Facing the collapse: a look from inside the fortress and from the sidewalk
On the eve of the political turmoil the economic agenda was so pressing that it was unavoidable to take position on at least two issues: the degree/scope of the forthcoming “marketization” and macroeconomic stabilization. While the former was relatively well documented in the visible decisions of the Party and the Executive, the latter remained opaque. It is only with the opening of important segments of the communist archives (the “archival revolution”) that it became possible to reach a more precise understanding about the then ongoing debates inside the governing circles, the extent of their knowledge, the thoroughness and timing of their assessments and the policy scenarios considered.
Without doubt, the most relevant testimonies concerning stabilization policy are found in the files of the Bulgarian National Bank (BNB), which used to be an unapproachable territory. The BNB files reveal how the technocrats informed the Communist leadership about such concerns as the fast building up of foreign debt, the pending default (as early as 1986), or the accumulation of huge domestic debts. The professional slang of the experts allowed them to discuss matters that have been completely forbidden to public debating for decades: mounting inflationary pressures; monetization of the budget deficits and its effects; flows of funds from the households and enterprises, captured by the fiscal authorities; the consequences of mounting involvement with insolvent Third World countries… The bank issued clear warning signals that implied the need of bold stabilization measures.
But cataloguing events is one thing, proposing a cure is quite another. Although the analyses in the BNB reports from the late 1980s constituted a step ahead compared to the traditional approach, when it came to policies the Government’s proposals were driven by panic, extremely limited and entirely inconsistent. Easy credit to the economy continued; roll-over of the foreign debt – despite its increasing costs – was sought as the only solution. The most radical suggestions of the BNB themselves consisted in futile appeals to cut down inflationary deficit financing, to devaluate the national currency through a “correction” of the unrealistic fixed exchange rate (the term “devaluation” was never employed even in confidential documents), and to eliminate the multiple rates’ system. Several factors, outlined by the archives, contributed to the weak response. One of them was the classical conflict between the Central bank and the Ministry of finance where fiscal considerations largely outweighed the monetary targets. Personal rivalries also played a role. But it is apparent that the main obstacles were linked to conceptual deficiencies, political, ideological and professional barriers. Even the more “enlightened” experts were alienated by doctrinal dogmas and taboos, by a lack of the professional knowledge required to design a stabilization program, and by the missing adequate monetary data/national account statistics. The plan, the dominance of state ownership, the “socialist market” and heavily regulated prices, the (slightly amended) monobank system, the bailing-out of enterprises were undisputed. Convertibility of the Leva remained on the drawing table as a mid-term project including plenty of regulations, misunderstandings and palliatives.
Given the macroeconomic fundamentals, the economic policy stance on the eve of the Big Bang (even with the hypothetical inclusion of the bank’s amendments) was the opposite of what common sense required. The authorities (including the BNB) were neither willing nor prepared ideologically or instrumentally to implement the needed “intentional stagnation”, i.e. restrictive monetary/fiscal measures and a reduction in aggregate demand. What’s more, they had a completely schizophrenic view of the reform aims. Even on the very edge of the transition decision-makers considered market reforms only as the next round (albeit on a larger scale) of planning engineering. The market itself was conceived not as a new social reality, but as a crotch to the plan in a hybrid economy still dominated by the State and the Party.
The outcome was a set of devastating steps. Archival legacy, together with the publicly announced policies demonstrate unambiguously that the economic debacle of Bulgarian communism was not the result of information deficits – the authorities were well informed, often with a convenient lead. The disaster is neither the simple result of built-in biases. Its deeper roots are to be traced to intellectual deficits. No doubt, this blindness reflected vested political interests, but it was also the sign of decades of intellectual isolation which prevented decision-makers from conceptualizing the problems in a sound and theoretically adequate framework.
Until early in the 1980s the economics profession in Bulgaria was characterized by an almost complete dominance of the “soviet style” thinking and by isolation from mainstream economic theory. A change in this background commenced with the onset of the “perestroika”. By the late 1980s the official (incl. technocratic) point of view was not more the unique one. A new-vintage professional community had emerged, characterized by less conventional expression, more sophisticated analytical instruments and – above all – a strong critical stance.
Without taking properly dissident positions, the group (its more prominent author was Ventsislav Antonov) dared to question many basics of the economic policy. Although its initial influence was mostly academic, the expressed visions gradually acquired distinct visibility as an alternative diagnosis and therapy. Caught in a conceptual chaos, the ruling elites tried to integrate some of those ideas, but a practical interface between more radical views and the inertia of the governing machine was impossible.
Just before the political changeover the “critically minded economists” had performed an, yet uneven, break-through in conventional economic wisdom. Amongst their main targets were the dogmas of the “inherent to socialism” high growth rates, of the leading sectors’ driving force, and of the mandatory export expansion “at any cost”. Subject to sharp criticism was the intentional pursuit of accelerating growth in disregard of the macroeconomic constraints. Indeed, “critical economists” went a step further by advocating adjustment through a cooling down of the economy and formulating explicitly the “subversive” argument of the innate cyclical nature of communist growth. On a more fundamental level, the assumption that higher growth is equivalent to higher welfare was rejected: it was pointed out that in a general equilibrium framework this claim is valid under very specific circumstances which are not met by the realities of the “mature socialism”. Substantial novelty was the discussion of the existing inflation pressures in terms of a coherent point of view and by the end of the decade an articulated account of inflation and its hypostases in a semi-monetized economy was drawn.
The existential question about the “reformability” of communism was inevitable. From its answer depended whether stabilization could (could not) be considered as feasible in some reformed variant of the existing system. While the response of the establishment was unconditionally positive, critics expressed strong arguments against. From one side “sociological” considerations indicated that the planning bodies and the Party do not have incentives to introduce bold changes. From another, there was historical, as well as theoretical evidence that the planned economy is a relatively coherent construct only within its rigid original skeleton: every reform program had made it less manageable and had given birth to an archipelago of “grey” proto-markets. The verdict on communist reformism was a judgment about the system per se. The incompatibility between a planed economy and genuine market-oriented reforms was strictly demonstrated in a general equilibrium framework and through empirical research.The interrelated issues of prices’ liberalization, financial flows, fiscal deficits, external debt and the monobank found their right place: monetization of the economy was explicitly set as the key goal; the “package” approach to all those topics was designated as the alternative. While in the previous reforms (and in the drafts of the then ruling elites) money were allowed to matter unsystematically in isolated enclaves, the new agenda required their full and uncompromising rehabilitation.
Those advances in critical thinking should be put in appropriate context. With the benefit of hindsight, it is clear that the strong critical impetus confronted conceptual barriers of different kind. The logic of the elimination of the monetary overhang by the lifting of price controls and the abrupt change in relative prices made a hard solution unavoidable, but illusions about possible soft options persisted even among the critically-minded.
Nowadays, most of the claims against the communist economic system and the Party’s policies during the late 1980s might seem well-known. After all, the debate on the achievability of central planning had lasted for nearly a century, with convincing negative arguments put forward as early as the 1930s Lange-von Mises controversy. During the following decades they were substantially enriched in the West and, above all, the sentence was confirmed by the cascading failures of the communist experiment itself. However, this ex-post statement does not account for the very different stock of mainstream economic knowledge among East European countries. The fact that some Bulgarian economists questioned the basics from a neoclassical perspective only few years before the collapse of the regime (much later than in Poland, Hungary or even the USSR) reflects the long intellectual isolation of the scholarly milieu.
Getting accustomed wit capitalism
The outlined intellectual setting provided the opening conceptual frame of the Bulgarian Transition. Perhaps its most salient feature was the extremely uneven awareness about the macroeconomic and the societal perspectives faced by the country.
Right away after the overthrow the stabilization agenda acquired the highest priority and became a publicly discussed issue. The Party elite still in place rapidly opted for a slightly “modernized” version of the previous policies. Although hard ideological wording disappeared and economic data started to be released in (controlled) portions, the approach did not change in a fundamental way. All the constraints inherent to the previous technocratic thinking remained: the way out from the crisis was seen as a mix of growth/export stimuli, of debt repayments at any price, of limited and chaotic budget cuts and of measures to alleviate the (now acknowledged as inescapable) social costs.
The debate, however, was open and the vision of the critics gained ground in the agora. Very soon the “gradualism vs. shock therapy” dichotomy emerged as a political and expert fault line. The gradualist position expressed professional incompetence, traditional communist reformism and efforts to save time in order to prepare better the expected capture of key business positions. The other view summarized a radical reform plan wrapping decisions that – in fact – were to be unevenly implemented (partly by those same critics) during the next several years.
If in macroeconomics the accuracy of forecasts sooner or later becomes self-evident, projects about society are fuzzy endeavours with blurred results. The early 1990s saw a mushrooming of drafts ranging from dilettante texts to more sophisticated models pretending to propose articulated visions. As a whole, the very first projects reflect the early potential of (frequently naïve) social imagination. Further on, they swiftly departed from the original forms, being heavily influenced by strong institutional influences and external conditionality.
At the verge of the Transition the knowledge about the character of the forthcoming system was much more limited and imperfect than the insight concerning the imminent macroeconomic transformations. The statement holds true for the incumbent establishment, as well as for the former critics who foresaw the institutional and social content of the future in often biased terms. It is now clear that by 1990 definitely no one was really prepared to conceptualize the profound economic and social upheaval to be generated by the transition from overwhelming state ownership to private property – the most original contribution of Eastern Europe to social engineering.
The slogan of the day was “market economy” but the term was almost never employed alone. It grew by accretion, through the addition of different qualifications – the economy had to be regulated, mixed, social or whatever. This was a moment of febrile searching for euphemisms of capitalism. Even the bravest discourses on the coming shocks and on the need to dismantle the opprobrious collective property produced coy statements concerning the essence and the time horizon of the new system. The dominant scent was a blend of vagueness, of hardness with the immediate past and of mildness about the future. The prevailing expectations were about a kind of normality, understood as a harmonious coexistence and conflictless competition between different “forms of property”. “Normality” embedded an uninformed nostalgia about the pre-communist past, idealization of the West, and ambitions to catch up the more prosperous neighbours like Greece. There was no much interest and comprehension about details and varieties, the types of capitalism were not seriously debated
It is only after the initial stress that perceptions about capitalism took progressively more nuanced and down-to-earth forms. The process was (is) conflictive, at the intersection of history and symbolic geography: two fields where compelling exogeneous models meet the longue duree continuity. Concomitantly, learning-by-doing is at work.
The shadow of history never faded away. By utmost compressing the message, the key point in the case of Bulgaria is thefact that local economic culture has no memories of a liberal order, that the legacy of the European liberal and globalized XIX c. is missing (or strongly distorted) in the country’s annals. The birth of local capitalism has been patronized by the State; the chronic shortage of capital has induced a ubiquitous state intermediation; truly free market has existed in limited segments and mostly in primitive forms; the Inter-War period has erected an almost entirely government-controlled financial infrastructure; antipathy to capitalism has always been fierce; the search for seemingly less burdensome (in particular cooperative) shortcuts of capitalism ever alert… Out of this, a complex “love-hate” affair with the State was forged. Etatisme and collectivist rationality developed as a (nearly) consensual attitude, which did not exclude at all a brand of pseudo-individualism as “everyday economic “ideology”. While opposing and despising (verbally) the State, citizens never refuse to siphon out public resources or to transfer risks and responsibilities to Government. They are individualist when it comes out to appropriate gains or collective wealth, but ardent collectivists when the issue is distribution of losses. The roots of this stance could be traced to the Bulgarian social fabric where entire social strata were missing, middle class and liberal professions have been extremely weak, and correspondingly the State has been systematically stronger than the citizen. The national bourgeoisie (as well as intellectual elites) developed a close, opportunistic clientelism vis-à-vis the State and exerted permanent pressures for special economic privileges. As Government regularly accommodated them (through corruption or barter) a network of soft mutual dependence was built between economic actors and the public authorities. In this context debtors were sovereign and intermittently bailed-out at the cost of creditors or taxpayers. Institutions never gained the needed credibility, there were no arbitrages recognized as impartial by both sides. So, communism came to a well prepared ground. It exacerbated to extremes traits that were present (in embryonic or more developed forms) in an already “pregnant with socialism” society. In a counter-factual exercise we could easily imagine its non-communist projections. The resulting profile will certainly suggest something very similar to the post-war semi-oligarchic, plagued with corruption “democratic etatisme” that was so typical for the countries in the region situated on the other side of the Iron Curtain.
With the Transition historical legacy experienced the impact of two powerful moulding forces from “outside”. At the beginning the universalistic meta-language of the Washington consensus (supported by the IFI platform) easily captured the debate and filled in the vacuum. Since the end of the 1990 it was (not fully) displaced by the Great Project of the EU accession.
The first vector’s vehicle is of a more traditional mood. The IMF simply restored a conditionality framework that has been quite familiar for pre-communist Bulgaria. The guiding principle remained virtually unchanged: reforms have always been fostered, supported and imposed from abroad. Like in time pasts, as well, the public and politicians learned to manipulate the “imported” discourse and to play the game of shifting responsibilities.
The important point in the current context, however, is that when neoliberalism imposed its creed in the West during the 1980s it had a reference proto-model in the (late) XIX c., while the same creed encountered a historical void in early 1990s’ Bulgaria. A link was missing: the “second” (post-communist) capitalism had nowhere to return, no memories or genetic codes to revive. Unsurprisingly, the IFI ideology encountered a conflictive response, the economic outcome was inconsistent and hybrid. During 1990-1997 the IMF was trying to introduce economic rationality (or simply common sense) into an economic structure, a governance system and social mentalities still dominated by remnants of both the communist and the pre-communist anicen regime. The local milieu turned more receptive only when privatization and FDI inflows commenced to build their own rational setting on a statistically significant scale.
Problems with the second formatting force – EU accession – are different. Although its impact is supposed to be much broader and far-reaching, the conveyed messages about capitalism are extremely ambiguous. The EU embeds the fundamental dichotomy of Western economic culture. The Union is a profoundly hybrid cultural topos which combines, in an often traumatic way, two conflicting principles – etatist, dirigist, regulationist and interventionist philosophy; distinctly liberal and free-market values. The former are entrenched in the EU bureaucratic functions and activities. The latter are realized in the most ambitious projects like the single market and the eurozone. With its double face Europe inbreeds hybridity, if not tasteless eclectics. Confronted to this confusing source of inspiration, the newcomers are free to make pragmatic or opportunistic choices by opting for what is more akin to their local idiosyncrasy. Whatever their preference, they are sure to found a mirror image of the chosen option somewhere in Europe.
Preferences in Bulgaria were entirely in line with the historical tradition.
From one side, Europe has always been a metaphor of modernity, a personification of a superior partner and competitor, the mighty attractor in a hopeless catching up. In few words, Europe is perceived as the image of everything Bulgarians are not, idealized as an immaculate province where reigns order, rules are strictly observed and welfare generalized.
The intensified contacts with the West, the perspective of accession, and, finally, the full membership re-focused this image. The previous aura did not disappear, but a different – essentially pragmatic – dimension came to the fore by matching perfectly the native susceptibilities. The EU irradiates a lenient culture, not entrepreneurial spirit; the cryptic Brussels’ tongue invades public speech and displaces the concerns about free entrepreneurship. The respect to the heroic Weberian or Schumpeterian capitalist is over, whereas many of the old furies, sins and shady sides of the ”first” Bulgarian capitalism resuscitate. The complex administrative machinery educates to deal with and emanates incentives to outsmart the bureaucracy, not to play the markets. Natural side effects are the stimuli for corruption: even if they are put under some control, the inherent redistributive logic fuels the ever vivid corruption paranoia. More importantly, expectations for “easy money” distributed up-down are generalized: the most coveted (lucrative) sectors become those predestined to receive the bulk of the subsidies. It is understandable why since the accession to EU the only game (talk) in town is how to capture the eurofunds.
When looking back it appears that the role of ideas has been largely overstated. It is not only that most of them originated outside the realm of their implementation and that they were translated through superficial technocratic procedures. The point is that Transition was shaped dominantly by ad hoc power interests (economy was vital part of them and their key tool). The history of the elapsed 20 years is very marginally an intellectual history. What really happened (everywhere in Eastern Europe but more so in Bulgaria) was not so much a competition of ideas and strategies. The truly important events did not follow well-taught, premeditated projects or a smooth change of paradigms. Instead, the real markers consisted in the more or less forceful rearrangements of people, money, assets and liabilities in the economy. Meanwhile the communist legacy had succeeded to mimicry, to resurface again and again in personal “rebirths” and to generate unexpected recidives of mentalities or of behavioural patterns.
Moving targets, inverted trajectories
Any intent to classify “really-existing capitalisms” that emerged out from the debris is a challenging exercise in taxonomy. The difficulty is partly due to the period’s heterogeneity, manifest for the Bulgarian case in the major break of the 1996-1997 financial crisis and the following change in the monetary regime.
Oddly enough, the Transition’s first seven years followed the communist reformism’s pattern: an inconclusive combination of two incompatible models that only increases the system’s entropy. The early 1990s saw a not more sustainable mix of market elements with prevailing state ownership. The outcomes were bad debts, widespread decapitalization of enterprises, institutions with low credibility. In semi-reformed systems deprived from the genuine constraints of the market (or the strict control of the plan) the only usage of “liberty” (autonomy) is to develop a predatory behaviour. Reformism in the decaying communism and early Transition capitalism are uniform constructs. The former was the prototype (if not the training room) of the latter, each one adopting essentially the worse characteristics of its components. Eventually the nascent capitalism acquired a more clear-cut and conventional profile, but this original seal of ambiguity and hybridity did not disappear.
I have proposed elsewhere an approach to deal with the byzantine classification problem. It relies on the hypothesis that capitalism is a system whose basic qualities are distributed unevenly (with diverse intensity) in different societies. “Good” and “bad” practices, “authentic” and “compromises/imitations” are present everywhere but their constellation and nuances are crucial for the concrete profile. Capitalism exists in varieties tainted by peculiar identities, traditions and legacies. Capitalist economies diverge precisely according to the distribution/concentration of the essential ingredients.
Combinations of those ingredients permit to construct a scale of “purity” of “really-existing” capitalisms. Contrary to the implicitly glowing neo-institutionalist message I doubt that there is a steady, “natural” and irreversible path to the “ideal type”. A curious variant of the Gresham’s Law is at work: the “weak” economic culture does not devour the “strong”, but the former certainly tends to “corrupt” the latter. The highly demanding constraints of the market are universally disliked, considered as uncomfortable and even nasty by the actors (firms, states, households). The dominant instinct is not to follow, but to distort (to circumvent) market rules and conventions. They are avoided or – at least – no one refrain from avoiding them when such an opportunity appears. Beneath the “official” level grey forms flourish which do not eliminate, but “subsume” and “infect” the visible surface. Although it is commonly accepted that market maturity is attained through domesticating of this general impulse, taming is not the prevailing modus. On the contrary, economic history could be read as a (more often successful than not) series of attempts to evade the “market discomfort”. Communism attained the culmination in this respect but zero-sum-games are widespread in capitalist economies too. Conventions observed by force (usually after major disruptions), by habits or rationally do not last, nor become universal. The striving to win better positions off-rules is not eradicable. It is – let remember – the mobile of frauds, as well as of creative innovations.
I generalize the set of forces that undermine the market with the term communality denoting the etatist, clan’s, vested interests groups’, or collectivistic attitudes and actions that have never stopped weakening the fool-blooded competition in the economy. It is the particular blend and the distinct temper of the “market” and “communality” ingredients that determine the place of given variety of capitalism into the “scale of purity”. Although predominantly narrative, the criteria can be transformed into a working concept through meticulous historical research and comparisons.
Conventional wisdom and factual evidence suggest that the Anglo-Saxon pattern stays low in the “communality content” taxonomy. The French model stands definitely higher on the ladder, with its distinctive “republican aristocracy”, its long record of state-private collusion and of economic dirigisme. Further up lays countries ranging from Latin America to South Eastern Europe where “communal” elements have been historically pervasive and widespread. This populated cluster is probably the norm across the world – the “normality” of second and third-order countries.
Transition is commonly considered as a movement from the superior to the inferior groups. It is supposed that the contacts between economic cultures (namely within the EU) starts a lengthy rapprochement, obstructed (not stopped) by well-known problems – “ex ante institutions” (form without content); perseverance of old traditions; conflicts between normative/real and formal/informal realms… The implicit idea of the European acquis’ implementation is that of a gradual infiltration of the “strong culture” into the new entrants’ economy. Progress is presented as a smooth linear motion; development acquires appealing simplicity with a clear-cut hierarchy of societies, a vector of motion and even the possibility of outstripping/lagging along this vector. Time and space seem mutually appeased: laggards are supposed to subsist in the past of the pioneers, the present of the former to be the past of the latter, historical time is measured by the distance from the “advanced”, not vis-à-vis owns past. Many theories of modernization are based on this scheme by favouring either purely economic or institutional criteria.
The linear advance, however, is by no means warranted. The interplay of different cultures allows for different equilibrium points. Where will the effective encounters happen depend from the relative vitality of the “weak” and the “strong”. Experience proves that their interaction is neither smoothly nor irreversible. Actually, Transition permanently departed from the textbook case. During the Big Bang of the 1990s for instance the typically successful capitalists were not winners of competitive selections but (as a rule and for the key “positions”) appointees; every important or mid-size business remains directly or indirectly dependent from the authorities; local interests tend to form well delineated feuds; society is plagued by networking, conflicts of interest, barters of influence; Government is a vast market, investor and employer easily transformed into a partial or corrupt mediator. In brief, business and politics are not separated by effective fences, power is not tamed. Despite recent developments, truly competitive markets are scarce. Besides, “really-existing capitalism” in Bulgaria (as in comparable countries) continues to bear such stigma as smallness, chronic capital shortage and low savings, particular geopolitical status, or historical traumas. All those hallmarks draw invisible lines that can not be transgressed and generate varied forms of “communality”.
If there are no major objections to measure economic (under)development, the possibility to capture and the very existence of “societal” catching up is dubious. Attractive metaphors such as “biased modernity”, “unconscious modernization” “growth without development”, “inconclusive modernization” characterize not so much evolution stages as different puzzles of “communality” elements. The specific cultural “background noise” dilutes efficiency and rationality by “communal” practices. The resulting construct is not at all fragile: it frequently lasts and forms a distinct type of “really-existing capitalism”. For the economy (particularly the economic institutions) the time factor is essential: a latter replica is not identical to the original; like in human personality’s evolution, delayed maturing can not be fully compensated. Copying can not replace the absence of owns history, experience is accumulated, not transferred, and it is impossible to live anybody else’s past.
But the strongest blows to the linear paradigm originate in the “metropolis” itself. Western economic history is plenty of “communal” elements. A far from exhaustive list from the last decade provides prominent examples. Let just quote the ENRON case with its widespread practices of wrong (criminal) corporate governance; the emblematic Credit Lyonnais debacle; the banking crisis in Sweden; the US Savings and Loans collapse or the LTCM crisis; the dotcom bubble… When taking into account such precedents, the correct perspective is no longer the “weak (East) / strong (West)” continuity, but rather the blending of different cultures of corruption, lobbying and networking.
Even if convincing, those pieces of evidence did not seriously harm the mainstream view in the era of the liberal consensus. The Great Collapse of 2008, however, is of such magnitude that many of the fundamentals were inevitably questioned.
The impact of the crisis is certainly not the heralded “death of liberalism”. After all, the current wave of nationalisations is not ideologically inspired but essentially an urgent, unorthodox monetary policy tool. Moreover, the deep and coherent theoretical fundament of neoclassics remains unshaken: no alternative is in sight, whereas the recent intellectual “novelties” are mostly trivial remakes of Keynesianism.
What the dramatic events blatantly show and confirm is that a number of features attributed to the “weak” economies are well alive in the “strong” ones. The crisis released, as well, cavernous anti-capitalist hate and fierce anti-liberal attitudes that flooded the public space from their more or less latent retreats. The financial profession (activity) was demonized, returning the public imagery back to the XVIII c. opposition between “productive/unproductive” labour (capital), or to the Marxian notion of “fictitious capital”. Typical sins of the periphery such as massive bail-outs of irresponsible debtors and of imprudent creditors spread across the most “virtuous” economies. The implication is that the apparently one-way path of Transition is indeed reversible. The target is missed by the presumably transient societies not because of their wrongdoings, but due to a sudden rearrangement of the “communal” elements in the “advanced core”. Catching up is simply impossible with a moving, disappearing or fragmenting objective. Why to copy models that reproduce dubious behavioural patterns you are hold responsible for?
To stop here would be unproductive. Instead of blaming the system or policy-makers and to succumb to the mounting revanchisms of all species, it is preferable to seize the opportunity offered by the crisis to better understand capitalism. From one side the collapse reminds to a generation, pampered by a long series of mild recessions and tempted by oblivion that capitalist dynamics is inherently (sometimes violently) cyclical. As it had already happened in several instances, brutal shocks are needed in order to re-substantiate the – otherwise trivial – message. From another side, the events are beneficially iconoclastic. They exhibit (another well known, periodically forgotten verity) that the proudly announced mastering of risks (so far treated as a distinctive advantage of “mature” economies) is a myth. The way capitalism is supposed to work is by rewarding genuine risktakers, but it does not possess mechanisms to distinguish promptly and accurately the healthy from the irresponsible. Entrepreneurs always assume risks in some form, somewhere, and, properly speaking, that means they break “rules”. Debtors, consumers and the public at large are also attracted by risk: in a sense they like/tolerate to be defrauded because this is accompanied by the fascinating envelop of short-term gains. Crises (even more so the major of them) are the outcomes of risky conduct beyond reason. This is intrinsic to the system, not the exception: regulations are helpless. The genius of the current “villains” is that they succeeded to shift risks of previously unknown magnitude, to make them opaque, to increase leverage by an unprecedented factor, and to create a shadow bank system. They did even better by crafting a persuasive and appealing doctrine, a permissive intellectual ambiance and a loose regulatory framework.
The current rush towards stricter regulations is politically (to a certain extent also economically) understandable. But in the long run markets can not be outsmarted. They will invent new devices to transgress the rules. In this seemingly distant future only one thing is certain – the larger the weight of Government in the economy, the stronger will be the lure to socialize losses (on even more barbarous scale than today) trough the anonymous and unfair mechanics of the state.
1. An extensive compilation of the documents is published in: BNB (2009) Balgarska Narodna Banka. Sbornik dokumenti (2009). [Bulgarian National Bank. Selected Documents] Vol. V (Parts 1–4) (1948-1990), edited by R. Avramov, Sofia: Bulgarian National Bank and Central State Archives. A detailed account of their message is proposed in: Avramov, R., Pari i de/stabilizatsia v Balgaria 1948-1989. [Money and de/stabilization in Bulgaria 1948-1989], Sofia: Ciela.
2. Antonov, V. , Teoretichni osnovi na inflaziata pri sozializma [Theoretical foundations of inflation under socialism] , Ikonomika 1990 / June (Supplement) .
3. Cf. the NEXUS Project ( 2001-2003 ), How to Think About the Balkans: Culture, Region, Identities,www.cas.bg ; Avramov, R. (2007) Komunalniat kapitalizam. Iz balgarskoto stopansko minalo. [Communal Capitalism. Reflections on the Bulgarian Economic Past] Vol.1-3. Sofia: Foundation “Balgarska Nauka i Izkustvo” and Centre for Liberal Strategies.
4. The middle class is the natural habitat of “economic decency” (and conformism). The wider this stratum the tinier the lowest and highest margins of the society which are habitual generators of corruption and networking.
6. For an extensive case study of Bulgarian economic culture see: Avramov, R. (2007), Komunalniat kapitalizam. Iz balgarskoto stopansko minalo.
7. “Weak” and “strong” do not denote forces but qualities – following the usual notion, a “strong” culture is characterized by competitive markets inhabited by rationally behaving agents.
8. With the discrediting of the Keynesian principles and with globalization, elements of the model were incorporated in otherwise more “communal” economies. Let me mention, just as unsystematic examples, the transformations experienced since the 1980s by the traditionally rigid Swedish, Israeli or even German and French economies.
9. Avramov, R. (2007), Komunalniat kapitalizam, pp. 6-7, offers a summary of how I define a typically “communal” economy.
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