Why Isn’t Romania Rich?

An address to the Academy of Economic Studies, Bucharest, June 22, 2012

It is puzzling to note that somewhere between 4 million and 8 million Romanians have left the country. Indeed, Traian Băsescu has estimated the number as high 12 million. This is out of a country of 22 million, which means that somewhere between 18 and 36% of the population has left the country. Now, to what can I compare that number? Think of this: In Ireland, between the years 1845 and 1852, one million people died and another million emigrated, out of a total of 8 million people, or 25% of the population. But Ireland was an oppressed country, occupied by foreigners and in the midst of a great national tragedy, the potato famine.  That is to say, the kind of emigration we see in Romania is the kind one would normally associate with war, famine, and oppression.

But there would seem to be no great tragedy in Romania that caused so many of her children to flee, nor in this land of fertile fields and skillful farmers is there any famine. Indeed, it was not oppression, but the end of oppression that seemed to start to exodus. So we may ask, “Why, for so many of her children, did freedom for Romania mean the freedom to leave Romania? Why, for so many Romanians, did ‘a better life’ mean a life outside of Romania?”

One is tempted to respond, “Romania is a poor country,” but the next question, then, is, “Why isn’t Romania rich?” When we see a poor society, we might ask whether their poverty is natural. Perhaps, like the vast Sahara, God did not give that land the gifts upon which wealth depends. But when we look at a land like Romania, we see fertile plains and valleys, verdant pastures, rivers full of fish, mountains full of minerals. We see a land with vast natural wealth, with every sort of blessing a loving God could bestow upon a nation. The problem then cannot be with God. Hence it must be with man. If man has made the farmer the slave of the banker, then man can fix the problem. If a nation has indebted itself to foreign powers, it can find its own freedom. It can build truly free markets, and not the capitalist simulacrum; it can build truly free men, and the not the mythical “economic man” or “soviet man”; it can build true citizens, living in real families and real cities based on real wealth, not financial wealth. And it can do all this if it really wants to. There is nothing that stands in the way of such a nation, but itself. So what is standing in Romania’s way, so much so that many find that they must leave to become waitresses in Italy or strawberry pickers in Spain?

Allow me to suggest that what is missing is a Romanian solution to Romania’s problems. For centuries, being Romanian, or at least, being part of the Romanian elite, often meant looking outward rather than inward. Now, here I must beg your pardon in advance, since I am venturing far beyond my expertise to offer some casual, and perhaps superficial observations about the Romanian character, and I hope I do not give offense. But it seems to me, perhaps from less than sufficient evidence, that there is a kind of in-bred humility in the Romanians. Perhaps it is a result of centuries of living under rulers who were not Romanian, when deference to foreigners was a survival skill. And as a student of the Romanian language, there seems to be, from the standpoint of an English speaker, a heavy reliance on the passive voice, the subjunctive mood, the reflexive mode.

Now, humility is a virtue; no real learning, for example, can take place without deference to the sources of knowledge. However, when the survival skill becomes a philosophical habit, there is the danger that one may miss the gifts one has by always thinking that the gifts of others are so much better. And so it is, or at least, it seems to me, that Romanians have too often followed ideas which have not worked well for Romania for the simple reason that they have not worked well anywhere. But since these ideas had prestige in foreign capitals, they came to have prestige with Romanian elites as well.

As an example, let me point to a curious parallel. In the last days of the tyrant’s reign, Ceauşescu starved his people to pay the foreign debt. Now, look at the situation in Europe today, and we find that the solution proposed for Greece is that she should starve her people to pay the foreign debt. That is to say, what Communism accomplished with tanks and the Securitate, finance capitalism accomplishes with bonds and bankers.

But at least Ceauşescu accomplished his goal; the new liberal government took office without owing a leu to anyone.  I am not here to defend the tyrant in any way, but I do note that at least Ceauşescu came to realize that all the loans from Washington formed a trap, and he did not wish to exchange the control from Moscow with control from Washington.  Ceaşescu realized what the Greeks are only now learning: that the loss of one’s currency is the loss of one’s sovereignty.

But under the rule of the new globalists, the foreign debt once again now stands at 33% of GDP, and is fast rising; all the suffering of the nation went for nothing. Foreign entities now exert a strong control over the economy, with Greek, Austrian, and French banks controlling more than half of the nation’s bank assets, while 60% of the nation’s debts are in a foreign currency. Indeed, it is likely true that Ceauşescu had more independence from Moscow than Băsescu does from Brussels. For example, it is neither Băsescu nor the Romanian people who will determine the size of the Romanian government; that will be done in a bureau in Belgium.

This leads us to note a curious parallel between the universalism of Marx and the globalism of the capitalists. For both, place and culture meant nothing; global capitalism, like international communism, knows no limits and recognizes no borders. Is it not fair to ask if Brussels is home to a Fourth Internationale, with lyrics provided by Goldman-Sachs, to a tune played on a cash register, and accompaniment by the unholy trinity of the World Bank, the WTO, and the European Central Bank? As the Marxist critic Slavoj Žižek, noted, “Socialism failed because it was ultimately a subspecies of capitalism…Marx’s notion of Communist society is itself the inherent capitalist fantasy.”

The parallels with this Fourth International and its crude predecessors can be startling. For example, the communists gathered production into vast collectives, conglomerates that shut down any competing source of production and political power, and concentrated effective ownership in the hands of the bureaucrats. But in the capitalist world, production is gathered into vast conglomerates, which are collectives which shut down any competing source of production and political power, and concentrate effective ownership in the hands of the bureaucrats. If you go into the “super-markets” of America, you will find a vast array of “competing” products. But when you peel back the labels, you find that in each sector there are only two or three conglomerates that have cartelized the market, giving the illusion of competition without the reality. Indeed, Stalin would be astounded by the degree of collectivization achieved in the West, as something beyond his wildest dreams.

The capitalists have shown that they are far more efficient in the means of social control. For example, the communists pit the secret police against the workers. But the capitalists have gone them one better: they pit the workers against the workers. For example, Dacia Motors, which is a French company, recently opened a factory in Morocco, which will take production away from Moveni. Jerome Olive, CEO of Automobile Dacia, said that the company plans “to stimulate” competition between the two plants, so that “the plant producing the cheapest [cars] will get the most orders.”  Let me suggest that this is a more efficient way of quashing the workers, and far cheaper than hiring policemen.

I could draw out the parallels endlessly, but I think there is one basic error that unites both systems. The great mistake of 20^th century economics was the separation of political economy into two disciplines, economics and politics. This was done in the name of a pure “science”; “economics” would deal with the facts while politics would deal with—well, who gave a damn what it dealt with? It was just philosophy no matter how you looked at it. Only the “facts” actually exist; the values are consigned to the world of wishes. Concentration on the “facts” would make the discipline “scientific,” they believed, and “scientific” was the highest accolade that the 19^th century could bestow on any field of study. The connection with politics, and hence the connection with normative terms like “justice,” and particular terms like “place,” “nation,” “language” and the like, could only get in the way of a clear, cold look at the facts, and only from the facts should theories arise.

The problem, however, is that there are no such things as “naked facts”; there are only details. “Facts” are the details we select because we believe they will be useful for some purpose, such as constructing a theory. We might compare the construction of a theory to the making of a map. Any map of necessity leaves out more detail than it includes, but the details selected as “facts” depend entirely upon the purpose of the map. That is, a road map will have one set of details, while a political map another set and a topological map a third, and only the selected details will count as “facts” for the purpose of the map; everything else will be irrelevant detail, to be excluded. In the same way, the creation of theories involves a selection of details that one believes will be useful in constructing the theory. Further, this process of selection must be, by definition, pre-theoretical; that is, the researcher starts with his own beliefs, his values, in selecting the details that will count as facts.

For example, a statement like, “Unemployment stands at 9.4%,” certainly sounds “scientific” in the “value-neutral” sense, but it turns out that it involves value judgments at every step of the process: what is to count as “employment,” how they are to be counted, who will be included in the count, what will be considered the final terms, etc., are all value-laden and political decisions. In other words, we must have some purpose in mind before we decide which details will count as facts; the facts do not create the theory, the theory creates the facts. As in the case of the map, it is the theory that discriminates between “facts” and “irrelevant details.”

The results of the misguided attempt to make economics a pure science were predictable enough. When socialism became “scientific,” it ceased to be social; indeed, it ceased to be human. When capital became divorced from culture and place, it became the enemy of culture and place. The divorce of the political from the economic did not create two sciences, but rather two crippled and partial disciplines, each incapable of describing events within its own domain, because in reality there is only one domain with two aspects. It is impossible to describe an economic system apart from the network of laws, property rights, and social expectations in which it is embedded. And it is impossible to understand a political system apart from the economic relationships upon which it is based.

The attempt to eliminate ethics from economics created a world that was devoid of both social justice and economic order. Having abandoned any objective standards of truth and justice, there was simply no way to resolve the disputes between the contending views, which now became, not science, but pure ideologies. Lacking any recognition of some common good, the only way to resolve disputes between the contending schools of thought was by violence, and as ideologies became nationalized, ideology meant war. It is no accident that the 20^th century, the most ideological century in history, was also the bloodiest century in history.

But now we are in a great crisis in Capitalism, one that will likely see its end, or at least the end of its current form, that is, finance capitalism. Automobile Dacia might oppress the workers in the name of profit, but at least its profits are based on making a real product, a car; even in oppression it has to provide some thing. But finance capital losses all connection with things. It even loses connection with money, since the “capital” does not represent any real savings, but only the power of banks to create credits ex nihilo by punching a few buttons on a computer. Loosed from all connection to the real world, the credits represent not productivity, but power. This power circles the globe like a flock of vultures, to light on any place that shows weakness, today on Piteşti, tomorrow on Morocco. They demand a payment even though they have produced not so much as a grain of wheat; their “product” is access to the computers that control the credits.

It is evident to many, that the system of global capitalism will not last, and even should it limp along, it will not bring prosperity to Romania, will not bring her wandering children home. No nation, I think, tried more earnestly to follow the advice of the globalists than did the nations of Eastern Europe, Romania among them. At the same time, they ignored the strengths they truly had, and let them wither, because they did not fit with the global model. Even those who pinned their hopes to the Euro certainly by now have more doubt than hope. Surely, this is the moment to re-think these strategies.

What is needed is new thinking, by which I mean old thinking—that is, ancient truths—applied to new situations. I think it is time to end the 20^th century’s disastrous experiment with economics as a pure science and return to the older idea of political economy as a humane science. There are three things that differentiate political economy from economics, and they are justice, purpose, and property. Justice (taken here as an economic notion) is necessary for the proper balance of supply and demand; a stated purpose is necessary to be able to reach a judgment about economic systems; and property is the most basic of all economic relationships.

By justice, we mean simply that what a person gets from production is proportional to what he contributes to production. Here I am thinking of justice as a mere practical necessity, for without it, markets cannot clear, demand cannot rise to meet supply. Now, it is clear that in a capitalist society, the mass of goods are distributed to the mass of men through the mechanism of wages. When wages do not reflect the real productivity of labor, when a small group appropriates most of the rewards to itself, then there will be a failure of demand. In such cases, the economy can only be stabilized by government spending, or by consumer lending, or by a combination of both. In the first case, the government becomes the consumer of last resort, and in the second, the class with excess funds lends it to others, at usurious interest rates, and so the markets clear. At least, for a time. In truth, both are stopgaps. The former leads to bloated governments and the later to financial crises. Those who rail against the growth of government ought to look at the cause of that growth, and the cause is a lack of justice. If markets can’t clear, governments are forced to intervene.

Justice has been understood as an economic necessity since the time of Aristotle, and it was a staple of economic discussions throughout the 19^th century. Adam Smith’s The Wealth of Nations uses the term 100 times, and J. S. Mill, writing 100 years later, would use the term about as frequently. But the new utilitarian and Austrian economists were embarrassed by the term, and wished to expunge term. A. E. Marshall, in his 1891 Principles of Economics would use the term only four times, while W. S. Jevons, another founder of the new “science,” would use it only once, and that to deny that it should be used at all. The reason they wished to expunge justice was that it requires, as Aristotle noted, an act of judgment, one that could not be totally reduced to a calculation. But only calculation was “scientific”; GDP can be calculated, justice could only be judged and therefore justice had to go.

The problem of judgment brings us to the next question, namely, what is the purpose of an economy? Without knowing what a thing is supposed to do, one cannot judge whether it is functioning.  Yet the new economists had difficulty agreeing on what the purpose of their science was. A. E. Marshall, in the second sentence of his founding textbook, identifies it with individuals gathering wealth, and the most widely accepted definition seems to be that of Lionel Robbins: “Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”  But economists have no training in the behavioral sciences, and the allocation of resources is an engineering and political question, and economists can add little to the conversation. Thus, economics became a science without a subject matter, declaiming on issues about which the economist had no training whatsoever.

Political economy, on the other hand, has a clear purpose: it deals with the material provisioning of society. On the basis of its purpose, we can make judgments about how well it is working. While there will always be disputes around the edges of the question, It is certainly easy to enough to look around and see whether families are able from their wages to live at a level of dignity appropriate to their national society, and whether they can do so without undue reliance on government support or consumer borrowing, or without working undue hours. That is to say, judgment is not an impediment to science, but the basis of any humane science.

This brings us to the third and most important issue, property. Property is the most basic and fundamental of all economic relationships and the degree of distribution of productive property determines the economic, social, and political character of a nation. If the ownership of productive property is concentrated in the hands of the government, that nation will be a tyranny; if ownership is concentrated in the hands of a few, that society will be an oligarchy, and if productive property is widely dispersed throughout society, that society will tend to be democratic. Note here that property is more intrinsic to the political character of a nation than is the formal system of elections.  For example, America is formally a democracy, but huge sums of money are required to be a viable candidate. Hence, it has the character of an oligarchy, since ownership—and hence political funding—is concentrated within a small elite, the famous 1%. The range of political debate among the political class can never exceed, in a meaningful way, the range of debate within the owning class. Barrack Obama will raise over one billion dollars for his re-election campaign. The sources for that kind of money are limited, and hence the debate will be limited, as the politicians must be responsive to the sources of their power.

But here we are concerned mainly with the economic consequences of property, and here we note a curious absence in economic theory. Despite all the rhetoric devoted to “private property,” it really has no place in the theory. Indeed, it is just another “factor of production,” assumed to be interchangeable with labor or capital and having no special significance. The distribution of property and the limits—or lack of limits—on its ownership, have no place in the theory. Indeed, almost no thought is actually given to the origins and justifications of property. Rather, it is taken as a given, and no thought is given to where it comes from.

But property has the power to completely change wage relationships. Men who have property—that is, the means of production—are free to negotiate a wage contract, or not, as they wish. But a man with no other means of support must accept the terms offered. In this latter case, the wage contract becomes leonine, that is, based on the inequality of the parties, and leonine contracts are always about power. And the powers that be will always be able to play the workers off, either against each other or against the power of the state.

We should be careful to note here that the issue is not about private property per se, but about the form and extent of that property. Property is natural to man; we might even say it is proper to him. It is as natural for a man to say, “This is my house” or “This is my land,” as it is for him to breathe. Indeed, when a man cannot say, “This is mine,” then he really is less of a man; he might even find it difficult to breathe, or at least draw a free breath; his rights and freedoms have been truly compromised. The socialists correctly analyzed the problem in terms of property, but they analyzed it in the wrong direction. Having ascertained that there were too few owners, they tried to ensure that there would henceforth be none. But what is really needed is to take the problem in the other direction; to make the mass of men more properly human by giving them what is proper to a man, namely property.

The distribution of property is therefore the primary determining factor of any political-economic system. Distributism is that form of political economy which emphasizes distributive justice, particularly in the matter of property. It should be noted here that the wide distribution of productive property is not something contrary to the free market. Indeed, all free market theory is based on the assumption that production of any commodity is spread over a vast number of firms, such that no firm has any pricing power; they are all price-takers rather than price-makers. But in order for production to be spread over a vast number of firms, productive property has to be spread over a vast portion of the population.  By dispersing capital, distributism enables the free market, while capitalism, in concentrating capital, destroys it.

The free market theorists were correct in asserting that a truly free market could guarantee fair wages, eliminate economic rents, and disperse political power. But they were wrong to ignore the question of the distribution of property. The result was not a free market, but its opposite: an economy of collectives in which power was concentrated. These collectives have largely captured the state, so that in truth, there is little difference between state capitalism and state socialism.

But it must be admitted that the very name—distributism—makes people worry. It conjures up an image of an all-powerful government taking property from some and giving it to others. But the truth is otherwise: aside from exceptional cases, the wider distribution of property is not so much about what the government should do as about what it should stop doing. Government itself is the biggest agent of accumulation through subsidies, privileges, tax breaks, monopolies, externalized costs, and the like. What a free market really requires is free men, and what men require to be free is access to their own means of subsistence, which is precisely what capitalism denies them. The proper ground of freedom is one’s own proper ground. What is denied to the mass of men must fall to a minority of men, men who will then be the masters of society and the effective rulers of the state, co-opting it to their own ends. This is what has happened. The higher the piles of capital gathered in a few hands, the thicker the walls of government necessary to protect it, and capital and government combine to limit freedom, to restrict property. Capitalism is therefore not to be confused with the free market, but to be identified as its mortal enemy, and to confuse the one with the other is to totally misunderstand the reality of modern economic, social, and political life.

But how should all of this affect Romania, as it ponders its way forward through a collapsing Euro, a declining United States, an uncertain China, and in general a globalism whose internal contradictions are now becoming all too evident, and which will shortly go the way of all the wild-eyed utopias of the 20^th century? In a word, where should Romania look to solve Romania’s problems? Let me suggest that Romania should look to the Romanians.

Now, I speak this as a stranger, so you should take my words with some skepticism, and demand of me rigorous proofs and actual examples. But I also speak as a friend, and so I beg you to give me a hearing. So why should Romanians look to Romania? In the first place, you are experienced; you have lived through all the wild-eye schemes that the last century had to offer. Usually, you lived through them against you will, but you did live them as well as they could be lived. As we say in the United States, you’ve “been there—done that—got the t-shirt.”

The second reason is you have the expertise, and you have it in the key areas of farming and manufacturing. Concerning the farms, upon independence the government did return the land to its rightful owners, but it withheld the tools and then it pretty much ignored the farmer. Small farms were not considered to be compatible with the vision of global industry, and the farmer was an embarrassment to the bureaucrat. The villages themselves are frequently without even basic amenities, and hence not very attractive to the young. And yet, a small investment, in paved or even graveled roads, in water and sewer systems, in electricity, would greatly improve both the quality of life in the villages and the productivity of the farms. Such things can easily be self-financed by rural banks, and mostly from resources already available within Romania. And beyond that, there should be developed marketing cooperatives, export financing, and even processing plants to add value and diversify industry in the countryside. Frankly, it is somewhat shameful that a country like Romania should ever run a deficit in food production. Even these small steps would go a long way towards calling home Romania’s scattered children.

The next area is manufacturing. Here is an area where the Romanians proved themselves competent, efficient, and successful, and this was true even under the communists. But with the revolution, the people who created the wealth—that is, the workers—and the resources of Romania were turned over to financiers and even foreigners. There was a dogmatic insistence on something called “privatization,” which frequently took absurd forms. For example, in the name of getting the government out of business, the Romanian phone company was sold to the Greek government. But apparently, nobody ever thought of selling these companies to the workers; the people who produced the wealth were judged to be incompetent to manage it and ineligible to own it. That is why today, Moveni must compete with Morocco to make Romania’s own produce. To the degree that the French control your production, the French will be your masters. And if you sell your mines to the Canadians, Canada will control your wealth.

Steps should be taken to diversify methods of ownership among Romanians. Cooperatives should be established in law and privileged in the tax codes. Financing should be available for worker buy-outs and for new cooperatives, both in rural and urban areas. Training centers can be established within the existing educational structure, and expertise can be offered to new enterprises. This is not an expensive program and can be self-financing. But it will go a long way towards building the wealth of the Romanians, and, just as important, keeping it in Romania.

Now, I could extend this analysis into many other areas, mining, medicine, education, culture, and so forth, but I think you get the idea. But for many, if not most, this will be a new idea, and new ideas should always be met with a healthy degree of skepticism. The 20^th century has offered Romania any number of utopias, and Romania has sampled them all, and all without success. When confronted by the statement, “try this; this will work” you should respond, “Where? When? Show us this system on the ground and working, and we will judge for ourselves.” Indeed, the great problem with both a pure communism and pure capitalism is that there are not and never have been any working examples. Pure communism has never existed outside the wall of a monastery, and pure capitalism has never existed outside a banker’s dreams or a mobster’s nightmares.

But Distributism is blessed with many examples, on the ground, over large scales and extended periods of time. You may go and visit them, talk to the people, examine how they work, and judge whether they will work for Romania. In fact, there are many large and long-standing examples that we may examine. Some of the more prominent ones include the Mondragón Cooperative Corporation of Spain, the cooperative economy of Emilia-Romagna in Italy, the Grameen Bank, which pioneered micro-lending, the remarkable success of the employee-run Semco of Brazil or the Fabricas sin Patrones (“factories without bosses”) of Argentina. There are Employee Stock Ownership firms, and cooperatives and mutual banks and insurance companies of every size and description. Let me say just a few words about a few of these.

The Mondragón Cooperatives were founded sixty years ago in the Basque country of Spain, a region that had been devastated by the Spanish Civil War. The founders were inspired by the works of their parish priest, Don Jose Maria Arrizmendiarrieta. Today it is a collection of 300 cooperatives and one of the largest corporations in Spain, with over 80,000 worker-owners doing more than $24 billion in sales. But Mondragón is not just a business; it operates schools, research institutes, a university, training institutes, a social welfare system, and a credit union, all of which are self-funded. Such a huge enterprise requires no outside investment or government support, but only the commitment and dedication of its own workers and its community. It is, oddly enough, the nearest thing in captivity to a functioning libertarian system, certainly more so than anything the libertarians have built.

In the Emilia-Romagna region (the area in Italy around Bologna) worker cooperatives provide 40% of the GDP. Wages are about twice the average for Italy and the standard of living is among the highest in Europe. Moreover, they have pioneered a new process of industrial production which involves networking among small firms to cooperate on large projects, a feature which allows them to maintain small and medium-sized companies, but to compete internationally on big jobs.

I could go on talking about these examples, and many more, but the point here is that there are examples you can examine, without having to take anybody’s word for it, or to believe promises no one has ever seen in practice. I would urge the Academy, if it has not already done so, to fund research into these enterprises, since many are close at hand, it would be a shame to ignore the lessons they have to offer. But one thing I should note is that the networked Distributism of Northern Italy is very different from the hierarchical Distributism of Basque Spain, which has a different structure than the Brazilian model of Semco, etc. For although it is called Distributism, it is not really an –ism at all, not really an ideology. Rather, it is political economy, a set of guiding principles which permit of many practices. The principles do not dictate a “one size fits all” approach, but can be—indeed must be—adapted to local conditions, customs, character and culture. Each country, each area, each culture, creates its own solution from some common materials.

If Romania is to be prosperous, she must call her children home, and all the energy and talent that goes to serve others must come to serve Romania. But for this to happen, there must places for them, there must be room for them not merely to live, but to grow. This will never happen under current conditions, and if things do not change, then Romania will be, for many of her youngest and brightest, a place to be from, rather than a home to be loved.