The Transition
That Never HappenedAt Least Not The Way That Was Recommended

Interviews

Boyan Slavenkov

In 1990 Boyan Slavenkov was an economic advisor in the cabinet of President Zhelev.

At the end of the eighties the Bulgarian economy crashed. It lost Russian markets and suffered from huge debt (I think it had reached $10 billion) which was practically impossible to service. At the time we could sense the absence of competitive exports and receipts of currency, the deficit swelled in the state budget, 40% of the companies worked on grants, unemployment was on the rise.

I remember seeing a report from the WB predicting unemployment would reach two hundred thousand by the end of 1991. At that time unemployment was about half of that as confirmed in the Rahn-Utt report.

This was a structural crisis comprising disintegration of the relationship between state-owned enterprises, unwillingness to work, inefficiency, and lack of motivation for reconstruction. Luknov’s communist government didn’t have the support of the Western powers and global financial institutions.

I had a visit with Lukanov to the Soviet Union and attended talks with senior party leaders. It was only during conversations with Yeltsin that I was not allowed to be present. But Lukanov’s whole philosophy at these meetings centered on strengthening the relationship between Bulgaria and Russia. By cutting the country off from external financing from private commercial banks which would inevitably lead to a lack of access to cash Lukanov bound Bulgaria to Russia even further. This is my deepest conviction.

He wanted to use the Rahn-Utt plan purely for political reasons - that’s why he failed to take action and utilize it. That’s why my colleagues in the UDF and I went against it despite the fact we supported its ideas. In Lukanov’s hands it would have become its own antipode; it would have discredited the reforms.

Moreover, the Rahn-Utt report was not written as a program but rather as a guide for transition to market economy. Some of us never even read it fully so we didn’t know this.

At that time I worked at the Institute of Economics at the Bulgarian Academy of Sciences like most of the Bulgarian participants. I do not feel very sympathetic towards the fact the program failed - not because I don’t agree with it, on the contrary - I liked it; it was very educational and it was written by the best economists from a nation with one of the most successful market economies and democratic institutions. But I wasn’t one of the authors. My contribution began and ended with a ten-minute conversation. They asked me if the Bulgarian people had a sense of entrepreneurship; whether I think farmers would want to return to their lands and whether they’d be willing to process it. Things like that. I guess they talked to other economists about the same issues.

The program and the recommendations were an expression of their views for the economy guided by the transfer of experience from other countries which they had worked with. There were many interesting ideas in the report that were not used in Bulgaria.

In addition to this, the report was not a program. I agree with what my colleague Dimitrov said. This is because no Bulgarian government tried to turn the report into an operating program. It had no deadlines or means of implementation.

I did like the chapters on electronics and machinery. The report’s proposals built on the achievements of the country. For example, the plant in Radomir worked at only a small portion of its capacity with imported equipment for millions. The same situation was at ZMM Sofia and other big industrial plants. The managers had to guarantee foreign participation or some sort of consortium of German companies to manage the plants and compete on the world markets. They had to improve their marketing strategy, etc.

In any case the program did not ask for privatization and selling at any price. To operate such a program it should have been timed and financially secure. There was no process or a set list of actions to be fulfilled. There weren’t any financial resources needed for the program to work. Rather, the program was a philosophy; a methodology and mindset which made it very valuable for us then and it still is, even today. We learned from it.

All governments come with their own interests and political resources but what the program needed in order to be realized was support and will. I really liked an expression I heard from Ronald Utt at the time (I quote it often to my students), „Privatization is primarily a political action with economic consequences“. You need the courage to make a reform like this. I seem to recall Lukanov and his people speaking of „democratic socialism“. They wanted the privatization of enterprises to be made by directors as social democratic transformations involving workers and preserve the nomenclature of the enterprises. 

What hindered the Rahn-Utt program and its application was the political instability in the country at that time. To implement strong privatization you must feel the support of the population. 

Additionally, if the reforms in Bulgaria had followed the program the process of transition would have been faster and I think at a lower social cost. For example, privatization was delayed due to the adoption of the law on restitution supported by many politicians at the time. This law created the rentier capital in Bulgaria. If we had started with at least the first stage of privatization, the so-called small privatization, we could have used this inflationary potential - it was huge then. In terms of national income the equivalent of GDP was about 30 billion BG Lev and the population‘s savings were around 28 billion BG Lev. This resource could have gone towards initiating small-scale privatization in order to restore the self-confidence of the population. That did not happen. Liberalization of prices followed by the collapse of many banks… it turned out there was no capital in the population for true privatization. At the end we created degenerate forms of privatization, such as mass privatization or worker-management buy-outs. This type of privatization catered to the interests of those who were close to the government. This situation created the oligarchic groups and circles that govern Bulgaria today.

Ultimately the Rahn-Utt program was never implemented. No government made use of it. Nor did any government support it politically or financially. It seems to be a form of pathology in Bulgaria that governments deny everything suggested before them and follow the interests of those that put them in power.

Again, if the program had been implemented it would have involved a quick and less painful process leading to normal economy and interaction between economics and politics.

The Rahn-Utt program was demonized by some extreme leftist groups who think they see it as American influence. They call it the „American plan for the destruction of Bulgaria”. They see it as the battle between Moscow and Washington and the penetration of American influence. This is their conspiracy theory. They do not understand that market economy established itself all over the world.

In reality, we had no choice but to take what worked in other parts of the world. Critics who accuse us purport that we were traitors to Bulgaria. But the alternative would have been what? To follow the model of the Kremlin with their rogue state capitalism or the Chinese model, or the North Korean model?