REPORT TONATIONAL COUNCIL FOR SOVIET AND EAST EUROPEAN RESEARC H

TITLE : INDUSTRIAL POLICY AND FOREIG NTRADE IN BULGARIA, 1960-198 7

AUTHOR : J .M . Montia s

CONTRACTOR :

Yale University

PRINCIPAL INVESTIGATOR :

J . Michael Montias

COUNCIL CONTRACT NUMBER :

800- 9

DATE :

April 198 8

The work leading to this report was supported by funds provided b ythe National Council for Soviet and East European Research . Th eanalysis and interpretations contained in the report are those o fthe author .

NOT E

This report is an incidental product of the Council Contrac tidentified on the face page, the Final Report from which has bee ndistributed separately .

EXECUTIVE SUMMARY

This paper is devoted to the detailed analysis of Bulgaria' s

industrial strategy and foreign trade--clearly the two ar e

inextricably bound up with each other--in the period before an d

after the deterioration in the country's terms of trade . It wil l

be shown that the division of trade by commodity groups amon g

broad geographic areas (the Soviet Union, CMEA countries, advanced

market economies, developing countries) was also an integral par t

of the strategy in the two periods .

After a late start, the Bulgarians have made some progress i n

recent years in moving toward a more realistic, ideologicall y

neutral type of economic analysis . Perhaps their success i n

carrying out a rapid-growth industrial policy in the 1960's an d

early 1970's and their fairly efficacious adjustment to th e

serious deterioration in their terms of trade after 1975 made th e

rethinking of their country's industrial policy less urgent tha n

it might otherwise have been . They are now embarked on a n

ambitious policy of building up R-and-D-intensive exports on a

slim scientific base and with relatively weak contacts with moder n

developments in the rest of the world (at least in marke t

economies) .

Their degree of success should be of interest t o

anyone concerned with one of the most debated problems of ou r

times : whether the government bureaucracy of a small nation can

choose and set priorities for industries with an export potentia l

that will enable it to maintain high rates of growth of nationa l

income and of personal per capita consumption .

INDUSTRIAL POLICY AND FOREIGN TRADE IN BULGARIA 1960 -19871

I . A Summary of Achievements and Problem s

The industrialization of Bulgaria until themid-1970's ,

proceeded rapidly and without major interruptions . FLU , 1960 t o

1975, net material product rose at 7 .7 percent per year ; persona l

consumption per capita went up by over 5 percent per year in th e

face of rates of net investment (or "accumulation") that exceede d

30 percent . 2 Industrial policy in the 1960's, in a nutshell ,

consisted in the simultaneous expansion of all major branches o f

industry, even though priority was placed on the steel an d

machinery industrial complex . In spite of the mea g erness o f

domestic resources, an important metallurgical industry was buil t

up, with considerable Soviet assistance . In the first h a l f of th e

1970's, the output of the metallurgical industry grew at 9 percen t

per year, one percentage point higher than the machine-buildin g

industry as a whole .

Much of the industrial growth was of th e

import-substitution type, although, at least from the mid-1960' s

1 The research for this paper was supported by a rant fro mthe National Council for Soviet and East European Research .

2 Statisticheski godishnik, 1980, pp . 34, 140 . According t oan independent estimate, GNP rose by 4 .8 percent per year andprivate consumption per capita at a rate of 4 percent per yea rfrom 1965 to 1975 .

(Alton, 1981, pp . 381, 385) .

In this paper I shall refer chiefly to official data because the ywere presumably critical in shaping the thinking of decisio nmakers about industrial policy .

2

on, a determined effort was made to increase Bulgaria' s

participation in the " socialist division of labor . " In keepin g

with the country's relatively favorable agricultural situatio n

(not to speak of comparative advantage), raw and processed foo d

exports were expanded, which helped to pay for the imported ra w

materials and fuels that heavy industry was churning up . (Unti l

about 1975, the surplus of exports over imports of farm product s

of all kinds was still larger than the deficit in raw materials ,

fuels, and semifabricates) . By 1970, exports, by officia l

reckoning, amounted to 26 percent of net material product ,

compared to 25 percent in the C . D . R . and 22 percent in Romania .

Ten years later, this percentage had risen to 40 percent, th e

highest among the industrialized nations of C . M . F . A . afte r

Hungary (Bogomolov, 1986, p . 288) .

As a consequence of the industrial strategy pursued b y

Bulgaria's leadership, profound changes occurred in the country' s

structure of foreign trade . The quantum volume of imports of raw

materials, fuels, and semifabricates typically grew at a rate o f

over 10 percent per year in the 1960's and early 1970's .

Traditional exports of foodstuffs did not keep pace . Exports o f

unprocessed foodstuffs declined ; those of manufactured foodstuff s

went up by only 2-3 percent per year . To pay for the increasin g

deficit in raw materials, machinery and equipment exports had t o

expand at a rapid clip . They did so thanks to Bulgaria's clos e

association with the Soviet Union, which allowed its Balkan all y

to run large surpluses of exports over imports in these product

3

groups .

The balanced expansion of the economy along the lines I hav e

sketched out might have continued for some time, had it not bee n

interrupted by a severe deterioration in Bulgaria's terms o f

trade, provoked by the mid-1970's explosion in world fuel prices .

Because this price rise was mitigated by the sliding formul a

adopted on the C . M . E . A . market, its full impact was only fel t

starting in 1979-80 . In the mid-1970's, Bulgaria tried t o

palliate the effects of an emerging foreign-trade crisis b y

borrowing from the West . At its apex in 1978, the ne t

convertible-currency debt of the country amounted to 3 .7 billion

dollars ; servicing of this debt, as a percentage of exports, wa s

one of the highest in Eastern Europe . From that year on, Bulgari a

made an extraordinary--and successful--effort to reduce its deb t

to the West (Zoeter, 1981) .

The combined effects of the deterioration in Bulgaria' s

foreign terms of trade and of having to generate a current accoun t

surplus to repay its debts induced the Bulgarian leaders t o

reconsider the industrial policy that had been carried out up t o

this point . With oil-import prices over seven times higher than

they had been in the early 1970's and machinery export prices onl y

15 percent higher (probably less on the C . M . E . A . market), th e

old pattern of trade could no longer be sustained, at least if th e

old rates of accumulation and of across-the-board industria l

growth were to be maintained . In fact, the pace of the economy' s

expansion did slacken appreciably after 1977, and the rate of

accumulation fell or stagnated . After 1980, many sub-branches o f

industry, including ore mining and metal .-fabricating, suffered a

contraction in output . A partial resumption of the old high -

investment, high-growth strategy, has occurred in recent years bu t

its indifferent results have stimulated the search for mor e

efficient policies .

This paper is devoted to the detailed analysis of Bulgaria' s

industrial strategy and foreign trade--clearly the two ar e

inextricably bound up with each other--in the period before and

after the deterioration in the country's terms of trade . It wil l

be shown that the division of trade by commodity groups amon g

broad geographic areas (the Soviet Union, other C . M . E . A .

countries, advanced market economies, developing countries) wa s

also an integral part of the strategy in the two periods . Thi s

analysis could not have been carried out, had not the Bulgaria n

government put into effect a somewhat more liberal policy wit h

regard to the publication of trade data by commodity groups an d

geographic areas in the last two or three years .

II . Parallelism versus specialization _

At a meeting which took place in Berlin in 1956, the Counci l

for Mutual Economic Assistance made recommendations o n

specialization by individual members concerning 600 of the mos t

important types of mass-produced machinery and equipment . Th e

Council recommended that the Soviet Union should produce 7 5

percent of the items on the list, the C . D . P . 73 percent,

5

Czechoslovakia 60 percent, and Bulgaria and Romania only 7 percen t

each (Bogomolov, 1986, p . 145) . It was not made "officiall y

clear" until at least a decade later whether a country that ha d

not been designated as "specialized" in the production of a give n

item could at least produce it for its own use (ibid ., p . 147) .

It is quite probable that Bulgaria and Romania chose to interpre t

the recommendations as non-binding suggestions for specializatio n

in foreign trade, exempting production for domestic consumption .

In November 1970, a new division was made . The entir e

nomenclature of the machine-building industry was divided into 6 0

sub-branches and 3,000 individual types of machines and equipment .

Bulgaria was allowed to specialize in 319 products of the machine -

building and 55 products of the radio-electronics industry . I n

the case of 13 percent of machine-building items in which i t

specialized, Bulgaria was to be the sole producer ; of 27 percent ,

the sole producer with one other member of the C . M . E . A . ; and o f

17 percent, with two other producers . The rest of the items (4 3

percent), Bulgaria presumably shared with three or more othe r

producers (Sergienko, 1973, p . 104) .

One important principle of specialization that was adopted b y

C . M . E . A . was that the specialized production of machinery an d

equipment should satisfy the needs of those industries in whic h

the country already specialized . This explains why Poland wa s

allowed to specialize in the production and exports of minin g

machinery and Romania in that of oil-drilling equipment . Becaus e

agriculture was considered one of the mainstays of Bulgaria's

6

economy, it was assigned the specialized production of variou s

types of tractors, combines, grain-cleaning machines, hay-bailin g

equipment, threshers, and fodder-mixers (Sergienko, 1973, p . 100)3

Similarly, in consideration of the strength of Bulgaria's food -

processing industry, the 1970 session of C . M . E . A . recommended

that it specialize in equipment for making jam, fruit preserves ,

and juices ; for drying fruits and vegetables ; and for filling and

closing jars and bottles (Sergienko, 1973, p . 101) 4 About 1 0

percent of the items in the nomenclature of the sub-branch makin g

machinery and equipment for the textile industry were assigned t o

Bulgaria, compared to 50 percent to the G . D . R ., 37 percent t o

Poland, and 28 percent to Czechoslovakia . The country received

"relatively few" of the items in the ship-building nomenclatur e

even though this sub-branch was one in which Bulgaria was expecte d

to "specialize ." At this early stage in intra-C . M . E . A .

specialization, "hauling and lifting equipment" was the sole sub -

branch in which Bulgaria could really be said to specialize, i n

the sense of possessing a monopoly of exports . Only the U . S . S .

3 Of the 75 items in this sub-branch, Bulgaria was allowed t ospecialize in 12 ; the G . D . R . received 20 ; Poland, 19 ;Czechoslovakia, 16 ; and the U . S . S . R ., 50 . There were, o fcourse, a number of items in which more than one countr y"specialized ." The source for these statistics comments that th enumber of items in which Bulgaria was to specialize wa s"relatively small when one takes into consideration the fact tha tagriculture is one of the emphasized (profilirashchite) branche sof our industry" (Sergienko, 1973, p . 100) .

4 Of 107 items in the canning and milk-processing industry ,Bulgaria was awarded 1], Czechoslovakia 32, the G . D . P . 43, andthe U . S . S . P . 62 (Sergienko, 1973, p . 101.

7

R . was expected to continue manufacturing these products . In

fact, Poland and Czechoslovakia, pretexting Bulgarian shortfalls ,

went on producing a number of items in the industry . 5

Another principle of specialization adopted in 1970 was tha t

each country should develop the lines of production best suited t o

its resource endowment . Thus, Bulgaria nd Hungary, which ar e

short of raw materials, were to specialize in the production an d

export of labor-intensive machinery . However, because Bulgaria i s

also relatively well-endowed in non-ferrous metals, 6

it should

specialize in the production of electrotechnical products (copper -

and lead-intensive motors, generators, and batteries) ,

electronics (radio and TV), and instrument-making (Sergienko ,

1973, p . 102) .

All lofty pronouncements to the contrary, there is littl e

doubt that each country was allowed to specialize in those line s

of production in which it had already built up a substantia l

capacity . A guiding principle of the recommendations was that n o

more parallel capacities should be created . In this regard, th e

original recommendations of 1956 had been singularly unsuccessful .

Several branches of production were launched ab ovo in Bulgaria ,

including the production of equipment for the automobile industr y

(launched in 1957), for the metallurgical industry (1969), and fo r

the chemical and cellulose industry (1968) .

Scores of importan t

5 lnterview material, Sofia, October 1986 .

6 This is an industry about which virtually no production o rother statistics are now being published .

8

products first came off the line in the late 1950's and 1960' s

including television sets (1957), bulldozers (1957), refrigerator s

(1956), electronic calculators (about 1962), and typewriter s

(about 1962) . It is not obvious, in the absence of stron g

sanctions for creating capacities duplicating those already i n

operation in other C . M . E . A . countries, why the ne w

recommendations should have been followed any better than the ol d

if they were felt to be contrary to any nation's economi c

interests . The difference may be that, after 1970, Bulgari a

chose, as a matter of national strategy, to comply more or les s

closely with C . M . E . A . recommendations and to develo p

specialties for which it could find a ready market in the bloc .

The recommendations of 1970 put pressure on the participatin g

countries to abandon the production of items that they were no t

supposed to specialize in . It was allegedly as a result of thes e

recommendations that Bulgaria curtailed the production of, an d

began to import, hydraulic turbines, boring machines,spinning an d

weaving machinery, and automobile chassis in the 1970' s

(Bogomolov, 1986, p . 185) . Yet it continued to produce lathes ,

hydraulic presses, buses, bicycles, bulldozers, and many othe r

types of machines and transport equipment that other producers i n

the bloc turned out in larger numbers, presumably at lower cost .

The 1960's and 1970's saw the beginnings of Bulgaria n

specialization in the production of hauling and lifting machinery ,

equipment for the food-processing industry, agricultura l

machinery, and, in the latter part of the period, in electronic

9

equipment that were to play a major role in Bulgarian exports t o

C . M . E . A . in later years .

In 1965, hauling and liftin g

machinery made up nearly two-thirds of Bulgaria's " specialized "

exports, 7

the rest being equally divided between tractors an d

agricultural machinery and means of transportation ; yet all suc h

specialized items came to less than 10 percent of total machiner y

and equipment exports, which were thinly spread over a wid e

variety of small-volume items (Chetirideset godini, 1985, p . 305) .

A decade later, only a third of the specialized exports consiste d

of hauling and lifting machinery, another third of products of th e

electronics and computing industry, and 10 percent of trans -

portation equipment .

All these specialized exports now rep -

resented nearly half of the total value of machinery and equipmen t

exports .

A great deal of progress in concentrating exports had

been achieved .

Soviet willingness to buy enormous quantities o f

these specialized items was a crucial factor in this progress .

Concentration of exports is a fine thi n g , but it does not a n

industrial policy make ; for that correlated changes in th e

structure of output and in the structure of exports are require d

(Brada and Montias, 1984) . Consider first the changes in th e

structure of output that took place from 1960 to 1975 in Table 1

below .

7 "Specialized" exports are those that a C . M . F . A . membe rengages in on the basis of a bilateral or unilatera lspecialization agreement with one or more other members .

1 0

Table 1

The Structure of the Machine-building an d

Electronics Industry, 1960-197 5

1960 1965 1969 1971 197 5

1 .1 6 .2 8 .7 8 .9 8 . 9

15 .4 18 .7 16 .8 15 .2 13 . 8

4 .7 7 .0 7 .6 6 .1 4 . 9

0 .8 2 .6 3 .5 3 .6 n .a .

8 .7 4 .4 2 .6 2 .2 1 . 5

2 .3 2 .4 2 .8 3 .2 5 . l

5 .2 3 .8 5 .5 4 .8 4 . 0

3 .3 5 .1 7 .0 6 .5 8 . 1

0 .3 0 .8 3 .8 7 .8 20 . 0

9 .9 11 .2 3 .6 3 .8 n .a .

6 .5 6 .7 6 .8 6 .8 7 . 4

32 .5 23 .2 22 .4 22 .4 18 .9

Equipment for the ligh tand food-processin gindustrie s

Railroad equipmen t

Automobiles, motorcycles ,and bicycle s

Ships & other water-goin gvessel s

Radio-electronic sindustr y

Instruments and automationequipmen t

Other machines & equip-ment for productiv epurpose s

Capital repairs o fmachinery an dequipmen t

Metal-working industr y

Percentages of total gross output in the industr y

Hauling and liftin gequipmen t

Electrotechnica lmachinery and equipmen t

Tractors and othe ragricultural equipment

1 1

Table

1, (cont . )

Percentages of total gross output

in the

industr y

1960 1965 1969 1971 197 5

Other sub-branches of th eindustry 9 .3 7 .9 8 .9 8 .7 n .a .

TOTAL 100 .0 100 .0 100 .0 100 .0 100 .0

Sources and Methods : The percentage data for the years 1960 ,1956, 1969, and 1971, with the exception of the metal-working sub -branch, are from Sergienko, 1973, p . 96 . The percentages for th emetal-working sub-branch are from Otraslevye struktury, 1985, p .154 . The percentages for "other branches" are residuals obtaine dby subtracting the percentages for the industries cited from 100 .For 1969 and 1971, the residuals have been computed on th eassumption that the percentage of the metal-working industry wa sthe same in 1969 and 1971 as it was in 1970 . The percentages fo r1975 are derived by adjusting the percentage share of the sub -branch in 1965 to the ratio of the growth of the sub-branch fro m1965 to 1975 to the growth of the industry as a whole . Theresults are approximative because some of the published percentag egrowth rates are rounded off to the nearest hundred .

The growth of several "specialized" industries was so rapi d

that they greatly increased their share of total output . This wa s

the case of the hauling- and lifting-equipment industry (producin g

chiefly forklifts, electric trucks, and telphers), the industrie s

producing equipment for the light and food-processing industries ,

the automobile industry, radio-electronics (radios, television ,

and communication equipment), and the industry producin g

instruments and automation equipment, including calculators an d

computers . The metal-working industry and the composite "othe r

machines and equipment for productive purposes" lost ground . Th e

1 2

resultant of these changes was not greater concentration 8 but a

different structure, one that, as Table 2 suggests, exhibite d

significant correlation between relative exports and relativ e

output . 9

Table 2

Trends in Output and In Exports in State-owne d

Machinery and Equipment Industr y

(1960,

1965, 1970, 1975 )

1960 1965 1970 197 5

Hauling & lifting equipmen t

Index of output 100 1300 4000 780 0

Percentage ratio to output trendfor entire

industry 100 542 800 78 0

Index of export volume 100 1001 2008 406 4

Percentage ratio to export tren dfor entire

industry 100 251 248 20 4

Metal-working machiner y

Index of output 100 285 609 131 7

Percentage ratio to outpu ttrend

for

entire

industry 100 119 122 12 0

Index of export volume 100 434 801 1857

8The Herfindahl-Hirschman measure of concentration, equal t othe sum of the squares of the actual ratios (fractions of units) ,showed a moderate decline due to the reduced share of the meta

l working the largestsub-branch in 1960 . (On thi smeasure, see Brada and Montias, 1984, p . 404) .

9 On this correlation ; see the Appendix .

1 3

Table

2 ; (cont . )

1960 1965 1970 197 5

Percentage ratio to expor ttrend

for

entire

industry 100 109 99 9 1

Power & electrotechnical equipmen t

Index of output 100 164 416 91 6

Percentage ratio to outpu ttrend for entire

industry 100 68 36 9 2

Index of export volume 100 417 594 83 4

Percentage ratio to expor ttrend for entire

industry 100 105 73 4 1

Tractors & agricultural machiner y

Index of output 100 343 657 91 3

Percentage ratio to outpu ttrend for entire

industry 100 143 130 9 1

Index of export volume 100 533 1145 176 3

Percentage ratio to expor ttrend for entire

industry 100 134 141 8 7

Equipment for light

industr y

Index output 100 321 1000 250 0

Percentage ratio to outpu ttrend for

entire

industry 100 119 321 25 0

Equipment for the food

industr y

Index of output 100 1000 2800 440 0

Percentage ratio to output tren dfor entire

industry 100 417 562 44 0

Index of export volume o fequipment for light and

foodindustries 100 471 1923 4060

1 4

Table

2, (cont . )

1960 1965 1970 1 9

Percentage ratio to expor ttrend

for entire

industry 100 118 23 7 20

Ships & other water-going vessel s

Index of output 100 170 507 73 ,

Percentage ratio to outpu ttrend

for entire industry 100 71 10 2

Index of export volume 100 57 192 33 _

Percentage ratio to expor ttrend

for

the entire

industry 100 14 24 1 (

Radio-electronics

industr y

Index of output 100 274 65 U

Percentage ratio to outpu ttrend

for entire

industry 100 132 1 5

Index of export volume 100 211 74 '

Percentage ratio to expor ttrend for entire

industry 100 104 14 1

Instruments & automatio n

Index of output 100 72 4

Percentage ratio to outpu ttrend

for entire

industry 100 36 (

Index for export volume 100 109 7

Percentage ratio to expor ttrend for export volume 100 42(

Sources and Methods :

The output indexes are fro mStatistichegodishnik, 1978 .

The percentage ratios to the output trend s

the industry as a whole are calculated with respect t o

industry only (exclusive of cooperatives) . The current valu e

1 5

exports data in devisa levas for individual product groups wer edeflated by the same implicit price index for the entire machiner yand equipment industry, obtained by dividing the indexes of th ecurrent value of exports of machinery for each year by th ecorresponding index of the physical volume of these exports . Th ecurrent value data are from Vunshna turgoviia 1960-1978, 1979, p .33, the physical volume data from the same source, p . 30 . It ha sbeen assumed that the output sub-branch, "Instruments and means o fautomation" coincided in coverage with the export grou p"Computational and organizational technology ." Exports in thi sbranch were negligible until the late 1960's .

In Table 2 I have matched the ratio of indexes of output o f

individual machinery groups to the output index for the branch a s

a whole with similarly constructed ratios for exports, wheneve r

the corresponding export data were available . In making thes e

comparisons, it should be kept in mind that the machine-buildin g

and electronics industry was growing faster than manufacturing a s

a whole : its share of the total gross output of industr y

increased from 12 .4 percent in 1960 to 16 .5 percent in 1965 ; i t

rose further to 20 .2 percent in 1970 and 22 .6 percent in 1975 . I n

the late 1970's, some 70 percent of the branch's total output wa s

exported (Otraslevye struktury, 1985, p . 173) .

The eight industries listed in Table 2 accounted for 7 4

percent of the total exports of machinery and equipment, includin g

electronics, in 1965 . For the first five years of the perio d

spanned in the table, all but "power and electrotechnica l

equipment" and "ships and other water-going vessels" passed th e

litmus test for a successfully implemented industrial policy :

both their output and their volume of exports rose faster tha n

average, from which it follows that the share of each of these

1 6

groups in the total output and the total exports of the industr y

increased . From 1965 to 1970, a positive correlation betwee n

above-average output and export volume held only for equipment fo r

the light and food industries, ships, and electronics . Th e

production of hauling and lifting equipment and metal-workin g

machinery rose faster than average but the export volume of thes e

sub-branches increased more slowly than average so that thei r

share of the total exports of the machine building and equipmen t

declined . From 1970 to 1975, a new situation arose : only "powe r

and electrotechnical equipment," electronics, and instruments an d

automation raised their shares of output .

With two exceptions ,

the export shares of all the sub-branches listed in Table 2

declined . The exceptions were the buoyant new industrie s

producing radio-electronic items and instruments and automatio n

equipment .

A separate electrotechnical and electronics industry, made u p

of former sub-branches of the machine-building industry, wa s

created in the early 1970's . The third, seventh, and eighth sub -

branches of Table 2 are now included in the new industry . Th e

communications industry (whose products do not appear to b e

covered in these three sub-branches) also belongs to the ne w

industry (Statisticheski godishnik, 1985, p . 222) . According to a

recent Soviet source (Otraslevye struktury, 1985, p . 154), th e

industry accounted for 18 .7 percent of total machine-buildin g

output in 1960, 23 .8 percent in 1965, 27 .9 percent in 1970, and 3 4

percent in 1975 . This increase in shares was almost entirely at

1 7

the expense of the metal-working industry, whose share of th e

total fell from 32 .5 percent in 1960 to 18 .9 percent in 1975 .

This transformation in the overall structure of the industry wa s

the most rapid in C . M . E . A . 10 Note that Bulgaria's metal -

working industry worked mainly for domestic consumption ; its shar e

of exports probably declined sharply during the fifteen year s

covered by the above statistics . The Soviet source just cite d

explains that the slower pace of structural change in the mor e

developed C . M . E . A . countries (the G . D . R . and Czechoslovakia )

was due to the fact that "intra-industry proportions in thes e

economies were already stabilized owing to a longer industria l

tradition ." One would have thought rather that experience an d

tradition in producing machinery products would have been a help

in building up "progressive," science-intensive branches o f

industry .

Three main conclusions about the machine-building an d

electronics industries may be drawn at this point :

1) . A few sub-branches of the industry (hauling and lifting

machinery, machinery for the food-processing industry, meta l

cutting machinery, agricultural machinery, and especially afte r

1970, "instruments and automation equipment" and electroni c

products) dominated exports .

2) .

In the period 1960-1975, th e

10 In Czechoslovakia, the electronics and electrotechnica lindustry only increased its share of machine-building output from12 .1 percent in 1965 to 14 .4 percent in 1979 ; in the G . D . R . ,this share rose from 20 .8 percent in 1960 to 27 .6 percent in 1975 ;in Romania form 9 .9 to 18 .8 percent ; and in Hungary from 26 .7 to37 .1 percent (Otraslevye struktury, 1985, p . 154) .

1 8

output and the exports of these products grew faster than the res t

of the industry, at least during an initial spurt of five years o r

so after which their share of exports stabilized or decline d

slightly . 3) . The fact that the sub-branches of the industr y

that became the principal carriers of the drive to build u p

manufactured exports kept increasing their shares of total outpu t

throughout most of the 1960's and 1970's strongly suggests tha t

the Bulgarian leadership was able to carry out an export-oriente d

industrial policy . This conclusion is not inconsistent with th e

observation that the share in exports of the relatively olde r

specialties such as the hauling and lifting equipment grou p

stabilized or declined in the 1970's , while the share of a

newcomer group such as "instruments and automation equipment" kep t

rising .

The record of other industries with regard to specializatio n

in production and exports is less impressive . Such progress a s

has been made in overcoming the parallelism in productio n

structures with other C . M . E . A . members came relatively late .

Specialization agreements concerning the chemical industry, fo r

instance, were virtually non-existent in 1970 . As late as 1975 ,

only 25 percent of Bulgarian exports of chemicals were covered b y

such agreements, almost exclusively with the U . S . S . R . (Titov ,

1983, p . 21 and Titov, 1984, p . 51) .

As of that date, the onl y

significant product groups covered were organic dyes and tires an d

inner tubes .

A mere 3 .7 percent of the exports to C . M . E . A .

partners of pesticides--an area in which Bulgaria was supposed to

1 9

specialize--were covered by bilateral or multilateral agreement s

(Otraslevye struktury, p . 194) . One important reason for thi s

delay is that only about half of the total exports of chemical s

were directed to the C . M . E . A . area, compared to 85 percent o f

machinery and electronics exports (N . R . Bulgariia, 1983, p . 213) .

In the mid-1970's, the share of output of the chemical and rubbe r

industry exported (23 .5 percent) was appreciably lower than tha t

of machine-building (33 percent) . This share must have been abou t

20 percent in 1960 . 1 1

Still, the chemical industry as a whole made remarkabl e

progress . Its share of the gross output of all industry rose fro m

3 .7 percent in 1960 to 7 .6 percent in 1975 ; its share of tota l

exports rose from 2 .2 percent to 5 .7 percent (Statistichesk i

godishnik, 1978, P . 170 ; Vunshna turgoviia, 1960-1978, p . 29) .

While changes in the output share of certain sub-branches of th e

industry can be documented, they unfortunately cannot be linked

with changes in the corresponding shares of exports, so that w e

cannot be sure whether the relative gains in output were closel y

correlated with relative gains in exports . On the output side, w e

know that the share of basic chemicals and rubber product s

declined while the share of pharmaceuticals, plastics, carbo n

derivatives, and artificial fibers more than doubled from 1960 t o

On the shares of the two industries, see N . R . Bulgariia ,1979, p . 47 . The 1960 export share of the chemical industry i scalculated from the change in the volume of exports of chemicals ,which was 10 .7-fold as great in 1975 as in 1960, and from th eindex of gross output of the entire industry on a 1960 percentag ebase, which was said to be 993 in 1975 .

2 0

1971 (Sergienko, 1973 ,

.p. 122) . 12

The exports shares of thes e

subgroups, to my knowledge, have not been revealed .

Virtually nothing is known about specialization in consume r

goods industries other than food-processing (textiles, garmen t

making, and leather products) . The percentage ratio of export : t o

output in these industries averaged less than 15 percent as :lat e

as 1984, after a protracted period during which exports o f

manufactured consumer goods (chiefly textiles and leathe r

products) rose faster than the output of these goods . Thi s

suggests that the participation of these industries in th e

"socialist international division of labor" was very small at th e

beginning of the 1960's . Todor Zhivkov acknowledged in 1972 tha t

the proportion of manufactured consumer goods in Bulgaria n

imports, which was about 6 percent at the time, was too low an d

should be raised in the future ; yet it declined further to 4

percent by 1978 (Chetirideset godini, 1986, pp . 37 and 303) .

The food-processing industry in the period 1960-197 5

increased the volume of its exports at the very impressive rate o f

12 From 1960 to 1970, the share in the total output of th echemical and rubber industry of pharmaceuticals increased from 8 . 4to 17 .3 percent, of plastics and carbon-derivatives used fo rproduction purposes from 2 .9 to 7 .4 percent, and of those used fo rconsumer goods from 0 .7 percent to 4 percent . The output share o fchemical fibers increased from 5 .3 percent in 1969 to 11 percen tin 1971 .

The output share of basic chemicals declined from 31 . 6to 28 .7 percent . The fall in the share of rubber products i sinferred from the slower-than-average growth of both the output o fconsumption-goods and producer-goods' rubber products in the tota loutput of the industry . The rubber industry also lost ground i nexports : its share of the total exports of the industry decline dfrom 27 .4 percent in 1960 to 10 .2 percent in 1970 and 7 .7 percen tin 1975 (Vunshna turgoviia, 1960-1978, p . 18) .

2 1

10 percent per year, compared to an annual rate of increase o f

production of 7 .5 percent .

In 1976, the industry exported 3 4

percent of its total output (Bogomolov, 1986, p . 302) . Th e

decision to maintain a high rate of increase of exports o f

foodstuffs was a key element in Bulgaria's overall economi c

strategy (Ofer, 1980) . That the industry enjoyed a high expor t

priority need not imply that it was given preference in th e

allocation of scarce inputs critical for the industry's expansion

and modernization . Food-processing actually received less than

one tenth of the total investment outlays earmarked fo r

manufacturing industry in the 1960's, at a time when its share o f

total industrial output was still in excess of 30 percent . It s

share of output, not surprisingly, declined from 33 .5 percent i n

1960 to 23 .5 percent in 1975 . The export success of the industr y

presumably had more to do with the decision to process and sel l

abroad a larger volume of farm products than to any newly-acquire d

competitive advantage that could have been generated by a positiv e

industrial policy .

In my view, only a few sub-branches of the machine buildin g

and electronics industry and still fewer sub-branches of th e

chemical industry can properly qualify as building blocks of a n

industrial policy . In other sectors of manufacturing (textiles ,

garment-making, leather, food-processing) exports did keep up wit h

output or even surpassed its rate of increase ; nevertheless, on e

cannot make out a concerted policy of specialized production t o

give priority to product groups with established foreign markets .

2 2

Bulgaria, like every other nation of C . M . E . A ., manufacture s

most of the consumer products it consumes . Such surpluses as i t

generates in these products have found a ready market in the

Soviet Union, whose demand for manufactures seems nearl y

insatiable . To meet this demand, the Bulgarians did not even hav e

to restructure their consumer goods industries to comply with th e

requirements of specialization .

The export drives in the machine-building, chemicals, light ,

and food-processing industries had the combined effect of raisin g

the share of industrial output exported to 16 percent by 1970 .

Next to Hungary (17 percent of industrial output exported), thi s

was the highest share among C . M . E . A . countries . In the nex t

decade, Bulgaria continued to raise the share of industrial outpu t

exported, which stabilized at 24 percent in the first half of th e

1980's (Bogomolov, 1986, p . 301) . Again, only Hungary surpasse d

Bulgaria in this respect (with an export share of 31-32 percent i n

the 1980's) .

To keep under control the extraordinary rates at which th e

industrial machine was gobbling up raw materials, fuels, and

semifabricates, systematic efforts were made in the 1960's an d

early 1970's to reduce Bulgaria's dependency on imported coal an d

steel . (Whether these efforts had the desired effect--in view o f

the indirect impact on imports of expanding high-cost domesti c

resources--is another matter) .

To offset the inevitable declin e

in the output of brown and black coal, the mining of low-calori e

lignite quadrupled in the 1960's .

Nevertheless, massive imports

2 3

of black coal had to be initiated in the middle of the decade t o

satisfy an industry demand which was rising at 11 percent pe r

year . 1 3 The output of the metallurgical industry, exclusive o f

minin g , soared at the incredible rate of 24 percent per yea r

compounded throughout the 1960's . The expansion of the Lenin mil l

and the construction of the characteristically named Brezhnev mil l

at Kremikovtsi absorbed some 15 percent of all gross investment s

in the mid-1960's (Statisticheski godishnik, 1978, pp . 168 an d

199) . Only the rate of increase of output of iron ore fell bac k

below the rate of increase of industrial output as a whole ,

although this was not for lack of trying : the poverty of domesti c

resources was irremediable .

The high rates of absorption of imported materials and fuel s

were due simultaneously to a conscious policy of relying on cheap

fuel imports and to the structure of production built up in thos e

years which was egregiously material-intensive . The first poin t

was recently recognized by the Bulgarian economist St . Stoilov wh o

argues that "changes in the energy balance of the country in th e

1960's were partially due to the favorable prices of oil tha t

prevailed at the time" (Nauchno-tekhnikata revoliutsiia, 1986, p .

18) . John Kramer has estimated that Bulgaria's "energy gap"--the

proportion of its primary energy stemming from imported sources- -

rose from 18 percent in 1960 to 74 percent in 1975, by far th e

greatest increase in energy dependence on imports in Easter n

13Calculated from the balance of coal supplies and disposa lin Statisticheski godishnik, 1978, p . 193 .

2 4

Europe (Kramer,1981, p . 460) . The high energy intensity o f

industry can be traced in part to heavy machine building which wa s

profligate in its use of steel, whose manufacture requires a grea t

deal of energy .

But some share of the blame can also be laid at the door o f

the chemical industry . Stoilov estimates that the Bulgarian

chemical industry, which was rapidly expanded in those years, wa s

about 2 .4 times as energy-intensive as industry as a whole ,

whereas in other C . M . E .A . countries it is only 1 .6 to 1 .9 time s

as energy-intensive as average (Nauchno-tekhnikata revoliutsiia ,

p . 22) .

We cannot figure out precisely what role the Soviet Union

played in the promotion of the industrial policy that Bulgari a

followed from 1960 to 1975 . Still, it is worth noting that the

aid Bulgaria's powerful ally provided in the construction of ne w

capacities was concentrated in highly energy-intensive branches o f

industry .

By the end of 1982, for instance, 100 percent of th e

"basic funds" in metallurgy, including the mining of ores, wer e

constructed with Soviet assistance . In the chemicals and rubbe r

industry, this share was 71 .3 percent, in machine-building, 46 . 4

percent (Chetirideset godini, 1985, p . 89) . The Soviets supporte d

Bulgaria's strategy of industrialization by helping to build th e

capacities the Bulgarian leaders wanted, by supplying cheap ra w

materials and fuels for Bulgaria's industrial machine, and b y

providing an assured market for Bulgarian manufacturers .

Prior to analyzing the impact of hi g her energy prices on

2 5

Bulgaria's industrial output and trade in the post-1975 period, i t

may be instructive to consider precisely how the Bulgarians coul d

simultaneously run foreign trade deficits in machinery an d

equipment, raw materials and fuels, and chemical and rubbe r

products and still generate a surplus of total exports ove r

imports in the early 1970's . The balances in each of the

principal CTN categories are shown in Table 3 .

Table 3

Balance of Trade by Commodity Group s

and by Regions in 197 0

(millions of devisa levas )

Advanced

Soviet Rest of

capitalist

Developin gUnion

C .M .E .A .

countries a

countries

Al l

Machine-buildin gproducts

-91 .4

-53 .3

-90 .0

+44 .8

-189 . 9

Raw materials ,fuels, and semi -fabricated pro -ducts

-385 .8

-36 .3

-12 .2

+1 .9

-432 . 4

Chemicals andrubber products

-32 .9

-26 .9

-31 .4

+8 .5

-82 . 7

Building materials

+5 .6

+1 .6

-1 .2

+1 .6

+7 . 6

Non-food agri-cultural rawmaterials

-60 .5

+0 .1

-38 .2

-32 .1

-130 . 7

Raw materials fo rfood

+80 .4

+23 .7

+22 .2

+2 .4

+128 . 7

Processed food -stuffs

+420 .8

+158 .6

+80 .5

+18 .5

+678 .4

2 6

Sovie tUnion

Table

3 ,

Rest o fC .M .F .A

(cont . )Advanced

capitalis tcountries a

Developingcountries Al l

Manufacturedconsumer goods +210 .5 +1 .5 +4 .6 +5 .9 +222 . 5

TOTAL TRADEall groups +143 .8 +68 .8 -61 .5 +51 .1 +202 .2

a) .

includes non-C . M . E . A . socialist countries .

Sources :

For trade with the Soviet Union, Chetiridese t godini, 1985, pp . 302, 304, 306-7 ; with C . M . E . A . as a whole .N . R . Bulgariia v mezhdunarodnoto ikonomichesko sutrudnichestvo ,1979, pp . 213-4 ; with developing countries, Shestrinski, 1980, pp .93-4 . Note that surpluses and deficits for the eight commodit ygroups listed do not add up to total trade for all groups due t othe omission of small amounts for trade in animals other than fo rslaughter and for "operations of a productive character no tincluded in the above . "

In 1970, processed foodstuffs provided a surplus of 67 8

million levas (about $ 580 million at the official rate), whic h

was sufficient to finance the combined deficits in machinery an d

equipment and raw materials and fuels . The surplus in raw

materials for foodstuffs fell just short of the deficit in non -

food raw materials of farm origin (cotton, wool, raw leather) . In

trade with the Soviet Union, Bulgaria built up surpluses in it s

exports of food products (processed and unprocessed) an d

manufactured consumer goods that were sufficient to financ e

deficits in machinery, industrial raw materials and fuels ,

chemicals and non-food farm products, leaving enough besides t o

run a surplus in overall merchandise trade . The pattern of trad e

with the rest of C . M . F . A . was similar .

Trade with capitalis t

economies (unfortunately mixed in with small amounts in trade wit h

2 7

non-C . M . E . A . socialist countries) was also broadly similar ,

except that Bulgaria drew on credits from the West to run a

moderate deficit in merchandise trade (of a little over $ 5 0

million) . Trade with developing countries--exports to whic h

represented only 5 .6 percent of total exports in 1970--had a

distinctive character . It was the only group of countries wit h

which Bulgaria could run surpluses in all categories except non -

food raw materials of farm origin . Not many years passed befor e

the surplus in trade in raw materials and fuels with developin g

countries turned into a large deficit . By the mid-1970's, thi s

entire pattern of trade by broad regions had been transformed i n

the wake of the fuel crisis triggered by the OPEC oil price hik e

of October 1973 .

IV . The Oil Price Shock ; 1973-198 0

Prices of Bulgaria's raw materials imports, including fuels ,

had held more or less steady for many years prior to the Arab -

Israeli War of 1973, at which time they were only about 4 percen t

higher than in 1970 . In 1974, they rose by 15 percent ; from 197 5

to 1983, they more than doubled . 14 Most of this increase in th e

import prices of raw materials and fuels was due to the rise i n

prices of Soviet oil, which were geared to a five-year average o f

world prices .

The deterioration in Bulgarian terms of trade wa s

catastrophic .

As Stoilov (Nauchno-tekhnicheskata revoliutsiia ,

14These price indexes are based on a comparison of the valu eand the volume of imports of raw materials, fuels, an dsemifabricates in Vunshna turgoviia of various years .

2 8

1986, p . 18) points out, "by the beginning of the 1980's th e

purchasing power of Bulgarian exports vis-a-vis oil had fallen si x

to seven times relative to 1970 ." Since the prices of Bulgaria n

machinery exports had gone up by about 15 percent between the tw o

periods, this implies that Bulgaria was paying seven to eigh t

times more for its oil . By the first half of the 1980's, on e

fourth of all Bulgarian imports consisted of oil (ibid ., p . 18) ,

or more than half of all the value of raw materials, fuels, an d

semifabricated products imported . (In 1970, oil represented onl y

about 7 percent of total imports or about 40 percent of th e

imports of raw materials, fuels, and semifabricated imports) , 1 5

Stoilov, in his pioneering study, estimates that the deterioratio n

of the country's terms of trade was the main factor behind th e

decline in aggregate labor-and-capital productivity from 4 . 1

percent per year in the period 1971-1975 to 2 .02 percent in 1976 -

1980 and 1 .23 percent in 1981-1984 . According to hi s

calculations, 46 percent of the growth in national income in th e

first half of the 1970's could be ascribed to increases i n

aggregate factor productivity, but only 10 percent in 1981-1984 .

He concludes from his analysis that "rates of growth lose thei r

value when they are achieved in such a spendthrift manner "

["Tempovate zagubvat svoiata stoinost pri takuv 'raskhoden '

podkhod na osiguriavaneto im" (Nauchno-tekhnicheskat a

15Based on calculations on the rates of increase in price sand in quantities from 1970 to 1980 (Nauchno-tekhnicheskat arevoliutsiia, 1986, p . 18) . About the same result may be obtaine ddirectly from Vanous' estimates of Bulgarian oil imports (Vanous ,1981, p . 544) .

2 9

revoliutsiia, 1986, p . 21)] .

For several years after the economy was hit by the explosio n

in oil prices, Bulgarian economists continued to write as i f

nothing untoward had happened to deflect the economy from it s

high-growth path . Several studies published in the early 1980' s

made elaborate attempts to fit Bulgarian aggregate and sectora l

data to linear, log-linear, and parabolic functions to forecas t

patterns of development into the 1990's (Ikonomika na Bulgariia ,

1980 ; Angelov 1985 ; Ikonometrichni makromodeli, 1985) . None o f

these exercises factored in the foreign-trade constraints o n

growth that slowed the economy down in the second half of th e

1970-'s and the beginning of the 1980's . 1 6

The government, irrespective of what its propaganda apparatu s

and academic economists might have to say, was forced to come t o

terms with the new situation . A rough calculation indicates tha t

if the authorities had allowed imports of oil to grow after 197 3

at the rate at which they had been going up since 1970, that is ,

at 19 percent per year (Vanous, 1981, p . 557),the combined effec t

of the seven-fold increase in prices with a 9 .8-fold increase in

volume by 1982, would have jacked up the import bill for oil to 1 0

billion devisa levas or nearly the total value of imports in tha t

year . The Bulgarians would have had to import about 50 millio n

tons of oil in 1982, which of course the Soviets would not hav e

16 By far, the most sophisticated is the Ikonometrichn imakromodeli, 1985 . Yet it too relies heavily in past trends i nthe economy to predict the future and fails to grapple with th enew external circumstances in which the economy found itself afte r1975 .

3 0

been willing (or perhaps even been able) to sell them . As it was ,

the increase in the tonnage of oil imports was held down to 1 0

percent in 1974 and less than one percent per year in 1975 an d

1976 . It averaged 3 to 4 percent from 1976 to 1980 (Nauchno-

tekhnicheskata revoliutsiia, 1986, p . 18) .

The Stoilov data on total factor productivity showed th e

effects of the deterioration in their terms of trade (and of th e

slowdown in oil imports) on the economy as a whole . The mor e

disaggregated data of table 4 reveal some of the ways th e

government dealt with the crisis .

Table 4

Selected Indicators of Developmen t

(1975-1982 )

1975 1976 1977 1978 1979 1980 1981 198 2Net materia lproduct 100 .0 106 .0 112 .0 118 .2 125 .8 132 .3 138 .4 143 . 8

Accumulationfund 100 .0 88 .5 96 .4 87 .4 91 .8 100 .5 115 .4 111 . 6

Total Persona lConsumption 100 .0 100 .0 111 .0 a 115 .0 a 118 .0 122 .4 128 .5 133 . 1

Gros sInvestments 100 .0 100 .2 114 .6 115 .4 112 .6 134 .2 139 .8 147 . 9

Gros sInvestment sin machinery 100 .0 98 .3 108 .2 111 .9 99 .4 96 .2 115 .4 124 . 1

Gros sInvestment sin

importe dmachinery 100 .0 86 .8 90 .7 92 .6 70 .8 65 .2 75 .6 79 .2

31

(cont . )Table

4 ,

1975 1976 1977 1978 1979 1980 1981 198 2Volume o fimporte dmachinery 100 .0 100 .0 b 101 .0 b 108 .1 104 .7 105 .3 115 .8 123 . 7

Volume o fimported

rawmaterials ,fuels,

&

semi -fabricates 100 .0 n .a . n .a . n .a . 132 .0 137 .0 141 .6 138 . 7

Housingconstructe d(sq .

mtrs .) 100 .0 118 .7 130 .9 113 .9 109 .4 122 .3 122 .9 119 . 7

Industria loutpu t(gross) 100 .0 106 .3 112 .9 120 .6 126 .9 131 .7 138 .4 144 . 3

Industria lOutpu t(Alton) 100 .0 102 .9 106 .9 110 .7 114 .6 117 .3 120 .3 n .a .

Metallurgy 100 .0 117 .0 145 .0 131 .0 132 .6 135 .5 144 .1 161 . 9

Steel outpu tequipment 100 .0 108 .6 114 .3 109 .6 109 .6 113 .2 109 .7 114 . 1

Machine -buildingoutput 100 .0 n .a . n .a . n .a . 139 .8 141 .3 148 .6 157 . 2

Output o fmetal-cuttin gmachinery 100 .0 88 .7 84 .4 94 .1 101 .2 115 .9 114 .7 109 . 7

Output o ftractors an dagricultura lequipment 100 .0 110 .0 130 .0 120 .0 106 .8 114 .5 121 .7 118 . 6

Production

o fhauling

an dliftin gequipment 100 .0 121 .0 131 .0 158 .0 174 .1 168 .6 163 .0 170 . 8

Electronic soutput 100 .0 n .a . n .a n .a . 163 .7 188 .1 208 .8 236 .1

3 2

Table

4,

(cont . )

1975 1976 1977 1978 1979 1980 1981 198 2

Cemen toutput 100 .0 100 .0 107 .0 118 .2 123 .9 123 .0 124 .7 128 . 8

Output basi cinorgani cchemicals 100 .0 n .a . n .a . n .a . 123 .7 140 .6 150 .1 147 . 3

Output basi corgani cchemicals 100 .0 n .a . n .a . n .a . 123 .8 148 .2 172 .6 186 . 7

Output textil eindustry 100 .0 105 .3 110 .3 116 .7 123 .l 127 .5 134 .7 140 . 4

Output leathe rindustry 100 .0 100 .9 103 .9 103 .6 103 .8 111 .0 119 .1 122 . 8

a) .

Based

on an

index

of "consumption

of the population, "which includes some collective consumption .

b) . Estimated .

Sources :

Statisticheski godishnik 1978, 1980, 1985 ; Vunshn aturgoviia 1960-1978 ; T . Alton et al ., 1983, p . 13 .

The slowdown in industrial output, the decline in th e

accumulation rate, the sharp cuts in investments in importe d

machinery and equipment, the curbs imposed on the output o f

excessively material- and energy-intensive lines of production

were all helpful in coping with the crisis . Another means o f

adjustment that can only be partially documented was th e

liquidation of excessive stocks and inventories, includin g

unfinished construction . According to calculations made by Marvi n

Jackson, inventories declined by 14 percent in 1976 and 40 percen t

in 1977 .

In the five-year period 1976 to 1980, they fell by 2

3 3

percent per year . it was not until the recovery years of 1981 an d

1982 that inventories recuperated (Jackson, 1986, p . 32) .

The divergent rates of expansion and contraction of th e

various sub-branches of machine-building production shown in Tabl e

4 are intriguing . Worthy of note is the very rapid growth of th e

export-oriented hauling and lifting equipment industry in th e

second half of the 1970's followed by its stagnation in the year s

1980 to 1982 (and beyond) . This was in sharp contrast to the cut s

in the output of metal-cutting machines that occurred in th e

period 1976 to 1978 which were followed by an upturn in th e

following years .

Both types of equipment, particularly i n

Bulgarian conditions, were, and are, highly metal-intensive . I t

would seem that hauling and lifting equipment was given priorit y

in the allocation of scarce metal because it was a successfu l

exporter, whereas sales of metal-cutting machinery wer e

traditionally oriented to the domestic market . 17 But then why

wasn't this differential policy continued into the 1980's? On e

explanation that comes to mind is that the authorities recognize d

all along that the production of hauling and lifting equipmen t

consumed too much metal but that they could not curb its outpu t

because they had to honor export commitments, particularly to th e

Soviet Union .

This explanation probably has some validity but I

doubt whether it can justify a rate of growth of the industr y

17 Until 1972, metal-cutting machinery was one of the sub -branches of the machine-building industry in which Bulgari a"specialized ." For reasons that have not been revealed, it ceasedto be so after that date (Kostov, 1983, p . 4) .

3 4

averaging 15 percent per year from 1975 to 1979 . I suspec t

another reason may be that the Bulgarian planners were not full y

aware initially of the potential disadvantages of producing an d

exporting equipment incorporating, directly or indirectly, ultra -

scarce imported inputs . 18 It is interesting also that the energy -

intensive chemical industry kept expanding at a rapid rate both i n

the second half of the 1970's and in the early 1980's . Of th e

consumer goods industries, only leather-working failed to expan d

in the period 1975-1979, presumably to economize on its basi c

imported inputs .

The macro- and micro-adjustments that were made did meet th e

country's external constraints . Bulgaria, for one thing, was abl e

to repay its moderate foreign debts (Analysts of the Centra l

Intelligence Agency, 1986, pp . 178-179), and the population' s

living standards continued to improve, albeit more slowly than i n

the past . 19 But much more could have been done . Stoilov recentl y

complained of the delays in restructuring the economy and th e

relative "inertia" of economic organizations in the face of risin g

import prices (Nauchno-tekhnicheskata revoliutsiia, 1986, p . 23) .

18 Note that exports of hauling and lifting equipment fel lsharply from 1980 to 1981, hit a peak in 1982, dropped by 2 3percent in 1983, and rose again in 1984 to reach a level slightl ybelow that achieved in 1982 (all in current devisa levas) . It i sprobable therefore that the stagnation and slow decline of outpu taffected mainly exports .

19 The only major disruption in the consumer goods market dueto the crisis occurred in 1980 when "meat sales fell and othe rfood supplies were tightened" in the wake of a poor harves t(Jackson, 1986, p . 24) .

3 5

According to his calculations, material costs per unit of nationa l

income, in constant prices, declined by one percent per year i n

the period 1976-1980, when the slowdown occurred, but only by 0 . 2

percent per year in the recovery years 1981-1984 (Ibid, p . 29) . 2 0

So far I have analyzed the domestic adjustments to th e

deteriorating terms of foreign-trade . The Bulgarian authoritie s

also alleviated the crisis by ordering changes in the structure o f

foreign trade exchanges by commodity groups and by broad region .

A comparison of the balances in Tables 3 and 5 bring these change s

into focus .

Table 5

Estimated Balance of Trade by Commodity Group s

and by Regions in 198 3(millions of devisa levas )

Sovie tUnion

Rest o fCMEA

Othe rcountries Al l

Machine-buildin gproducts +1780 .6 -

201 .9 ±

49 .1 +1627 . 8

Raw materials ,fuels,

an dsemifabricate dproducts -4294 .6 -

56 .8 +

160 .3 -4191 . 1

Chemicals an drubber products +

27 .9 -

51 .2 -

103 .0 -

126 . 3

20 These

calculations exclude depreciation from materialcosts .

Including depreciation, the decline was 0 .3 percent pe ryear from 1976-1980 .

Costs including depreciation, computed a tconstant prices, actually rose by 0 .1 percent from 1981-198 4(Nauchno-tekhnicheskata revoliutsiia, 1986, p . 29) .

The precis eway in which these calculations were made has not been revealed .

3 6

Sovie tUnion

Table

5 ,

Rest o fCMEA

(cont .)

Othe rcountries Al l

Buildin gmaterials +

125 .4 +

9 .0 -

14 .1 +

120 . 3

Non-food agri -cultural ra wmaterials -

152 .9 -

20 .7 -

229 .8 -

403 . 4

Live animals +

7 .8 -

10 .5 +

4 .0 +

1 . 3

Raw material sfor food +

252 .4 -

126 .5 +

16 .5 +

142 . 4

Processe dfoodstuffs +1305 .0 +

269 .9 +

225 .5 +1800 . 4

Manufacturedconsumer goods +

640 .4 +

9 .4 +

9 .8 +

659 . 6

Licenses andother service sof a productiv echaracter -

24 .5 +

20 .4 +

224 .6 +

220 . 5

TOTAL -

332 .5 -158 .9 +

342 .9 -

148 .5

Sources :

Statisticheski godishnik, 1985, p . 367 ;Chetirideset godini, 1985, pp . 302, 304 ; Iznos i dog, March 1985 ,pp . 54-55 .

The most dramatic improvement in any trade balance from 197 0

to 1983 occurred in machinery trade with the Soviet Union . In

1970, this balance had been negative to the extent of 90 million

devisa levas ; in 1983 it yielded a surplus of 1,780 million devis a

levas or 1 .7 billion U . S . dollars at the official rate o f

3 7

exchange . 21 To pay for the enormous deficit in industrial raw

materials, fuels, and semi fabricates and in agricultural raw

materials (cotton, wool, raw hides, etc .), together amounting t o

4 .5 billion devisa levas, Bulgaria, in addition to the surplus i t

enjoyed in machinery trade, also had to run a surplus of 1 . 3

billion devisa levas in processed foodstuffs, 0 .6 billion i n

manufactured consumer goods, and 0 .1 billion in buildin g

materials . A deficit in merchandise trade of 0 .3 billion bridge d

the remaining difference .

(Note also in passing that the 197 0

deficit in Bulgarian-Soviet trade in chemicals had turned into a

small surplus by 1983) . In exchanges with the rest of C . M . E .

A ., no spectacular changes in the balances by commodity grou p

occurred between 1970 and 1983, after taking account the overal l

expansion in the economy, with the exception of raw materials fo r

food, where the 1970 surplus had turned into a deficit by 1983 .

In 1983, as in other recent years, Bulgaria continued to buy mor e

machinery and equipment from its European partners in C . M . E . A .

than it sold to them . 22 The surplus earned in licenses and othe r

"transactions of a productive character" may have come from

exporting engineering and other services to Cuba and Vietnam .

21 If, as is generally believed, machinery prices in C . M . E .A . were some 25 percent in excess of world market prices at time ,this surplus might have been worth $ 1 .3 billion at the latter prices .

22 With the G . D . B . alone, Bulgaria ran a deficit i nmachinery trade of approximately 150 million devisa levas (base don percentage data in Chetirideset godini, 1986 ,.p . 139) . I tpresumably ran a surplus in machinery trade with Vietnam ,Mongolia, and Cuba .

3 8

The 1983 balances with "other countries" represent a n

aggregate of surpluses and deficits with highly disparate regions ,

including developed market economies, developing countries, an d

non-C . M . E . A . socialist economies . Unfortunately, only ver y

approximate data for trade by commodity groups with developin g

countrie s 23 can help us to disentangle the balances with non-C . M .

E . A . nations .

The developing countries in recent years have played a muc h

greater role in Bulgaria's trade than in the 1970's . In 1983 ,

these countries accounted for 13 percent of exports and 6 . 3

percent of imports, compared to 6 .5 and 4 .7 percent respectivel y

in 1970 . Machinery and equipment exports to developing countries ,

together with armaments, amounted to some 740 million devisa leva s

(nearly $ 760 million at the official exchange rate) . 24 Even i f

the entire sum of these machinery exports is counted as a surplus -

23 From percentage data in Chetirideset godini (1986, pp . 175 -78), we can estimate Bulgaria's exports to developing countries b ybroad commodity groups : machinery, raw materials of all sorts ,raw and processed foodstuffs, and manufactured consumer goods . Onthe import side we know only that raw materials represented abou t60 percent of total imports from these countries (ibid ., p . 178) .My estimates are based on this figure and on extrapolations b yindustrial commodity groups from 1977 and 1978 data (Shestrinski ,1983, pp . 92-94) .

24.A comparison of Bulgaria's machinery and equipment export sto developing countries in the UN Economic Commission for Europe' sBulletin of Statistics in World Trade in Engineering Products ,1983, with the figure of total exports in this category estimate dfrom Chetirideset godini shows a gap of about $ 150 million . Thi sgap may correspond to armaments exports to developing countrie s(chiefly to Arab countries) . Export of those items may have beenlarger both in 1982 and 1984 when Bulgarian exports to developin gcountries exceeded the level attained in 1983 .

3 9

-imports of machinery and equipment from developing countries ar e

presumed to have been minimal--it still would fall short of th e

gigantic surplus in overall merchandise trade with developing

countries, which amounted to 802 million devisa levas in 1983 .

The overall surplus in trade was actually la r g er than the tota l

Bulgarian imports from these countries . To pay for imports o f

industrial raw materials (chiefly oil), amounting to some 60 0

million devisa levas, Bulgaria had to export about 24 million

levas of foodstuffs and 340 million levas of industrial an d

agricultural raw materials, all "hard goods" that could have bee n

marketed on world markets for convertible currencies . Becaus e

such a large part of exports had to be sold on credit--which i s

reflected in the surplus of total exports over imports--whil e

other earnings were probably mainly denominated in nonconvertibl e

currencies, thus restricting imports options, trade wit h

developing countries may not have contributed very much to easin g

the country's balance-of-payments problem, at least in the shor t

run . It may yet do so in the future if Libya, Iraq, and othe r

beneficiaries of Bulgarian credits ever come around to repayin g

them .

Bulgaria's trade with developed market economies, as w e

should expect, was of a totally different character . Instead of a

surplus in merchandise trade, Bulgaria ran a deficit of 43 3

million devisa levas (nearly $ 450 million) with these countries ,

corresponding to the credits that it received . Its purchases o f

machines and equipment exceeded its sales to this area by some 700

4 0

million levas .

Approximate calculations indicate tha t it

accumulated a surplus in trade in raw materials, fuels ,and

semifabricates with this group of countries, together wit h

non-C . M . E . A . socialist economies, amounting to abou t 160

million devisa levas .

In 1970, trade in this category with th e

same group of countries had shown a small deficit .

Seven year s

later, Bulgaria was already running a surplus on this account o f

nearly 100 million levas . It is tempting to conclude that, i n

both 1977 and 1983, Bulgaria earned some convertible currencies b y

reexporting Soviet oil to Western Europe (as argued by Vanous fo r

the years 1978 to 1982) . 25 I cannot see what other categories o f

industrial raw materials could have yielded surpluses of thi s

size .

All in all, Bulgaria's planners steered their econom y

successfully through a trying period . They adapted to a

deterioration in their terms of trade of "unprecedented m ag nitude "

(Nauchno-tekhnicheskata revoliutsiia, 1986, p . 18) by slowing dow n

the economy, cutting back the output of selective import-intensiv e

products, building up exports of manufactured products to th e

Soviet Union to help pay their swollen import bill of liqui d

fuels, and by occasional reexports of Soviet oil .

By 1980-81, the Bulgarian planners were poised to resume

their high-growth path to industrialization .

They booste d

25Cited in Jackson, 1986, p . 34 . My rough calculations ar edifficult to reconcile with Vanous' claim that oil reexports ma y

have contributed as much as one half of Bulgarian exports t odeveloped market economies .

4 1

accumulation (net investments including changes in inventories) b y

9 .5 percent in the first of these two years and by a n

extraordinary 14 .8 percent in the second .

Net material produc t

increased by 5 .7 percent in 1980 and 5 .0 percent in 1981 . Th e

inability to sustain these rates of growth in investments an d

national income in the years 1982 and 1985 may have prompted th e

somewhat more open public discussions about industrial policy tha t

ensued .

V .

In Search of a New Industrial Policy, 1981-198 6

In general Bulgarian economic writings, insofar at least a s

they have been published, have exhibited a deplorable bias towar d

self-congratulation . They have tended chiefly to magnify th e

country's progress and to praise Soviet assistance in chalking u p

their achievements .

It is only with great circumspection tha t

they ever identify shortcomings and suggest remedies for them, an d

then only when political circumstances allow . "The head tha t

bows," to cite a frequently cited Bulgarian proverb dating fro m

the Ottoman occupation, "will not be cut off ." The situation ha s

been slightly eased in recent years, but it is still a long wa y

from attaining the degree of openness which the Hungarian an d

Poles have allowed for some time past . We may come acros s

occasional discussions of industrial policy, but those that g o

farther than broad generalizations and discriminate betwee n

clearly delineated alternatives are exceptions . The most notabl e

among the latter are summarized below .

4 2

In early 1981, V . Kalchev and M . Vitkova wrote an article i n

Ikonomicheska misul in which they analyzed some of the effects o f

the energy crisis on the structure of Bulgarian machine-buildin g

exports (Kalchev and Vitkova, 1981) . After pointing out tha t

Bulgaria's machine-building production had among the highes t

material costs per million rubles in C . M . E . A ., they suggested

that "difficulties in procuring raw materials and fuels make i t

advisable to reduce gradually the proportion of hauling an d

lifting equipment in the structure of our machine exports ,

irrespective of the fairly good indicators for this export" (pp .

31-32) . By these "indicators," they no doubt meant the results o f

the calculations of export efficiency, such as the domestic ne t

cost of generating a currency unit's worth of foreign exchange .

Their suggestion that the share of hauling and lifting equipmen t

in Bulgarian exports should be reduced implies that calculation s

of export efficiency do not reckon the full opportunity cost s

(direct and indirect) of imported fuels incorporated in thi s

metal-intensive equipment . They further recommended that, whil e

the absolute volume of such exports would continue to increase, a n

effort should be made to concentrate on the export of "complet e

systems of internal factory transportation, worked out accordin g

to individual projects," which would yield better results (again ,

presumably in terms of domestic costs per unit of foreign currenc y

earned) and "simultaneously cut down on material intensity, "

(Ibid ., not 11) .

The authors of the article also criticized th e

traditional approach of specialization in finished products and

4 3

the neglect of specialization and trade in components, parts, an d

details . While this approach has the advantage, they claimed, o f

providing "more room for maneuver" in marketing production, i t

also leads to parallelism among the economies of C . M . E . A . sinc e

all members follow a similar approach . In the "absence of a

mechanism regulating the socialist international division of labo r

the emergence of parallelism is unavoidable ." Nevertheless, "th e

very existence of this parallelism in the macrosphere may an d

should be the highly efficient basis of the development of futur e

integration . . .on the basis of international cooperation i n

production and, in particular, of cooperation in producin g

components and parts of assemblies" (ibid, p . 30) .

Resourc e

endowment should of course be taken into consideration whe n

specialized cooperation tasks are allotted among members . Thei r

concrete suggestion was that the Soviet Union, which is well -

endowed in fuels and metals, should specialize in producing metal -

intensive components and parts, presumably for final assembly i n

Bulgaria (ibid ., p . 31) . In this connection, the authors advanc e

an economies-of-scale argument for concentrating Bulgarian trad e

and specialization agreements on the U . S . S . R . Citing a 1980 C .

M . E . A . secretariat report which revealed that the average valu e

of bilateral specialization contracts between the Soviet Union an d

individual members of C . M . E . A . was about three times as larg e

as that of multilateral specialization contracts for C . M . E . A .

as a whole, they conclude that the great capacity of the Sovie t

market offers smaller countries like Bulgaria the opportunity of

4 4

"optimizing their production ."

An added advantage is that suc h

multilateral agreements, in contrast to the multilatera l

agreements under C . M . E . A . aegis, limit the production and

exports of each product covered in the contract to two rather tha n

to several countries (Ibid ., p . 32) . 2 6

In an article published in 1983 in the organ of the Ministr y

of Foreign Trade, V . Kostov attempts to characterize the degree o f

intra-branch specialization in machine-building exports, bu t

complains of the lack of official statistics that would allow hi m

to arrive at a quantitative estimate on the basis of sufficientl y

disaggregated statistics (V . Kostov, 1983, p . 4) . Given the basi c

statistical division of the entire industry into ten sub-branches ,

such as machines and equipment for the food industry, hauling an d

lift equipment, and so forth, Kostov was at least able to tell u s

that, at this fairly aggregated level, Bulgaria produces and

exports products belonging to nine of the ten sub-branches an d

"specializes," on the basis of bilateral and multilateral C . M . F .

A . agreements in six (a number that for a small country lik e

Bulgaria he judges to be somewhat large) . In his view, there ar e

distinct disadvantages to an excessively wide nomenclature . 1) .

Resources are scattered over many lines of production, which make s

it impossible to concentrate them chiefly on specialized item s

and, among specialized items, on those enjoying the best prospect s

26 Western specialists in C . M . E . A . affairs may wish to rea dthe author's interesting remarks about pricing practice in intra -C . M . E . A . transactions of machinery and equipment and of thei rcomponent parts (p . 35) .

4 5

for the country 2) . The scale of production is suboptimal, whic h

results in low efficiency 3) . Some specialized products ar e

exported in very small quantities on the C . M . F . A . market . Th e

share of specialized products in total Bulgarian export wa s

actually 41 .76 percent in 1981, compared to 44 .7 percent in 197 5

and 45 .3 percent in 1980 (Vunshna turgoviia 1970-1984, p . 26) .

This decline was largely due to the fact that the production and

export of specialized electric trucks and forklifts had droppe d

nearly 20 percent from 1979 to 1981 . Interestingly enough, Kosto v

is silent about the reasons--which I have discussed earlier--fo r

these cuts .

His failure to justify the policy suggests that h e

may have disagreed with it .

Beyond his recommendation that the range of specialize d

production and exports should be narrowed, Kostov had littl e

concrete to offer about "which specific products should be th e

object of a selective policy under Bulgarian conditions ." It doe s

not help us very much to learn that the specialization an d

perspective development of the machine-building industry should b e

based on "the requirements of domestic technical progress, th e

prospective demand of the C . M . F . A . market, the productiv e

capabilities of the country, (Bulgarian) traditions, the directio n

of development in other branches of industry and the entir e

national-economic complex" (Kostov, 1983, p . 4) .

Two years later in an article in Ikonomicheskamisul, G .

Mirov delved a bit deeper into the specialization problems of th e

machine-building industry evoked by Rostov (Mirov, 1985) .

He

4 6

estimates that of 70 to 100 items covered by specializatio n

agreements, only 25 are regularly exported . Two items--electri c

trucks and telphers--account for about 60 percent of the tota l

exports of specialized production, the remaining 20-23 items fo r

40 percent .

He too says nothing about the need to curtail th e

relative importance of hauling and lifting equipment in tota l

exports (Mirov, 1985, p . 39) .

On another note, he, like Kalchev

and Vitkova four years earlier, deplores the excessive emphasis i n

trade in finished products . Only 5 .7 percent of Bulgaria n

machinery products in the last few years consisted in component s

and parts, a proportion that is twice as small as the average fo r

C . M . E . A . as a whole and 6 to 8 times smaller than that achieved

in "industrially developed countries" (presumably marke t

economies) .

This comment is followed by an unusually fran k

discussion of the obstacles to further specialization . In hi s

judgement, "the present structure of machine-building productio n

leads to a deepening of the contradiction between productio n

capacities and the possibilities of marketing production .

Production capacities have been built up that make it possible t o

increase production . But at the present time the possibilities o f

marketing this production (realizatsiia na tazi produktsiia) ar e

diminishing both on the internal and the international market "

(Mirov, 1985, p . 40) . To solve the "contradiction" between th e

structure of production and the structure of demand, it i s

essential to improve the quality of production and to adapt th e

structure of production to the requirements of technical progress .

4 7

The structure of the industry must be geared to nationwid e

interests . But "oftentimes branch interest are stronger Tha n

nationwide interests and exert enormous influence on the choice o f

solutions at the branch level" (ibid .) .

One and only on e

criterion of choice should prevail :

"the contribution [of th e

option selected] to national income . All other criteria should

have only a local and temporary character ." We have been mad e

familiar with such criticisms from Polish, Hungarian, and eve n

occasionally from Czechoslovak publications . They wer e

conspicuous by their absence hitherto in Bulgaria . This insigh t

still leaves us hungry for concrete examples, which Mirov does no t

provide . Surely, also, the notion of maximizing the "contributio n

to national income" fails either as a necessary or a sufficien t

criterion of efficiency, particularly in Bulgaria, by reason o f

the distortions in domestic prices . Not surprisingly, th e

author's recommendations r e g arding specialization in the machine -

building industry are of the vaguest characte r

One of the most recent contributions to the discussion ,

dating from June of last year, is refreshingly concrete in it s

recommendations regarding the electronics and electrotechnica l

industry (Keremidchiev, 1986) . Despite the fact that thi s

industry was administratively (and statistically) split off ro m

the rest of the machine-building industry around1980 ,

nevertheless, according to Keremidchiev, it was still treated "o n

the same plane with other branches of machine-building ,

irrespective of its specific character and needs" (p . 14) .

In

4 8

particular too little consideration was give to its "incomparabl y

greater physical wear and obsolescence, which call for it s

constant and dynamic renovation ." His (allegedly conservative )

estimate is that the equipment of the electronics an d

electrotechnical industry becomes obsolescent on average in fou r

years, that of the machine-building and chemical industry i n

seven, and of the textile and food-processing industries in eight .

From this it follows that 25 percent of the equipment of th e

electronic and electrotechnic industry should be replaced eac h

year .

The comparable percentages are 14 .3 percent for th e

machine-building and chemical industries and 12 .5 percent for th e

textile and food-processing industries . The actual rates o f

replacement in the early 1980's were 8 .5 percent for th e

electronics and electrotechnical industry, 10 .2 percent fo r

machine-building, 6 .2 percent for the chemical industry, 5 . 1

percent for textiles, and 7 .5 percent for food-processing . Thu s

the ratio of "minimum desirable" to actual replacement was th e

highest in electronics (3 times) and the lowest in machine -

building (1 .4 times) (Ibid ., p . 16) . Yet machine-building was o n

a relatively low technical plane . Keremidchiev cites a stud y

carried out by the Economic Institute of the Bulgarian Academy o f

Sciences which showed that the technical level of the industry, o n

a 6-point scale, was presently at level 3-4, and that it woul d

take ten to fifteen years to attain level 4-5, which is stil l

"insufficient" for an export branch of industry (ibid ., note 10) .

He goes on to deplore the irregular rate and inadequate level of

4 9

investments in the electronics industry . It not as if h e

simply wished to raise the overall level of investments in th e

national economy . What is needed, in his view, is a "high-qualit y

and reasonable distribution of investment expenditures, one i n

particular that would recognize the fact that the electronics an d

electrotechnical industry has a much lower capital-to-outpu t

ration that the machine-building, metal-working, and chemica l

industries (40 levas of capital per 100 levas of gross output i n

the first, 72 levas in the second, and 112 levas in the third) .

It also has much lower energy requirements per unit of outpu t

(ibid ., p . 17) . One would think that electronics, given its ke y

role as a vehicle of technical progress throughout domesti c

industry, would have a very high proportion of highly skille d

technical personnel in its employment . In fact, Keremidchie v

claims the proportion of such personnel was lower than in th e

machine-building industry as a whole . He even complains that th e

share of R and D in the total expenditures of the industry wer e

less in electronics than in several machine-building factories i n

the Sofia region (p . 18, note 18) . Finally, he criticizes th e

strategy of nearly total reliance on imported "electroni c

elements" (semiconductors, memory chips, and so forth) contrary t o

the positive correlation that exists in advanced capitalis t

countries between the level of production of the computer and

peripherals industry and the production of basic electroni c

elements . Keremidchiev does not advocate that all basic element s

needed for Bulgaria's highly developed computer and peripheral

5 0

industry should be domestically produced but that it shoul d

specialize in the production of some of these elements--thereb y

achieving the necessary economies of scale--and import the res t

(Ibid ., p . 19) .

Let me finally return to Stoilov's contribution to a 198 6

compendium on the scientific and technical revolution and the

strategy of Bulgarian economic development that I have alread y

cited several times in connection with the deterioration o f

Bulgaria's terms of trade since 1973 and its implications fo r

industrial policy . His main concern, we recall, was with th e

unfavorable consequences of the high import-intensity of Bulgaria n

production . The choice of an export strategy in the 1980's an d

1990's must come to grips with the fact that the import-intensit y

of exports exceeds that of the nation's material product (by 4

percent in 1983) .

It is estimated at 34 .5 percent, of which 8 3

percent were material costs and 17 percent depreciation o n

imported machinery in 1983 (Stoilov, 1986, p . 20) . (It is no t

clear whether these import costs include the indirect expenditure s

on imports of domestic materials incorporated into exports) . Fo r

highly metal-intensive exports like electric trucks and forklifts ,

the proportion is higher still, so that the net contribution o f

such exports to foreign exchange earnings must be fairly meager .

Stoilov's main interest is in promoting technical progress an d

particularly the replacement of traditional material-intensiv e

production by highly progressive R-and-D-intensive lines o f

output . One of the ways he wishes to promote this strategy is to

5 1

retire obsolescent equipment . Like Keremidchiev, he criticize s

the policy of inadequate retirement norms . He argues that, eve n

though Bulgaria's equipment is relatively new, 27 thanks to th e

high investment rates of the past, yet about 25 percent o f

existing equipment in 1984 was physically worn out or obsolescent .

Such equipment was not only low-productive but required constan t

major repairs . The bulk of the obsolete equipment happens to b e

concentrated on the machine-building, food-processing, an d

metallurgical industries and on agriculture, which are al l

critical to the nation's export program (ibid ., p . 32) .

One of Stoilov's suggestions for harnessing R and D t o

Bulgarian development is to alter radically the presen t

proportions between basic and applied science in Bulgaria . In hi s

view, too heavy a share of budget expenditures is being lavished

on basic science for a small country, which cannot afford "dozen s

of projects investigating the cosmos and interstellar space "

(ibid ., p . 39) .

Unfortunately, Stoilov's other suggestions are less origina l

and interesting than his analysis of current problems . He favor s

close technical and scientific cooperation with the U . S . S . R . i n

the solution of R and D problems, including the creation of join t

R and D associations . R and D, in his view, should be oriente d

toward generating innovations susceptible of reducing th e

27 According to recently released United Nations statistics ,Bulgaria had the highest share of fixed assets under five years o fage of any of the developed nations in C . M . E . A . (41 percent i n1985) . This, however, was a sharp drop from 52 percent in th epeak year of 1977 (United `Nations, 1987, p . 165) .

5 2

material- and energy-intensity of output, and so forth . Citin g

the C . M . F . A .-sponsored recommendations of December 1985 fo r

scientific-technical cooperation to the year 2000, he plead :: fo r

cooperation with C . M . E . A . members chiefly in "electronization ,

complex automation, the creation and utilization of new materials ,

and the development of biotechnology" (Ibid ., p . 47) .

What I have described can scarcely be called a debate . Th e

discussion,such as it is, rarely strays from conventional part y

thinking . When it does get down to concrete suggestions--inves t

more in the electronics industry, retire obsolescent and worn ou t

machinery earlier than currently planned, cut back on the export s

of metal-intensive hauling and lifting equipment--it does no t

provide sufficient data, such as detailed cost estimates corrected

for distortions in domestic prices, for an independent observer t o

determine whether or not they are economically justified .

Without taking sides, I cannot omit one observation abou t

proposals for concentrating investments and skilled manpower on

computers, peripherals, instruments, semiconductors, and comple x

chemicals, including biotechnical products, which are typicall y

the science-intensive export products of the most industriall y

advanced countries . How can Bulgaria--a newcomer on th e

industrial scene which spent only 1. .9 percent of its nationa l

income on applied science and R and D in 1979, less at the tim e

than any of the advanced C . M . E . A . members (Danov, 1983, p . 7)--

5 3

hope to develop a comparative advantage in such products? 28 Th e

answer may lie in the very high degree of protectionism provide d

by the C . M . E . A . market . Bulgaria need not have a comparativ e

advantage (static or dynamic) vis-a-vis the rest of the world bu t

only vis-a-vis the U . S . S . R ., provided extra-C . M . E . A .

competition is excluded . Given its disadvantage in the production

of most fuel- or metal-intensive products, the protected niche fo r

science-intensive exports has found in the U . S . S . R . may bes t

answer its needs . Again, we would have to know more about th e

costs of producing these goods to make a more definitiv e

judgement . The determined effort Bulgaria is now making t o

modernize its applied science is almost sure to diminish whateve r

initial disadvantage it may once have had in producing an d

exporting science- and R-and-D-intensive products .

After a late start, the Bulgarians have made some progress i n

recent years in moving toward a more realistic, ideologicall y

neutral type of economic analysis . I suppose that their succes s

in carrying out a rapid-growth industrial policy in the 1960's an d

early 1970's and their fairly efficacious adjustment to th e

serious deterioration in their terms of trade after 1975 made th e

rethinking of their country's industrial policy less urgent tha n

it might otherwise have been . They are now embarked on an

ambitious policy of building up R-and-D-intensive exports on a

slim scientific base and with relatively weak contacts with moder n

28 In an interview with a specialist in Sofia, I was informe dthat the percentage had since gone up but that it was still les sthan average for C . M . E . A .

5 4

developments in the rest of the world (at least in marke t

economies) . Their degree of success should be of interest t o

anyone concerned with one of the most debated problems of ou r

times : whether the government bureaucracy of a small nation can

choose and set priorities for industries with an export potentia l

that will enable it to maintain high rates of growth of nationa l

income and of personal per capita consumption .

5 5

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Alton, Thad P ., "Production and Resource Allocation in Easter nEurope : Performance, Problems and Prospects" in Join tEconomic Committee, 97th Congress, Fast European Economi cAssessment, vol . 2 (Washington, D . C . :

U . S . G . P . P . ,1981), pp . 348-408 .

Alton, Thad P ., et al, Research Project on National Income in Eas tCentral Europe, Economic Growth in Eastern Europe 1965, 1970 ,and 1975-1982, no . 75, (New York, NY :

L . W . Internationa lFinancial Research, Inc ., 1983) .

Angelov, Todor, Problemi na ikonomicheskiia rastezh v N . R .Bulgariia i evropeiskite sotsialisticheski strani (Sofia :Nauka i izkustvo, 1985) .

Bogomolov, O . T ., Strany sotsializma v mezhdunarodnom razdeleni itruda (Moscow : Nauka, 1986) .

Brada, Joseph C . and Montias, J . M ., "Industrial Policy in Easter nEurope : A Three-Country Comparison," Journal of Comparativ eEconomics, vol . 8, no . 4, 1984, pp . 377-419 .

Chetirideset godini sotsialisticheska vunshna turgoviia na N . R .Bulgariia (Ministerstvo na vunshata turgoviia), vol . 1(Sofia : Nauka i izkustvo, 1985) .

Danov, Georgi, "Naukoemkost na proizvodstvoto i vunshno-ikonomicheskite vruzki na N . R . B ." Vunshna turgoviia no . 6 ,1983, pp . 6-11 .

Ikonometrichni makromodeli za razvitie na narodnoto stopanstv o(Bulgarska Akademiia na Naukite, Ikonomicheski Institut) ,(Sofia : Izdatelstvo na Bulgarskata Akademiia na Naukite ,1984) .

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Iznos i dog

(Komitet po edinna sistema za sotsialna informatsii apri Ministerskiia suvet)

(Sofia, October 1984, March 1985) .

5 6

Jackson, Marvin R ., " Recent Economic Performance and Policy i nBulgari a " in Joint Economic Committee, 99th Congress, Eas tEuropean Economies ; Slow Growth in the 1980's, vol . 3(Washington, D . C . :

U . S . C . P . O ., 1986), pp . 23-58 .

Kalchev, Vasil and Vitkova, M ., "Uchastieto na Bulgariia vmezhdunarodnata spetsializatsiia i kooperirane n aproizvodstvoto v oblastta na mashinostroenoto, "Ikonomicheskata misul, no . 2, 1981, pp . 26-36 .

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5 8

APPENDIX*

The best ordinary least-squares repression for the availabl e

data on the output and exports of eight sub-branches of th e

machine-building and electronics industry is the following :

1n RE t = 0 .2544 = 0 .87091n ROt + Ut where RE t denotes at time "t "

of the index of exports of eight sub-branches of the machine -

building products as a whole and RO t the ratio at time "t" of th e

output of corresponding sub-branches of the machine-building and

electronics industry to the output of state=owned machine-buildin g

enterprises, and U t is an error term . There are 62 observation s

for the years 1960 to 1975 . The coefficient of RO t , which equaled

8 .747 times the standard error, is significant at the 1 percen t

level of probability . The sum of the adjusted R squares i s

0 .5532 ; the D-W statistic equals 0 .367 for 62 observations, an d

the first-order auto-correlation equals 0 .688 .

*

I am indebted to Pradeep Srivastava for running a number o frepressions on available export and output data and for his advice