What is happening in the political and economic arena in Jugoslavia today should not be haughtily dismissed as the result of disruptive ideological disagreement among self-righteous Marxist factions. Nor is it a reflection of the evil influence of foreign propaganda, Communist or anti-Communist. Nor has it grown out of mischievous activity of reactionary forces eager to achieve the restoration of the old régime.

Some of the problems facing Jugoslavia are particular to Jugoslavia, and in them history and geography speak. But many of the most pressing are those which every community of nations is experiencing today in both East and West, problems of international regionalism or of supranational centralism. Other countries, too, face problems such as inflation versus stability; maximizing growth or the standard of living; authoritarian discipline as a convenience of the few or democratic self-government as the responsibility of the many. And there also are many other problems which are specifically socialist. All the complexities of the modern world are bound to take a special form in a multinational commonwealth of 20,000,000 people seeking to build socialism beyond the present level of $500 national income per head per year.

The casual observer is often puzzled. Only a few years ago Jugoslavia was presented as an example of a country with one of the highest growth rates in the world; now the foremost aim of economic policy is to reduce investment. For more than a decade the socialist economy struggled against bureaucratic command; now an administrative price freeze has had to be introduced It was the first country in the world to initiate workers' management in factories and business enterprises and to abolish the wage system; now there is division about whether this means too much or too little democracy. The 1963 Constitution formally declared a one-party state; yet the top political leaders now emphatically demand that the economy be de-politicized. National problems were said to have been solved; and now the country is pregnant with increased tensions among the constituent nations, tensions newly created and socialist in origin. Efforts to find solutions to all these problems are now concentrated into two words: The Reform.[i]

It has been said by highly responsible people that this Reform has very great significance, greater even than the introduction of workers' management which has so far been considered the most original contribution made by the Jugoslav brand of socialism. The new policy became possible only when a major political battle between those favoring centralist solutions and those in favor of self-government had cleared the way. First, in 1963, a new Constitution was adopted which confirmed the principles and enlarged the legal framework of self-government, further decentralized the country along federal lines and enhanced democracy within the socialist system. It took two years of inside discussions before the Constitution was adopted. Then, in 1964, at the Eighth Congress of the League of Communists the same policy was restated in clear political terms, as issues became more polarized and clarified. Finally, in 1965, the federal parliament decided that the Reform should be carried out, which meant putting the third stage of socialist development into operation.

The immediate purpose of the Reform was to combat an increasing pace of inflation; to remove a deficit in the balance of payments; to get idle capacity in industry going; to reverse the increase in unemployment; to raise a standard of living so unfavorably low compared to neighboring countries in the West; and to find a form of government able to give the country a consistent economic policy. These short-term objectives were necessarily linked to some longer-term measures of structural change in the economy such as: to overhaul the whole price system; to revise growth and investment policies; to put the productivity of the economy on an internationally competitive level; and to liberalize foreign trade in order to remove the structural causes of its continual deficit. The whole economic system introduced in 1954 had become obsolete, and the new Constitution of 1963 laid down new principles for the economic and political system, the main aim of which could be described as to base the whole economy and society on workers' management. Thus the Reform is an integration of short-term and long-term economic objectives and the implementation of the 1963 Constitution.

To make clear what this means we must review the development of the Jugoslav economic system in the two previous stages. First came administrative socialism of the Stalinist type from 1945 to 1952, inaugurated in the Constitution of January 1946. This was followed by what was known as the "New System" of 1953 to 1964, given legal blessing in the constitutional reform law of 1953. The third stage was formulated in the new Constitution of 1963.


1. The mechanism of social control. In the Stalinist centralized type of economic system, government machinery was completely merged with party organization and business management into one monolithic system, run by authoritarian, centralized command through the medium of directives. That is, orders issued from those above to those below in the hierarchical system were not binding on those above, but had to be implemented without question by those below. This inefficient system blocked initiative from underneath and placed responsibility for numerous operational decisions-and mistakes-on top party leaders. It was finally discontinued at the end of 1952.

Under the decentralized New System the government apparatus was separated from business management, and workers' management was introduced into business organizations, which were authorized to run current operations. In the government, the bureaucratic element was separated from the political party organization, and ultimately the position of the top party functionaries was separated from that of the head of the government. Ministries were abolished and only a small number of administrative state secretaries remained. Instead of being subordinated to ministries, the socialist enterprises formed their branch associations, federated into business chambers, to organize coöperation and represent their interests. Parliament, although consisting of Communist Party members only, nevertheless became less and less a rubber stamp. In this tripartite ramification the position of the party organization was that of arbiter, without formal responsibility for running current affairs; this made criticism and even personal changes in government possible without directly engaging the authority of the Party. In spite of this, however, the de facto influence of party officials remained great, and this led to a split between the real decision-makers and those who had to bear the responsibility for implementing decisions.

The Reform emphasized the fight against government bureaucracy, which continued to wield great influence at all levels, notwithstanding the self- management legislation. Moreover, a further division in the mechanism of social control was taking place. The aim now was to de-politicize decision- making in business management, not only in regard to current operations but also in the field of investment and with regard to branch size, location and financing.[ii]

The main criticism of the politically minded was that they pushed their special interests with no regard for economic optimums; interfered in the selection of top personnel of business enterprises, taking political reliability as a justification for promotion in spite of managerial incapacity; and put pressure on enterprises, demanding expenditure beyond what the law ordered for extra-economic funds and fiscal benefits. The federal authorities were not immune to criticism either.

Those who oppose de-politicization claim that it is a sign of the decomposition of Communist control. Its supporters claim it is a prerequisite of the increased division of social functions necessary in a developed society.

2. Property relations. In the centralized system all business organizations, industries, banking, transport, commerce, mining, building- everything except small-scale handicrafts employing up to five persons- became state property. A drive to nationalize agriculture also took place at an accelerated rate.

In the decentralized system, all nationalized property remained, but its character changed from state to "social" property, which meant that management was taken out of the hands of the state administration and (in 1950) given over to the workers' councils, whose power gradually increased. In 1959 nationalization of houses and building sites took place, but the forcible collectivization of peasant property was discontinued in 1953, and only purchase or economic coöperation was used to increase further the socialist sector in agriculture. The basic fact was that, with the two exceptions of peasant holdings (limited to 10 hectares) and small handicrafts (limited to five workers) it was no longer possible to increase the size of the socialist sector by expropriation, but only by savings from the income produced by the workers themselves within the socialist sector.

The Reform faced the following situation: The rural exodus had increased more quickly than the effective demand for labor in the socialist sector, which led to considerable unemployment, a reduction in labor productivity and an increase in the cost of housing and communal services in towns. Ever- increasing imports of food for the growing industrial population and for millions of foreign tourists increased the demand for agricultural products which the socialist agricultural sector and existing peasant production were not in a position to satisfy. Prices of agricultural products therefore rose and a change in the policy toward the unused capacity of peasant holdings became necessary. The growing tourist business argued in favor of further use of the private sector in the catering trade.

3. The position of the enterprise. Under administrative socialism, enterprises were totally smothered by state administration. All materials were supplied to them, prices and costs were determined by ministries, sales were transformed into allocation orders, all profits anticipated were paid into-and consequently all deficits covered by-the state budget. The enterprise became a technical unit of government administration.

In the decentralized system, socialist enterprises were free to operate their current activities according to their own decisions and at their own risk. They sold their products on the market, bought raw materials, decided on the employment of personnel, contracted loans and made their own annual plans. They had to cover costs by proceeds from the market, and shared the benefits with the social community (federation, republic and commune). This sharing underwent several changes, from profit sharing to income sharing, until finally the wage system was abolished and instead the workers' councils were given the right to dispose of part of the income of the enterprise allocated to its funds, while another part of the income was allocated to the workers as their personal income. This distribution was, on an average, as follows: 60 percent of the income of the enterprise went to the social community, 27 percent to the workers, and 13 percent to the funds for self-financing. But investment resources remained centralized, and so did decisions regarding the founding of new enterprises-a matter left to the political authorities.

Under the Reform a much bigger share of the income was allocated to the enterprise-i.e. 70 percent for investment and workers' personal income. The fiscal burden on the enterprises was diminished: the income tax on enterprises was abolished, the capital tax was reduced from 6 to 4 percent of working capital, the turnover tax, hitherto paid by producers, was changed into a consumers' sales tax collected by the retail trade. The workers' councils were left to decide what proportions of the income at their disposal should go to the self-investment fund and to workers' personal income. Only 30 percent of the net income, instead of 60, was to be taken by the social community. This was to satisfy a long-standing complaint of the enterprises that those which had proved they were able to earn were punished by having their income taken away, while those incapable of making an income were rewarded by being given investment funds and subsidies from the central funds.

Whether enterprises are going concerns must be tested on the market. Prices are to be those of the world market, and enterprises which cannot stand such competition, with normal customs protection, will have to make efforts to do so, and reorganize, or close their doors. As many industrial enterprises were built on too small a scale and below minimum technological standards, and suffer from lagging production or incompetent management, this requirement of the Reform means a major structural change. No doubt the final responsibility will rest with the workers' councils, but a great deal of research, help and advice will be necessary; the workers' councils cannot be burdened with something which they are not capable of doing.

4. Savings and investment policy. In the system of administrative socialism all savings were incorporated into the overall state budget, and investment decisions were made by the top political bodies in the centralized plan.

The main innovation of the New System was the separation of investment funds from the state budget, i.e. the bulk of the investment savings was collected into a general investment fund by the central Investment Bank, which made microeconomic decisions regarding their distribution upon request of the individual enterprises, while macroeconomic decisions (how much for which sector and branch of industry) were made by the annual Social Plans. Thus some decision was shifted from the state bureaucracy to the bank bureaucracy, and the procedure became so complicated that in the end the decisions were guided by political factors.

As we have already said, the Reform demands that investment decisions be left to the enterprises. The free funds are concentrated and credits given by the banks on business principles. Therefore the General Investment Fund and other funds were discontinued in 1965, and their function taken over by the investment banks.

5. Consumption and the standard of living. The centralized system put standards of living and personal consumption on a very low level of priority. Administrative planning, low wages, moral stimulation rather than economic incentive for productivity, and a small span between the wages for skilled and unskilled labor-these were the main characteristics of the system. Only one exception must be emphasized: enlarged care for education and health, and an expansion of social insurance.

The decentralized system gave greater attention to consumption, which doubled from 1953 to 1963. Beginning in 1954, competition increased the choice and variety of goods, and this, plus the fact that imported goods were available, acted as a stimulus to employees to work more in order to be able to buy more. The stimulation of production by workers' management, income sharing, market economy and consumer credits also contributed to the increase in the consumption level. Changes took place among the consumers themselves. Over a million people shifted to towns and became urban consumers; a cultural revolution increased the level of education and stimulated new wants. The influx of foreign tourists and the large number of workers abroad (over 200,000) had their effect too.

The general line of policy was to stimulate production and productivity by higher incomes; this was counteracted from below by demands for equalization of income.

The Reform's main task was to link the level of living to that of productivity, and to raise both. These aspirations had to be suppressed temporarily because of the price increases of some agricultural products (meat, milk); the reduction of imports and forced exports of certain consumer goods; limitations on the disposable income in enterprises; and the pursuit of a deflationary policy. Compensation proposed by the Reform to offset income reduction had to be paid from the funds of the enterprises. All these measures intensified the problem of raising the level of consumption and increased pressure to carry out the Reform faster.

6. Economic growth policy. The centralized system had just one objective: to maximize investment while fixing an order of priority for the means of production over consumption, heavy industry over light, industry over agriculture. The rule was stiff: maximize growth at any cost, with no regard for optimization.

This obsession with growth continued in the decentralized stage of Jugoslav socialism. The rate of growth in the manufacturing industries was one of the highest in the world. Growth was still based on compulsory saving, with a threefold burden on existing fixed capital (i.e. on developed sectors): centralization of funds for depreciation, capital tax (6 percent) and the interest rate on long-term capital loans. The order of priorities, however, changed. After 1955, priority was given to those industries which could accumulate the greatest savings in the shortest time, mainly light and consumer goods industries. Decentralization of industries took place so that in each administrative district ("a little to everyone") industry had to accomplish a triple purpose: to create a working class or enlarge it; to provide fiscal income for the local administration; and to increase production. This led to the creation of a number of small and inefficient political factories," built with credits provided from centralized funds- i.e. with other people's money. Thus the building of the "political factories" was the end result of the centralized investment fund. Had the investors had to do it from their own resources, they would have thought it over twice. Integration became the slogan of the next phase, but it, too, met with many obstacles, some subjective (i.e. resistance of the managers and local politicians). The merger of healthy and sick enterprises was often carried out for political reasons, regardless of reasons that were stronger.

The Reform demands that an end be put to this overall maximization of growth, and instead advances the principle of selective growth. Formerly the rate of industrial growth was 15 percent; the presently planned rates are between 7 and 10 percent, which is still very high. Many grandiose investment projects have been abandoned, and the whole federal investment commitment, which already centralized 80 percent of all available funds for the next five years, is being revised.

7. The price system and stabilization policy. Low prices for capital goods, raw materials and food, high prices (increased by the turnover tax) for consumer goods, both imposed by the central government-such was the main policy of prices and income during the first period. This meant a régime of fixed, low wages which in turn provided labor services of low productivity; and yet because labor was cheap there was little incentive to substitute for it capital of higher productivity. Technical improvement was a matter of autonomous decision, not induced by production costs. Thus in spite of heavy outlays for costly equipment and machines, often paid for with precious foreign currency, they frequently lay idle in sheds and fields because the system made them more expensive to use than labor.

In the decentralized system macro-income distribution was altered and market prices replaced fixed prices imposed by the government. Agricultural prices remained low and so did those of raw materials, semi-finished goods, power and transport. This was to stimulate industrialization and also to prevent abuse of the monopolistic position of these sectors. Other prices increased. The share of the gross national product taken for investment remained high (33.4 percent in 1964) and decisions to invest greatly surpassed the volume of production of investment goods, so that the prices of these increased 50 percent more than the general price index. Therefore, as early as 1957 limited price control was introduced. Inflationary pressure, caused by ever-increasing demand, had increased to such an extent by 1964 that galloping inflation threatened unless measures to stem it were taken and a stabilization policy introduced, curtailing, in the first place, investments.[iii]

The Reform introduced a stabilization policy which explicitly deflated bank credits, reduced consumer credits, strengthened price control and severely curtailed spending (particularly on investment) at all levels of government- federal, republic and communal.

Planning also had to be changed. The decentralized system had reversed central, authoritarian state planning and introduced combined macro- microeconomic planning by annual and five-year federal, republic and communal social plans. The Reform abolished yearly social plans altogether, kept five-year plans as "moral and political commitments" and relied primarily on enterprise plans.

8. Foreign trade and the balance of payments. From a complete state monopoly of foreign trade, the Jugoslav system moved to an open economy in three stages.

The centralized system was autarkic; it looked on foreign imports as a necessary evil to provide capital goods for which it had to pay with exports. The main interest was in amassing foreign currency; the domestic planned system of exchange of goods and of prices was considered completely divorced from the outside world. The decentralized system introduced first the commercial independence of enterprises on foreign markets. Foreign trading enterprises had to cover their expenses by their proceeds. At the same time, the volume of foreign trade began to increase rapidly. The idea that industrialization would make the country independent of foreign countries in the sense of less trade was seen to be erroneous; imports increased, not balanced by adequate exports. Multiple rates of exchange were introduced to cover the gap. But all these manipulated rates proved in the end to be ineffective and foreign debts increased rapidly.

Trading with Western countries was of vital interest for Jugoslav industries and for the food supply, to which the United States and other foreign aid and commercial credits, West and East, made significant contributions. The balance-of-payments deficit was to a great extent covered by foreign credits, international and commercial. Exports did not expand because of increased demand on the home market, lack of agricultural products and the level of prices abroad which made it difficult for Jugoslav exporters to compete. The centralized accumulation of foreign currency did not stimulate increased exports.

The Reform introduced the following changes. First, the multiple exchange rate has been replaced by a uniform rate based on 1,250 dinars to the dollar. Reorganization will make possible trade based on world market prices.[iv] In foreign commerce, the main stress is now on liberalization. All quantitative restrictions will be removed. Customs duties, reduced from 23 to 11 percent, will remain as the chief form of domestic protection against foreign competition. A reserve fund of foreign currency will gradually have to be built up to $500,000,000 and then free convertibility will be introduced. In 1965, for the first time since 1945, Jugoslavia had an active balance of exports over imports. There was a satisfactory increase in invisible exports, especially from the tourist trade, the merchant fleet and remittances of workers from abroad.

It has now been recognized that the main Jugoslav economic problems cannot be solved within the country. This means completely abandoning any idea of autarky and accepting a policy of long-term structural integration of the Jugoslav economy into the world division of labor in place of merely short- term commercial operations. Instead of fear of competition, there will be a more self-confident policy of competitive interdependence which will pull the Jugoslav economy the hard but rewarding way toward progress.


To sum up, the Reform intends to achieve far-reaching results indeed. Its aim is no less than to build a model of a socialist system for a developed country, one which will be able to stand the competition of other developed countries and progress on its own merits, without the constant tutelage of government machinery. This is to be achieved by a process of what I would call the four Ds: Decentralization, De-étatization, De-politicization and Democratization. The process has been begun within the framework of a Communist ideology and a one-party system, but it would not be objective to deny that it has an effectively liberalizing and progressively humanizing character.[v]

How might the Reform affect other socialist countries? Looking at the problem, one could say, with a considerable amount of bold generalization, that the European socialist countries are now entering the second stage, building a decentralized New System of the kind that Jugoslavia is just abandoning. The basic features of this process are: the reintroduction of market prices; gradual emancipation of the socialist business enterprises from the state administration; the introduction of commercial criteria into foreign trade; disbelief in the omniscient and infallible central planner; material stimulation of the workers' productivity. They still remain firm on certain principles: predominance of the political factor in economic decisions; priority of production over consumption; disbelief in workers' self-government; and belief that the process of de-étatization and democratization represents a danger for socialism.

The Reform in Jugoslavia is overcoming these past postulates of socialist policy. There are not many rational elements to aid one in forecasting how long it will take other socialist countries to gain the experience which Jugoslavia has paid for very dearly; but my guess would be that it will depend on the pace and level of their development, and on the pressure of technical progress due to international competition. The new Jugoslav model may provide some stimulating ideas to socialist and Communist parties in developed countries; and developing countries-particularly those which have decided to build socialism-may become aware of some pitfalls in developmental policies.

Jugoslavia's acceptance of a model of a developed country, after hitherto presenting its economic system as an example for underdeveloped countries, is a big step, one that would be likely to meet with opposition in any country, let alone in such a complicated multinational state as Jugoslavia.[vi] Opposition to the Reform would logically be expected from those who are least developed, who have to work most and longest to cross the borderline and achieve the level of developed lands; from those who used to get more from the central moneybag than they put into it; and from those who gained more from their political influence than from their industrial skill. The greatest advocates of the Reform would be those who are most developed, who put more into the central bag than they got out of it, and whose economic strength was greater than their political influence.

These logical expectations correspond to reality. The first advocates of the Reform and the spearhead of it were the Slovene Communists. They were joined by the Croats, and the two now march together, and with them the Serbs of Croatia. The Reform's strongest opponents came from Serbia. The Communists from other Republics took varied attitudes, feeling probably not strong enough to compete with the larger Republics and expecting in the end to find their interests taken into account by either side.[vii]

Jugoslavia has just reached the level of $500 annual income per head, which many economists consider to be the demarcation line between developed and undeveloped countries. So the model for underdeveloped societies would no longer work; it would pull the economy backward. The difference in the level of development in the 1960s shows that the average national income per head in the most advanced Republic, Slovenia, amounted to $935; in Croatia it was some 20 percent more than the Jugoslav average of $605. In Serbia it was $480, Bosnia $348, Macedonia $339 and Montenegro $330. These differences, taken objectively, would not be of such economic importance if it were not for the following reason: The two most developed Republics have crossed the threshold of development, while the others have not. This aggravates the psychological tension.

On the basis of this situation, there developed two opposite concepts, indeed two models of economic policy, both Marxist, both socialist; but one crystallized into an ideal type of a Communist recipe for an underdeveloped economy,[viii] and the other into an ideal type for a developed socialist economic system.


Maximization of growth Optimization of growth under (no constraint) constraint of profitableness

Autonomous investments decided Induced investments decided by by central planner enterprises

Priority of production over Priority of consumption over consumption production

Planned administrative prices Market prices

Monocentric planning Polycentric planning

Inflationary tendency Deflationary tendency

National income redistribution National income redistribution by by the state the producers themselves

Administrative direction of flow Flow of goods, labor and capital by of goods, labor and capital economic interest

Autarky in foreign trade Integration in the international division of labor

A second source or discontent arises from psychological attitudes, aspirations and expectations more than from objective conditions. In areas that are less developed there can easily arise an exaggerated sense of poverty, frustration and injustice, resulting in impatient demands for compensation from the Federation in the form of grandiose projects of development. Among the more developed, on the other hand, a sense takes hold that they are giving much more than they are getting (exploitation), a fear that there will be a repetition of past oppression by the center, and- most sensitive of all-that their progress is being hampered by the less developed areas.

Now dress these collective and real interests in national symbols, put this new content into historical perspective, make it an emotional appeal for political action, and you have raised nationality feelings to a high state of tension. Socialism in Jugoslavia is not being built in a historical vacuum, and the Federation consists of fully developed nations which have cultural individuality and rich political traditions. This was fully recognized in 1946 and reconfirmed in 1963 by all the constitutions of New Jugoslavia. These nations have a constitutional "right to self- determination, including the right to secession" (Constitution of 1963, Principles, I) as the Leninist formula goes, and this is a condition sine qua non of the existence of Jugoslavia.[ix]

When Jugoslavia was created in 1918 as a union of lesser-developed Serbia and Montenegro and the more economically developed South Slav parts of the Hapsburg Empire, the politically dominant élite of Serbia adopted this political equation: greater political power plus smaller economic wealth equals greater economic wealth plus smaller political power. Thus redistribution of national income by political power was the main function of the state in Jugoslavia between 1918 and 1939; in it, therefore, the various nations could never achieve equal political rights. For this reason a doctrine of national unity was created, since in a single nation the ruling élite had no need to justify their refusal to share political power. This same political formula was transferred to new Jugoslavia, but under it the socialist system developed somewhat differently.

The four most important versions of Jugoslav unity are the following:

1. The romantic idea of Slav unity which will ultimately unite all South Slavs into one Great Nation, as expressed through history by the "best sons" of all the South Slav peoples, who must put all their resources together, like real brothers, in order to fulfill a great mission which simple uneducated people do not under stand. This idea of a Jugoslav super- nation was finally rejected by the Eighth Congress of the Communist League in 1964:

An expression of nationalism which must be checked is seen ... in the mistaken idea that in our socialist development of society nationalities have been outlived, and that a unified Jugoslav nation should be created. Such beliefs are expressions of bureaucratic centralism and unitarianism and usually manifest themselves in a tendency to ignore the political, social, economic and other functions and responsibilities of republics and autonomous provinces.[x]

2. Another concept is that of technocratic unity, put forward in the name of science for optimizing technical progress in Jugoslavia as a whole. The decision regarding the optimum should be reached by rational scientific methods, and the state should allocate resources for it. To refute this idea the technocrats were re minded that Jugoslavia is not populated by abstract homines technologici or economici, but by human beings whose happiness is their own responsibility. Moreover, further objections should be made, as for instance, that in searching for an optimum, why stop at the frontiers of Jugoslavia? Modern technology does not require centralized decision-making; it makes a polycentric sys tem of decision-making not only possible but preferable. The computers are liberalizers, not centralizers. When the question is put, "What price shall we have to pay for federalism?" the echo is, "What have we to pay for centralism?" And the balance is not in favor of the latter. Thus Marshal Tito was right in refusing to identify technical progress with centralism; and Edward Kardelj, President of the Federal Assembly, refused to put order in opposition to democracy.[xi]

3. The third concept of unity is the policy of equal stomachs. It appealed to socialist solidarity because of the idea that the central authority of the state should take the income and resources from those who "have" and distribute them among those who "have not." The Reform aims at a socialist society where, in order to "have," people must work and earn their income by their labor. Redistribution of income by the state means to take part of the income earned by one worker or group of workers and give it to another individual or group who has not worked for it. This solidarity may be the basis of a policy of social assistance, but it cannot stand as a basis for a socialist economic system.

4. The fourth main concept justifying unity is to be found in the field of foreign policy: whatever the internal conditions in Jugoslavia, the supreme interest of relations with the outside world demands unconditional unity; and this is a central function which requires the strengthening of the center.

To this one must reply that the policy of active and peaceful coexistence has eliminated all serious threat to Jugoslavia from abroad. The psychology of the besieged fortress, genuine or staged, is out of place. The real problem is the great difference in the standard of living between Jugoslavia and her Western neighbors, or Europe as a whole. To reduce this economic tension, the Reform has undertaken to liberalize foreign trade and to promote the structural integration of the economy into the world division of labor; GATT was joined, a certain coöperation achieved with C.E.M.A. and action taken to work with the European Economic Community and EFTA.

In conclusion-all the above concepts of unity have been used to justify a political distribution of income by an étatistic élite and are therefore not acceptable throughout Jugoslavia, but only at the center, which has always advocated other than democratic procedures.

The national tensions which increased in all the nations of Jugoslavia to such an extent that they became a central problem, first economic and then political,[xii] were subject to analysis at the Eighth Congress of the Communist League. The line it took was that if there is a general phenomenon it must have a common cause. It found this cause in the system of bureaucratic centralism against which all the nations were reacting. In order to eliminate national tensions within the country, the first thing to do was to eliminate their common cause. Thus it was that the policy for reducing national conflict became closely linked to the policy of economic reform. The protagonists of the Reform are not provincial anarchists but stand above local nationalism; they are more "internationally minded" than the autarkic centralists. Their main idea is that the socialist economic integration of Jugoslavia is a long process which started in the liberation struggle of the Second World War, but is not yet accomplished; indeed, that its development depends on the extent to which true socialist relations exist, and on the degree to which the policy inaugurated by the Eighth Congress will be carried out.

It is commonly agreed that the Reform is not progressing at a very satisfactory rate. One of the reasons may be that the Federal Government finds itself in a difficult position, struggling with the overt or covert resistance of the high bureaucracy which on one occasion discreetly puts on the brakes, at another pushes the reform measures to unrealizable and absurd lengths. The heated debates in the federal parliament, exclusively composed of Communists, where bills are passed with a majority of 4 or 6, show how far the process of liberalization has gone. On the other hand, they manifest the strength of the opposition to concrete reform.

One must remember that the Reform is divided into two kinds of measures. First, extensive central control was strengthened (price control, credit restrictions, rate of foreign currency exchange) in order to clear the field for the further liberalizing steps. But since some success was achieved in the first stage in relieving the immediate critical situation, a twofold reaction has now set in. This came to the fore in the meeting of the Central Committee in February-March 1966. All participants were for the Reform; but some (mainly from Serbia) praised it and demanded that the first centralizing measures should be further pursued, while others (e.g. from Croatia) asked that more energetic measures be taken in pursuit of the main purpose of the Reform. In the complex tactics of the Reform-"to retreat in order to advance better"-some praised the retreat, others pressed for faster advance. Heed should be paid to the warnings of Boris Kraigher, the operational head of the Reform, that it may last for a long time, perhaps for a decade, and that the most difficult period, that of structural changes in the Jugoslav economy, is still ahead. Speeding up the Reform is of utmost importance. Failure of the Reform would deeply shake the faith of many people that Jugoslavia's problems can be solved by consent.

The two opposing views of the Reform within the Communist League have managed to gather behind them a considerable following outside the Party itself.[xiii] Will the policy of the League be to institutionalize emotional "national" appeals, thus fighting the issues of the Reform out in the open and furthering the process of democratization? Or will it close ranks, isolate itself and use its only available instrument, that of bureaucratic centralism, admittedly the cause of the present difficulties, thereby pushing national dissent underground and at the same time destroying the Reform from within? In my opinion there is no "once and for all" solution. These are problems of long duration and great amplitude. If it is true that the foreign policy of every state reflects its internal relations, then Jugoslavia should adopt the principle of active, peaceful coexistence to solve the problems of her own component nations.

[i] One of the most systematic and comprehensive presentations of the causes of the Reform and of the measures taken in it can be found in K. Dzeba-M. Beslac, "Privredna reforma. Sto i za?to se mijenja." Zagreb: Stvarnost, 1965.

[ii] Tito said, "It is my opinion that we must absolutely discontinue the practice of political people deciding where and what should be built, and how much. This is something the enterprises and factories should decide. . . . The building of new factories will also be decided upon through the intermediary of the banks. But political factors should keep out. We political people can give only general lines of an investment policy; you must make the decisions. (Borba, December 31, 1965.) Vladimir Bakari |[pic], President of the Assembly of the National Republic of Croatia, stated explicitly that, before the Retment policy; you must make the decisions." (Borba, December 31, 1965.) Vladimir Bakari?, President of the Assembly of the National Republic of Croatia, stated explicitly that, before the Reform, "Power in Jugoslavia was in the hands of quite a social segment ranging from party to leading business officials (rukovodilaca): all these lost their power when self-management was introduced in factories and enterprises." {Borba, March 6, 1966.)

[iii] In 1965 the effect of the Reform was to reduce the investment share in the G.N.P. to 27.6 percent. (Borba, February 4, 1966.)

[iv] The use of world market prices for international trade among socialist countries is not a new one. The Eastern bloc (C.E.M.A.) took world prices as a basis for exchange. The difference between the C.E.M.A. and the Jugoslav system is that the former uses average prices of some past years while the latter takes actual world market prices. The Jugoslav Reform takes them as a measure for domestic prices as well, while other socialist countries stick to their domestic planned prices, each of them having a different structure from the others so that they cannot be brought under a common denominator.

[v] The concept greatly differs from that of the welfare state. The essence of the welfare state is to leave the production machine capitalist, with some marginal intervention in the public sector, and, by state taxation, to redistribute the income taken from the richer to the poorer consumers. The Reform in Jugoslavia denies this role of redistribution to the state (even to a socialist one) and endeavors to organize production on the basis of workers' self-management, in order to eliminate the roots of exploitation of man by man through income redistribution. It leaves decisions on income distribution to the workers who produce the income (on enterprise, local, regional, state and international levels), but takes the world level of productivity as the objective measurement.

[vi] In the 1961 population census, 7,800,000 people declared themselves as Serbs (41.6 percent), 4,300,000 as Croats (23.4 percent), 1,600,000 as Slovenes (8.8 percent) and 1,046,000 as Macedonians (5.3 percent). The Montenegrins numbered 514,000 (2.8 percent), the Moslems 973,000 (5 percent), and those who declared themselves just Jugoslavs 317,000. The Albanians numbered 915,000 and the Hungarians 504,000.

[vii] The Constitution of 1963 created a special federal fund to assist underdeveloped areas.

[viii] Many of the articles printed in the edition "Yugoslav Economists on Problems of a Socialist Economy," Eastern European Economics, New York, L.A.S.P., Fall-Winter, 1963-1964, express the views of this group of economists.

[ix] Here we have to go back somewhat in history. The pre-1918 Kingdom of Serbia was an underdeveloped but homogeneous and centralized country, without a developed capitalist system; the political, economic and cultural élite lived on the state and took the place of a capitalist class. The Croats, Slovenes and those Serbs who belonged to the Hapsburg Empire until 1918 were used to living in a multinational state. But their national aspirations and the development of their individuality had been achieved against the will of the Hapsburg state and in opposition to it. Therefore their élite did not consider it "normal" that social action should be taken through the state.

[x] Resolution of the Congress, Yugoslav Survey, No. 20, January 1965, p. 2909. In his report to the Congress, Tito said: "Some people, even some Communists, think that nationalities have withered away . . . they confuse unity of the people with the liquidation of the nations and the creation of something new, something artificial, i.e. one single Jugoslav nation, which is somewhat similar to assimilation and bureaucratic centralism, unitarianism and hegemonism. The Jugoslav socialist integration is a new type of social community, in which all nations find their common interests." ("Osmi kongres SKJ," Kultura, Belgrade, 1964, p. 132.)

[xi] Borba, December 31, 1965. Asked whether self-management does not hamper technical progress, Kardelj said that reluctance to accept "rational" solutions was the result of unhappy experience with strong administrative intervention. He took as an example the problem, long and passionately discussed in parliament, of electric power and its centralization. In refusing to agree that the state should order the centralization of the electricity system into a single unit, Kardelj said that those who use electric power should be responsible for building electric power stations. The Federation of Electrical Enterprises should not be vested with the authority of a government agency. Those who decide to build power stations at greater than optimal cost will have to pay dearly for it and bear the cost themselves.

[xii] Asked whether national tension was only question number two in Jugoslavia, Vladimir Bakari? said (Borba, March 6, 1966): "Today it is at least question number two. With the battle for the Reform we have to win the battle against nationalism as well. If we don't win this battle, then it might become question number one." He also said that the nationalities problem might even be sharper now because it had not been dealt with in proper time.

[xiii] The Croat Communists have to be given credit for leading in the Reform. Nevertheless it seems to me that the handling of the psychological side of Croatian national dissatisfaction is not adequate, as some instances in Croatia have shown. On the other hand, Croatian nationalistic outbursts, staged or spontaneous, would just play into the hands of the anti-reformist centralists. Some Croats should remember the heroic silliness of Eugene Kvaternik whose revolt in 1871 was used as a pretext to prevent the reorganization of the Austrian Empire along federal lines.

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