Editor’s note: This story is published via a sponsorship and content partnership between Global Atlanta and Kennesaw State University’s Division of Global Affairs.
When Romania last year marked the 30-year anniversary of the fall of communism in 1989, it had much to celebrate.
After some initial setbacks, the Eastern European nation’s economy by 1995 surpassed its output under communism, then embarked on a steady upward growth path. At more than $30,000 per capita today, the country’s GDP is six times what it was in 1992, proving the effectiveness of its transition.
Negotiations for entry into the European Union that started in 2000 provided a pivotal point, as did billions of dollars in EU structural funds that poured in after accession.
But all along the way, the country has had to intentionally build a critical mass of highly educated managers and executives suited to growing enterprises in a modern economy. That’s where Kennesaw State University’s Coles College of Business has had a gradual but steady impact.
In assessing the needs of Romania’s economy, European Bank for Reconstruction and Development early on emphasized education along with reforms, noting that advanced economies function well only when their talent pool is deep enough to support long-term growth.
While Romania had a long history of technically trained engineering talent during the Soviet years, the country was missing the crucial knowledge of how markets function.
Kennesaw State is proud to have partnered with the Romanian-American Business School (part of ASEBUSS), which was founded in 1993 near the beginning of the transition to a free-market economy, specifically to provide this kind of training.
Contributing our expertise in executive education, KSU has helped Romanians prosper and thrive. More than 750 men and women have received our certification in business as part of Executive MBA programs run jointly with ASEBUSS.
Still, it was a long road, and Romania should be praised for its commitment and sustained effort in growing and reforming its economy over a three decades, a process that provides lessons for countries in transition today.
Picking a Path
All of the Eastern European countries that had been dominated by (or directly absorbed by) the Soviet Union suffered rocky starts when they moved from state-owned and controlled economic systems to free ones. Coming from different starting points, they faced varying policy paths to achieve openness.
For its part, Romania had virtually no external debt to repay due to the draconian policies of the communist Ceausescu regime. But on the negative side, it lies farther east (and therefore farther from Western markets and investors) than other transition economies like the Czech Republic or Poland that bordered European powerhouses like Germany. Overall, a neutral start.
The real problem for Romania’s early transition was the choice of economic policy. At the time, two major competing theories were in play. The “Shock Therapy” plan postulated that the government should immediately privatize all state-owned industry, remove all price controls, open the country to foreign competition and remove all subsidies to both firms and consumers. The idea was that without a complete change to the system there would always be a strong temptation to go back to communism when the going got rough, and therefore no real reform would be forthcoming.
Pitted against this idea was the school of gradual transition, where most government-owned firms would remain in state hands and the conversion to a market system would be phased-in over several years. The goal was to avoid disruption, thereby keeping the population on the side of reform.
Romania chose latter approach, which posed a real danger that loss-ridden and inefficient state-owned firms would continue to drag down the economy. In the end, foreign investors investors were leery of committing to new projects, and Romania paid a high price in lost opportunities in a decade of relative global prosperity. As some researchers have noted, “Much of the 1990’s in Romania were marked by great economic hardship, including high unemployment, skyrocketing inflation, and shortages of consumer goods.”
EU negotiations starting in 2000 gave the impetus for Romania to begin in earnest the hard work of reform, which led to several excellent years of economic growth, averaging 10 percent annually from 2000 to 2008.
This dramatic growth was interrupted by a serious setback caused by the “Great Recession” the began in the United States, which affected many economies around the world. After recovering, growth returned again, leading to major increases in Romanian living standards.
In 30 years Romania moved from one of the lowest ranked economies in Europe to middle income, ranking just behind Greece in GDP per capita. In technical terms, Romania’s economy by that measure started at 33 percent of the EU average in 2000 and shot all the way up to 60 percent by 2017.
While there were many hardships in the beginning, and many economic reforms are still necessary for Romania to reach the higher ranked economies, its transition has clearly been a major success.
Kennesaw State University congratulates the hard working people of Romania on the past 30 years of achievement, and the university looks forward to playing its small role in bringing about 30 more.
About the author:
Michael Patrono holds a B.S. and M.S. degree in Economics from Florida State University and is currently a Senior Lecturer in Economics at Kennesaw State University in Atlanta, Georgia. He has over 30 years of experience teaching economics and finance at various colleges and universities such as Berry College, Darton College, Northwest Florida College, and Mercer University.
Complementing his teaching, he has made multiple scholarly presentations and has published on the economics of the environment and comparative economic systems. He has served as President of the Georgia Association of Economics and Finance and won their coveted Professor of the Year Award.
In addition to academic work, he has served as an expert witness on economic valuation issues. Before entering academics, he was a portfolio analyst for Trust Company Bank (now Truist Bank) in their Investments Department.