Make your own free website on Tripod.com
NATIONAL INCOME AND OUTLAY OF BULGARIA 1924-1945

Author: Asen Chakalov

Editor's Note: The work from Dr. Asen Tchakaloff, published at the end of WWII has remained a sole authoritative study on quantitative economics in Bulgaria from the capitalist period. The next fifty years or so produced none in terms of comparable study in econometrics. The fact that the discipline is practically non-existent in Bulgaria has given no less troubles to foreign experts. Recently, a study group from the World Bank has re-analyzed A. Tchakaloff's paper from year 1946 and has published those new results with commentary, ditto.

 

For more than a century Bulgarian economic historiography successfully “resisted” any quantitative research temptations. Under these circumstances it is hardly surprising that cliometrics is not yet recognized as a legitimate member of the Olympic family of sports. Attempts for quantifications of history are scarce. The few exceptions are both done as well as used only within a purely economic domain, thus preserving the rigid profile of the traditionalist historiography. An institutional incentive was to be expected during the era of centrally planned economy for promotion of quantitative research. However, neither the Central Planning Agency nor other institutions have come with any estimates on national income, GNP or GDP for the period before World War II.

Due to informational limitations western colleagues also often omit Bulgaria (and most of what is now called South Eastern Europe) when compiling GDP sets for the pre-World War II period. This grim situation force historians to speak mainly by intuition about Bulgarian history converting into myths different historical episodes of the country’s resent past. Furthermore, they are deprived of proper tools for unbiased comparisons between various spots of Bulgarian economic development (not to mention cross-country comparisons). We still do not really know whether the “Golden Decade” (actually less than 6 prosperous years 1905-1912) was as successful in economic terms as the second half of 1930s. Whether the exogenous shock of the 3 consecutive wars (1912-1919) retarded Bulgarian modernization condemning it to a slow and painful reconstruction or the War of Independence (1877-1878) inhibited the growth potential of the economy detaching it from the vast Ottoman market.

The current research is not as ambitious as to pretend that could offer the answer of all pending questions. However, it bears the conviction that through the constructed GNP estimates (1892-1924) we would be better equipped to create more plausible hypothesis on Bulgarian modernization endeavor. It should also be noted that this essay has no any intention to engage into detailed analysis of Bulgarian economic development during the period in review, even though a brief presentation of the conclusions would be given in its final part. It has the sole objective to offer a short description of how national income estimates have been calculated. As far as the applied methodology and the results’ analysis were presented in two other publications, here I would limit myself to the “technology” chosen for the compilation of the GNP estimates, thus enabling their future examination and corrections.

The following paper is divided into seven sections. Section one reviews the previous estimates of Bulgarian national accounts. The next two parts (two and three) are intended to describe the methodology and to give a short definition of the calculated economic aggregate. Sections four and five provide details on sources and the actual calculations by sectors of economy both at current and at constant 1911 prices and territory. The brief analysis of results and the conclusions drawn are presented in the final two sections.

 

1. Available GNP Estimates

1.1. Domestic Estimates

Kiril Popov [1915], chief of General Directorate of Statistics, compiled the first two spot estimates (for 1892 and 1911). They, however, are not fully documented and we know very little about the way he came up with them. In his “Economic Bulgaria” Popov published only the final results excusing with space limitation for not providing the calculations proper. His aggregates are presented as nominal estimates, at a time of considerable price movements. And these technical deficiencies matter because if we take Popov’s figures at face value they would have dramatic implications for the narrative of Bulgaria’s economic development.

For 1892 Popov claimed a total national income of 1109 million leva. For 1911 he put the figure at 1647 million leva. This gives nominal income growth of just short of 50 %. Popov did not say so. But the implication of these numbers, allowing for retail price inflation of 41.3 % and population growth of 32 %, is that real per capita incomes in Bulgaria in the generation prior to World War I may have fallen, perhaps by as much as 20 %.

Asen Chakalov [1946] constructed a national income series for the period 1924-1945. He had studied similar indexes in Great Britain and was familiar with Western debates on national income accounting. His estimates stand as a major contribution to the development of national income accounting in the interwar period. No wonder, they were the only one to carry the authoritative “seal of approval” from experts of the World Bank /WB/.

1.2. Foreign Estimates

Paul Bairoch [1976] was among the first foreign economic historians to give an estimate of the Bulgarian national income. The source for his numbers is obscure, however. What is now obvious he was using a several proxies as to compile his Bulgarian GNP series. Similar technique was later applied by Good and Ma [1999] who have produced their index numbers for Eastern European growth prior to 1914 by deriving proxy relationships between national income and variables such as the crude birth rate, letters posted per capita and the share of non agricultural employment in the total workforce. Maddison [2001 and 2003] reluctantly incorporated these index numbers into his system on the basis of their “general plausibility”, pending the availability of direct estimates. Maddison’s own per capita figures for 1870, 1890 and 1900 presented in his latest dataset would appear to be the product of a priori assumptions about “minimum per capita growth rates”. As we shall see, they are seriously misleading. Michael Palairet [1997] in his highly pessimistic study of the Balkan economies c. 1800-1914 with the telling subtitle “evolution without development” calculates own spot estimate for 1910.

 

2. Methodology Applied

My methodology consists in the first instance in replicating Chakalov’s figure for 1924 on the basis of original sources and then using these same sources to create a series of properly documented estimates for the years between 1892 and 1924. Using that “technology”, six spot estimates were compiled for the years: 1892, 1899, 1905, 1911, 1921 and 1924. The years were not chosen by random. Quite the contrary, they are selected in a way to delineate the moments that are expected to mark the beginning and the end of the different economic cycles. Only the year 1892 was chosen not following same logic but as result of availability of trustful sources. It is the first year for which Bulgarian statistics offer enough data for national income compilation.

 

3. GNP Definition

Chakalov’s definition of what he calls “national income and outlay” is the aggregate of all net incomes produced and derived within the national economy during a given period of time, i.e., one year. The national income thus comprises of: incomes from newly acquired economic goods, the remuneration of all services rendered by individuals and legal entities, as well as interest on capital. It is expressed in:

• The aggregate of the incomes of all individuals and legal entities within a given territory (the national economy);

• The incomes of all individuals and legal entities resident within the country, received and derived from abroad;

• Less the incomes earned and derived within the country, but transferred abroad.

The following definition indicates, that Chakalov’s estimates actually corresponds roughly to what we now call gross national income (GNP). Chakalov excludes domestic labor. But since Bulgaria was in large part a subsistence peasant economy, he made extensive provision for the inclusion of “own consumption” of farm output.

 

4. Sources

Following in Chakalov’s footsteps, my re-estimation of Bulgarian GNP prior to 1924 is compiled using four different sets of sources and methods:

1. For 47.6 % of the estimate I can rely on agricultural and industrial output data multiplied by current prices with input costs deducted;

2. State budget and business account data provide direct information on salary bills (9.3 % of the total in 1911);

3. Where neither of the former is available, Chakalov estimated annual incomes on the basis of employment census data multiplied by estimates for annual earnings (36.5 %);

4. Finally for the commercial sector he used a more approximate estimate, deriving incomes earned from retailing and wholesaling as a fixed percentage of total sales (6.6 %).

 

5. Sector Estimates

• Arable agriculture was calculated by the output volumes and current prices data provided by the national statistics, net of re-use within agriculture itself for seed and feed but inclusive of farmers’ domestic consumption. The calculation of value added in stockbreeding rest on the number of beasts in key census years and average milk and meat yields applied by Chakalov somewhat decreased to take into account the process of slowly growing yields. For example, for 1924 Chakalov reckons a 1000 litres of milk per cow, while for 1892 I am assuming 900 litres. A same technique is applied also for wool and hair production. Eggs consumption is based on the transport statistics.

• The production of forestry and fishing is derived by the official figures published by General Directorate of Statistics. The output of home industry is calculated by adding the number of females, aged between 16 and 60 years and the average number of days spent for home work based on peasant account books and contemporary surveys. Similar procedure is applied for servants. Implicit rental income of both rural and urban dwellings is based on census information about the number of buildings and the yearly data on rents.

• Following Chalkalov’s methodology, to reach the net value added of agriculture, seasonal migrants’ remittances are also included and interests paid on agricultural credits deducted.

• Thanks to the protective policy of the Bulgarian government we possess fairly good statistical information about the production of industry and mining. Value added is arrived at in the normal fashion by deducting input costs from sales figures. Only for 1892 and 1899 I was compelled to use coal consumption and the number of factories to arrive at a reasonable estimate of the industrial output.

• For construction and crafts sectors the source situation is less good. Figures for public construction were taken from central and local government budgets. For private construction and the craft sector I follow Chakalov in relying on census figures for the number of craftsmen and builders, multiplied by figures for annual earnings for masons, masters, journeymen and apprentices.

• Due to the significant presence of the state in the transport and communication sector I have at my disposal very detailed data on their income net of working expenses. The same applies to a large extent to the financial services sector. Only for private banking and insurance institutions I was compelled to resort to their individual profit and loss statements published in the State Gazette or preserved in the archives.

• The relatively small percentage of marketization of the economy creates a serious problem for the calculation of commercial incomes. Following Chakalov’s suggestion I arrive at a proxy on the basis of an estimate of the sales of agricultural goods and the value added of the various industrial branches and import trades. The flow of traded agricultural goods is approximated by summing the value of exports and the value of commodities transported by the railways. The industrial and craft figure is arrived at as for industrial production. To avoid double counting industrial output is netted of local raw material consumption and of excises and taxes paid. The income of commerce is taken to be a fixed 15 % share of this total sales figure.

• Aggregate incomes of freelance professionals and services were estimated by applying salary levels to census data. For lack of alternative information, the salary levels were derived from masons wages, adjusted for wage differentials and the longer working year of white-collar employees.

• Earnings from state employment by contrast could be taken directly from budget data for wage bills and public works of national and local government as well as autonomous state agencies.

5.1. Sector Calculations at Constant 1911 Prices and 1920s Territory

To provide a meaningful comparison over the long run between 1892 and 1945, I must allow for prices changes, population change and the impact of territorial redistribution in the course of the Balkan wars and World War I.

• Population data are taken from the obvious sources and can be assumed to be relatively uncontroversial.

• Instead of using retail price index to deflate the GNP in current prices, I apply farm gate prices of 1911 to the physical output series for agriculture. For lack of sub-sector data, industrial output is deflated by an unweighted average of the available wholesale prices for the different lines of industrial production. To arrive at incomes from employment data, I apply wage and salary figures for 1911. Deflation by means of the retail price index is therefore confined to the incomes of civil servants, financial services and commerce, or just 13.6 % of the total estimate. Adopting this more sophisticated deflation procedure turns out to have major implications since by comparison with the retail price index, which rises by a surprising 41  % between 1892 and 1911, my improvised “GNP deflator” increases by only 12  %. This discrepancy is largely accounted for by the heavy weight of farm gate prices applied to agricultural output, the majority of which was directly consumed by households.

• To connect to 1924 data, I must also allow for territorial changes. As a result of the two consecutive Balkan wars and World War I, Bulgaria managed by 1919 to increase its national territory as a whole by roughly 6  %. However, at the Neuilly Peace Conference it lost Dobrudja, which was the most fertile agricultural region. In consequence, Bulgaria ended its period of warlike activity having suffered a net loss of cultivated land of 6.81  %. Given the importance of agriculture to the overall estimate, I adjust the entire estimate of national income by this factor.

 

6. Brief Presentation of Results

The final results are striking. For 1924, I achieve a reassuring match with Chakalov’s estimate. And using his methodology and the obvious official sources, I was also able to replicate nearly completely Popov’s nominal estimates both for 1892 and 1911.

Table 1: Comparison of WB vs. Popov’s GNP estimates (1892 and 1911) and WB vs. Chakalov’s (1924) in Nominal Terms

Dividing by figures for population and making allowances for territorial changes in the course of the wars, I arrive at the following track for GNP and GNP per capita. The result as one can see is a substantial downward revision of the existing estimates of Bulgarian economic development.

Figure 1: GNP Per Capita, 1892-1945, in Constant Prices and Territory

7. Conclusions

On the basis of the best available evidence we can say that there was no growth in per capita incomes in Bulgaria between the early 1890s and the mid 1920s. Actually, Bulgarian economy was decreasing by 0.32 % per annum. Whatever growth was achieved (0.93 % on annual basis) was “eaten” up by rapidly rising population (1.14 %). Those estimates underline the minor impact that exogenous shocks (the Balkan Wars and World War I) had on Bulgarian economy. As a result of the huge contribution of arable agriculture in Bulgarian GNP, national income fell by only 1.4 % between 1911 and 1921. These findings are inconsistent with Maddison’s Bulgarian GDP series.

Maddison’s 1911 estimate was based on Popov’s work, while the one for 1924 was derived from Chakalov. But, it is unclear how Maddison linked his series. The interpretive consequences are serious, however. Maddison’s estimates, with their exaggerated prewar growth trend, attribute a disproportionate influence to the war - especially when Bulgaria is compared to Greece. By contrast, my revised GNP figures de-emphasize the war. It was not exogenous factors, such as the war shock or even the Great Depression that retarded Bulgaria, but the failed structural transformation of agriculture.

 

 

Copyright © 2007 by the author.