Area Handbook For Bulgaria Part 25

The proportions of national income (net material product) generated in each of the owners.h.i.+p sectors in 1971 were: state, 70 percent; collective, 21 percent; and private, 9 percent. The importance of private enterprise in the production of food, however, is much greater than its contribution to the national income may suggest. The private sector has provided more than one-fifth of the crop output and one-third of the livestock production (see ch. 13).

Whereas the leaders.h.i.+p has promoted livestock production on private farm plots, since 1968 it has placed increasingly severe restrictions on the activities of private artisans, who had originally been encouraged to expand their operations through liberal regulations issued in 1965.

Aside from providing essential services, private artisans played an important role in supplying a variety of consumer goods for the population. The restrictions on artisans' activities have been based on the BKP tenet that private owners.h.i.+p of means of production and the use of personal property to acquire unearned income are incompatible with the socialist order and the country's new const.i.tution.

Economic activities are centrally planned and directed along lines prescribed by the BKP. The functions of planning and control are exercised by the Council of Ministers with the aid of specialized economic ministries, such as the Ministry of Finance, the Ministry of Chemical Industry and Power Generation, and the Ministry of Foreign Trade, and of various governmental committees and commissions (see ch.

8). The state banking system and, more particularly, bank credit have also served as tools for the control of enterprises and trusts.

The economic management structure has been subject to frequent changes.

In the spring of 1972 there were fourteen economic ministries, including five ministries exclusively concerned with branches of industry and construction. The Ministry of Agriculture and the Food Industry, as its name implies, has functioned in two major economic sectors and has also had substantial responsibilities in the field of distribution. Among the committees and commissions the most important have been the State Planning Committee, the Committee on Prices, and the Commission for Economic and Scientific-Technical Cooperation. In December 1972 the Commission on the Living Standard was created to coordinate and control the fulfillment of the national living standard program decided upon by the plenum of the Central Committee of the Bulgarian Communist Party.

Attached to the Council of Ministers and chaired by a deputy minister, the commission is composed of ministers and deputy ministers, representatives of public organizations, scientists, and other members.

Since the beginning of 1971 economic management has been more highly centralized than before. A plan for partial decentralization of economic decision making adopted in 1965 was abandoned by 1968. The economy is organized into trusts (officially known as state economic a.s.sociations) that unite enterprises within branches of economic sectors along functional lines, such as metallurgy, textiles, food processing, railroads, freight forwarding, tourism, wholesale distribution, publis.h.i.+ng, and filmmaking. In agriculture, trusts are known as agroindustrial complexes; each complex unites several previously independent farms (see ch. 13). Trusts are subordinated to economic ministries and are ultimately responsible to the Council of Ministers.

The extent of the ministries' authority over trusts is not clear. In some important respects trusts receive instructions directly from the Council of Ministers.

Agroindustrial trusts number 170. In the nonagricultural sector about sixty-two trusts were originally created, with an average of thirty branches but as many as 106 in one instance. The process of concentration and centralization continued on a small scale at least until the spring of 1973, in part through the consolidation of separate trusts. Before the reorganization, trust branches had been legally and financially independent enterprises, and trusts served only as administrative links between enterprises and ministries. Whereas individual enterprises were previously regarded as the basic economic units in the country, it is the trusts that have been officially considered as such under the new system of management.

Trusts have a.s.sumed various functions previously performed by the enterprises themselves. They formulate economic and technological development policies for the trust as a whole and for each branch; establish relations with suppliers, distributors, and financial inst.i.tutions; and centralize research and development. Trusts have also been charged with responsibility for providing operational guidance to their branches and for organizing the export of products that they manufacture. Branches remain responsible for the effective organization of operations, efficient uses of resources, and the conscientious fulfillment of tasks a.s.signed to them by the annual plan.

Regulations governing the authority of trusts over their branches were intended to permit the establishment of flexible internal management organizations adapted to the particular needs of each trust. The trusts'

policies were expected to be based on the rule that whatever the trust could do better than the branches should be centralized in it and, conversely, whatever the branches could do better than the trust should be left in their field of competence. Each trust was supposed to arrive at an optimal combination of management centralization and decentralization.

The transition to the new management system involved difficulties because of delays in issuing pertinent regulations, misinterpretation of the regulations by trust managers, and the reluctance of enterprise managers to acquiesce in the loss of their independence. Most of the organizational and personnel problems were reported to have been resolved by the end of 1971, and in March 1973 party chief Todor Zhivkov reported that further consolidation of the new management structure had been achieved. In the long run, greater efficiency of economic management is to be attained through pervasive automation of all management functions with the aid of a synchronized national network of electronic computers.

Under the new system of trusts, profits of individual branches are pooled and redistributed by the parent organization. Highly productive branches may thus find themselves in the position of having to share their profits with unproductive branches. This feature, some observers believe, may reduce incentives to raise the level of efficiency, increase output, and improve the quality of products.

STRUCTURE AND GROWTH

National income (net national product, which excludes most services not directly related to production) was officially reported to have been 10.41 billion leva (for value of the lev--see Glossary) in 1971, compared to 10.53 billion leva in 1970. Nevertheless, the official index of national income growth showed an increase of 7 percent from 1970 to 1971. This example ill.u.s.trates the difficulty of using official statistics to describe the structure and growth of the economy or structural changes over a period of time.

According to the 1971 statistical yearbook for Bulgaria, the respective shares of industry and agriculture in national income in 1970 were 49 and 22 percent. The yearbook issued in 1972, however, cited 1970 figures of 55 and 17 percent instead. According to the earlier source, the proportion of national income contributed by industry increased by 6.5 percent in the 1960-70 period, whereas the subsequent source shows a growth of 17 percent for the same period. Similarly, the contribution of agriculture to national income was reported to have declined by 36.4 and by 33.3 percent. An upward trend in the contribution of trade to national income was shown in the earlier source, but a declining trend appeared in the latter.

The differences in statistical presentation resulted primarily from a major revision of wholesale prices, introduced by the government in January 1971. Price revisions made in earlier years, changes in the composition of individual statistical categories and other methodological modifications also contributed to the inconsistency of statistical time series in value terms. Because of differences in concept and coverage, Bulgarian national account data are not comparable with those of the United Nations or the United States systems of national accounts.

In the 1960-71 period national income at prices of 1957 was reported to have increased 2.25 times, which is equivalent to an average annual 7.7 percent rate of growth. The growth of national income was more rapid in the years 1966 through 1971 than it had been in the 1960-65 period. The official national income index implies an average annual increase of 8.5 percent in the latter period, compared to 6.7 percent in the earlier years. Reliable data on the growth of Bulgarian national income in Western terms are not available. Relatively high rates of economic growth are generally a.s.sociated with early stages of industrial development.

In 1971 industry still lagged behind agriculture in terms of employment, although the proportion of the labor force employed in industry had been steadily rising, while employment in agriculture had been declining. In the 1960-71 period employment in industry rose from 21.9 to 31.2 percent of the labor force, and employment in agriculture declined from 54.7 to 33.4 percent of the total. During the same period employment in the services sector increased from 9.2 to 13.4 percent of the labor force, and gains in employment were made in all other economic sectors except forestry, including construction, transportation and communications, and trade.

LABOR

Growth and productivity of the economy have been adversely affected by shortages of skilled labor and of adequately trained and experienced technical and executive personnel. In the words of the minister of labor and social welfare, the level of worker's current training is inconsistent with the country's industrial base; it lags behind the requirements of the scientific and technical revolution. The lack of required skills has contributed to frequent machinery breakdowns and to the output of low-quality products. As a means of upgrading the skills of workers and executives, a broad program for training and retraining was launched in October 1972 with the cooperation of the Ministry of National Education. About half the number of persons undergoing training were below the age of thirty.

Other persistent shortcomings in the field of labor that have plagued the economy and have been the target of frequent criticism and administrative action by the leaders.h.i.+p are inefficient organization of labor and poor labor discipline. Inefficient labor organization has been mainly an outgrowth of inferior management skills. Poor labor discipline has been a consequence of inadequate work incentives. In 1972 the minister of labor and social welfare estimated that more than 20 percent of the working time was lost through idling and other violations of labor discipline.

Adequate information on the structure of wages was not available in mid-1973. The main faults of the wage system that prevailed in early 1973 after repeated revisions, however, were outlined by the BKP leader, Zhivkov, and these faults were also discussed by labor ministry officials from the point of view of their effect on labor productivity.

The basic wage const.i.tutes the main incentive for work; bonuses, premiums, and honors play a minor role. Because of the large investment needs for industrial development and the corollary need to restrict consumption, wages have been kept low, and the rise in wages has been slower than the growth of productivity.

Basic wage pay has been based on the place of employment and not on the work performed. Wage scales for identical work have differed substantially between branches of the economy and industry. In industry, wage scales have been lower in branches manufacturing consumer goods than in branches producing capital goods; they have been lowest in textile mills. Wages have been determined by job cla.s.sifications within economic and industrial branches, the workers' level of education, and length of service. Normal increases in pay for workers remaining in the same positions have therefore been infrequent.

Slow promotion and the disparity in wage scales contributed to excessive labor turnover because, under the prevailing conditions of scarcity, trained workers were able to improve their incomes through a change of jobs. It also led to irregularities in job recla.s.sification by employers seeking to retain their workers through increases in pay. Wages have been raised from time to time by the government through general upward revisions of pay scales. This method, however, has no incentive value because it is not directly linked to an improvement in the workers'

performance.

With a view to enhancing the stimulative effect of wages on productivity, Zhivkov proposed a basic reform of the wage system that would be carried out gradually in the 1973-80 period. In presenting his proposal to the BKP Central Committee plenum, Zhivkov dwelt on some of the major principles to be embodied in the new wage system. The minimum wage must be higher, and the rise in wages must be more rapid than before. Increases in basic wages must be closely linked to individual performance and to overall labor productivity in general, pay would be based on performance rather than on formal qualification or length of service. To this end the sectoral approach to wage determination is to be abandoned in favor of a functional approach that would establish a uniform economy-wide wage scale for jobs in relation to their complexity and hards.h.i.+p and to the specific conditions of work. Rigid pay scales are to be replaced by flexible schedules providing a range of pay for each job depending upon the ability and performance of the worker.

The reform would also gradually eliminate the egalitarian aspect of the current wage system by providing appropriate differentials for workers with higher qualifications. Under the current system, for example, the salary of economists has been below that of engineers, and the salary of engineers has been equivalent to the wages of skilled workers. This problem has been repeatedly considered in the past, but its solution was delayed for lack of funds.

Zhivkov also cited shortcomings of the prevailing piecework system and suggested some long-range remedies for the ills. About 60 percent of all workers have been employed on the piecework system. Production norms under the system have been low because of technological advances and the infrequency of adjustment of norms. Under these conditions workers have been able to exceed the basic norms to such an extent that payment for work above the norm has become a large, and in some cases the predominant, portion of the workers' earnings. Striving to increase their wages, workers under the piecework system have often resorted to shortcuts that have lowered the quality of output.

Zhivkov's proposal for improvement included the introduction of more realistic and more flexible quant.i.tative and qualitative production norms and a gradual transition to hourly rates of pay with bonus payments for superior work whenever the quant.i.ty and quality of output is not directly dependent on individual workers. Under these conditions bonus payments would be linked to the performance of the entire working personnel, and the importance of the bonus in wage payments would be enhanced.

The wage reform has been discussed in the context of a broad program, announced by the BKP Central Committee plenum in December 1972, for a general rise in incomes and an improvement in the population's level of living. In the process the difference between urban and lagging rural incomes is to be eliminated. Implementation of the program has been made contingent upon the attainment of greater productivity and output through workers' efforts to surpa.s.s production and efficiency targets set by the government. These more difficult targets must be embodied in what have been officially labeled workers' counterplans. The BKP and the government have launched a new form of so-called socialist compet.i.tion among workers and economic units, the aim of which is to exceed in performance the requirements of the counterplans.

Implementation of the standard of living program began with the introduction of wage increases, effective March 1, 1973, for workers employed under difficult or hazardous conditions, schoolteachers and university faculties, physicians and medical personnel, and employees of artistic and cultural inst.i.tutions. Effective June 1 the minimum wage for all types of work was raised from 65 to 80 leva per month, and a level of 88 leva per month was decreed for all workers earning between 80 and 87 leva. The resultant distortion of the wage structure is to be eliminated over a period of several years.

Another important measure affecting labor was announced in March 1973--a gradual transition from a six-day, forty-six-hour workweek to a five-day week of forty-two and a half hours. Under the BKP directive the transition must be accomplished without loss in production; the loss in worktime must be compensated by a corresponding rise in productivity.

The shorter workweek had been in effect on an experimental basis for about 17 percent of the industrial workers since 1968. In 1973 and 1974 it was to be introduced in enterprises of the material production sector, excluding agriculture, provided that the required rise in productivity has been a.s.sured. In 1975 the reduced workweek will be introduced in transport, for management of state economic enterprises, and for persons employed in the field of services other than health services and educational inst.i.tutions. Preparations for experiments with a shortened workweek in these two areas and in agriculture are to be undertaken in 1974 and 1975. The decree on working hours gave formal approval to an established practice that requires workers to make up by work on Sat.u.r.days or Sundays for worktime lost whenever official holidays fall on weekdays.

INVESTMENT

The proportion of national income devoted annually to capital formation (net investment) rose steadily from 22.6 percent in 1961 to 35.4 percent in 1966 and 1967 and declined thereafter progressively to 26.8 percent in 1971. In absolute terms annual capital formation increased from 1.06 billion leva in 1961 to 3.06 billion leva in 1970, then declined to 2.74 billion leva in 1971. More than half the net addition to capital (from 46 to 67 percent annually) consisted of fixed a.s.sets; the balance represented equipment and inventories.

Gross investment at current prices increased from 1.4 billion leva in 1961 to 3.6 billion leva in 1971; investment was officially estimated at 3.9 billion leva in 1972 and was scheduled to reach 4.3 billion leva in 1973. The bulk of investment has been channeled into the material production sector (including trade). The annual investment share of this sector increased from about 74 percent in 1960 to 79 percent in 1969 and declined to 76 percent in 1971. The proportion of investment devoted to housing and services declined correspondingly in the 1960-69 period from 26 to 21 percent and rose in the subsequent two years to 24 percent. The s.h.i.+ft in the investment trend foreshadowed the formal directive issued by the Tenth Party Congress in April 1971 for the development of a program to raise the population's standard of living.

Industry has been the main beneficiary of investment funds; its share rose to almost 50 percent in 1969 but declined slightly thereafter.

Agriculture received only about 15 percent of investment in the years 1969 through 1971, compared to 28 percent in 1960 and 19 percent in 1965. Residential investment declined from 14 percent in 1960 to an average of not quite 10 percent in the 1969-71 period.

Building construction and installation work absorbed the largest, though declining, share of investment--60 percent in 1960 and 46.4 percent in 1971. The share of investment spent on machinery and equipment rose by 50 percent in the 1960-69 period from 26 to 39 percent, but declined to 34 percent in 1970 and 37 percent in 1971. Imported machinery, mostly from the Soviet Union, const.i.tuted a major though declining proportion of investment in machinery--from two-thirds to one-half of the total in the 1965-71 period. Other investment expenses, including geological surveys, absorbed from 12 to 17 percent of annual investment.

New investment has been increasingly concentrated in state enterprises.

In the 1960-71 period the proportion of investment absorbed by state enterprises increased from 68 to 83 percent, while the share of investment devoted to collective farms declined from 18 to 8.5 percent.

Annual investment in artisans' collectives rose from 1.2 percent of total investment in 1960 to 2.7 percent in 1968 and declined to 1.1 percent in 1971. This trend paralleled the government's policy of initial encouragement and subsequent restriction of private artisan activities; it suggests that the government's restrictive policy may not have been limited to private artisans alone (see Organization, this ch.).

Private investment in residential construction declined from 12.7 percent of annual investment in 1960 to 6.5 percent in 1970 but rose to 7.2 percent in 1971. In absolute terms private investment increased from about 174 million leva to 262 million leva. By 1973, however, new restrictions were being introduced on housing construction by private individuals. As much as 90 percent of the residential construction in 1960 and 70 percent in 1971 was privately financed. In the 1968-70 period about half the private investment in housing was supported by bank loans or by loans from special funds of employing organizations.

The rise in the volume of capital per worker in the 1960-70 period as a result of the investment activity did not produce a corresponding increase in labor productivity; that is, the efficiency of investment declined. Whereas the amount of fixed capital per worker in the sphere of material production increased at an average annual rate of 10.4 percent, and the volume of machinery and inventories rose by 12.5 percent per year, output per worker increased at an annual rate of only 7.7 percent. In an effort to increase the efficiency of investment, the Tenth Party Congress, convened in the spring of 1971, directed that 35 percent of new investment in the sphere of material production during the 1971-75 period should be used for the reconstruction and modernization of existing facilities. In 1972, however, the proportion of investment used for this purpose was only 18 percent.

In the context of the eventually abandoned program for economic decentralization, provision was made for reducing the role of the central government budget in financing investments and for increasing partic.i.p.ation by investors with their own funds and bank credits. In the sphere of material production, excluding trade, budgetary allocations in 1965 accounted for 55 percent of investment, and bank credits made up 7 percent; in 1969 investment funds from these sources const.i.tuted 21 and 32 percent, respectively. The contribution from the budget, however, rose again after 1969 to 28 percent in 1971, whereas bank credits declined to less than 20 percent of the investment funds. The share of investors' own resources, including funds of local governments, increased from 36 percent in 1965 to 52 percent in 1971. Budgetary investment funds are being increasingly concentrated on projects in the fields of services and raw materials production.

A satisfactory explanation of the s.h.i.+fts in the pattern of investment financing is not feasible in the absence of adequate information on the changing methods of financing economic enterprises and organizations.

The announced government policy is to s.h.i.+ft financing progressively from the budget to the economic trusts. The s.h.i.+fts did not alter the fundamental fact that all investment funds, excluding the small private investment, remained public property subject to governmental controls and that the difference was merely one of bookkeeping. The change in the channeling of public investment funds was introduced in the hope of increasing the effectiveness of their use.

The realization of major investment projects, particularly in industry, has been made possible by very substantial technical and material a.s.sistance from the Soviet Union. Nevertheless, serious shortcomings have been officially reported in the implementation of investment programs, both in industrial and in residential construction. The main problem has been posed by the initiation of building programs that exceed the capacity of the construction industry and the consequent scattering of limited resources. The situation has been aggravated by frequently poor project planning, inferior design, delays in the delivery of machinery and materials, poor organization of work, and slack discipline.

As a result of the difficulties in construction, the completion and commissioning of new industrial plants has often been delayed, and housing construction has fallen chronically short of the volume planned--by as much as 25 percent in 1972. The consequent failure of the antic.i.p.ated output from new plants to materialize created shortages in various areas, thereby affecting production and market supplies adversely and necessitating revisions of the economic plans. In an effort to minimize these difficulties, the government adopted various administrative measures in 1971 and 1972, including the formulation of a list of nationally important construction projects, direct supervision of which was a.s.sumed by the Council of Ministers. The number of projects included in the list for 1972 was variously reported as thirty-five and thirty-nine out of a total of more than 3,000 projects. The listed projects consisted mainly of plants for the production of industrial materials.