The economy of the Socialist Republic of Romania was centrally planned, similar to the one of the Soviet Union. Most of the means of production (including all large and medium enterprises) were owned by the state, which established production plans as part of the Five-Year Plans.
The economy grew between the 1950s and 1970s at one of the fastest rates in the world, changing Romania from a predominantly agricultural country into an industrialized country. Almost 30% of the population moved during this period from rural to urban areas to work in the newly built factories.
During the 1980s, dictator Nicolae Ceaușescu pursued an austerity policy in order to pay foreign debts, leading to a decade-long stagnation and negatively affecting the living standards of the Romanians.
Pre-Socialist Romania
Interwar Romania was one of the least developed countries in Europe, having a per capita income of less than half the one of Czechoslovakia.
Despite having mineral resources and a state interventionist policy, Romania was not able to change the agricultural character of its economy into an industrial one. 80% of its population was employed in labor-intensive agriculture, which made up 64% of Romania's exports, while only 2% of its exports consisted of manufactured goods. Its industrial and economic development, as well as its relationship with the industrialised West was typical of what we call now the periphery countries.
Despite the land reforms, Romania's peasants continued to live at the edge of poverty. Its bourgeoisie used much of the country's economic surplus into non-productive uses, while the country had an oversized and corrupt state apparatus, upon which relied a privileged minority.
Early years
Early post-war development was not slow. The country had been affected by the war and, furthermore, it was burdened by war reparations to the Soviet Union, either directly or through joint Soviet-Romanian companies (SovRoms). Additionally, 1945 and 1946 saw a severe drought which strongly reduced agricultural output.
The lack of organization post-war (much of it due to the political struggle and the agitation among the workers), together with a foreign exchange crisis (which led to shortage of materials and spare parts) meant lower industrial production. An improvement came in late 1947 as the better harvest and a monetary reform helped the economy.
Nationalization and collectivization
After the Communists were able to liquidate their allies, the reforms were passed at a faster pace. In June 1948, the Great National Assembly passed a nationalization law which resulted in the nationalization of virtually all of Romania's industrial means of production. Together with the nationalization, central planning was introduced, first using one-year-plans (in 1949 and 1950), then using five-year plans (starting in 1951).
In the countryside, all large holdings were nationalized in March 1949, being either converted into state-owned farms or handed over to collective farms. The small farmers were encouraged to join these collective farms, but the brutality with which this program was implemented led to resistance which was, occasionally, even violent. According to a 1961 report given to Gheorghe Gheorghiu-Dej, around 80,000 peasants were arrested, of which around 30,000 were prosecuted.
However, Romania did not have the material means (such as tractors), nor the skilled people to run large-scale exploitations. The Central Committee admitted the mistakes and retreated temporarily, allowing individual property, with mandatory quotas of the production. The pressure from these quotas, combined to the attractiveness of industrial jobs in the cities led to a decline of agriculture's share of the labor force from 74.1% in 1950 to 69.5% in 1955. It was only in 1958 that a new campaign begun: the number of households engaged in private agriculture went down from 88.5% in 1955 to around 7% in 1962, when the socialization of agriculture was considered complete.
Industrialization
A large investment plan was started: between 1950 and 1953, the ratio of investment to national income grew from 19% to 34%. It focused on industrialization, which received 48% of the investment funds, as well as construction. Most of the investment was in electrification, metallurgy, machine building and chemical industries. However, few investments were made in the countryside (less than 10%).