A Brief Economic History of Yugoslavia

I. Nationalization and Re-industrialization

The victory of the Yugoslav Partisan army in World War II created many challenges for the newly-liberated Balkan region. After being occupied by the Ustaše from 1941-1945, the destruction was severe – “the human and material losses were the greatest in Europe after the USSR and Poland” [Simon, Jr. 5]. The former Kingdom of Yugoslavia was left virtually in ruins, being usurped of its raw materials and resources and stripped of its transport infrastructure, mining, and manufacturing industries.

Being granted the victory of World War II, the Partisans formed their own government, based on the ideology of Pan-Slavism and a Marxian socialist philosophy. The Socialist Federal Republic of Yugoslavia was established on the 29th of November, 1945 and quickly allied itself with the Soviet Union. It soon began to implement programs to rebuild its broken post-war state. Power became strongly centralized, based on the Soviet model of state socialism, and was firmly kept in place by Marshal Josip Broz Tito’s Communist Party. Six regions were then created, of relatively equal political power, in the newly drafted Constitution of 1946: Croatia, Montenegro, Serbia, Slovenia, Bosnia & Herzegovina, and Macedonia. Soon after, sweeping restructuring began to take root; property was transferred from its former private owners to the communist-run state, financial capital was expropriated from formerly being privatized, and the means of production was converted to public ownership. Specifically speaking, large financial institutions, such as the banks, were nationalized first to control the money supply and the flow of financial capital. After that was achieved, large industries were then overtaken by state control to promote industrialization in the war-crippled socialist republic. Then finally the smaller transport, commercial, and agricultural industries followed suit; they were also nationalized to increase production [Simon, Jr. 5].

II. Deterioration of Yugoslav-Soviet Relations

 Although the initial recovery program enacted under Tito’s leadership was derived from Stalin’s 5-year plan model, significant splits shortly began to ferment between the Soviet leadership and the Yugoslav communists. Economic blockades were being placed on the young socialist state because of their alliance with the Soviet Union, and Tito’s independent stance on issues angered Stalin and his associates. Moreover, Yugoslav theoreticians began to formulate their own strains of Marxist thought and began to criticize the internal political and economic structure of the Soviet Union. Consequently this led to Yugoslavia’s expulsion from the Cominform during the final months of the 1940s. It was at this point Yugoslaviabegan to economically develop differently than its socialist counterparts –creating a unique form of decentralized market socialism based on workers’ self-management [Simon, Jr. 6]. Frankly, the idea behind it was simple; the withering of bureaucratic state would only occur if innovative mass-participatory structures were created. Egalitarianism and populism became more of a principle rather than a political tool, contrary to the Soviet Union. Decentralized socialization of industry quickly followed Yugoslavia’s alienation from the Soviet Union. Led by the efforts of thinkers by the likes of Edvard Kardelj and Milovan Đilas, the original state-control of industry began to be broken down into localities and councils were created for respective industries. The profits were distributed amongst the workers in each individual firm, and some functions of state control were relinquished and allocation became more relied on the basic mechanisms of the market to ensure self-management and proper distribution [Frei, 45]

III. An Economic Revolution

Strictly speaking, this economic transformation can be described as taking place in three major stages: Firstly, in the 1950s, workers’ collectives were created but were restricted by the state’s regulation of capital construction. This was actually a remnant of the Soviet model of socialism. Secondly, the 1960s and 1970s were a radical shift from the aforementioned control that was present in the previous decade; rather than allow the state to control capital allocation and production, socialized markets began allocating it themselves with a self-managing structure using the labor involved. Thirdly and finally, liberalization reform followed until the ultimate collapse during the 1980s and late 1970s mainly caused by inflation and debt [Simon, Jr. 7].

The decentralized Yugoslav model mainly employed during the 60s and early 70s was localized, but complex and interconnected. Authorities in certain districts were authorized to oversee consumption and production services, to ensure each commune (the basic local government units) were working in each others interests. Moreover, each autonomous region in Yugoslaviawas different; each had different legislative procedures for planning. However, it did still remain a federalist system of governance – most of executive power was exerted in creating land uses, the geographic location of large industries, traffic networking, and grandiose public service projects that required cooperation with different regions [Simmie, 272]. Most of power was derived from the legislative regions, but the localities were actually given little statutory powers. Rather, they were consulted and functioned as “pressure groups” to ensure local interests within the regions are met such as in the areas of housing, settlement, education, national defense, and the likewise [Simmie, 274]. It was a demonstration of a collective economy at work, absent of a real large-scale “free market,” where different elements of production were decided by long-term plans, medium-term plans, and annual action plans – while also being guided by the mechanisms of the supply and demand curves in a regular market, except profits were socialized as was production It was a product of the masterwork of political scientist Edvard Kardelj [Simmie, 276].

The economic growth seen during the period of decentralization was upward and dynamic. Comparatively speaking, Yugoslavia experienced the greatest per capita GDP growth out of all the Eastern Bloc economies. It also embraced a tight-controlled policy on imports from developed capitalist countries after the restoration of Soviet-Yugoslav relations in 1954-1955; foreign trade with socialist countries increased from 1.8% to about 28% in the decade following the return of good relations, while the share from Western capitalist nations dropped from 80.9% to 57.7% mostly due to the policies enacted by the Committee on Foreign Trade which was given extra power in 1956 to protect infant self-managing industries in developing Yugoslavia. Equally important, Yugoslaviaenjoyed a balance of trade with the socialist nations during this period –amounting to $176 million of exports and $169 million of imports in 1962. Manufactured goods, machinery, and equipment were traded with the Eastern Bloc nations, while trade with developed capitalist countries consisted mainly of raw materials, food, and tobacco [Frei, 45, 46]. Banking was also heavily regulated, but broken down locally. In 1961, it consisted of eight large sub-national banks and over 380 communal banks, all overseen by the National Bank of Yugoslavia, the main credit institution of the country and giver-of-loans. The sub-national bank, granted on a regional basis, served as intermediaries between the National bank and the communal banks. The idea behind this was to encourage development by focusing giving loans to regions in need of aid, and they used communal banking institutions to do so [Frei, 48, 49].

IV. The Collapse of Yugoslavia

Despite strong economic growth and potential – experiencing an annual GDP growth of 6.1%, a life expectancy of 72 years, and literacy rate of 91% according to 1991 World Bank Statistics from 1960 to 1980 – the experimental Yugoslav system soon imploded on itself due to a variety of factors. Perhaps more importantly, the Oil Crisis of the 1970s had the greatest impact on Yugoslavia and was a precursor to the catastrophe that would unfold after Tito’s death in 1980, ultimately leading to the breakup of the federation in a bloody civil war. The recession in the developed nations in the West severely hurt Yugoslavia, and hindered the economic growth it was experiencing for 30 years. Massive shortages followed in electricity, fuel, and other necessities and unemployment reached 1 million by 1980 due to the energy crisis and the increasing economic embargos imposed by Western powers. Soon, structural economic issues came to light and richer regions became frustrated from over-subsidizing the poorer regions of southern Yugoslavia, called “economic black holes” [Asch, 26]. Production severely dropped, and conditions only worsened as the decade went on; GDP dropped -5.3% from 1980 to 1989, the regions of Kosovo and Montenegro being hit the hardest. Real earnings dropped 25% from 1975 to 1980, further crushing the poorest regions. In an effort to curb the domestic crisis, Yugoslavia began to take loans from the IMF to boost infrastructure development and bring back production levels to their pre-crisis levels. Soon, its debt skyrocketed –Yugoslavia incurred $19.9 billion in foreign debt by 1981 [Massey, Taylor, 159]. As a request for incurring so much IMF debt, the IMF demanded market liberalization and many regions began to implement economic shock therapy: cutting subsidies, privatizing, and quickly opening trade to allow foreign capital, which only worsened Yugoslavia’s economic crisis. Inflation rates soared and Yugoslavia entered a period of hyperinflation, unable to cope with the currency crisis because of its complex banking system – it soon began printing large amounts of Yugoslav dinar banknotes, creating a new note of 2,000,000 Yugoslav dinars in 1989.

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 - Simon, Jr., György. An Economic History of Socialist Yugoslavia. Rochester: Social Science Research Network, 2012. 1-129.
 - Simmie, James. The Town Planning Review , Vol. 60, No. 3 (Jul., 1989), pp. 271-286
 - Frei, L. The American Review of Soviet and Eastern European Foreign Trade , Vol. 1, No. 5 (Sep. - Oct., 1965), pp. 44-62
 - Beth J. Asch, Courtland Reichmann, Rand Corporation. Emigration and Its Effects on the Sending Country. Rand Corporation, 1994. (pg. 26)
 - Douglas S. Massey, J. Edward Taylor. International Migration: Prospects and Policies in a Global Market. Oxford University Press, 2004. (pg. 159)

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Anomie and Revolution

Sometimes in the heat of revolutionary change, unspeakable atrocities are committed. Individuals look back in horror at what was inflicted and are unable to comprehend how citizens could go into such a collective state of irrationality. This societal dilemma is called an issue of anomie, which is described as a state of normlessness; where there is a rejection of self-regulatory values and any distinction between right and wrong, for the moment, become obsolete. 

David Émile Durkheim, one of the fathers of modern sociology, coined the term 'anomie' in 1897 in his book 'Suicide' and describes it as a "a rule that is a lack of a rule." A society can become anomic for a variety of reasons, but it is always preceded by a dissatisfaction with the current set of affairs. In essence, the people's will to change the old order overcomes their rational instincts and makes them primitive peoples; regressing them from their modern consciousness. It is this phenomenon that is perhaps an obstacle to major revolutionary change, if done too hastily; since people loose their moral senses, their ability to recognize an emerging despotism all the more diminishes. This can have devastating consequences to the society after the initial short-lived euphoria of change.

One prevalent detailed precursor to 'collective anomie' is distorted idealism. The German Romantic author, Jean Paul, called this relationship of the mind and earth Weltschmerz - the grim understanding that the demands of the mind cannot be met in the physical world and that one's weaknesses are a direct result of his relationship with the cruelty of what he witnesses and experiences. There are seemingly two dark paths that can follow; either the individual enters a state of escapist mentality and seclusion or develops an anomic response that renders him incapable of self-regulating his values. The former is much less socially destructive, since it is individualistic, and is much more prevalent; it is known as Hikikimori in psychological studies and oftentimes is caused by post-industrialism and its implications. It is especially present in modern day Japan, given the origin of the word itself; affecting about 3.6 million.

The anomic response to Weltschmerz holds a much greater societal cost. Although individual anomie is dubbed "sociopathic," collective anomie is much more radical; it is the destruction of norms and values - and seemingly, for that time being, the destruction of morality. This deregulation of morals is often seen in war and violent struggles. It was present in the Yugoslav Wars, where Serbian soldiers in newly declared states of Croatia and the Bosnia would massacre citizens of non-Serbian ethnicity - for little reason other than ethic cleansing. 

A complex dilemma arises when you examine their actions; where did their moral consciousness go, and how could these seemingly 'civilized' peoples engage in such irrational violence? 

Oftentimes, when individuals are given authority they feel inclined to maximize their power; the Serbian military was in a position of dominance, and they felt they needed to fully exert their power, no matter the ethical implications, for their 'nationalistic common good." They had no limits; they were in a state of anomie. And moreover, war usually causes irrationality in the soldiers themselves, affecting their decision-making and their state of mind. It drives soldiers to do inexplicable acts - some so heinous they're difficult to comprehend. In Bosnia during the Yugoslav War, rape was used as 'an instrument of terror' by the Serbian-Bosnians. The victims were usually Bosniaks (Bosnian Muslims) of the region. It illustrated a total suspension of ethics and is difficult even to describe in words. Young Bosnian girls were sold and passed around in predominately Serbian infantry lines for rape, torture, and sometimes death - the majority of this happening the region of Foča in Bosnia & Herzegovina. There were specific camps designated for rape and torture, driven by religious and ethnic hatred. Young females were systematically brought to the camps, raped & tortured, and traded to other soldiers for money or just general 'enjoyment.' In the submitted 'Seventh Report on War Crimes in the Former Yugoslavia: Part II" the atrocities are described in grim detail:

"Day and night, soldiers came to the house taking two to three women at a time. They were four to five guards at all times, all local Foča Serbs. The woman knew the rapes would begin when 'Mars na Drinu' was played over the loudspeaker of the main mosque.." 

"..While 'Mars na Drinu' was playing, the women were ordered to strip and soldiers entered the homes taking the ones they wanted. The age of women taken ranged from 12 to 60. Frequently the soldiers would seek out mother and daughter combinations. Many of the women were severely beaten during the rapes."

The song 'Mars na Drinu' was a Serbian-Chetnik patriot song that was banned under Tito in socialist Yugoslavia. To illustrate the ethnic dimension even further, the report goes in more personal detail of the rapes:

"While the witness was being raped, her rapist told her, 'You should have already left this town. We'll make you have Serbian babies who will be Christians.' Two soldiers raped her at that time; [And then] five soldiers raped the 18-year-old girl in full view of the witness."

You can read the this particular war crimes report in full here. Also, an interview of Seada Vranic, the author of 'Breaking the Wall of Silence,' can be found here. She is a renowned journalist who has covered the mass rape that occurred during the Bosnian War. 

Now, the frightening question still remains; what caused these individuals to lose their sense of humanity? What desensitized them to the point of violence and rape? The collapse of their moral environment, their racially-idealist attempt to realize their nationalist goals, and the elimination of social values all contributed to their irrationality. They became submissive to 'herd mentality' that was formed on 'rules that lack rules' - there was no moral direction. It is this, I fear, that any form of disorganized violence could bring. This form of irrational collectivism is dangerous, and if any revolutionary change is brought it must be properly handled to prevent such a tragedy, in the true Aristotelian sense of the word, from happening.