Besides triggering short-term disruptions in the Fifth Five-Year Plan, China's reduction of aid to Albania had a dramatic impact on the Balkan nation's broader economic policy after 1972. In official parlance, Albania's rulers implemented a strategy of "socialist construction based on the principle of self-reliance," that is, a policy of strict autarky. In 1976 the People's Assembly constitutionally barred the government from accepting any loan or credit from a capitalist source and from granting concessions to or setting up joint ventures with companies from the capitalist world. The Albanians publicly criticized Beijing beginning in the fall of 1976, and China ended economic aid to Albania altogether in July 1978. The break eliminated the source of half of Albania's imports. The country had no choice but to stimulate exports to make up the shortfall in the hard currency needed to purchase essential supplies. Just before the announced break, government planners prescribed a rapid increase in the production and export of Albania's four main sources of hard-currency income: oil, chromite, copper, and electric power. Between 1976 and 1980, exports jumped 33 percent over the preceding five-year period. In an act indicative of its xenophobia and economic priorities, the regime invested an estimated 2 percent of net material product in the construction and installation of thousands of prefabricated cement bunkers throughout the country from 1977 to 1981.

Tiranė took energetic, if extreme, steps to end Albanian dependence on food imports, even going to the point of requiring each of the country's districts to become self-sufficient in food production. In order to keep people on the farms, the authorities also made rural wages relatively more attractive and tightened travel restrictions on the rural population. The government reduced the size of the personal plots of collective-farm members. Police also increased harassment of peasants who attempted to sell produce in the cities. In late 1981, the government collectivized private livestock in the lowlands as well as all goats and sheep in the highlands. Disaster ensued when peasants undertook a wholesale slaughter of their herds; shortages of meat and dairy products soon plagued the cities. Overpopulation in farm communities further complicated efforts to achieve self-sufficiency.

Autarky proved an unsuccessful policy. The productivity growth rate fell slowly but steadily during the Seventh Five-Year Plan (1981-85), and the annual increase in net material product for the period 1981-88 averaged only 1.7 percent, a figure that did not even keep pace with the country's annual population increase of more than 2 percent. Albania's economy suffered two of its worst years in 1984 and 1985. In 1984, 1985, 1987, and 1988 the net material product decreased, and from 1986 to 1990 it declined 1.4 percent (see Table 5, Appendix). Five years of drought between 1983 and 1988 dealt sharp setbacks to agricultural and hydroelectric power output. Power shortages and other acute problems afflicted two of Albania's main generators of hard-currency income, oil and chrome. As output fell, investment contracted and caused further drops in productivity. Insolvent enterprises turned to the state for bailouts. The shortage of goods circulating in the economy and the government's maintenance of fixed wage levels created repressed inflation and forced saving.

Despite clear portents of an economic catastrophe, the regime took no radical initiatives to pull Albania out of its economic nosedive until it was too late to avoid a major collapse. Ramiz Alia, who became chairman of the Presidium of the People's Assembly in November 1982, gradually assumed more decision-making power from Hoxha, who went into semiretirement in 1983 and died in April 1985. In 1986 the Albanian Party of Labor still fully supported a centrally planned economy. The party's official daily, Zeri i Popullit, included the following proclamation in January 1986: "The execution of plan tasks...by every individual, sector, enterprise, agricultural cooperative, district, and ministry is a great patriotic duty, a party and state duty." A year later, Alia set to work to quash the right of the peasant collective-farm members who still had personal plots to sell their produce, denouncing the practice as a waste of time and a misguided stimulation of a private market. The ambitious Eighth Five-Year Plan (1986-90) called for an increase of about 35 percent in national income, a 30-percent increase in industrial output, a 35-percent improvement in agricultural output, and a 44-percent increase in exports. Targeted for investment were a hydroelectric-power plant at Banjė in the south, a rail line connecting Durrės with the main chromite-mining area in central Albania, new superphosphate and ferrochrome plants, and the completion of nickel-cobalt and lubrication-oil plants.

By late 1989, the dismantling of the communist governments of Eastern Europe and the reintroduction of capitalism to the region were under way, and signs of change began to appear in isolated Albania. It was recognized that the attempt to introduce a completely socialized agricultural sector had failed and that livestock collectivization had been a huge blunder. Nevertheless, in September 1989 Alia told the Eighth Plenum of the Central Committee of the APL that the leadership would "never permit the weakening of common socialist property." The party will never, he said, "permit that the way be opened to the return to private property and capitalist exploitation." At the end of his address, however, Alia said that guaranteed employment, a cornerstone of the communist system, should be allowed to go by the wayside. Thus, he signaled that the leadership had indeed realized that radical changes to the country's Stalinist economic system were necessary.

In 1990 Alia attempted to strengthen the communists' weakening hold on power by initiating an economic reform from the top down. For the first time, the leadership proposed broadening private economic activity outside of agriculture and a role for market forces in determining resource allocations for state-owned industrial enterprises. The government relaxed central planning in agriculture, increased the maximum allowable size of personal plots to about 0.2 hectares, and ordered collective farms to return livestock to peasants. The reforms provided for an expansion of enterprise self-financing and allowed local governments to plan part of the industrial activity that took place in their districts.

In January 1990, at the Ninth Plenum of the Central Committee, party leaders disclosed a reform program that constituted an even more radical departure from their purely Stalinist rhetoric of only a few months earlier. Enterprises were divided into small units and made financially independent, with long-term bank credits replacing state subsidies. The package included decentralization of economic decision making. Workers won the right to choose and dismiss enterprise directors. Wages were to be based on plan fulfillment and enterprise profits. Supply and demand were to determine the prices of luxury goods. Citizens were permitted to undertake private construction for their own use. Agricultural cooperatives were allowed to sell food in towns and set their own prices. At the Tenth Plenum of the Central Committee in April 1990, Alia said that as a consequence of the reforms a significant turnover had occurred among the directors of Albania's enterprises. Resistance to the reforms came from administrative employees unwilling or unable to adapt to new job requirements. Some firms responded to the economic reforms by reducing their output targets in hope of increasing their bonuses; other firms, hoping to avoid penalties for sustaining unplanned losses, actually planned for losses in advance.

The government failed to implement the reforms quickly enough to stem the tide of popular unrest and prevent economic disaster. In the summer of 1990, the existence of unemployment became apparent in Albania. A new drought reduced supplies of electricity from Albania's hydroelectric dams and forced plant shutdowns. Thousands of Albanians demanding visas stormed Tiranė's few Western embassies. The first postwar opposition political movement emerged in December 1990; riots in Tiranė and Shkodėr in April 1991 galvanized antigovernment forces; and thousands of Albanians fled to Greece and Italy, but most were later forcibly returned.

By mid-1991, only a quarter of Albania's production capacity was functioning. Industrial output in the third quarter was 60 percent less than in the third quarter of 1990. The foreign debt reached about US$354 million in mid-1991, up from US$254 million at the end of 1990 and US$96 million at the close of 1989. Despite the paralysis in production, the government fed inflation by issuing unbacked money to pay idle workers 80 percent of their normal wages. The opportunity to pilfer became one of the strongest factors motivating people to go to work, and the absence of clearly defined property rights and the breakdown of the rule of law fueled rampant theft of both private and state-owned property. The prolonged shutdown of production lines threatened serious damage to equipment and other capital goods, which suffered at least as much from plunder and cannibalization as from normal depreciation.

In the chaos, consideration of the transition costs inherent in the changeover from a socialist to a capitalist system became irrelevant. The coalition government that took office in June 1991 responded to the situation by announcing that it intended to carry out radical economic reforms including privatization of agricultural land, creation of a legal framework necessary for the functioning of a market economy, commercialization and privatization of economic enterprises, tight monetary and fiscal policies, price and foreign-trade liberalization, limited convertibility of Albania's currency, and the creation of a social safety net. However, the coalition government fell several months later. In April 1992, a victorious Albanian Democratic Party (ADP) took over the government and assumed the burden of implementing badly needed economic reforms.

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Source: U.S. Library of Congress