by Martin Ivanov (University of Sofia) and Michael Kopsidis (Leibniz Institute of Agricultural Development in Transition Economies / IAMO)
This blog post is based upon the authors’ article forthcoming in the Economic History Review.
Before the First World War, Bulgaria was among the very few countries in the European periphery with stagnant per capita income and an unchanged low share of the secondary sector in the national product. The lack of structural change in Bulgaria was associated with comparatively high population growth. This is all the more surprising as, around the middle of the nineteenth century, the Bulgarian lands were among the most dynamic industrial areas of the Ottoman Empire. To explain the country’s exceptionally weak growth c. 1870-1910 we use endogenous and unified growth theory. Ultimately, the abundance of land explains that even under conditions of falling international agricultural prices in the wake of the European grain invasion and depressed peasant incomes, peasant population growth continued unabated without any structural change. But why was there not an improvement in the capacity of manufacturing to absorb labour?
Gerschenkron and Palairet blame a self-sufficiency-orientated peasant economy for the rising costs of labour and raw materials in industry, which destroyed the competitiveness of Bulgarian manufacturing and prevented industrialization. Our newly collected price and wage data refute the existence of any long-lasting cost increases in industry after 1878. Quite the opposite was true. After a war-related short-term peak around 1880, the trend of real incomes / wages for both agriculture and industry was clearly downward. Real wages were the lowest in the textile industry. Agricultural incomes and commodity prices did not put any inflationary pressure on industrial labour and raw material costs. In fact, by the mid-1880s, both had corrected downward, returning to their low pre-liberation levels.
Bulgaria’s export-orientated industry concentrated on textiles, mainly coarse woollen clothes and laces for rural consumers in Southeast Europe and the Near East. The slump in demand for Bulgarian manufactured goods during the last quarter of the nineteenth century was not so much due to competition from industrialized European countries, but was rather related to falling international grain prices which depressed the demand for Bulgarian textiles from export-orientated peasants all over the region. Added to this was rising industrial protectionism as part of an infant industry policy in most Balkan states. Moreover, strong income-reducing exogenous shocks negatively affected domestic demand for textiles in Bulgaria.
Figure 1. Commercial and subsistence production and Bulgaria’s GDP, 1887-1912 (million 1911 Leva)
A special role is played here by the large peasant subsistence sector, which also includes household production of textiles for own consumption. Around 1880, Bulgarian integration into market cycles was at levels even lower than those experienced in Western Europe at the beginning of the Early Modern Period. Almost half of Bulgarian GDP was still generated by the subsistence sector; see figure 1. As our fresh data reveal, however, this was a legacy from Ottoman times and not the result of any rapid ‘peasantization’ after 1878. Bulgarian peasants were very responsive to international market developments, and their insistence on self-sufficiency in textile production after 1878 was a reaction to adverse grain prices and terms of trade developments during the course of the First Globalization. Adverse conditions of the ‘Great Depression’ on international grain markets prevented the expansion of the nascent Bulgarian domestic market and created ‘peasant backwardness’ and not vice versa. Stagnating urbanization and falling real incomes within industry further obstructed the development of a larger domestic market necessary for a broad-based industrialization. All in all, the expansion of Bulgaria’s secondary sector was restricted not because of deteriorating supply-side conditions but because of shrinking internal and external markets, for which peasants were not responsible.
Recent research claims that, around 1910, Bulgarian textile production was significantly lower than in 1870. Our study brings to light new data and information that clearly disproves this view. Until around 1910, a booming modern manufacturing sector more than replaced the country’s proto-industries’ textile outputs, which had plummeted dramatically during the early years of the newly founded Bulgarian state. However, as the rise of modern manufacturing in textile production coincided with the decline of the entire large sector of traditional manufacturing, secondary production as a whole stagnated.
Figure 2. Social product per employee by economic sector, 1887-1924 (1911 Leva)
No income-related pull factors supported the transition from an agrarian to an industrial economy. Remuneration of labour and labour productivity in secondary production were lower than in primary production until the First World War even though value added per capita in both sectors converged over time; see figure 2. Even if modern manufacturing grew at two-digit rates over the entire period, the modern factories were too few to absorb the surplus labour from the declining cottage proto-industry, not to mention any additional agricultural labour; see table 1. Unskilled labour was never in short supply in the manufacturing sector.
To contact the authors:
Ivanov, M. and Kopsidis, M., ‘Industrialisation in a small grain economy during the First Globalisation: Bulgaria, c. 1870-1910’, Economic History Review (forthcoming).