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# {3-475.} The Economic Role of the State

The state played an growing role in economic development, generally by following a liberal economic policy. The view that prevailed until the 1880s was that the economic development of Transylvania (and of Hungary proper) would be best served by a free market and free trade. The liberal régime tried to facilitate private enterprise mainly by freeing it of domestic and external constraints, and, to a lesser extent, by direct intervention.

However, economic practice was not always consistent with economic theory. In 1850, the absolutist régime abolished the customs barrier that had existed for several centuries between the Hungarian and Austrian parts of the empire. Historic regions at various stages of development were merged into a customs union, which allowed for a free flow of goods and facilitated the mobility of capital and labour. Vienna also speeded up Transylvania's economic integration with Hungary, momentarily putting aside the fear that this part of the empire might once again challenge Austria. Imperial economic policy was determined first and foremost by the industrial interests of the Austrian–Czech provinces, and thus in 1854 the central government instituted a protective tariff; contemporary Hungarian economists regarded the tariff as harmful to their industry and agriculture. There were greater problems: the system of government was unstable, and Austria's capitalist system, weak compared with western countries, had a limited capacity to foster modernization. Although Austrian capital faced no competition within the empire, it was not sufficient to satisfy the demand for investment in the eastern provinces; nor was the absolutist régime able to offer political guarantees that might have encouraged the inflow of foreign investment. With regard to Transylvania, political considerations often overrode liberal economic principles, whether in railway construction or in the registration of land. These various factors limited the scope of economic policy. At first, the state tried {3-476.} to improve the infrastructure on its own, but in the case of that key indicator of technical progress, the railways, privatization came as early as the mid-1850s.

The year 1867 marked a turning-point in Transylvania's economic development. The Compromise led to the economic as well as political consolidation of the monarchy, and the Hungarian government exploited these propitious circumstances to develop an economic policy that served the country's interests. The liberal constitutional order provided the guarantees expected by foreign investors, and capital flowed in. The government contributed, directly as well as indirectly, to the rapid creation of a railway network; it backed the development of credit institutions, technical education, and model farms; and it promoted industrialization both through a public sector and through the regulation of the private sector.

In terms of the Compromise, Hungary could not pursue an autonomous trade policy, for it had to abide by the customs union and a common monetary system; however, thanks to the structure of the dual monarchy, Hungarian interests had to be taken into account in the development of a common tariff policy. Absolutism had joined the economies of Hungary and Transylvania, and the latter were unified politically through the Compromise. The government of this new, enlarged entity was in a position to challenge the industrial predominance of the monarchy's western regions. Free trade, which was in its heyday, favoured the expansion of agriculture, as did Europe's growing demand for foodstuffs in the 1860s and 1870s. The government tried to obtain free access for these goods on foreign markets; it had to reciprocate by allowing the importation of manufactured goods, but that was momentarily in the interest of Hungary's economic development. However, Austrian industry, which lagged behind the more advanced western countries, objected to the unrestricted import of competing products. One of flaws of the Compromise was that it compelled two {3-477.} countries, possessed of disparate economic structures and independent administration, to pursue a common customs and trade policy; this anomaly was the source of recurring conflict between the leaders of Austria and Hungary, and in the monarchy's trade relations with its neighbours, an aspect of particular concern to Transylvania. Austria–Hungary's common tariff policy was the product of a series of compromises, and the Hungarians were most successful in asserting their interests of agriculture. Hungary also continued to play a significant role in the regulation of trade with Romania.

Historically, the Romanian principalities offered a good market for the empire's manufactured products, and in particular for Transylvania's manufacturers and merchants; and they supplied, in turn, food products as well as agricultural raw materials, which were used mainly in southern Transylvania's handicraft industry. However, the emerging modern Romanian state needed greater revenues. In 1850, it raised import duties to 5 percent, and in 1866 it tried to raise them further to 7.5 percent, which added to the troubles of Transylvania's manufacturers and merchants, who already had a hard time coping with economic change. The integration of Transylvania with the empire's market economy was accompanied by the accentuation of certain anomalies in its own economic structure. Before 1848, Transylvania's economy had developed in a conservative atmosphere and had only limited contact with the empire's western regions. The situation changed in the 1850s, and especially after the mid-1860s, when its traditional handicraft industry had to face tough competition from substitute products made by Austro–Czech industry; from the flood of English and French goods, shipped across the Carpathian frontier by low-cost water transport; and even from the manufacturers who had come from other regions of the empire to set up business in Transylvania. The Romanian market was no longer the privileged preserve of Transylvanian craftsmen and merchants. Their first reaction to this crisis was to try to boost exports, and they appealed to the government {3-478.} for help in retaining preferential access to the market. The railway link with Pest 'cannot save us from the dangers of western competition until we gain free access to our natural outlet, Romania,' argued Nagyszeben's city council in 1867, in a memorandum addressed to the minister of transport, Imre Miklós.[5]5. V. Axenciuc and I. Tiberian, Premise economice ale formării statului naţional unitar român (Bucharest, 1979), p. 113. As early as 1869, the trade minister acted on pressures from Transylvanian manufacturers and merchants to press for a commercial agreement with Romania.

Circumstances in the 1870s favoured a reinvigoration of trade between Hungary and Romania. In 1875, Vienna concluded a ten-year free trade agreement with Romania. The latter remained nominally under Turkish suzerainty, and Austria was the first great power to act on a presumption of Romania's independence in international law. The measure was part of Andrássy's foreign policy, which aimed to establish the empire's hegemony in the Balkans by supporting the small, emergent countries of the region. Romania had repay this favourable political gesture with economic concessions. It could freely export its grain to the empire, but the duty on livestock was linked to that imposed by Germany on the imports of Austro–Hungarian livestock. Bucharest had to relax its protectionist measures and to allow virtually free entry to the manufactured products of the monarchy. Even so, Andrássy had to lean on Budapest to accept the deal, for the government suspected that the privileges secured for 'Austrian–Czech industry' would have to be paid for by Hungary's agriculture.

Transylvania shared in the growing volume of trade generated by the 1875 agreement, although the latter's terms favoured the export of manufactured goods more than that of the region's traditional products. Within five years, the monarchy's exports had tripled, but the anticipated big increase in imports from Romania did not materialize. When Germany closed its borders to Austro–Hungarian livestock, Vienna followed suit and, in 1877, imposed restrictions on the importation of Russian and Romanian {3-479.} livestock, ostensibly on grounds of animal health. Cattle imports were banned after 1882, and sheep and swine were allowed in only sporadically. Stock-breeders were initially pleased, but it soon became evident that the ban would lead to a shortage of cattle in Transylvania, for supplies could not be increased quickly enough to satisfy domestic demand, and the domestic output of animal hides would not meet the demand of southern Transylvanian tanners, who in turn sold part of their product in Romania. Emulating the Austrians, the Hungarian authorities soon eased veterinary controls, allowed some Transylvanian firms to resume the processing of Romanian wool 'under police supervision,' and sanctioned the importation of small quantities of cattle hide. The partial 'closing of frontiers' nevertheless led to a decline in trade between the two countries. When the agreement ran out, Romania took steps to protect its domestic manufacturers by abolishing the preference for Austro–Hungarian products; in retaliation, the monarchy imposed a punitive, 30 percent tariff on imports from Romania.

The tariff war between 1886 and 1893 reduced imports to a trickle; it dealt a hard blow to Romanian stock-breeding and deflected Romania's grain exports toward more westerly markets. But the monarchy also paid a heavy price. As exports to Romania dwindled, Austria–Hungary lost is dominant position in the Romanian market, and Germany stepped into the gap. Transylvani-an producers of manufactured goods — which were generally semi-processed and destined for popular consumption, such as lumber and woodcrafts, textiles, leather, tiles, and glass — were hardest hit by the changes. 'We knew that it was only a question of time before our manufactured products were totally squeezed out, but the expiry of the trade agreement with Romania made the blow come much earlier than we had expected,' complained the craftsmen's association in Kézdivásárhely.[6]6. Petition of 15 June 1886, OL, Földművelés-, Ipar- és Kereskedelem-ügyi Minisztérium (FIK) iratai, 1886, 38, t. 32255.

In 1886, at a meeting of the Transylvanian Economic Society, Saxons and Hungarians elaborated a plan to bridge over the difficult {3-480.} situation. The plan envisaged state purchases and subsidies, the creation of cooperatives, and further development of the railway network. Responding to the pressure of politicians and businessmen, the government launched an aid program. With the backing of the Credit Bank, the state issued purchase orders to firms and craftsmen in the border region. The ministry of agriculture, and the ministry of industry and trade acquired a new role as purchasing agents: They ordered boots for the army, hats for gendarmes, policemen, and revenue officers, and broadcloth, blankets, shoes, boots, linen, glassware and paper for the railways, prisons and mines. A distribution office was set up in Brassó. New markets were sought in Bukovina, Bulgaria, and also within the monarchy; other palliative measures included preferential tariffs and tax exemptions. It was not easy to reconcile the various interests. The transport costs could not be charged to the Hungarian Railways, and it was difficult to distinguish genuinely deserving suppliers from those looking for a windfall. Székely farmers opined that 'the tariff war brought better times to farmers;'[7]7. Submission of Háromszék County, 29 December 1886. OL, FIK, 1887, 38. t. 2417-10112. on the other hand, craftsmen in Brassó regarded the purchase prices as no better than a 'convicts' wage' and initially refused to sew the military footwear, then failed to produce goods of adequate quality.

The tariff war accelerated the decline of some traditional branches of small-scale manufacturing, or, in the somewhat biased formulation of Brassó's chamber of commerce, it brought decay and pauperization to many a modest livelihood. In 1893, a new trade agreement restored orderly relations; the Austrian manufacturing industry won back some of its markets in Romania, and so did a few of southern Transylvania's Saxon textile factories, thanks to their larger scale and high-quality output. But the small and cottage industries never recovered their outlets. Although some of their product was still shipped to Romania at the end of this period, most of it had to marketed at home or in Bosnia, Serbia, and even Galicia.

{3-481.} In the 1880s, the state adopted an active policy of support to industry. Beginning in 1881, firms wanting to launch new products were granted a 15-year tax holiday, as were some older textile firms. From 1890 onwards, the state handed out interest-free loans, then gradually shifted to the provision of subsidies. In 1907, the government began to allocate considerable sums for industrial development; irrespective of nationality, Transylvania's manufacturers and craftsmen — particularly those in the Brassó district — received their share of this largesse.

The key role played by the state treasury in the development of Transylvanian industry is illustrated below in the analysis of individual branches. The scale of intervention was sharply constrained by the state's limited resources, by party-political wars, and by the liberal values of the period. Considerations of social policy were never absent, but they carried greater weight towards the end of the period, in the prewar years, when plans were drawn up to use natural gas for the electrification of central Transylvania as well as for the development of industry and mining in the Érc Mountains.

The state, despite its limited resources, made an important contribution to the development of Transylvanian agriculture. Some state-sponsored activities were small in scale and unspectacular: Model farms, stock-breeding farms, improvement of species, and specialized education. The state's broader agricultural policy drew more attention. The agricultural sector's own resources were insufficient for major investment in new machinery. They did suffice for one significant advance: Production costs were reduced by improving traditional, labour-intensive methods and extending them to larger areas. However, this was not enough to ensure competitiveness. In order to boost agricultural incomes, government leaders, strongly committed to this sector, won the imposition of a series of protectionist measures, and by the turn of the century they had secured the monarchy's market for Hungarian (and also some {3-482.} Galician) producers. At the end of the period under review, almost all of Hungary's agricultural 'exports' were sold within the empire. Although world market prices for agricultural goods were falling, the opposite happened in the empire; the tariff wall caused prices to rise after 1906 by some 30 percent. (Between 1875 and 1910, cattle prices increased by 150 percent, and swine prices by 25 percent; only wheat prices failed to regain the level of the earlier boom years.) For Transylvania's agriculture, less advanced than in the rest of Hungary, protectionism made all the difference in restoring profitability and facilitating modernization. Saxon farmers, who were better educated and started off from a higher level, managed to match the performance of the country's most productive farms, in Transdanubia; and even Hungarian and Romanian peasants won a degree of material security, at least compared to the low standards prevailing in the rest of eastern Europe.

Within the general context of economic liberalism, the state pursued a social policy aimed at the peasantry. Initially this took the form of regional programs to alleviate poverty, exemptions from taxation, and minor subsidies. Economic distress that threatened to raise social tensions brought a more direct response. The first significant instance of state intervention involved property relations and other economic problems in the former Romanian frontier-guard districts around Naszód. In 1872, the government nullified the regulations imposed during the absolutist period; the finance ministry concluded an agreement with those responsible for the Romanians' communal property, in terms of which the treasury waived its fiscal levies in favour of municipalities and the Romanian school fund. Woods belonging to forty-four Romanian villages were in danger of being eradicated, for lumber merchants took advantage of the peasants and felled trees indiscriminately, and with the depletion of their main natural resource, some of the villages could not even pay their taxes. After the judicial settlement in 1890 of conflicting claims from villages and landowners regarding {3-483.} ownership of woods, the state took control of over a hundred thousand hectares of woodlands and charged a forest administration office, newly created in Beszterce, with the task of systematic cultivation. Seventy-five kilometres of standard-gauge track were laid, largely at public expense, followed in 1909 by a narrow-gauge railway. In reference to the latter, the local Romanian paper exulted: 'Now we have a railway line that belongs to the municipality. It is hard to imagine that there is another place in the country similarly distinguished.'[8]8. Revista Bistriţei, 1909, no. 31, quoted in S. Biró, 'A magyar és román életkörülmények a dualizmus korában,' manuscript, Archives of the Hungarian Academy of Sciences. When the railway was inaugurated, an orchestra even played the unofficial national anthem, 'Wake up, Romanian,' for the dignitaries who had travelled down from Budapest... When the woods were taken over by the state, the municipalities were relieved of many tax obligations, and a reforestation program was launched. Forest exploitation was supervised by eight village delegates and the deputy head of the county; the municipalities applied the net revenues, amounting annually to several hundred thousand crowns, to cultural and other projects, and they had free use of an additional 34,000 hectares of woodlands. Thus the people of Naszód ended up in the same advantageous situation as those of the better-known community of Karánsebes, where common ownership and full local autonomy had survived without interruption. The forest administration at Beszterce created a model sheep- and cattle-farm, and, each year, it distributed thousands of improved fruit tree seedlings; these initiatives, together with the practice of silviculture, boosted economic activity and employment, and helped to reinvigorate the self-contained little world of the Romanians around Naszód.

One of the era's unsolved social problems was that of the Székelys. The abolition of villeinage drove many to become cotters, and the elimination of military border districts deprived others of a frontier guard's wage, clothing allowance, and opportunities for black-marketeering. The economically underdeveloped region had a hard time adjusting to the new tax burdens; in the 1850s, {3-484.} many of its people began to migrate northward, to Hungary, and southward across the Carpathians. The national market gave little stimulus to agriculture in the Székelyföld until the belated arrival of railways, and the local intelligentsia — unlike the preachers and teachers in Saxon villages — could contribute little to modernization. The shrinkage of lands held in common reduced the peasants' ability to earn a living from animal husbandry and timbering, and this happened before the emergence of alternative livelihoods. The Székelyföld felt mainly the negative effects of the country's developing market economy. Its small-scale industry was squeezed by competition from both domestic and foreign manufactured goods, and even more so after the main railway lines were built. The tariff war that began in 1886 accelerated the decline and wrecked the prospects of many ordinary people. Countless craftsmen moved to Romania, taking along their little 'machines,' and contributed to the development of that country's small industry. The new poor had little prospect of finding local employment in manufacturing, for the Székelyföld was one of the least industrialized regions in the country. Migration became a tradition, and people would seek jobs in distant regions even when wages were higher at home. For years people went to the Barcaság to thresh, even after the introduction of threshing machines had left them with only a few days work and no money to bring home. Many went off to do agricultural work in Romania, where their labour was highly valued. At the end of the century, boyars' agents offered 'advance pay' to recruit entire villages, whose people would then earn decent wages for work that lasted from spring until fall.

This pattern of migration to jobs in Romania, which often led to people setting there permanently, alerted the Hungarian public to the problems of the Székelys. In the last years of the century, attempts were made to entice Székely carters and farm labourers to the country's interior; in 1900, women's committees in the capital organized the recruitment of Székely housemaids. Even the {3-485.} resettlement of Székelys came under consideration. The trade ministry launched a 'Székely industrial program,' in part to encourage handicrafts and small-scale industry, and in greater part to train young Székelys in state enterprises and railway workshops — although this had the drawback that the lack of manufacturing activity in the Székelyföld deterred many of them from returning to the region.

In 1902, a Székely assembly, convened by the government, in cooperation with opposition politicians, at Tusnád, called for state assistance. That same year, the agriculture ministry initiated a program to promote economic development in the four Székely counties, and it opened a branch office in Marosvásárhely. Hundreds of farmers' clubs were founded; their leaders were sent on courses and field-trips, and given instruction in taxation, accounting, and credit management. Beginning in 1905, professional tours were organized to agricultural schools, Saxon farms, vegetable gardens in Kecskemét, and stock-breeding farms. Handicraft courses, new public libraries, and free legal advice served the cause of public enlightenment. Consumers' associations and dairy cooperatives were quickly established, but had a hard time surviving. Measures to encourage stock-breeding (cattle, swine, sheep, poultry) and the improvement of pastures — on which villages spent a good deal of money — were more timely and met with greater success. More comprehensive approaches were precluded by the still dominant ethos of economic liberalism, by budgetary limitations, and by conflicts within the ruling circles. Despite the negative lessons of the so-called highland (Ruthenian) experiment, the state continued to give privileged assistance to 'model farmers,' which offended the public's sense of fairness. Nevertheless, hundreds of families benefited from relief measures and the provision of cheap fodder during the hard winter of 1908.

At the request of several counties, the 'Székely program' was gradually extended — initially to the Hungarian villages of Kis-Küküllő {3-486.} and Torda-Aranyos, then Brassó, and from 1909 to the counties of Alsó-Fehér, Kolozs, and Szilágy. Although the results were meagre, the program did give an impetus to long-term development by compensating for the inability of villages to create their own interest-representing organizations. Shortly before World War I, the government contemplated extending the state aid program to every needy Romanian region — on condition that the leaders of the Romanian national movement agree to a political compromise.