of a combination of forces, including the development of indigenous military forces, changes in Third World governments, the ebb and flow of insurgency, and the shifting patterns of military aid from the U.S.S.R. and the big Western suppliers. The strength of these forces has exposed China's limited ability to service arms requests. In the countries where China had established an arms supply relationship, the relationship has now begun to crumble under pressures of competing arms sales by major suppliers. Some of the more important developments are as follows:

1. China's military contribution to Pakistan is expected to diminish as equipment from Western countries begins to flow to Pakistan under the quarter billion dollars worth of deals concluded in 1977. Until recently, China was Pakistan's major supplier, accounting for almost one-third of Pakistan's total foreign defense contracts. Chinese equipment accounts for approximately one-half of Pakistan's air and ground inventories, which include Mig jet fighters, IL-28 jet light bombers, light and medium tanks, and an array of ground forces, communications, and support equipment. China's military effort in Pakistan also has involved small munitions plants and military repair and manufacturing facilities at the Taxila complex.

2. Tanzania, Peking's second largest arms client and the only Third World country to develop an extensive dependence on China for equipment and training, is phasing out Chinese equipment; Tanzania has deliberately shifted to Moscow as its major supplier, to get late-model weaponry that China has been unable to supply.

3. The victorious Soviet-supplied forces that formed the new Government in Angola have refused to recognize China because of Peking's support to the opposition before independence.

4. In Mozambique the new Government brushed aside a decade of Chinese military collaboration in providing small arms and military training for guerrilla groups in favor of a Soviet relationship that could bring more modern weapons.

Such setbacks have made Peking more cautious in entering arms agreements, especially where the potential political payoff seems small. Thus in recent years Peking has provided only token military support for Egypt, Sudan, and Somalia, even though the supply of spare parts for Soviet equipment entailed few risks. In all cases, China has stressed its preference for economic aid as an instrument for peace and stability. Peking denigrates big power arms salesmanship as a sorry contrast to its own contribution to peaceful economic development.

TABLE 4.-CHINA: MILITARY AID TRANSACTIONS WITH THE THIRD WORLD

THE IMPACT OF AID ON ALBANIAN INDUSTRIAL DEVELOPMENT THE SOVIET UNION AND CHINA AS MAJOR TRADING PARTNERS

In the case of a small developing socialist economy the choice of major trading partners is often closely linked to the search for economic aid. The Albanian case affords an insight into the differences between the Soviet Union and China as aid donors. In this paper it is argued that foreign aid proved indispensable to the Albanian economy in altering the structure of output and fostering the economic growth desired by the ruling Party of Labour of Albania (PLA). On the other hand, an attempt will also be made to reveal the extent to which reliance on foreign aid has acted as a constraint on the PLA's objectives.

The analysis begins with an attempt to establish a theoretical framework on the basis of both the traditional two-gap development model and a countertheory formulated by Griffin. However, an econometric analysis of the Albanian experience reveals that neither of these approaches to foreign aid problems is particularly effective in providing a theoretical explanation of that experience. It is argued that the Albanian system rules implying centralized economic decisionmaking and the difference between socialist and capitalist economics as donors preclude the use of models designed for the analysis of marketoriented developing economies. Finally an attempt is made to relate the Albanian concept of self-reliance to the foreign aid issue.

Prior to a consideration of the macroeconomics of aid, an outline of the nature of the foreign aid which the Albanian economy has received since 1945 and the historical background to Albanian requests for aid will facilitate the later analysis. The PLA leadership turned its attention towards the need for foreign aid very soon after it came to power. In his report to the Fourth Plenium of the PLA Central Committee on October 17, 1945, Enver Hoxha noted that both Yugoslavia and the Soviet Union had agreed to provide Albania with credit, but warned

The author is with St. Anthony's College, Oxford, England.

1 K. Griffin, "Foreign Capital, Domestic Savings and Economic Development," Bulletin of Institute of Economics and Statistics, May, 1970, pp. 99-112.

against the danger of failure to pay back the loans at the agreed time:

If we do not improve the economic sector, our obligations to our people and to the states with which we have entered trade agreements will cause us to become politically dependent. We should not forget this: We have had a bitter past.2

Further on the report refers to Albania's oil deposits and planned Soviet assistance in their exploitation:

Oil is our main resource, and interests everybody. Of course, in this vital sector we will rely on the help of the Soviet Union, but we will consider the interest of our country first.3

Thus, Enver Hoxha's preference for political independence in the matter of economic development had been made clear. However, the close relationship which developed between Albania and Yugoslavia and culminated in the signing of an agreement in November 1946 which would effectively incorporate the Albanian economy into the Yugoslav Federation suggests that the PLA leadership was divided on the development issue."

When the split between Belgrade and Moscow became clear in 1948, Hoxha was able to use Stalin's hatred of Tito to obtain assistance in purging the pro-Yugoslav wing of the PLA, which was led by Koci Xoxe. As table 1 shows, Albania received 147.5 million new leks aid between 1945 and 1948, of which some had come from UNRRA 5$23.6 million, of which the United States provided $20.4 million-but the larger part had been provided by Yugoslavia. Although the aid is measured as a surplus of Yugoslav deliveries over imports, Hoxha argued in October, 1948, that in fact the aid had come via Yugoslavia from the Soviet Union. He gave his sources as Molotov and Stalin:

When it came to economic matters, Molotov said, "the Soviet Union will unsparingly help the Albanian people to rebuild their economy, but this help will be given through Yugoslavia, purely for reasons of foreign policy." Comrade Stalin repeated this to us when we went to Moscow."

Notwithstanding the validity of this argument, it is clear that, from Hoxha's viewpoint, close economic ties with Yugoslavia were incompatible with his development strategy for Albania. The Albanian economy thus came to rely mainly on the Soviet Union and other members of Comecon for aid after 1948. The Soviet presence in Albania may conveniently be broken into two phases, the first of these running from 1948 to 1954 when the death of Stalin was followed by the New Course in the Soviet Union and the second phase representing the delivery of economic aid designed better to integrate the Albanian economy into Comecon and coming to an end in 1961.

The report delivered to the PLA Central Committee by Enver Hoxha on December 24, 1953 was discussed in the previous chapter, where it was noted that a downward revision of targets for the 1st 5-year plan had been necessitated by an unrealistic emphasis on industrial production at the expense of agriculture. The report notes

E. Hoxha, Selected Works, Vol. 1 (Tirana, 1974), p. 452.

3 Ibid., p. 453.

The so-called Economic Convention was accompanied by protocols on the co-ordination of planning, currency parity, and price unification.

M. C. Kaser, "Trade and Aid in the Albanian Economy", in Joint Economic Committee, U.S. Congress, East European Economies post-Helsinki, U.S. Government Printing Office (Washington DC, 1977), pp.

1325-1340.

E. Hoxha, op. cit., p. 744.

that this situation was exacerbated by the use to which Soviet aid had been put:

As far back as 1947, the Soviet government accorded us a credit which amounts to 330 million rubles. The credit from the sister democracies is 345 million rubles. These credits have been sought for the following uses: 152 million rubles for the new industries, 132 million rubles for mining, 63 million rubles for transport, 24 million rubles for agriculture, and the remainder for various machines, bread grain, consumer goods, raw materials, fuel, and so on. . . . Because of the mistakes we have made in our investments in using the credits, and because of the failure to realise our plans, especially in mining and in agriculture, we are now in a very difficult situation in regard to repaying the credits we have received from our friends."

The anticipated growth of the economy during the 1954-59 period was expected to make repayments even more difficult, export potential being estimated at 460 million rubles, of which 70 percent would have to go toward repaying the credits and interest. Further it was estimated that the import requirement for the same period would be 570 million rubles, a deficit in the visible balance of 110 million rubles. Thus, it is clear that by 1953 the PLA leadership had moved further away from an attempt to develop the economy without recourse to aid and was planning to continue dependence on Comecon. The reasons for Comecon's persistent generosity in the face of a high probability that the debt would turn bad are unknown, and Wiles' conclusion that "Albania's performance can only be described as a remarkable diplomatic achievement" cannot be disputed.

TABLE 1.-TOTAL ALBANIAN TRADE AT 1971 DOMESTIC PRICES

Ibid., p. 391.

P. J. D. Wiles, Communist International Economics (Oxford, 1968), p. 400.

As table 1 shows, aid to Albania fell from 116 million leks in 1953 to 63 million leks the following year, and although Albania's difficulties may have been a factor it is more likely that the Soviet new course was the primary cause of the reduction. Indeed, whereas the Albanian trade deficit was 545 million leks for the years 1947-53, for the shorter period 1954-59 it was significantly greater at 765 million leks. Albania was released from repayments of all its debts by the Soviet Union in April 1957,10 and a further credit of 300 million rubles was offered for the third 5-year plan." When relations between Albania and the Soviet Union deteriorated this offer was withdrawn and all trade between the two countries ceased after 1961. Some impression of the influence on Albanian industrial development of Comecon aid may be gained from a consideration of the number and nature of new industrial enterprises commissioned in Albania between 1947 and 1961. Of 37 new enterprises, 8 may be characterised as belonging to branches of mining and heavy industry, while the remainder contributed to light or food industrial production.12

Since 1961 the major contributor of economic aid has been China. Table 2 shows the balance of trade between Albania and China between 1959 and 1964, no further official figures having been published.

TABLE 2.-ALBANIAN TRADE WITH CHINA CURRENT DOMESTIC PRICES

Source: M. C. Kaser, "Trade and Aid in the Albanian Economy," in Joint Economic Committee, U.S. Congress, "East European Economies Post-Helsinki," U.S. Government Printing Office (Washington, D.C., 1977), pp. 1325-1340.

Thus China provided 533 million leks during the first 4 years of the third 5-year plan and Kaser has estimated that Chinese aid for the whole period amounted to 728 million leks.13 For the period 1959-75 he has estimated Chinese aid as $838 million at current prices, which compares favourably with Comecon aid between 1947 and 1961 of $389 million.14

To the extent that the Albanian Government has attempted to use aid for the development of heavy industry, Chinese aid appears to have been more appropriate than credit from Comecon. Thus, between 1962 and 1964 there were 12 new industrial enterprises commissioned of which only 3 were heavy industrial, Chinese aid probably being employed during this period to complete projects begun prior to the changeover, while between 1965 and 1970 there were 41 new enterprises opened. Of these, 24 contribute to heavy industrial output.15

12 A list of construction projects completed between 1946 and 1970 is given in Vjetari Statistikor i RPSh 1971-72 (Tirana, 1972), pp. 119-125.

13 M.C. Kaser, op. cit.

14 Ibid.

15 Vjetari Statistikor i RPSh 1971-72, loc. cit.