ÿþ<html> <head> <title> Comparison of Economic Changes in Czechoslovakia and Bulgaria Coming with the Fall of Communism </title> <META name="keywords" keyword=""> <!-- copyright Choi, Hena, 2006 --> <style> <!-- BODY{font-family:"Georgia"; line-height:150%;} A{ font-weight: bold; font-size: 11pt; font-family: "Arial"; } CENTER{ font-family:"Times New Roman";}--> </style> </head> <body bgcolor="white" text="black" link="blue" vlink="red" alink="brown"> <CENTER> <TABLE border = "1" cellspace="1" cellpadding="1" align="center"> <TR> <TD width = "850" valign="middle" align = "center" bgcolor="#FF99AD"> <BR><H2>Comparison of Economic Changes in Czechoslovakia and Bulgaria <br> Coming with the Fall of Communism</H2> <H4> by Choi, Hena<BR> Fall 2006</H4> </font></TD> </TR></TABLE> <BR><BR><BR> </center> <A><H2><B>Contents</B></H2></A> <BR> <A HREF = "#intro">1. Introduction</A> <BR> <A HREF = "#brief">2. Brief Definition of Communism </A> <BR> <A HREF = "#czechoslovakia">3. Czechoslovakia </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#before">3.1 Before the Advent of Communism: The First Czechoslovak Republic </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#coup">3.2 Communist Coup in 1948 </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#praguespring">3.3 Prague Spring </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#economyczech">3.4 The Economic Structure during the Communist Era </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#velvet">3.5 The Velvet Revolution </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#collapseczech">3.6 The Economy after the Collapse of Communism </A> <BR> <A HREF = "#bulgaria">4. Bulgaria </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#before2">4.1 Before the Advent of Communism </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#soviet">4.2 Soviet Occupation of Bulgaria</A><BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#economybulgaria">4.3 The Economic Structure during the Communist Era </A><BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#zhivkov">4.4 Zhivkov Stepping down from Power </A> <BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<A HREF = "Choihena.html#collapsebulgaria">4.5 The Economy after the Collapse of Communism </A><BR> <A HREF = "#difference">5. Major Differences between Czechoslovakia and Bulgaria </A> <BR> <A HREF = "#bibliography">6. Bibliography </A> <BR> <BR><BR><BR><BR> <A NAME = "intro"><H3>1. Introduction </H3></A> <BR>&nbsp;&nbsp;&nbsp; Eastern Europe is the very region in this world that has gone through incomparable changes of ideology in the recent era. Czechoslovakia and Bulgaria, even though they share a commonality that both countries are situated in the Eastern Europe, took much different paths of coping with communism. Since the main period that this paper covers is before 1993, the year when the separation took place, the term Czechoslovakia is used instead of the term Czech Republic or Slovakia.<BR> &nbsp;&nbsp;&nbsp; Even though both regions have experienced a great metamorphosis in diverse aspects, the main focus of this paper is comparing the economic structure of Czechoslovakia and Bulgaria, rather than comparing the political change during the given era. I divided the era into three big categories for both countries: before the advent of communism, under communism, and transition period right after the collapse of communism. Among these three categories, the economy during the transition period is most emphasized as the title of this paper shows. <BR>&nbsp;&nbsp;&nbsp; While gathering data was a more challenging task rather than writing itself, this project had to go through several obstacles, including the late arrival of the ordered books. Even with those hardships, this paper could finally be finished. I especially thank the Czech ambassador Mr. Martin Cech, for letting me into the embassy in Seoul as well as providing me with piles of information regarding the history of Czechoslovakia. <BR><BR><BR> <A NAME = "brief"><H3>2. Brief Definition of Communism </H3></A> <BR>&nbsp;&nbsp;&nbsp; Karl Marx told workers they had 'no country': in other words, they had a common interest more important than the national loyalties that might otherwise have divided them. <a href="#1">[1]</a> This was the fundamental idea of communism, though the percent of which kept until the later decades remains nonsense. Under the constitution, the highest goal of USSR to its neighboring Eastern European countries was the building of a classless social system with one form of public ownership of the means of production and with full social equality of all members of society. This has been the definition of communism. <BR>&nbsp;&nbsp;&nbsp; However, in contrast to its original meaning, the ideology of communism turned tainted as the decades passed. Today, the term 'communism' contains negative connotation within itself. In order to be released from the USSR regime, many of the Eastern Europe countries, Hungary as an example, started rebellions. In this research paper, the term communism is used primarily for the period when the Eastern Europe was under the control of the Soviets. <BR>&nbsp;&nbsp;&nbsp; Rather than taking years, the communist collapse in Eastern Europe was considered to be abrupt and unexpected.<a href="#2">[2]</a> <BR><BR><BR> <A NAME = "czechoslovakia"><H3>3. Czechoslovakia </H3></A><BR> <BLOCKQUOTE><A NAME = "before"><H3>3.1 Before the Advent of Communism: The First Czechoslovak Republic </H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; Between 1918 and 1938, there was the First Czechoslovak Republic. In retrospect, the First Czechoslovak Republic has been viewed almost as an ideal state, an island of democracy in a sea of fascist and authoritarian regimes. During the Communist era in particular, Czechs looked back nostalgically at this 'golden era' ruled over by Masaryk, who was simultaneously called the President Liberator and the Little Father.<a href="#3">[3]</a> <BR>&nbsp;&nbsp;&nbsp; During this period, however, the economic situation of Czechoslovakia was not homogenous. The gulf which separated the Czech Lands on the one hand from Slovakia and Sub-Carpathian Ukraine on the other could not be ignored. The Czech part was industrially the most developed area in Central Europe. Here, in addition to traditional industries as textile or glass production, there was a developing machine-tool industry, including automobile and aircraft works, electrical engineering, coal-mining, and shoe manufactures. A highly developed agriculture had created the basis for a vigorous food industry. Meanwhile, the undeveloped manufacturing industry in the eastern part of the country was far from measuring up to this economic level. Therefore, the economy between the Czech part and the Slovakian part were polarized. In order to shorten this gap between two areas, attempts were made at economic improvement, such as new methods of cultivation of arable land and vineyards. The Czechoslovak state made efforts to assist progress in Slovakia and Sub-Carpathian Ukraine. The state focused on increasing literacy and promoting the development of the educational system, and on improving conditions in the area of health and communications. These policies met with considerable success, but the differences between Czechs and Slovaks did not greatly diminish. In the early 1920s, economic policy was mainly directed to freeing the country from the inflationary trend in Central Europe. Currency Reform and the separation of a Czechoslovak currency from the Austro-Hungarian currency were carried out. All in all, economic stability was prevalent in the country; however, this approach inhibited investment activity at the same time. <BR>&nbsp;&nbsp;&nbsp; During the 1920s, the economy of Czechoslovakia reached its high point. The majority of indices of production and living standards placed Czechoslovakia in 10th to 15th position in the world. The volume of industrial production at the end of the 1920s had increased by 20% compared to a decade ago. <a href="#4">[4]</a> <BR>&nbsp;&nbsp;&nbsp; In the 1930s, the Great Depression was prevalent in the world. In Czechoslovakia, the effects of the crisis were delayed until 1930 and peaked in 1932. Industrial production fell by 40%, and other branches of the economy were only a little less gravely affected. The most oppressive consequence of the crisis was unemployment. In 1932 the number of unemployed reached one million according to official statistics, and in reality it was probably 25% higher. The fall in the price of agricultural products seriously affected the Slovak population as well. <BR>&nbsp;&nbsp;&nbsp; But even though the Czech population demonstrated its dissatisfaction, the government was unable to prevent the growth of social and political tension. On all sides there was a growing feeling that the crisis meant the end of a free liberal economy. Democracy in the form in which it had hitherto existed seemed outdated, weak and ineffective. The remedy for its ailments was believed to lie in more radical state intervention in all spheres of social life. <a href="#5">[5]</a> <BR><BR><BR> <BLOCKQUOTE><A NAME = "coup"><H3>3.2 Communist Coup in 1948</H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; In Czechoslovakia, the Communist Party had traditionally enjoyed a substantial degree of popular support.<a href="#6">[6]</a> Unlike the Poles, Czechoslovakia looked upon the Soviet Union as a friend. The Communist Party won about 40 percent of the vote in the 1946 free election, which is referred as the Communist Coup. Tit was the greatest showing of support the Communist party ever received in the Eastern Europe. Communists participated in the new government, holding 8 out of 25 posts. Over a period of months, they increased their pressure. Communists took important positions. Democracy suddenly vanished. In the words of one Czech writer, "Czechoslovakia abruptly changed from a socialist democracy into a Stalinist state of horror." <a href="#7">[7]</a> <BR><BR><BR> <BLOCKQUOTE><A NAME = "praguespring"><H3>3.3 Prague Spring </H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; In the following years, Czechoslovakia turned into a hard-line ally of the USSR. During the Prague Spring in 1968, however, it broke the mold and moved towards greater freedom. Communist party leaders themselves were led by Alexander Dubcek. <BR>&nbsp;&nbsp;&nbsp; Prague Spring took place. This gave the "process of revival" an exceptional dynamism. In this way the outlines of a new political system called "socialism with a human face." Alexander Dub?ek continued reforms against the Soviets. On the night of August 1968, Eastern Bloc armies from five Warsaw Pact countries invaded Czechoslovakia. During the invasion, Soviet tanks in numbers are estimated between 5,000 and 7,000 occupied the streets. <BR>&nbsp;&nbsp;&nbsp; Gustav Husak was made the president of Czechoslovakia during that period. At first, he was 'considered' a respected government official and supported the Prague Spring. Thus, many Czechoslovaks had hoped that Husak, as their leader, would stand up against the Soviets. However, he worked against their wish. Husak soon purged the reformers of Prague Spring from the Party. He was a concrete head, to borrow the term that the Czechoslovaks had actually used. He banished Dubcek from Prague. He was later arrested and taken to Moscow. <BR><BR><BR> <BLOCKQUOTE><A NAME = "economyczech"><H3>3.4 The Economic Structure during the Communist Era </H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; The economy started to be controlled centrally on the basis of a national economic plan. Within the Soviet bloc, the Czechoslovak economy system focused even more on the heavy-industry development, which was demanding in resources and energy. The traditional economical branches were suppressed, such as the glass industry, the food industry and the textile industry. The proportion of producing the means of production grew at the expense of consumer goods. The national collectivization was on many occasions enforced in the agricultural industry. The farmers, who were by then independently running their farms, were forced to give up their land and production means for the benefit of the agricultural associations. Thereafter they became members of such associations. Chemical fertilizers and heavy technology were used to a great extent. As the result, the land resources were greatly degraded. <BR>&nbsp;&nbsp;&nbsp; When people hear the term 'communism', they mostly think negatively, both economically and politically. However, in fact, during the beginning phase of Soviet rule, the economy significantly improved. Lenin had proclaimed that socialism would eventually prevail because its levels of productivity were higher than the social system that required competition. The USSR was one of the two world's superpowers at that time. In many areas, such as in steel and tractors, USSR led the world. Soviet industrial production had grown to 20 percent of the global total production in late 1980s, and the communist-ruled countries produced a third of the world's output. <BR>&nbsp;&nbsp;&nbsp; The below table shows that communist regime has actually had positive impact on the Czechoslovakian economy during 1951 to 1970. Except for the period between 1961 and 1965, all the other periods have gone through around 7% of expansion in economy. <BR><BR> <table align="center" border="3" bordercolor="dustypink"> <tr> <td align="center">Country <td align="center">1951-55 <td align="center">1956-60 <td align="center">1961-65 <td align="center">1966-70 <td align="center">1971-75 <td align="center">1976-80 <td align="center">1981-85 </tr> <tr> <td align="center">Czechoslovakia <td align="center">8.2 <td align="center">7.0 <td align="center">1.9 <td align="center">7.0 <td align="center">5.5 <td align="center">3.7 <td align="center">1.7 </tr> </table><BR> <font="garamond"><center>[Figure] Economic performance of Czechoslovakia under communist rule, 1951-85 <a href="#8">[8]</a> <br> <i> (Average annual rates of growth, official data, percentages)</center></i></font><BR> &nbsp;&nbsp;&nbsp; Then the question could arise: why did the economy decline in its economic expansion during 1961-1965? One factor for the answer would be that Czechoslovakia lost its economic competitiveness compared to Western Europe, which had immensely expanded after the Second World War. Economists argued that the biggest problem was the inappropriateness of applying the Soviet model to Czechoslovakia in a dogmatic manner. The Soviets were oblivious of the fact that Czechoslovakia was already industrialized, had few natural resources, had a small internal market, and was dependent on foreign trade in significant ways. <BR>&nbsp;&nbsp;&nbsp; The model that Soviets had adopted in Czechoslovakia simply emphasized on extensive development, such as building new factories, rather than intensive investment in which production processes were modernized and efficiency could be guaranteed. As a breakthrough, by the early 1960s, several Czechoslovak economists had analyzed these problems and concocted a  cure . In October 1964, the party published a set of principles for major economic reform. Beginning in 1965, specific measures were implemented and they were called the New Economic Model, which is abbreviated to NEM. The major parts of NEM included: the central planning authorities were to concern themselves only with overall long-term planning and to provide general guidance, enterprises and their associations would be free to determine short-term production targets, individual enterprises were to become financially viable, etc. Thanks to NEM, Czechoslovakian economy revived in the late 1960s, as shown in the figure above. <BR>&nbsp;&nbsp;&nbsp; Czechoslovakia was under the Five-Year-Plan, which had first begun in 1948. For the first five years, the economy grew higher than the expectation. However, since the later 1970s, the expansion of Czechoslovakian economy began to slow down again, despite the economic reform. The rapid rise of world oil prices after 1973 could have contributed to the slowdown of Czechoslovakian economy, since the oil from the Soviet Union was Czechoslovakia s principal source of fuel and raw materials. The effects of Five-Year-Plan were unsatisfactory. This seems that communist countries including Czechoslovakia had failed to discover the knowledge of continuing levels of economic growth after the economic reform, and just stopped there. One of the factors for this gradual stop in economic growth is assumed to be the lack of raw materials. Raw materials that were conveniently located and of the required high quality had been used up during decades due to excessive development. So it became necessary to extract resources from more remote locations and poorer sources of supply. <BR>&nbsp;&nbsp;&nbsp; <BR><i> [& ] The two republics' (the Czech Republic and Slovakia) record-setting pollution levels have been fueled by brown coal. Plentiful and cheap, coal drove old Czechoslovakia's relentless industrialization since the 1940s. Coal fired the weapons foundaries, oil refineries, steel smelters, and chemical plants. Disavowing the environmental devastation, Czechoslovakian Communism indulged a cult of big production at any cost. The release of poisonous metals, pesticides, fertilizers, and chemicals--in concert with brown coal's direct emissions foretold disaster.<a href="#9">[9]</a> [& ]</i> <BR><BR>&nbsp;&nbsp;&nbsp; The above quotation is from Discover Magazine. The article suggests one example of raw materials in Czechoslovakia that became problematic : brown coal. During the occurrence of increased-cost-problems, the pollution problem as also been arisen. From the long term point of view, the Czech economy's development during the communist regime resulted in the loss of competitiveness and in a high ecological burden on the landscape despite its conspicuous improvement for the first several decades. <a href="#10">[10]</a> <BR><BR><BR> <BLOCKQUOTE><A NAME = "velvet"><H3>3.5 The Velvet Revolution </H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; In December 1989, graffiti appeared in Prague that went like this:  Poland, ten years; Hungary, ten months; East Germany, ten weeks; Czechoslovakia, ten days. <a href="#11">[11]</a> As illustrated in The Unbearable Lightness of Being, the novel written by Milan Kundera, life under the Soviet rule was unbearable. Members of the Communist party who had joined and supported the Prague Spring movement were purged from the Party after the Warsaw Pact invasion. They had to find themselves stoking coal, cleaning bathrooms, and driving taxis. Their children met mysterious difficulties when they attempted to get into college. Their telephones and apartments were bugged. The protagonist of The Unbearable Lightness of Being, who had been an eminent doctor, becomes a window-washer after being categorized as an oppositionist. <BR>&nbsp;&nbsp;&nbsp; Under such circumstances the old regime was unable to hang on. On 17th of November, 1989, the Velvet Revolution began. A large student demonstration took place in Wenceslas Square. This event ignited Czechoslovakians, and the term  velvet was used in order to express the degree of non- violence of the movement. Instead of using violence, people used the weapons of information and publicity. <BR>&nbsp;&nbsp;&nbsp; Under public pressure, the Soviets removed many of its deputies from legislative bodies, and representatives of the new political forces were co-opted in their stead. On 29th December 1989, the transformed National Assembly elected Vaclav Havel as the president. <BR><BR><BR> <BLOCKQUOTE><A NAME = "collapseczech"><H3>3.6 The Economy after the Collapse of Communism </H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; Right after Vaclav Havel became the president, economy went over several steps of transformation. There was no doubt about the need to abandon the socialist model and reintroduce a standard market economy based on private ownership, business enterprise and a competitive environment. This transformation has quite successfully settled in Czechoslovakia. <BR>&nbsp;&nbsp;&nbsp; Vaclav Klaus was the next person to prevail. He is named to be one of the most important figures of Czech politicians after the collapse of communism. Klaus was at the helm of the Czech government during the transition from Communism to capitalism. Klaus was Czechoslovakia's first non-communist finance minister. During the first two years of the transition, the Czech economy experienced a period of decline. Industrial production dropped by one-third, agricultural output fell by one-quarter, and the GDP diminished by one-fifth. This occurred because Czechoslovakia lost its market in the former Soviet Union, which absorbed two-thirds of Czech exports. Klaus described how Czechoslovakia was one of the largest suppliers of nuclear power plants and small aircraft in the Communist bloc. The collapse of communism left factories with four nuclear plants and 40 airplanes that could not be delivered because the Communist economies that ordered them no longer existed. Klaus hastened to point out that this collapse in the economy was a result of a real loss of markets, not a statistical artifact caused by the Communist propensity to exaggerate outputs. <BR>&nbsp;&nbsp;&nbsp; He came up with the unconventional idea of what was known as  coupon privatization. <a href="#12">[12]</a> This idea referred to that every Czechoslovak citizen could obtain, for a small charge, the opportunity to obtain a  coupon book allowing him or her to order shares in selected privatized companies. This project met with an unexpectedly strong response, and more than eight and a half million people joined in coupon privatization. This scenario of economic reform was highly estimated both in Czechoslovakia and in abroad. <BR>&nbsp;&nbsp;&nbsp; By the time he became the prime minister in 1992, the economy revived. Phenomenal growth rate continued and inflation rate was kept down. <BR>&nbsp;&nbsp;&nbsp; This success enabled the Czech Republic to become the first post-communist country to receive an investment grade credit rating by international credit institutions. For this reason, the country attracted $3 billion in foreign investment during the period of 1991 to 1993, with the U.S. holding 30% of the foreign investment. The second place was Germany, indeed. Since the Velvet Revolution, the number of U.S. companies represented in Prague (where nearly all the foreign investors are located) has increased from a handful to more than 500. The government had ambitious plans to privatize state industries in all sectors of the economy. It hoped to create a private sector rapidly using the following means: restitution of property confiscated under the former communist regime, sale of large and small state-owned enterprises through a voucher system, direct sales and rights to ownership for foreign investors, and encouraging entrepreneurship. The republic mad marked progress towards privatizing state-owned heavy industries. State ownership of businesses, estimated to be about 97% under communism, was reduced to about 30% by the end of 1994. Privatization through restitution of real estate to the former owners was largely completed in 1992. In the words of Prime Minister Klaus, the republic has "crossed the Rubicon"<a href="#13">[13]</a> in terms of privatization. <BR>&nbsp;&nbsp;&nbsp; The republic's economic transformation was far from complete. The government still faced serious challenges in transforming the housing sector, privatizing the health care system, solving serious environmental problems, and helping newly privatized state-owned companies adjust to the rigors of free-market competition. <BR>&nbsp;&nbsp;&nbsp; As in other European countries, the future of the Czech Republic depends on the extent to which the Czech economy proves capable of coping with anticipated structural changes. It needs to complete the privatization, attract investment into key sectors of the national economy, and accelerate the building up of the infrastructure such as main road and rail arteries to EU countries. Czechoslovakia was later separated into the Czech Republic and Slovakia in 1993, which is usually called the <i>Velvet Divorce.</i> <BR><BR><BR> <A NAME = "bulgaria"><H3>4. Bulgaria </H3></A><BR> <BLOCKQUOTE><A NAME = "before2"><H3>4.1 Before the Advent of Communism </H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; Bulgarian patriots in 1875 started an uprising, provoking the Ottoman forces into committing atrocities, which the world press would report. Then, Russia declared war, and defeated the Turks. Bulgaria became quasi-independent. The Russians lost 200,000 men in this war; Bulgarians ever since have been grateful to Russia. When communism was first introduced by the Soviets in Bulgaria, Bulgarians were not that resentful because Russians were the ones who imposed the system upon them. This doesn't mean everybody jumped for joy, but this had an impact. Before the beginning of World War II, the economy of Bulgaria was mainly dependent on agriculture. Approximately 80% of the whole economic structure was based on agriculture. However, emphasis on agriculture, once the predominant sector of Bulgaria s economy, has declined significantly since the advent of World War II. (By 2000, agriculture contributed only 14.5 percent to the country s gross domestic product.) <BR>&nbsp;&nbsp;&nbsp; The Great Depression of the early 1930's was as traumatic economically and politically to Bulgaria as to any other country. Market demands fell drastically, and also did the prices. Wages also did decline. But with the decline in prices some businesses had to let their workers unemployed. The subsequent decrease in demand then led to further declines in demand and financial turmoil. All in all, Bulgaria was yet to be an industrialized, and economically backward country compared to other parts of Europe before 1944. <BR><BR><BR> <BLOCKQUOTE><A NAME = "soviet"><H3>4.2 Soviet Occupation of Bulgaria </H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; According to Communism and its Collapse, written by Stephen White, Czechoslovakia is characterized as a country that transformed from below (common people). In Bulgaria, unlike Poland or Czechoslovakia, there was no particular hostility, and rather affection towards the USSR and the political principles it represented. Actually, Russia had freed Bulgaria from Ottoman rule in 1877/1878. Instead of the majority of citizens, party reformers led the way in Bulgaria. <BR>&nbsp;&nbsp;&nbsp; When Soviet troops arrived in Bulgaria, they were welcomed by the populace as liberators. On September 9, 1944, five days after the Soviet declaration of war, a Fatherland Front coalition deposed the temporary government in a bloodless coup. Headed by Kimon Georgiev of Zveno, the new administration included four communists, five members of Zveno, two social democrats, and four agrarians. <BR><BR><BR> <BLOCKQUOTE><A NAME = "economybulgaria"><H3>4.3 The Economic Structure during the Communist Era</H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; Bulgaria embarked on the road of rapid industrialization with collectivization, placing emphasis almost completely on heavy industry, in particular on metallurgy and engineering. After the post-war economic development in Bulgaria, Five-Year Plan took place. This plan was important in that it contributed to the pattern of Bulgaria's socialist economic development by creating the institutional apparatus for long-term industrial planning. The goal for Bulgaria was to acquire a strong industrial base for the future and the driving motto was that the present should be sacrificed to the future. <a href="#14">[14]</a> <BR> <br> <table align="center" border="3" bordercolor="green"> <tr> <td align="center">Five-Year Plan <td align="center">Total Economy <td align="center">Industry <td align="center">Agriculture </tr> <tr> <td align="center">First(1949~52) <td align="center">8.4 <td align="center">20.7 <td align="center">-0.9 </tr> <tr> <td align="center">Second(1953~57) <td align="center">7.8 <td align="center">12.7 <td align="center">4.9 </tr> <tr> <td align="center">Third(1958~60) <td align="center">11.6 <td align="center">16.2 <td align="center">6.6 </tr> <tr> <td align="center">Fourth(1961~65) <td align="center">6.7 <td align="center">11.7 <td align="center">3.2 </tr> <tr> <td align="center">Fifth(1966~70) <td align="center">8.7 <td align="center">10.9 <td align="center">3.5 </tr> <tr> <td align="center">Sixth(1971~75) <td align="center">7.8 <td align="center">9.1 <td align="center">2.9 </tr> <tr> <td align="center">Seventh(1976~80) <td align="center">6.1 <td align="center">6.0 <td align="center">0.9 </tr> <tr> <td align="center">Eighth(1981~85) <td align="center">3.7 <td align="center">7.0 <td align="center">-3.9 </tr> <tr> <td align="center">Ninth(1986~88) <td align="center">5.5 <td align="center">5.6 <td align="center">1.2 <tr> </table><BR><font="garamond"><center>[Figure] Average Annual Growth Rate of Bulgaria by Five-Year Plan<a href="#15">[15]</a> </center></font><BR> <BR>&nbsp;&nbsp;&nbsp; The announced targets for the First Five-Year Plan (1949-53) was declared fulfilled a year ahead of schedule, in 1952. During this period, the economic development mainly concentrated on industry. Gross industrial output was to grow by 119 percent, primarily because of a 220 percent increase in heavy industry. However, the standard of living remained low. <BR>&nbsp;&nbsp;&nbsp;It turned out that agriculture received less investment than planned, and showed almost no growth through the First Five-Year Plan. The effect of low agricultural output brought influence to other sectors of the economy, hindering production in related industries. Substantial material and technical aid came from the Soviet Union, but with a more-than-burdening price. Bulgaria was expected to sell products to the Soviet market at below-market prices, which aroused resentment. <BR>&nbsp;&nbsp;&nbsp;Continuing problems aroused with excessive labor usage. The regime was half-forced to cut back the targets for heavy industry in the Second Five-Year Plan. The average annual growth rate of agriculture increased from negative 0.9 percent to 4.0 percent in the Second Five-Year Plan, but still the industrial share much exceeded that of agriculture. <BR>&nbsp;&nbsp;&nbsp; In mid-1958, two important economic events took place. The party (BCP) declared that Bulgaria was the first country besides the Soviet Union to achieve full collectivization of agriculture, and it announced the goals for the Third Five-Year Plan. In 1959, a BCP decided to make a  Great Leap Forward (borrowed by the press from Mao Zedong s concurrent program for the Chinese economy). It drastically raised quotas. By 1965 industrial output was to be three to four times the 1957 level, and by 1961 agriculture was to produce three times as much as it had in 1957. For this extraordinary increase over a few years, agriculture had to be reorganized. <BR>&nbsp;&nbsp;&nbsp; There had been a unique turn, when collective and state farms ceased to exist as separate entities and were integrated into a system of giant agro-industrial complexes, consisting of only a number of state and collective farms. Amalgamation of collective farms cut their number by 70 percent, after which average farm acreage was second only to the Soviet Union among countries in Eastern Europe. However, the goal was too high. The economy's inability to achieve such growth was obvious to all. The average annual increase in economy peaked at 11.6 percent in the 1958-1960, the period which belonged to the Third Five-Year Plan. <BR>&nbsp;&nbsp;&nbsp; Since the Fourth Five-Year Plan, the period is called  the era of experimentation and reform. The economic reform that brought a series of new approaches to the old goal of intensive growth was definitely needed in order to continue the growth. <BR>&nbsp;&nbsp;&nbsp; Between 1964 and 1968, the industrial reform took place under the name of the "New System of Management." This approach intended to streamline economic units and make enterprise managers more responsible for performance. It was quite successful: Bulgarian economy could retain high level of net capital investment. The average of 12 percent from 1960 to 1970 was the highest in all of Eastern Europe. <BR>&nbsp;&nbsp;&nbsp; The industry and agriculture remained intact for a while; however, Bulgarian economic planning gradually began to retreat before then end of 1960s. This Bulgarian retreat is attributed to international tension caused by the Soviet invasion of Czechoslovakia in 1968. The inner problems also became visible. Bulgaria had exceeded its capacity for the past decades would have been the number one reason. By the mid 1970s, it was clear that although industrialization had brought about some improvements in living standards, the evidence of deteriorating performance was mounting. Plan targets were unfulfilled, and shortages in supply had not been eliminated. It was clear that the period of crash economic development had come to an end as the potential for growth was exhausted. <BR>&nbsp;&nbsp;&nbsp; In 1979, the New Economic Mechanism (NEM) was adopted. It concentrated on five parts: decentralization, giving individual production units and managers more authority by confining the central plan to such tasks as setting general guidelines; the usage of market forces; self-sufficiency in individual units of production; competition; wages as a function of productivity by linking earnings with performance. NEM was close to capitalistic society. The economic performance under NEM reforms showed virtually no growth, however. It is assumed to have been hard to change the general picture in a short period of time, which could be attributed to one factor for failure of NEM. Despite the expectations and the enthusiastic initial reports, by the mid-1090s much of the optimism had disappeared and even the party leadership acknowledged that economic growth had slowed to its lowest post-war level. Making the situation worst, the country experienced its most severe energy crisis between 1984 and 1985 due to the decline in Soviet subsidies and reductions in deliveries of Soviet oil. Bulgaria had a depended on the fuel imported from Soviet Union, so this had a direct impact on the economy. <BR>&nbsp;&nbsp;&nbsp;The last round of reforms by the Zhivkov regime confused rather than improved economic performance. Statistics on growth for 1986-88 indicated a 5.5 percent annual rate, up from the 3.7 percent rate achieved during the previous five-year plan. However, these statistics were internally inconsistent and widely disputed in the press. Expert observers speculated that the reality would have been worse than the statistics showed. <BR>&nbsp;&nbsp;&nbsp;Ultimately, the reforms failed to radically change the economic conditions in the country. <BR><BR><BR> <BLOCKQUOTE><A NAME = "zhivkov"><H3>4.4 Zhivkov Stepping down from Power</H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; As already mentioned, there was no particular hostility in Bulgaria towards the USSR and the political principles it represented, unlike Poland or the Baltic. The party leader Todor Zhivkov, who had been in power since 1954, set the process of reform in motion with a speech in July 1987 that called for a shift from  power in the name of the people to power by means of the people and for a  self-managing society . The changes became known as the  July Concept ; later, in 1988, Zhivkov developed them into a Bulgarian version of perestroika. <BR>&nbsp;&nbsp;&nbsp; The reforms were implemented without conviction, however. Zhivkov himself became increasingly corrupt. His speeches and writings appeared in large editions, and the locals remarked that he was the  only man who had ever written more books than he had read. <a href="#16">[16]</a> Dissidents were treated harshly, and two potential rivals were forced out of office and expelled from the party in July 1988. The economic situation was worsening. <BR>&nbsp;&nbsp;&nbsp; There were public demonstrations against the regime in October and again in early November 1989, which were the largest the country had experienced since the end of the WWII. Petar Mladenov, who had been foreign minister since 1971, became the new party leader. Under his guidance the party expelled Zhivkov, condemning his dictatorship. <BR><BR><BR> <BLOCKQUOTE><A NAME = "collapsebulgaria"><H3>4.5 The Economy after the Collapse of Communism</H3> </A></BLOCKQUOTE> <BR>&nbsp;&nbsp;&nbsp; Economic transformation after the collapse of communism was directly connected with the dismantling of a Soviet-style economic mechanism and the restoration of a capitalist economy. This transition from centrally planned to market economy took much longer than assumed, in addition to high demand of economic and social cost. <a href="#17">[17]</a> Wholly new institutions had to be created that were non-existent under socialism such as a stock exchange, a securities commission, unemployment offices, investment and pension funds, and building societies.<BR><BR> <table align="center" border="3" bordercolor="purple"> <tr> <td align="center">1989 <td align="center">1990 <td align="center">1991 <td align="center">1992 <td align="center">1993 <td align="center">1994 </tr> <tr> <td align="center">-0.6 <td align="center">-9.3 <td align="center">-11.7 <td align="center">-7.3 <td align="center">-2.4 <td align="center">1.8 </tr> </table><BR><font="garamond"><center>[Figure] Annual Growth of GDP, 1989-94(%)</font><a href="#18">[18]</a></center> <BR>&nbsp;&nbsp;&nbsp; At the time of Zhivkov s fall, Bulgaria had already been reduced to economic catastrophe as a result of the inefficient centrally planned economy. The ageing of the industrial base, for example, worsened the situation. In the mid-1990s, more than 70 percent of industrial equipment had been operating for longer than twenty years and were mostly worn out. In 1990, Bulgaria found itself isolated from international credit markets when it declared a foreign debt moratorium. <BR>&nbsp;&nbsp;&nbsp; In 1991, Bulgaria was in the middle of skyrocketing inflation, falling production, black marketeering and empty shops, and at the behest of the IMF and the World Bank. The primary economic reform targets were financial stabilization, curbing inflation, and structural reform by changing patterns of economic governance by attempting to follow a coherent general economic policy. Bulgaria decided to follow the path that Hungary had taken quite years ago, which was called the  shock therapy. The government s economic reform was in somewhat successful. Market supplies improved and the contacts with the international financial institutions were resumed. The GDP, which contracted by roughly 25 percent between 1989 and 1992, showed the slight sign of recovery. The [Figure] above suggests that Bulgarian economy began to revive in 1993. This seems mainly to be the result of Bulgaria s signing of the Association Agreement with the EU in 1993, and the rescheduling agreement with the London Club banks in 1994. <BR><BR> <table align="center" border="3" bordercolor="darkblue"> <tr> <td align="center">Indicator <td align="center">1994 <td align="center">1995 <td align="center">1996 <td align="center">1997 <td align="center">1998 <td align="center">1999 </tr> <tr> <td align="center">GDP Growth(%) <td align="center">1.8 <td align="center">2.9 <td align="center">-10.1 <td align="center">-6.9 <td align="center">3.5 <td align="center">2.4 </tr> <tr> <td align="center">Inflation(CPI) <td align="center">121.9 <td align="center">32.9 <td align="center">310.8 <td align="center">578.6 <td align="center">0.96 <td align="center">6.2 </tr> <tr> <td align="center">Unemployment(%) <td align="center">12.8 <td align="center">14.7 <td align="center">13.7 <td align="center">15.0 <td align="center">16.0 <td align="center">17.0 </table><BR><font="garamond"><center>[Figure] Key economic indicators of Bulgaria, 1994-1999</font><a href="#19">[19]</a></center> <BR>&nbsp;&nbsp;&nbsp; Unfortunately, the revival continued for only a short while. According to the Figure above, between 1995 and 1996, GDP growth turned again to minus. The inflation rate became approximately 10 times higher (hyperinflation), and only element that stayed stable was unemployment rate which was consistently high. The failure to implement consistent structural reform, the lack of credibility of governmental policy, combined with a lax fiscal and monetary policy were all summed up and brought economic downturn as a consequence. As a chained event, the deteriorating economic situations had serious political repercussions. The resignation of the Socialist government immediately before Christmas of 1996 created severe economic and political difficulties, and accompanied street protests. 1997 was the apex of Bulgarian economic deterioration. The inflation rate was 578.6, unprecedented, and the currency collapsed. <BR>&nbsp;&nbsp;&nbsp; The period between 1997 and 2000 is usually called the new beginning in Bulgaria. The UDF (Union of Democratic Forces) government took office with a substantial degree of support, and with responsibility for continuing economic reforms. The stabilization effect of the economic policy implemented such as strict fiscal policy brought a healthier economic environment. Despite the unfavorable international environment including Kosovo crisis, the economy performed better than anticipated. Thus in 1998, the annual rate of inflation fell to a negligible level (0.96). <BR>&nbsp;&nbsp;&nbsp; The new government concentrated on two key policy areas. First was privatization. Privatization, the necessary process to capitalistic society, had been delayed in Bulgaria. During the 1990s, even the mass privatization campaign turned into a total failure as only a small number of state-owned enterprises were privatized. (While in the Czech Republic during the first wave of mass privatization, one large and three medium-sized corporations were privatized per day) Lack of political will to privatize due to lengthy and complicated procedures, and basic problems concerning the low level of the wealth of the population were pointed as the primary reasons that delayed privatization process in Bulgaria. UDF government mainly concentrated on the importance of privatization, and succeeded to return almost all urban property subject to its former owners or their heirs. <BR>&nbsp;&nbsp;&nbsp; Next, the government focused on foreign investment. Before 1997, Bulgaria did not possess enough power to attract foreign investors. In 1995, the foreign investment rate in Bulgaria was almost three times less than in Hungary, Russia or the Czech Republic; however, after four years, the situation changed. Due to the new government s continuous emphasis on foreign investment, cumulative foreign investment per capita of the population in Bulgaria is now comparable to that of Russia. <BR>&nbsp;&nbsp;&nbsp; Despite the recent improvement, I would conclude that Bulgaria should rather be considered as a case of failed transition. More than ten years after the fall of the Communist system, structural reforms aimed at establishing a market economy have no more been realized than they were at the beginning of the transition, since Bulgaria still has a fragile financial system. Also, the legitimacy of democracy is still questioned in Bulgaria. The political will, above economic will, seems still uncertain. <BR><BR><BR> <A NAME = "difference"><H3>5. Major Differences between Czechoslovakia and Bulgaria </H3></A> <BR>&nbsp;&nbsp;&nbsp; Czechoslovakia and Bulgaria are located close: they are included in the same region called  Eastern Europe and share the history of staying under the rule of communism. However, from the very fundamental structure, these two countries are different. The ways they first confronted communism were different, and also the ways they transformed after the breakdown of communism were different. While Czechoslovakians resisted against the coming of Soviets by participating in the movements such as Prague Spring, Bulgarians welcomed Soviets in order to stay away from German occupation. <BR>&nbsp;&nbsp;&nbsp; First of all, the conditions of two countries were quite distant before the advent of communism. While Czechoslovakia was already an industrialized country, especially the Czech part rather than the Slovakian region, Bulgaria was a country of agriculture. Bulgaria was more than 80 percent depending on agriculture, and industrial basis almost did not exist. So when the Soviets adopted their model directly to Czechoslovakia, it failed. Czechoslovakia was a country with its already established industrial concepts and policies. An attempt to completely eradicate this and to place a new one was not easy. On the other hand, the growth in Bulgaria was much faster during the Five-Year Plans. The importance of industry was first emphasized under the communist rule, and the growth rate increased for the first few years. Since Bulgaria was an industrially  unfounded country, it was relatively easier to adopt Soviet model at once: there was no other model to compare with, so people did not feel urgent need to resist against the Soviets. <BR>&nbsp;&nbsp;&nbsp; Under communism, heavy industry has  heavily grown in both countries. This brought sharp increase in GDP statistics in short term; however, it brought environmental crisis after decades. NEM policies were also adopted in both nations, and turned out to be success in Czechoslovakia while a failure in Bulgaria. This suggested that Czechoslovakia had a better chance of transforming into capitalistic society more easily, since NEM was quite similar to the basic concepts of capitalism. <BR>&nbsp;&nbsp;&nbsp; I would conclude that transition to capitalism was more successful in Czechoslovakia than in Bulgaria, being objective. After a short decline in economy, Czechoslovakia soon regained its pace and improved. Privatization was done in a short period of time, even though some are still waiting for their turns, and stepped closer to the free-market system. Czechoslovakia (currently divided into Czech and Slovak Republic) is now a member of EU. <BR>&nbsp;&nbsp;&nbsp; Bulgarians were less active in getting rid of communism from their land. The policies after the breakdown of communism were too lax, and less organized. They went through the stage of hyperinflation though recovered later. Also, privatization was delayed for decades, which is an essential part of transition from communism to capitalism. All in all, Bulgaria failed to use transition period effectively, or it could otherwise be interpreted that Bulgaria went through too many trial and errors. These days, Bulgaria is going through recent improvements, waiting for its turn to join the European Union. <BR><BR><BR> <A NAME = "bibliography"><H3>6. Bibliography</H3></A><BR> <h3>Books</h3><p> &nbsp;&nbsp;&nbsp;<B>[1]</B>&nbsp;Christopher Read, The Making and Breaking of the Soviet System, China: Palgrave, 2001<BR> &nbsp;&nbsp;&nbsp;<B>[2]</B>&nbsp;Emil Giatzidis, An Introduction to Post-Communist Bulgaria, Glasgow: Manchester University Press, 2002<BR> &nbsp;&nbsp;&nbsp;<B>[3]</B>&nbsp; Ivan Svit?k, The Unbearable Burden of History, The Sovietization of Czechoslovakia (Vol.2): Academia Praha, 1990<BR> &nbsp;&nbsp;&nbsp;<B>[4]</B>&nbsp;Ivan Svit?k, The Unbearable Burden of History, The Sovietization of Czechoslovakia (Vol.3): Academia Praha, 1990<BR> &nbsp;&nbsp;&nbsp;<B>[5]</B>&nbsp;Maria Dowling, Czechoslovakia, London: Arnold & Oxford University Press Inc., 2002<BR> &nbsp;&nbsp;&nbsp;<B>[6]</B>&nbsp;Milan Kundera, The Unbearable Lightness of Being, New York: Harper Collins, 1999 <BR> &nbsp;&nbsp;&nbsp;<B>[7]</B>&nbsp;Peter Cipkowski, Revolution in Eastern Europe: John Wiley & Sons, Inc., 1991<BR> &nbsp;&nbsp;&nbsp;<B>[8]</B>&nbsp;Petr ?ornej, Ji?i Pokorny (Translated by Anna Bryson), A Brief History of the Czech Lands: Prague: Praha Press, 2003<BR> &nbsp;&nbsp;&nbsp;<B>[9]</B>&nbsp;R.J. Crampton, A Concise History of Bulgaria: Cambridge University Press, 1997<BR> &nbsp;&nbsp;&nbsp;<B>[10]</B>&nbsp;Stephen White, Communism and its Collapse, London: Routledge, 2001<BR> <h3> Magazines </h3><p> &nbsp;&nbsp;&nbsp;<B>[1]</B>&nbsp;Vol. 4 N? 3/1997, The Heart of Europe ? Review of the Czech Republic, Theo Publishing<BR> &nbsp;&nbsp;&nbsp;<B>[2]</B>&nbsp;Vol.12 N? 2/2005, The Heart of Europe ? Review of the Czech Republic, Theo Publishing<BR> &nbsp;&nbsp;&nbsp;<B>[3]</B>&nbsp;Vol. 12 N? 4/2005, The Heart of Europe ? Review of the Czech Republic, Theo Publishing<BR> &nbsp;&nbsp;&nbsp;<B>[4]</B>&nbsp;Vol. 12 N? 5/2005 ,The Heart of Europe ? Review of the Czech Republic, Theo Publishing<BR> <h3> Websites </h3><p> &nbsp;&nbsp;&nbsp;<B>[1]</B>&nbsp;Background Notes Archive: Europe<BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <a href="http://dosfan.lib.uic.edu/ERC/bgnotes/eur/czechrepublic9407.html">http://dosfan.lib.uic.edu/ERC/bgnotes/eur/czechrepublic9407.html</a><br> &nbsp;&nbsp;&nbsp;<B>[2]</B>&nbsp;Economic System of the Czech Republic<BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <a href="http://www.czech.cz/ekonomika/article_detail.aspx?id=1633">http://www.czech.cz/ekonomika/article_detail.aspx?id=1633</a><br> &nbsp;&nbsp;&nbsp;<B>[3]</B>&nbsp;Victor Glowacki<BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <a href="http://criterion.uchicago.edu/issues/ii6/glowacki.html">http://criterion.uchicago.edu/issues/ii6/glowacki.html</a><br> &nbsp;&nbsp;&nbsp;<B>[4]</B>&nbsp;Ravaged republics: Tragic Pollution in Czech and Slovak Republics<BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <a href="http://findarticles.com/p/articles/mi_m1511/is_n3_v14/ai_13473119">http://findarticles.com/p/articles/mi_m1511/is_n3_v14/ai_13473119</a><br> &nbsp;&nbsp;&nbsp;<B>[5]</B>&nbsp;Library of Congress: Country Study - Bulgaria<BR> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <a href="http://lcweb2.loc.gov/frd/cs/bgtoc.html">http://lcweb2.loc.gov/frd/cs/bgtoc.html</a><br> <br><br> <h3>Endnotes</font> </h3> <A NAME = "1"><BR><B>[1]</B></A> White, 2001, p.1 <A NAME = "2"><BR><B>[2]</B></A> White, 2001, p.71 <A NAME = "3"><BR><B>[3]</B></A> Dowling, 2002, p. 18 <A NAME = "4"><BR><B>[4]</B></A> Cornej and Pokorny, 2003, p.50 <A NAME = "5"><BR><B>[5]</B></A> Cornej and Pokorny, 2003, p.53 <A NAME = "6"><BR><B>[6]</B></A> White, 2001, p.14 <A NAME = "7"><BR><B>[7]</B></A> Cipkowski, 1991, p.97 <A NAME = "8"><BR><B>[8]</B></A> White, 2001, p. 43 <A NAME = "9"><BR><B>[9]</B></A> [Web] Ravaged Republic: Tragic Pollution in Czech and Slovak Republics <A NAME = "10"><BR><B>[10]</B></A> [Web] Economic System of the Czech Republic <A NAME = "11"><BR><B>[11]</B></A> Cipkowski, 1991, p. 94 <A NAME = "12"><BR><B>[12]</B></A> Cornej and Pokorny, 2003, p. 84 <A NAME = "13"><BR><B>[13]</B></A> [Web] Victor Glowacki <A NAME = "14"><BR><B>[14]</B></A> Giatzidis, 2002, p. 25 <A NAME = "15"><BR><B>[15]</B></A> Library of Congress: Country Study - Bulgaria <A NAME = "16"><BR><B>[16]</B></A> White, 2001, p. 62 <A NAME = "17"><BR><B>[17]</B></A> Giatzidis, 2002, p. 79 <A NAME = "18"><BR><B>[18]</B></A> Giatzidis, 2002, p.85 <A NAME = "19"><BR><B>[19]</B></A> Giatzidis, 2002, p. 91 <br><br> </body> </html>