Difference between revisions of "Postwar Reconstruction in Vetalia"

Revision as of 03:21, 5 May 2007

Introduction

The Revolution against the Empire from 1950-1955 was one of the bloodiest conflicts in the history of Vetalia. Over 30 million people were killed and 500 million displaced, and much of the country was in ruins. Gross economic output in 1955 was at only 53% of its 1949 level, and inflation was at a staggering 35% and climbing. Shortages of basic consumer goods were common, and the country suffered under constant outages of utilities that were at best disruptive and at worst a public safety hazard. The new Republic was left in a difficult situation that threatened the very stability of the nation it had wrested from the grasp of its Imperial rulers, but under the tutelage of competent leadership and the dedication of the new nation to building the Republic, it recovered and embarked on the path that led to its position as one of the largest economies in the world, an economy that boast an unrivaled technological base and a highly educated and innovative workforce.

Arising from the Ruins: 1955-1960

The first phase of reconstruction was in the 1955-1960 period, when the new Republic established itself and laid the foundations for future economic activity. Due to the country's limited trade relations during the Imperial era, the nation was forced to rely on its own resources to rebuild and recover, a factor which both aided and hindered its economic recovery during the first period of reconstruction. Almost immediately after the war had ended, the victorious Republic leadership began to discuss plans to rebuild the nation and its devastated citizens. The first step in this was to begin shifting economic resources from the military to civilian purposes; most of the militia and revolutionary forces were disbanded and put to work as agricultural laborers on the nation's farms as well as acting as manual workers in urban areas. The defense budget was slashed to almost nothing, and much of its funds were put to work in healthcare, education, and infrastructure.

However, an immediate snag in this plan was that the government was broke. It had little hard currency on hand and the Solaris was devastated by hyperinflation from the war. To address the situation, the government negotiated temporary control of the nation's gold and silver mines, and greatly restricted commercial uses of precious metals. They put these resources to work building up a store of value with which the government could back its currency, at least partially. In exchange, the government awarded real-value bonds (whose value adjusted with inflation) as well as promissory notes and other forms of debt to companies and individuals that supplied them with precious metals. In order to enforce these laws, the government used its military and police forces to back its demands, often raising protests from these sectors in response. Several brief conflicts were quickly suppressed, and overall the flow of hard currency began to increase rapidly by 1956 and continued to grow through the rest of the next five years. In order to combat inflation, the government under the first Praetor, Vasily Petrov, ended emergency price controls imposed in 1954 and ended rationing in 1956, and began to retire currency from the economy in order to put downward pressure on prices without a sharp change in interest rates. This moderately slowed the rate of inflation from 75% in 1955 to 56% in 1956 and 22.1% in 1957, but it was still very high. Finally, in 1957 the government announced plans to revalue the Solaris at a 100:1 conversion ratio as well as back at least 40% of its issue with gold. Although this restricted growth in the money supply and produced higher interest rates that slowed economic output, the policies led to greatly increased confidence in the national currency and much lower inflation, falling to 10% in 1958 , 4.3% in 1959, and 3.8% in 1960.

Industrial production recovered slowly, hampered by the devalued solaris, but the major government infrastructure investments as well as the rising literacy and educational levels brought by its education plan led to accelerating growth as the 1950's drew to a close. Real output rose by 0.2% in 1955, 2.3% in 1956, 5.6% in 1957, 5.9% in 1958, 7.8% in 1959, and 8.3% in 1960, with strong growth in capital goods and energy production providing the tools for growth in other sectors. Agriculture also rebounded thanks to government-subsidized labor and equipment imputs, and by 1960 had recovered to its 1949 level. Services during the period remained fairly lackluster due to the needs of reconstruction, but revivals in technology-related and financial services industries began to become visible by 1960. The overall rate of GDP growth sped up fairly rapidly, with growth of 1.1% in 1955, 4.0% in 1956, 7.7% in 1957, 7.5% in 1958, 8.4% growth in 1959, and stunning 10.1% growth in 1960. This helped the unemployment rate fall from nearly 25% in 1955 to around 12% by 1960, although it was still high compared to prewar standards.

Government investment during the period accelerated along with the economy, especially in housing where the government began its ambitious, 10-year "Million Roofs a Month" program of new construction in towns and cities. Although aesthetically bland, these tower blocks provided huge amounts of low-cost, solid housing to people displaced and made homeless by war; an estimated 750 million Vetalians faced housing shortages in 1955, a number which decreased by nearly 300 million to 468 million by 1960. However, there were still some significant problems with overcrowding and shortages that would not been alleviated until the mid 1960's. The improvement in housing conditions both improved morale and stimulated the banking industry, whose lending had been stagnant in the immediate postwar years. A stronger banking system helped stimulate investment and further reinforced public confidence in the solaris. Infrastructure was also greatly enhanced by this period, with several ambitious programs implemented that helped the economy greatly. The most noteworthy of these were the Electrification Act and the Communications Act, which expanded and improved the electric and telephone grids, increasing the reliability and availability of communications around the country. Investment in roads and bridges was generally aimed at repair rather than expansion, since the still weak economic output was not putting strain on existing infrastructure. The nation entered the 1960's confident, but still economically weakened and still on the road to total recovery.

1960-1965: The Economic Miracle

By 1960, the country was well on its way to full economic recovery. Inflation was falling, GDP was booming, and the ruins that had marked the nation's cities were being erased by the forests of tower cranes and hedges of scaffolding, as well as the din of construction equipment and workers that marked reconstruction across the country. Supplies of consumer goods, nigh impossible to find during the Revolution and tightly rationed, were now returning to the stores and the free market. The country's GDP was at 77% of its prewar level, industrial production at 81% of its prewar level, and agriculture at 103% of its prewar level, all excellent strides made under harsh conditions. However, the country still had a significant way to go before its standards of living could return to Imperial levels and unemployment remained high. The period known as the economic miracle would greatly reduce these problems and leave Vetalia a fresh, vital economy ready for emergence on to the world stage.

During this period, under the continued leadership of Praetor Vasily Petrov, the government began to gradually scale back its postwar programs, albeit gradually. Nationalized industries were returned to private ownership, the government began to stop purchasing gold and began to curtail subsidies to industry and agriculture. It also began to increase funding for its military and infrastructure as well as further fund education and healthcare. The negative income tax was first implemented in 1963, the first of its kind. Vetalia's government also funded research in to space exploration, basic technological research, and other fields that would later help it gain a major technological edge in important fields. VASA was founded in 1961 to advance space research in the country, and the nation would successfully put its first satellite in space in 1964. The Vetalian Central Bank also became more active during this period, raising interest rates and reserve ratios to keep growth in the money supply balanced and inflation under control. However, inflation was nonetheless elevated in this period at around 4-5% per year.

Economic output during the 1960-1965 period was very strong, with GDP growth coming in at 10.1% in 1960, 11% in 1961, 9.9% in 1962, 7.5% in 1963, 7.2% in 1964, and 10.2% in 1965. By the end of this period, GDP was 19% above its pre-war level, although per-capita GDP was still about 10% below the same level. Unemployment fell from 12% to 7.5% in 1965 as demand for workers not only reduced existing problems but brought more workers in, especially women, who comprised an increasing share of the workforce during the period. This strong growth also boosted the Vetalian financial markets and the government's tax revenues, which enabled it to start building up cash reserves and meet debt obligations issued in the 1950's that were starting to mature in 1965. After 1965, the government also began to cut taxes to return some of its surpluses to taxpayers, and gradually began moving to a flat-tax system.

Agricultural output continued to improve, although productivity slowed as government subsidies were withdrawn and Vetalian produce had to compete on the global market. Nonetheless, advances in chemistry and biology helped farmers increase output and the industry remained one of the most productive and mechanized in the world. The contribution of technology during this period also started to grow, as Vetalia poured money in to computing, telecommunications, and metallurgy. The founding of VARPA in 1969 would greatly aid technology, as the government agency often pursued projects deemed too risky or speculative by the private sector. Overall contribution from technology-related industries rose from 5% of GDP in 1955 to 15% by 1970 and would continue to climb in later years. This period also saw rapid growth in infrastructure, with the Interprovincial Highway Act adding nearly 200,000 km of expressways from 1960-1970 which stimulated shipping and opened up the interior to more intensive growth and settlement. By 1970, the country had 400,000 km of highway linking its major cities and was still increasing to meet the needs of the economy.

The housing situation further moderated in the 1960-1965 period, as the number of Vetalians facing housing shortages fell from 438 million in 1960 to 78 million in 1965. Overall living space per capita also rose as people moved out of their old apartments and homes and in to the bigger ones being constructed by the robust private sector, which erected over 20.1 million units of housing (one unit in Vetalian housing law is a structure that can "comfortably house 4 people") in 1965. The government began to gradually dismantle its reconstruction program as the private sector accelerated and outstripped its own efforts, but continued to build housing for the primarily lower-income and middle-class people that might not be able to immediately afford new private housing. Most of the money saved was used to fund a low-income tax credit while the rest went to a fund for refurbishing and renovating buildings to enhance the overall appearance of the country and to upgrade older structures, especially government ones, with new infrastructure. These efforts greatly increased the aesthetics of the country over the next decade, and the concept of a fresh start was also to become a key political vision of Anatoly Rodachenko, who would preside over the country from 1964-1972.

1965-1970: Continued Recovery and Economic Maturation

By 1965, much of the recovery work was completed and the country could now focus on expanding above and beyond the levels achieved under the empire. Even though GDP was only about 20% above its 1949 level, the quality and depth of that economic output made a noticeable difference in the lives of many Vetalians. Income inequality fell from a Gini index level of 52.1 in 1949 to 38.3 in 1965, and unemployment rates for the lowest income bracket reached their best levels in recent history. GDP growth moderated during this period as the economy returned to trend, but a focus on intensive growth and productivity aided by the country's strong technological base made an increasingly significant contribution to growth at the time. GDP expanded 10.2% in 1965, 9.1% in 1966, 7.3% in 1967, 7.1% in 1968, 6.1% in 1969, and 5.8% in 1970. By the end of the decade, GDP was 65% higher than its prewar level and industrial production was a staggering 95% higher than its prewar level, reflecting the extensive gains made in industrializing the country and attracting new industries. Unemployment continued to decline during this period, reaching a post-war low of 5.0% in 1970, and labor participation climbed from 58.2% in 1965 to 60.4 in 1970, a significant increase. Wages and salaries advanced at a 6-7% clip during this period, establishing significant real gains in income for many workers. These workers spent more and invested more, which pushed the economy forward and drove the stock market upward with it eventually surpassing its pre-war peak in 1975.

Tax revenues swelled further, and in order to correct a surplus that was growing too large and threatened to actually slow the economy, Praetor Anatoly Rodachenko began to impose a series of tax revisions and cuts with a goal towards simplfying the code, reducing the surplus and stimulating economic activity. The surplus declined from around 4.3% of GDP in 1965 to 2.0% in 1970, roughly in line with the nation's trade deficit. This helped keep the Solaris stable in value and increased the importance of monetary policy in keeping prices stable. However, inflation did accelerate during this period due to the facts that the economy was approaching its full employment level of operation and price pressures were starting to build up. Inflation accelerated from 3.8% in 1965 to over 6% by 1970, and the government would soon be faced with the difficult task of fighting inflation without damaging their continued economic expansion. However, during the Rodachenko years attention was not particularly paid to fighting inflation in favor of continued growth, a factor which would have some serious implications in the first years of the post-reconstruction period.

Rodachenko's primary reforms outside of tax policy were in trade and social services. He was an avowed free trader who opened up the country's markets to foreign investment and trade, and his non-interventionist policies enabled Vetalia to keep most of its military on reserve, freeing up resources to be spent in other areas. Although there were fears that this policy would negatively impact economic growth due to the influx of foreign goods and workers, they were soon allayed when Vetalia's industries saw their exports to foreign nations rapidly increase and their profit margins expand to new highs on the cheaper raw materials imported from overseas. This put negative pressure on the timber industry in particular, who appealed for government aid. However, the fact that Vetalia stood to gain more from using its forests for tourism and environmental stability than for logging caused their protests to fall on deaf ears. The industry underwent a fairly significant decline after the 1960's, with most of its business eventually concentrated on producing high-end woods for consumer products and other light-use purposes. Consumers also benefitted from the arrival of more products, especially in food and beverages as the supermarkets and shops of the nation began to carry a wider variety of products from around the world. In the social services, Rodachenko expanded funding for public education and instituted an extensive financial aid and loans program for students who met its requirements, with an eye to further boosting university education in the nation. A particular success was in boosting the number of graduate students, which increased by nearly 60% in the decade following the plan and which produced a significant number of highly educated, highly skilled workers for the nation.

The housing problem was entirely solved by 1967 (when government statistics showed that the number of Vetalian citizens facing housing shortages had fallen to levels comparable to other nations) and the government gradually phased out its construction program, with the last units completed in the year 1970. Growth in the private housing market slowed to around 2% per year by the end of the decade and the construction mix shifted towards more detached housing and fewer apartments, as wealthier Vetalians began to desire individual homeownership rather than renting apartments. However, construction of condominiums remained robust, especially in Xilare and on the beaches of northern Vetalia. The era's prosperity is best reflected in the average size of dwellings, with a new house or apartment built in 1970 nearly 25% larger than one built in 1960 and almost twice as large as dwellings built in 1950, the last year before the outbreak of civil war. Prices declined during the later half of the 1960's as supply returned to normal and the demand for new housing remained stable, but a slowdown in construction as well as a tendency to buy older properties, demolish them, and build pricier structures on the same site helped drive prices up in the 1970's. Overall, however, Vetalian rates of home ownership and the overall conditions they lived in were the best in the nation's history.

The economy continued its solid performance in 1971 and 1972, growing at 5.0% in 1971 but slowing to 4.2% in 1972. However, the rate of inflation was accelerating and the government could no longer afford to ignore it, raising interest rates and restricting the money supply in order to bring inflation under control. Growth slowed dramatically as the sudden spike in interest rates caught many businesses off-guard and made investment a losing proposition. By late 1972, it was clear the nation would likely enter recession in the next year, most likely in the second or third quarter. Despite this slowdown, Anatoly Rodachenko left office as one of the highest-rated politicians in the nation's history, and his administration saw Vetalia not only recover but emerge as one of the world's strong economic powers. GDP had expanded almost 70% since he took office, and GDP overall had surpassed the trend line of growth in the Empire. Unemployment was at 4.0%, and real wages were at their highest levels ever. Although he was not entirely responsible for the boom, Rodachenko's credit lies in his ability to focus that economic energy in to building a sustainable and strong economy that could compete the world over.

Gallery of Reconstruction-era Images

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  New private apartment block in Novagrad, 1959.

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  A new oil refinery under construction, presumably in southern Vetalia, 1967.

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  Cover of the may 1956 edition of "Vetalia In Construction", showing rebuilding of the historical Keremov Prospekt in Xilare.

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  New factories under construction in north Vetalia, 1962.

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  Completing an unfinished Imperial-era dam on the Moldava river, 1955.

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  New highway under construction, location unknown. 1966.

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  Chemical plant under construction, Dometsk, 1971.

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  Government apartments under construction, Baritovo, 1964.

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  Xilare Municipal Stadium, 1970.