Rethinking Romania – 2008

COMMENTARY: Rethinking Romania 2008

by Dan Dimancescu

Ten years can make a difference – and indeed this is so for Romania. Recent annualized growth rates of 6-8%, a boom in construction and retail hypermarkets and malls, and an accelerating rate of car ownership are surface signals of a thriving economy. For the frequent visitors, these are all signs of vitality. And indeed there is considerable macro and micro success to be reported.

Everywhere one looks there is a new bank or an ATM machine. The banking business is fiercely competitive and indeed one of the true economic liberalization success stories in transitioning from a corrupt centralized government-owned banking system to state-of-the-art private banking system. Cell phones are ubiquitous and also aggressively competitive while proving highly profitable. And everywhere one looks – rural or urban – something is being built. This is as diverse as village houses with new paint and roofs, to giant concrete homes that pop up like mushrooms in the most unlikely legal or illegal locations, to malls that spread there giant ‘American-style’ parking lots across huge city-edge acreage, to housing ‘estates’ both suburb-like or as high-rise apartment in urban districts. The cement business, dominated by two companies, one French and one Swiss, is booming. So is the bitumen business providing the raw material to resurface primary and secondary roads throughout Romania – most likely with EU grants. Just two hypermarket chains, Carrefour and Metro account for $2 billion in sales. That’s a lot of disposal income and it’s just for two of the five big hypermarket chains operating in Romania.

Success comes at a price

There’s price to pay, though. Most grueling to deal with is the proliferation of cars in Bucharest. There are now in excess of 1,000,000 in a city without a coherent street pattern, no peripheral highway, minimum public parking and a peripatetic traffic control system. One sees all the latest model cars – some incomprehensibly expensive – suffering the shared ignomy of being idled in log-jammed traffic. A ‘normal’ 15 minute ride can often take 1 to 1 and 1/2 hours. It isn’t pleasant and it extracts a huge cost in time, stress, and reduced productivity – not to speak of the attendant pollution.

On the question of progress there isn’t always agreement especially by those left behind in the economic slipstream: retirees, farmers with land too small to generate income, others on lower incomes who are squeezed by a higher cost of living, and nearly 3,000,000 citizens who have chosen to seek richer horizons abroad working in hotels, construction sites, or agriculture. There are pockets too of real regional poverty, for example in southwestern Romania or parts of Moldavia. One might attribute this to the expected cost of making a structural transition from one economic model (communist) to another (capitalist).

Highways – Where are they?

But, there are some things, though, that are difficult to explain. The first and most obvious is “highways”. There are none to speak of unless 250 miles or so of 4-lane divided highways is acceptable for a nation of 20 million inhabitants. From the days of Ceausescu when two-lane roads were considered sufficient and perhaps even a restraint in case of a third world war invasion, to the present when after 20 years of post-Communist governments not much has happened. Under the Nastase government a suspect no-bid award was made to Bechtel to construct a major route from Brasov to the Hungarian border. Many years later not much has happened and the price tag has spiralled upward. For Boston residents – which I am – Bechtel is notorious for ‘cost-plus’ contracts. Boston’s Big Dig had a starting-gate price tag that grew from $1.5 billion to more than $15 billion and still was delivered flawed. The EU has an alternate route laid out but nothing has happened to jump-start its construction. The price tag of all this is an economy paying a huge ‘lost opportunity’ cost from inefficient infrastructure and an equally high cost in travel costs from slow speeds and high fuel costs. When I travel long-distances in Romania, the average speed is 50 km per hour. Political fiefdoms are probably most culpable as deals are secretly negotiated and broken all in the interest of extracting financial favors.

Agriculture – How small can a farm be?

Hard to rationalize. too, is the land distribution that occurred soon after 1989. In a magnanimous gesture, the first government restituted nearly 5,000,000 plots of land to the peasant population. While calculated in no small way to generate favorable votes for the ruling party, the result has been debilitating. Most of these plots, small in size from 1/2 to 2 hectares, are too small to extract economic value and now under EU standards are too small to qualify for ‘agricultural land’ status. The consequence is that an enormous surface of fertile, rich soil goes underused and unable to return incomes to its owners. To anyone flying over the countryside, the patchwork or small narrow plots farmed by single families with hand tools and animals is now almost iconic of contemporary Romania’s landscape. But as artistic as it may be pictured from above, here too one sees a failure of public policy.

Standing in Line – Survival of the fittest

Lastly are the small things that in the U.S. would go as the ‘no-brainers’ but which can cause enormous frustration in people’s day-to-day lives. A common example, symptomatic or systemic problems, is ‘waiting in line’ for simple procedures to be processed – especially in public offices (city, county, courts, ministries). On many days long lines form without any evident method of prioritizing who gets to the right window first. The easy solution would to give people a number when they walk and to call that number in sequence. But for now the inefficiency and lack of civility it causes is baffling. Given the circumstances, one can well understand the affinity for an illegal tip as a way of getting to the head of the line or of actually getting the stamped form one wants.

What next?

Standing back and looking at the big picture, one can only ask what next? One answer may be in the shifting of the locus of influence away from government to the business sector and a maturing civil society. The new economy is largely foreign funded through acquisition such as Petrom by OMV or investments such as Renault-Dacia or real estate deals such as Granite and Trident. Banking is now Dutch, German, Austrian, French controlled. One outcome is the introduction of western standards in accounting, management, and the taming of unrecorded corrupt practices. While those still occur, they are more open to scrutiny especially for corporations that must meet more stringent oversight controls. There is also the cumulative political effect of a more assertive business community exerting its own political influence – especially when it comes to judicial reform for due process, education of the workforce, and more transparent regulatory processes. From such corporate influences and from increasing activism by civil society activists, e.g. those acting in opposition to the Gabriel/Newmont gold mining works at Rosia Montana, come new behaviors that in turn impose new behavior on the public sector. In decades passed, the latter defined how it would serve the public (badly) but must now respond to how the public wants to be served (well). This indeed may be a less visible but much more important transition that will induce more pervasive cultural norms and in turn more advantageous social and economic outcomes.

Copyright © D. Dimancescu, Cambridge, MA.

Photo © C. Jitianu