The Economy - Economic Structure

The Economy - Economic Structure

Until late 1989, Bulgaria had a command economy based on centralized planning rather than on market forces. In such a system, crucial economic decisions such as allocation of output, rates of expansion of various sectors, values of goods and services, and the exchange rate of the national currency were made administratively, not by the market. Bulgaria's faithful adherence to the Soviet model of economic planning included rapid industrialization, large-scale investments, and other resource allocation to heavy industry at the expense of light industry and agriculture, higher rates of spending for capital investment than for consumption purchases, and forced nationalization of industry and collectivization of agriculture.

The Centrally Planned Economy

Proponents of centrally planned economies (CPEs) maintained that the advantages of such systems far outweighed the disadvantages. They believed that in many respects economic competition wasted society's resources. In other words, what Marx called the "anarchy of the market" led producers and consumers to expend resources in activities that became unnecessary when they worked in harmony rather than in competition. Planning could give priority to social goals over economic ones. Should the government decide that the development of health professionals was important to society, for example, it could earmark funds for that purpose. Proponents of CPEs also claimed that they could insulate their economies from the ups and downs of the business cycle, a phenomenon which Western economies never have been able to avoid. Theoretically, CPEs were designed to be immune to economic (and social) losses such as reduced output and unemployment associated with economic downturns. (As their national economies became more interrelated with international markets, however, CPE proponents admitted the difficulty of isolating themselves from swings in world economic conditions.) Another theoretical advantage was that economic decisions could be based on long-range goals because the financial losses of any individual enterprise or industry could be offset by profits in other areas of the economy. And, since the organization of the entire industrial and agricultural base was determined administratively, economies of scale could easily be incorporated into the planning process.

Western economists were generally critical of the CPE, however. Their criticisms had two essential components. First, central economic planners often were unable to plan an economy efficiently; and second, even when they could plan well, they were unable to achieve the goals they planned. These general assertions proved true regarding specific aspects of Bulgaria's command economy, and they had ramifications for efforts to reorganize that economy in the 1990s.

The CPE induced enterprises to seek low production targets, concealing productive capacity and never overfulfilling the plan by too much, lest higher targets be set in the next plan. The result was underutilized resources. Plans tended to stress quantity over quality. Simply requiring a particular level of output was insufficient if that output were of such poor quality that no one bought it, or if there were no need for such a product in the beginning. The consumer had no effective control over the producer when quality was low, and the artificial price structure prevented price signals from alerting producers to consumer preferences. Also, because enterprises were judged on their fulfillment of the plan, producers geared production levels for satisfying the plan, not consumers.

The CPE could induce technical progress from above, but it could not stimulate it from below. The plan discouraged enterprise innovation, because innovation meant interrupting current production, hence jeopardizing plan fulfillment. The system also encouraged waste and hoarding of fixed and working capital, and the wage system failed to encourage workers to work harder or managers to economize on labor. Under Zhivkov Bulgaria attempted to deal with these problems by a series of reforms in both industry and agriculture. These reforms included alternately centralizing and decentralizing economic management; adding and deleting economic ministries and committees; revising the economic indicators for plan fulfillment; and encouraging or discouraging elements of private enterprise. Despite such experimentation, however, Bulgaria remained faithful to the general Soviet model for over four decades. In the years after the end of communist rule, the CPE remained the predominant structural element in the Bulgarian economy, especially in large enterprise management.

The Planning System

Prior to 1990, the planning hierarchy in Bulgaria included several levels. The ultimate economic authority was the BCP. The party determined general economic policies, identified economic reforms and their structure, and monitored economic activity. Planning and control were the responsibility of the Council of Ministers, which was roughly equivalent to a Western cabinet. The most important planning committee within the Council of Ministers was the State Planning Committee (SPC). Within the Council of Ministers were specialized economic ministries, such as the Ministry of Finance and the Ministry of Foreign Trade, and various governmental committees and commissions. The composition and authority of the ministries underwent frequent change. In 1986, for example, six ministries with economic powers were eliminated and five cabinet-level "voluntary associations" were formed. The aftermath of these changes, however, showed few new power relationships. In the later Zhivkov years, the prime responsibilities of ministry-level agencies included forecasting development of their industries, assessing development bottlenecks, and generally overseeing state development policy. However, the ministries were not to participate actively in planning. That was a function of the associations.

The associations, also known as trusts, were an intermediary organization between the ministries and the lowest level of the planning hierarchy, the enterprise. The association integrated production, research and development, design, construction, and foreign trade functions. Unlike associations in the Soviet Union, which were merely an intermediary link in the chain of economic command, Bulgarian associations retained several essential decision-making prerogatives and were in direct contact with centers of economic power such as the SPC, the Ministry of Finance, and the Bulgarian National Bank (BNB). At the bottom of the economic hierarchy, enterprises were distinct economic entities that operated under an independent accounting system. They were expected to earn a planned amount of profit, a portion of which went to the state as a profits tax.

In the Bulgarian command economy, almost all economic activity was directed toward plan fulfillment. Economic directives were outlined extensively in the plans, which were not merely guidelines but binding, legal documents. The best known of these was the FiveYear Plan, although planning was done for longer and shorter periods as well. Most important for the day-to-day operations of enterprises were the annual and monthly plans.

One of the most important tasks of central planning was what was referred to as material balances--planning for correspondence between supply and demand of goods. At the draft plan stage, this required that supply (planned output, available stocks, and planned imports) equal demand (domestic demand and exports) for every industry. When demand exceeded supply, planners could increase planned output, increase imports, or reduce domestic demand. The SPC usually favored the last alternative. This manipulation limited the flow of inputs to low-priority industrial branches, which most often made consumer items, resulting in shortages of those goods.

The party began the planning process by providing priorities and output targets for critical commodities to the SPC, which reconciled them with required inputs. A draft plan then was created by a process of negotiation and information exchange up and down the planning hierarchy. After negotiating with the SPC on targets and resources and formulating specific guidelines, the associations then negotiated with their individual enterprises to establish final figures. The output targets then went back to the SPC for a final negotiation with the associations.

The final version of the plan was submitted to the Council of Ministers for approval or modification, after which the approved targets were sent down the hierarchy to the individual firms. Thus enterprises were informed of their binding norms for a planning period, including volume and mix of output, procurement limits, level of state investment, foreign currency earnings, foreign currency limits for imports, and wage rates. An important element of the plan fulfillment stage was manipulation of resources by ministries and the SPC to ensure fulfillment of priority targets and minimize bottlenecks. Occasionally, reforms allowed enterprises rather than higher echelons to make many of these decisions. For most of the communist era, however, this was not the case.

http://countrystudies.us/bulgaria/34.htm
http://bulgariatravel.org/en/dynamic_page/79


Country Studies main page | Bulgaria Country Studies main page