The state and the market have long been in a tug of war in East-Central Europe. The Communists were not the first political force to recommend that the state play a much larger role in the economy.
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The state and the market have long been in a tug of war in East-Central Europe. The Communists were not the first political force to recommend that the state play a much larger role in the economy. During the inter-war years, for instance, democratic visionary Tomas Masaryk acted much like FDR by supporting state intervention when the market failed to protect the interests of the economically weak in Czechoslovakia. Further north, Jozef Pilsudski presided over a Polish state that launched a number of major industrial projects. And, of course, several para-fascist regimes -- Horthy in Hungary, Antonescu in Romania -- favored strong corporatist states. The Communist governments that took over after World War II established their five-year plans on a pre-existing tradition of state intervention.

The pendulum swung the other way after 1989. An unencumbered market was held up as the solution to the economic ills of the region. It would sweep away the inefficiencies of the Communist era through "creative destruction," empower a new class of entrepreneurs to spur innovation, and provide a new foundation for interacting with the global economy. Some countries, like Poland, preferred to administer "shock therapy" and enter this new era as quickly as possible. Other countries, like Slovenia, preferred a more gradual transition.

People in the region had a love-hate relationship with this new market reality. As consumers, they were generally enthusiastic. As workers or pensioners, they were less thrilled about the rate of unemployment or the reduction of government benefits. And so the tug-of-war has continued, as a variety of governments have tried to adjust the mix between state and market, and the voters have swung back and forth between more liberal and more socialist options, with the occasional foray into strong-arm nationalism.

Krassen Stanchev has not swung back and forth. An economist, he remains as committed to free-market economics as when I met him in 1990 if not more so. At the same time, he has maintained his commitment to environmentalism. In the late 1980s, he was one of the leaders of Ecoglasnost, perhaps the most important Bulgarian opposition movement. He believes that the two approaches go hand in hand: the green of capital and the Green of environmentalism are complementary.

Privatization and the bankruptcy of firms, he points out, eliminated many of the worst polluting firms in the country, and the air, soil, and water quality has improved as a result. Then there's Bulgaria's decision back in 2002 to resurrect plans for a second nuclear power plant at Belene. Stanchev continues to oppose it, for both environmental and economic reasons. "We did a cost-benefit analysis of the nuclear power station, which basically proved that it is not needed," he told me. "HSBC Bank came to a similar conclusion, using a somewhat different methodology. Another government think tank came to this conclusion, and so did Russian nuclear energy specialists. But against all odds, the project continues."

He believes that there is still much work to be done to liberalize the Bulgarian economy, and he sees two forces working against this project: Russia and the Bulgarian Socialist Party. Neither is particularly interested in a greener Bulgaria or a more independent Bulgaria. "The empire," he concludes, "is fighting back."

The Interview

Before I ask you specifically about environment and economics, and what has taken place in Bulgaria, is there anything that you believed in or you felt strongly about in 1989 that you have subsequently changed your mind about?

There are some things related to environmental policies, since they changed very fast. They changed by mid-1990, when I assumed the chairmanship of the environment committee of the constitutional assembly. Otherwise, no.

I think I now better understand economics. Before, I used to teach the history of economic ideas and that sort of stuff, and like everyone else I didn't have my own personal experience in a normally functioning economy. Now I manage a company of my own. I was the manager of the Institute for Market Economics. Although it is a non-profit private foundation, it operates in the market environment. It supports market economics. It's not about the economy, but rather about the values, policies, analyses, and that sort of stuff. This led to my better understanding of economics.

It also led to many contacts. I had the privilege of knowing most of the non-communist political leaders of the region because of my involvement in the Bulgarian opposition in the late 1980s. Then, through parliament I got to know everyone else in Eastern Europe, and through the Institute for Market Economics, I basically kept in contact with the same group of people. Obviously this led to deeper, more profound contacts with the global economic community. I've had the privilege of meeting, talking to, and being in correspondence with at least 10 Nobel Prize winners in economics. I am a member of the Mont Pelerin Society.

I did not expect some sort of revolutionary change in 1989. I knew that the major direction of the political reform would return the country to normalcy. I used to think that the social costs would be paid because most of the resources were spent or misallocated. I knew that the worst affected would be the generation that was older than me--I was then 35--but it would also affect my generation. I didn't believe that it would be possible to change things overnight. It was obvious that the ex-communist establishment had already become the economic establishment. I understood it was not physically possible just to wipe those people out, for may reasons but most of all because when you come in with the idea to return the country to normalcy, your first priority is the rule of law. Imposing an institutional arrangement that arbitrarily changes peoples' economic and social positions would not have been possible.

The resources to maintain normalcy in the economy and the social life were not available. Bulgaria was a bankrupt country, similar to Greek bankruptcy today. The difference between Bulgaria then and Greece today is that the Greek electorate today knows what the situation is, but we didn't have any idea until the late 1980s. Bulgaria, in fact, was effectively bankrupt in 1988 and formally in 1990, before the first elections. It was the third default for the Bulgarian communist government. There were previous defaults in 1976-78 and in 1960. So that's a second difference with Greece, which last defaulted at the end of the 1880s.

What has been going on in the economy of Bulgaria since then has just been compensating for the destruction caused by the communist regime. There are two additional payments remaining on the foreign debt from 1990. One is next year, and the other is in 2015. Bulgaria is still paying.

Paying to the IMF, or private debtors?

That's why I said it's similar to Greece. The Bulgarian government defaulted with the London club of private banks. Then, of course, the debt was renegotiated, there was a deduction of about 47%, and then the new trade instruments were issued. They're now owned by different banks, but Bulgaria is paying it.

People tell me that of all of the countries in Eastern Europe, Bulgaria's economy is the most stable. It may be stable at a low level, but...

To read the rest of the interview, click here.

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