Albania: The sharp end of the pyramid

By Gwynne Dyer

LONDON (JP): I once bet that I could get serious newspapers to publish an article starting with the phrase 'intergalactic pirates'. I won, of course. I just wrote: "If intergalactic pirates kidnapped the whole Albanian nation, nobody else would notice for at least a week."

Nature is imitating art again. The pirates have arrived, and their names, like Rrapush Xhafferi and Bashkim Driza, suggest an extra-terrestrial origin. But they look human enough, and instead of kidnapping the Albanians they have just stolen their savings.

The pirates are the men who run Albania's pyramid funds, and it was the collapse of three big ones that triggered the past week of rioting in Albania's cities (five town halls burned). There will be more hell to pay before it's over, because seven other funds are still operating. Together they have sucked in about half the cash circulating in the small Balkan nation.

Many Albanians put their entire savings into these scams. Some even sold their houses, farms, and valuables to invest more. The sums involved are a substantial chunk of Albania's Gross National Product, and there is no way that the investors can ever be repaid what they are owed. But how could this happen in any country where the people are sophisticated enough to wear clothes?

One reason it happened is that President Sali Berisha's cabinet colleagues and his Democratic Party were closely linked to the promoters of the schemes. Indeed, in last October's local elections Democratic Party candidates and the pyramid-fund bosses appeared on the same platforms, under the slogan 'Everybody wins'. But with pyramid funds, the great majority of investors lose.

Lotteries are a tax on stupidity, but at least there is a real prize, and every player has an equal chance. In a pyramid-selling scam, it is a mathematical certainty that all but the earliest waves of investors will lose their shirts. The unrealistically high interest rates are paid directly out of new investments, and the numbers of new investors needed to maintain the payments exceeds the entire population of most countries in only a year or two.

We knew this as a mathematical certainty, but never before has an entire nation demonstrated it. Yet Albanians are not stupid.

They have been living in a cave for almost half a century under the xenophobic Maoist dictatorship of the late Enver Hoxha. But earlier, during the centuries when the Otttoman Empire ruled most of the Balkans and the Middle East, they were one of the three minorities -- Armenians, Jews, and Albanians -- whose role in commerce and administration far exceeded their mere numbers.

As Moslems, Albanians were also free to rise to the highest political and military levels. Under the Ottomans, there were Albanian grand viziers, prime ministers, generals -- and one Albanian-born general, Muhammad Ali, even became the founder of the modern Egyptian state. So how did this clearly talented people get suckered en masse by such a transparently obvious rip- off?

Because they have been living in a cave for fifty years. Ghanaian market traders, Thai peasants, Turkish housewives, even Wall Street investment analysts: anybody with hands-on experience at dealing with money instinctively knows that pyramid schemes can't really work as advertised. But Albanians didn't have that experience. To a greater or lesser extent, almost everybody who lived in the old Communist bloc was a financial innocent.

There were entire countries without a single accountant. Even in Russia, sophisticated people with high-level jobs lived entirely in cash. They didn't even have cheque-books. They were completely innocent about money, in the original meaning of the word 'innocent' -- i.e., ignorant. But being innocent, as anybody with a four-year-old will tell you, does not preclude being greedy.

Pyramid schemes flourished all across Eastern Europe after the fall of Communism. There were several big ones in Russia, and a notorious Romanian scam called Caritas took an estimated US$1 billion from 4 million Romanians. But nowhere else did over half the adult population put their savings into the pyramid schemes. Why Albania?

Sheer isolation was one factor. Under Enver Hoxha, Albanians had no contact even with the citizens of other Communist countries. The latter half of the 20th century happened without them (and mostly without their knowledge), while they lived lives of grinding poverty in a virtually cashless 'workers' paradise'.

When the walls came down and the blinkers came off, they were overwhelmed by the desire to possess the material goods that other Europeans had, but they had no idea whatever of how to get the money to pay for them. It was a mysterious and magical process -- and if promoters with obvious government backing told them pyramid funds were the way...well, why not?

The pyramid funds of Albania are the cultural equivalent of the 'cargo cults' popular in Melanesia in the 1930s, when people performed magical rituals in order to induce the delivery of European material goods (cargo). The Albanians are the last people in the world to be so innocent, except maybe for the North Koreans.

So what will happen now in Albania? President Sali Berisha is promising to pay back 70 percent of people's original investments (but no interest) out of the assets seized from the three bankrupt pyramid funds. But there is not nearly enough money left for that, and other pyramid funds still operate unhindered.

Berisha's goal now is sheer survival, and his government is trying to portray the popular protests as a plot by the Socialist (ex-Communist) opposition. "The destruction of state and public buildings...the strategy of 'scorched earth', all these features are a complete proof that the Albanian extreme left is led by a terrorist-Stalinist clan," said Foreign Minister Tritan Shehu.

Will it save them? Probably not, and they don't deserve it. Will Albanians get their money back? No. Is Albania now condemned to spend more years as the poorest country in Europe? Sadly, yes.