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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The Paradox(es) of Yugoslav Communism & Sovietism

"Absolute power corrupts absolutely!" it is commonly said. This idiom has proved to be true on countless occasions, and the Communist experiments of Eastern Europe are no exception.

In 1957 Milovan Đilas, a prominent Yugoslav dissident and Communist thinker, published his magnum opus "The New Class: An Analysis of the Communist System." In it, he exposed the material privilege the nomenklatura had in Soviet society and the paradox of what has become the 20th century Marxian interpretation of "dictatorship of the proletariat.'

Milovan Đilas believed that Eastern Communism was perpetually in a state of false transition; it was centralizing state power and rendering the revolution(s) fruitless. He was correct in his analysis, and he only validated the well-established idiom of power [quoted above] that was espoused by John Dalberg-Acton in the mid 1800s. The vanguards of 20th century Communist systems did little to nothing in bringing their respective society to classlessness. Rather, they created a new class of wealth and power that were perhaps more oppressive than the system they initially overthrew. This is the true paradox of the 20th century Marxist experiment.

But here lies the conundrum of Marxist thought; how is the transition to egalitarianism achieved, and is the irony of establishing dictatorship necessary in reaching the Communist ideal?

Milovan Đilas would argue that true egalitarianism would not be achieved through an Orwellian vanguard, and I tend to side with his sentiments. Eliminating democracy and ousting dissenters creates an environment based on fear and passivity. Karl Marx, in his criticism of capitalism, noted the systemic alienation of the proletariat from production. He hypothesized that the capitalist means of production separated the worker from the output of his labour and made him surrender his self-autonomy and destiny to maximize the surplus value of the bourgeois; In essence, ripping apart individuals [workers] from their right to be directors of their own actions. The Marxist experiments of the 20th century did very little to fix this and include the workers (i.e reincorporate them into the means of production), rather it perhaps even furthered their alienation, another ironic paradox, through obedience and mass-surveillance, making them puppets of the domineering state.

But what is the missing link to eliminating this unnatural alienating aspect in production? Simply, you must let people be free, rather then servile to the state (state socialism) or corporatist demands (capitalism). In revolutionary Catalonia this was tried and something radical was done to put production into the hands of the workers. Money was abolished, being replaced with a voucher system, and industry functioned on direct democracy. Goods were allocated effectively, and needs were met. Most importantly, some from of horizontal power was reached and there was solidarity in the workplace; it was a beautiful creation and lasted until its demise by the onslaught of fascism in the aftermath of the Spanish Civil War. While it existed it was a true living example of a tried attempt in eliminating alienation, as Marx described, and real progress toward classlessness.

The only similar attempt made by the self-described Communist states was in Yugoslavia, where Tito attempted to institute independent socialism which was one of the reasons for their split with the Soviet Union [known as the Informbiro period]. Milovan Đilas was very much involved, advocating workers' self management in state run industries. However after Đilas' imprisonment, the main architect of the workers' experiment was Edvard Kardelj who favored decentralized workers communes rather then state-controlled industries. Sadly, the project failed to get the traction it needed. Although Yugoslavia was distinctively better than its Communist counterparts in Eastern Europe and Asia, it still failed to give the workers the sufficient power over production they so deserved - however they should be applauded for attempting it, albeit insufficiently.

Thomas Jefferson, a champion of the Enlightenment, eloquently wrote:

 "...every government degenerates when trusted to the rulers of the people alone. The people themselves are its only safe depositories."

This is the issue of 20th century vanguardism that we cannot overlook. The creation of a "New Class" is an major issue in leftist thought and we must be weary in calling for its future reestablishment. An examination of 20th century failures would be wise in formulating the basis for Post-Marxist thought, and we must always remember that freedom should never be compromised; because someday we might find little of it left. Slavoj Zizek in his essay "A Permanent Economic Emergency" published in the New Left Review writes,

 "What was wrong with 20th-century Communism was not its resort to violence per se—the seizure of state power, the Civil War to maintain it—but the larger mode of functioning, which made this kind of resort to violence inevitable and legitimized.." 

He goes on to say that when a state believes that it is the "instrument of historical necessity" it has no limitation on the terror it can inflict in achieving its ends. This is the danger, and I stand by localized, decentralized power as a probable solution; and if not that, a less oppressive vanguard of weaker stature that derives its true might from the regional workers' communes rather then from itself. This, I feel, is fair and truly progressive in the Marxian sense.
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Zizek's 'A Permanent Economic Emergency'
Tito on Self-Management