment of the financial system even though it didn't have a clear agency governing it.  With the establishment of Caritas, some individuals tried to invest their money into setting up new businesses, some used the money for consumption goods that were limited before, especially under the years of Ceausescu's rule.

The crucial question to ask is the following:  how many of those individuals were common folk people and how many in one or other way belonged to some political group, how many were members of the Romanian elites?  The author of the articles suggests that most of the gains from the Caritas went to the scheme's organizers, their friends and their political allies who invested early on and got their payoffs.  There were considerably less people outside of these groups who benefited from Caritas.  On the contrary many people never got their high promised returns, and those who put too much at risk  (like houses, apartments and borrowed large sums of money at the bank) were left face to face with the long-term hard consequences of the fall of the Caritas.  

There are many questions still to be answered, above all why the government allowed this patently fraudulent and probably illegal scheme to be set up in the first place and why it was allowed to continue for so long.  The result is unfortunately more clear:  "Caritas, and other similar schemes like it across the formerly socialist world, helped to produce two opposing groups: one whose new wealth enables them to make money and dominate politics, and one, increasingly impoverished and disenfranchised, who will see riches as immoral and risk as unrewarded" (Verdery, 203). 

Bibliography:

 

1.  Verdery, Katherine.  What was socialism and what comes next?  Princeton University Press, 1996.

 

    

 

 

 

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