Gypsies’ Contribution to Market Reforms

From a societal stratum with most pro-market economic behavior, Bulgarian gypsies, after 1989, have become a key reform agent although this role has never been properly reflected and explained. In this article I would like to discuss the specific niches they occupied in the last 16-17 years, how they were influenced by the culture and how they were motivated by outside factors and welfare state incentives. As in the previous article, I speculate on and attempt to offer an interpretation of well-known facts and developments without pretending to be empirically rigid. I am confident that a specialized survey is likely to provide sufficient hardcore evidence to the interpretation I offer.

Definition of property rights with the help of gypsies

Gypsy entrepreneur : a bare foot capitalist

At the eve of the late 1980’s reforms, the Gypsy population of Bulgaria had played an important role. Before the political reforms of November 1989 – June 1990 (the political crisis of the Communist regime and the first free post-Communist elections), the regime had loosened its’ grip on the economy allowing private individuals to establish individual small businesses in the services and other sectors.(1)

In countries with oppressed individual rights, small changes lead to significant unintended consequences. The gypsy business in the late 1970’s and 1980’s have contributed to two key justifications of those partial reforms: they have demonstrated that private initiative is not subject to eradication, that it flourishes in all societal strata and that it produces prosperity gains on all levels.

In the economy the key manifestation of private property right is the right to be a consumer, a master of own preferences and the choice to buy what is wanted from whom it is wanted and at a price that is freely negotiable. The consumer surplus drives this right even under Communist conditions. This phenomenon is well discussed in the literature(2) and we have seen that via the role of Bulgaria Gypsies in the previous article.

The institutional side of the consumer surplus is that it helps in searching and establishing the link between production and consumption: under normal conditions, if consumers do not need certain goods and services then the producer does not have other prospect besides closing production.

These “ normal conditions ” are well – defined individual rights to private property and consumer choice and absence of coercion and plunder . Under the system of central planning and limited to homes and small slots of land private property, as was the situation in Bulgaria between 1948 and early 1989(3), all forms of servicing consumer rights were forms of a deconstruction of the status quo (while private business has been effectively treated as crime in all walks of life until early 1989 when the prohibition was partially lifted from some sectors). The deconstruction:

• Defines the limits of central planning ,
• “Creates” and sustains the alternative to central planning,
• Destroys the central planning since consumer surplus motivates plundering from state owned assets.

In this situation , the Gypsies in Bulgaria are the only societal group to fulfill the above said deconstruction; other groups were performing it by accident and on a sporadic basis. This is because the Gypsies as a group were:

a) Deprived of social status, career and influence,

b) Completely pauperized, a “proletariat with any avant-garde”,

c) Group market economy actors under Communism.

The liberalization of the hard currency shop trading in 1970’s and the involvement of Sofia and other big city Gypsy communities performed an example of barefoot capitalism. Such capitalism was, however, not only the mercantile into highly valued goods as jeans. Besides the already mentioned specific craft niches and agriculture free-lance, an even more important market role of the Gypsies was their involvement in the creation and functioning of the early 1980’s open air bazaars of “Iliantzi” and “Malashevtzi”.(4) Both were the first official alternatives to centrally planned distribution, official in the sense that they were not disturbed by authorities in their first weekend and consequently in daily operations.

In early 1989 and then after political changes of late 1989-early 1990 and with the start of the economic reforms of 1991 such markets grew in size and spread around the country.(5)

Later, the role of the Gypsies as a group of almost exclusive bazaar operators gradually faded away. They were substituted by other “foreigners”, Arabs, Afghani and Palestinians who were settling in Bulgaria on their way to Europe or who had chosen not to go back to their countries since Bulgaria offered better prospects. This was the same phenomenon of barefoot capitalism but more international and globalized as not only the goods but the merchants and buyers were from many different countries. (The buyers become international in 1991 and especially in 1992, after the outbreak of the wars in ex-Yugoslavia.)

From this moment on, a new specialization has begun of bazaar Gypsy intermediaries.

In 2000 and 2001 Prof. Julian Konstantinov observed with criticism the operations of the Gypsies on “Iliantzi” market and on a similar bazaar in the town of Dimitrovgrad. He found that in those markets there was a special additional service offered – fake invoices, and that this service was totally dominated by Gypsies.(6) Those were (are) not invoices for the goods purchased on the market. The service is issuing invoices for tax reporting on a desired amount of money (but not 5-6 thousand US dollars) against 1% of the book price (or a lump sum). Mr. Konstantinov complains that the invoice trading by “mostly Gypsy” vendors takes place before the indifferent eyes of the street police on the market, especially in Dimitrovgrad. At the end of the day, however, such invoices are in great demand: the marginal tax rate in 2000 and 2001 is 65% for a medium size entrepreneur and the regulatory system is characteristic with its harassing controls over private enterprise.

Copyrights promoter in hard spirits

Copyrights and patent protection used to be one of the key problems of the Bulgarian economy in the beginning of the 1990’s. The legacy of the Communism in this area is that those rights are relatively well established in high tech and scientific fields but almost non-existent in trademarks in food processing, pharmaceutical, perfumery and wine industries. More specifically, they existed on paper but the actual implementation and protection did not present a problem in Communist years due to the state ownership of enterprises and government monopoly on wholesale and retail trade.

In the early transition years it was generally quite easy to enter those markets, especially the wine and spirit industry.

Gypsy entrepreneurs, some of whom served the hard-currency-shops trading in 1970 and 1980’s, somehow naturally directed their ingenuity towards those markets.

Production of fake alcoholic beverages by mostly Gypsy vendors has had at least three positive impacts:

• They dismantled and eventually expropriated the state monopoly on the production of fake alcohol , which existed for years undisturbed and flourishing as part of the centrally planned “ wine – proms ”; notably, the Gypsy vendors produced fake wines and hard spirits at quality levels that were comparable and even better than those of the state wine industry;
• Hard spirit and wine lovers with relatively low purchasing power had the opportunity to tastes they could not afford otherwise ;
• The fake production had eventually forced formal “ wine – proms ” implement quality controls systems , consumer information , apply brand controls and rationalize production and marketing .

There were other factors that supported development in this direction – privatization of the wine industries ( although somewhat delayed ) and establishment of sectoral self – regulatory bodies in 1999 in addition to the opening of the retail markets to large retail chains (Metro, Billa) and so on. But the Gypsy vendors were the first to identify the niche and to challenge the government monopoly. Today it is possible to argue that there were better and more civilized ways to push for reforms but I can hardly imagine any reforms emerging by itself given the government reluctance to privatize wine industry that was common for number of governments before 1997.

This industry was viewed as a “strategic one”, as a “core Bulgarian comparative advantage”, and from these notions the, mostly Socialist, government derived the “justification” to postpone privatizations until 1996. The actual disagreement with the production and marketing of fake alcoholic beverages stemmed in those years from the fact that someone else is doing the same business as state owned wineries. The state monopoly lasted for more than forty years. “Tzar Kiro” – the most famous Gypsy vendor in fake spirits, although it is rather a nickname – has been in this business for not more than four years .

A part of the production concepts are now in the hands of formal wine producers, they continue selling healthy drinks at low price.

Nature produce collectors , determinants of “ public goods ” and aid addiction

The definition and redistribution of property rights through privatization has been slower in Bulgaria than in other countries .(7) Particularly unclear those rights remained in the area land ownership ( the restitution proceeded between 1991 and 1998, and some instances of collective use were sustained ) . Simultaneously, the redistributionist policies via “social benefits” and “social aid” during the same period were particularly non-transparent and unreasonable and to a large extent remain unreformed even today.

In this respect is one of the most important, positive but publicly controversial role of the Bulgarian Gypsies in the transition.

By ways of culture and due to social status they collect everything that is not properly collected but could be of some use. These could be trees and wild mushrooms in the forests, garbage paper, metal scrap, electricity distribution wires, street sign, maternity “benefits”, “social aid”, heating subsidies for poor families, electricity bills and anything else.

Public “goods” do not exist per se. Some of those could be seen as public when and if they are available for everybody’s use amidst little or costly opportunities to exclude free riders and punish them.

In general, what is not protected as belonging to someone is not valued. The Bulgarian press and public opinion blame “The Gypsies” for the utilization of such public goods.

The actual constellation is very different and the Gypsy collection is:

• Of great significance for the determination of the value of the properties that were either privatized or returned to previous owners but remained unprotected for a certain period of time; in cases where the private property was reestablished but remained unattended, the Gypsy collectors motivated owners to be vigilant and organize protection on their own, to the extend it happened the Gypsy collectors, as a rule disappeared from the sight;
• Completely in the normal course of the events and in the framework of the law when they benefit from otherwise useless government programs ; racist politicians and members of the public usually blame “ the Gypsies” but, in fact, Not He is to be Blamed Who Eats the Cabbage Cake – That’s the One Who Gives It, as Bulgarian saying goes;
• Very useful for the separation of the urban waste and for its recycling; for the time being, the latter is almost not at all common practice in Bulgaria; for this reason the quasi-industrial separation is done manually and sold to recycling companies; with the gradual industrialization the Gypsies would be forced out of this niche;
• With regard to metal constructions with public functions and the alleged habit of Gypsies to collect those as the Bulgarian press claims ( i . e . metal element of sewage facilities , street signs and electric wires ), it needs to be mentioned that it is typical only for Bulgaria , although Gypsies live in other countries as well . The key explanation here is that there is a regulatory problem related to the oversight on scrap buyers and recycling plant: they buy such metal articles that should normally be not subject to recycling;
• Perfectly legitimate with regards to natural produce of forests ( mushrooms , wood , herbs , etc .) – the ownership of the forest is 85% public and poorly regulated while there is a significant demand for wild mushrooms and herbs by respective industries in Bulgaria and abroad.

I think it is obvious that none of the above instances represents a violent expropriation. There were clashes between restitution landowners and Gypsy collectors but they quickly disappeared when owners began protecting their properties and production.

The positive role of the Gypsies

The eventual impact of the Gypsy collection is that it caused a spontaneous effort to protect land and agriculture production by vigilant farmers and guards hired by farmers. Similar was the story with common village properties, trees and fields. When those are not protected Gypsies and everybody else could reap the harvest and sell it to the market.

Similar is the case with “ Gypsy ” crafts , they produce knifes , axes and other metal instruments. The raw material inputs are basically collected entirely from the garbage litter. It takes time to do this job and it is far from pleasant but the unemployment is high, the labor cost is very low and often craftsmen have the family and friends taking care of the supplies. The human capital and the skills to produce the instruments also come from tradition and family. The cash is needed for the fuel and coal. As I know from a survey of informal credit I conducted in 1996 and 1997, these costs are roughly $ 500 a year. There are schemes to reduce them: use heating subsidies provided by the government in coal or wood or alternatively, collect wood in the forest where and if possible.

As in all cases of collection, there is a use of resources that otherwise are neither valued nor used and they are put into service someone benefit or further converted into capital.

The misunderstanding

The lack of normal understanding of Gypsies’ ways and days in the last sixteen years of Bulgaria history are typical for the Bulgarian press, the public opinion and newly emerged chauvinist political parties.

More importantly, however, they are misunderstood by the agencies and policies to support “Gypsies”. The most common development in this respect is the aid addition on behalf of the donor. If Gypsies take care of themselves, as they have proven they can over years, the “benefactors” will be forced out of job.

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(1) That partial liberalization was launched by the Decree 56 of 1989 (titled “On Citizen’s Economic Initiative”) that prescribed how companies are to be registered and what taxes they pay.

(2) See: Mansur Olson, Power and Prosperity, New York, Basic Books, 1998, William W. Lewis, The Power of Productivity, Chicago, Chicago University Press, 2004.

(3) In Bulgaria, the “excessive ownership” of homes (flats and houses) was nationalized (in 1947-1948); in fact there was a rationing of this type of property. However, during the entire communist period private homeownership was comparatively high – 80—85%, the urban population retained full ownership of their houses in the rural areas and the slot of land around them (40-50% of the urban population has had such ownership); the ownership titles on arable land, forest, etc. remained private but the use of land was “collectivized”, more or less completely after 1962 while the forest was nationalized. Totally expropriated were about 4,500 – 5,000 families. One of the key reforms after 1989 was the restitution of all types of ownership – see: Krassen Stanchev, Denationalization in Bulgaria, in: Contemporary Economic Libertarianism in Bulgaria, IME, 2004, available also at: www.easibulgaria.org .

(4) Both are named after villages, which in the 1970’s have become Sofia districts.

(5) Bulgaria has successfully led economic reforms according to then best Central European standards between December 1990 and the fall of 1991 when they were somewhat delayed due to elections and eventually stopped in late 1992 due to political crisis.

(6) Julian Konstantinov. Kam forlmalisirane na sivata ikonomika v Bargaria? (Targovtzite na otkritite nazari). Dokrad of terenno prouchvane iuli-avgust 2001. – Evgenii Daynov (redactor). Sivata Ikonomika v Balgaria: prichini, sledstvia, politiki, Sofia, Tzentar za sotzialni praktikiq 2002, str. 83-84 I sl. (In Bulgarian, the English title: Julian Konstantinov, On the Formalization of the Grey Economy in Bulgaria: Open Air Bazaar Merchants, (A Report from a Field Servey), in: Evgenii Daynov (editor), The Grey Economy in Bulgaria: Reason, Consequences, Sofia, The Center for Social Practices, 2002, p. 83-84 a.f.).

(7) For details , see : Krassen Stanchev , op . cit .