Yugoslavia-Chapter 3 - The Economy

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Woman factory worker

AFTER WORLD WAR II, Yugoslavia established a one-party communist regime and an economic system modeled on that of the Soviet Union. In 1948, however, the Soviet-led international communist alliance Cominform ousted Yugoslavia and imposed an economic blockade. At this time, the Yugoslav leadership reevaluated Marxist doctrine and set out to develop a unique system of economic administration, which it labeled socialist selfmanagement . This system was seen as a more accurate realization of the Marxist theory that means of production should be owned and operated by the people. By comparison, Yugoslavs considered the Soviet system to be statist, because the Soviet state had simply replaced the capitalists of the West in exploiting the worker class.

Under the strong hand of Josef Broz Tito, most aspects of the Yugoslav economy prospered from 1950 to 1979. The real national product rose rapidly, millions of peasants were given jobs in the social sector (see Glossary), industrial production expanded rapidly, and export of manufactured products increased substantially. Living standards also improved as personal incomes increased, social services were extended and improved, and supplies of consumer goods expanded. In the 1960s, Yugoslavia's market-economy reforms positioned the country as an economic leader of the Nonaligned Movement.

The 1980s, however, brought a grave economic crisis. Beginning in 1979, the Yugoslav economy entered an extended downturn because of increases in oil prices in 1973 and 1979, the world recession that began in 1979, and careless investment and borrowing policies pursued in Yugoslavia's rapid postwar industrialization. Inflation soared out of control, reaching an annual rate of 2,600 percent by the end of 1989. Personal income, consumption, and labor productivity fell, and unemployment exceeded 16 percent by the end of the 1980s. These problems were especially serious in the poorer regions of Yugoslavia, such as Macedonia and Kosovo. Foreign loans dried up at the same time, as Yugoslavia was forced to reschedule its US$18 billion foreign debt. Patchwork attempts to solve these problems generally failed.

In January 1990, the government of Ante Markovic introduced a reform package. This program included monetary reforms designed to combat inflation and give the federal government more control over macroeconomic policy. It drastically reformed currency, wage, and price policy. Despite doubts by many domestic and foreign economists and domestic opposition to painful austerity measures, the Markovic program began to stabilize the economy in the first six months of 1990. The new program was a significant break with the decade of economic policy stagnation that had crippled Yugoslavia's growth since 1979.

Data as of December 1990