One of the most remarkable developments in Europe in recent years has been the collapse of centrally-organized and planned systems of state socialism and the attempt, still very much in process, of Eastern European countries to shift to pluralistic political democracies with market-focused economies. This unprecedented political, economic, social, and institutional transformation obviously has fundamental ramifications for all elements of these societies. This is particularly true for Eastern Europe's industrial regions which, almost universally, now face extraordinary challenges and difficulties.

Under more than four decades of central planning, large investments of human, financial, and physical capital were made into the industrial sectors of Eastern Europe (Gelb and Gray, 1991). Influenced by Soviet models of industrialization, huge regional industrial complexes were built up. Industrial plants within these complexes frequently formed part of the "division of labor" within the Council of Mutual Economic Assistance (CMEA) of Eastern Europe and the Soviet Union, producing large volumes of specific products to plan for use elsewhere in the bloc. Innovation was limited and production efficiency and quality were generally low, while in many cases pollution and environmental degradation were high (Thompson, 1991). In Silesia (Poland), Northern Bohemia (Czech Republic), and numerous other regions across Eastern Europe, whole communities came to depend economically on the production and associated functions of these industrial complexes, whose individual factories often employed thousands (and sometimes tens of thousands) of workers.

Since 1989, with the political changes in Eastern Europe and the disintegration of the Soviet Union, this system of production has begun to unravel. Industrial plants and complexes established under the logic (or illogic) of central planning are now confronted with the powerful pressures generated by an extraordinary political and economic set of changes. It is a process which is turning out to be complex, arduous, and painful, even in countries like Hungary, the Czech Republic, Poland, and the former East Germany, where Western finance and expertise has flowed more readily. In less-favored countries, such as Bulgaria, Romania, the Republic of Slovakia, and most of the ex-Soviet republics, it is that much more difficult. With the collapse of central control, former state-owned firms in many cases are not shifting smoothly into an efficient, market-form of capitalist operation; rather, as Burawoy and Krotov (1992) note: "the withering away of the party state has exaggerated the pathologies of the old economic order."

This article examines the restructuring of state industries in Bourgas, a region on Bulgaria's Black Sea coast with a population exceeding one-half a million (Figure 1). Under central planning, this region experienced the build-up of a range of large-scale industrial plants. Massive financial and human resources were poured into industrial growth, recasting the Bourgas region from a largely agricultural economy in the late 1940s to one in which nearly half of all employment was in manufacturing, mining, energy, construction, and other secondary industries by the late 1980s.

In parallel with the upheavals throughout Eastern Europe, 1989 saw the demise of Todor Zhivkov, the Communist Party leader who had dominated Bulgaria since 1954. With international guidance, Bulgaria has charted a new path of political and economic reform, ending the old state order and seeking to turn the country into a full market economy. As central planning collapses, state industries in Bourgas--as in other parts of Bulgaria--find themselves in a dramatically-changed environment. Some plants are being restituted to their original private owners (or heirs) in 1947. A few are scheduled for privatization. Most plants remain in state ownership, at least for the time being. Nearly all plants are experiencing massive disruptions of markets, with slumping domestic orders, fiscal instability, and a huge drop in exports to former CMEA countries. Factory production in Bourgas has fallen sharply; unemployment has risen; and industrial communities confront economic and social dislocation. Regional plants are struggling with economic survival, and few have the resources and expertise to internally upgrade production skills and marketing scope. Using the Bourgas case, the article examines the effects of system transformation after central planning, analyzing developments in production, employment, ownership, management, market-orientation, and other factors. The evidence from Bourgas demonstrates that national political and economic change ("macro-transformation") is not necessarily synonymous with industrial and organizational change at regional and plant levels ("micro-transformation"). This disjuncture is acutely hurting the region and its industries, and has the potential to have further adverse effects in the near- to mid-term future.

In addition to published and other secondary sources, two primary data sources are used in the article. First, a comprehensive (Bulgarian-language) survey of industrial establishments in the Bourgas region was conducted which sought information on a range of elements, including history, production, facilities, management, employment and labor force, technology, environment and worker health and safety, markets, supplier and customer links, and privatization and adjustment strategies (see Shapira and Paskaleva 1993). The survey, one of the first of its kind ever conducted in Bulgaria, was administered to all identifiable industrial enterprises in the Bourgas region, which includes the Bourgas obstina (county) and 11 other obstinas. Seventy-three plants were initially identified in the region. As the survey was administered, some plants dropped off the list (as non-active or not engaged in industry), while others were added, leading to a total base of sixty-nine active industrial plants. At the time of the survey, all of the plants were state-owned, although a few were scheduled to for private restitution. Administration of the survey (to plant managers) began in the early Summer of 1992 and was completed by the Fall of 1992. Forty-eight questionnaires were returned, resulting in a response rate of almost 70 percent.

The second primary data source derives from field visits to the Bourgas region and the capital, Sofia, by one or both of the authors in June-July 1991, December 1991-January 1992, October 1992, December 1992-March 1993, and June-July 1993. In the Bourgas region, case study interviews were conducted at more than 25 plants, with several plants visited more than once over the course of the study. During these interviews, a series of structured questions were asked about each plant and its operations. In most plants, a tour of plant facilities and workshops took place. Interviews were also held with local and national government officials, trade unions, and business groups, as well as with environmentalists, academics, and representatives of international agencies.

In the last quarter of the 19th century, Bulgaria emerged from almost five centuries of Ottoman rule as a peasant-based agrarian society with few economic contacts with Western Europe. In the Bourgas region at this time, several small fishing ports, such as Nessebar, Pomorie, Bourgas, and Sozopol, stretched along the Black Sea coast (Figure 2). A few mines were hand-worked for gold and precious metals. But most of the region's population farmed the land. Towards the end of the century, however, the infrastructure for modern industrial development began to be put into place. In the 1890s, a rail line was constructed from the town of Bourgas through to Yambol, spurred--as Crampton (1987:38 and 40-42) describes--by a coalition of importers, grain exporters, and "would be industrialists of Southern Bulgaria." Shortly afterwards, in 1903, the Port of Bourgas was built by the Bulgarian government. Linked by rail to the hinterland, the Port quickly established itself as one of the nation's major shipping centers.

The growth of transport and port facilities helped to expand the town of Bourgas into a city and encouraged the development, through to the 1930s, of commodity and food processing industries. Oil and soap manufacturing, biscuit and chocolate production, and a flour mill were established. A state rail-carriage works was built in the city, and small boat building and repair yards grew in Bourgas, Michurin, and other ports. Other firms developed in light industries, making textiles, fabricated metal products, and pens and pencils. Outside of the government rail works and port, these firms were generally family-owned, although there were some small labor cooperatives in woodworking and also in boat-building. Where indigenous technology was lacking, nascent local industrialists looked outside of the country. For example, the founder of the First Bulgarian Pencil Factory went to Germany to learn how to make lead pencils. Similarly, in the 1920s, the Hadjipetrovi brothers installed German milling machinery in their Bourgas flour mill (Golemi Bulgarski Melnitzi). In several cases, foreign capital was invested in the region. At the coal and copper mine to the south of the town of Bourgas, a joint venture with French investors was formed, while the Lake Atanasovsko salt works, founded as a Bulgarian-Russian joint venture in 1905, was acquired by a Swiss company, Glarus, in 1922. On the eve of World War II, there were about 40 important industrial enterprises in the region, each employing from 50 to 300 workers, with dozens of other smaller local workshops (Asenova, Mikhova, and Velev, 1992). Yet, despite the advent of these industrial firms, agriculture still dominated the region's economy.

This changed dramatically after the War, as the Bulgarian Communist Party quickly consolidated its political power and focused on economic modernization. In the 1940s, village-based agriculture still employed three-quarters of the Bulgarian laborforce. But, following Soviet development strategies, the Party sought to shift Bulgaria's economic base not only from agriculture to industry, but from small- to large-scale production. In 1947, all private enterprises in the Bourgas region (as elsewhere in Bulgaria) were taken into state ownership, except for some small cooperative and craft workshops. Centralized planning institutions were developed, with ministerial departments overseeing each production sector, coordinated by State Planning mechanisms. Beginning in 1949, a succession of five-year plans were pursued, with investment focused on industry (Dobrin, 1973; McIntyre, 1988). Employment in the industrial sectors of mining, manufacturing, construction and energy production rose to nearly half of all workers by the late 1980s, drawing in part on the urban labor pool made available through the collectivization and mechanization of agriculture. The massive financial and human resources poured into industry propelled Bulgaria through three decades of large increases in industrial production, although, by the 1980s, the growth rate slowed (Table 1).

In the Bourgas region, Bulgaria's economic and industrialization strategies led to a giant restructuring of the regional economy. Small land-holdings were merged in big state collective and cooperative farms; the region's agricultural base was mechanized; and new food processing plants were established in the Bourgas region in the 1950s. Small ex-private industrial enterprises were merged into large state-operated plants, for example, the Jana textile plant in the southern Bourgas city industrial zone, which consolidated the assets of five smaller plants in 1948. But the greatest expansion of the region's industrial base came between the 1960s and early 1980s (Table 2). During this period, government central planners developed large-scale industrial facilities in the region for petrochemicals, metal mining and processing, machinery manufacture, shipbuilding, steel production, concrete and prefabricated construction components, cables and instruments, and apparel, and built additional food processing plants. The new factories sometimes accommodated relocating (and expanding) firms, as with the Hemus plant (previously First Bulgarian Pencil), which moved from an old central city factory to a new facility in Bourgas city's northern industrial zone. Mostly, however, these facilities housed new industrial enterprises.

By far the biggest new plant was the Neftochim petrochemical complex, sited on farmland about 11 kilometers east of the city of Bourgas, supported by a special oil terminal built on the coast at Drouzhba (south-east of Bourgas). Opened in 1963, producing gasoline using technology and crude oil from the USSR, the plant has been successively expanded, adding capacity for chemical, petrochemical, ethylene, plastics, and other synthetic materials production. Administration, research and development, and engineering facilities have also been built. The plant, occupying an area of 740,000 sq. meters, is now one of the largest petrochemical facilities in Europe. At peak production in the mid-to-late 1980s, the plant had a throughput of 11.8 million tonnes of oil, employed nearly 11,000 workers or about 1/6 of the region's industrial workforce, and accounted for almost two-thirds of the value of regional production.

The mid-to-late 1980s represented the peak of industrial employment and production in the Bourgas region. In addition to Neftochim, the region's major industrial establishments (with 1986 employment in following parenthesis) included the Bourgas copper mine and processing combine (3,500) and, in the city of Bourgas, the cable production plant V.Kolarov (1,820), the G. Ivanov wood processing plant (1,675), four machine building plants (with employment ranging from 720 to 1,410), the Slavjanka fish cannery (1,170), and the Jana textile plant (840). Among other large plants were the V. Mikhalev apparel plant in Karnobat (1,090), the shipyards in Bourgas and Michurin (650 each), and the steel rolling mill constructed at Debelt towards the end of the 1980s with employment of about 1,100 workers. By 1990, the region had a wide range of durable and non-durable goods industries. Chemicals and food processing were most significant in employment terms, each accounting for more than one-fifth of manufacturing jobs, with the combined sector of machinery, metalworking, electro-technics, and electronics employing a further one-fifth of the manufacturing workforce (Table 3).

Some 60 percent of the region's industrial employment is within Bourgas obstina, clustered in three principal locations: in two industrial zones (northern and southern) in the region's largest city of Bourgas and at Neftochim, outside of the city (Figure 2). The Bourgas industrial zones were much expanded between the 1960s and 1980s. For example, the Bourgas northern industrial zone, which stretches for about 2 kilometers along Lake Bourgasko Ezero, forms a complex of more than 20 state-owned industrial plants, employing over 12,400 workers in 1989. Fifteen of these plants were built between 1960 and 1986, along with related facilities. At the edge of the zone is a large thermal power plant, while within the zone, several small thermal power stations serve individual or small groups of enterprises. To the immediate south of the zone is road and rail access to the Port of Bourgas, including a roll-on-roll-off container terminal. To the north and west, there are four large housing estates with more than 200 prefabricated concrete mid- and high- rise residential blocks, mostly built in the 1970s and 1980s. Many housing estate residents work at plants in the adjacent industrial zone. The zone also houses a variety of smaller obstina (or local government) firms, including two bakeries, food and distribution warehouses, and trucking enterprises.

The areas outside of Bourgas obstina are characterized by small towns and a continuing reliance on agriculture, which still occupies more than one-third of workers in the Bourgas region excluding Bourgas obstina. The major tourist centers along the coast (Sunny Beach, Nessebar, and Sozopol) are also generators of significant services employment. Nonetheless, there has been considerable industrialization in the regional hinterland over the last three decades. For example, in Aitos, about 40 kilometers northeast of Bourgas city, more than 4,200 workers were employed in 11 industrial plants in 1990, in food processing, machinery manufacture, and electronics. A similar number of workers in Karnobat, to the west of the region, worked in 12 industrial plants, including electro-technical and electronic industries, food processing, and textiles. Bulgarian central planners located industries in rural areas to maintain the economic base of small communities and as a political response to pressure from national and regional Party leaders. Overall, industrial employment grew by 16 percent between 1981-90 in the region outside of Bourgas obstina, while agricultural employment fell by 25 percent over the same period.

One consequence of industrial development under central planning in the Bourgas region has been severe environmental pollution. Industry is a major contributor to making the Bourgas region one of Bulgaria's 10 most environmentally-polluted regions (Ioakimov 1990a, 1990b; Ministry of Environment 1991; World Bank 1992). The region's largest industrial polluter is the Neftochim petrochemical plant. For nearly a quarter-of a million people living in a hazardous 30-kilometer zone around the plant, Neftochim is a continuous source of air and water pollution from refining, material transfer, and waste products. Air emissions include concentrations of sulfur dioxide, sulfuric hydrogen, ammonia, and phenols (Paskaleva, 1991). Neftochim is also a huge industrial waste water polluter to underground water sources, the Bourgas lake, and the Black Sea, and has caused the build-up of heavy metals in the soils around the plant (Raichev, 1988).

Although the biggest source, Neftochim is by no means the only industrial polluter in the region. Bulgarian studies report that 18 industrial enterprises operate in the region without reliable air pollution control equipment. Industrial wastewater containing organic, suspended substances, and oil and petroleum products is discharged into Bourgas Bay by 11 industrial enterprises, and into Vaya lake, via the Bourgas city sewer system, by 14 industrial enterprises (Bourgas Obstina, 1991). The soap and oil plant (Kambana) in Bourgas is a large industrial waste water polluter, as well as a source of air emissions. Fish processing, textile, food processing, and machinery plants also have wastewater problems. In Kameno, the sugar plant pollutes the Aitoska river during the beet processing season, while the area around the copper mines south of Bourgas suffers from heavy metals contamination of soils and wastewater. The copper mines also produce radioactive wastes which, at various times, have been dumped near the mines, in the Black Sea and on its beaches, or used for roadmaking materials.

Industrial and Enterprise Structure and Organization

Industrial growth in the Bourgas region involved the expansion of existing manufacturing, together with the large-scale development of new industries involving some technological complexity. Yet, while the region's industrial base is undoubtedly modern, it is also marked by a number of important developmental, structural and organizational features which, as we will see, pose critical challenges in the transformation to market-oriented structures. These features include management structure and outlook, plant and equipment characteristics, workforce organization, relationships to old and new customers, innovativeness, production efficiency, and environmental impacts.

The role--and distortions--of the central planning system under which the region's industries were developed is crucial to understanding their present condition. Successive attempts were made in Bulgaria to improve the planning system, especially from the 1960s through to the 1980s when the Party shifted some power from central ministries to large state industrial associations and made concessions to market forces (Dobrin, 1973; Kaser, 1981; McIntyre, 1988). Nonetheless, at its core, the system continued to maintain and emphasize the administrative allocation of resources, central control of investment, centralized management, controlled prices, production to plan, state ownership of industrial facilities, and state management of trade. The consequence: modern industries were developed in the region, but they did so in ways embedded in the particular requirements and conditions of a planned economy linked to other planned economies in CMEA. This historical reality goes a long way towards explaining the difficulties the region's industries are having in rapidly adjusting to the collapse of central planning and the emergence of a market-oriented economy.

For example, an important legacy of central planning has been the "overdevelopment" of certain specialized industrial facilities in the Bourgas region. As previously discussed, since the 1950s, industry developed in the Bourgas region from its traditional base of small-scale food processing, textiles, and metalworking shops into heavy industries such as petrochemicals and metals, large-scale food processing, and electrical, electronics, and machinery industries. Initially, the growth of industry in the region was intended to contribute to Bulgarian domestic development and import substitution, but from the mid-1960s onwards, regional industrial development was increasingly focused to support Bulgaria's specialization within the CMEA. Under the CMEA's "division of labor," Bulgaria was assigned responsibilities in petrochemicals, machinery, electro-mechanical products, instruments and automation equipment, and food processing (see: World Bank 1991: Vol II, Ch. 1). After the 1970s, Bulgaria focused the bulk of its industrial investment in these specialized areas. Much of the output from the specialized industries was exported to the Soviet Union and Eastern Europe, in return for which Bulgaria received raw materials and fuels, machinery, and other "specialized" products not allocated for manufacture in Bulgaria (for example, automobiles).

The expansion, if not establishment, of key elements of the Bourgas region's industrial base is largely attributable to the special roles allocated to Bulgaria within the CMEA. Plants with very large production capacities were built in the region designed mainly to process materials supplied by other CMEA countries or to export to those economies. The most prominent case is the massive Neftochim complex, supplied by crude oil from the former Soviet Union and which, in turn, supplied other CMEA economies with oil products and petrochemicals. Other examples include the cable manufacturing plant in Bourgas city, which built a huge factory dedicated to producing telephone cables for the USSR. Much of the output of the city's Measuring and Equipment Plant consisted of voltmeters and other meters destined for Soviet electrical machinery factories. Similarly, in Aitos, the electronics plant focused on making resistors and other components for television and other electronics factories in the USSR.

In the 1970s and 1980s, the central planning system added a second function to some of the region's industries: exporting to Western markets to obtain hard currency--then a particularly valuable commodity, used to purchase needed capital equipment and other imports from the West. Neftochim, the Hemus plastic plants, and other regional industries had some of their production exported to the West (and also the Middle-East). These exports were largely premised on regional industries being low-cost suppliers, based not on inherent efficiency or technology, but on the availability of raw materials and labor priced substantially below Western levels. In numerous cases, bartering was used, whereby goods produced regionally were exchanged for those imported from other countries. Importantly, the transactions of materials purchasing and exporting, whether to the East or West, were not handled at the regional level, but by parent industrial combines, ministries, and state trading houses. The principal job of the region's plants was one of production to plan and/or command, with little direct contact with customers or suppliers.

The combination of central planning and regional-industrial specialization produced an industrial infrastructure in the Bourgas region dominated by large, highly-integrated, plants. The survey of industrial enterprises indicates that, in 1989, over half of the plants in the region employed more than 500 workers. The median plant size was 543 workers. Just over 12 percent of workers were employed in plants under 500 workers, while only 1 percent worked in plants with 99 or fewer workers (Table 4). Small plants played an almost non-existent role in the Bourgas region economy by Western standards (see also Jones and Meurs, 1991, for Bulgarian national data on plant size).

The region's structure of large plants reflects a high-level of internal integration. Due to the uncertainties of inputs and maintenance items under planned production, many plants in the region were organized to make by themselves most of the critical items needed in the production process. This meant that subcontracting networks were weakly developed. Indeed, around the region's large plants, there is nothing like the complex of smaller subcontractors usually seen in the West, and developed to the finest degree in Japan. Four-fifths of the plants in the Bourgas region responding to the industrial survey reported that they did not subcontract out any part of the manufacturing process. Of those few who did subcontract, the median number of subcontractors used was one (the average was six). In the past, outside supplies could not always be relied upon, so plants chose wherever possible to make rather than buy. Thus, in one of the region's plastic products companies, an extensive machine shop is devoted to machining metal molds, while in a nearby machinery company, there is a shop making plastic parts, each for their own production. No horizontal trade or specialization went on between the two. In fact, almost all of the region's manufacturers had machine shops to make dies, molds, parts, screws, and other items. Maintenance and equipment repair was also done in-house. Many plants built their own thermal power stations or heating plants, often lacking proper pollution controls. Plants also provided eating, recreational, transportation, medical, and in some cases housing facilities for workers. This highly integrated structure facilitated security of supply, including labor supply as well as materials, but also raised costs and contributed to lowered efficiency and quality.

Plants in the region are also characterized by their history of being geared to producing at high volume, to plan, on dedicated equipment, mostly to Soviet standards. Bulgarian industries were insulated from the market, competitive, and technological factors which, over the last decade, have increasingly led Japanese and then West European and North American manufacturers to shift towards more flexible or small-batch production methods--or go out of business. For example, until very recently, an apparel plant in Bourgas produced a few lines of clothing in batches of several hundreds of thousands to fulfill plan requirements. Similarly, one of the furniture plants in Bourgas was primarily devoted to mass producing a limited line of furniture for institutional uses according to central orders. The system emphasized quantitative targets, giving little attention to quality or efficiency. This was mirrored in the poor methods of production control and management evident during visits to many of the region's plants, leading to high levels of work in process, boxes full of rejects, waste materials strewn around, dirty and even unsafe working conditions, environmental and waste management problems, weak quality control, and damaged items still sent to customers.

Some plants in the region were furnished with up-to-date modern equipment. The new steel mill at Debelt is one example, built in the late 1980s with the assistance of Italian engineers. However, this plant has never been operated at anything close to full capacity. More typically, plants operated with machinery of varying and uneven vintage and technological sophistication. In many cases, machinery dated from when the plant was built (or even before); once installed, machines were infrequently replaced or upgraded. For instance, at the Big Bourgas Grain Mill (Golemi Bulgarski Melnitzi), the original machinery installed in 1923 is still in operation today. Similarly, at the Neftochim plant, the 1930s Soviet technology installed when the plant was built in the 1960s is still in use (although other lines have newer Western technology). According to the survey of industrial enterprises, more than one-half of the equipment in the region's factories is 10 or more years old (Table 5). About four-fifths of the region's equipment was made in Bulgaria or elsewhere in Eastern Europe and the former USSR. Most of the remainder was made in the West, and this often constituted the stock of the most recent and more advanced equipment.

Although 63 percent of plants reported that 5 percent or less of their equipment was controlled by computers or other programmable devices, the use of such technologies was somewhat higher in durable goods plants where these new production technologies fit more readily and which have been favored for investment. Considering only the durable goods plants in the survey with 300 or more workers in 1989, 54 percent said they used numerical control or computer numerical control (NC/CC) machine tools, 38 percent used computer-aided design (CAD), and 15 percent had adopted flexible manufacturing systems (FM). For NC/CC tools, these adoption rates were comparable to U.S. plants, although the Bourgas regional rates were lower for the other two technologies. However, although the question asked about "use," in several cases during plant visits it was observed that new computer technology equipment was present on the factory floor but not operational. Managers attributed this to shortages of maintenance parts, lack of knowledge about how to work the machines, or the purchase by central ministries of machines that were not appropriate for the particular plant.

More noticeably lacking than new machinery ("hard" technology) was the relative absence of "soft" technologies and management techniques in the region's factories. In the survey, only 19 percent of plants indicated that they had a quality inspection department, 13 percent used statistical process control, while just 2 percent said they had adopted just-in-time inventory control methods (which avoid the wasteful stockpiling of materials). To a large extent, these methods--now common in the West--were both unnecessary and unworkable under a centrally-planned economy which stressed quantity rather than quality and where supply sources were unreliable.

Until recent reforms, the region's plants were part of large industrial combines or associations, generally headquartered outside of the region (in Sofia, for the most part). Vertical linkages and dependencies were strong. Plant managers were accustomed to taking orders from above, and had little, if any, latitude to independently establish horizontal connections with other regional factories. Management was primarily focused on production. Typically, plant managers had technical or engineering qualifications and/or satisfactory performance within the Party, whose approval was needed at district and central levels in order to be promoted. There was no need in most cases for marketing and customer relations personnel or quality training when plants produced to plan rather than by orders. In order to meet their production targets, and with few incentives for improved efficiency, plants tended to hoard labor, especially in the 1980s when there was a labor shortage in Bulgaria, making it hard to obtain good workers (and almost impossible to layoff any workers).

The particular characteristics of the plants in the Bourgas region--shared also by factories elsewhere in Bulgaria--reflected an adaptation to, and an optimization of, the incentives and constraints of central planning. Quantity was emphasized above quality; output above efficiency; and control above innovation. In the 1950s and 1960s, this extensive method of centrally-planned industrial development achieved impressive expansion rates, but by the 1980s it had exhausted much of its potential, and industrial growth slowed (Table 2C).

Bulgaria, like other Eastern European countries, has been trying since 1989 to move to a market system and political democracy. Two national elections have been held. In 1990, the Bulgarian Socialist Party (BSP), recreated from the former Communist Party, won a narrow victory. In Fall 1991, the situation changed as the opposition Union of Democratic Forces (UDF) scored a slender win over the BSP, forming a government with support from the minority Turkish Rights and Freedom Party. However, political disputes within and between the parties have led to further governmental changes. Since late 1992, an "expert" cabinet headed by Lyuben Berov, a politically non-aligned economic historian, has tried to govern with fragile if not fractious support from shifting parliamentary coalitions.

There are disagreements between Bulgaria's current political parties in their approach to system transformation in Bulgaria. But these mainly revolve around the pace and phasing of change, rather than its direction. There is an underlying consensus for Bulgaria to become European, shifting to a constitutional democracy with private enterprise and private markets. With guidance and limited financial and technical assistance from international agencies, such as the World Bank, the International Monetary Fund, the European Community, the European Bank for Reconstruction and Development and the U.S. Agency for International Development, Bulgaria is now pursuing a restructuring program, similar in principle to other Eastern European economies (Pishev, 1991; Gelb and Gray, 1991). Most price controls have been lifted, the currency (leva) has been made convertible, most barriers to import and export trade have been removed, and state and new private banks can set their own interest rates and loan policies. Privatization is being promoted and the right to own private economic property has been re-established, with legislation approved to restitute agricultural and urban land to former owners and heirs. In the industrial sector, state enterprises are being reorganized: many have been broken-up into separate (although still state-held) joint stock companies as an intermediate step towards eventual private ownership. In eligible cases, industrial land, buildings, and original equipment will be restituted to the 1947 owners or heirs.

As the complexities of Bulgaria's new reform strategies have unfolded, the time horizon of expected success has been extended outwards. In the interim, great difficulties have emerged which are having massively adverse implications for industry. Most critically, macro-economic restructuring, price liberalization, and the collapse of CMEA markets have generated a major economic crisis. Bulgaria's real Gross Domestic Product (GDP) has slumped since 1989, falling by nearly 40 percent between 1989 and 1992, with a huge drop of 23 percent in 1991 alone and continuing declines through 1993. Consumer prices have increased dramatically, jumping four-fold in 1991, far outracing increases in average wages. Throughout 1993, inflation still ran at annual rates of 60-65 percent, with bank base interest rates at more than 50 percent. The central government is in a deep fiscal crisis. Foreign debts reached $13 billion in 1993, while falling tax revenues exacerbated domestic budgetary problems. Unemployment, which was almost zero before 1989, had risen to 602,000, or nearly 16 percent, by November 1993, of whom 400,000 had lost their entitlement to benefit (Boeri and Keese, 1992; BBN, 1993c).

Bulgaria's economic collapse has been felt most strongly in the industrial sector, where production dropped by 16 percent in 1990, 28 percent in 1991, and a further 22 percent in 1992 (World Bank data and BBN, 1993d). Financial losses have mounted, even though most industrial firms have reduced output and cut employment--by 651,000 jobs, or 44 percent, from 1990 to 1993. A 1993 study suggested that one-fifth of Bulgaria's industrial enterprises (still employing 250,000 people) are in extreme difficulties, with their winding up being "a matter of procedure" (BBN 1993e). Although the production slump slowed in 1993, industry was operating at just over one half of capacity throughout the year and financial losses and indebtedness continued to increase rapidly (BBN 1993f). Hundreds of enterprises had neither production nor sales of goods. Industries with the greatest declines included food processing, machinery, metalworking, chemicals and petrochemicals, and electrical and electronics.

In contrast to the collapsing state industrial sector, private business has grown remarkably. Over 650,000 people now work in Bulgaria's private sector, while some 500,000 new private businesses were registered between mid-1990 and mid-1993 (Frydman, Rapaczynski, and Earle, et. al. 1993; BBN 1993g). But almost all of these businesses are extremely small, usually involving just the proprietor who is often not engaged full-time. Indeed, most of the newly registered companies have no significant business at all. Of those which do, the vast majority of private companies and their employees are engaged in retail, trade, and other service activities, where capital requirements are small and where small retail outlets have been restituted. Very few new private firms are as yet engaged in industrial production.

To an extent, some of the new private service jobs are replacing those in former state-owned shops and service businesses. The new service businesses are also trying to fill the latent demand for consumer goods which was held back by planners during the previous regime (and, which is now beginning to be held back by the market force of diminished purchasing power). More fundamentally, an inevitable structural shift is under way as Bulgaria's large industrial sector shrinks in the new, less favorable economic environment. By 1991, industry's share of Bulgaria's national income had fallen to 49 percent, down from 60 percent in the mid-1980s (National Statistical Institute data, cited in BBN, 1993h). At the same time, it is also apparent that the sensible management and privatization of state industries--which is a critical element in the country's economic transformation strategy--is being stymied not only by the economic crisis but also by political and bureaucratic problems and by unequal and limited access to capital.

Bulgaria's approach to privatizing its state enterprises remains subject to much political debate and change. Under a 1992 Privatization Act, Bulgaria has tried to sell state firms in specified sectors "one-by-one," through public offerings, share auctions, and invited tenders. The law limited to 20 percent any preferential sales (at a discount of up to 50 percent) to employees and retirees. A central Agency for Privatization was established, controlled by a Supervisory Board of five officials from the Council of Ministers and six Members of Parliament. Excluded from privatization were railways, energy and defense enterprises, and companies selected by the Government to be exchanged for state debts with foreign creditors. Enterprises with assets of under 10 million leva ($0.4m) were to be privatized by their respective ministries or obstini (local) governments. Additionally, the privatization of enterprises with assets of more than 200 million leva ($8m) required approval from Bulgaria's Council of Ministers (Privatization Agency, 1993).

The Privatization Agency started slowly towards its goal of privatizing one-quarter of Bulgaria's state enterprises by 1995. Not a single sale was closed in the Agency's seven months of operation in 1992, while progress is much behind schedule on its 1993 plan to sell more than 300 enterprises. A big problem has been the lack of complementary laws and regulations dealing with bankruptcy, securities, information provision, state share interests, and the allocation of privatization proceeds. The value of each enterprise put up for sale has to be independently assessed, and there have been delays in selecting appraisers by competition, making appraisals, and negotiating with possible buyers. Enterprises with restitution claims made against them for land, buildings, equipment, or other assets cannot be sold until these claims have been resolved. Enterprises with large debts also present problems, since the government is increasingly reluctant to absorb these liabilities prior to sale. Although the Agency has tended to prioritize smaller industrial firms, since these are more manageably sold, high inflation has caused it to be overloaded with growing numbers of enterprises with asset values exceeding 10 million levas. Branch ministry and local government privatization programs for very small enterprises are also behind target. In the latter case, local governments have little incentive to promote privatization since they cannot keep the proceeds and they would lose the rents they currently obtain.

While the "supply" of industrial enterprises available for privatization is constrained, there are further difficulties on the "demand" side. After nearly fifty years of state ownership of businesses and business profits, the problem arises as to where the capital needed to purchase state enterprises will come from. The vast majority of ordinary Bulgarians have no access to any sizeable private financial resources. Additionally, since most industrial enterprises were established after 1947, the restitution process will not generate a large class of private industrialists who can take over existing state firms (although it is generating property claims which slow privatization). Similarly, while success in private commercial activity will generate capital, this will take time if done honestly, and although the restitution of land is creating private assets, the market for buying and selling land is very weak. The political response to this problem has been a heated debate about whether their should be "social" or "market" privatization. Joint ventures with foreign companies and financial sources also have been encouraged, although this raises questions about external control and national pride.

Under repeated political pressure for failing to become "a government of privatization" (Engelbrekt, 1993), the Berov government proposed in mid-1993 an amendment to the Privatization Act to encourage "mass privatization." On the supply side, Berov seeks to speed up sales, for example by allowing state enterprises to be sold without prior reorganization as commercial firms. Up to 500 companies in relatively good financial condition would be selected for fast track sales. On the demand side, the government has suggested that privatization vouchers (valued at 25,000 leva or about $1,000) be issued to each Bulgarian aged 18 or over. Other competing proposals have also been submitted. In Bulgaria's current uncertain political environment, progress on reforming the privatization law is likely to be slow and may await new national elections.

Meanwhile, another kind of response has been the emergence of illegal or spontaneous privatization. This takes several forms. Some former communist officials were able to divert funds and property, which they are now able to use to buy businesses. Even after 1989, funds and shares were diverted through "quiet" transfers, not involving public auctions. Enterprise managers have also been able to divert state money and property (Frydman, Rapaczynski, and Earle, et. al. 1993:34). Such cases increase popular unease about state enterprise privatization, promoting fears that it will only benefit a few well-placed individuals, while increasing unemployment among the majority.

Although few expected the transformation to a market-based economy to be easy, Bulgaria's mix of macro-economic crisis, political uncertainty, legislative disarray, governmental collapse, and financial chaos have presented immense problems for existing state industries. In the Bourgas region, most enterprises have had great difficulty in adjusting to the country's recent changes. The region's industries have been battered by highly unfavorable outside forces, yet have been mostly unable to marshall the necessary management, financial, or technical resources to coherently implement any indigenous strategic initiatives to address the changed institutional environment and new supply and demand conditions. A little more than one half of enterprises reporting in the survey had been transitioned into state-owned limited partnerships, as part of Bulgaria's program of corporatization. The rest were still organized as state enterprises. A few enterprises were to be restituted or privatized, although even by mid-1993, none had actually been privatized. Except for that handful of enterprises undergoing restitution, the rest of the region's industries found themselves in a seriously damaging, even paralysing, situation given the slowness of privatization and the lack of strong interim management.

The decline in demand from both domestic and former CMEA markets has been sharply felt by regional industries, especially in capital goods and machinery production. The survey confirmed that the output of Bourgas regional enterprises has dropped precipitously, with 1992 output just under one-half of 1989 levels (measured by real value of production). Capacity utilization rates fell from 86% in 1989 to 61% in 1991 and 51% in 1992. Some plants have little or no production. A separate analysis of 19 plants in the Bourgas city northern industrial zone, using a weighted analysis of changes in real volume (a preferable measure, since Bulgaria's rapid inflation makes it difficult to accurately adjust data for movements in real prices), showed that zone production declined by 42 percent between 1989 and 1992. The largest drop, of 71 percent, was in the zone's machinery, electrical, and other capital goods sectors.

As plants have cut production, they have also reduced employment (Table 4). Since 1989, employment in regional plants responding to the survey fell by 27 percent, or more than 11,000 workers. Employment losses have been heaviest in capital-intensive/complex industries, where employment has declined by over 40 percent in three years. Although a national social compact between the government and trade unions sets restriction on mass layoffs, as a practical matter managers generally have been able to negotiate the agreement of branch unions to reduce plant employment. The survey indicated that more than nine-tenths of the region's plants have unions. In most regional plants, both of Bulgaria's two major union federations--the Confederation of Independent Trade Unions (the former state Bulgarian Trade Union) and Podkrepa--are represented. This means that the agreement of both unions is required to reduce employment, and this has largely proved possible. In 35 out of 40 reporting plants, managers said that there were discussions with trade unions and an agreement was reached about the form and manner of employment reductions. In a small number of other cases, managers have gone ahead with employment cuts without formal discussions. Labor law limits plant managers from laying off workers near retirement, and they wish to keep more skilled (usually male) workers. So job cuts have tended to fall hardest on younger less-experienced workers and women.

There has, of course, been considerable unevenness in the extent of production and employment declines. In some cases, there has been an almost total cut in output. For example, during visits in 1992 and 1993 to the huge Elkabel cable plant in Bourgas, the production lines making telephone cables for the former USSR were completely shutdown. At the Spartak engineering works in Bourgas, which made heating and ventilating equipment, production was only 20 percent of what it was in 1989. Employment at this plant fell from 700 in 1989 to 200 in late 1992. The Korbso Shipyard in Bourgas did not build a single ship in 1992 and received no new orders, although it did have a small amount of repair and maintenance work. The yard could not afford to complete an old order negotiated by a Norwegian shipper at the pre-inflation price levels. Korbso, which had been receiving government financial help, had not yet cut any of its 1,600 workers, although it planned to begin to do so. A 1992 strike, because workers had not received wages, had led to a change of yard director. In Aitos, the Polymerstroy greenhouse manufacturing plant had no production in its large workshops, after losing its markets at home (the large collective farms now being restituted) and in Poland, the former East Germany, and what was Yugoslavia. This plant had cut its workers from 100 to 55 people. At the point of visiting the plant, all of the production workers were outside the plant, loading goods at the railway yard as part of the company's new trading activities (which included importing refrigerators). At the Measuring and Equipment Plant in Bourgas, there has been a collapse in demand from other Bulgarian capital equipment manufacturers and from its export markets in the former USSR. In 1988, the plant had 750 workers making 30,000 units a month; in 1992, there were 300 workers making 10,000 units monthly. Trade union dissatisfaction (particularly over the non-payment of wages) led to the director being replaced at the heavily indebted plant. The new director aims to reduce another 180 people, and cut production by half, although it was not clear whether customers could be found for even this reduced output.

In a few cases, regional plants have found new markets for production goods, but have still been forced to reduce employment. At the Ropotamo apparel plant in Bourgas, one-half of the output in 1989 was shipped to what was the USSR In 1992, 98 percent of the output went to Western European customers, on a subcontract basis whereby materials and designs are provided to the plant. Nonetheless, employment dropped from 1,200 in 1989 to 500 in late 1992. The situation was similar at the Hemus plastics factory in Bourgas. Now independent from Neftochim, its former parent, the company has switched its exports from the former USSR to Western Europe, which now takes two-thirds of production. But, overall output is down, and employment has been cut by 150 from the employment level of 750 in the late 1980s.

The loss of jobs in these and other manufacturing plants has contributed to greatly increased unemployment in the region. In September 1992, registered unemployment totalled 13,000 in Bourgas city, or 10.5 percent of the workforce. Of the unemployed, 7,900 were women, while 7,300 (4,400 female) were under 30 years old. It is likely that these figures for registered jobless persons underestimate actual unemployment. It is also likely that in the smaller industrial towns outside of Bourgas city, the unemployment rates are even higher, since these towns have seen the collapse of state industries with little of the growth of private shops and trading firms seen in urban Bourgas. For the Bourgas administrative region (which is somewhat larger than the study region), the December 1992 National Census counted 72,000 unemployed out of the national jobless total of 680,000. In an ironic twist of economic fate, a large new unemployment hall is being constructed, with international technical assistance, in one of the government offices in Bourgas city to accommodate the flow of jobless registrants. In the past, there was no official unemployment, so no facilities had been built during the period of central planning.

Significantly, while Neftochim--which is by far the biggest plant in the region--has seen its production cut, operating at 62 percent of capacity in 1992, it has reduced its employment only slightly. Neftochim has been poorly managed, with many suggestions of financial corruption. The refinery has stacked up huge debts, including a $109 million World Bank loan and over $200 million owed to suppliers. The price of gasoline and other petroleum products has risen sharply in Bulgaria, but the government is politically sensitive to further price increases and has been forced to continue to subsidize the company and to maintain its near monopoly control over oil and gasoline supply in Bulgaria. In contrast to their position in the region's lesser plants, the trade unions at Neftochim have been very active in pressing for government support to maintain jobs. Thus, one interesting outcome of restructuring is that Neftochim, despite its record of environmental pollution and financial difficulty, has now come to play an even more dominant role in the Bourgas region today than prior to reform. As other plants have had to reduce employment, Neftochim has been able to maintain its workforce, even as its production has slumped.

Although employment has fallen in most other regional plants, sales have declined even more rapidly. With great difficulties in developing new markets, most plants in the region are operating at a loss. Numerous plants are deeply indebted to state and private banks, who--in the early rush of enthusiasm and easy money after the collapse of state control--readily offered financial credits. Lending continued even in the many cases where enterprises had a negative net worth, and little ability to repay (which, in 1993, is now causing a deep financial crisis in the banking industry). The high nominal interest rates of these loans has led debts to accumulate upwards, since many plants can now repay neither principal nor interest. Additionally, in a shaky web of interlocking financial deals, some plants have arranged "soft credits" from suppliers to keep on producing for customers who in turn are unable to pay for goods received. While this strategy is becoming less viable as more enterprises are requiring cash (or equivalent barter goods) before delivery, it has led to an extensive accumulation of debts and uncollectible receivables. Several plants in the region have gone through periods when they could not pay wages and, as noted earlier, this has led to union protest, strikes, and managerial change.

Unprotected by the now disbanded state industrial associations, plant managers frequently seek to retrieve themselves from their financial problems by individual negotiations with the government, through the Ministry of Industry and other branch ministries. This strategy worked in the past, under central planning and in the early stages of economic restructuring. However, under pressure from international financial organizations, the government has cut back its subsidies to state enterprises and corporations. In 1991, government subsidies to unprofitable producers fell to 2 percent of GDP, a little over one-half of the level in 1989 (OECD, 1992:15). Where government support is forthcoming, the industry ministry is requiring plant managers to develop marketing strategies and efforts to attract foreign investors as the price for financial aid.

However, although plant managers are frequently scrambling to find new markets and possible foreign partners, success in these areas has been hard to come by. Few personnel in Bourgas regional plants have any experience in marketing by themselves, and most plants have yet to establish marketing departments or sales agents. In most cases, the plant manager personally assumes responsibility for marketing, adding this to the numerous other tasks that have to be dealt with. The few plants which have made ground in Western European markets have tended to be in labor-intensive or light industries, such as the apparel and plastic pen plants, where production can quickly be re-geared with little capital investment and where low-cost production can gain customers. Additionally, local wineries have continued to export quantities of wine to Britain, the USA, and other Western markets. But, in the region's machinery, electrical, electronic, and other capital goods industries, products are often not able to meet Western standards, capital and expertise is lacking for re-tooling and product redesign, and other companies in Europe, Asia, and elsewhere are already providing competitively-priced and higher quality products.

To generate some outlets for production, many Bourgas plants have focused on their former customers, resorting to bartering with plants eslewhere in Bulgaria or the former Soviet Union. In one case, an electronics plant in the region has been bartering its electronic components for televisions produced by a Russian factory. The manager of the Bourgas region plant then seeks to sell those televisions on an individual basis within Bulgaria to raise cash. At the railway equipment plant, carriages were being made for a Middle-East customer in return for potash, which the plant management hoped could be sold. In other cases, plant managers have become engaged in trading activities unrelated to production, such as importing cheap goods for Bulgarian re-sale, or exporting Bulgarian commodities such as lumber. Several plants have privately sold machines, materials, and excess inventories to generate money. In a few cases, firms have developed new product lines. For example, the railway plant is making drilling machines for a Greek buyer, while the instrument plant is making lighting fixtures for the domestic market. At the massive Bourgas cable plant, surrounded by massive pieces of idle machinery, a handful of workers are engaged in making small automotive jumper cables to ship to Mexico, where connectors will be attached for import into the USA. But such efforts at product diversification are surprisingly few, while research and development to develop new generations of existing products is almost non-existent.

While the lack of orders or markets is seen by managers as by far the most important obstacle to increasing sales in regional plants, there are other factors at work (Table 6). The difficulty of obtaining raw materials and outdated equipment also present obstacles. While all plants surveyed said that the price of materials has increased since 1989, more than two-thirds reported that the availability of materials had got worse (with the quality of materials remaining about the same). The shift to the market has, at least during its first few years, resulted in greater supply problems than during the period of central planning. These supply problems are caused by the overall turmoil in the domestic economy, the loss of CMEA inputs, and problems in upstream supply companies, as well as by the obvious shortage of financial resources to purchase inputs on the international market.

There remain critical issues of training and management in the region's plants. As a result of political reshuffling, there has been some turnover at the top. But, by and large, the same people are working in the region's plants. Workforce training continues to be lacking, and management is weak, and inexperienced in a market operations, sales, quality control, accounting, and modern technology and manufacturing techniques. The managers at state enterprises are still appointed by the Ministry of Industry, although now with more active consultation with trade unions. Since 1989, many plant managers appointed by the Communist Party have been replaced. In some cases, the replacements have been aligned with the UDF, while in other instances they have had no overt political affiliation. In at least one company, a BSP (former Communist Party) manager was replaced by a UDF manager, only to find that workers preferred the previous BSP manager and succeeded in having him re-appointed. The survey indicated that more than half of plant managers had been appointed since 1991. In the majority of cases, plant managers previously worked at the plant or its parent company.

Although managers have been able to negotiate employment reductions with the trade unions, this remains a stressful and difficult task. The concept of employment security remains strong, even under the new regime. Some workers have voluntarily left jobs in state enterprises to seek their fortune in the private sector, but majority of workers are understandably afraid of losing their existing jobs given high and growing unemployment. Managers, many of whom are recently appointed from within the ranks of their factory, also know that unemployment will cause hardship for workers they have known for many years. In almost every case, employment reductions are a last resort, taken in desperation and only when a crisis point has been reached. In some cases, managers have sold machinery to pay wages rather than reduce workers. In other cases, managers said that they did not have any funds to travel to European export markets because they had to meet their payroll first. Visits to plants commonly showed groups of workers with little to do. In one case, a plant visit found that all of the production workers, including the managers, had gone home, leaving only four clerical workers engaged in calculating the payroll.

A few plants in the region were scheduled for restitution to their former owners, including the Big Bourgas Grain Mill and a flour mill in Aitos. At the Bourgas mill, negotiations were still continuing about allocating assets built after 1947, although since the original mill was still operating with the original equipment, its restitution was not in question. In other cases, restitution claims will be more complex, often involving the underlying land or pre-1947 property, rather than the current enterprise itself. Such cases will involve tribunals and possibly legal proceedings to adjudicate the distribution of ownership and any compensation due. Although most of the region's plants were constructed after 1947, the survey showed that about half were built on land formerly in agricultural use. At least some of these plants may be subject to claims for restitution of land by former owners or heirs, which--at least for the next few years--may generate uncertainty and complicate privatization plans.

An office of the Privatization Agency has been established in Bourgas, although responsibility for selecting and selling regional plants remains with the Agency's central office in Sofia. A handful of plants in the region have been selected for privatization. These include Boyanitsa, a 120-employee women and children's apparel factory in Boyanovo; Nomat, a 30-employee fine ceramics producer in Bourgas; Kamt Ltd, a machinery builder with 200 workers in Karnobat; and Latkis, a dairy employing 84 workers also in Karnobat. However, by late-1993, these plants had only been listed but not put up for actual sale. The Vaya fodder plant, a unit which had been separated from the adjacent Big Bourgas Grain Mill, was put up for sale, but was withdrawn since no bids reached the reserve price. Thus, almost four years after the beginning of economic restructuring, not a single state industrial enterprise in the Bourgas region had been privatized. Moreover, the handful of plants selected for privatization are all small plants and also ones in somewhat better financial and market conditions. In future privatization lists, similar plants are likely to be added, such as other apparel and food processing factories. The region's big industrial plants are in too much difficulty to even consider for privatization at this point, while some (such as Neftochim) are excluded by law.

While the privatization of state industrial plants has stalled, a handful of new private industrial companies have been started up in the Bourgas region. These include companies in soap manufacture, plastic irrigation tubing, metal fabrication, apparel, and construction materials. In most cases, employment in mid-1993 was small (less than 5 workers), although in one case (apparel) some 50 workers had been contracted. Often, managers of these private companies have relationships with their former employers in state enterprises in the same line of business. Paradoxically, finding vacant industrial premises has been a problem and trading (as opposed to manufacturing) remains important in generating cash flow.

Local and regional efforts to address the restructuring and economic problems of Bourgas are very weak at present. The comprehensive system of territorial planning, which previously co-existed with central industrial planning, has collapsed. At the oblast (region) and obstina levels, most staff engaged in area planning and development have been reassigned or dismissed as resources have dried up and support for old-style planning approaches has diminished. A public-private Burgas Free Trade Zone--which existed before 1989--has taken on a larger developmental role, while a new Burgas Regional Development Association has been formed, with support from four obstinas (including the Burgas obstina) and the European Community's PHARE program. However, these efforts--focused on trade and small business--are small, have yet to gain momentum, and can offer little to larger state firms.

From an environmental perspective, there has been a reduction in pollution and other environmental problems in the region. This is true for Bulgaria as a whole, where the Environment Ministry reports that environmental pollution in 1992 was down "30 to 40 percent" from previous years (BBN 1992). But, at least within the Bourgas region, it must be emphasized that this has come about only because output has fallen so sharply, and not because of any significant improvement in production methods, technology, or environmental management techniques. The biggest contribution to a cleaner environment in the region has come from the decrease in production at Neftochim, although towards the end of 1992, production had picked up to 60 percent of capacity. As and when output further increases at the refinery, environmental pollution can be expected to grow too. In numerous regional plants, plans for necessary environmental protection technologies, never completed under central planning, continue to be put on hold because of financial and other difficulties.

The dramatic changes in political and economic conditions in Bulgaria--as in the other countries of Eastern Europe and the former Soviet Union--have led to state enterprises suffering enormous, even incredible, external shocks. As the surveys and case studies in the Bourgas industrial zone indicate, the political and economic developments faced by these enterprises include fundamental shifts in state control, market orientation, ownership of property, prices, raw material availability, and distribution systems. Manufacturing industries have been particularly hard hit, with Bourgas plants experience a tremendous slump in domestic markets and loss of traditional markets in former socialist countries. In most Bourgas industrial firms, production has declined severely, causing high and rapid job loss--although because of continued government subsidies, easy bank credit, management-union accords, and some labor hoarding, the rate of job loss has lagged the rate of production decline (resulting in falling productivity).

Yet, while state enterprises have been buffeted by huge external shocks, these have not yet been significantly translated into internal restructuring. Enterprises in the Bourgas region have certainly reduced production and employment; and, in many cases, managers have changed, often more than once since 1989. Yet, beyond this, little progress is evident in making fundamental changes in manufacturing operations, workforce organization and training, product development, quality, design, marketing, and strategic planning. The legal uncertainties about ownership and privatization have caused damaging delays for state firms. While many new managers have been appointed, these managers have no mandate or resources to make necessary changes and investments (the handful of firms which are to be restituted--rather than privatized-- in this regard are in better shape, as clear ownership and managerial directions can be established). New markets in Western countries are hard to find, especially for product lines where there are technical or quality differences. In a few enterprises--eg: apparel and pens--companies are beginning to make the transition, but most other firms have yet to establish well-organized marketing sections. Financial resources for major investments in machinery, new technology, new products, or even marketing are scarce at this point. Most plants are struggling to pay their wage bill. People resources are still poorly managed. Opportunities to improve production efficiency--of which there are many visibly apparent--without major capital investment are not being taken. Managers unfamiliar with best practice manufacturing methods generally do not seem to perceive these opportunities. Even when they do see them, they are reluctant to make changes in production for fear of upsetting labor-management relations.

In a few instances, the region's ex-centrally planned enterprises have instituted some changes. For example, excess materials inventories and stockpiles are less evident now than a few years ago, but this is due primarily to the lack of orders and cash to buy new supplies and selling off excess stocks to raise cash, rather than to significant change in manufacturing methods. Similarly, managers have sought--or been forced--to generate cash for their firms by entering into trade (above- and under-ground) and barter arrangements, mostly unrelated to their principal manufacturing products or skills. In a few cases, alternative side-line products are being manufactured. But all of these are short-term survival strategies--which existed under central planning and, although now much expanded, are unlikely to lead to much needed core internal improvements within enterprises.

The hope that new private manufacturing firms will develop to replace the large, old state enterprises has, as yet, been largely unfulfilled. The vast majority of new private enterprises are in trade and commerce, but a few new manufacturing private firms are emerging in areas where capital requirements are small, such as apparel and metal fabrication, or where markets and resources are available (eg: food processing). Legal or illegal trade activity (almost certainly involving diverted or cheaply-produced state-enterprise products) seems an integral part of how private entrepreneurs get capital to start manufacturing operations.

Outside efforts to assist Bulgaria have yet to address the full range of problems of state industrial firms. International advisors have encouraged Bulgaria to proceed with privatization, market pricing and allocation, and the development of new commercial codes. But these macro-level reforms do not deal with the micro-level situation within existing enterprises. The handful of new economic development initiatives in the region sponsored by external organizations tend to focus on encouraging entrepreneurship and small business incubation. The large enterprises have been surprisingly ignored. In the survey, only 4 plants reported that they had experienced contact with or been visited by anyone from an international agency. Managers of many more state firms have, by themselves, initiated contacts with foreign firms, but due to lack of finance, appropriate products, technology, business know-how, or other reasons, they are frequently unable to turn such contacts into orders or joint ventures.

Experience in other Eastern European countries suggests that "turning around" large state industrial enterprises is an arduous proposition, even when privatization has occurred (McDonald, 1993). But, when such efforts are attempted in a well-organized, committed manner, they can be successful. The essential technical skills are mostly present among the workforce. What is needed is an infusion and transfer of manufacturing, management, and marketing expertise, training, new organizational systems, production reorganization, motivation, and committed investment. Mechanisms and institutions to match regional plants with these necessary resources have barely, if at all, begun in the Bourgas region. Also yet to be made are long-term investments in selected plants to deal with environmental concerns, in the context of productivity enhancing waste-reduction methods. While Neftochim should inevitably be the subject of this kind of investment (if it is to stay open), other regional industries which have more easily resolved problems should not be neglected.

It is reasonable to point out that perhaps this is all "a matter of time." Change cannot happen immediately, but needs to follow a course. However, this rationale implies that change within enterprises is underway, and that investments are being made which will eventually pay off after a period. The evidence from the Bourgas region would suggest that the reality is different and rather less optimistic. Time is passing, and it is not being well-used. In part because of the lack of national political, legislative, and administrative progress on such issues as privatization, and in part because of lagging progress in internal enterprise reform, there is a damaging hiatus in Bulgaria, the end result of which is likely to be not just the further withering, but the complete collapse of large elements of the industrial capacity. While restructuring and slimming down of the regional industrial base is unavoidable, its massive and permanent collapse is surely neither desirable nor prudent. As the experience of industrial restructuring in Western societies indicates, industrial capabilities and skills developed over many decades can indeed be very quickly dispersed or dismantled due to economic change, lack of technological development, mismanagement, or corporate or government policy. Once lost, it is difficult to replace or regain industrial position. Without changes in policies, practices, finance, training, and technical assistance, the industrial capacities, skills, and jobs built up over several decades in the Bourgas region to serve a centrally-planned system will, in the post-central planning period, be reduced to a fraction of what existed only a few years ago. Central state control has been broken up, leaving old systems and practices at the plant level largely unchanged and now extremely vulnerable to the vagaries of external economic and political developments, with potential high social, as well as economic, costs.

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SHAPIRA, P., AND PASKALEVA, K. (1993) 1992 Survey of Industrial Enterprises in Bourgas, Bulgaria. Report of Survey. Atlanta, GA: School of Public Policy, Georgia Institute of Technology and Environmental Science and Technology Laboratory, Georgia Tech Research Institute.

THOMPSON, J. (1991) East Europe's dark dawn: the Iron Curtain rises to reveal a land tarnished by pollution, National Geographic, June, pp. 36-68.

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Sources: [A] McIntyre (1988, Table 4.2), updated by data from National Statistical Institute (1992:46); [B] and [C] OECD (1992, Annex I, Table 1), updated by World Bank data and National Statistical Institute (1992, p.53).

Source: Survey of Manufacturing Establishments in the Bourgas Region (1992).

Source: Regional Statistical Office, Bourgas; National Institute of Statistics.

* Regional industry employment as a percent of national same industry employment.

Source: Survey of Manufacturing Establishments in the Bourgas Region (1992).

* For reporting plants in survey (N=45)

Note: Resource intensive industries include lumber, paper products, oils and soaps, petrochemicals, and cement. Light industries include apparel, textiles, pens and plastic products. Machinery and heavy industries includes steel and non-ferrous metals, machining and metalworking, electrical and electronic equipment, transporation equipment, and instruments. Other includes mining and ore processing, power generation, and selected agro-industries.

Source: Survey of Manufacturing Establishments in the Bourgas Region (1992).

* Average value of responses for each category for reporting plants in survey (N=41)

Source: Survey of Manufacturing Establishments in the Bourgas Region (1992). "No answers" not included.