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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Free Trade in Death

The United States is often credited with reaching global economic status with free trade; that laissez faire capitalism and open trade with all nations brought us to modernity.

In actuality though, protectionism was vital in establishing American economic dominance and hegemony. The American System first promulgated by Henry Clay was critical of the British variant of economic thought and advocated high tariffs, a central bank, and federal subsidization of internal improvements (i.e canals, schooling, roads) amongst other things. It was built on Hamiltonian principles and the infant industry argument - that smaller industries must be protected from larger foreign competitors because they do not have the monetary means to compete. 

Usually this put regional interests at end and created a bitter American divide - the North wanted high tariffs and subsidization and the South wanted complete free trade to be able to sell its goods (predominately cotton) to Britain and other foreign markets. It was one of the main causes of the Civil War; the clash of economic ideologies. South's dependence on foreign markets was so strong that it firmly believed it could fully sustain itself without the North's industry. The "King Cotton" ideology was used as a slogan to convince Southern public opinion; Southern legislatures promoted the message that since Britain's and France's dependence on Southern cotton for their textile mills was so strong, they would be forced to aid them in their struggle of secession. As the Union began blocking Southern seaports, this rallying call proved to be unfounded - foreign markets just found elsewhere to purchase cotton. The British Empire turned back to its colonies for cotton markets. India increased its cotton production by 700% and Egypt did likewise. The South was severely crippled and took many decades to recover. In addition, their laissez faire ideology was downgraded. The Republican (former Whig) American System became the dominant school of economic thought.

Average tariffs percentages were at their highest from 1865 - 1900; when the United States underwent its second Industrial Revolution. Despite the predictions of the powers of Europe, who believed the American Experiment would never recuperate from the Civil War, the United States underwent the one of the greatest economic growth periods in its history and established itself as a great power and then ultimately, much later, as a superpower. The Gilded Age ensued, which was arguable one of the most corporate-concentrated periods of power in U.S history; where the pervading ideology was that the wealthy were the "best of society" and the poor "did not work hard enough." It was this concept that gave rise to the illusion of the American Dream and dissuaded the working class from mobilizing, in some respects. It worked in the interests of the wealthy most definitely. 

But aside from that, in looking at today's economic situation; why are we imposing free trade on other developing nations if we did not prosper from it ourselves when we were emerging as a power? The IMF and its associate organizations parade around promoting free trade and pressuring other nations to open to foreign capital only to further fill the pockets of the Western ruling class, and further impoverishing those not in high positions of power. 

In South America, locals have been exploited for over a century by foreign ownership of land. Many of the legislatures have been complicit with the policies of the United States and the West and allowed for large corporate entities to buy out land; usually unused and to save for "later use." Is this the benefit of free trade? The disproportionate ownership of global assets by Western powers? To make matters worse, a failure to allow foreign capital can have disastrous consequences. Many Latin American countries had coups staged, usually led by American interests, to halt any redistributing of land to the peasants. It is apparent that the First World depends on the Third World's impoverished state to maintain their hegemony and economic superiority; they want these impoverished nations to remain dependent on their capital and investment. Well-calculated and planned underdevelopment, as its called. 

But it seems that the leftist streak in Latin America may be changing this, hopefully soon. Some Latin American countries have already enacted legislation to redistribute unused private land to the poor, such as Hugo Chavez's Plan Zamora in Venezuela. As of now, much of Latin American land remains in the hands of foreign investors. In Uruguay, the 2000 census showed that 17 percent of its arable land was foreign-owned, but it is predicted to be 20 to 30 percent today.  In Brazil, the Brazilian Institute for Colonization and Agrarian Reform estimates that 4.5 million hectares are owned by foreigners - but this figure is low and it may be twice as large, according to government officials. Argentinian authorities place its national estimates at 17 million hectares, about 10 percent of Argentinian territory, and about half of all arable land. 

Moreover, sometimes when the land is returned back to "local hands" they're heavily concentrated. The Landless Worker's Movement in Brazil estimates, according to 1996 census records, that just 3% of the populations owns two-thirds of all arable land in Brazil. This only disempowers the majority and furthers economic inequality. According to World Development Indicators [2000] 10% of the population owns 47.6% of the wealth in Brazil. A study done by the Instituto de Pesquisa Econômica Aplicada (Institute of Applied Economic Research or IPEA) paints a even grimer picture "...in São Paulo the wealthiest 10% had 73.4% of while in Rio they retained 62.9% and in Salvador 67%." A product of unequal land distribution caused by free trade and neo-colonialism, it seems.

The moral of the story; modern free trade is not fair trade. Business clusters that congregate around areas of high GDP are inherently exploitative of poorer regions, taking their land disproportionately. The last things these emerging nations want is foreign capital owning their assets and preventing them from prospering. This forced underdevelopment is imposed through laissez faire legislation, and kept in place by multiple transnational organizations that preach the same ideology. It is dangerous to the self-determination of peoples and their long-term prosperity. It is exploitative by nature, but it seems that some free market fundamentalists just cannot abandon their distorted dream. And then their obscurities are imposed on the rest of us, with disastrous global economic consequences. 

More info on the land crisis of Latin American can be found here and here. Statistics and general info on Brazil's widening wealth gap and poverty crisis can be found here.