Chapter 9
ECONOMIC SYSTEM
In mid-1970 the economy, which is wholly controlled by the Albanian Workers' Party, approached the conclusion of the Fourth Five-Year Plan, during which it made a further advance along the road of industrialization, in line with the totalitarian leadership's goal of transforming the economy from the stage referred to as agricultural-industrial to a more advanced industrial-agricultural level. The Fourth Five-Year Plan (1966-70) actually called for a more rapid growth of agriculture than that of industry and for an increase in the share of agriculture in the national product by 1970. This departure from proclaimed policy was dictated by the failure of agriculture to meet the goals of the Third Five-Year Plan (1961-65) and by an overriding need to increase farm production in order to reduce to the maximum extent possible the perennial food deficit.
Despite government efforts, the five-year plan goals for agriculture are not being achieved, even though substantial advances in production have been made. The agricultural output target set by the annual plan for 1970 is significantly below the five-year plan figure for that year. By contrast, the five-year plan goal for industrial output was reported to have been surpassed in 1969 and to have been raised in the annual plan for 1970 substantially above the original level.
The basic reasons for the failure to attain the planned farm output targets, apart from their magnitude, lie in the difficulty of inducing peasants to relinquish age-old traditions in favor of modern scientific farming methods and of motivating them to work industriously in a collective farm system that they strongly reject. Although problems of adaptation and motivation are also present in industry, the much smaller size of the industrial labor force and the presence of foreign technicians in key areas mitigate the difficulties and make possible a somewhat more rapid rate of growth.
Reliable information on Albania is scarce. Few foreigners capable of observing and evaluating conditions objectively have been able to visit the country in the past twenty-five years. Articles from official journals or newspapers available in English translation, which constitute the major source of data, provide only a partial coverage and must be used with caution because of a lack of means for verification. Published statistics, available in detail to 1964 and nonexistent after 1967, leave many important gaps. Because of apparent shortcomings in the underlying statistical methods, only data in physical terms can be accepted with some degree of assurance as to their accuracy.
The economy is administered through a small number of specialized ministries, and most information about it comes from Communist sources. Control over labor is maintained through trade unions, which constitute a political arm of the Party (see ch. 6, Government Structure and Political System). Economic activity is governed by a series of five-year and annual plans prepared by the State Planning Commission in accordance with Party directives.
Agriculture is organized into state and collective farms, which are dependent upon machine-tractor stations for the performance of mechanized farm operations. Industry is poorly balanced with regard to the country's domestic needs and is heavily oriented toward exports. Foreign trade primarily serves the purpose of obtaining needed resources for the development of production. Limited domestic resources are only partially developed, and the economy depends heavily on foreign economic and technical assistance. The country's political orientation has restricted the sources of such aid to other Communist states, and its alignment with Communist China in the Sino-Soviet dispute brought about the loss of Soviet support with severe repercussions to the economy.
After twenty-five years of forced draft economic development, the country in 1967 was described by a correspondent of a European journal as a mixture of the fourteenth and twentieth centuries, where oxen and buffaloes were to be seen side by side with modern foreign-made tractors, and where a policeman directed traffic in the main square of the capital city like a conductor waving his baton at a nonexistent orchestra.
After a visit in the fall of 1969, a specialist on Balkan affairs reported that austerity and regimentation were still the rule despite a substantial measure of economic progress achieved during the period of independence. He also expressed the view that Albania undoubtedly remained the poorest country in Europe but that the economic and social advances attained could be envied by the countries of the Near East.
LABOR
Although economic development is still in its infancy, growing concern has been officially expressed about the adequacy of the labor force to meet the needs of industrialization and of expanding social services without adversely affecting agricultural production. The main cause of the incipient labor shortage is low productivity owing to a lack of industrial experience, a low level of mechanization, and the survival of backward traditional methods in agriculture. Officially, low productivity has been ascribed to poor labor discipline and inefficient management arising from an inadequately developed sense of political and social responsibility. It has also been blamed on a failure of manpower planning and on the relaxation of central controls over enterprise funds.
At the end of 1969 the Central Committee of the Party adopted a decision on means for correcting this situation. An important element of the program is the education and political indoctrination of the workers. This task is a major function of the trade unions, which are primarily a political arm of the Party for the control of labor, without any significant responsibilities in the field of labor relations (see ch. 6, Government Structure and Political System).
In 1967, the last year for which official employment data are available, the working-age population comprised 932,000 persons, 739,200 of whom were actually employed. The number of employed did not include roughly 6,000 peasants working on the private holdings still remaining in that year. Including these peasants, the participation rate in the labor force was 80 percent.
Two-thirds of the labor force was employed in agriculture, the remainder in a variety of nonagricultural pursuits, chief among which were industry, construction, trade, and education. Apart from the peasants working their own land, farm labor included about 427,000 persons on collective farms and 64,000 on state farms. The industrial labor force of 105,300 accounted for 14.1 percent of total employment, and 40,000 construction workers, for 5.4 percent. The nearly 32,000 workers in trade and 25,000 workers in education constituted, respectively, 4.2 and 3.4 percent of the employed manpower.
The officially reported labor force, which comprises nonagricultural labor and state farm workers only, increased by 53 percent between 1960 and 1967, from 203,800 to 312,400 persons. The increase represents an annual growth rate of 6.3 percent. At this rate, the labor force in 1970 would be about 375,000 persons. It has been informally reported as 400,000. Collective farm employment rose, in round numbers, from 282,000 in 1960 to 336,000 in 1966 and to 427,000 in 1967. The unusually large increase in 1967 resulted from an intensive drive to collectivize the remaining privately owned farms and also from a government policy of reversing the population flow from the farms to the cities. With the major reservoir of individual farms exhausted, the number of collective farm workers could increase up to 1970 by roughly 45,000 to 50,000 through natural population growth. Absence of data on rural-urban population shifts precludes any firm estimate of the size of the collective farm labor force in 1970.
According to preliminary estimates by the planning authorities, an increase of between 120,000 and 130,000 workers outside the collective farm sector would be needed to implement the industrial and social programs of the five-year plan for the 1971-75 period if productivity remained at the level of the 1965-69 period. The natural growth of the able-bodied urban population during this period was estimated not to exceed 29,000 persons. An outflow of up to 100,000 persons from the rural areas would therefore be necessary to meet the estimated manpower needs. Such a contingency could not be countenanced because of the severe damage it would inflict on the rural economy. Attainment of a higher rate of participation in the labor force and of a substantial increase in labor productivity has therefore been considered by the Party leadership of utmost urgency to ensure sustained economic development.
The latest evidence of the leadership's profound concern about these basic labor problems was provided by the Party's Central Committee plenum held at the end of December 1969, devoted to a discussion of means for raising productivity and tightening labor discipline. In its report delivered to the plenum, the Political Bureau (Politburo) of the Central Committee expressed strong dissatisfaction with what it considered an unsatisfactory rate of participation in employment by the collective farm population. It placed the blame for this situation on local government organs, which had become reconciled to the backward traditional concepts that keep homemakers and some young girls in the home and that require a member of the family to look after the family's privately owned livestock and thus be unable to seek outside work.
The Party's report also called attention to the prevalence of a petty bourgeois attitude among many families of workers, employees, and servicemen that keeps their members from accepting employment. To facilitate the employment of women, the Party urged more widespread provision of amenities, such as nurseries and dining halls, that would free them from household duties.
Meaningful information on labor productivity is not available because statistics on this subject have not been published and because essential details of the methods used in calculating the percentage rates of increase in productivity that appear from time to time in official public statements are not sufficiently known. Based on physical output and labor data, Western observers believe that the published data overstate the actual advance achieved.
According to the Politburo report, productivity in industry rose 2.2 times between 1950 and 1968, and this growth accounted for 60 percent of the increase in industrial production during that period. In agriculture 67 percent of the increase in output during those years was attributed to the growth of productivity. These figures indicate a slightly faster advance in agricultural productivity, but in absolute terms productivity in agriculture has been very much lower than in industry.
During the Third Five-Year Plan (1961-65) labor productivity reportedly rose by an annual average of 2.1 percent in industry, 4.6 percent in construction, and 2.7 percent in automotive transport. Data for the years after 1965 had not been published by mid-1970 except for official statements that the planned levels had not been reached.
The lag of productivity has been attributed by the Central Committee to a pronounced shortage of skilled manpower and to various manifestations of poor labor discipline and faulty management. Chief among the cited shortcomings in the field of labor are excessive absenteeism, resulting in part from inadequate medical and public dining facilities; loafing on the job; and a generally negligent attitude toward work that entails a loss of time and a low quality of the product. On the management side, the main shortcomings include poor organization of production, acceptance of unjustifiably low work output norms, and labor hoarding.
Both workers and managers have been accused of a reluctance to adopt progressive production techniques and of frequently putting their own personal interest or that of their enterprise ahead of the public good. A disorganization of the material supply arising from frequent noncompletion of production assignments and poor coordination among plants and industry branches has also been cited as an important factor responsible for substantial losses of worktime and, consequently, of reduced productivity.
Enterprise managers have been repeatedly accused of irresponsibility in the use of resources, which has entailed a wasteful use of machinery and labor. Inadequate planning of production schedules and poor maintenance are said to cause an inordinate loss of machine time. Managers have also been charged with abusing the legal provision that allows them to employ up to 2 percent more workers (presumably to meet emergencies or to increase output) than are called for by the enterprise plan. Such abuse has been facilitated by the elimination sometime in the middle or late 1960s of the control by banks over enterprise funds allotted for the payment of wages.
A change in the method of productivity planning, which involved a redefinition of productivity as a calculated index, is reported to have been widely misinterpreted as downgrading the importance of productivity. This misconception has been reinforced by the circumstance that productivity levels are planned for only about 70 percent of the nonagricultural workers.
In many enterprises labor norms--that is, the minimum amount of work a worker in any given job is required to perform per unit of time--are officially said to be inordinately low. There are reported to be many enterprises in which the established norms are substantially overfulfilled despite the fact that the effective workday does not exceed 6 to 7 hours. These norms, it is said, require only about 5-½ to 6 hours of work per day and are thus responsible for a 25- to 35-percent loss of output or, conversely, of labor wastage. Yet, despite the low norms, about 14 percent of the workers fail to complete their assigned tasks. Although a Politburo decision in April 1967 called the attention of Party, government, and economic organs to the importance of correct labor norms, this matter has been generally neglected and little has been accomplished. Many of the existing norms have become obsolete.
The Politburo's program that was adopted toward the end of 1969 for raising productivity is based essentially on an appeal to the social consciousness of all participants in the economic process and calls for improved performance in all aspects and at all levels of production through greater self-discipline and more stringent controls. A practical difficulty faced by the leadership in the execution of its program is the lack of a precise concept of productivity and of an effective methodology for establishing sound productivity targets or for measuring actual performance. The problem is particularly pronounced in agriculture. Experimentation with new concepts and methods has been underway for some time under the joint guidance of the State Planning Commission, the Ministry of Industry and Mining, and the Ministry of Construction. Results of the experimentation are to serve as a basis for further decisions by the Council of Ministers in 1970.
A distinctive feature of the country's labor scene is the practice of mobilizing large numbers of the population for so-called voluntary work on various types of construction and agricultural projects, including the building of railroads, housing, and irrigation canals; land improvement; harvesting; and the planting of trees. Thousands and, at times, tens of thousands of individuals from all walks of life, including members of the armed forces, are assembled by the government to carry out specific jobs with simple tools or with their bare hands.
Party dogma holds that these projects, which use vast numbers of people, reflect the Party's strength, the might of the masses, and the great reserves to be found in their midst. The projects are considered to be not only of great economic and social importance but also of great ideological, political, and educational significance because, among other things, they reflect the determination and readiness of the broad working masses to implement the Party's line. Official complaints about flagging enthusiasm for housing construction in 1968 suggest a less favorable public acceptance of this practice than that proclaimed by the Party dogma.
AGRICULTURE
Agriculture is organized on the Stalinist Soviet model: all activity is centrally planned, and farm operations are carried out by state and collective farms. Government policy has accorded a high priority to the expansion and modernization of agricultural production as a means of attaining self-sufficiency in foods. In an effort to obviate the historical dependence on grain imports, the government has placed special emphasis on increasing the output of bread grains, which furnish the bulk of the people's diet, and on a rapid rise in the production of potatoes as a substitute for bread.
Great importance is attached to the expansion of industrial crops, such as cotton, tobacco, sugar beets, and sunflowers, in order to provide raw materials for the growing domestic industries, in addition to maintaining traditional exports. Expansion of grape vineyards, olive groves, and other fruit and vegetable growing has also been promoted to develop larger exportable surpluses. According to official data, farm output increased half again as fast as the population between 1950 and 1967, but it is still inadequate to supply the country's minimum needs for bread and livestock products.
The government's ambitious farm modernization program has been imposed on tradition-bound peasants averse to rapid change. A large part of the land improvement and irrigation work has been accomplished through mass mobilization of peasants and of the urban population for so-called voluntary work on the model of the Chinese coolie system. Socialization of the land has had a deleterious effect on work incentives, with a consequent lag in the planned growth of agricultural production. Measures adopted by the government to ensure better work performance on the collective farms did not prove sufficiently effective, and a scaling down of the five-year plan target for agricultural production could therefore not be avoided.
To provide the additional acreage needed for crop expansion, large-scale programs of land reclamation and melioration have been executed. At the same time, heavy stress has been laid on the improvement of farm techniques and on mechanization as means for increasing yields and production. A planned expansion of livestock herds and of the output of livestock products has been hampered by inadequate incentives for peasants and by a shortage of fodder. The agricultural potential is limited by the predominance of rugged mountain terrain and by frequent spring droughts that cause extensive damage to crops. To minimize the adverse effects of the droughts, an extensive irrigation system is being developed.
In 1967 the area of land in agricultural use, excluding forests, roads, and homesites, amounted to about 3.0 million acres, or 43 percent of the country's total area. More than half of the agricultural land was in unimproved natural pastures, with an additional small acreage in natural meadows. Cultivated land bearing field and tree crops totaled about 1.4 million acres, of which about 1.1 million acres were arable land, equivalent to about two-thirds of an acre per capita. Almost half of the cultivated land was located in hilly and mountainous zones, which are less productive than the coastal plains. The agricultural acreage was expanded by 3 percent between 1950 and 1967, but a significant further expansion is precluded by the country's rugged terrain.
A high priority has been placed by the leadership on expanding the cultivated area and raising its productivity through land reclamation, soil improvement, and irrigation. Most of this work has been accomplished manually, through mobilization of large numbers of people for massive projects and with the participation by members of the armed forces. Between 1950 and 1969 the area of cultivated land rose by almost one-half to a total of more than 1.4 million acres, at least 185,000 acres of which have been reclaimed since 1965. The bulk of the increase in cultivated land was achieved at the expense of natural pastures and meadows, the area of which has declined by about 265,000 and 50,000 acres, respectively, since 1950. About 70 percent of the increase in cultivated land was added to arable acreage.
By the end of 1969, however, the reclamation work had fallen behind the five-year plan schedule. In early 1970 the government therefore took special measures to ensure that the entire 285,000-acre reclamation program would be completed as planned, bringing the total cultivated acreage to about 1.5 million acres. Very substantial progress in this endeavor was reported to have been achieved by the end of March, largely through the mobilization for this task of about 200,000 persons from urban and rural areas.
Expansion of the irrigation network has proceeded somewhat more slowly than planned, with the use of the same mass construction methods. As reported by the State Planning Commission to the People's Assembly in mid-February of 1970, about 140,000 acres had been brought under irrigation during the 1966-69 period, and approximately 55,000 more acres were to be added in 1970. These figures imply a total irrigated area of about 645,000 acres in 1969 and about 700,000 acres planned for 1970--an increase of 2,470 acres over the original five-year plan target. Attainment of this goal would require a construction volume in 1970 equal to the total achieved during the first two years of the five-year period and almost half again as large as the volume in 1968. About half the arable acreage was irrigable in 1969.
The agricultural organization consists of two types of farms: state farms, operated under the direction of either the central or the local government, and collective farms. State farms, modeled after the _sovkhozes_ of the Soviet Union, were established beginning in 1945 on lands confiscated from large landowners and foreign concessionaires and contain some of the most productive land in the country. Managers and workers of state farms are salaried government employees, who may receive special bonuses for superior production achievements.
Collective farms were organized through the forcible consolidation of private holdings. Begun in 1946 against strong peasant resistance, collectivization did not assume major proportions until 1955 and was virtually completed only in 1968 with the consolidation of remote mountain villages. The basic features of the collective farm are: complete government control; collective use of the land and other principal means of production; obligatory common work by the members, based on established minimum work norms and enforced through economic and other sanctions; and distribution of the net income to members on the basis of the quantity and quality of work performed.
With regard to income distribution, collective farm members are residual claimants entitled to share whatever remains after completion of compulsory deliveries to the state; provision of prescribed investment and operating funds for the farm; payment for irrigation water, machine-tractor station services, and other outstanding obligations; and setting aside 2 percent of the income for social assistance to members. Information on farm income levels is not available. Nominally, the General Assembly of all the members is the highest ruling organ of the collective farm, but actual control rests with the farm's basic Party organization (see ch. 6, Government Structure and Political System).
An important feature of the state and collective farms is the small private plot allotted to a member family for its own personal use. Since 1967, when these allotments were reduced in size, the maximum legal size of the private plots, including the land under all farm buildings other than the family dwelling, has ranged from 1,000 to 1,500 square meters (about 10,750 to 16,150 square feet, or one-quarter to three-eighths of an acre), depending upon the location and availability of irrigation. The collective farm statute also entitles each family to maintain a few domestic animals privately. Only one cow or one pig is authorized, but up to ten or twenty sheep and goats may be allowed. In typical cases a family may have a cow or pig and a few sheep or goats. More liberal allowances for poor mountain farms may include both a cow and pig as well as the maximum number of sheep and goats.
In 1964 there were thirty-eight large, centrally controlled state farms with an average of about 7,700 acres of farmland, including about 4,800 acres of cultivated land. In 1968 the average size of the state farms, the number of which had remained stable, was reported to be about 7,350 acres, a reduction of almost 600 acres since 1964. This decline in acreage was brought about by a transfer of some state farmlands to small collective farms as a means of increasing their viability. In 1964, 250 locally administered state farms were reported to average about 380 acres and have probably continued unchanged. In 1970 state farms cultivated 20 percent of the total acreage under cultivation, and collective farms worked 80 percent.
The number and average size of collective farms have varied widely as a result of the continuing creation of new farms and the consolidation of existing units. In the fall of 1969 there were 805 collective farms, compared with 1,208 in 1967. The consolidated farms included 568 units consisting of two to three villages each, eighty farms of six to ten villages, and another five farms of eleven villages each. Eighty-seven percent of all collective farms had less than 2,470 acres of cultivated land each, and only nine percent had more than about 6,200 acres.
Highland farms were among the smallest, many being smaller than 750 acres. In 1968 the average size of all collective farms was reported to be about 1,400 acres of cultivated land. In 1967, before collectivization was completed, the population on collective farms consisted of 184,400 families--an average of about 150 families per farm--which provided about 427,000 farmworkers. As a result of further consolidation, the number of families per farm increased significantly.
Although available statistics are inadequate for a comprehensive review of the crop and livestock situation, five-year plan data and fragmentary information contained in annual official reports on economic plan fulfillment provide a reasonable approximation of the production volume of major crops but only a rough approximation of the size of the livestock herds (see tables 10 and 11).
Published data on total agricultural production claim a virtual doubling of output between 1960 and 1969. During this period the share of field crops in total output is reported to have increased at the expense of livestock production--a direct result of the government's emphasis on bread grains. The share of field crops is reported to have risen from 44 percent in 1960 to 59 percent in 1967, whereas the share of livestock output declined from 43 to 29.5 percent. Fruit production contributed about 10 percent of total output during the period, and collection of wild medicinal plants, another 1 to 4 percent.
Bread-grain production, including wheat, rye, and corn, increased by 80 percent in the 1966-69 period, but attainment of the five-year plan target requires a reversal of the downward trend in annual output increases since 1966 and a tonnage increase in 1970 from 20 to 38 percent greater than those obtained in the 1967-69 period. The output of potatoes in 1969 was eleven times larger than production in 1965 yet was only half the volume planned for 1970. The required doubling of the output to meet the five-year plan target is roughly equivalent to the increase in production achieved during the preceding three-year period. Nevertheless, the substantial rise in the output of bread grains and potatoes achieved during the first four years of the five-year plan significantly, although not entirely, reduced the need for grain imports, which amounted to about 110,000 tons of wheat and 20,000 tons of corn in 1963 and 1964.
Production of rice, cotton, and tobacco was reported to have lagged through 1969, and the output of cotton actually declined in 1967 and 1968. This and other reported information about these crops indicate that the possibility of attaining the 1970 target is precluded for rice and is questionable for cotton. In the case of tobacco, however, reported production in 1969 was already about 1,000 tons above the five-year plan goal, in spite of the reported lag. As early as 1967 the output of sugar beets approached the volume planned for 1970, but subsequent developments regarding this crop have been cloaked in official silence. According to officially reported data, the production of vegetables in 1969 surpassed the 1970 target by some 60,000 tons, or nearly 27 percent, yet no mention of this fact was contained in the report on plan fulfillment for that year.
_Table 10. Production of Field Crops and Fruits in Albania, 1960 and 1965-70 (in thousands of metric tons)_
-------------------------------------------------------------------------- Plan 1960 1965 1966 1967 1968 1969 1970 -------------------------------------------------------------------------- Grains 216.7 324.6 n.a. n.a. n.a. n.a. 659.0[*] Breadgrains[**] (197.1) (296.6) (389.3) (445.0) (494.0) (533.4) (593.0)[+] Potatoes 23.4 21.2 108.0 115.9 166.0 238.8 475.0 Rice 4.6 10.2 10.5 11.3 n.a. n.a. 24.0 Cotton 16.1 24.6 24.7 21.9 18.5 25.0 34.0 Tobacco 8.1 13.3 13.7 13.1 14.9 17.1 16.0 Sugar beets 72.7 90.2 132.9 138.5 n.a. n.a. 140.0 Vegetables 71.3 140.9 156.5 172.2 180.8 283.8 224.0 Fruits, deciduous 25.3 39.7 47.8 40.7 58.6 n.a. 69.5 Fruits, citrus 1.7 2.0 2.2 2.6 n.a. n.a. 5.6 Grapes 22.3 42.9 54.1 48.5 61.1 n.a. 94.4 -------------------------------------------------------------------------- n.a.--not available * Except for the data on fruits, all figures in this column are rounded to the nearest thousand tons. ** Wheat, rye, and corn. + The Fourth Five-Year Plan (1966-70) calls for more than this amount.
In the absence of information on the planting of fruit trees and vines, the fruit production trends of recent years provide the only indication of the extent to which the fruit production program of the five-year plan may be realized. Available data through 1968 for deciduous fruits and grapes and through 1967 for citrus fruits indicate that the 1970 goals for grapes and citrus fruits may not be reached. Production of citrus fruits would have to more than double in three years, whereas an increase of only 53 percent was achieved in the 1961-67 period. Similarly, grape output would have to rise by 54 percent in two years, compared with an increase of 42 percent in the preceding three years. The outlook for deciduous fruits is more favorable. The needed output increase of 20 percent over two years is well within previously attained limits.
_Table 11. Livestock in Albania, 1960, 1964-66, and 1970 Plan (in thousands)_
------------------------------------------------------ Plan[*] 1960 1964 1965 1966 1970 ------------------------------------------------------- Horses 49 44 44 44 n.a. Mules 17 20 20 21 n.a. Donkeys 57 60 60 60 n.a. Cattle 420 427 424 427 475 Cows 146 157 156 158 n.a. Oxen 100 87 n.a. n.a. 139 Buffalo 7 5 5 5 n.a. Sheep 1,546 1,682 1,637 1,670 1,800 Goats 1,104 1,199 1,175 1,200 1,400 Hogs 130 147 141 142 n.a. Poultry 1,580 1,671 1,722 1,746 3,000 ------------------------------------------------------- n.a.--not available. *Fourth Five-Year Plan (1965-70).
Information on livestock numbers is much more sketchy. The dearth of published data and repeated official pronouncements indicate unsatisfactory progress in this farm sector, particularly with regard to the high-priority target for cattle raising. An important cause of this lag has been an acknowledged shortage of fodder. Another major reason has been an officially induced transfer of livestock from individual peasant ownership to the collective and state farms, where it is subject to the much-criticized negligent attitude of the peasants toward state and communal property. About 60 percent of the cattle and sheep and 85 percent of the hogs were kept on state and collective farms in 1969, as against only about 36 and 64 percent, respectively, in 1964.
Collective farm managers and local government officials have blamed the fodder shortage on the diversion of pastures and meadows to the production of bread grains. Statistical evidence indicates that the output of feed grains declined by about 40 percent from the mid-1950s to the mid-1960s but that the loss of fodder from grazing lands and meadows was compensated fourfold through increased production of forage crops. The validity of the explanation offered by the farm and village officials was vigorously denied in the theoretical monthly journal of the Party's Central Committee, which attributed the fodder shortage to a failure by collective farmers to adopt improved methods of crop production and to exploit all available fodder resources. In January 1970 all basic Party organizations in farming areas were urged to eliminate distrust and every conservative idea and harmful tendency that stood in the way of the rapid development of cattle raising and to see to it that the existing gap between the collective farms and private plots was gradually eliminated.
Government efforts to improve livestock breeds and yields through selective breeding, artificial insemination, and better management practices have also been impeded by peasant apathy. Although yields of up to 5,500 pounds of milk per cow were obtained on some state farms in 1966 and yields of about 3,300 pounds to 3,950 pounds on the more efficient lowland collective farms, the average yield of milk per cow on all lowland collective farms in that year was only about 1,750 to 2,200 pounds, and a large number of upland farms obtained even less.
The latest available official Albanian livestock statistics are for the year 1964. Data for 1965 and 1966 have been published by the Food and Agriculture Organization (FAO) of the United Nations. The Fourth Five-Year Plan indicates the numbers planned for some of the livestock categories in 1970 through percentage increases expected to be attained over the numbers in 1965. In the case of cattle, the largest increase by far has been planned for draft oxen--60 percent as against only 12 percent for all cattle--in an effort to reduce a draft power shortage. This increase would inevitably be at the expense of the growth in the numbers of cows and young stock.
The growth of productive livestock herds, excluding draft animals, lagged very substantially in relation to the increase in population, at least through 1966. This has entailed a significant worsening of the initially very meager supply of livestock products. According to estimates published by the FAO, total annual meat production, including all types of meat in terms of carcass weight but excluding edible offals, increased from an average of 40,000 tons in the 1952-56 period to 50,000 tons in 1967. The output in 1967 implies a per capita daily meat availability of only about 2.5 ounces, including bones. A similar situation prevailed with regard to dairy and poultry products because there were only about 75 low-production cows per 1,000 population and one head of inferior poultry per capita.
Total agricultural production, which was planned to increase at an average annual rate of 11.5 percent or from 71 to 76 percent for the five-year plan period as a whole, consistently fell short of the targets in the 1966-69 period and was not likely to attain the 17-percent increase planned for 1970. Thus, for instance, the actual output increase achieved in 1969 was only about 10 percent as against a planned rise of 22.1 percent and in 1968, similarly, about 1.6 as against 12 percent.
This persistent lag in farm output has been extensively and publicly discussed by the leadership, which is intent on raising the general level of performance in agriculture and ensuring an adequate domestic supply of food products. Although some blame has been attached to unfavorable weather conditions, the lag has been ascribed primarily to the reluctance of peasants to adopt modern production techniques, poor farm management, insufficient effort to use available resources to best advantage, widespread indifference and negligence, and an excessive preoccupation with personal interests leading to an irresponsible attitude toward work in the collective sector. These shortcomings were said to exist not only among the peasantry at large but also among Communists, who should be serving as models of responsible behavior. The basic reason that clearly emerges from public discussion is a widespread opposition of peasants to the collectivization of farms and an associated tendency to devote their best efforts to the cultivation of their own private plots.
Impressive evidence on this point is provided by official production statistics for 1964, the latest available on this subject. These data show that output per acre on the small private plots of collective farmers and state farm workers was four times larger than output on state farms and six times larger than that on collective farms. Constituting only 6 percent of the cultivated land, the private plots produced 23 percent of the total farm output. Nevertheless, the leadership has publicly credited the advance in agricultural production to the collectivization of farms.
In 1967 the government proceeded to reduce the size of the private plots, with a view to their eventual elimination, both for ideological reasons and as a means of forcing peasants to devote greater efforts to work on collectivized land. Subsequent steps were taken to transfer to collective ownership some of the livestock allotted to the farm families by the collective farm statute.
This action did not measurably improve agricultural performance. Shortfalls in the production of several important crops, including cotton, tobacco, and rice, were admitted to have occurred both in 1968 and 1969, and the situation in the livestock sector continued to be unsatisfactory. A scaling down of the original production goal for 1970 could therefore not be avoided. The farm output target set by the annual plan for 1970 was 12.5 percent below the minimum and 15 percent below the maximum five-year plan figures for the same year.
INDUSTRY
A few primitive plants producing consumer goods had been built before World War II, but industrial development began only in 1949, when construction was undertaken of a 50,000-kilowatt hydroelectric power station, a textile mill capable of producing 22 million yards of cloth per year, and a sugar mill with an annual capacity of 10,000 tons of sugar. Industrial construction continued under the first and second five-year plans (1951-55 and 1956-60, respectively) during the 1950s, with substantial financial and technical assistance from the Soviet Union. This development was temporarily interrupted in the wake of the political break with the Soviet Union in 1961 but was soon resumed with aid from Communist China (see ch. 6, Government Structure and Political System). The interruption was said by the Albanian leadership to have retarded industrial growth by three years. Disinterested foreign observers, however, reported that the equipment acquired with the aid of Communist China was better suited to the needs of the country and of better quality than that supplied by the Soviet Union.
Among the major industrial projects completed or under construction in 1970 with the assistance of Communist Chinese technicians were: copper, chromium, and iron-nickel mines; an oil refinery at Fier with an annual capacity of 500,000 tons of crude oil, a 225,000-kilowatt hydroelectric power station at Vau i Dejes on the Drin River; a 100,000-kilowatt capacity of 500,000 tons of crude oil; a 225,000-kilowatt/thermal power-plant at Fier; a copper-ore dressing installation and a copper-wire drawing mill; a steel-rolling mill at Elbasan; cement mills at Elbasan and Kruje; large textile combines at Tirana and Berat; and a knit goods factory at Korce.
Of special benefit to agriculture was the construction of a nitrate fertilizer plant at Fier, a superphosphate plant at Lac, and a plant for the manufacture of tractor spare parts at Tirana. A variety of smaller plants were also built for the production of such items as caustic soda, sulfuric acid, rubber products, electrical equipment and light bulbs, footwear, and vegetable oils.
Along with the construction of technologically up-to-date plants, others were built with outdated technology through the lack of construction experience or knowledge of more advanced methods. At the same time, obsolete plants and workshops remained in use. In 1969 these technologically backward plants produced less than half the total output but employed more than half the industrial labor force.
Available information on the structure of industry is ambiguous because of uncertainties regarding the pricing methods underlying the relevant data. According to the official figures for 1967 based on 1966 prices, the food industry accounted for nearly one-third and light industry for almost one-fourth of the total industrial output. The balance of 44 percent was produced by some fourteen or more industry branches, the relative shares of which ranged from 8.0 percent for metalworking and for timber and wood processing to 0.3 percent for the bitumen industry. As a group, six industry branches engaged in oil production and mining contributed about 15 percent of the output. The building materials industry accounted for 5 percent and electric power production, for not quite 4 percent.
The relationship between the output of capital goods and that of consumer goods is equally ambiguous. The share of capital goods in the output of 1968 was officially reported as 55.5 percent, as against 44.5 percent for consumer goods. The apparent discrepancy between the reported shares in total output of consumer goods as compared with the production of the light and food industries may be explained, in part, by the fact that a portion of these industries' output is usually included among capital goods as, for instance, textiles used by the clothing industry and leather used by the shoe industry.
Foreign observers have reported the country's industry to be poorly balanced not only in a technical sense but also in terms of essential domestic needs and the availability of foreign outlets for its products. The metalworking industry, for example, which is limited to the production of automotive and industrial spare parts, apart from a few types of simple agricultural equipment and household utensils, cannot even ensure the maintenance of the existing machinery inventory because it is able to supply only about 60 to 70 percent of the country's needs. Industrial production is substantially oriented toward capital goods and exports, whereas the manufacture of products for domestic consumption continues to be severely restricted.
The leadership is aware of industry's structural shortcomings and is intent on overcoming them through a program involving the reconstruction and modernization of old plants and the concentration of small shops into larger, more efficient specialized units. Progress in this direction, however, has been hampered by inadequate investment resources and by a reluctance of managers and workers to cooperate with this program. It has also been handicapped by a lack of effective planning and by an inability to organize comprehensive studies that would provide a basis for both overall and detailed plans.
Nevertheless, a few plants for the manufacture of machine spare parts and of simple equipment were formed through the concentration of milling machines previously installed in maintenance shops of various enterprises, and a step toward the consolidation of small artisan shops was taken in May 1969 by transforming artisans' cooperatives into state enterprises.
Owing to the lack of prior industrial experience by both managers and labor, industry also suffers from poor organization of production and of the material supply, low labor productivity, and generally inferior quality of product. Extensive discussion of these problems in the official press indicates that government efforts toward reducing the magnitude of these problems are slow in bearing fruit, despite programs for vocational training and intensive campaigns of political indoctrination aimed at generating productive enthusiasm and innovative initiative among workers and managers. A major campaign is being waged to eradicate artisan traditions and to replace them with industrial production line methods. The basic difficulty in achieving greater efficiency lies in the continuing severe shortage of skilled manpower and of personnel with adequate training in the economics and mechanics of industrial production.
Because of the underlying pricing methods, officially reported data on total industrial production in value terms overstate the actual rate of growth attained. Substantial industrial progress is, nevertheless, indicated by physical production data for a number of commodities (see table 12). Since production had started from nothing or from very low levels in the early post-World War II years, the rates of growth in output were substantially higher during the 1950s than in the following decade.
The highest rates of increase during the 1960s, ranging from five to three times the initial volume, were achieved in the production of copper, electric power, and cement. Increases of from 69 to 80 percent were attained for coal, oil, and iron-nickel ore. Production of textiles and footwear grew by more than half, and that of knitwear more than doubled. A substantial advance was also made by the food-processing industry. Least progress was made in the production of cigarettes and bricks--only about 6 to 7 percent--and the output of timber actually declined from 6 million to 5 million cubic feet. Most of the mining output and a substantial share of the food industry production are exported.
Rapid electrification of the country has been a major goal of the leadership. Electrification is intended to meet the needs of industrial development and help attain a higher standard of living in rural areas. A crash program has been underway to bring electric power to every village, even in the remotest areas. This project was originally scheduled to be completed in 1985, but the date has been advanced to November 8, 1971, the thirtieth anniversary of the founding of the ruling Albanian Workers' Party. The program is being carried out by the prevailing method of mass mobilization for voluntary work.
Installed capacity in 1969 was reported to be 210,000 kilowatts, of which 128,000 kilowatts were in thermal powerplants and 82,000 kilowatts in hydroelectric power stations. This capacity reflected a fourfold increase since 1960, a large part of which was accounted for by a single thermal plant of 100,000-kilowatt capacity put into operation in late 1969. The country's hydroelectric power potential has been estimated by Albanian technicians as roughly 3 billion kilowatt-hours per year, half of which is represented by the Drin River. Development of this potential has barely begun. The first major plant on the Drin with a capacity of 225,000 kilowatts is scheduled for completion at Vau i Dejes in 1971, and a second station on that river with a capacity of 400,000 kilowatts is to be built at Fierze during the Fifth Five-Year Plan (1971-75).
_Table 12. Industrial Production in Albania, 1960 and 1964-69_
------------------------------------------------------------------------- Commodity Units 1960 1964 1965 1966 1967 1968 1969 ------------------------------------------------------------------------- Electric power million kilowatt-hours 194 288 322 433 589 712 n.a.
Crude oil thousand metric tons 728 764 822 887 984 1,137 1,310
Petroleum products do. 369 476 509 590 692 n.a. n.a.
Coal do. 291 292 331 393 434 491 n.a.
Chrome ore do. 289 307 311 302 327 369 n.a.
Copper ore do. 82 145 219 228 267 304 326
Blister copper do. 1 2 4 5 5 n.a. n.a.
Iron-nickel ore do. 255 351 395 395 403 440 n.a.
Cement do. 73 127 134 139 221 n.a. n.a.
Bricks million units 130 121 112 106 139 n.a. n.a.
Ginned cotton thousand metric tons 7 9 8 9 9 n.a. n.a.
Textiles million yards 28 33 33 37 44 n.a. n.a.
Cotton do. 27 31 ... ... ... n.a. n.a.
Knitwear million units 1 2 2 3 3 n.a. n.a.
Leather thousand square yards 109 126 124 161 158 n.a. n.a.
Footwear (other than rubber) thousand pairs 1,365 1,835 2,103 2,259 2,103 n.a. n.a.
Shoes and sandals thousand pairs 831 955 n.a. n.a. n.a. n.a. n.a.
Rubber boots do. 155 201 191 211 248 n.a. n.a.
Flour thousand metric tons 125 145 152 161 157 n.a. n.a.
Cigarettes million units 3,436 3,990 4,390 3,310 3,620 n.a. n.a. ------------------------------------------------------------------------- n.a.--not available.
Electric power production is reported to have attained in 1968 the level planned for 1970. Output of power rose from 194 million kilowatt-hours in 1960 to 324 million kilowatt-hours in 1965 and almost 800,000 million kilowatt-hours in 1969. The distribution system has also been rapidly extended and in 1969 included about 800 miles of high-tension transmission lines of 35 and 110 kilovolts. Distribution and use of electric power were reported to be very wasteful, with losses as high as 115 million kilowatt-hours in 1969--almost 15 percent of total output. Information on the pattern of electric power consumption has not been published.
FINANCE
Financial operations have been shrouded in secrecy, and little information can be gleaned from the limited published data. These data, nevertheless, reflect some of the leadership's basic economic policies, such as its emphasis on rapidly increasing production while restraining a rise in consumption, its preference for industrial development as against agricultural growth, and its drive to mobilize domestic resources for economic development.
The Budget
Information on budgetary practices is not available, and statistics relating to the budget are incomplete. The relation between three different budgets approved annually by the People's Assembly on recommendation of the Council of Ministers is therefore unclear. There is a state and a national budget and a budget for local government. The budget for local government has been growing slowly in relation to the state-budget--from 16 percent in 1955 to 17 percent in 1960 and 20 percent in 1969 and 1970.
Only about one-fourth of local budgetary revenue is derived from local taxation, which implies a substantial subsidy from the central government budget. The amount of this subsidy is roughly double the usual 7- to 8-percent difference between the state and the smaller national budget. A surmise that the state budget represents an overall budget and that the national budget serves to finance central government activities only is therefore not warranted.
Except for a slight decline in revenues in 1961 and 1963, coincident with the country's political and economic break with the Soviet Union, the annual state budget has been rising steadily to a level of 5.21 billion leks (5 leks equal US$1--see Glossary) in revenues and 5.11 billion leks in expenditures for 1970. By comparison with the budget for 1960, revenues increased by 85 percent and expenditures by 102 percent, with a corresponding decline of 65 percent in the budgetary surplus. On a five-year basis, comparing the Fourth Five-Year Plan with the Third Five-Year Plan, both revenues and expenditures rose by about 40 percent, with a slightly higher increase in revenues.
A relatively greater stringency of funds for budgetary purposes after the break with the Soviet Union is reflected in the planned annual budgetary surplus, a permanent feature since 1946 and a matter of great pride for the leadership. From a level of almost 24 percent in 1950, 15 percent in 1955, and 10 percent in 1960, the surplus dropped to 1.1 percent in 1962 and 1.5 percent in 1963. Despite a slight recovery in subsequent years, except for 1968 when it declined to only 1 percent of revenues, the planned surplus did not again approach its earlier size.
Partial information on sources of revenue is available to 1967. Published statistics listed a turnover tax on all goods produced, deductions from enterprise profits, direct taxes on the population (primarily income taxes), and social insurance premiums. These sources yielded, on an average, 60 percent of the total revenue in the 1960-65 period, and their share rose steeply to 74 percent in 1967. The balance of the revenue, omitted from official statistics, consisted primarily of income from agriculture in the form of compulsory deliveries, proceeds from state farm operations, payments to machine-tractor stations, and taxes.
The most important among the listed revenue sources were the turnover tax and deductions from profits. Together their yields ranged from 50 percent of total revenue in 1960 to almost 69 percent in 1967, but their relative weights changed markedly during this period. In 1960 the turnover tax yielded 40 percent and profit deductions 10 percent of revenue; by 1967 their respective shares were 43 and 26 percent. Social insurance premiums contributed between 3.2 and 4.5 percent, while the yield from direct taxes on the population declined from 2.7 percent in 1960 to less than 1 percent in 1967. In 1969 income taxation was abolished for individuals and for some poor collective farms in hilly and mountainous areas.
The leadership has claimed that the abolition of direct taxes on the population with the concomitant improvement in public welfare was made possible by the country's economic advance based on the Party's correct revolutionary policy, and it contrasted the progressive nature of this measure with an alleged intensification of exploitation and misery of workers in what are officially called imperialist and modern-revisionist countries. This comparison ignores the existence of the turnover tax, which is particularly heavy on consumer goods, and of the enterprise profits deduction, both of which are reflected in the sales price of commodities and, consequently, represent a hidden form of sales taxes. This method of taxation is known to be regressive, in that it takes no account of differences in income and places the heaviest burden on those least able to pay.
The published budget laws usually specify the amount of revenue to be derived from the socialized economy, including collective farms and cooperative enterprises. The proportion of this revenue was reported to have been 85.5 percent in 1960 and from 88 to 89 percent in the 1968-70 period. This information cannot be reconciled with the published revenue statistics, particularly with the data concerning the taxation of noncollectivized farm enterprises, the proceeds from which were reported to be less than 0.5 percent in 1964. The revenue from the nonsocialized sector consists mostly of taxes imposed on the output from personal farm plots of collective and state farm workers and, to a lesser extent, of taxes on some private artisan and other activities still tolerated by the government within narrowly prescribed limits.
Information on budgetary expenditures is also incomplete. Published statistics failed to specify the use of 17.5 percent of the total outlays in the 1960-65 period, and no explanation is readily at hand for the decline of the unallocated residue from that level to between 3 and 4 percent in 1968-70. The published data included outlays for the national economy, social and cultural needs, defense, and administration.
The proportion of total expenditures devoted to social and cultural needs and to defense remained remarkably stable between 1960 and 1970. Annual outlays for these two categories fluctuated, respectively, only from 22.6 to 25.1 percent and from 7.6 to 9.9 percent of total expenditures. The share of administrative expenditures declined steadily during this period from 2.7 to 1.7 percent. Outlays for the national economy were also shown by the published statistics to have been quite stable in the 1960-65 period, with an annual variation of only 2.6 percent. Coincident with the decline and virtual disappearance of the unreported expenditure residue after 1965, however, the share of industry rose sharply from 46 percent in 1965 to more than 64 percent in 1968 and remained above 61 percent through 1970. The reasons for, and the implications of, this change in reporting practice are not known.
An average of 47 percent of the budgetary expenditures in the 1960-67 period was devoted to investment, with annual fluctuations of this category between 39 and 55 percent. The lowest rates of investment occurred in 1962 and 1963 as an aftermath of the abrupt cessation of Soviet aid deliveries. In absolute terms the volume of investment increased from 1.1 billion leks in 1960 to 1.8 billion leks in 1967. Total investment for the years 1966-70 was planned at 6.5 billion leks, an increase of 34 percent over investments in the preceding five-year period. Actual investment in the years 1966-69 was reported to have exceeded the plan for those years by 12 percent. In line with the Party's policy of promoting a rapid growth of the country's productive capacity, from 80 to 82 percent of the investment has been devoted to the construction of facilities for material production.
Industry has received the largest share of investment--48 percent in the 1961-65 period and 50 percent under the plan for 1966-70. On an annual basis, industry's share ranged from a low of 36 percent in 1962 to a high of 61 percent in 1965. The proportion of agricultural investment was much lower--only 15 percent of the total in 1961-65 and less than 19 percent of the total planned for 1966-70. During the first two years of the 1966-70 period, actual investment in agriculture lagged substantially and amounted to only 11.7 and 16.2 percent, respectively. The lack of adequate investments has been a contributing cause of poor agricultural performance. There has been no consistency in the pattern of industrial and agricultural investment. The respective shares of these two sectors in total investment fluctuated widely from year to year in the 1960-67 period. An adequate explanation of the reasons for this fluctuation has not been found.
Investment in housing and for social and cultural purposes has been minimal--8.1 and 3.7 percent, respectively, in the 1961-65 period and 6.1 and 8.1 percent, respectively, under the plan for 1966-70. As in the case of agriculture, actual investment in 1966-67 was substantially below the planned levels and amounted to less than 5 percent for housing and 2 percent for social and cultural needs. This capital starvation has been largely responsible for the dismal housing situation and for the inadequacy of other essential amenities.
Money and Banking
The lek, divided into 100 quintars, is a nonconvertible paper currency with multiple official exchange rates. The basic official rate since August 10, 1965, has been 5 leks for 1 United States dollar, a rate that has no applicability in practice. Up to 1965 the exchange value had been 50 leks per US$1. The change in par value had no economic significance because prices, wages, and all other monetary values were reduced by the same ratio.
There are two types of so-called tourist or support leks. A rate of 12.50 leks per US$1 applies to the official exchange of Western currencies by nonresidents and to support payments received by residents from Western sources. A rate of 7.55 leks per US$1 applies to the exchange by Communist country residents of their national currencies and to support and other noncommercial payments transferred by them from Albania to Communist states. A third variety of official exchange rates consists of the rates used to balance clearing accounts under special trade and payments agreements with Communist countries. An illegal black market rate of about 60 leks per US$1 from early 1968 through early 1969 was reported by reliable sources.
All currency matters are administered by the National Bank jointly with the ministries of finance and trade. Albania is not a member of the International Bank for Reconstruction and Development or of the International Monetary Fund.
Adequate information is not available on the nature of the relationship between the State Bank and the Ministry of Finance or on the bank's financial operations beyond some outdated statistics on credits and savings deposits. As the principal financial institution, the State Bank carries out the financial policies of the Party and government. It issues currency, provides credit to all economic sectors, accepts savings deposits, and serves as the country's treasury. In addition to these functions, the State Bank helps prepare the financial plans for the economy, is called upon to assist enterprises in completing their planned assignments, and is responsible for controlling all economic activities through the use of its financial levers.
In mid-1969 the State Bank was severely criticized for poor performance, particularly its failure to exercise adequate control over unauthorized use of funds and waste of materials by the enterprises it helped to finance. The bank's failure was largely precipitated by uncertainties created through a decentralization of economic authority, decreed by the Party, and a dilution of the bank's control function.
A specialized system of state savings and securities banks was established within the Ministry of Finance in November 1968, for the purpose of mobilizing the population's savings for investment through loans to the state and the sale of its securities. The text of the law that created this institution contained no provision concerning the relation of these new savings and securities banks to the State Bank. Further information on the new banks was not available in mid-1970.
The only available information on the State Bank's financial operations consists of partial data on loans to agriculture and for housing and on the number and amount of savings deposits. The total volume of farm credits, exclusive of credits to state farms for which statistics have not been published, increased from 95 million leks in 1960 to 252 million leks in 1964, including long-term loans of 38 million and 44 million leks, respectively. By 1967 long-term loans had increased to 56 million leks. The statistics do not indicate whether the published data refer to the annual volume of loans granted or to the total amount of outstanding loans. A small fraction of the loans after 1960 was granted to individual peasants for the purchase of livestock.
Loans for housing construction and repair declined drastically from 17 million leks in 1960 to only 7 million leks in 1964. The distribution of the loans between urban and rural areas fluctuated widely, but urban loans predominated by a large margin and constituted from 69 to 93 percent of the total. The number of savings accounts increased from 235,400 in 1960 to 445,000 in 1968, and the volume of deposits rose from 119 million to 247 million leks. Interest paid on these amounts totaled 3.6 million and 4.8 million leks in the respective years, which implies a reduction of the interest rate from about 3.0 to 2.5 percent.
FOREIGN ECONOMIC RELATIONS
Foreign Aid
The country's foreign economic relations have been conditioned by its leadership's economic goals and political persuasion. As a poor, undeveloped country intent on modernizing and expanding its economy at a rapid pace, Albania has had to rely heavily on foreign economic and technical assistance during the post-World War II period. The leadership's extreme Marxist orientation and hostility toward the Western nations have precluded a recourse to non-Communist sources of aid and have made the country entirely dependent upon contributions by other Communist states. But even within the Communist sphere political disagreements have had a disruptive effect on aid arrangements (see ch. 6, Government Structure and Political System).
From 1945 to 1948 economic and technical assistance was received from Yugoslavia. After the political break between that country and Albania, the Soviet Union assumed the role of major aid donor, and smaller contributions were made by some of the East European Communist states. Since 1961, when the substantial support of the Soviet Union was lost in the wake of the political schism within the Communist world engendered by the Sino-Soviet dispute, Albania has been able to obtain assistance only from the People's Republic of China (Communist China). The readjustment necessitated by the abrupt withdrawal of all Soviet aid and technical advisers was said by Albanian leaders to have retarded economic development by three years.
The extent of aid received in the form of long-term loans, some of which became grants through debt cancellations, is only partially known. The amount of total loan commitments by the Soviet Union in United States dollar equivalents for the period of 1945 through 1961 was estimated by one Western source at US$246 million. Another Western source reported the amount of loans promised by the Soviet Union and the East European Communist states for the 1961-65 period to have been in excess of US$132.5 million. These loans were cancelled in their entirety in the spring of 1961. A partial list of Soviet loan commitments, compiled by a Western student from Soviet economic literature, totaled US$172 million for 1957-61. The actual amount disbursed, however, was much smaller.
Aid deliveries, as reflected in official Soviet statistics, totaled only US$39.4 million for the years 1955-61. Similar information on aid deliveries from 1949 to 1954 was not readily available. Western observers believe that the economic crisis created by the Soviet withdrawal of aid forced Albania to default on the outstanding loans.
Loans granted by East European Communist states and outstanding in 1965 (in terms of United States dollar equivalents) were given by a Soviet source as follows: Bulgaria, US$11 million; Czechoslovakia, US$25 million; East Germany, US$15 million; and Romania, US$7.5 million. Information about repayments of these loans was not available. Only a fraction of the outstanding amounts could have been liquidated through Albania's trade surplus with these countries. Some Western estimates placed the debt to the Soviet Union and East European Communist states at the end of 1968 at a minimum of the equivalent of US$500 to US$600 million.
Economic aid by Communist China dates back at least to late 1954. Stated in United States dollar equivalents, Albania received in that year a grant-in-aid of US$2.5 million and a loan of US$12.5 million. An additional credit of US$13.75 million was made available in early 1959, and a loan of US$123 million for the purchase of industrial equipment during the Third Five-Year Plan (1960-65) was extended in early 1961, after Albania's break with the Soviet Union. Two more loans, for undisclosed amounts, were negotiated in June 1965 and November 1968 to finance the fourth and fifth five-year plans, respectively. In public references to the 1968 loan, Party and government officials gave the impression that it was substantially higher than the loan of US$123-million obtained in 1961. Aid has been provided by Communist China free of interest.
A Western scholar reported unidentified sources to have suggested that the 1965 loan amounted to about US$214 million, a sum substantially in excess of the credits granted up to that time. Another Western source estimated total direct credits for the 1960-68 period to have been more than US$450 million, exclusive of substantial grants. Yet, other Western sources thought at the time, and also in 1970, they had discerned evidence of disappointment on the part of the leadership with the extent of the financial assistance, delays in the supply of machinery, and an unwillingness or inability to supply much-needed consumer goods. The leadership's awareness of the inadequacy of foreign aid in relation to the planned development program has been evidenced, in its appeals for greater productivity, by the high frequency of references to the Party's principle of reliance on the country's own efforts and in its continuing campaign for the utmost economy of resources.
The country's cumulative clearing debt to Communist China on the commodity trading account at the end of 1968 was estimated at roughly US$300 million. This amount did not include the substantial additional costs of assistance in the form of technical advisers who have guided the construction and operation of major industrial projects. Estimates of these costs or of the number of aid technicians in the country were not available.
Foreign Trade
Because of the dearth of domestic resources in relation to the needs for economic development and consumption, foreign trade has consistently shown a negative balance. A marked improvement in this respect has taken place since 1955, even though the absolute deficit has been growing with the rising trade volume. In the 1960s exports covered 60 percent or more of imports, compared with 47 percent in the 1956-60 period and 31 percent in the preceding eleven post-World War II years. This improvement in the trade balance has been achieved through a consistent policy of diversifying domestic production with a view to import substitution, developing all possible resources for the production of exportable goods, improving product quality, and severely restricting domestic consumption. The annual trade deficit in 1967 and 1968 was about 200 million leks.
The volume of trade has been rising quite steadily from 140 million leks in 1950 to 950 million leks in 1968. During this period imports increased from 110 million to 580 million leks, and exports rose from 30 million to 370 million leks. The Fourth Five-Year Plan calls for an increase of 31 percent in total trade over the volume of the preceding five years, including an increase of 36 percent in exports and 28 percent in imports. These figures imply a planned average annual trade volume in the 1966-70 period of 885 million leks, of which 355 million leks were exports and 530 million leks imports. Although the rate of trade expansion during 1966-68 exceeded the target, the export-import ratio was not as favorable as that called for by the plan.
The directional pattern of the country's foreign trade has conformed to the general observation that trade follows aid. The assumption by Communist China in 1961 of the major aid donor position previously held by the Soviet Union had an immediate and pronounced impact on the direction of trade. In 1960 Communist China accounted for only 7 percent of the total trade volume, as against 54 percent for the Soviet Union. By 1962 trade with Communist China had grown to 51 percent of a somewhat smaller total volume, whereas trade with the Soviets had ceased altogether by 1963. In 1964 Communist China's share of the trade was equal to that of the Soviet Union in 1960, and the actual volume represented by that share was 23 percent larger. During the 1962-68 period trade with Communist China amounted to about half the total trade volume, but the share of Communist China declined below that level toward the end of this period. This decline was the result of a successful effort by the leadership to expand the country's trade with both Communist Eastern Europe and the non-Communist West.
Trade with the Communist countries of Eastern Europe, other than Yugoslavia, continued after the break with the Soviet Union and increased by 66 percent from 226 million leks in 1960 to about 375 million leks in 1968. The share of this group in total trade rose during this period from 35 to 40 percent, almost entirely after 1964. Albania's most important trade partner in this group has been Czechoslovakia, second only to Communist China with a volume of 118 million leks in 1968, equivalent to about 12 percent of Albania's total trade volume in that year. Following Czechoslovakia in order of importance were Poland, East Germany, and Bulgaria, with trade volumes ranging from 69 million to 53 million leks. Trade with Hungary and Romania amounted to about 40 million leks and 32 million leks, respectively. With the exception of Poland and Romania, Albania's trade balance with the countries of Eastern Europe was positive between 1960 and 1968. The excess of exports over imports during this period totaled about 65 million leks.
During the early years of the country's dependence upon Soviet aid, trade with non-Communist countries and with Yugoslavia had been discontinued, but it was resumed on a very small scale by 1955. In 1964 this trade amounted to only 65 million leks (equivalent to US$13 million at the official rate of exchange), or 8 percent of the total trade turnover. Fully two-thirds of this trade was accounted for by Italy and France. During the following four years trade with the West and Yugoslavia increased 2-½ times to 160 million leks in 1968, and the share of this trade in the total turnover doubled.
Italy continued to be the major Western trade partner, with a turnover of 66 million leks in 1968, but the largest advance was made in the trade with Yugoslavia. The total trade turnover with that country rose fiftyfold in one year, from 400,000 leks in 1965 to more than 20 million leks in 1966. Under the 1970 trade agreement the trade volume is scheduled to reach 50 million leks. In 1968 Italy and Yugoslavia together absorbed four-fifths of the combined exports to the West and Yugoslavia and supplied more than half the imports from that area.
Another striking example of the country's trade expansion effort is the agreement with Greece, a country with which Albania has had no political or economic relations for thirty years. Signed by the chambers of commerce of both countries in January 1970 and effective for one year, this agreement provided for an initial turnover of 7.5 million leks, of which 4 million leks were in imports and 3.5 million leks in exports. Commercial orders worth about 1.5 million leks on both sides were reported to have been placed by mid-1970.
In 1969 trade relations were officially reported to have been maintained with forty different countries. Relations with thirteen of these countries, both Communist and non-Communist, were formalized by trade agreements.
Imports have overwhelmingly served the needs of production and industrial expansion. Almost 50 percent of the imports in 1964 consisted of machinery, equipment, and spare parts. More than 23 percent was accounted for by minerals and metals, chemical and rubber products, and construction materials. Another 16 percent was made up of agricultural raw materials, about two-thirds of which was destined for the food-processing industry. Only 11 percent of the imports consisted of finished consumer goods and ready-to-eat foods. Continuing Party and government emphasis on increasing production and the improved domestic output of foods suggests that the production-oriented nature of imports did not change significantly by 1970.
Exports have consisted predominantly of minerals and mineral products but have also included significant amounts of agricultural products and manufactured consumer goods. In 1969 petroleum and natural bitumen, chromium and ferronickel ores, and copper (including copper wire), constituted 55 percent of exports. Another 25 percent comprised processed foods, such as canned fish and vegetables and preserved fruits; light industry products, including cotton and linen textiles and some readymade clothes; and a few chemicals. The balance of 20 percent was represented by fresh fruits and vegetables and by agricultural raw materials, such as hides and skins, tannins, and medicinal plants. Exports of fruits and vegetables to central and northern Europe have been growing rapidly.
The share of manufactured and semiprocessed products in exports was also officially reported to be increasing and to have constituted 51 percent of the export volume in 1968. Students of Albanian affairs have reported that some of the country's exports are not competitive in world markets and that Communist China has been willing to absorb them at a good price only for political reasons, as did the Soviet Union before 1961.