Capitalism.

The transition to capitalism in the

Post-communist Romanian Society and the current
economic system

Teodora - Snziana Stoicescu
University of Bucharest, Faculty of Political Science
First year, B series


We have been brought up in a society that is permanently changing and in a transition
process. After the revolution of 1989, Romania came into contact with the new form of free
market, new ideas and concepts which up to that point had been considered evil by the former
political regime. Capitalism used to be approached only as a source of problems of all kinds; in
school were studied scholars such as Karl Marx, party ideology and scientific socialism.
Therefore, any contact with the Western civilization was attempted to be abolished.
But is it really capitalism that we see today? Has our present day society truly adjusted to
the mechanisms of capitalism? Is the transition complete, has it come to a halt or is it still going
on?
First of all, I should briefly explain what exactly capitalism is and how it was formed and
put into practice. Although merchants and trade are actually positioned at the core of capitalism,
its origins are in 13
th
century Europe, when the feudal era came towards the end. The discovery
of the New World became propelling and decisive for the development of business and
commerce. The next step on the evolution scale was the Industrial Revolution, which made
possible the massive specialized production with substantially reduced costs. Instead of manual
labor, work became mechanical, done with the help of machines and technology and this proved
very efficient and more sufficient to the needs of society.
1

This was the actual birth of what we call today capitalism. The establishment of private-
owned factories that produced whatever goods were needed according to the populations
demand. Therefore, a competitive system was formed, guided by the principle of the consumers
sovereignty. As long as this fair competition is existent, the market would self-regulate itself,
thus the implication of the state should be minimal. The only duty the state ought to have is to
maintain a certain level of security, to ensure that economy goes on well, that it is not affected by
either internal or external disturbing factors. This is why, anti-monopoly and anti-cartel policies

1
Some of these data are gathered from the Microsoft encyclopedia Encarta
Page 2 of 7

are put in practice. It is impossible to reach a level of perfect competition, but the goal is to at
least maintain a fair one. On the one hand, this could make a positive aspect that the state plays
the role of a protector and that it makes sure everything is running smoothly, but on the other
hand, history has taught us that some abusive states even started wars in order to obtain certain
natural resources such as oil, diamonds or gold. If in the past wars were fought on grounds of
territory and pride, but this is not the case anymore or at least in the Western civilization; for
example, the Americans wouldnt have invaded Iraq for sure unless there were significant petrol
resources.
The flaws of this economic system generated a series of controversies created a branch of
opponents, one of them being the most important figure of communist theory Karl Marx. In the
Communist Manifesto he suggests that capitalism is an evil economical system that exploits
workers, makes them work in harsh conditions, including in this category even children. I do not
know whether this is true or not, but I have to say that if we compare the progress brought by
capitalism with the one brought by socialism in countries such as those in Eastern Europe, the
conclusion I derive is in regard with the evident superiority of capitalism.

Now, that I have set the origins and debates around capitalism, I should also specify some
of the characteristics of this system in order to be able to see whether contemporary post-
communist societies are capitalistic in the real sense of the word. To make things as precise as
possible, I will paraphrase the information from a political economy textbook.
Capitalism is an economic system in which the means of production are private properties
that seek to obtain private profits. The free market economy is a modern form of human activity,
as part of whom people act freely, autonomous and efficiently according to the rules of the
market. This makes possible the effective capitalization of resources in order to satisfy the
unlimited needs of the people.
2
The main characteristics are as follows:
Pluralism of economic agents, based on private property domination; this gives
them the power to make decisions and take actions in a competitive system of
economy;
Supply and demand have no restraints, according to them a price in equilibrium is
formed on the market;
The existence of stable monetary and banking systems;
The existence of the democratic state.

Romanians have lived under communism since 1947 until 1989, which is a period of 42
years. During this time, society was controlled at all levels by the party: socially, educationally,
politically, culturally and very importantly economically. The system was that of soviet-like
planned economy which involved the sole existence of public property, low productivity and

2
Stelian IORDACHE si Constinel LAZAR, Curs de economie politic, Editura Economica, 1999, p. 50
Page 3 of 7

efficiency, low interest of public good, adoption of plans for production: one for every five years
(planuri cincinale). It is hard to imagine the transition from this time of authoritarian regime,
where domination is imposed by fear and terror, where you sit in rows for hours so that you can
receive milk or other basic goods and liberties are so desperately desired. The reign of Dej,
carried on by his apprentice, Ceauescu, meant the dissolution of certain social classes such as
the bourgeoisie, the intellectuals, the clerics and the politicians of the old Kingdom. These
people were severely persecuted right after the installment of communism they were either put
in prisons, or sent to labor camps, such as the Danube-Black Sea Channel, where they did not
stand not even a moderate chance of survival. Everything of value was destroyed and replaced by
ephemerality, desperation, coercion and fear. Non-values were promoted, workers were highly
praised, massive industrialization was triggered, entire villages were destroyed, peasants were
brought in massive waves to cities in order to work in the newly established factories and this
also implied the blooming of huge agglomerations of grey unaesthetic blocks of flats in all cities
in Romania. These neighborhoods are specific to the communist era and they provoke a certain
degree of sadness reminding us of this regime of no precedent.

So, the complex process of changing by 180 degrees the social, economic and political
perspective is a very difficult thing to do. The transition from plan to market was a issue that
interested the World Bank also which published in 1996 From Plan to Market, a report that
analyzes the orthodox neo-liberal policy advice concerning the role of the state in post-
communism
3
:
The transition from plan to market calls for a whole-sale reinvention of government.
The state has to move from doing many things badly to doing its fewer core tasks
well. This means government must at once shrink and change its nature First, the
role of government in producing and distributing goods and services must shrink
dramatically. Public provision must become the exception rather than the rule. State
intervention is justified only where markets fail in such areas as defense, primary
education, rural roads, and some social insurance and then only to the extent that it
improves upon the market. Second, government must stop restricting and directly
controlling private commercial activity and extricate itself from intimate involvement
in the financial sector, focusing instead on promoting macroeconomic stability and
providing a legal and institutional environment that supports private sector
development and competition. Finally, instead of providing generous guarantees to
secure adequate living standard for all, governments need to foster greater personal
responsibility for income and welfare (110).

The transition from a planned economy to a market economy involves a very
complex process of institutional, structural and behavioral change. Each state of the

3
Martha DE MELO, Cevdet DENIZER, Alan GELB, From Plan to Market. Patterns of transition, The World Bank Policy
Research Department, January 1996
Page 4 of 7

formerly communist bloc have been adjusting to the transition in different ways, or best
said, in various grades. These levels of reformation and change are highlighted by the use
of indexes, tables and graphs that allow us to make comparisons and see our countrys
position in the first five years of reformation.
If we continue to analyze the same report from the World Bank (maybe you are
wondering why I insist on doing this, but in my opinion this report contains exact and
technical economic data that otherwise I wouldnt be able to provide and criticize by
myself), we are given a series of features of communist economical plans, that present
certain counterparts during transition. First of all, its macroeconomic destabilization
generated by the increase of prices due to the liberalization process; secondly, there are
output declines from disruptions in the coordinating mechanism due to the sudden
abolition of plan. There are also output gains from private state growth the legalization of
private ownership, the creation of a legal framework to support private activities, rise of
efficiency and utility.
These are usual changes that occur both as a result of disintegration of the old
political regime and as a consequence of implementing measures and laws to sustain
economical, as well as political liberalization. The question that the authors of the project
also have is whether this transition should be considered a common process that follows
basically the same steps for every country or is it a particular one? Are there more
differences rather than similarities?
That growth rates seem to rise after a period of liberalization and stabilization is a
known fact, but lets see some possible explanations: an increased flow of external finance,
a recovery in investment levels, increases in employment and accelerated process of
economic restructuring. The explanation that the authors say that is the motivation for
dissimilarities in the transition process is the progress of each country in the field of
political freedom. For as long as there is no political freedom, or its dynamics are slower
than those of economic liberalization, eventually progress is difficult to reach. Democracy
is the first thing that comes to mind when we say capitalism. It stands at the very core of
a free market economy and initiative.
According to the surveys, figures and other indexes published along with the report,
Romania is always at the middle. There are usually analyzed states that were part of the
former communist bloc and of the former USSR (The Union of Soviet Socialist
Republics), most of whom have regained their liberty after the revolution of 1989. And as I
said, the case of Romania is always in the middle: it has some of the lowest modernizing
and liberalizing economy rates of the Eastern European countries, but it is situated higher
on the same scale than the Asian countries. But that was the case in 1996. Now, we are
standing in a better light, some optimists would say.
After the December 1989 episode, the necessary steps were taken towards the
development of a capitalist economic system. Privatization of industry began in 1992, with
the transfer of 30% of the shares of approximately 6000 state-owned enterprises to five
private ownership funds. For these, each adult citizen received certificates of ownership.
The remaining percentage, remained in the possession of a state-owned fund and could be
sold only at a rate of 10% annually. To support Romanias reintegration, we received
technical and financial assistance from the United States of America, the European Union
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and other international institutions such as the World Bank (IBRD), The International
Monetary Fund (IMF), The European Bank for Reconstruction and Development (EBRD)
and The U.S. Agency for International Development (USAID). Direct investment was
attracted and it 2008, the figures rose to $72 billion.
Another important step in the course of modernization was the adherence to the
European Union. First, in 1999 at the Helsinki Summit, Romania was officially invited to
formally begin negotiations and the target date was set to 2007, for both Romania and
Bulgaria.
On the whole, present-day Romania stands a lot better that it did 20 years ago. The
market economy is still a developing one, but nonetheless it is growing and growing,
although not at the expected rates. If we take a look at the objective data found on
Wikipedia we discover a series of interesting facts. We are the poorest European Union
member state according to the value of GDP per capita, but as a whole, the Romanian
economy is the eleventh largest one. The growth of economy has been a good example of
what is called a tiger economy, expression used for a very rapid process. For example, in
2008, the growth rate was that of 7.1%, but once the recession was installed, in 2009, the
Romanian economy was heavily affected, to that of a contraction of -7.2%.
Alongside other sectors of the economy, such as agriculture, fishing, services, in
what concerns the industry Romania excels at producing automobiles (Dacia Renault),
machine tools and chemicals. Some of the most important and successful Romanian-based
companies are Dacia, Petrom, Rompetrol, Bitdefender, Romstal and Mobexpert. Foreign
trade is also a very important branch. We are all aware of the fact that during the recession,
sales consisting of cars built at the factory in Mioveni boomed, especially on the German
market. Ironically, because of the economic crisis, average people in Europe turned
towards a very cheap and to a certain degree practical car, such as the Sandero. But
Romania has also been exporting integrated circuits, printing machinery and
telecommunications equipment.
Another important characteristic of Romania, as a capitalistic state, is the Bucharest
Stock Exchange. First founded in 1882, it was later closed by the communists in 1945,
only to be re-opened in April 21 1995. The total capitalization of the Bucharest Stock
Exchange was around $29 billion in May 2010. According to Financial Times, BSE has
grown fastest among world exchanges in 2002.

We have seen that capitalism generally proved to be a system that helps
development in general. History has taught us that totalitarian and authoritarian regimes do
not have an ultimate goal such as economic prosperity and welfare of the people. The rule
of Nicolae Ceauescu in Romania meant chaos, instability, wrong economic strategies
conducted towards inappropriate goals, low level of productivity.
Although our nation in still adjusting to the democratic system, the leaders are not
quite as correct and honorable as we would like them to be, in the past 20 years Romania
has made some progress in both terms of economy and social change. Pessimists would
totally disagree with having even the slightest trace of hope when speaking about this
subject.
Page 6 of 7

A very interesting article I have found in a national Romanian paper, called Dilema
Veche offers a more critic interpretation of the post 1989 events and the adjustment to the
capitalistic system. Matei Martin, the author of the article, states that the richest people
today are those who knew how to put their hands on the appropriate resources and means
of production at the dawns of democracy and capitalism. Many of them conducted
businesses that were and still are profitable to them, but disadvantageous to the state and
community. Tom Gallagher, an interviewed historian, said that for some citizens who are
used to a state that makes decisions as pleases, by itself, it is hard to adjust to a system
where success depends on personal initiative and assuming risks. What he also adds, which
is very interesting, is that in post-communist Europe capitalism was installed chaotically,
without too many rules. Scrupleless agile members of an anti-capitalist oriented society
have taken the lead in constructing capitalism itself. The tough side of communism
determined the existence of civic forces incapable to defend the interests of consumers or
employers in the new times. It is obvious that known public persons who enjoyed the most
spectacular success in the new form of economy dont really match with conventional
capitalism. They prospered not by developing new products, but by substituting what the
state used to provide. These people prefer that Romania remained a closed society, where
economic connections are owned by a limited group of powerful people or an oligarchy.
The mutilated Romanian capitalism has been fiercely criticized, although it is only a
disfigured Danubian form that doesnt find its roots in development, mobility and
creativity.
We have to agree on the fact that the corrupt system that we live in has slowed things down
and if it wasnt for such a high level of corruption and a higher interest towards society
coming from those in power, our progress would have been unimaginable. Romania is an
abundant country with plenty of natural resources. If only there were right, honest and less
selfish people who knew how to manage these. A some kind of joke coming from the
Hungarian parts goes like this: What is worse that communism? What comes
afterwards!. As a young student full of aspirations, I would like to look at the society we
live in just a little less criticizing and appreciate those who have truly succeeded in creating
a positive view for this country, in investing and bringing progress, in building projects
that sustain economic development. I appreciate our teachers, my parents, my grand-
parents, I appreciate even the homeless people and I pity them because most of them are
the result of a flawed system that cannot look after every citizen. I am also grateful for not
having been born under a communist regime and I appreciate those who have fought
against it. Now, all I can hope is that we will follow the ascendant course and keep on
trying to get to the Western European standards that we aspire to.







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BIBLIOGRAPHY

1. Stelian IORDACHE si Costinel LAZAR, Curs de economie politic, Editura Economica, 1999;
2. Ioan CAVACHI, Gheorghe CREOIU, Stelian IORDACHE, Liviu MORARU, Economie clasa a
XI-a, Editura Antet, 2006;
3. Martha DE MELO, Cevdet DENIZER, Alan GELB, From Plan to Market. Patterns of
transition, The World Bank Policy Research Department, January 1996;
4. Vlad MYKHENKO, The Post-Communist State and Capitalism in Transition: Towards a
Complementary Relationship, 2004;
5. Economy of http://en.wikipedia.org/wiki/Economy_of_Romania#Free_market_transition;
6. Encarta World English Dictionary 1998-2004 Microsoft Corporation.