What Causes Prosperity – Some Evidence From Romania

2187 words - 9 pages

1What causes prosperity – Some evidence from Romania Being born in 1984, we are too young to remember concrete facts about the communist regime. We mostly know what we’ve been told and read about in our history books. Nonetheless,Orwell’s novel seems far from utopian even for those of us who had the good fortune of spending only a few years living under collectivism. We can’t help feeling shivers at every turn of the page.That communism has done great harm is only an understatement. Proof resides in thecountries in Eastern Europe that struggle still as “developing economies” even though many, likeRomania, were relatively wealthy in the 1920s. Romanian society ...view middle of the document...

Moreover, in the early 1990s, the governmentsold the nationalized houses to the people who had rented them from the state. What followed was aperiod of “war” between former and present owners. Unfortunately, the former owners had littlelegal support due to the vague provisions of the Constitution and other land laws. The uncertaintyover ownership stalled improvement of properties and investments and, with them, economicgrowth.With the agricultural land, the situation was similar. Through the 1990 Land Law, thegovernment started the process of denationalization by returning land (up to an amount of 10hectares) to former owners, although not necessarily the same property earlier confiscated, nor even1 “Private property is protected equally by law, regardless of the owner. Foreign citizens and stateless people cannotgain property right on land ”(41 st Article of the 1991 Romanian Constitution, The Protection of Private Property).2in the same area. As a result of the poor system of property rights, “by mid-1992, only 75 percent ofthe 5 million former owners had titles to their land”.2 The absence of legal documents and the poorenforcement of the existing laws, prevented reinstated owners from exploiting the full potential oftheir assets. They couldn’t sell them, nor use them as collaterals for loans. As they didn’t havesufficient capital to invest in new crops or processing equipment, a great part of the fertileagricultural land became “dead capital”. This resulted in huge governmental imports of foodstuffs.Now, more than a decade later, we are pleased the Romanian government has learned from itsprevious mistakes. Unlike the 1991 Constitution, the present one (adopted in 2003) “guaranteesprivate property and protects against state expropriation.”(44th Article of the 2003 RomanianConstitution, The Right to Private Property).Denationalization remains an important issue even today and the Parliament is still workingon improving the existing laws. There are a lot of cases waiting to be solved and some people turnto the European Court of Human Rights for help. They usually win the trials filed against theRomanian government.Except for the judiciary, political and economic changes that have taken place over the past16 years, there have also been major changes in Romanians' mentality. From a recently publishedbook we have selected three quotes 3 that, in our opinion, depict this evolution.“It’s easier to work with state money than with your own. This is what everybody does.This is how businesses are done.” Doru Giugula 4This statement reflects the way most people perceived entrepreneurial activity during thefirst 5 years following the 1989 Revolution. As we mentioned, the chaotic legal and economicsystem allowed for “a random” process of privatization to take place. Thus, state-owned companieswere sold to members of special interest groups (former members of the Communist...

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