Tag Archive development

To do while waiting for the accession to Schengen

Have you ever crossed the border between the Republic of Cyprus and the Turkish Republic of North Cyprus? It’s an unkempt back alley in Nicosia. The situation denotes the failure of EU and UN to restore normality in Cyprus. Respecting the “do not photograph” signs I don’t have photos of the actual back alley, but the surroundings look like this.

The images made me think of the constant postponement of Romania’s and Bulgaria’s accession to the Schengen area. Cyprus probably won’t get there soon either. I now understand the major concern of some Member States regarding the consolidation and monitoring of the Eastern border (the longest border with non-EU states). It’s obvious that the area requires extensive improvement.

I won’t go into a diatribe about the need for the Romanian authorities to take political actions in terms of strengthening the judicial institutions and the rule of law. Solely from an infrastructure and logistics perspective, we are being assured that the borders with the non-EU countries are well equipped, fitted with sophisticated EADS instruments, and well organized. But what about the “border” between Bulgaria and Romania? What has changed and what needs to be done? Our accession to the Schengen Area means, simplistically speaking, that our land borders with Bulgaria and Hungary will simply disappear, that we can go to Balchik just as we go to Mamaia or we can visit Lake Balaton just like we visit Lake St. Ana: with no one asking us for our passport or identity card, without being questioned by the border police, without even feeling (physically and administratively speaking) that we are crossing a border. At least this is the case between Italy and France, Germany and Austria, Belgium and The Netherlands, Spain and Portugal, etc. Shouldn’t we also prepare “the inside” while waiting for the accession to the Schengen area?

The 28 states of the European Union have different levels of development. Reducing or mitigating such differences is made via nominal and real “convergence” policies. Nominal convergence is performed downward and it refers, particularly, to budget deficit, external debt, but also to democracy and rule of law. Real convergence is performed upward, by each of us, by our individual attitude and our production, by our de entrepreneurship and by adopting the modern values of economic efficiency, by our active participation in the life of our country, by respecting the values of democracy. We shouldn’t try to “be like them”, but “be ourselves”; however, there is a minimum set of values that we need to adopt, both at the level of public institutions and local administration, and in the private environment and among the citizens. Adopting the modern values is one of the advantages of being a member of the EU. They pay as much attention to the “big picture” as to the “details”. We could learn to pay more attention to the details. The details of the borders between Schengen states, in our case.

The border conditions between Romania and Bulgaria haven’t changed much, despite the cooperation between the border police services. The logistic is even worse: large, communist buildings, mostly abandoned, dusty and derelict, sinuous roads, some still preserving the quarantine lines from the old days, access ways full of holes in the ground, useless distances, garbage and dogs. Look at the images.

Does this look like Schengen area? Of course our politicians have to see what needs to be done in our country. Things that cost little or nothing at all. It doesn’t cost anything to maintain the areas clean. Or it doesn’t cost too much for the authorities to send a bulldozer to demolish the old structures, to straighten the roads and connect those on either side of the border (which are in pretty good shape). In each of our countries things look much better than at the common border. It’s not that much to do, only a few touches.

Between Romania and Bulgaria two bridges with symbolical value have been built at a 60 year interval: the Friendship (Drujba) Bridge Giurgiu-Ruse (1954) and the New Europe Bridge Calafat-Vidin (2013). One with the support of USSR, the other with the support of the EU. The difference in their appearance is perhaps as big as the difference between the two systems they marked: Friendship looks like the failure of communism, New Europe expresses the modern future.

But why are we allowing the past to overpower us? Do these two bridges somehow incorporate our old values? The “that’ll do” mentality in the case of Drujba and amazing modernism in the case of New Europe. Why are we letting these resources go to waste? I am sure that there will be new projects offering a way to use wisely these bridges in the Schengen area. They are a source of development and prosperity, at least for the areas near the Danube. The key, however, is in the details.

The goal of accessing the Schengen area shouldn’t bring only the decision to integrate Otopeni Airport, with a dedicated terminal, elegant and modern, but also the ambition of building, at the land borders of our country, integrated into the area, modern, comfortable, fast and effective facilities. To replace our oriental behavior with the western elegance and effectiveness. Romanians have the right to feel European in their own country, before feeling European in Europe.

Remembering the failures of the command economy

My recent article about Iași brought up the topic of “the extraordinary heritage” we had before the Revolution and how “many enterprises were viable” back in the day. The image of the socialist industrial platforms is still in our minds even decades later, in a blend of childhood nostalgia, for a time when all of our parents went to a factory, and regret that now the industry doesn’t provide enough jobs (as in Germany) and there are fewer manufacturing plants.

Both may be true, but let’s not forget that the causes for the collapse of communism in Romania were primarily of economic nature: the long years of shortages of all sorts; the hunger and the absence of food on the market, the endless queues; the lack of heating in the winter and the proration of basic products; the desperate struggle to survive and provide a future for one’s children. All this is nothing but evidence of a systematic incapacity to provide a decent life to the members of the “socialist and multilaterally developed society” and to meet the basic needs of the population. How could this have happened if Romania was an industrialized country with viable enterprises?

The Romanian socialist industry was all about the pride of the communist regime. It was built primarily to prove that it can exist and not to meet the needs of the internal or external markets. No doubt, it could have generated economic development and social welfare, but it started out on the wrong foot and it emerged in a twisted and artificial economic and political framework. In the 80’s Romania experienced, too early and too hard, the severe distortions of a command economy, highly accentuated by the self-sufficient and nationalist policy promoted by the communist leaders. But the socialist industry failed to offer its citizens a better life.

The major distortions that led to the collapse of communism are related to the ineffective allocation of resources, the abusive interference of politics in the economic decision-making process, the system of controlled unitary prices, the employment on a permanent basis of the entire labor force, even beyond the objective needs, and the absence of any relation whatsoever between remuneration and individual performance.

Allocation of resources through a central command (the State Plan)

Communism eliminated private property, abolished owners and prevented individual operators from making economic decisions; and the markets, as mechanisms of sending signals to the economic decision-makers (demand-supply), disappeared. In communism the State was the sole owner, as opposed to a multitude of owners in a market economy. There were far more chances for a single owner to make bad decisions, than when you combine decision from a diversity of owners. The socialist industry is developed according to the unitary state plan, which in most cases is grounded on unrealistic data, information and desires. The state plan was based on political, megalomaniacal, or fame-driven objectives. Romania was aiming to become the third largest producer of machine tools in Europe, building heavy machinery industrial facilities in all large cities, opening a large ferrous steel plant (in Calarasi) although it lacked both the necessary resources and the markets. The plants and factories were kept operational only to report an industrial yield and to artificially ensure jobs, not because they were profitable.

Abusive interference of the Communist Party in economic decision-making

The reasons behind the industrial investments were often the result of political bargaining, established based on the influence of certain local communist leaders, rather than on market economy arguments or on the possibility to support production with local, efficient and quality factors, able to generate a long term marketable production. Each communist leader succeeded, using personal influence, to place various industrial facilities in several regions, which then consumed important resources of the state plan. They built steam power plants in areas without coal resources (Suceava, Mintia), ferrous metallurgy plants in localities with little labor force, without iron ores or without access to transport routes (Calarasi or Targoviste), chemical plants or refineries in areas without oil resources or supply infrastructure (Pitesti, Turnu Magurele), railway car factories in areas with no industrial tradition (Caracal, Turnu Severin), aluminum at Slatina and alumina at Tulcea, etc. Towards the end of communism in Romania, the political leaders had taken full control over the economic management, aiming at maintaining active industrial “fortresses” that were so fragile that they collapsed immediately after the Revolution. Professional managers were a rare thing in the 80’s…

A system of unitary prices administered and controlled by the State

The rigidity of the unique prices, established centrally, made it impossible to adapt to the market conditions; especially in the case of exports. The prices in the economy were initially established according to wishes, not based on real costs and productivity. In time, the income and the costs were completely separated and parallel management and administration systems were created based on artificial data, as a result of chain reporting that no longer reflected the reality. In the period preceding the Revolution, the prices no longer reflected the real costs and the raw material used, nor the quality of the products and services obtained. The industrial products exported or the raw materials imported were internalized at local prices based on different and arbitrary exchange rates, which suggested massive subsidies. Therefore, the economy lost all real competitiveness as the prices were unrealistic and the subsequent liberalization of prices related to the market creation process took a long time; and it still does in some cases.

Employment on a permanent basis for the entire labor force

It’s counterintuitive why the employment of the entire labor force, which even today is a priority objective of public policies, was a negative aspect in communism. In capitalism, rational and efficient investments create jobs and the employment is flexible, consistent with the production needs. In communism, the industrial objectives were created in order to employ non-industrial labor force. It was the production needs that were adapted to the labor force and not the other way around. Over 30,000 workers in and around Galati were employed at the ferrous metallurgy plant. Today, less than 5,000 people work there and the production and the export are higher. The national production system had a primarily social nature. The economy progressively became a social assistance mechanism, failing to take into consideration the production needs, the individual skills or productivity increase. In a market economy, people always have the opportunity to change their workplace, there are new projects, new challenges.

Lack of any relation between compensation and individual performance

Gradually, the connection between the compensation for the work performed and individual performance disappeared. The salary and incentives were the same for similar or comparable positions regardless of results, efforts, skills, talent or dedication. Due to the expectation created by job security, the quantity and quality of the labor or the increase of productivity became less important. The more productive workers were not motivated to produce more, many innovative ideas were not put into practice and promoted, the income was capped regardless of how much initiative you showed. Research became an administrative activity, and incentives were granted on disciplinary or political bases. Labor productivity decreased along with the quality of the products and services.

These are the main structural problems which led to the scarcity of products and services and to the failure of the communist production system. The transition to the market economy proved to be a long and difficult process. The industrial heritage was problematic and impossible to continue on the same structure. The industry had to be rebuilt and the industrial enterprises reformed. Many of such industrial enterprises were fully modernized under Romanian shareholding (Compa – Sibiu, Elba – Timișoara, Farmec – Cluj, RAAL and Rombat – Bistrița etc.), but the main drivers of change in the Romanian industry were foreign investors (Dacia – Renault, Sidex – Arcelor, Petrom – OMV). Romania now exports more than twice as much (almost EUR 50 billion) as in the best years of the socialist industry. The country definitely has a more advanced and more efficient industry. But obviously not enough.

The industrial platform of Iași attracted less foreign investors, due to both the profile of an outdated industry and the geographic position. Nevertheless, new businesses still emerged and more than 20 years after the change of the economic system in Romania industrial investors established production centers in Iași for the local market, the eastern market and for export (Delphi Packard, perhaps the largest exporter of high-end technology). More and more Romanian technicians and workers, many of them returning from abroad, find a job at the industrial enterprises in Iași.

Golf vacations in the Balkans

While Mamaia is launching its new anthem Viva Mamaia, urging tourists to joyful party hardy, our neighbors to the south of the Danube are hosting the international golf tournament Volvo World Matchplay Championship near Balchik, at Thracian Cliffs, an event that prompts elegance, harmony and competition. The two neighboring countries couldn’t possibly have a more different approach to developing their seaside tourism.

It’s my feeling that Mamaia targets mainly young adults (25 and under?) who are eager to party and like loud music, who go to nightclubs, lay on the beach sun tanning and, for those who can afford, maybe even practice some water sports. In that sense it reminds me of Bodrum. Tourists are mostly here during the summer season and particularly on weekends thanks to the new highway from Bucharest. Based on services being advertised the typical tourists might also include young couples with small children (I’ve seen an advertisement for baby daycare services).

I’m not familiar in detail with the tourism market, but it seems to me that the tourists the Romanian seaside doesn’t cater to are precisely those people who can afford to spend more money on their vacation. Let’s say people over the age of 35-40, whose children are already grown up or have their own families and who usually vacation separately. These tourists are interested in different kinds of services (they don’t spend that much time sun tanning). I’m not referring particularly to those who go to the seaside for mud therapies at Techirghiol or for Ana Aslan treatments. But I am not excluding them either.

I believe that modern tourism offers must include golf. All great vacation destinations have golf courses. Golf is an Anglo-Saxon sport (invented in Scotland several hundred years ago!), considered a purely capitalist sport (in Romania it was banned by the communists), but unjustly considered a sport for the elites. In the past few decades, it spread throughout Europe as a sport for the masses. It has clear rules, it stimulates fair-play and rewards results for any level of training and game mastering.

In countries such as Germany or Austria, over one million and, respectively, one hundred thousand people (many couples) play golf. The Czech Republic has almost 100 golf courses (almost all built in the past 20 years). Not to mention the U.S., where over 25 million people play golf. The numbers, even if approximate, show that this sport is populist if anything, not exclusive. In Scotland, half of the population plays golf. Golf also became an Olympic sport for the amateurs, in addition to the large, money-making competitions for professional players.

Golf is not a sport for senior citizens who, once retired, have nothing better to do so they take up golf. It’s a sport that can be practiced at any age, between 10 and 90. By young, strong, healthy people as well as by older people, even with health problems. Our modern lifestyle requires exercise. Golf is not only a perfect excuse to exercise (a golf course has a 5,000 – 6,000m track), but it’s also an application of focus, skill and talent. It is a sport for men and women, for grandparents and children. Three generations within a family can be at the same time on the golf course. Anyone can learn how to play. I haven’t met anyone who, after the first golf lessons, didn’t become a passionate player.

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Golf is associated with a certain lifestyle and particularly, with a certain type of vacation. I, for one, discovered golf 13 years ago. Since then, I have been planning my vacations to include a golf course. I found that all of the touristic locations I used to go to also have golf courses, which I hadn’t noticed until then. I started arranging more active vacations by including (besides trips and water sports) playing golf. My family, colleagues and friends caught “the bug” as well. I met many people who are playing, from a variety of backgrounds and professions: a farmer from Bavaria, a bus driver from Scotland, a former officer from Norway, as well as industrialists, bankers, high officials, etc.

I think 20 years ago, golf didn’t even exist in the Balkans. I’ve seen an older course in Athens and in Eastern Europe probably the oldest one is the Royal Club (known today as the Diplomatic Club) of (pre-war) Bucharest. Now I only see newly built, modern courses, nicely adorned with trees, lakes and sand. True works of art! A course has a surface area of 80-100ha, it’s equipped with irrigation and draining systems, and it’s permanently taken care of. An investment of perhaps €3-5 million.

If you live in Bucharest, you can think of golf options in the Balkans as three concentric circles of courses. Locally, Greece and Bulgaria, then Turkey and Cyprus, each more spectacular than the other, completing the vacation offers. Antalya has the most golf courses (over 15 – Cornelia, Gloria, National, Carya, Montgomery, Sueno, Sultan, Pasha, etc.) which, during the holiday season are filled with tourists from Germany, Austria, the Northern countries, but also from Italy, France, Russia and… Romania. Cyprus has 4 golf courses (I think the most impressive one is Aphrodite Hills), then Crete, Rhodes, Peloponnese and Halkidhiki in Greece.

But the most pleasant surprise is Bulgaria, having no less than 5 new, modern, spectacular courses, in the Balchik – Kavarna area (3) and Sofia area (2). The most remarkable is, to me, Thracian Cliffs, which integrates perfectly with Light House and BlackSeaRama. These courses are frequented particularly by Romanians or expats working in Romania. But there are also Germans, Austrians, Irishmen and Englishmen. These are also the closest full-scale golf courses to Bucharest. You can get there in a 3-4 hour drive on A2 highway. For some, Santa Sofia and Pravet (50 km from Sofia) are even closer.

In Romania there isn’t a complete, full-scale golf course, equipped with all of the necessary facilities so we can’t organize an international competition, similar to the one taking place now in Bulgaria (Volvo). But there are many initiatives, a lot of enthusiasm and several quite nice locations. The nicest one is probably Pianu de Jos in Alba having a complete course (18 holes), but with so improvements still to be completed. Then we have 9-hole courses in Breaza (Lac De Verde) and Cluj (training facilities Sun Garden Resort and Transylvania Golf) and a bold attempt in Recas (Timis county). Last but not not least we have the old royal golf course at the Diplomatic Club in Bucharest, paired down to… 6 holes, now also accessible to non-diplomats. In the vicinity of Bucharest, there are only training facilities in Zurbaua and Snagov. Almost every year we hear about a new project and we can only hope that someone will eventually build a full-scale course. A hotel-owner friend of mine invited me to a meeting with 6 mayors at Eforie Nord, in an attempt to pull together 70-80ha of land for a golf course.

But at least Romanians are doing well with a few golf clubs, a Golf Federation, and the Association for Romanian Golf Players of around 3-400 players. As for the golf infrastructure, we’ll just have to be patient. Until then, watch out! – tourism in the Balkans has adapted quickly to modern demands. Exercise and a healthy lifestyle, even on vacation!

Bucharest Academy of Economic Studies at its 100th anniversary

The Academy of Economic Studies (ASE) recently organized a series of events to mark a beautiful anniversary: 100 years from its establishment. In attendance were distinguished guests, from the Head of State to alumni, academics, professors, ministers, businessmen, and bankers. All in all representatives of generations of graduates and professors gathered together to show everyone that the ASE means something. Missing were students currently in attendance(!), perhaps a decision of the organizers in the tradition of U.S. universities who seem to disproportionately court alumni? (based on my son’s experience after attending Duke University)

The atmosphere was full of festive wishes (at anniversaries we only recount the happy stories!), recollections, touching stories, congratulations and diplomas, all nostalgic for „the good time we had back in the day”. Economistul (a local weekly) dedicated a special issue to commemorate the events and distributed some well edited leaflets. Kudos to them!

I was invited to one of the sessions, organized by the School of International Relations (formerly known as School of Foreign Trade), which I graduated and where I lectured for some time.  I was even invited to say a few words for the occasion, but in the end it didn’t pan out (local customs for event logistics don’t prioritize punctuality). But at least I listened to a few speeches, including some from representatives of foreign universities/colleges which did prove interesting. In lieu of giving that speech I’m sharing here what I would have said.

I was quite close to the university after graduation. I was a part time assistant professor, wrote several chapters of the Applied Foreign Trade course, and was a PhD candidate which I completed after the Revolution. Starting with 1994 I was a professor and I taught “International Financing” for a decade. I have the satisfaction that by introducing this course, the School of International Relations embraced a new specialty important for foreign trade: financial services. The curriculum fares well compared to the more specialized classes offered by the School of Finance. Over the years I lugged many suitcases of books bought in London, New York, or Paris for students. I used modern teaching methods in a time when professors still used to read the lectures sitting behind their desks. I worked with students at seminars and coordinated the preparation of many graduation thesis. I tried to do things differently, in a more diverse and modern way. My assistant (now a professor) even created our first website for the class.

While I was a top civil servant (1991- 1996) I tried to involve the ASE in the research programs financed by the European Union (I coordinated the first of the PHARE programs), to bring to the School of International Relations outside support (British Council, PHARE) to adjust the curriculum to modern requirements. I also invited visiting lecturers from European universities to share their experience about teaching methods, working with students, contents of the lectures, organization of the university departments, etc.

Many things have changed since then. The Academy is more open, more modern, better equipped. The library is grand, when you walk inside, you feel as you were in a cathedral, where you shouldn’t even whisper, but which invites to studying. State of the art digital equipment facilitates access to any source for research. The libraries are still enticing, despite living in the era of tablets and distance learning. The teaching probably changed a lot as well. Today, my modest projectors (first overhead with transparencies, later with a computer) would be outdated and the photocopied books I carried to classes and seminars would seem ludicrous.

I would have used all these resources to mark the great anniversary with debates and an analysis of the 100 years of history. How it initially started as the Academy of High Commercial and Industrial Studies, how it was “swallowed” and transformed and what it is now, anchored in a modern world. I would like us to talk about the moments of reference and inspiration, about great professors and their contribution to the making of the country’s destiny, but also about the deviations, the mistakes, and the failures. I wish that students and teachers, graduates and sympathizers, participated in a fair evaluation of the achievements of the economic education within the ASE and  create the institution’s profile for the future. What is the place and role of the ASE in today’s society? Is it an institution of the professors or of the students? Is it a partner in the social dialogue? Is it an institution that supports public policies?

After more than 20 years, Romania is still struggling to determine its economic and social development model. We lack understanding of the past, the needs of the present, and the directions of the future. We also lack the basics. One example is the school or university textbook; society is wasting precious time arguing about that content of textbook rather that demanding that our educational institutions rise to the occasion. Public debate should focus on the political viability of one development model or another, not on teaching what we are missing in school. I would like the ASE to fill in this void, to make sure that the students are left with sound and applicable specialized knowledge (the DOFIN – Doctoral School of Finance and Banking program is a good example) and to participate, as an institution, in shaping Romania’s development directions. The Academy could and should elaborate its own strategic view on Romania’s development, one that is credible, modern, well documented, sound, and last but not least, academic, significant.

Major topics of today’s life are not addressed scientifically: the financial crisis and the economic recession, the role of the financial institutions, Romania’s competitiveness, sustainable development, the convergence of the EU economies, adoption of the Euro, the future of the European institutions, etc. These topics should be approached not solely through the opinions of several well-known professors (including some with significant political positions), but in debates within the university departments and within scientific sessions. Doing that would affirm the university’s position much like Chicago University is known for its position on macroeconomics.

I wish that the ASE had its own notable periodical (a kind of local Harvard Business Review) where students, professors, alumni and sympathizers alike, could publish and debate research papers. We could discuss ideas, opinions, arguments, theories. More than a learning institutions, the ASE could be a school of economists (like the National Bank of Romania School), that leads the direction and view of Romanian economic research and doctrines (like the Romanian Academy does for the national language and other cultural heritage). ASE could be the pillar of the education-research-production cluster lying at the base of modern development (Porter’s diamond) in the strongest area of the country (Bucharest).

I wish that the ASE tried to become one of the most desirable universities of Economics. Romanians going to study abroad aim for the world’s top 100 universities. Why couldn’t the ASE be among the first 100 universities in the world? These are only a few of the ideas I would have shared with my colleagues and with the students at the 100th Anniversary. Other than that, we are all proud to have graduated from the ASE. Back then, we did not have much of a choice.

 

Iasi contributing to Romania’s 21st century

Iași praises its heroes and lives from its past”, said, recently, a local high official. “Iași needs to live in the present and build its future, a future of economic development, of attracting investors, technological parks and jobs, a future of well-being for its citizens.” Is Iași archaic and gloomy, as it seemed to be in the ’90s, drifting in the twists and turns of capitalist economy? Today, it is certainly NOT!

I hadn’t been to Iași since 2010. I was very surprised a few days ago, when I visited the city. Of course I know a lot from books, from previous visits, from stories told by colleagues (renowned people working in the IT business), friends and family (my son worked at Microsoft in Seattle with a lot of young people from Iași, people their teachers should be proud of). The city is a cultural, religious, educational, and even… political center. Many of the ministers (secretaries of state for my U.S. readers) within the recent governments came from Iași. I read the works of writers from Iași (Dan Lungu) and I think we all are generally captivated, countrywide, by young talents in the media.

But is Iași, an economic center? Many decried the famous “industrial platform” of the city when a National Liberal Party minister, elected in Iași, launched the “reindustrialization of Romania” perhaps impressed by the fate of the socialist industry. Was it a real sustainable industry, or just a “job factory”, significantly subsidized by the State? A lengthier debate perhaps for some other time…

It seems to me that Iași’s industry is resurrecting in modern, not in traditional terms, in terms of quality, not quantity. In terms of efficiency and productivity not only with regard to jobs. State of the art technologies dominate Iași’s industry and they are champions in regards to exports (I think the export rate is higher than in the times of the “industrial platform”). American and European companies established their regional business hubs in Iași, and even invested in alternate railroad tracks to match Russia’s and Ukraine’s. Several Romanian entrepreneurs, some young, some older, had significant achievements in various sectors of the economy (health, food industry, etc.).

And industry is not the only growing sector. Services are developing as well. The city’s infrastructure is largely renewed and modernized. New access ways and improved traffic flow. Better utilities (Iași has one of the most powerful water supply companies). New entertainment centers, hotels, and restaurants maintaining traditional local cuisine (tochitură [stew], sarmale [stuffed cabbage], papanași [cheese doughnuts], plăcintă poale’n brâu [sweet cheese pie] and many more.

The much-awaited airport, modernized and extended, seems to be on its way. The peopl of Iași and of (upper) Moldova have relatives in Europe, whom they want to visit more often. The first flight to Rome was sold out long before the departure and for the flight to London there were no more tickets! Direct link to Europe: done!

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The city is livelier, more colorful, and more beautiful. The people are more relaxed, more modern, and more proud of their city. The new pedestrian route brings out better the historical and religious monuments (including the Cathedral), the administrative buildings (the City Hall is seated in Palace Roznovanu) and the modern “monuments”.

“We see accomplishments we are not used to”, says a colleague from Iași. “The Palace of Culture was 95% consolidated and renovated, the way it has not been in decades, the Moldova Philharmonic is half rebuilt, the National Theater was fully renovated (a work of art!), after 20 years, Trei Ierarhi Church is finally rid of the scaffolds and it looks impressive, the National Opera started to give open air concerts, there are new theater plays, the theaters are packed with spectators, the archaic promenades are coming into shape and give out a note of eccentricity, in tone with the city itself …”

I was impressed by the architectural and commercial blend of the esplanade of the Palace of Culture – Palas Mall, the summer theater, the promenades and playgrounds, the commercial centers, the office buildings, the restaurants and even the streets are in perfect harmony. It is a refreshing view of two wonderful worlds melding together – one old, glamorous, and the other new, modern and functional. Iași passed the modernity test. You don’t know whether you’re in Iași or in Lyon (the comparison is mine, though to some it may seem exaggerated).

Perhaps even more importantly, in Iași there is a new state of mind, more optimistic, of “yes, we can”, the state of mind of accomplishers and winners. A strong and dynamic local administration, highly cultivated and educated persons, ingenious and courageous entrepreneurs, engineers, technicians and workers who are more confident in their place of origin, modern and emancipated students. I feel that I am part of this state of mind and I am happy to have lived this experience. I recommend it!

 

Romania is antifragile compared to Cyprus and Greece

Romania went through 20 years of reforms, some incomplete, some improvised, but the progress is visible and so are its effects. Romanian authorities were assisted in the transition to a market economy by IMF (the IMF agreements covered 15 of the 23 years of capitalism), the World Bank and the European Union, cumulating perhaps the most advanced expertise in the field.

The period preceding Romania’s accession to the European Union was a genuine program of structural adjustment and reforms. On the one hand the privatization of the gas and electricity distribution, the breakup of the oil and landline phone service monopolies, with the liberalization of the prices and of foreign trade on the other hand transformed the Romanian economy, within a relatively short period of time, from a centralized, command economy, into a functional market economy, mostly private and completely open. Foreign direct investments stimulated Romania’s economy (52% of the private sector output), particularly in telecommunications, automobiles, manufacturing, dairy and non-alcoholic beverages industry, but also in the financial, retail, etc. industries, which all together generate most of Romania’s exports, of over €50 bln.

Romania’s economy has all it takes to enter a sustainable growth stage if the economic and social reforms, structural adjustment and public administration reform are continued. Many steps have already been made and there is little left to do, but what remains is essential. We have a relatively complex (multi-sectorial) economy, although small (€131 bln. GDP), mainly based on industrial production, agriculture, and services. The economic operators in Romania are competitive, both locally and internationally, and they achieved such competitiveness through their own forces, proven in real markets and not by subsidies, monopoly or other advantages. This makes Romanian production sustainable and business environment more productive.

The Romanian banking system is… localized, but operated mostly by experienced banks, competitive in other markets, which offer modern services. The banks receive domestic, and not foreign, deposits and savings or they finance their local assets from foreign savings, but on their own. The home countries of the banks operating in Romania proved that they have the economic strength to protect or save their banks in crisis situations and thus protect Romanian depositors. Bank assets in Romania represent only 62% of the GDP, the public debt 35% (3rd quarter of 2012), and the external debt 74% of GDP. Romania’s rating on the financial markets is “investment grade” and it obtains financing at costs much below those of Greece or Cyprus (as compared to their current default/bankruptcy statuses) or even of developed countries such as Italy and Spain. Romania managed to adjust the financial unbalances through its own forces, with the support of IMF and the EU, before the onset of the crisis in Greece and Cyprus.

The economies of Greece and Cyprus are rather mono-sectorial (primarily based on tourism, shipping and… financial services) and more closed than open. The collapsing banking sector is built with national capital(!), with other sectors still state-owned (we haven’t seen any privatizations in the past 10-20 years), less competitive (dominated by public or private monopolies), little, or not at all, transparent, less reformed and even unbalanced.

Cyprus has a gross domestic product of €18 bln. obtained from two types of services (tax heaven and tourism) which are not sustainable. At the same time, it has deposits (foreign, obviously) of €127 bln., representing over 700% of the GDP, that is to say, a monetary economy with no connection whatsoever to the real economy. The deposits are volatile because they are only registered in Cyprus, but used somewhere else. Therefore, it is not only an unsustainable economy, but also an unconventional one, too atypical to be comprehended by the Western-European policies as well, which criticize (at least on occasions and in action) the tax heavens associated with tax evasion.

It is no wander that the European “rescuers” are not supportive of this type of economy, on the contrary. “Normalizing” the Cypriot economy, so as to generate sustainable income, which is indispensable to fiscal balance and financial stability, is an impossible task. Lacking economic solutions, the donors requested the Cypriot Government, in exchange for the rescue assistance, to take decisive actions to “restructure” the gigantic financial institutions and to “clean up the economy” (bail-in). We are not talking here of a banking crisis, but of the failure of a pyramidal and opportunist economic system collapsing at the first gush of wind.

Besides the closed and monopolist economy, Greece stands out by an almost complete absence of industrial production and an excessive public debt(over 150% of the GDP, 3rd quarter of 2012), which in fact subsidizes an unsustainable country level. The capacity of this type of states to solve their own problems and to save their own financial institutions has proved insufficient, precisely because their economic system generates little output, consumes a lot and is unsustainable.

Romania promotes itself internationally to attract foreign investors because it has relatively cheap and qualified labor force, particularly in the industrial production sector. Romanians are educated, bright and hard-working. This is perhaps the main leverage of Romania: its citizens work! When you have a population that works, learns (English at the same time as Romanian!), sacrifices itself (the way they managed to avoid disaster in 2010 – 2011), knows its limits, hunts for better jobs in Europe (including Cyprus and Greece), you have a natural advantage. Cypriot housewives keep in their homes 2-3 women (possibly Romanians) doing chores for them. They pay these women and still have some money left. Where from? Romanians work a lot (maybe even competently) and live modest lives. It’s true, they could live better if the administration was able to turn the resources it has into welfare for its citizens.

Social welfare in Romania is much below the country’s possibilities, as opposed to the social welfare in Cyprus and Greece, where it is well over the countries’ possibilities. It’s true that Romania still has unfinished reforms, that maybe it doesn’t know how to manage its resources properly, or maybe it has lower productivity than ideal, but these things are on track to be can be changed for the better. They aren’t fundamental problems that have to be rebuilt from scratch or started all over, as in the other two countries. We don’t have to redesign our economic model, we only have to supplement it, to operate it at the same speed with the rest of the industrialized countries. Unfortunately, Cyprus and Greece, Our orthodox sisters, have to redesign their welfare model, and they won’t be able to do it on their own.

Romania is more open and cooperative with its international partners which is good because it has much to learn and to transfer from the more advanced economies and democracies. The miracle of Westernizing Romania in the nineteenth century can surely be replicated by the rapid modernization of the country in the twenty-first century. And Romania can do it! I doubt that our Balkan neighbors still can. They are too proud of their old civilization!

P.S. The concept of anti-fragility comes from Nassim Taleb. He advocates what he calls a “black swan robust” society, meaning a society that can withstand difficult-to-predict events. He proposes “antifragility” in systems, that is, an ability to benefit and grow from random events, errors, and volatility.