Transition from Communism to Capitalism

Trimis la data: 2003-01-28 Materia: Engleza Nivel: Liceu Pagini: 9 Nota: / 10 Downloads: 1524
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Between 1950 and 1990, Romanian economy was characterized by a supra-centralization in planning, command and control. The economy manifested through an extensive development, being extra-dimensioned, consuming too much energy and having, in many fields, old technology. Romania’s economical structure in that period of time was based on the raw material market of Council of economic help (CAER ). In that time, the communists tried to change the agrarian economy (rudimentary equipped) to an industrial one.

The general tendency was industrialization at any price and to distribute the industrial centers in all the country. In order to achieve their plans, the communists allocated more than 1/3 of the national savings (aggregate income minus consumption minus government purchases) for development, meaning that each unit from national savings was produced with bigger and bigger spending.

The economic objectives that characterized the last two decades before the 1989 revolution were forced industrialization, the reduction of imports (the total value of the goods and services that people in one country buy from people in other countries), and the increase in exports (the total value of the goods and services that people in one country sell to people in other countries). The goal was to pay as quickly as possible the external debt (goal achieved).

These objectives generated a weak economic growth, reflected in weaker and weaker growth rate and reduction of consumption. The “shock therapy,” that was applied to the economy in the ‘80s, magnified the differences between the economic sectors. The communist economy is a command economy (an economy in which the government determines prices and production; also called a centrally planned economy).

The “sickness” of Romanian economy was caused by the supra centralized way to take decisions. The decisions determined the allocation of resources for production of goods and services, education, research and culture. After the ’89 revolution, Romania’s objective was, and still is, to became a part of Euro-Atlantic organizations (European Union, and NATO). After many years of waiting to “became a part of Europe”, Romania sees the light at the end of the tunnel: 2002 brought the admission of this East-European country in NATO. Regarding the admission in UE, The Economist wrote on its September 4th, 2002 edition: “Because of poverty and corruption Romania will have to wait until 2012 to be admitted.”

At the Bruxelles meeting (September 2002), a couple ideas were formulated. Among them, the members said that many of the ex-communist countries will adhere to European Union in 2004 or 2005, but Romania will have to wait until 2007 (the best scenario). To make possible the admittance of Romania in E.U., Romania started to change all its standards to those of European countries. There still is work to be done to change the percentage of people that work in different areas of the economy.

Because almost 2/3 of the Romanian exports are orientated towards the European community, the new currency—EURO—will bring benefits to the Romanian economy. Until the introduction of the EURO, the currency used in by Romanian firms was U.S. dollars. But, because of the fact that the rest of the European currencies fluctuate in comparison with the dollar, Romanian firms were losing money (they were buying products with dollars and were selling for European currencies). “For the first few months, Romanian firms should use EURO and U.S. dollars in transactions to get used with the new currency” said Mihai Ionescu.

EURO will reduce the costs that Romanian firms have because of currency exchange. These costs were estimated at 1-2% of the value of the transaction. Also, the new currency will save time because the firms will not spend time analyzing which currency is stabile and which fluctuates.

Industrial crisis
After 1989, the Romanian economy changed from command economy to market economy (an economy characterized by freely determined prices and the free exchange of goods and services in markets). But this change didn’t occurred without problems. In the period immediate after the ’89 revolution the production went down. Because of the fact that the old economical structures were “demolished” and new ones were not built, the comportment of the economic institutions changed.

Many of the factories tried the feeling of “nobody’s child” because nobody provided for them the funds necessary to function (during the communists, the factories received money from the state; now they were on their own). The decrease in production that followed the first three years after the revolution was caused by the decreased in the industrial production (over 63%).

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