The Albanian leadership's fixation on heavy industry contributed significantly to its decision to break with the Soviet Union. Enver Hoxha gambled that China not only would be less likely than the Soviet Union to threaten his ascendancy but also would be more likely to provide investment money and equipment for his pet industrial projects. Albania's Third Five-Year Plan (1961-65) amounted to outright defiance of Soviet advice to concentrate mainly on agriculture. The plan allocated industry 54 percent of all investment and called for a 52-percent rise in overall industrial production, including increases of 54 percent and 50 percent in the output of producer and consumer goods, respectively. Moscow responded by canceling credits. The Albanian leaders foresaw that a cut in Soviet investment and aid would disrupt their economy but calculated that maintaining power and continuing industrialization would outweigh the failure of one five-year plan. The Soviet aid stoppage brought Albania's foreign trade to a near halt and delayed completion of major construction projects. Spare-parts shortages led to a 12.5-percent decline in labor productivity between 1960 and 1963. China compensated Albania for the loss of Soviet credits and supplied about 90 percent of the spare parts, foodstuffs, and other goods Moscow had promised. The Chinese, however, proved unable to deliver promised machinery and equipment on time.

In 1962 the Albanian government introduced an austerity program to keep the country's sputtering economy from stalling entirely. Official public appeals to cut costs and conserve resources and equipment netted a claimed 6 percent savings. The government also initiated a campaign of "popular consultation," asking individuals to submit suggestions for improving self-sufficiency. Years of state terror and still-rigid central control, however, had undermined the Albanians' willingness to assume personal responsibility. Party hard-liners, fearing they would lose their positions to a younger generation of more technically sophisticated managers, sabotaged cost-cutting measures.

The government launched a program to increase the amount and quality of arable land by terracing hillsides and draining swamps. A new phase of collectivization was initiated. However, agricultural output grew only 22 percent over the entire five years instead of the planned 72 percent. Overall industrial production grew a mere 14 percent in 1964 and 1965.

Fearful of a potential domestic power struggle and disappointed that heavy industry's output had failed to increase significantly overall between 1950 and 1965, the Albanian regime adjusted its Stalinist economic system in the mid-1960s. The government altered the planning mechanism in February 1966 by allowing for a small degree of worker participation in decision making and reducing by 80 percent the number of indicators in the national economic plan. The leadership also decentralized decision-making power from the Council of Ministers to the ministries and local people's councils and included a slight devolution of control over enterprise i 1000 investment funds. The system was specifically designeÍÍÍÍÍÍÍÍd, however, to ensure that resources were allocated in accordance with a central plan. At no time, at least in public, did Albania's rulers entertain the notion--heretical to all orthodox Stalinists--that economic decision making should be devolved to the enterprises.

In March 1966, an "open letter" from the Albanian Party of Labor to the Albanian people heralded radical changes in the egalitarian job allocation and wage regime. The authorities cut 15,000 jobs from the state bureaucracy, replaced executives, and shunted managers and party officials into the countryside. The government then eliminated income taxes and reduced the salaries of highly paid workers. Wages varied by industry, but the ratio between the lowest and highest salaries was only about 1:2.5. Reviving a scheme originally launched in 1958, the government began assigning all employees to perform "productive" physical labor. People engaged in "mental work"--for example, intellectuals, teachers, and party and state bureaucrats--were required to toil in the fields for one month each year. Even high-school students took part in "voluntary" construction and agricultural work. Only the party elite remained unaffected by the egalitarian reforms.

In emulation of China's Cultural Revolution, which was designed to rekindle the revolutionary fervor of the masses, Hoxha prescribed a regular rotation of managers to prevent "bureaucratic stagnation," "bureaucratism," "intellectualism," "technocratism," and a whole neologistic lexicon of other "negative tendencies." The campaign, called the Cultural and Ideological Revolution, also prescribed the replacement of men with women in the party and state administrations.

The government's economic adjustments militated against efficiency. Workers, who were given a voice in planning, lobbied for the easiest possible production targets and worked to overfulfill them in order to earn bonuses. But because one year's output figures became the basis for the next year's targets, they tried to limit overfulfillment to prevent the imposition of difficult targets in the next planning period. The government's campaign to send office workers out to the fields, mines, and factories encountered resistance. The policies of guaranteed full employment and extensive growth--expanding productive capacity rather than squeezing more from existing capacity--made huge numbers of workers redundant. The low quality and quantity of consumer goods and virtually flat income-distribution curve dampened incentive. Workers dealt in pilfered state property and rested at their official jobs in order to moonlight illegally. Although the government had herded all artisans into cooperatives by 1959, many craftsmen, including tailors, carpenters, and clothing dealers, earned undeclared income through private work. Black-market construction gangs even performed work at factory sites and collective farms for directors desperate to meet plan targets.

In the late 1960s, thanks mainly to massive capital inflows from China, the Albanian economy expanded. The Fourth Five-Year Plan (1966-70) called for an increase of about 50 percent in overall industrial production, with producer-goods production increasing by 10.8 percent annually and consumer-goods output rising 6.2 percent. Most sectors exceeded plan targets. Heavy industry's share of overall industrial production rose from 26 percent in 1965 to 38.5 percent in 1970, the largest increase registered in any five-year period in Albania's history (see Table 4, Appendix). In 1967 the government launched a "scientific and technical revolution" aimed at improving self-sufficiency. For the first time, the Albanian Party of Labor made a serious attempt to take into account Albania's natural resources and other competitive advantages while planning industrial development. Government officials examined blueprints for coal-fired and hydroelectric power plants as well as plans for expanding the chemical and e bb5 ngineering industries. Despite chronic worker absenteeism, the engineering sector performed remarkably well, tripling output between 1965 and 1973. The late 1960s also saw changes in the agricultural sector. The authorities announced a farm collectivization drive in 1967 and, in an attempt to take advantage of economies of scale, amalgamated smaller collectives into larger state farms in 1967 and 1968. By 1970, Albania's power grid linked all the country's rural areas.

In the early 1970s, Albania's economy entered a tailspin when China reduced aid (see Shifting Alliances, ch. 4). During the period of close ties, the Chinese had given Albania about US$900 million in aid and had provided extensive credits for industrial development. In the mid-1970s, China accounted for about half of Albania's yearly US$200 million in trade turnover. The economic downturn after the aid reduction clearly showed that Albania's Stalinist developmental strategy failed to provide growth when levels of foreign aid were reduced. In the Fifth Five-Year Plan (1971-75), the government called for an increase of about 60 percent in the value of overall industrial production producergoods production was to increase by about 80 percent and consumer-goods output by about 40 percent. General results from the first two years of the plan were relatively satisfactory. But after China reduced aid to Albania substantially in 1972, many key sectors fell disastrously short of plan targets. Tiranë responded by launching an export drive to the capitalist West a year later. In 1974 the government criticized consumer-goods producers for failing to meet assortment and quality objectives. During the five-year period, overall industrial production rose just over 50 percent producer-goods output, 57 percent and consumer-goods output, 45 percent. Despite the obvious link with the curtailment of Chinese aid, the Albanian government offered no official explanation for the economic downturn. Widespread purges were reported in 1974, 1975, and 1976.

Data as of April 1992