EKIP– Expert Club for Economics and Politics A Different Opinion
In his book Capitalism, Socialism and Democracy, the economist Joseph Alois Schumpeter (1853-1950) argued that capitalism is an evolutionary and dynamic system. The main impulse that causes evolution and dynamism comes from the supply of new consumer goods, new methods of production or transport, new markets and new organizational forms of enterprises involved in the capitalist economy. Schumpeter defines the process of capitalist evolution as creative destruction. Thus he synthesizes the view that capitalism is a creative process that leads to a general improvement in the standard of living. Destruction, on the other hand, is inevitable, and it brings social tension and difficulties. Schumpeter comes to the conclusion that capitalism is doomed because successes generate social pressure that leads to the destruction of the existing economic system.
Capitalism entered Bulgaria hesitantly, but its characteristics were visible at the end of the 19th and the beginning of the 20th century. In the presentation, we will focus on two examples of the action of creative destruction on Bulgarian soil. They illustrate the human dimensions of Bulgarian capitalism, with its creative, but also its destructive characteristics. In the end, we will try to answer the question of whether Schumpeter was right with his pessimistic prediction about the fate of capitalism.
The beginning of industry in Gabrovo
The factory industry made its way slowly and with difficulty through the Bulgarian lands. Before the Liberation, and well after it, the Bulgarian economy was predominantly agrarian, and in the urban economy, manual craft production prevailed. As a result, the life of the majority of Bulgarians was similar to life in all non-capitalist societies: poor, brutal and short. Many factors were missing for the creation of modern factories. Among them can be mentioned: free capital and capital markets, organizational abilities, entrepreneurship, technical knowledge and skills, political stability, etc.
Against this background, after the Liberation, an entrepreneur appeared in one of the most important craft centers of Bulgaria, who was a true bearer of creative destruction. His name was Ivan Kolchev Kalpazanov (1835-1889), a Gabrovo craftsman, with a flair for innovations in business and with personal qualities that are mandatory for a successful entrepreneur. Kalpazanov had no special education. He was "given" to learn a craft from the age of 12 and was distinguished by his "hard work, exemplary honesty and innate commercial skills". A characteristic feature of the Gabrovo man is also compassion for those in need. He mainly engaged in the production of gaitan - a knitted woolen cord, which was used to decorate clothing by the inhabitants of the Ottoman Empire.
Up to this point, Kalpazanov did not stand out from the mass of craftsmen in the Bulgarian revival centers. He was unique and could be defined as a bearer of creative destruction, because he came up with the idea of opening a spinning factory in Gabrovo. This was the introduction of a new, highly productive method of producing braids and fully fit into Schumpeter's definition, which we indicated at the beginning. Kalpazanov purchased spinning machines from Germany and built a factory building in Gabrovo. Because of this act, many of his fellow citizens considered him mentally unbalanced. Ultimately, his dream was crowned with success. In November 1882, the spinning factory was solemnly opened. This was the first factory in the Principality of Bulgaria. A remarkable fact is that Kalpazanov refused to seek a concession from the state for the construction of a new factory. Obtaining a concession is usually associated with guarantees from the state that the construction and opening of another similar factory will not be allowed in the city and its neighboring regions. Apparently, Kalpazanov assessed that there was no need for the state and that free competition was the best means for personal and public economic progress. In the following years, he opened two more factories. To provide them with fuel, he reserved a perimeter in the Stara Planina Mountains for coal prospecting, etc.
Ivan Kalpazanov literally "burned out" at his job. While organizing the unloading of machines for one of his factories, he caught a cold and, after several months of illness, died in 1889.
The story of the Gabrovo entrepreneur told so far is half-baked. It shows the creative part of the slow capitalist modernization of Bulgaria in the last two decades of the 19th century. The lack of destruction makes the story sterile and unreliable. Part of the local population did not welcome Kalpazanov's factories with indifference. Many poor women (so-called spinners, pullers, weavers) were engaged in the production of braid. After the factories began operating, their incomes decreased sharply. The price of hand-made yarn dropped dramatically because it could not compete with the cheaper and more efficient factory production. That is why Kalpazanov was disliked by his fellow citizens. On the night after his funeral, his corpse was dug up to be robbed. The sacrilege did not arouse pity or sympathy. On the contrary: rumors circulated among the people that the land did not accept Kalpazanov because he took away the "bread" of many poor people.
Sofia trams and those dissatisfied with them
For many years after the Liberation, Sofia bears all the marks of a backward and poor oriental city. The streets are crooked and muddy, public hygiene is far from modern standards. Life also flows in an oriental way: quiet, slow and monotonous. There are few places for entertainment, cultural life is not very diverse. Symbolic places from today's ideal center of the capital are garbage dumps, cemeteries or wastelands. By some strange historical irony, the place where the BNB building is, for example, is full of snakes. The Central Station is practically outside the city limits, etc.
Since there is no public transport, transportation is provided by horse-drawn carriages. The municipality tries to regulate transportation tariffs, but its success is limited. Conflicts and clashes often occur between passengers and horse-drawn carriages, who are annoyed by the high prices.
Sofia's rulers undertook modernization efforts. They were often accompanied by corruption scandals and provoked ironic comments from Pencho Slaveykov and other observers. At the very end of the 19th century, the Sofia Municipality took steps to electrify the city. French-Belgian investors received a concession to build a power plant near the village of Pancharevo. On November 1, 1900, electric lighting was put into operation on the capital's streets, and at the beginning of 1901, the first electric trams began operating. Initially, two tram lines were put into operation. 25 covered and 10 open tram cars were purchased. They moved at an incredible speed for their time of about 15 km/h and were perceived as an expression of "worldwide progress", which also reached the Bulgarian capital. The concessionaire company issued tickets for first and second class, which caused a hypocritical negative reaction from the socialist representatives in the Municipal Council.
The capital's electric trams are a new way of transporting passengers, which fits into Schumpeter's definition of creative destruction. They arouse fears in some of the residents of Sofia. Mothers of small children are worried. Despite the low speed of the trains, some derail, and individual incidents end with human casualties. After a fatal accident with an electric tram, a rally was held, the slogan of which was "We will not let trams run over us." During the rally, the windows of trams were broken. The numerous capital's coachmen actively participated in the rally. They felt the destructive element of capitalist evolution. The introduction of trams was of public benefit and improved the quality of life of many people, but the coachmen were slowly and surely losing their livelihood. They participated in the destruction of trams not so much out of concern for safety, but because they were afraid for their existence. Similarly, the first looms in England were destroyed by textile manufacturers who worked by hand.
Creative destruction – what of it?
The spinners of Gabrovo, the coachmen of Sofia and many other similar social groups have gradually sunk into the oblivion of history. They are the ones who pay the price for achieving modern living standards. But their descendants lead a much better life than their ancestors, they are not doomed to the miserable existence of the late 19th and early 20th centuries.
It is important to note that the social cost of the evolution of capitalism is significantly smaller than the social gains from it. It is no coincidence that Schumpeter's definition puts creativity first. However, destruction should not be forgotten. There are obviously losers in the evolution of capitalism. They are relatively few, but it is important that the social structure does not turn the losers into victims. Historical experience shows that the best means to achieve this goal is to give the poorer people the freedom to realize their abilities. Applying this means to rely more on spontaneous processes and less on centralized planning by political power. Thus, the social tension from the destruction that characterizes the dynamics of capitalism will not disappear, but will become more bearable. And Schumpeter's prophecy about the inevitable collapse of the capitalist system has every chance of joining the long list of unfulfilled predictions of brilliant intellectuals. The fact that he is a brilliant economist does not mean that he is right about everything.
