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Yugoslavia, Economy

market socialism, socialist economy, Yugoslavs, Western capitalism, subsistence farming

From 1918 to 1941 Yugoslavia’s economy was dominated by peasant farmers who worked small landholdings. Most of the country’s few industries were owned by foreigners. From 1945 to 1950 the country had a Soviet-style planned socialist economy, in which the central government controlled almost everything from production planning and prices to distribution. Finally, after 1950, Yugoslavia tried to develop an economic system that fell somewhere between rigid Soviet-style socialism and Western capitalism. The government experimented with concepts such as workers’ self-management and market socialism.

Before World War II, Yugoslavia was one of Europe’s economically least developed and poorest countries. Under Tito, Yugoslavia was transformed into a medium-developed society with an economy based on both agriculture and industry. In 1918, 75 percent of the population depended on subsistence farming (growing just enough for their own needs) for their livelihood. By 1980 less than 20 percent of the population was still primarily employed in agriculture. Although Yugoslavia developed under Tito, the country’s economy never overcame glaring regional contrasts in levels of development and prosperity. The northern republics of Slovenia and Croatia, along with the northern Serbian province of Vojvodina, were relatively developed and prosperous. Serbia proper (Serbia minus Vojvodina and Kosovo) was less developed. The southern republics of Montenegro and Macedonia, as well as the southwestern Serbian province of Kosovo, were still largely agricultural and poverty-stricken. By the 1970s all parts of Yugoslavia had become significantly more prosperous and industrialized. Even so, differences between the richer north and poorer south were starker than at the beginning of the Communist period. This contrast provided a constant source of national tensions and political conflict.

From 1945 to 1950 the state controlled the economy absolutely. As in the USSR, Yugoslavia’s Communist government established economic goals through five-year plans. The first five-year plan, launched in 1947, began a program of rapid industrialization. This program emphasized heavy industry over light industry and largely neglected agriculture and consumer goods. The government attempted to collectivize farms, but the peasants resisted vigorously.

In 1950 and 1951 the government formally abandoned state ownership and central planning in favor of programs known as social ownership and workers’ self-management. In the former, the government gradually transferred its control of enterprises to local communes and workers’ councils. Under the principle of self-management, the workers supposedly ran the factories, free to make their own production and marketing decisions. Profits were distributed as wages and served as the measure of the success of an enterprise. Despite appearances, however, the state still controlled the economy, having—and later sharing—the power to appoint enterprise directors and to allocate money for each enterprise. Production and consumption boomed, but state control of investment funds led to the continued creation and survival of politically favored, inefficient enterprises. By 1952 only about one-fifth of the country’s agricultural land had been collectivized, and the state ceased its effort to collectivize farms. Most farms remained or changed back to being small and privately held. Farming methods remained primitive, and farmers had no access to bank loans or other means of financing. These factors limited food production, forcing Yugoslavia to import grain and other foodstuffs. Millions of peasants migrated to cities and tried to find jobs in industries. But neither the cities nor the industries were expanding rapidly enough to house and create jobs for so many people.

In 1965 the government instituted major economic reforms that ushered in a program known as market socialism. Under this program, the government surrendered control of investment funds to enterprises and to a reformed banking system. Lowered taxes allowed enterprises to keep more of their earned income instead of handing it over to the state. The government lifted price controls, and it devalued the currency, the dinar, to encourage exports. Investment priorities changed to favor consumer goods over heavy industries. Peasant farmers gained access to credits, enabling them to buy farm machinery to expand production and end the dependence on food imports. Yugoslavia lifted its restrictions on emigration, and in each year after 1965 up to a million Yugoslavs lived in Western Europe as guest workers. The earnings they sent home became increasingly important to the Yugoslav economy, contributing to a boom in private house building and small private enterprises. These enterprises contributed significantly to a flourishing tourist industry concentrated along the Adriatic coast.

Along with their positive results, the reforms of 1965 led to rising unemployment, inflation, and regional differences in wealth. These negative developments led to a retreat from the principles of market socialism. In the early 1970s reforms were implemented that, in effect, created a negotiated economy based on contracts between firms. These contracts were designed to protect supply and demand (and prices) from market competition.

At the same time, foreign borrowing grew rapidly. The borrowed money was intended for modernization of export-oriented industries. However, most of it was used to help pay for increasing consumption and prosperity for most Yugoslavs. In 1980, the year Tito died, a worldwide recession and foreign credit squeeze, combined with the flaws in the economic system, plunged Yugoslavia’s economy into crisis. By 1985 the deepening crisis had reduced living standards to low 1965 levels. Tito’s successors were unable to agree on and implement any effective response, and the economic crisis expanded into social, political, and constitutional crises.



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