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CAS In The News |
HUNTSVILLE, Ala. (Sept. 17, 2002) -- A "go slow" attitude toward building a free market economy helped Romania avoid many of the problems plaguing other former Soviet-bloc countries, say two faculty members in the College of Administrative Science at The University of Alabama in Huntsville (UAH). That same go slow policy, however, also denied Romanians the benefits now enjoyed by former Communist countries that quickly privatized state-owned industries and built free markets, the researchers say. Dr. James McCollum, professor emeritus of management, and Dr. Niles Schoening, professor of economics, published their ambivalent findings in the September issue of the "International Journal of Public Administration." Their research was supported by a grant from the National Research Council. One of the biggest problems in making the transition has been the fear among Romanian politicians, said Schoening, "that if they closed the coal mines, steel mills and shipyards - which are losing heaps of money - and then unemployment shot up, there would be a true revolution and (the politicians) would all be kicked out."
"The benefit was jobs," said Schoening. "Their unemployment rate never got as high as it is in Russia. The cost was the huge subsidies that continue to prop up the coal mines and the steel industry, neither of which is competitive." "It has been a big drain on the Romanian economy to keep the big state-run enterprises open," said McCollum. With few resources to finance the subsidies, the Romanian government has been monetizing the debt; printing money to keep key industries afloat. "It's a sneaky way of maintaining the government's resources," said Schoening. "Still, in the backs of their minds, the politicians were thinking, 'How can we get rid of these industries without all the upheaval?" After the fall of the Soviet Bloc, the U.S. and Western Europe encouraged the former communist countries to quickly privatize industries and move to a free market economy. "I question now whether that was the correct strategy," said Schoening. "We gave them the impression that prosperity was right around the corner. "Some people in Eastern Europe are very disappointed. Morale's not good right now in Russia and Poland. "Romania is a desperately poor country of well-educated people, many of whom despair that they'll ever get to where they want to be: a western-looking country in the European Union, with ties to Western Europe and the U.S. "The 'go slow' strategy seems to be accomplishing the goal in China. We have a continuum, from countries that tried the shock treatment to countries like Ukraine, which isn't moving at all." The UAH researchers compared Romania's economic reinvention with similar efforts in Poland and Russia, countries that gave their Communist economies a free-market "shock treatment." "The Polish solution has been one of the most successful," said McCollum. "They've gotten a pretty good handle on things. The Russians are not so well off, but they had more problems to overcome." "Russia went through a quick privatization and created a new class of fabulously wealthy people who work to make sure no further reforms are attempted," Schoening said. "There are no antitrust laws in Russia. This new class, the people who 'cherry picked' the best parts of Russia's businesses and industries, they control the Russian economy. "Romania didn't let that happen. In retrospect, that might have been OK." An ongoing impediment to economic growth is the legal system in Romania, according to McCollum. "The rule of law isn't as strong as it should be," he said. "The activities of corporations and government agencies aren't as transparent as they should be. There are a lot of hidden things that the inner circle is able to do. "Even though they might have passed a lot of laws, they don't enforce them. Now they are being forced to convert to a legal system that the European Union can approve." Many of Romania's problems stem from a lingering Communist mindset, McCollum said. "They just don't understand what democracy and free markets are all about." "We have an economic system in the U.S. that developed over many years," Schoening said. "We expected the Russians, Poles and Romanians to put it in over night, and that seems a bit unrealistic. "My conclusion from this is that they've got to do it their own way. Listen to the experts. Learn from the U.S., the U.K. and France. But the Russian economy is never going to look like the U.S. economy. The Romanian economy is never going to look like the U.S. economy. And that's OK." - 30 - © 2002 The University of Alabama in Huntsville |
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One of the most interesting conversations I had in Romania was with a
nuclear engineer who was selling cellular phones. In a country where the average wage is probably 100 bucks
a month, he was making about 400 bucks a month.
"This is a
follow up to the Communist mentality," said McCollum. "It was more important to have a large workforce than it was to be
efficient."