Time to take stock

The Bulgarian ‘institutional transition’ ended at some point between 2001 and 2007, prior to joining the European Union. The change of ‘institutions’ – in the form of formal society rules – towards both a market economy, and a multi-party parliamentary democracy, was completed.

We had, at this point, accomplished the integration of the following elements:

In the economy: unrestricted price movements, privatisation, private property rights over land, private banks, unrestricted firm entry/creation, Western and Central European bound exports (‘current account’), currency board (no independent monetary policy), open capital regime (‘capital account’).

In politics: democratic constitution and elections, parliamentary supremacy, directly elected head of state, coalition governments due to the proportional electoral system, operationally independent judiciary and prosecution service, legalised non-governmental organisations, freedom of speech, and so on. It is time to accept the facts: “The Transition” – defined as the alignment of the official rules of public life with the Western European ones, ended long ago.

The tension within society comes from the fact that we still define ‘the Transition’ in another way: as a rapid catch-up to the West’s living standard; that is, as convergence of our Gross National Income/Gross Domestic Product per capita to the “Western” GNI / GDP. Moreover, this definition is often accompanied by the desire for an all-powerful and infallible “welfare” and “rule of law” state.

These are very high expectations, and world history remembers very few examples in which a society has achieved such results in parallel, and fast, within a few decades only; even the Nordic countries may not have experienced such a quick and effective progress. Furthermore, these high expectations are not in line with our history and social development, as they have been recorded since at least the fourteenth century.

We can only be able to find a meaningful path for our shared /through common aspirations/ future, by defining ‘the Transition’ realistically, and by understanding the lessons of our history. Let us not be mistaken that ‘the Transition’ means that we will all become rich and happy as the citizens of Monte Carlo, quickly and effortlessly. We should not be as naïve as believing that we only need to establish formal institutions in the ‘Western’ style, in order to suddenly achieve a stable ‘democracy’, a rich society, and ‘rule of law’ and ‘welfare’ state. These valued end-states have actually taken hundreds of years of evolution to be established in the ‘Western’ countries.

A major development, in the sense of (relative) political and social stability usually require much effort and constant reforms over decades. Economic development may not be easy to stimulate and takes time, but these difficulties do not make it any less important or less necessary.

Let us focus on a single and clear national goal, that is long-term, positive, popular, consensual, and non-partisan. Namely, to develop a permanent, sustainable, prolonged growth and keep increasing it until we become a ‘developed country’, as per the World Bank classification. We haven’t had such a unifying national goal since joining the EU more than a decade ago; our latest ‘national strategy’ plan is projected to cover the period until 2020 only (source). It is time to put ‘the end of the Transition’ by achieving this goal.

Bulgaria has been caught in a ‘middle-income countries trap’ for at least 50 years. Bulgarian GNI per capita was $7,580 in 2016 (source), far away from the last ‘developed country’ with GNI/capita of $12,236 (source). Let us concentrate on how to become a ‘rich’ nation such as the Czech Republic, Hungary or Poland; or at least, like the smaller Slovenia, Slovakia – all having a similar ‘institutional’ setup and material base to ours until 1989, but much richer now. A number of nations with whom we have been part /at some point or another/ of the same geopolitical camps, have developed faster than we did. Moreover, under the same EU conditions, they have achieved better results than we have.

The Bulgarian demographic crisis, added to the lack of labour supply, will probably aggravate our material ‘catching-up’ with the developed countries. Unemployment fell down to less than 6%. In future, declining and ageing populations, as well as the possible consequences of the ‘automation’ of a number of economic sectors in developed countries, together force an urgent need for dyncamic adaptation. The working-age population (15-64 years) will decrease by 40% until 2050, compared to 2010 (source: page 14); the total population of Bulgaria will have plummeted by 1 600 000 people to 5.4 million (according to UN data).

Chart: Similar results with a different measure from another source: the GDP per capita of Bulgaria after 1989 lagged behind the Polish and Romanian ones (along with Hungary these are the four former planned economies that were in their current boundaries by 1950). Data: Penn World Tablеs version 8.1.

It is also very likely that only a significant economic development (rising income) can stop the vicious circle of demographic decline and ‘brain drain’ in the long run. What do we do to have ‘catch-up’ growth to stop immigration and decline in population? We need to increase the labour involvement of under-represented groups – young people, adults, women, minorities, in the workforce. Otherwise, the economic growth under current tendencies (of demographic decline) may fall to around 1% annually after 2030, according to World Bank simulations (source: page 14).

In fact, we do not have da wide range of choices – we must develop economically now before the nation has aged. We need to achieve a sustained 4-5% annual growth in productivity by 2035-40 to catch-up with the average EU-28 income (source: page 46). Such a long-term basis for growth is only possible with the expansion of new, more productive sectors – both in industry and in services, which have become successful and profitable due to the new technologies and better management. Such companies can be attracted or created by taking advantage of our access to the common European market, which generally provides our economy with great export opportunities and incentives.
A good start may be to focus on attracting companies from economic sectors that are already established in slightly richer economies than us. Attracting foreign and domestic investors by providing infrastructure, labour, preferential tax regimes, and supporting Research & Development expenditure are just some of the possible policies.

However, changing our individual mind-sets will be more important. Let us admit how unproductive short-termism is. Our long-term interest – in a world of intensifying technological and economic competition – is to ensure economic development, via continuous mutual efforts. Growth stagnation, or temporary growth solutions through uncoordinated and debt-heavy fiscal spending, is not a response to the upcoming social/demographic problems. Such a change of world-view will naturally support the choice of appropriate policies which can be altered along changing economic conditions/political movements. However, despite the dynamically changing environment, the main goal of sustainable growth and development must remain unchanged until a broad, clear, and realistic level is reached.

Who are going to be the ‘agents’ of change? Societal ‘institutions’ (rules) work when the influential, organised societal groups (organisations) use them to channel their own interests. All societal groups are potential winners of economic growth; the current political forces, too. The long-term effects of growth can create new voters, to reach new levels of popularity and legitimacy, new and more capable party members, new resources for budget allocations. Growth is also popular for the business owners (more markets), and for the employed (rising income).

Economic development is not only desirable because of – first, our comparative backwardness compared to similar countries to us, and secondly, the political popularity of material progress as a national goal, or the ‘smallest common denominator’. Growth is needed to provide a number of other public benefits. These gains – stronger democracy, a more stable ‘rule of law’ system, and more resources to pursue ‘welfare’ policies, will be discussed in my next article. Finally, economic development can mitigate the demographic and immigration issue.

In conclusion, ‘The end of the Transition’ has always been informally defined by the society – the catch-up to Western living standards. Let us focus on this most difficult, biggest problem, with no appreciation to any unnecessary illusions; tackling this can also reduce the feeling of (almost constant) crisis emanating from the disappointingly high expectations towards ‘the Transition’.

‘The End of the Transition’ has long ago come to pass. The completion of the catch-up to ‘developed country’ living standards must be our next national goal.

Author: Ognyan Zhelyazkov
Email: ognyan.zhelyazkov@gmail.com
Millennium Club Bulgaria

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