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Many Central European and Baltic countries initially appeared to epitomize a successful transition to markets and democracy, becoming full members of the European Union. Yet the impact of the recent global financial crisis has called into question the stability of their success, and the viability of existing political arrangements. This book focuses on the long-term development of the former Soviet bloc, providing a stimulating discussion on a range of important issues, including institutional development, demographic trends and the role of civil society.
Twenty-three eminent scholars discuss the effects and implications of reform policies, providing a unique perspective on the past as well as the economic prospects for the future. It certainly did not occur in a vacuum and this volume, by some of the best experts on the subject, helps shed light on long-run trends in former socialist countries. Due to the economic crisis, the government had to introduce measures which effectively restricted the operations of the market, such as wage freezes.
MR Online | “Socialism” in the Economic Report of the President
There were no concrete proposals that would touch upon the most important systemic features of socialist Yugoslavia, particularly the property regime. It is only in that a list of legislative changes opened the doors to private sector development on a larger scale see section 6 below. The third pillar of the Yugoslav model was self-management, from the early s developed in parallel with the described reforms aimed at major decentralisation of the economy and increasing role of the market mechanism.
The earlier mentioned Law gave workers the right to elect members of Workers councils which decided on production, inputs, hiring policies, to a limited extent on prices and income distribution. The Management board was also responsible for preparing drafts of the basic plans, issuing monthly operational plans and the execution of these plans. In the spirit of self-management, in state property was replaced by social property. The introduction of self-management led to a more flexible planning system.
The social plan was now to be drawn up by the supreme federal representative bodies and the organs of the federated republics, but with the participation of the newly established councils of producers. During the s, investment resources under the plan included not only compulsory investments, but also free investment resources made available to enterprises in the form of credit. During this initial period, self-management was rather limited: workers were to take over the managerial function, but in reality both the distribution of enterprise income and the investment decisions remained under strict government control Mencinger, , p.
The trade unions are called to prevent excessive differences occurring between wages in different undertakings. The wage for each category of workers is fixed according to the volume of planned production and the size of the corresponding wages fund. The system was changed in by adopting a compromise solution: the system of wage scales determining the minimum personal incomes, which had to be approved by the local political authorities and trade unions, was maintained, but a progressive tax was introduced on the difference between earned incomes and minimum wages Horvat, During the s, self-management was extended to all types of organisations and sectors of the economy.
After , the previously existing progressive taxes on bonuses distributed above the minimum wages were abolished, and enterprises were in principle given more freedom to allocate their net income between accumulation and gross personal incomes. Nevertheless, the use of a substantial part of net income was predetermined by government regulations — such as various taxes and contributions, interest payments and other contractual obligations, obligatory depreciation aimed at preserving the value of fixed assets.
Despite such an increase in favour of gross wages, this shows that even during this most liberal period that lasted relatively shortly , enterprises in Yugoslavia had to respect a number of general regulations set by the political authorities. Reforms implemented in the s were particularly important for the further development of the self-management system. The charge for the use of social capital was first reduced and finally abolished in Bajt had pointed out the distinction between economic and legal property, arguing that economic ownership reflected in the system of distribution, such as the right to entrepreneurial income in the Yugoslav case, need not necessarily correspond to the legal title of property, and consequently that the Yugoslav enterprises behave as if they were the effective owners of capital though he changed his views later, in explicitly stating that social property is state property.
The Constitution and the Associated Labour Act introduced a series of changes at both the microeconomic and macroeconomic level. At the microeconomic level, in order to facilitate self-management reported as not operating well in very large enterprises, a completely new structure was introduced for the organisation of the economy.
Enterprises were split into smaller units, so-called Basic Organisations of Associated Labour BOALs , each having its own self-management organs and statutory acts. At the macroeconomic level, the s economic reforms introduced new mechanisms of policy coordination — social contracts and self-management agreements — as a response to weakened macroeconomic management that accompanied the reform. Social contracts were to regulate rights and obligations affecting broader economic policies, including the priorities of social plans, the principles and criteria of policies regarding prices, employment and foreign trade, the distribution of income between personal incomes and capital accumulation, to be concluded between enterprises, political representatives, trade unions, chambers of commerce and self-managed communities of interest; once concluded, they had the force of law.
Self-management agreements were also binding agreements, introduced to regulate relations between enterprises and other types of organisations, including banks, in areas of mutual interest such as the creation of firms, investment projects, deliveries, transfer prices, joint transactions and the like.
These various types of agreements introduced by the s reforms were intended as specific devices of macroeconomic policy, regulating economic activities in a self-managed socialist economy. After the Tito — Stalin conflict in it decided to develop its own third way, placing itself somewhere between the East and the West. Yugoslavia did not join the CMEA in although it did participate, after , in some of its standing committees nor was it a member of the Warsaw Pact.
Together with Egypt and India, Yugoslavia created the non-aligned movement and hosted its founding conference in Belgrade in Yugoslavia also had a special status with the OECD, which regularly prepared the Economic Survey of Yugoslavia, the first published in After having established official relations in , it concluded several trade agreements with the EEC. The initial non-preferential agreement was signed in covering a period of three years; it was succeeded by a five-year agreement signed in which was in force until September , when it was tacitly extended.
Cooperation was extended to financial matters in December , when the European Investment Bank was authorised to grant loans for financing projects of mutual interest. There were also specific agreements on textile trade after , which provided voluntary restraint in the export of a number of textile products of Yugoslav origin. From Yugoslavia became an active participant of COST — European Cooperation in Science and Technology — participating in agreements in the field of telecommunications, metallurgy, air and water pollution.
The intention of the Yugoslav government to open its economy to both the developed and developing world had a number of beneficial consequences. One of the most important was that external trade of Yugoslavia was increasingly oriented towards the developed countries, particularly the EEC. At the same time, the non-aligned movement had stimulated the establishment of economic relations with many African and Asian countries. Thanks to increasing trade openness and joint-ventures legislation, there were major business contacts between Yugoslav and foreign companies, facilitating not only the entry of fresh capital and the creation of enterprise networks, but also the development of local managerial skills and competences.
As to the developing world, some of the largest Yugoslav enterprises had important construction projects in various African countries. Already in the s Yugoslavia started producing Cockta , a soft drink very similar to Coca Cola. Posters for concerts of the most popular singers in the s were a replicate of those of Elvis Presley, while Western rock music was allowed, played and increasingly listened to. What remained insufficiently clarified was how different was the Yugoslav economic system?
Ward suggested that an enterprise in which workers have full decision-making rights would adopt a specific maximand: instead of profits maximised by the capitalist firm, the LMF would tend to maximise income per worker. The alleged drawbacks of the LMF consist of an inefficient allocation of labour due to the perverse or at least rigid response to changes in product price, technology and capital rental; restrictive employment policies; more restrictive monopolistic behaviour due to maximisation of monopoly profit per man instead of total profit; and the unsuitability of the LMF outside labour intensive sectors and for risky ventures.
The LMF will also be characterised by inefficient use of capital and will tend to underinvest, due to limited property rights Furubotn and Pejovich, In considering whether to invest earned income in the firm or in personal savings accounts, workers will prefer the latter; thus the LMF will be characterised by underinvestment in comparison with its capitalist counterpart. Numerous contributions to the LMF literature have shown, however, that the alleged inefficiencies proposed by the Ward model could be reduced or even completely eliminated under different theoretical assumptions or solutions that would counterbalance the proposed negative features.
These features also explain why cooperatives are not the more diffused form of enterprise in Western market economies. Bajt sustained that the slowdown was negligible and essentially depended on the periods of comparison; he also argued that the growth slowdown in Yugoslavia was caused by other factors, including the growing power of managerial elites, social unrest due to unemployment and liberalist and nationalist deviations Bajt, Horvat was a convinced sustainer of the system of self-management and had criticised the LMF literature by pointing to the inconsistency of its main hypotheses with enterprise behaviour in Yugoslavia.
Mathematically, the equation is identical to the standard neoclassical target function, so the equilibrium conditions will be the same as for the capitalist firm Horvat, Horvat was proposed for a Nobel Prize in economics which he never got, but he remained faithful to the idea of the superiority of the labour-managed economy until the end of his days. This is because the literature on the LMF was prevalently based on a hypothetical labour-managed economy operating in a free market economy, but such an environment never actually existed in Yugoslavia given frequent government interventions in the economy and imperfections of both the labour and capital market.
Despite self-management and reliance on the market mechanism, Yugoslavia had retained many features typical of other countries in Eastern Europe. Yugoslavia had retained a non-private property regime, not permitting the expansion of the private sector on a larger scale.
However, social property was effectively a camouflaged form of state property, not able to provide the right type of incentives usually present in a capitalist economy based prevalently on private property. Enterprises in Yugoslavia operated under soft-budget constraints Kornai, Although there were more bankruptcies in Yugoslavia than in other socialist countries, the more frequent measure was the socialisation of losses through the redistribution of resources from profit-making to loss-making firms.
The Yugoslav economy was also characterised by an overinvestment drive Kornai, , very high investment rates which were realised until the s, rather than by underinvestment as proposed by the LMF literature.
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In Yugoslavia this was not accomplished through objectives set in central plans, but through more decentralised mechanisms as described previously. State paternalism, or the paternalistic relationship between the state and the firm, was very much present in Yugoslavia, since external political interference into enterprise policies remained a constant feature of the Yugoslavia experience. These socialist features of the Yugoslav economy, in combination with the ambiguous system of social property, had a number of negative implications. There was no full risk-bearing by the individual firm, therefore no efficient system of incentives according to market performance.
The socialist features of the Yugoslav economy reproduced the inefficiency problem typical of the socialist economic system — the lack of proper incentives that would ensure rewards and penalties linked to enterprise performance, which usually guides enterprise behaviour in a market economy.
The idea of self-management had the function of a reformist ideal, similar to that of the social-democratic ideals in Western market economies which have progressively modified and enabled a moving away from the model of unrestrained crude capitalism.
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In Yugoslavia, had it not been for the introduction of self-management in the early s, which effectively initiated and facilitated a long process of economic reforms, many institutional changes would probably not have been introduced. Such reforms, in turn, have facilitated a higher level of general wellbeing to the peoples in Yugoslavia, as compared to citizens in other socialist countries.
Economically, they worked better because the Yugoslav market was not characterised by systematic and persistent shortages, and for those products which were not available on the domestic market, they could travel abroad freely in order to buy them, using foreign currency which they could keep on private bank accounts. Self-management in Yugoslavia, however imperfect, provided workers with a system of economic democracy, which in combination with greater individual freedoms e.
Also more recently in its successor states, self-management has sometimes been blamed for the remaining lack of discipline of workers, survival of collective principles of solidarity and slow acceptance of new norms of behaviour. On the international scene, the radical changes in parts of Eastern Europe towards multiparty democracies and market economies, the end of the cold war, the disintegration of the USSR and the dismantling of the CMEA were unprecedented events of such historical importance that the political crisis in Yugoslavia seemed a secondary minor issue; thus the active involvement of the European Union offering major support to Yugoslavia in order to try and prevent its break-up came much too late.
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Because of the firm determination to remain a socialist country based on a one-party political system, Yugoslav policymakers remained faithful to the key Marxist principles that were to prevent major inequalities within society, and thus retained the most important features of the socialist economic system, including non-private property. Yet the desire to increase the efficiency of the economic system led to continuous economic reforms that introduced elements of the market mechanism, self-management, ample decentralisation and substantial transfer of responsibilities from the federal state to the single republics.
However, these reforms contributed to deteriorating economic performance and economic instability. Already in the s, Yugoslavia experienced problems typical of the capitalist economy — including unemployment, inflation and cyclical instability — while it did not find the right solutions to resolve some of the key problems of the socialist economy deriving from inadequate microeconomic incentives. The Yugoslav economic model thus produced problems present in both economic systems, capitalism and socialism. During the first three decades, the strategy produced impressive results in terms of rapid economic development: The Yugoslav economy registered very high rates of output growth and even higher rates of industrial output growth, which permitted a continuous increase in living standards.
Yugoslavia registered a remarkable increase in Gross Domestic Product GDP per capita, from to by more than five times, entering a period of stagnation only in the s followed by an extreme fall registered during the years of its break-up; see Figure 1. Figure 1. Despite such an impressive growth record, Yugoslavia started having problems of unemployment already from the mids. Yugoslavia was also facing increasing inflationary pressures, particularly after prices were further liberalised in the mids.
The inadequate instruments of monetary control by the National Bank of Yugoslavia, particularly after , and the maintenance of low nominal interest rates which remained negative in real terms, contributed to excessive credit expansion at all levels. In the s, the attempts of the government to implement a tighter monetary policy were largely ineffective. Enterprises tried to bypass the banking system by using alternative means of finance such as issuing promissory notes , which led to the uncontrolled growth in inter-enterprise credit and added further inflationary pressures.
The origins of the economic crisis of the s are to be sought in both internal and external imbalances which accumulated during the s and the s. From the early s, the development strategy increasingly relied on foreign loans and external borrowing. Yugoslavia did not react to the oil chock by lowering domestic spending, but continued with an unbalanced economic growth strategy, relying heavily on imports, external borrowing on international markets and World Bank loans.
The transfer of significant discretionary powers to the republics and autonomous regions, after the adoption of the constitution, enforced a form of economic nationalism which produced the tendency towards greater self-sufficiency. It is nevertheless worth noting that for all the Yugoslav republics inter-republican trade remained more important than trade with the outside world.
The level of economic interdependence among Yugoslav republics was greater than frequently sustained on the basis of purely political arguments. Yugoslavia registered a record trade and current account deficit in and was no longer able to service its external debt. A stand-by arrangement was concluded with the IMF which required austerity packages implemented after , leading the Yugoslav economy into a profound and long recession — stagnating or declining output, negative rates of investment growth, rising unemployment and increasing inflation.
There were also mounting social tensions, which led the government to relax income controls, which in turn further contributed to rising inflationary pressures. The regional policies implemented in Yugoslavia aimed at bridging the gap between the more and the less developed parts of the country have not brought the expected results.
The gap in economic development between Kosovo and Slovenia, of in , is confirmed by alternative statistics based on the standard concept of GDP see Figure 2. The more developed republics — Slovenia and Croatia — felt exploited because of the obligatory transfer of resources to the Federal Development Fund which usually remained outside their direct control, or other policies to their disadvantage, like the retention of foreign currency earnings from exports and tourism.
The debate on economic exploitation lasted for decades, without offering clear evidence which republics were actually more advantaged or disadvantaged Uvalic, There was a vivid revival of the debate in the second half of the s, when economic exploitation of Serbia was highlighted in a document prepared in by a group of intellectuals of the Serbian Academy of Sciences and Arts — the Memorandum on the position of Serbia in Yugoslavia. The authors of the document lamented that Serbia was constantly discriminated against within Yugoslavia, both economically and politically — the type of economic policies implemented had intentionally plunged Serbia into economic backwardness,  while existing constitutional arrangements, which created autonomous regions within Serbia, had made it the only republic unable to exercise full sovereignty over its whole territory.
This Memorandum contributed to the new wave of nationalism in Serbia in the mids, which in turn triggered nationalistic sentiments in other parts of the country. Widespread economic and political grievances in the second half to the s resulted in frequent strikes and demonstrations throughout the country, which were used to put pressure on local politicians to increase wages or to resign from office. In the meantime, a serious political crisis developed due to continuous conflicts between the republican governments over both political and economic issues, bringing the regional issues to the fore.
The Yugoslav system of self-managed market socialism produced apparently a number of contradictions. At the same time, the political regime based on a one-party political system could not be easily reconciled with increasing autonomy of the single republics in economic policy-making. However, decentralisation of economic competences was not accompanied by the introduction of an efficient mechanism of macroeconomic management that would have ensured consistent and coordinated policies at the level of the federation. Particularly during the s, the ill-conceived social compacts concluded at the level of the republics were in no way able to substitute for an efficient system of macroeconomic governance.
The Yugoslav model failed to invent alternative governance mechanisms that would have ensured major coordination of economic policies at the federal level, but in line with the different economic interests of its republics and regions. A decisive shift from a socialist towards a capitalist economic system took place in Yugoslavia in These changes were influenced by similar developments in Eastern Europe in the late s, but they also came as a response to the deep economic crisis that started developing in Yugoslavia from the early s and rising awareness that the systemic features of the Yugoslav model had to be radically changed.
At that time, in , Yugoslavia had a number of advantages with respect to the Central East European countries. Thanks to market-oriented reforms applied in the past, the Yugoslav economy had already implemented many reforms required by the transition to market economy, including price liberalisation, foreign trade liberalisation, or reforms of the banking system. The economy was highly decentralised, especially since the Constitution transferred substantial economic powers to the single republics and local authorities.
The Yugoslav government also had more experience with macroeconomic stabilisation policies, given that it had to address problems of rising unemployment and high inflation already starting from the mids. Major openness towards the outside world and privileged relations with the European Economic Community brought a number of benefits to the Yugoslav economy, including increasing trade with Western Europe.
All this implied that Yugoslavia in had a shorter reform agenda than the Central East European countries. Yugoslavia in also exhibited certain disadvantages. The ambiguous system of social property posed concrete problems in the design of privatisation. Who was to take the decision on privatisation? Would it be workers themselves in line with the system of self-management and the belief that workers were the real owners of their firms, or the state as the effective owner of social capital?
And given the ambiguous system of property rights in Yugoslavia to whom would the proceeds of privatisation go — to the enterprise being privatised, to its workers, or to the state? But the most serious disadvantage of Yugoslavia in was the latent political crisis that intensified particularly in the s, leading progressively towards the disintegration of the Yugoslav federation.
Starting from November , the government adopted thirty-nine amendments to the Federal Constitution and over twenty new laws which aimed at radically changing of the economic system. Among the announced changes were the removal of existing limits on private property, incentives for the development of the small-scale private sector and the encouragement of entrepreneurial activities through favourable provisions regarding duty-free imports of inputs and technology.
Three laws in introduced major changes in the banking system: the banking law transformed banks from non-profit institutions into joint-stock and limited liability banks; the law on securities introduced for the first time equity shares in the Yugoslav legal system; and the Law on the money and capital markets officially sanctioned the creation of a capital market.
Important systemic changes were introduced by a new Company law adopted in December The law diversified property forms, adding mixed property — a combination of private and socially-owned capital — to the already existing types of property social, private and cooperative. This law also introduced the commercialisation of enterprises and diversified the legal forms of enterprise, to include joint-stock companies, limited liability companies, limited partnerships, public enterprises in sectors of public interest such as transport, energy, telecommunications, postal services and other standard forms.
The law had important implications for self-management, with the intention of replacing collective responsibility of workers by individual responsibility of managers and new capital owners. An enterprise in private property was to be managed by its founder, while workers were to realise their self-management rights in conformity with collective agreements. All organisations of associated labour had the obligation to organise themselves in conformity with the new provisions of the Company law by 31 December The economic reforms also called for the privatisation of the dominant social sector of the economy.
The law envisaged the sale of social capital at public tenders to national or foreign legal and physical persons, while the decision to start privatisation was to be taken by the Workers councils. Proceeds from sales were to go to Development Funds to be established by the republics and autonomous regions as public enterprises, though part of the proceeds could also be given to employed workers in the form of shares, up to a maximum value of six-months wages. The Federal privatisation law had to be revised in order to offer major incentives to enterprises to start privatisation.
The part of social capital not subscribed through share issues to insiders was to be offered for sale to domestic and foreign firms or individuals through public auctions. However, already in the second half of the , the stabilisation programme was undermined by a series of negative developments. Under the pressure from the republican governments, there was deviation from originally stipulated policies.
The relaxation of tight monetary policy led to new inflationary pressures. The fixed exchange rate could not be sustained due to rising inflation, foreign exchange reserves declined due to increasing withdrawals of foreign currency from banks, by autumn the black market premium had reemerged and resident convertibility was effectively suspended. The positive course taken in was interrupted by a series of disputes between the republics, due to both economic and political reasons.
A major problem in the late s was the lack of consensus on the future organisation of the Yugoslav federation. The lack of willingness to find a compromise between these diverging views contributed to the effective dissolution of the Central Committee of the LCY on January , when the Slovenian delegation walked out of the 14 th Extraordinary Congress of the LCY. The first multiparty elections in Yugoslavia were held exclusively at the level of the single republics, all organised from April to December — first in Slovenia April , followed by Croatia April-May , next in most other republics autumn , and last in Serbia December — leading to the introduction of multiparty political systems.
The Yugoslav federal government sought to organise multiparty elections for the Yugoslav parliament at the end of , but these elections were never held. By that time, the political crisis had drifted out of control, leading to the effective break-up of the Yugoslav federation soon after. Slovenia and Croatia proclaimed political independence in June , but were asked by the European Community to postpone it until October The other republics followed, obtaining international recognition soon after or during the first half of The break-up of the Yugoslav federation was accompanied by military conflicts — initially in Croatia , Slovenia and Bosnia and Herzegovina ; and later in FR Yugoslavia and Macedonia The s was a decade of high political and economic instability, which proved to be extremely costly for most countries.
The foundations of the socialist economic and political system started being dismantled in Yugoslavia before the country disintegrated, in , with the common objective of introducing a political system based on multi-party democracy and an economic system based prevalently on the market mechanism and private property. The radical changes announced in Yugoslavia in the late s marked the beginning of the political and economic transition that would eliminate the main features of both the socialist economic system — party control of the economy, planning and social property — and the system of self-management, although some of these processes were not immediate.
Communist party control of the economy was eliminated with the passage from a one-party to a multiparty political system, following the first multi-party elections held in all Yugoslav republics during Planning and other non-market mechanisms of resource allocation and policy coordination, such as medium term five-year plans or social compacts, had already lost relevance in Yugoslavia by the late s.
Other institutional features of the socialist economic system were also being changed through a series of new laws adopted in , as described earlier. Property transformation, aimed at replacing social property with mixed or fully private property in the bulk of the economy, also started from mid onwards according to the provisions of the Federal privatisation law. The free market ideology was to replace the socialist ideology in all countries, but the actual changes were implemented at very different times and with many distinct features.
The progressive differentiation in the transition paths of the Yugoslav successor states took place due to major differences in the timing, speed and contents of systemic changes.
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