Transcript Panel 2: Problems In Post-Socialist Transition: The

13th Symposium on
Development and Social Transformation
Panel 2: Problems In Post-Socialist Transition: The
Case of Romania
Wednesday, April 19th (10:15-11:30am)
13th Symposium on
Development and Social Transformation
Panel 2: Problems In Post-Socialist Transition: The Case
of Romania
Privatization Of Industrial Property In
Romania: Political & Economical
Explanations Of Relative Failure
Oana Adriana Zabava
Privatization of Industrial Property in
Romania:
Political and Economic Explanations of Relative Failure
Oana Zabava
CLARIFICATIONS
Postcommunist privatization processes were exceptional in terms of
scale, implied ideological change and context (undertaken within an
inexistent or incomplete market economy).
State ownership  private ownership.
Concerned areas: land, industry,
banks.
FACTORS
Decision makers:
strategy
no articulated economic growth and/or privatization
at the level of political elite.
Expertise:
no domestic economic expertise (no experimental or residual
privatization of Romanian economy had been allowed) but a
clearly defined neo liberal privatization agenda of
international organizations (WB, IMF);
Constituency:
reluctance to reform efforts of the domestic
electorate/population.
In the attempt to respond to contradictory demands from domestic
constituencies and international organizations, transition governments
produced an institutional setting rather discouraging for effective privatization.
Assumption: ownership change leads to restructuring (more efficiency of
firms, more capital investment) and creates externalities (on financial
markets).
INSTITUTIONS
SOF (state ownership fund): a trustee; managed 70% of the entire equity
in the privatization; elite organization; high salaries; best economists;
accountable to the Parliament; in charge with sales privatizations and
restructuring;
POF (private ownership funds): 5 trustees; mutual funds and managed
privatization of the remaining 30% equity;
Privatization Agency: regulatory and supervisory functions, accountable to
the Government, early 1991-3, pilot privatization and 1994-1995in charge with
organizing the MPP
Privatization Ministry: established in 1997, part of the Government;
Romanian Development Agency: 1999 privatization responsibilities;
Line ministries with competing privatization interests/competencies since
1999.
PRIVATIZATION METHODS
Pilot/Spontaneous
(1990-1994)
PRIVATIZATION OUTCOMES
Management-Employee-Buy-Out
(MEBO)
(19901994)
Mass Privatization Program (MPP) (19951996)
Sales to Outside Investors
 Increase in privatized firms’
performance;
 Irreversible private ownership &
shrinking state in economy
(1996-
present)
LIMITATIONS
Scope: ‘regii autonome’ were exempt until 1997;
Extent: MPP program privatized enterprises only partially (40 up to 60% of
shares); as a result ‘residual’ shares were difficult to privatize;
Incentives for restructuring:
Insider control  insufficient management expertise, insufficient capital
investment
Dispersed ownership  weak corporate governance
Multiple criteria for sales  Lack of transparency
Social criteria for sales  advantage to buyers committed to secure current
level of
employment
Subsidies for restructuring
Years 2000-present:
privatization of few very large companies (ALRO, ALPROM, SIDEX),
more transparent and decreasing subsidies.
under a closer monitoring of international institutions.
Conclusion
Preeminence of political over economic concerns in Romanian
privatization produced:
• ineffective privatization institutions;
• slow privatization pace;
• egalitarian preference for insiders and mass privatization;
• limited interests in efficiency.
13th Symposium on
Development and Social Transformation
Panel 2: Problems In Post-Socialist Transition: The Case
of Romania
Challenges Of Judicial Power And
Independence: A Case Study Of Romania
Angela Fitzpatrick
The Challenge of Judicial Activism in
Post-Communist Democracies:
Lessons from Romania’s 2005
Constitutional Court Crisis
ANGELA FITZPATRICK
Ph.D. Student, Political Science
The Maxwell School, Syracuse University
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Introduction and Case Background
The “Active” Constitutional Courts of
Central and Eastern Europe
The Challenge of Judicial Activism in
Transitioning Democracies
Lessons from/for Romania’s July 2005
Constitutional Court Crisis
Conclusions
I. Introduction and Case Background
• In July 2005, Romania’s Constitutional Court declared a
set of EU-accession related reforms passed by the new
coalition unconstitutional.
– The problem? Because the Constitutional Court was made up of
members appointed by the previous governing regime, the
Social Democrat Party (PSD), some felt that this was a political
move to impede the agenda of the current power holders and
PSD’s rivals, the Justice and Truth Alliance (DA PNL-PD).
• This accusation highlights a broader question about
judicial power: should an unelected, politically-appointed
Court be allowed to subvert policy decisions made by
those who were elected by the people?
II. The “Active” Constitutional Courts of
Central and Eastern Europe
• The “active” constitutional courts of the region share
three institutional features:
– fewer barriers to an audience with them;
– their members have fixed appointments that are more in line with
electoral cycles;
– they work under constitutions that offer more explicit details
regarding court power.
• In other words, the post-Communist constitutional courts
were all designed with “structural differences that make
them better suited to play [a] democratic role”
(Scheppele 2003b: 235).
III. The Challenge of Judicial Activism in
Transitioning Democracies
• For some scholars, a court that has the power to act
against the governing coalition is a liability, especially in
transitioning regimes (Shapiro 1999, Hirschl 2000,
Hirschl 2002, Sadurski 2002, Hirschl 2004).
– citizens should be able to elect officials based on their policy
agendas and remove them when they fail to achieve them.
• For others that advocate an active judiciary, the court
has proven to be the most stable, and therefore trusted,
actor during the transitional period.
– it remains relatively protected from the disorder of democratic
politics, while still subject to some degree of accountability.
IV. Lessons from/for Romania’s July 2005
Constitutional Court Crisis
• During the 1990’s, Romania’s Court was widely
considered to be a political actor whose “decisions are
considered politically motivated” (Weber 2002: 284).
– Until 2004, when the DA PNL-PD alliance came to power, the
members of Romania’s Constitutional Court enjoyed the support
of a friendly governing coalition under PSD.
• In claiming that the Constitutional Court’s actions were
driven by the political agenda of the opposition party, the
governing coalition called into question the undemocratic
nature of judicial activism in the very area in which it has
been heralded as beneficial for transition in the region
(Scheppele 2003a, 2003b, 2003c).
V. Conclusions
• Even if one accepts the widely argued view that the
Court was purely driven by its affiliation with PSD, the
potential political implications of institutional design that
encourages judicial activism should be addressed.
– All forms of judicial review allow justices who are put in place by
the previous regime to block legislation passed by the current
governing coalition, which can ultimately result in crises of the
sort seen in Romania in the summer of 2005.
• As long as judicial activism is encouraged, it is unlikely
that judicial independence can be institutionally
strengthened – doing so would threaten the power of
elected officials, those able to pursue – and therefore
unlikely – the constitutional reforms necessary to do so.
13th Symposium on
Development and Social Transformation
Panel 2: Problems In Post-Socialist Transition: The Case
of Romania
Social Transition In Romania
Gabriella Pakucs
Social Transformations and
Realities in Post-Communist
Romania
Poverty, Inequality, and Demographical
Indicators
Gabriella Pakucs
April 2006
Social indicators
Deep transformations in all the spheres of
the society: economic, politic, social
On the social level the current situation is
due to:
the communist past
the transition period
new behavioral patterns
Poverty and Inequality
Before 1989
Poverty
highly paternalistic state, resources
redistribution
equalitarianism as a fundamental principle of
the communist regime policies
Inequality - low Gini coefficient ranged
between 20 and 29
After 1989
Poverty and inequality increased reaching a peak in 2000;
The indicators follow the cycles of economic reforms (stopand-go” pattern)
50.0
40.0
30.0
20.0
10.0
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
0.0
Gini coefficient
Poverty rate
Absolute poverty
Population Issues
Evolution and Projection
Evolution: decrease with 1million persons in 10
years, from 22.7 million in 1992 of to 21.7 in 2002.
Projection: in 2025 the population will shrink to 19
million, and in 2040 to 14 million.
30
19
20
14
10
2047
2042
2037
2032
2027
2022
2017
2012
2007
2002
1997
1992
1987
1982
0
Negative net population increase
600000
500000
400000
300000
200000
100000
Crude births+Repatriated
Crude deaths+Emigrants
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1980
1975
1970
1967
1966
1950
1930
0
Main causal factors
Mortality rate – slow increase
the population aging process
the decay of the health care system after ’89
diseases caused by behavioral changes (nutrition,
sedentary life, stress)
External migration – relatively low
the official net migration rate - quarter of million
people left the country during 1990-2003
the official figure cannot explain the estimated
“600.000 missing people” from one census to the
other
Fertility rate - sharp decrease
already embedded tendency
currently well below the replacement rate
4
3.7
3
2.2
2
1.9
1.3
1
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
0
13th Symposium on
Development and Social Transformation
Panel 2: Problems In Post-Socialist Transition: The Case
of Romania
ROMANIA
Mihaela Carstei
Impacts of Capital Account
Liberalization
Evidence for Romania
Mihaela Carstei
April 17, 2006
Growth Theory
• Most theories of growth, from Ricardo to Solow and
Romer, emphasize domestic savings as a key
determinant of long term growth.
• The international capital mobility breaks this link
between savings and investment
• It makes investment demand a far more important
determinant of economic growth than domestic savings
supply
• Allows for poor countries to supplement their investment
needs and grow more rapidly than would otherwise be
possible.
• Leads to large shifts in international location of production
• It can stimulate or substitute for trade
• International capital flows can also supplement or
even replace aid
Capital Account Liberalization
• Last step in the sequencing of reforms
• Is the process of removing restrictions from
international transactions related to the movement
of capital.
• It can involve the removal of controls on both
domestic residents’ international financial
transactions and on investments in the home country
by foreigners.
• Liberalization can apply to both inflows and outflows of
capital.
Capital Account Liberalization
• Capital account restrictions can take various
forms including:
• limiting domestic banks’ foreign borrowing;
• controlling foreign capital coming into the economy;
• limiting the sectors of industry in which foreigners can
invest, and
• restricting the ability of foreign investors to repatriate
money earned from investments in the domestic
economy.
The evidence for Romania
• 1998: liberalization of current account
operations (Art. VIII of IMF Articles of
Agreement)
• 1999: liberalization of medium- and longterm capital inflows
• 2001: schedule of capital account
liberalization
The evidence for Romania
• 2001-2002: liberalization of capital flows
with low impact on the balance of payments
1. direct and real-estate investment by residents abroad
2. admission to quotation of national securities on foreign
capital markets
3. collateral granted by foreigners to residents
4. personal capital movements
5. medium- and long-term loans related to commercial
transactions or services granted by residents to nonresidents
The evidence for Romania
• 2003 – 2004: liberalization of capital movements
consisting of transfers in performance of insurance
contracts and other capital flows with significant
impact on the real sector
1. residents’ transactions in foreign securities
2. financial borrowings and loans with maturity less than 1 year
granted by foreigners to residents
3. financial borrowings and loans granted by residents to foreigners
4. collateral granted by residents to foreigners
5. admission to quotation of foreign securities on domestic capital
markets
The evidence for Romania
• At latest upon accession to EU: liberalization
of capital flows with significant impact on the
balance of payments
1. operations in RON-denominated deposit accounts opened by
foreigners with resident financial institutions
2. operations in securities and other open market instruments
3. operations in current and deposit accounts opened by
residents abroad
Effects of capital flows
• The growth-related benefits of capital account
liberalization for developing countries have not been
established
• It is more accurate to say that these results have not
been observed and may not exist at all.
• This goes against the conventional wisdom behind the
approach of the Bretton Woods Institutions:
• The benefits of liberalization will accrue to those countries who
follow the right policies, and who have the right institutional
and supervisory standards in place.
A look at Romania
• Poverty changes in Romania tend to mirror closely
both GDP and consumption growth.
• In 1997-1999, output decline in Romania was accompanied by
a widening of poverty,
• While robust GDP expansion in 1996 and the recent rebound
that started in 2000 were accompanied by reductions in
poverty.
A look at Romania
• According to the World Bank’s recommended
benchmarks to measure absolute poverty in
Europe
• in 1989 5.4% of Romania’s population lived on US$ 4.30
per day or less.
• in 1994 the rate jumped to 80.0%.
• by 2000, it had dropped to 67.5%.
• in 2002, 14% of the population reported to be living on
US$ 2.15 or less per day
A look at Romania
A look at Romania
A look at Romania
• Romania’s private sector accounts for 65% of GDP.
• The growth of the private sector is correlated with the
growth of GDP.
• Lack of finance is a key constraint for enterprises.
• Foreign inflows, therefore, play a crucial role in providing a
source of finance for new investment.
• Access to finance is a critical determinant of private
sector development as it affects both market entry
and subsequent growth.
• Thus, lifting restrictions on financial transactions allows for
better access to credit
Final Thoughts
• Poverty seems to be decreasing during periods of
positive economic growth.
• Economic growth, measured by GDP growth or GNI
per capita, is positively correlated with capital account
liberalization
• Capital account liberalization does seem to have a
positive overall impact on Romania’s growth.
• This is based on preliminary findings and will be further
analyzed.
13th Symposium on
Development and Social Transformation
Panel 2: Problems In Post-Socialist Transition: The Case
of Romania
Trends In Romanian Rural Development
Oana Adriana Zabava
Trends in Romanian Rural Development
Oana Zabava
PREMISES AND CHALLENGES
Rural population: 53% (1975), 45% (in 2003), 44% (2025-estimation)
Employment in agriculture: approx. 3 million people.
Rural poverty rate:
rate (2003).
38% poverty rate and 14% severe poverty
Trends in Romanian Rural
Development
PREMISES AND CHALLENGES
Land:
reportedly
firms
14.8 million ha; in 2005 3.2 million ha
owned by 1.2 million individuals and
Share of agriculture in GDP:
20% (1990) to 13% (2004)
Gross Value Added:
21% (1993) to 12.9% (2003)
Private ownership:
96.1% is private but land is also
small plots
fragmented into
Agriculture processes:
undercapitalized, labor-intensive
Trends in Romanian Rural
Development
LAND REFORM
 1991 ‘Land Law’ privatized land of former agricultural production
cooperatives (CAP) and state farms (IAS) through restitution; 1994 Law ‘On
Lease’ tackled gradual privatization of IAS.
 Delays in registration and timely issuance of ownership certificates;
frequent legal disputes
Limited access to credits & lack of entrepreneurial culture
 Excessive parcellization: small and medium units cultivated 85%
of land (1999)
 Low productivity
 High transaction costs (notarial fees)
 ‘Land for pensions’ scheme meant to modernize agriculture by
redistributing to commercial farmers land divided among many owners
(2005)
Trends in Romanian Rural
Development
RURAL DEVELOPMENT POLICY
 Main obstacles:


Farm segment: market infrastructure (high transaction costs), clear user and
property rights
Non farm segment: physical infrastructure, finance, state governance
(corruption)
 Aid and preparation for EU accession:
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

ISPA, SAPARD – programs of technical and financial assistance;
Responses of the Romanian Government: Rural Development Strategy
(1998), National Plan for Agriculture and Rural Development (2000)
Direct EU farm subsidies phased in until 2016 to create incentives for
restructuring agriculture
Trends in Romanian Rural
Development
COMPARATIVE TERMS OF
TRADE
Trends in Romanian Rural
Development
COMPARATIVE PRODUCTIVITY
RATE
13th Symposium on
Development and Social Transformation
Panel 2: Problems In Post-Socialist
Transition: The Case of Romania
Wednesday, April 19th (10:15-11:30am)
Oana Adriana Zabava
Angela Fitzpatrick
Gabriella Pakucs
Mihaela Carstei
Oana Adriana Zabava
Privatization Of Industrial Property In
Romania: Political & Economical
Explanations of Relative Failure
Challenges of Judicial Power &
Independence: A Case Study of Romania
Social Transition in Romania
Romania
Trends in Romanian Rural Development