What causes prosperity – Some evidence from Romania

Essay by aroba November 2007

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1What causes prosperity – Some evidence from Romania Being born in 1984, we are too young to remember concrete facts about the communist regime. We mostly know what we’ve been told and read about in our history books. Nonetheless,Orwell’s novel seems far from utopian even for those of us who had the good fortune of spending only a few years living under collectivism. We can’t help feeling shivers at every turn of the page.

That communism has done great harm is only an understatement. Proof resides in thecountries in Eastern Europe that struggle still as “developing economies” even though many, likeRomania, were relatively wealthy in the 1920s. Romanian society bears the mark of 40 years ofcommunism even after the last decade and a half of sluggish transition to a market economy. Afterthe initial euphoria with the fall of the communist regime, people found themselves in a world ofpolitical confusion and judiciary and economic chaos.

A thorough reform of the judiciary system was needed for the cornerstone of a free society.

Unfortunately, only slight reform was carried out, in order not to interfere with special interestgroups like former active members of the Communist Party and/or the secret services (the“Securitate”). They managed to become the “rulers of our newly formed democracy”. As anexample, a proposed law prohibiting former communist party members from holding positions in apolitical or public institution, didn’t even get debated in Parliament, in spite of having great popularsupport.

Private property rights should have been a key starting point for a denationalization process.

The 1991 Romanian Constitution protected private property, but did not mention anything aboutguaranteeing the right to private property .1 Consequently, this was not enough to ensure formerowners of getting their nationalized properties back. Moreover, in the early 1990s, the governmentsold the nationalized houses to the people who...