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Albania
Isolation and Autarky
Besides triggering short-term disruptions in the Fifth Five-Year
Plan, China's reduction of aid to Albania had a dramatic impact
on the Balkan nation's broader economic policy after 1972. In
official parlance, Albania's rulers implemented a strategy of
"socialist construction based on the principle of self-reliance,"
that is, a policy of strict autarky. In 1976 the People's Assembly
constitutionally barred the government from accepting any loan
or credit from a capitalist source and from granting concessions
to or setting up joint ventures with companies from the capitalist
world. The Albanians publicly criticized Beijing beginning in
the fall of 1976, and China ended economic aid to Albania altogether
in July 1978. The break eliminated the source of half of Albania's
imports. The country had no choice but to stimulate exports to
make up the shortfall in the hard currency needed to purchase
essential supplies. Just before the announced break, government
planners prescribed a rapid increase in the production and export
of Albania's four main sources of hard-currency income: oil, chromite,
copper, and electric power. Between 1976 and 1980, exports jumped
33 percent over the preceding five-year period. In an act indicative
of its xenophobia and economic priorities, the regime invested
an estimated 2 percent of net material product in the construction
and installation of thousands of prefabricated cement bunkers
throughout the country from 1977 to 1981.
Tiranė took energetic, if extreme, steps to end Albanian dependence
on food imports, even going to the point of requiring each of
the country's districts to become self-sufficient in food production.
In order to keep people on the farms, the authorities also made
rural wages relatively more attractive and tightened travel restrictions
on the rural population. The government reduced the size of the
personal plots of collective-farm members. Police also increased
harassment of peasants who attempted to sell produce in the cities.
In late 1981, the government collectivized private livestock in
the lowlands as well as all goats and sheep in the highlands.
Disaster ensued when peasants undertook a wholesale slaughter
of their herds; shortages of meat and dairy products soon plagued
the cities. Overpopulation in farm communities further complicated
efforts to achieve self-sufficiency.
Autarky proved an unsuccessful policy. The productivity growth
rate fell slowly but steadily during the Seventh Five-Year Plan
(1981-85), and the annual increase in net material product for
the period 1981-88 averaged only 1.7 percent, a figure that did
not even keep pace with the country's annual population increase
of more than 2 percent. Albania's economy suffered two of its
worst years in 1984 and 1985. In 1984, 1985, 1987, and 1988 the
net material product decreased, and from 1986 to 1990 it declined
1.4 percent (see Table 5, Appendix). Five years of drought between
1983 and 1988 dealt sharp setbacks to agricultural and hydroelectric
power output. Power shortages and other acute problems afflicted
two of Albania's main generators of hard-currency income, oil
and chrome. As output fell, investment contracted and caused further
drops in productivity. Insolvent enterprises turned to the state
for bailouts. The shortage of goods circulating in the economy
and the government's maintenance of fixed wage levels created
repressed inflation and forced saving.
Despite clear portents of an economic catastrophe, the regime
took no radical initiatives to pull Albania out of its economic
nosedive until it was too late to avoid a major collapse. Ramiz
Alia, who became chairman of the Presidium of the People's Assembly
in November 1982, gradually assumed more decision-making power
from Hoxha, who went into semiretirement in 1983 and died in April
1985. In 1986 the Albanian Party of Labor still fully supported
a centrally planned economy. The party's official daily, Zeri
i Popullit, included the following proclamation in January 1986:
"The execution of plan tasks...by every individual, sector, enterprise,
agricultural cooperative, district, and ministry is a great patriotic
duty, a party and state duty." A year later, Alia set to work
to quash the right of the peasant collective-farm members who
still had personal plots to sell their produce, denouncing the
practice as a waste of time and a misguided stimulation of a private
market. The ambitious Eighth Five-Year Plan (1986-90) called for
an increase of about 35 percent in national income, a 30-percent
increase in industrial output, a 35-percent improvement in agricultural
output, and a 44-percent increase in exports. Targeted for investment
were a hydroelectric-power plant at Banjė in the south, a rail
line connecting Durrės with the main chromite-mining area in central
Albania, new superphosphate and ferrochrome plants, and the completion
of nickel-cobalt and lubrication-oil plants.
By late 1989, the dismantling of the communist governments of
Eastern Europe and the reintroduction of capitalism to the region
were under way, and signs of change began to appear in isolated
Albania. It was recognized that the attempt to introduce a completely
socialized agricultural sector had failed and that livestock collectivization
had been a huge blunder. Nevertheless, in September 1989 Alia
told the Eighth Plenum of the Central Committee of the APL that
the leadership would "never permit the weakening of common socialist
property." The party will never, he said, "permit that the way
be opened to the return to private property and capitalist exploitation."
At the end of his address, however, Alia said that guaranteed
employment, a cornerstone of the communist system, should be allowed
to go by the wayside. Thus, he signaled that the leadership had
indeed realized that radical changes to the country's Stalinist
economic system were necessary.
In 1990 Alia attempted to strengthen the communists' weakening
hold on power by initiating an economic reform from the top down.
For the first time, the leadership proposed broadening private
economic activity outside of agriculture and a role for market
forces in determining resource allocations for state-owned industrial
enterprises. The government relaxed central planning in agriculture,
increased the maximum allowable size of personal plots to about
0.2 hectares, and ordered collective farms to return livestock
to peasants. The reforms provided for an expansion of enterprise
self-financing and allowed local governments to plan part of the
industrial activity that took place in their districts.
In January 1990, at the Ninth Plenum of the Central Committee,
party leaders disclosed a reform program that constituted an even
more radical departure from their purely Stalinist rhetoric of
only a few months earlier. Enterprises were divided into small
units and made financially independent, with long-term bank credits
replacing state subsidies. The package included decentralization
of economic decision making. Workers won the right to choose and
dismiss enterprise directors. Wages were to be based on plan fulfillment
and enterprise profits. Supply and demand were to determine the
prices of luxury goods. Citizens were permitted to undertake private
construction for their own use. Agricultural cooperatives were
allowed to sell food in towns and set their own prices. At the
Tenth Plenum of the Central Committee in April 1990, Alia said
that as a consequence of the reforms a significant turnover had
occurred among the directors of Albania's enterprises. Resistance
to the reforms came from administrative employees unwilling or
unable to adapt to new job requirements. Some firms responded
to the economic reforms by reducing their output targets in hope
of increasing their bonuses; other firms, hoping to avoid penalties
for sustaining unplanned losses, actually planned for losses in
advance.
The government failed to implement the reforms quickly enough
to stem the tide of popular unrest and prevent economic disaster.
In the summer of 1990, the existence of unemployment became apparent
in Albania. A new drought reduced supplies of electricity from
Albania's hydroelectric dams and forced plant shutdowns. Thousands
of Albanians demanding visas stormed Tiranė's few Western embassies.
The first postwar opposition political movement emerged in December
1990; riots in Tiranė and Shkodėr in April 1991 galvanized antigovernment
forces; and thousands of Albanians fled to Greece and Italy, but
most were later forcibly returned.
By mid-1991, only a quarter of Albania's production capacity
was functioning. Industrial output in the third quarter was 60
percent less than in the third quarter of 1990. The foreign debt
reached about US$354 million in mid-1991, up from US$254 million
at the end of 1990 and US$96 million at the close of 1989. Despite
the paralysis in production, the government fed inflation by issuing
unbacked money to pay idle workers 80 percent of their normal
wages. The opportunity to pilfer became one of the strongest factors
motivating people to go to work, and the absence of clearly defined
property rights and the breakdown of the rule of law fueled rampant
theft of both private and state-owned property. The prolonged
shutdown of production lines threatened serious damage to equipment
and other capital goods, which suffered at least as much from
plunder and cannibalization as from normal depreciation.
In the chaos, consideration of the transition costs inherent
in the changeover from a socialist to a capitalist system became
irrelevant. The coalition government that took office in June
1991 responded to the situation by announcing that it intended
to carry out radical economic reforms including privatization
of agricultural land, creation of a legal framework necessary
for the functioning of a market economy, commercialization and
privatization of economic enterprises, tight monetary and fiscal
policies, price and foreign-trade liberalization, limited convertibility
of Albania's currency, and the creation of a social safety net.
However, the coalition government fell several months later. In
April 1992, a victorious Albanian Democratic Party (ADP) took
over the government and assumed the burden of implementing badly
needed economic reforms.
Data as of April 1992
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