itoism is today at something of a crossroads. If Yugoslavia's undoubted
economic successes during the past twelve years can be attributed to its
singular half-collectivized, half-free economy, so can the economic crisis the
country now faces. This crisis raises the question of how viable economically
is the Titoist system, with its management of factories by the workers. How the
crisis is met may well affect the future course of Yugoslavia's liberalized
type of Communism.
The present difficulties, however, should not obscure the spectacular economic
results thus far obtained or the contribution of Yugoslavia's pioneering
efforts to achieve a freer kind of socialism than exists anywhere else. In
fact, the present troubles--a falling off of production, inflation, bogging
down of distribution, and foreign trade disappointments--are in themselves
indicative of how far Titoism has come.
When the Communists took over Yugoslavia in 1945, they set about to
industrialize the backward, agricultural, and war-devastated country in their
usual harsh and doctrinaire way: nationalization, collectivization, a Five-Year
Plan, and a big stick in the hands of the secret police. By 1949, the country
had reached a sorry condition from every point of view. Expelled from the
Soviet bloc for nationalist deviation, and without ties in the West, Yugoslavia
was completely isolated. A Soviet economic blockade compounded the chaos
produced by Tito's efforts to pull the country up by its bootstraps. Crude
attempts at collectivization had backfired to a point where virtually no grain
was available. Production was at a standstill. The population was in many ways
worse off than it ever had been.
By 1961, the change was so complete that it was hard to recall the condition
Yugoslavia had been in twelve years before. The first and most important stages
of industrialization had been completed. Production showed the sharpest
increases of any country in the world. With collectivization abandoned, a
revitalized agriculture was providing not only adequate food but surpluses. A
steady stream of consumer goods was available for the first time, and people
had money to buy them. Poverty had by no means been eliminated, but the extreme
privation that had earlier characterized large sections of the country had
disappeared. Foreign trade, primarily with the West but also with the East and
other parts of the world, was expanding. Politically, Yugoslavia was not a
democracy as Americans knew the term, but it was no longer a police state
either. A new Communist system, permitting significant areas of free expression
and widespread popular participation in public affairs, made even
anti-Communist Yugoslavs glad that they lived under Titoism rather than under
any other regime in eastern Europe.
To understand how this came about and to see why Yugoslavia's comparative
economic well-being proved to be so tenuous, it is necessary to understand what
happened to the Yugoslav Communists when they were so unceremoniously kicked
out of the Cominform in 1948. The Yugoslav Communists, despite their
nationalist turn of mind, considered themselves the most faithful of the
faithful. Stalin's denunciation of them as heretics produced in them a
psychological shock so strong that afterward they became changed men. They were
still Communists, but they now saw the Soviet Union, Communism, capitalism,
and, indeed, the whole world in a different, although still Marxist, light. A
new ideological base, needed to explain and justify their position, was worked
out. And from this resulted the new political and economic system that came to
be known as Titoism.
The theoretical pivot of Titoism is that under socialism the state must begin
actively to "wither away," rather than, as in the U.S.S.R., to get bigger and
stronger. Accordingly, the highly centralized government and economic system,
closely modeled on the Moscow pattern, gave way to sweeping decentralization
and liberalization. The Soviet fiction that government ownership of means of
production gives workers control was recognized as a fiction. In a dramatic
move, the Yugoslav government divested itself of ownership of factories and
turned them over to the workers to manage directly. At the same time,
centralized planning by decree was abandoned, and with it the bevy of economic
and other ministries which had controlled everything from Belgrade.
The resulting system sought to blend principles of free enterprise with those
of collective ownership. It might be described as an indirectly controlled
market economy, with elements of Keynesianism as well as of Marxism.
Under this system, each factory is an autonomous and competitive unit. It is
not government owned, nor, of course, is it private. The key organ is the
workers' council, elected by the employees of each enterprise. This council,
with its executive committee, the management board, elected from among its own
membership, is responsible for operations. It decides what to produce and how
much, what prices to charge, what wages to pay, and what to do with any profits
left over after meeting costs and taxes. Together with representatives of local
governments, it chooses the plant director, and it can fire him if his work is
unsatisfactory. The main charge to workers' management is to operate
There is economic planning in Yugoslavia, and a lot of it, but it is quite
unlike its counterpart in the Soviet Union and other Communist countries. The
central plan does not order each unit in the country to produce so much of this
and so much of that. Rather, it is a compendium of the economic plans of
republics, local governments, and individual factories; and none of these
production plans are legally binding. In order to achieve results approximating
the planned figures, the government seeks to influence the market by a series
of indirect controls.
There are two types of such controls. One consists of a series of annual
enactments providing for some direct federal government investment, taxes, and
interest rates, together with broad regulations dealing with prices, wages, and
foreign trade. The other involves technically nongovernmental chambers and
associations, to which all factories belong, depending on their products and
location, and the influence in both factory and government of the Communist
Party and the Party-controlled Sindikat, or trade union.
But under the Yugoslav system, the workers have a direct hand also in
formulating governmental economic policies. At each government level--federal,
republican, and local-- there is a two-chamber legislative body, one part of
which is a Council of Producers. These councils are elected by the workers and
by peasants belonging to collectives. A part of the system, also, is the
commune, which is the basic unit of local government. The commune is more or
less autonomous, with responsibility for general overseeing of economic
enterprises and for most economic investment within its jurisdiction.
This, in brief, is the essence of the Titoist economic system. How has it
operated in practice?
The positive side is fairly obvious. The Titoist economic system represents an
undoubted contribution to industrial democracy. Under it, worker morale is
generally high. And, as the Yugoslavs rightly point out, it has produced
significant economic results. Yet it is not easy to evaluate this unique
system. Considering the fact that much real authority was placed in the hands
of workers and that they were inexperienced and backward in the extreme, it is
not surprising that worker management also produced waste, confusion, and at
times, near chaos. Vice President Edvard Kardelj once referred to this as "the
price we have to pay for beginners' school."
Not all the beginners' price was borne by the Yugoslavs, however. In the period
from 1950 to 1959, they received more than $1,150,000,000 In U.S. economic
assistance. In addition, $724 million in U.S. military aid relieved the economy
of a strain to which it might otherwise have been subjected. This outside aid
helped in two major ways. First, the Yugoslavs were able for several years
virtually to neglect their agriculture and concentrate on industrialization,
confident that basic food needs would be met. Second, it permitted a much
higher "beginners' price" than a small and poor country like Yugoslavia could
have afforded without it. This margin of fat also encouraged more political
liberalization than might otherwise have been the case.
Furthermore, in practice the Yugoslav system has operated unevenly. Every time
that workers' council autonomy and reliance on the market approached in fact
what they were supposed to be in theory, economic difficulties appeared and the
regime was forced to haul back. On the one hand, the country has been too poor
to permit complete experimentation with free competition, and on the other, it
has been inhibited by its own ideological concepts from going all the way back
to centralization and government control. The pendulum swinging back and forth
has also illustrated the traditional Yugoslav difficulty in exercising
If the earlier system was too centralized, what replaced it after 1949 was too
decentralized, or at least was decentralized too fast. Although many remained
skeptical of the extent to which workers managed their factories in Yugoslavia,
what happened indicated that they really did manage them to a considerable
degree. With the incentives available to workers under the new system,
production did begin to move upward, and some of the more extreme cost-price
ambiguities of doctrinaire Communist economics were eliminated. But this was
accompanied by a serious price inflation and investment disorientation from
which, in one sense, the country has suffered ever since. Workers in control of
the factories did just what might be expected. Almost at once, they raised
wages with little regard to production. Then they had to raise prices to cover
the wage increases. There was a rash of uneconomic investment, not only by the
autonomous factories themselves but also by the now freer republics and
localities. This, plus foreign trade manipulations which ignored the overall
need of the economy, had a deleterious impact on basic sectors of industry. By
1954, Svetozar Vukmanovic-Tempo, the top overseer of economic affairs, declared
that "the whole system has entered a blind alley."
There had developed in Yugoslavia a curious and almost doctrinaire attachment
to Titoist laissez-faire economics. The regime opposed "intervention in the
market" and at first relied on the law of supply and demand. But in
underdeveloped Yugoslavia, supply was extremely short, while demand was
unlimited. The small number of producers gave many enterprises monopoly
positions, and they often exercised them in traditional monopolist fashion,
with resulting inhibitions on production and pressures on the price structure.
In addition, managerial inefficiency was widespread in essential industries
whose elimination the country could not afford.
Nor was intervention by the Party, the traditional refuge of a Communist regime
in trouble, of much help. The Party in Yugoslavia, now renamed the League of
Communists, had been officially admonished to stay out of economic affairs and
not to try to impose its will on workers' councils and plant managers.
Moreover, in part as a result of departures from previous Communist practice
and in part as a result of the ideological attacks of Milovan Djilas, the Party
was in a state of disarray and confusion. Its writ was wide, but the bosses
found it increasingly difficult to implement.
Faced with this situation, the regime, although still not abandoning the
fundamentals of the system, enacted a series of tough wage and price controls
aimed at correlating pay increases with increases in production. The role of
the industrial chambers and associations was strengthened, and a drastic
tightening of Party discipline was ordered. Between 1956 and 1958, this
inevitably had political overtones. The emphasis was away from liberalization
and democracy, and there was a noticeable narrowing of the limits of freedom.
That this was a period in which Tito was attempting rapprochement with the
Soviet Union did not help. Workers' councils did not formally lose any of their
independence, but they became less organs of the rank and file and more a sort
of management bureaucracy. Under one guise or another, a certain amount of
recentralization took place.
All this stopped the deterioration of the economy, and the real spurt in
Yugoslav industrial output dates from 1956. But again the pendulum swung too
far and before long began to produce its own reaction. Party bureaucrats in
this period regained many of the privileges and perquisites of which they had
been deprived earlier. Management--both directors and workers' organs--in many
cases utilized profits for personal ends instead of sharing them with
Previously, wages had gone up too fast, but now they were not going up fast
enough, considering expanding output and high prices. Real wages increased
slightly in some sectors, but by no means across the board, or enough. The
average basic wage for the highest skilled category of workers was 400 percent
above that for unskilled. And while the economy went forward in basic items,
consumer goods production fell. There was no question that a large percentage
of Yugoslavs were better off than at any time since the war, but most of them
were not as well off as they thought they should be, and a very large number
had to work at two or more jobs in order to make ends meet. In some industries,
there were as a matter of policy neither wage increases nor profits
distribution of any kind, regardless of income.
All this produced grumbling, not only among ordinary people but in the Party.
Worker morale suffered noticeably, and before long it began to interfere with
efficiency and production. Public opinion, however limited, is a factor in
Yugoslavia, but what really pried the lid off was a series of strikes,
something unheard of in a Communist country. The Yugoslav leadership was
shocked and frightened. Although there was the usual dire talk about
anti-regime elements, in all cases the strikers got raises. Finally, Tito's
Executive Committee, top body of the League of Communists, in the spring of
1958 published a circular letter denouncing the abuses and calling for a new
Changes were not long in coming, and once more they came too fast and went too
far. In addition to correcting some of the abuses mentioned above, new
investment was slated for consumer goods industries, restrictions on wages and
prices were eased or eliminated, and again the forces of the market had freer
What the regime did not reckon with was a force everybody knew about, the
psychology of rising expectations. Consumer goods output, which had increased
slowly since 1954, now shot up sharply. In Yugoslavia's limited circumstances,
this meant a slackening off of the production of industrial goods. This would
have made sense, given the fact that the basic underpinnings of
industrialization had been achieved, had it been kept within bounds. But it was
not. The rise in consumer goods production went hand in hand with an increase
in wages. In 1960, a sweeping reform removed most of the existing restrictions
on wages. An effort made to relate increases to rises in production was
The main economic purpose of these relaxations was to encourage production by
adding to workers' incentives. For a while it looked as if the reform might
succeed. The year 1960 saw Yugoslavia riding on a wave of unprecedented
prosperity. Industrial output was still on the rise. The increased investment
in agriculture, begun four years earlier, had paid off by 1919. Aided by good
weather, two bumper crops resulted. In 1960, also, a new foreign-trade plan was
worked out to permit freer imports. From home and abroad, consumer goods of all
sorts now cascaded onto the market. As wages went up, demand increased still
further. Prices, raised to meet the wage increases, as always rose faster.
Consumer credit, a device the Yugoslavs had copied from the West, expanded
threefold, despite constantly increasing charges. Personal savings stored up
from the days of consumer goods shortages contributed to the frenzied buying
wave. Indicative of what was happening was the importation into Yugoslavia of
automobiles at a rate of a thousand vehicles a day. Sales of electric
refrigerators, ranges, washing machines, and plumbing fixtures doubled, then
tripled and quadrupled. Modern apartments, private homes, and fancy hotels
sprang up, along with new office buildings and factories. The great boom was
the pride of all Yugoslavs, Communist and anti-Communist alike, and was of
interest to the whole world.
There were, however, several fatal flaws in the Yugoslav boom. For one thing,
much of it was done on credit, which in decentralized Yugoslavia tends to be
free and easy. When the initial wave of buying eased, prices did not come down.
Instead, the practice was widespread for enterprises to continue stockpiling
goods, financing operations with bank loans.
Second, consumer goods were increased at the expense of basic industrial
output. To handle the shift to more consumer goods, the Yugoslav planners had
relied on an expansion of foreign trade that never came off, in part because
not enough was produced. From the International Monetary Fund, the United
States, and other Western countries, Yugoslavia had obtained in 1961 credits of
some $275 million to cushion the inflationary impact of reduced import
What happened was that exports failed to increase noticeably, while imports
passed all bounds and emphasized the wrong things. The foreign credits were, in
effect, squandered. By the spring of 1962, serious difficulties were apparent.
Industrial production fell, in some areas drastically. Prices, meanwhile, had
risen precipitously, and real wages went down sharply Many enterprises were in
trouble, some because their domestic sales fell off sharply, others because
they could not obtain necessary raw materials, still others because they were
dangerously in debt. Workers' councils began laying off employees and
unemployment was recognized as a serious problem. Communist Yugoslavia was
suffering from that familiar capitalist phenomenon, the economic crisis. To
make matters worse, bad weather conditions resulted in a decline in
agricultural output, and food prices began to soar.
Once again, Tito, speaking for the Communist hierarchy, ordered the reins
tightened. He lectured acidly about stage and fiscal policies and demanded
stringent Party action and discipline. New wage and price controls were hastily
worked out, and imports were sharply restricted. The Yugoslavs, still in the
process of loosening their belts, were called on once more to tighten them.
What the future would bring was unclear. Basically, the Yugoslav economy was
sound enough if it could be made to work properly and could be content to
expand at a much slower rate than any attempted since 1958. But the immediate
prospects were far from rosy. After the debate in Congress, it was clear that
although Yugoslavia might receive enough U.S. agricultural aid to cope with
food shortages, the United States was ill disposed to financing Titoism in
anything like the way it did in former times.
A new political rapprochement with Moscow seems in the wind, and this is likely
to produce some credits from the Soviet bloc. These cannot possibly be enough,
however, to permit a resumption of the merry-go-round of the last two or three
years. Meanwhile, the balance-of-payments crisis that Yugoslavia has faced
almost annually now looms larger than ever.
Expanded foreign trade would help enormously, but the very difficulties that
expanded exports might overcome are likely to inhibit the expansion. There are
some big questions in Yugoslavia's foreign-trade future. One is agriculture. It
is unlikely to be a source of foreign-trade revenue in the foreseeable future,
but increased output could free funds for industrial imports.
A second question is whether the Yugoslav economic system can meet world
industrial prices. To ensure production of the right items at the right prices
may require either more rigorous central controls or more rigorous competition
than has thus far characterized the Yugoslav economy.
Finally, there is the question of the markets themselves. The Yugoslavs are
making a big play for foreign trade with the underdeveloped countries of Asia
and Africa and, more recently, Latin America. Unfortunately, these nations lack
precisely many of the things the Yugoslavs need. They are not a substitute for
trade with more developed areas, despite the ideological attractions. Here the
Yugoslavs run into the international political complications of their position
as independent neutralists. The more developed nations are tending to organize
into economic blocs that reflect their respective political blocs, both of
which the Yugoslavs oppose. Barring a shift in orientation, Yugoslavia is
unlikely either to qualify for or to seek membership in the Soviet trading
system. The bulk of its trade is now with the West, and in any event this is
the more profitable area. But the prospect is that the West will be integrated
in and around the Common Market, where Yugoslav membership is equally unlikely.
What the Yugoslavs fear, therefore, is that they may be squeezed out by the two
competing blocs .
What they would like is an independent arrangement with both Eastern and
Western economic blocs, something resembling what is being discussed for the
United States with the Common Market. It is not at all impossible that the
Soviet bloc will accommodate them in this. If the Common Market, for political
or other reasons, cannot make the same accommodation, inevitably the result
will be a closer orientation of Yugoslavia with the Soviet bloc, politically as
well as economically--although it should be added that there is no prospect of
Yugoslavia's affiliation with the Soviet bloc in any formal political sense.
For some Yugoslavs, the closer the affiliation with the Soviet bloc, the
better. Others, who resolutely oppose any such development, hope that Common
Market policies will be wise enough to help them avoid it.
Titoism as an overall system is unlikely to be reversed, and Yugoslavia's
course as a strictly independent Communist state appears well assured. Yet,
ultimately it is bound to move one way or another, if only toward giving more
substance to its own promises.
Today one feels in Yugoslavia great uncertainty and confusion. This
produces--and reflects--political as well as economic stagnation. Much of the
enthusiasm and dynamism characteristic of earlier years is missing. One factor
may be simply that the senior leaders of the country have stayed in power too
long. The new constitution soon to be adopted provides for rotation in office,
but it exempts Tito. Under such a condition, it may amount to little more than
a game of political musical chairs. Perhaps it is true, as many Yugoslav
Communists argue, that the country would be hampered rather than helped by
political competition of the Western sort. But unless the Party--which is the
real, if not the sole, vehicle for political development--shows more initiative
and daring than it has for some time, it is hard to see the source of the new
ideas that are needed to get Titoism out of its present doldrums.
Copyright © 1962 by Fred Warner Neal. All rights reserved.