As I am starting to integrate more with the Romanian culture, I am learning more about the endemic trust issues in Romania. To be honest, the trust issues are totally understandable, but it makes doing business here difficult. I will have my work cut out for me as I research the various types of NGOs. Despite the underlying trust issues that we’ve encountered, though, there is an inherent trust that others will ultimately do the right thing. It’s a pretty interesting, yet complex view of the world.
A short history lesson:
Romania had a brutal dictator, Nicolae Ceausescu, for 45 years; Nicolae and his wife, Elena, were executed on Christmas Day, 1989. Ceausescu started off as a pretty good leader, in fact he was considered to be one of the better Presidents from the Eastern blocs. All of that changed, though, when Ceausescu took a trip to North Korea in 1971 and he learned a different form of communism. He liked the parades and was obsessed with the fantasy of Romania becoming a world power along with the US and Russia. He also liked the idea of autonomy from the USSR and starting in 1981, he began positioning Romania to break free from Soviet control. However, one of the key problems is that the Kremlin sold all Soviet states gas/petrol at a discounted rate. In combination with the gas crisis in 1978 and with purchasing oil from the Middle East (as opposed to the Kremlin), Romania’s national debt escalated to ~$11B. Interest rates were high in the late 70s, early 80s, so Romania tried to pay off their principle as quickly as possible. Because of this, Ceausescu began exporting anything he could to pay back their debt. In theory, and for a household, great idea. But in practicality, and for a country, not such a great idea. Food was rationed, and each year, the food allowance shrank. By 1989, Romanians were only allowed half of the rations provided in 1981; much of the country was starving. In addition to food rations, people were also paid salaries. These salaries helped fund a flourishing black market and set the stage for cultural corruption so ingrained that folks here still believe that if their doctor doesn’t take a bribe, it’s because their ailment is incurable. And by the way, this is only recent history. Romania has a long history of being screwed over by their neighbors and occupations during their 2,000 year-long history.
Trust: Civilized Society
One of the most fascinating things regarding the city with the worst traffic in Europe, is that despite the fact that driving is completely erratic and a harrowing experience, cars will stop on a dime for someone in a cross walk. It’s the craziest thing. You see folks step into traffic with more moxie than the Midnight Cowboy and the cars actually stop! No honking, no cursing (I can’t tell you how many curses I was called in Chicago!), and no eye rolls; it’s done out of respect for the other person inhabiting the same space as them. During our first trip here, we noticed this phenomenon but thought it was a fluke because we had Isaac with us. Nope. Folks here really respect bike lanes and cross walks. New York and Chicago should take lessons! There are most likely numerous theories that would explain this phenomenon, however, I believe that it is indicative of the authoritative culture. Romania is used to being governed by strict rules and most folks abide by them.
On the books, traffic and parking laws exist, but in reality, they’re not enforced. There are no tow trucks that will haul away your car if you park in the wrong spot. Or hefty tickets left for you on your windshield if you go over your allotted meter time. Or boots if you accumulate too many tickets. Why? Because there are no paid parking spots, no parking permits, no parking rules. If you want to park on the side walk? Fine. Against the flow of traffic? Okay. Abandon your car for years? No problem. I can only assume that this fine-free system has worked well for years because Romania is so authoritative. However, as the city’s emergent middle class purchases more cars, laws will have to be enforced soon. And best luck to the politician who wants to start collecting those fines! To handle this wild-wild-west parking situation, there are metal horses everywhere for Parking Dibs purposes.
When Romania entered the European Union in 2007, the EU provided Romania some very strict guidelines to help with development. The EU frowns upon corruption and helped set up an Anti-Corruption team that has a 92% conviction rate. There are several theories surrounding Ceausescu’s death but most of them stem from the idea that Ceausescu’s military and police staged a coup. The Ceausescus were executed before they were even tried or questioned, so it is unknown if the senior leaders on his team were also involved in the scheming or if they were just following orders. The reason why this is important to understand this is because Ceausescu’s senior team remained in control after the Ceausescus execution and as Romania moved from a socialist to a democratic state. The corrupt people stayed in charge. Unfortunately, money that is supposed to help advance the country often ends up in politicians’ pockets instead. That’s why being part of the EU is important for many Romanians, because they know that the EU is a watch dog and will not allow for blatant bribery and corruption. Much.
However, because there is so much mistrust with politicians, Romanians are reluctant to participate in many governmental activities. The black market is alive and well. It is estimated that so many Romanians skip out on paying taxes, that there is a 13.8% decrease in GDP. Let that one sink in for a while.
Lack of Trust: Consumer Goods
Because there is so little trust in the government, there is a spillover effect with consumer goods. Many Romanians are reluctant to believe that what they are buying is real because the market is flooded with counterfeits. If you recall, one of my first blog posts mentioned this as I wasn’t sure why I was given a piece of paper with each purchase indicating the product’s authenticity. I have since learned it’s because the distribution channels are rife with counterfeits, and retail stores have unknowingly purchased counterfeit goods from China and sold them to their customers. A big no-no in the marketing world. One detriment of using VAT is that the end-consumer is the only one who pays taxes. In the U.S. we tax all along the supply and distribution chain because we tax revenue regardless if it’s B2B or B2C sales. This prevents large cash deals because we can (more or less) track the sale of goods from consumer to manufacturer. However, in a VAT country, because the consumer is the only one who gets taxed, if the consumer pays in cash, the retail firm never has to report that sale. See where I’m going with this? There are fewer checks and balances here and LOTS of side deals.
Additionally, consumers here have a lack of trust with brands who sell throughout Europe. The Economist noted this phenomenon a little while back. Despite the fact that many firms have issued statements saying that they use the same sourced materials for all European countries, many Eastern Europeans perceive this as false. They’re much more willing to drive to Germany to get the “real” product and drive back. Except that it’s the same same product, just with different labeling. The idea that “perception is reality” rules the roost in these parts. This is also a huge marketing problem.
So, where do we go from here?
The EU 2020 Strategy has marked goals for Romania to hit such as anti-corruption initiatives, increasing public school attendance among ethnic minorities, raising salaries for public workers, and building major highways to connect Romania to the rest of Europe. Lots of funding, respect from other countries and praise from the world are helping to move things along. However, looking at it from a broad perspective, there are many infrastructure problems that need fixing along the way.
First, Romania is on the upswing, but there are several market opportunities for firms. For one, the mail system here is complete shit. There were a couple of packages sent to us from the States and we have about a 50% probability that we’ll receive them. We’ve been told by other expats that we should assume that it will be either taken by the Post Office workers, or that it will be held at the Post Office for ransom and that we’ll be asked how much it’s worth to us. That’s if they even notify us that we’ve received a package. Most large online retailers (i.e., Amazon, Ebay, etc.) refuse to mail anything to Romania. One way to combat this trend is to send everything via courier. Not necessarily DHL, FedEx, but local couriers who require signatures at every step of the way. There are no repercussions to employees in the Post Office if packages don’t arrive, so why worry about stealing? If tax evasion (which is rampant due to the black market) has decreased the GDP by almost 14%, I believe that fixing the shit mail system will increase GDP by at least 3% or more because all of the purchases are then “on the books.” Think about all of the opportunities. Global sales! Imports! Exports! Amazon!!! And trust from the consumer to purchase directly from the firm! Ooh la la! It’s like those 4 P’s actually mean something!
The next opportunity is to continue to allow digital disruption of the market place. Uber has been here for 18 months and like everywhere else, the cab drivers hate it. But, it’s starting to spurn competition among other apps, and is increasing the accountability and truthfulness of the cabbies. Uber makes it so that the drivers can no longer take tourists for the “scenic view” drive in the city to increase their fare. If you want to see how cabbies can stymie tourism from propping up the local economy, hang out at one of the resorts in Puerto Rico for a little while. Uber is not allowed to pick up clients from hotels or resorts in PR, which means that the tourists are not spreading their money around the island and are only spending it in the hotel. And cabs are STUPID expensive. The cabs don’t use meters; the cabbies just make up a price and it’s always exceptionally high (typically $30 one way). Therefore, fewer people use cabs. And fewer people go to local restaurants, or shopping malls. The entire economy suffers when one link in the chain is selfish.
Despite the challenges, Romania is doing really well with boosting the local economy. One of the nicest things is to talk to people about what the city looked like 10 years ago. Without a doubt, everyone has said there are way more people here now and way more spending than there was even a couple of years ago. Romania is going through it’s growing pains and transitions from socialist to capitalistic, but it is most definitely on the upswing, trust issues and all.