The lack of effective contracts, the result of a deficient formal social relationship, translates in economic terms into higher transaction costs, and consequently into lower productivity. High transaction costs, in turn, mean in Romania a weaker economic performance overall. The CEC-SOV Invest contract, a concrete example at hand, has concentrated for more than a month all of our technocrats’ efforts in search for the answer to the big question – was it real or just an illusion? The same fate befell the court trials that accompany the privatisation of Tutunul RomOnesc or Petromidia. When multimillion-dollar issues are at stake, the wish of the taxpaying citizen to get the coveted hot water running in his taps, with all contracts up-to-date and fully paid, does seem an exaggerated wishful thinking.
Surely, in each case there are solid reasons that explain why things go wrong. These reasons are laid out in rich detail by officials invited to comment in talk shows, but troubles have been clear and present throughout the last ten years, causing an unpleasant monotony. Moreover, there are trivial situations when officials are glaringly unable to impose any discipline – in light of this, the promise to bring order among the food-market daytime sellers seems an attractive pledge in an “election offer.”
Trust comes from assurance
In the United States, in Japan, and in virtually all economic structures history has known, even in the bizarre edifice we call Romanian transition, trust has played a crucial role, both in the age-old commerce and in modern business. But the reasons behind this reality differ greatly with every instance – whereas in the modern West, trust is doubled, overseen by a legal system which is extremely functional and often resorted to, the Romanian’s trust comes from lack of alternative – a written contract is nothing more than a shred of paper, stamped or signed, but never really guaranteeing anything. In this imprecise milieu, a modest citizen and a multinational company must always trust in the connections which are either acquired or bought. It has nothing to do with the Western “networking,” a term related to “public relations,” but rather with the very much Romanian way of day-to-day connections. Businesses big and small often ignore the petty paper formalities called contracts. Even when they do exist on paper, they are only enforced when partners want so, and the legal system is at best slow, at worst counterproductive, and never a certainty to rely on.
Who needs contracts?
After all, the citizen, at the microeconomic level where he dwells, is doing rather fine without any contracts – in fact, he’s better off without them. He buys bootlegged software which sometimes works and sometimes doesn’t, buys “cheap and good” commodities on the black market, pays no licence fees, excises, VAT and other things that would have made no difference anyway. He pays some utility fees, sometimes doesn’t, because prices go ever higher, and gets some services, whose quality often matches the outstanding bill. Radet has an occasional quarrel with Termoelectrica, hot water goes out for a week or so, but overall, life goes on – you can’t leave a city without utilities – and the contract always remains what it was – a mere piece of paper which doesn’t need to be complicated to state exactly what to do and how to do it. Anyway, no one can say precisely what should happen in these cases according to the law, save for a couple of specialists who pop up on late-night TV shows. The same happens on the black market – why would anyone buy legal software when a pirated copy is equally available? Why shop in a supermarket when roughly the same products are available in a food market, and much more cheaply?
It does seem that it’s better without contracts, and the West is wrong after all, with all its legal tinkering. But it’s a relative notion, a survival, an eternal reason to whine about “how our life is.” And it is also the reason why any measure of economic stability (well, not on the hottest days) was never to be seen in the last ten years.
A social perspective
The lack of a formal social relationship is one of the worst features left behind by the socialist system, still showing its fangs ten years after the official extinction of communism. The amalgamation of rural and urban population, the growing number of ethnic, religious and “class” conflicts, which in time have gained a very clear shape, have restricted social interaction to the family level, from where it developed in all sectors of public life. Business thus became “family business,” politics became “family politics,” and nepotism grew into a rule of thumb. An impoverished economic condition has greatly fostered such relationships, and the similarity with Italy’s poor South, a true hotbed for the Mafia, is striking.
The other social relationship, of the formal kind, developed in the modern post-war West, is perceived in Romania as a cold, inhuman practice: “people there are distant, not like us here,” Romanians just back from “outside” are narrating expertly. Perhaps in the New York neighbourhood you can’t just borrow three eggs to whip up dinner, but economically speaking, German rigour has led to good results. Even in Europe, Southern countries, where interpersonal relations are valued more, are poorer – and that cannot be a coincidence.
The “network economy” concept
There are goods or actions whose possession or exercising has a nil utility. A textbook example is the fax machine, which serves absolutely no purpose when there is only one instance of it. Paying the utility bill when everyone else is overdue is another example, and a further example is the lack of efficient contracts. But the gain from the spread of these goods (more fax machines, more payers of utility bills, solid formal contractual relations) is immense, a genuine source of economic growth and improving standards of living.
Who’s to take action?
While, normally, the state does not have many of the attributions the Romanian state has assumed today, the role of building a formal relation is among the state’s natural attributions, which the Romanian state, over its head with so many other tasks, is unable to perform. In this case, time will sort everything out, but the losses caused by officials’ incapacity to make institutional structures work, good or bad as they may be, will add up over the years. And a paternalistic government variant, ostensibly called social-democratic, or even a bizarre social-liberal combination, can only amplify these costs. Perpetuating the illusions of market socialism or inventing new doctrines, such as social-liberalism, means postponing the recognition of a reality which is destined to become painful with every passing day. Every “socialised” variant of the market, regardless of the name, is rooted in the intimate conviction that the market model is inhuman, that a more bland version should be found. In reality, what we need for a change – and for starters – is to follow the law.