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In the beginning of the nineties the rate of change in Bulgarian society accelerated immensely. Everyday life became full of events. Most important among them seemed to be the events marking the development of the democratic state. Gradually Bulgarians realised the fact that the crucial change concerns the redistribution of property unheard in human history. The restitution of industrial property and arable land, the cash, voucher and other forms of legal privatisation are the events which determine the contents of the new legislation. The transfer of property is the core issue of political programmes. Some forms of privatisation also came about aside of the legal rules and public debates. Nevertheless, their impact on economy, politics and culture is tremendous.
current transformation is the change of property rights
and results of the ongoing transformation is urgently needed There are no simple and easy answers to such questions. The risk to answer them inadequately is high. However, there is no alternative - the risk should be taken. This is because the time is ripe for changing the concept of change. Moreover, practical implications should follow from the change, since tomorrow is too late, especially for a country like Bulgaria in its present day situation. 1. 1. Means and ends of the transformation At the first glance there is no real problem in defining the means and ends of the transition which Bulgarian society is going through. There is a practical consensus as to the point that the transition has two major aims. First, in order to establish an efficient allocationand use of economic resources the development of a properly working market economy should be aimed at. Second, in order to achieve an efficient functioning of the political system, a well designed democracy should be established. World-wide development leaves no doubts about the proper means for achieving these aims. Following the experience of market mechanisms in advanced countries, in just a few years large scale economic reforms were carried out in Bulgaria. Working relations were established with international financial institutions. The country joined the world markets. Prices, foreign trade, currency regime were liberalised. More or less, markets of goods, services and labour now function in the country. The major economic actors have a high level of autonomy although the state ownership of productive assets still predominates. Despite the complications and delays, privatisation of state property advances at a speed which is not much different from the speed of privatisation in countries similar to Bulgaria. This comes from the comparison of theprivate sector share of GDP production in Central and Eastern European as well as in the CIS countries according to the estimates of World Bank experts:
Fig. 1. 1.
 The means for achieving the major political aim are also well known from the experience of traditional democracies. Most of them are already well known in Bulgarian politics as well. The legislative, executive and judiciary powers are divided; free and fair democratic elections have been held; in the country more than 200 political parties and 4000 organisations and associations of civil society are registered. As to the structure and functioning of political institutions Bulgaria has hardly any peculiar feature distinguishing it from other Central and Eastern European countries.
and ends of the transformation has not been resolved yet That is why the core issue of the ongoing reforms is not just the change of property rights although a desirable transformation would not be possible without it. Neither is technological or market restructuring the core issue, whatever their importance might be. In reality, the core issue of the reforms is: What is the extent to which theycontribute to the development and functioning of a more efficient type of integration of Bulgarian society? The point is the integration of society in all its technological, economic, political and cultural dimensions. The point is the establishment of a type of social integration which renders possible the sustainable development of Bulgarian society in social, economic and environmental terms. This also implies sustainable development of social groups as well as of individuals, or, in different terms, a higher level of social cohesion.
establishment of a more advanced pattern of social integration Major technological and economic relations have been disturbed or new relations have been established that do not function effectively. The monopoly of the large state enterprises was preserved in the conditions of market liberalisation. In the same time, because of the decentralisation of economy and politics the capacities of the state to govern its own property were substantially reduced. The financial sector developed its autonomy to the extent that the state control over the credit operations became rather difficult. Following short-sighted legal decisions and their administrative implementation, the agriculture has moved into a blind alley.
periodically falls in a state of unmanageability Developments of this type make the national economy a risky place both for foreign and domestic investors. Since the Bulgarian side was not able to keep to the agreements reached with the IMF, a blockage of the international financial support to the reforms followed. Without it the country is not able to meet its obligations in servicing the foreign debt which amounts to 1 billion of US dollars per year between 1995 and 1999. Payments on the domestic debt required the major part of the budget revenues. These troubles in the critical 1996 repeatedly substantiated the experience that the negative trends in Bulgarian economy are strong and persistent. The struggle to overcome them will take a long time. It will be difficult and most probably full of vacillations.
Fig. 1. 2.
 According to UN data on the development of Eastern Europe in 1996, the above developments in Bulgarian economy strongly deviate from the overall trends towards economic stabilisation in the region:
Table 1. 1.
Property and income inequality increased
sharply in the meantime. It doubled in the period after 1989 reaching a
ratio of6. 8: 1 of the incomes of the 20% richest households to the poorest
20% in 1996. Thus the declining GDP is being divided more and more unequally.
Public sensitivity to the rapid economic differentiation increases fast
(See Fig. 1. 3. ). It is supported by the strong influence of traditional
egalitarian attitudes, by the mass impoverishment as well as by the facts
of illegal enrichment of therather tiny segment of well-to-do people in
Bulgarian society. These are conditions which will foster social tensions
in the future.
will foster social tensions Fig. 1. 3.
Fig. 1. 3. also shows that the worsening of the economic situation in 1996 has strengthened the political confrontation. After a substantial drop in intensity in 1995, it was revitalised on the occasion of the presidential elections, again reaching the levels of the early nineties. The outcome of this dynamics is the trend of a fast wearing out of governments since the problems are rather complicated and they are typically approached in a conflict ridden way. This also leads to a permanent instability in political institutions and to a low efficiency of their work mainly because the time horizon of governments has been rather short. After 1989 governments change practically every year. Besides the economic decline and political instability, during the nineties the nation had to face substantial difficulties in the search for commonly shared values as well. In mass consciousness contradictory and mutually exclusive views on the desirable state of society meet. In November 1996 75. 3 per cent of interviewed persons in a national survey carried out by a team at the Bulgarian Academy of Sciences stated that they agree with the statement "The Laws should provide for a full freedom of private initiative". Undoubtedly, this is a strong vote in favour of liberal and individualist value orientations. This is also an indirect support to the market oriented economic reforms. In the same time, exactly 80 per cent of the interviewed also agreed with the strong redistributive intervention of the state which they know rather well from previous decades. They agree that heavy taxation should be imposed on high incomes in order to support people receiving low incomes. This widely shared agreement on mutually exclusive value-normative and practical orientations is no agreement at all. Rather, it is an expression of value-normative disorientation.
trends meet mass support It is natural to search for the answer with a view to the qualities and the development of the state institutions. The most relevant context of this endeavour is the wide spectrum of economic reforms which have been carried out by the Bulgarian state in the course of the last years. 1.2. The state and the economic reforms In industrialised countries like Bulgaria social integration is achieved and maintained by means of a number of separate but mutually interconnected mechanisms. The influence of the technological division of labour, of market exchange, political power and widely shared values play crucial roles. The role of the state is particularly important, however. This is because of the tremendous potential of the modern state to concentrate and use resources for maintaining social integration. However, it is also possible that the state is not able to perform this function efficiently. In both cases the state plays a crucial role determining the specifics and the trends of social integration.
dominated Bulgarian society before 1989 For a certain period after the Second World War the state centred over-integration of Bulgarian society has provided for concentration of the rather limited national resources for solving strategic tasks. The transition towards an industrialised and urbanised society was performed. State intervention fostered the rapid increase in the educational and cultural levelof large groups in society. The state social security and the health care directly financed from the state budget helped Bulgarians to approach achievements of advancedsocieties. The state support tocultural institutions secured a relatively high level of cultural integration by means of widely shared values and norms. Under the influence of the state integration Bulgarian society looked like relatively homogeneous and capable of organised pursuit of national goals.
of society prevented its renewal This development was unavoidable since no space for a creative variety in economics, politics and culture could evolve under the conditions of over-centralisation. In the given domestic and international conditions there was only a minor prospect for performing this transition towards differentiation of the state from economy and culture after the rapid industrialisation and urbanisation. This historical opportunity did not materialise. The attempt to break the political over-centralisation of Eastern European societies during the second half of the eighties came too late, remained half-way and took place in a rather unfavourable international environment. The time for solving this absolutely urgent task came at the very end of the eighties. However, a series of domestic and international circumstances accelerated the change to the extent that it became opaque and unmanageable. Some Eastern European societies reached critical points of disintegration in the course of this development. Bulgaria is a typical example in this respect. Instead of the constructive chaos of a well thought-through and efficiently guided process of reduction of the scope and intensity of the political over-integration of society, destructive chaos took the lead in the country. The most visible part of this tendency is the over-hasty and badly prepared desertion of state institutions from responsibilities which are regarded as major state priorities in the advanced countries with strong democratic traditions.
domination of society developed into dissolution of the state integration of society The turning point in this process is undoubtedly the fast liberalisation of prices and foreign trade in the beginning of the nineties. The reform was guided by the assumption that market forces will alone provide the conditions of their own integration in a spontaneous, fast and efficient manner. It was further assumed that market integration will become the fundament for a qualitatively new integration of politics, culture and of the whole social system as well. In this way a conceptual model was revitalised which had a centuries-long tradition. It focuses on the social integration brought about by means of a market co-ordination of interests. It was forgotten that after the experience of Keynesianism in Western Europe and in North America as well as after the post-World-War-II experience in Eastern Europe the problem of social integration could hardly be dealt with without taking the role of the state into account first.
of reforms underestimated the role of the state in social integration The results caused by the lack of legal protection of Bulgarian producers came very soon. On the other side, state owned enterprises were not put on hard budgets. In conditions of a weakened state they managed to transfer their inefficiency over to the state budget via the mechanism of bad credits. This state of the real economy made the wave of rise and fall of financial pyramids as well as of disintegrating effects of the uncontrolled banking system practically unavoidable. It became also obvious that the social security system was not prepared to cope with the tensions of mass unemployment and mass impoverishment. Facing this experience it is evident that contemporary society cannot radically desert from the management of the transformation without undermining the fundamentsofsocial system integration.
there is no efficient integration of economy and society
Box 1. 1.
At the beginning of the changes the necessary restructuring of economy was mainly construed as a restructuring of property rights. In practice, this meant that the state had to free itself from property and from obligations towards the economy as fast and as entirely as possible. Economic processes had to be left to their own. Already the first sharp drops of GDP by 16. 7% in 1991 and by 12. 4% in 1992showed that this strategy was basically false. In conditions of openness to the world market the underdeveloped mechanisms of the national market could not provide an effective integration of economy and even less of the whole society. That is why an active involvement of the state is needed in the whole range of restructuring focused on prioritising technologies, products, branches, markets, etc. This message wasunderstood by the state administration as late as the mid nineties. At this point the state took obligations to technological development, to industries and markets. It turned out, however, that for none of these directions of restructuring was there strategic vision, that the information channels do not function and that the mechanisms of state influence on economy are ineffective. Nor could a strong political will and broad public concurrence on the paths of efficient restructuring come about. This holds true, first of all, for the sensitive issue of closing large inefficient state enterprises. Theinternational financial support to this painful process was insufficient as well. As analysed in a broader perspective, the sharp drop in the GDP, mass unemployment and the crime wave are due to a number of domestic and international circumstances. Among them, the economic consequences for Bulgaria of the Gulf War and of the embargo on Yugoslavia cannot be underrated. However, the most essential reason is the weakening of the state institutions. This is most visible in the dramatic development of the banking sector. It turned to a major source of economic and social instability mainly because for a rather long period it remained outside of the scope of the efficient state control. What happened in 1996 was nothing else than the bankruptcy of the country's banking system and showed clearly that this situation is harmful for the economy, for politics and for the morale of the nation as well. Indeed, it is harmful for all dimensions of the social integration of Bulgarian society.
Box 1. 2.
The most notable episode which will remain in the national economic history from 1996 is undoubtedly the failure of the first serious attempts at implementing structural reforms. The failure was, to a great extent, due to the collapse of the banking system. The collapse itself has been prepared for a long period by the drop of production, by short-sighted decisions of banking administration as well as by the involvement of criminal groups. But the most fundamental reason for putting 15 banks under conservatorship and for opening bankruptcy procedures was the very ineffective state management of the economy. The licensing of banks on minimal or fictitious capital, lacking a legal structure for the functioning of bank loans, the practical blockage of the state supervision on banks in the complicated conditions of reforms created the environment which facilitated the collapse of the banking system. It showed that the state cannot neglect the control on the banking system without endangering the internal and international security of the nation. This cannot but put the very state on danger. These are conclusions which are not valid in the context of the untimely retreat of the state from regulating functions in economy in the specific conditions of the Bulgarian transformation alone. Similar processes took place in all Eastern European countries. However, the negative consequences became most visible in Bulgaria. In fact, they were also prepared by the high level of inherited international indebtedness of the country, by the loss of major markets, by the political tradition and the political culture, etc. Whatever the reasons, one quite important conclusion has been substantiated by this experience. State institutions must take a key role in managing the transition towards the market economy and democratic politics and in developing advanced forms of social integration consistent with them. 1. 3. The transformation management by the state At the first glance one meets a paradox. The major content of the ongoing transformation is the exemption of economy, of civic initiatives, of culture from the state supervision which was typical in the previous decades. But stressing the need to ease the state regulation, we make a suggestion for a state regulation of the transformation process. The paradox is only seemingly there. The real point is that this is the only possibility for an organised and civilised change of the very type of social integration under present day conditions. More precisely, the point is the necessity of transformation of the nature of the state itself. This is the background of the third thesis: An efficient dissolution of the state centred over-integration of society might only be achieved under state regulation of the transformation.
of the state centred over-integration of society might be accomplished only under state control The task is more and more difficult to solve not solely because of the exhaustion of economic resources. The very disenchantment put barriers before the mobilisation of political will. The accumulated dissatisfaction pushes towards extremes of apathy, aggressiveness and doubts about the foundations of social integration. The experience from the reforms backs this crisis of legitimacy. In the mid-nineties the hope appeared that finallythe economy could be institutionally removed from the "big" state, namely from the all-permeating state interventionism. That the organised transition to the "small" but well organised and efficiently acting state which might introduce the indicative regulation ofeconomy was in sight. Some advances in solving the task were even registered. The expectations were positive as well. Of this type were the evaluations of major international financial institutions on the development of the country in 1995 and on the prospects for 1996. Having registered the political and economic stabilisation in 1995, they forecasted a GDP growth of 2. 5-3. 0 per cent and inflation of 25-40 per cent for 1996. Reality moved to a different trajectory. The high inflation provoked an interest rate of 300% on bank credits. The hard currency reserves reached the critical threshold of 518 ml US dollars at the end of 1996 with the prospect of outstanding payments on the foreign debt of 992. 2 ml US dollars in the coming year. The national currency depreciated dramatically in the beginning of 1997. These all signal the need for a more intensive involvement of the state in economy forced by extreme circumstances. The options of alternative paths for overcoming the crisis are getting more and more limited, however. Rather important decisions concerning the introduction of a Currency Board are ahead which will take over the management of the emission policies. Decisive measures for speeding up of privatisation are needed by securing transparency and controllability of the privatisation procedures. No delay is possible any more in implementing the painful stabilisation of the banking system. Stabilisation also requires closing of ineffective enterprises which will increase unemployment. The unavoidable restrictions on the budget expenses will have the same effect. Thus coping with the new wave of unemployment will be a most urgent task. Persistent efforts are needed for securing a strong international financial support to the restructuring of national economy and refinancing the foreign debt.
All these difficult and painful measures
should be taken in the conditions of traditionally low level of confidence
in state institutions. The example of 1996 shows that the credit of confidence
to the ruling elite might be exhausted rather fast given the signs of an
unsuccessful economic policy:
Table 1.2.
The so far unsuccessful attempts at a new economic, political and cultural integration of Bulgarian society provoke political innovations. Whatever they might be, it is obvious, that the nation experiences a severe test of its vitality. Given the strong national statist tradition the expectations are once more directed towards the state. In spite of all the disenchantment, mass attitudes are clearly in favour of the active state not in providing the organisational framework for reforms alone. Public mind is expecting direct economic involvement of the state in solving major problems of social integration. Some of these normative expectations are certainly unrealistic. However, even they might become a starting point for stabilisation of the state. This could be achieved by introducing new forms of solidarity in Bulgarian society among other things: Fig. 1. 3.
In practice, the activation of the state in the current conditions might mean:
changes are mainly directed towards the state 1. 4. For strengthening of the state in the course of transformation management Keeping the already accumulated positive and negative experience from the current transformation in mind, it is clear today that what must be done is the efficient management of situations marked by very high intensity of risks. That is why the relevance of the fourth thesis comes to the forefront: Nowadays the alternative reads: Either stabilisation of the political and specifically of the state integration of Bulgarian society, or long-term undermining of the Bulgarian state. The alternative is:
integration of society, or long-term undermining of the national state efficient "strong" stateThe experience of potentially efficient but unrealised or badly implemented measures for managing the transformation supports this point. The necessary liberalisation of economy was compromised by the unrealistic expectation of a self-regulating balance of the productive and the financial sectors, between prices and incomes, between budget revenues and expenditures. The right moment was missed to start the purposeful selection of priorities of branches, technologies, products, markets, etc. It had to direct the then forthcoming privatisation according to the selected range of priorities. Later on privatisation became a purpose in itself. Moreover, it was practically blocked by the inefficiency of state administration. The reasons were the economic depression, the political instability and the underdeveloped administrative culture. But state inefficiency was also strengthened by influential selfish interests. For important pressure groups, it was more convenient to keep the "big" state alive having large economic responsibilities for the whole society which it was not able to meet. The attempts to find the way towards an efficient restructuring of the productive and financial sectors in 1995 and in 1996 did not have the necessary political and financial backing and were blocked by the strong inertia of decreasing capital accumulation in national economy. In this conditions the risk of a new isolation from the international financial institutions and of political destabilisation became rather high.
was and isadvantageous to pressure groups
Table 1.3.
Third, the window of opportunities for handling the difficult situation is rather narrow at present. In the course of the reforms the Bulgarian state has demonstrated that self-discipline is not its strongest point. Therefore, among the few open opportunities the most promising one seems to be the close attachment of the national currency to one of the world currencies applying the organisational scheme of the Currency Board. The technology of this attachment has been tested in other countries. The key problem is, if it will be able to stop the inflationary financing of the budget and to break the vicious circle of the self-destruction of the state.
The introduction of the Currency Board is a clear confession that the Bulgarian state did not manage to develop the capacityto cope with the problems of the national economy autonomously. These problems have accumulated and there is no possibility to postpone radical actions any more. The Currency Board is an attempt at this type of solution. It imposes severe requirements for financial discipline on the part of the state as well as on the part of other economic and political actors. In practice, this means that consumption should be really restricted to what has been earned, or should be even more modest. Subsidies to losing enterprises, the inefficient expenditures in administration and in the social sectormust be cut. Fiscal discipline must be the rule. In fact, these are common requirements of the stable modern state. They cannot be met in a short period of time. That is why the Currency Board and its restrictions on expenditures should be most probably effective in a longer period of time in order to stabilise its effects. This is a precondition for reaching a lasting integration of society. It is also the precondition for sustainable development of the country.
Fourth, this complicated task cannot be solved without reaching a certain level of political and cultural integration even before introducing the Currency Board. On the first place, this means to reach an working consensus on the necessity to apply urgent and radical measures for financial stabilisation. They are unpopular and need substantialpolitical backing because they will be risky. The open question is, if the representatives of major state institutions and political formations will have the will to enter this type of consensus. It is difficult to expect that influential groups enjoying the lawless situation would easily join the consensus. The very fact that the introduction of the Currency Board has been postponed several times indicates that the latent opposition against it should not be underestimated.
on the work of the Currency Board
success of the Currency Board
more organisational improvisations Therefore, the most challenging question to the nation in the present moment is: Shall the Bulgarian state urgently and efficiently intervene in order to reinstate the social integration and to elevate it to a higher level of quality, as it was expected at the beginning of the reforms? Unfortunately, the question is no less appropriate today than it was seven years ago. One could only hope that the ongoing processes will move us closer to a more definite and positive answer. |
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