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International Socialism, December 1969/January 1970


Andrew Sayers

Between East And West: Yugoslavia


From International Socialism (1st series), No.41, December 1969/January 1970, pp.31-35.
Transcribed & marked up by Einde O’Callaghan for ETOL.


Ever since Tito split with Stalin more than 20 years ago Yugoslavia has produced contradictory analyses not only among supporters of the Kremlin, but also among many independent socialists in the West. It has often been implied that it has a ‘democratic socialist regime’, that it is a ‘workers state’ or that there is ‘workers’ control’. But the number of serious analyses of its development have been few and far between.’ Recently an important collection of articles by Yugoslav economists, edited with an introduction by Carlo Boffito, has appeared in Italian. [1] Because of the language barrier this is unlikely to be read by many of our readers. Rather than just a short review of this book, therefore, we have here an article using some of Boffito’s material to show the major changes in the Yugoslav economy since the split.


Unlike the communist parties in the other Eastern European countries, the Communist Party of Yugoslavia (CPY) took power, not through the agency of a Russian Army of occupation, but because of the support of the masses.

The invasion of Yugoslavia by the Axis powers had led to a complete breakdown of the state, and to bitter nationalistic struggles between the different republics. The only party which fought in the resistance for the liberation of the country but also ‘for the unity of Yugoslavia on the basis of the equality of all its component parts was the CPY’. [2] This fact was chiefly responsible for rallying the masses round it during the years of struggle against the German and Italian invaders.

It must be stressed, however, that the large consensus of support which they enjoyed by the end of the war was also largely due to the very conservative programme which Tito’s partisans had adopted. Nor could it really be otherwise. The bulk of his supporters were peasants and intellectuals recruited to fight for a national war of liberation. The proletariat no doubt had great sympathies for the CPY but did not directly participate in the struggle.

Yugoslavia was an essentially agricultural country with 77-80 per cent of the population on the land. Yet because of the nature of the country only 45 per cent of it was farmable. Agricultural production per hectar was also low and therefore the problem of ‘surplus’ agricultural population very serious. [3] Nor could the redistribution of the land be of help since the Yugoslav agriculture was already small unit based. About 92.5 per cent of the arable land belonged already to those that tilled it, and only 7 per cent of the land was in farms of 200 acres or more. The average holding was around 13 acres and two-thirds were smaller than this. [4]

Collectivisation of the land, given the nature of the terrain, was not likely to be of great help, and in any case the Russian experience seemed to indicate that peasant resistance might result in an actual decrease of production. Industrialisation was the only solution to the peasant problem. Nor did the Tito administration alone realise this. The pre-Tito bourgeois Yugoslav Government in exile had decided that

‘Agrarian overpopulation came to an end in the countries of the North-West only when they became strongly industrialised. Yugoslavia will have to look for a lasting solution in the same way.’ [5]

Nor was the way in which the industrialisation of Yugoslavia was to be carried out, that is through a programme of nationalisations, something novel. Once more the same government in exile had written that

‘The public (the state in the first place) has played and will play an increasingly important role in all industrialisation schemes. The state ... remains the only significant investor in an economy where private savings are relatively insignificant ...’ [6]


‘Public planning will have to play an essential role in postwar reconstruction ... Even prior to the war most of the essential enterprises (ports, telegraph, railways, power plants, steel mills, forestry resources, steamships) were in the hands of the public.’ [7]

Thus, although no nationalisation law was passed before December 1946, in March of that year the government was already in possession of 82 per cent of all industry. In the distributive sector state and co-op shops accounted for 51.2 per cent of all business. [8]

The new Stalinist bureaucracy in Yugoslavia took over the programme as well as the objective functions of the bourgeois government. The Yugoslav five-year plan was adopted on April 28, 1947. Its sweep and scope were unexpected. An English commentator wrote

‘... it aims not as other plans (of the other East European countries) do at the restoration of production to pre-war levels, but at the complete transformation of the country from a backward and underdeveloped area to a modern industrial economy.’ [9]

The industrialisation plans of the Tito bureaucracy clashed, however, with the plans of Stalin for South-Eastern Europe. At the time of the Nazi occupation Edward Kardelj (Tito’s second in command) had analysed its, consequences,

‘German economic penetration’, he said, ‘meant keeping us down to the level of agrarian countries (with the other East European states) available to feed the industrial countries, and in the first place Hitlerite Germany ... the whole of South-Eastern Europe would have become a sort of agrarian appendage to Germany’ and ‘the “reorganisation” of the economy of the small nations in accordance with the economy of the larger nations ... meant preventing the independent development of industrialisation ... and transforming the existing industries ... into mere appendages of the industry of fascist Germany.’ [10]

But such was also the plan of Russian imperialism in the area! In rejecting Russian foreign aid Kidric, for example, stated:

‘As to “aid-on-a-silver-platter” we can and must openly say that we never requested it either of the Soviet Union nor of the popular Democracies ... What would such aid mean from the Soviet Union? It would mean, for example, to request – without the development of the forces of production in our country by our working people – that the Soviet Union create a heavy industry, etc. in our country.’ [11]

What Kidric was obviously complaining about was that Soviet aid might well have been on-a-silver-platter, but was not without strings. The industry so built would have naturally belonged to the Soviet Union, it would have been built and planned to conform to its needs, it would have come into being only at the tempo, to the extent and of a nature (consumer or heavy industry) as was convenient to it.

The Yugoslavs had seen examples of Russian ‘aid’. Two mixed transport companies, ‘Juspad’ and ‘Justa’, had been formed in February 1947, in order to ‘contribute to the recovery and development of the productive possibilities of Yugoslavia’. The participation of the two governments in the companies was to have been equal. In fact by May 1948 the USSR had paid only 9.83 per cent of its participation in Juspad while Yugoslavia had paid up 76.25 per cent. Only 40 per cent of the services went to Yugoslavia. Whereas Juspad charged the USSR only 0.19 dinars per Kilometre-ton, other countries were charged 0.28 dinars and Yugoslavia itself 0.40 dinars. When both companies went into liquidation after the split, Yugoslavia took over all the liabilities, while the USSR drew its share of investment in full. [12]

Again Kidric had referred to the USSR when he had said:

‘... there was and there still can be found the opinion that Yugoslavia is an agrarian country and would remain such; and that it should deliver to industrially developed countries raw materials and food, and they sell to Yugoslavia finished industrial consumer goods.’ [13]

The attempt to industrialise Yugoslavia and to lessen its dependence on Russia created splits in the CPY bureaucracy. Zujovic and Hebrang, respectively minister of finance and minister of light industry, became spokesmen for the Kremlin within the Yugoslav bureaucracy itself. At the fifth congress the main economic report, given by Kidric, devoted a whole section to them:

‘Their struggle against the increase of the productive forces of our country, against the abolition of the contradictions of our inherited wealth (resources) and the backwardness of our techniques ... this struggle of theirs could be reduced to a policy of the economic dependence of our country on abroad – that is, on imperialism.’ [14]

It goes without saying that the main spokesmen for the Kremlin in the fight inside the Yugoslav bureaucracy did not advocate dependence on Western imperialism ...

For the Kremlin it was essential to crash the Yugoslav attempt at independence lest it be contagious, and inspire other reluctant recipients of ‘aid’ in the empire. Indeed after Tito’s excommunication a large number of leaders of the Communist Parties of Eastern Europe were accused of having been bewitched by Titoism and were ‘purged’.

The Kremlin had, however, underestimated the power of resistance of the Titoist Bureaucracy. Having taken power independently they had from the outset a consensus of support which the leaders of the other ‘satellites’ didn’t have, and a feeling of superiority. Indeed they never ceased to remind others that

‘... Certain heads of other parties arrived in their free countries in planes with pipes in their mouths and for four years, four times daily, vainly called on the masses to struggle, via radio, while we won our freedom with arms in our hands.’ [15]

At the time of the split, therefore, the Yugoslav regime, which was not a mere extension of the Russian one, but a replica, was capable of rallying support especially in the countryside for its nationalist opposition to Stalin. It is important in this respect that one of the major accusations levelled at the CRY by the Cominform mouthpieces was that Tito refused to ‘sharpen the class struggle in the countryside’. The sharpening of the conflict in the countryside (through forced collectivisation) would have cut Tito off from his base of independent support. Without it he could only be a simple agent of the Kremlin.

‘Whenever the danger of an independent national orientation raises its head ... it is in the interest of Russia to drive the local bureaucracy into collision with the masses so that the CP will have to fall back on the Russian master as its sole support and the sole ensurance of its rule.’ [16]

In order to have a full picture of the real relationships amongst these ‘socialist’ countries, it isn’t enough to look at the attempts at the Yugoslav bureaucracy to pursue a line of independence from Soviet imperialism. At one and the same time Tito was making his own independent bid for supremacy in South-Eastern Europe. Tito’s call for a ‘Balkan federation’ took on its full meaning from the economic aspirations of Tito and the fact that Yugoslavia with its backwardness was too small a base to realise them. The relationship between Albania and Yugoslavia clearly indicates this. The day after the break, the Albanian CP issued a statement with the accusation

‘The leaders of the CPY tried to convert the country into a colony of their own, to annihilate the independence of our country and of our party.’ [17]

Even more illuminating is the reply and justification which appeared in Borba; This was done ‘on the model of the Soviet mixed companies formed after the liberation of some Popular Democracies’. [18] Having seen above how the mixed companies were run it is no wonder that the Albanians complained bitterly! The article also makes quite clear the extent of Yugoslav investments in Albania. Through it were constructed her naphtha and mining industries, the Durres-Pecin railway line, the hydro-electric power station near Tirana, and a long string of various kinds of industries. While Yugoslavia itself might have disliked the Russian medicine, it certainly was not alien from administering it, at the same time, to those it had some hegemony upon!

From 1948, the time of the first disagreements, until the final break in 1952, the Yugoslavs attempted to investigate and to give ideological reasons for the increasingly harsh polemic with the Soviet Union. Already in November 1948, Tito had said that ‘the economic relations (exchange of goods) between socialist states were still based on capitalist principles’.

In 1949, the theoretical journal of the CPY published an article by Milentije Popovic [19] which argued the existence of a world average level of profits which, in international trade, automatically determines the distribution of profits, favouring the more advanced economies which have an organic composition of capital above the average. Yugoslavia, which according to the figures provided by Popovic, was the most backward of the countries in the communist block in almost all the productive sectors, was exploited by the very fact that it participated in the market. The article ended by refusing to accept the structure of exchange, prices and mixed companies which had been imposed oh Yugoslavia in the name of solidarity and mutual help amongst socialist countries.

It was in this period (1949) that the economic difficulties created the need to collectivise the land. The interim objectives of the five-year plan had not been reached. The quality of the goods was extremely low, the black market wages paid to the scarce skilled labour force were much above the level indicated, the productivity of labour was actually decreasing, and the balance of payments were disastrously in the red due to the Russian economic blockade. The necessity to channel agricultural surplus to the towns, and the desire to bring the countryside under the directive of the plan, induced the Yugoslav bureaucracy to attempt to force collectivisation on the peasants.

When the plan was abandoned in 1952, due to the political opposition of the peasants and to the actual slump hi production the situation had obviously become extremely serious.

The New Model

These two factors, i.e. the split from Moscow and the collapse of the attempt to direct the economy from the centre, led the Yugoslavs to extend their criticism of the Soviet regime and, rejecting its model, to look for alternatives. The Soviet Union was characterised in this period as a state capitalist regime, and the state form of the ownership of the means of production and the expropriation conducted by the bureacracy at the expense of the working class condemned. [20]

In an attempt to solve the internal problem by making the economy more competitive, the CPY decided to allow a degree of independence to the productive units and to introduce a measure of monetary incentives. The plan then consisted in the fixing of determinate proportions between wages and profits. Within these general lines the individual units had a degree of freedom, such as the right to fix prices and the quantities to be produced. By linking wages by a fixed proportion to profits it was ensured that the former could increase only in proportion to the latter.

In order to introduce an additional monetary incentive it was decided to put a proportion of the profits at the disposal of the collective of workers. This became in effect a bonus system, and an effective one. Sometimes it amounted to even two or three monthly wages. The bonus system also ensured an increase in productivity since the workers had an incentive for keeping their numbers as low as possible.

Thus was decentralisation and ‘workers’ control’ (sic) introduced. It must be pointed out that the decentralisation of the economy was justified by the discovery that the law of value operates in a ‘socialist society’. [21]

The negation of the Soviet system did not, however, immediately give way as E. Mandel has stated [22] to the ideology of profit maximisation. In the initial stages the attempt to render the country more competitive in the international markets did not take the place of centralisation. The relationship with the international market was mediated by the centre, and attempts to isolate the internal market from direct external pressures were made; It is obvious, however, that the pressures of the international market which had first pushed the Titoist bureaucracy to introduce a measure of decentralisation in order to maintain some competitiveness, pushed for its extension.

In order to make the system work it was necessary to compute the productive capacity of each enterprise so that the proportion of wages and profits (which included investment capital and a common fund for the producers) could be calculated; collected in guise of levies, and redistributed to the base. The difficulties involved in such calculations forced the Yugoslavs to attempt to establish first an average productive capacity (1953), and then to introduce the concept of profit and the subordination of production to consumer demand.

After 1957 the basic wages stopped being determined centrally. With a series of decrees the administration in the factories was given the right to determine these, while the process of collection of levies at the centre was replaced by a system of straightforward taxation of the profits of each enterprise.

The World Market and the Yugoslav Economy

The introduction of the profit motive as the autonomous rationaliser of the economy resulted in the introduction of large differentials. For example, the average monthly wages in November 1965 were (in thousand dinars):

Average of all activities


Industry and mines




Lumber industry


Naphtha industry




The total wage structure is:

Wages in
thousand dinars


Percentage of
labour force
















over 100


More serious still it created very large regional differences. For example, in the coal and coke industry the monthly average wage in Slovania was 83,300, while in Macedonia it was 21,000. [23]

This is inevitable. The most developed regions, in order to keep up with the rest of the world, need to reinvest the profits in thejr industries and oppose any centralisation of resources aimed at redistribution in favour of the underdeveloped areas. The policy of decentralisation has allowed these regional problems to emerge in full. In some instances the local CP’s have even encouraged strikes to strengthen their hand vis-à-vis the centre. A few workers are given a stake in the misery of other workers in less fortunate regions.

In 1965 another step was taken to place Yugoslavia on a competitive footing with the outside world. Its objective was to eliminate the uneven price level due to the peculiarities of the tax system, the artificial exchange rate of the dinar and the aid which the state granted to particular industries.

Thus the profitability of the firm was declared the all-important criterion, and a number of ‘political firms’ which had been created in the immediate post-war, either to help underdeveloped regions or to allow maximum self-reliance, were eliminated. Prices which corresponded as closely as possible to those existing on the international market were introduced. The exchange rate was changed and foreign trade liberalised. A consumer tax was introduced, and the production tax diminished. In this way the share of profits which remained for the firm became similar to the Western counterpart.

It is in this period that the ‘prejudices’ which had characterised the attempts to direct the economy from the centre finally fell. Socialism was redefined as a mode of production which represented a given inevitable stage in the chain of development. After the break with imperialist domination and after the first period of administrative socialism necessary to organise production after the expropriation of the bourgeoisie, it was declared necessary to integrate once more in the world market. [24]

Today Yugoslavia imports foreign capital on condition that mixed companies are formed in which Yugoslav capital is above 50 per cent of the total. With direct foreign investments in the country Yugoslavia is attempting to resolve the traditional balance of payments deficit, to facilitate growth, but also to aid the flow into the economy of modern technology. Through an even more direct link with the world market it is hoped to achieve the increased competition which will revitalise and force the economy to a set of priorities more in line with the requirements of the external rather than the internal market.


The world today is being carved up by two imperialist powers, the USA and the USSR. The two main powers coexist to the extent that they both agree to maintain the present balance in the world. But they are also, paradoxically, in acute competition. Each is engaged in an arms race which both hope will tax the other’s economy more than its own. They also compete at the margin of the empires, Vietnam, Middle East, etc.

In order to strengthen their competitiveness they exert and try to extend their influence on the largest possible area. The degree to which the countries inside each block are exploited or depend on the ‘mother country’ varies. No country, however, is completely free of the influence of either and some are under that of both.

Internally the two powers are conditioned by their mutual competition. Quite obviously their performance in the international markets and their internal rate of growth are related to the final outcome of the competition. Neither can afford to slip behind the other, and both are attempting to do better than their rival. Whatever their respective regimes, the goals of the internal economy of either must be closely related to that of the other.

The relationship between competing countries is normally mediated directly to their economy by their participation in the international market. This does not, however, have to happen directly. It is possible that a central agency may mediate between the international and the internal market through a set of directives to the base. These directives need not then be individually rational. Overall, however, the ‘laws’ of the international market must be applied as strictly in such an economy as in one in which these influences are direct. The price for a failure to do so would be the loss’ of competitive position.

In Russia the state capitalist bureacracy has mediated the influences of the international market to the internal economy. In Yugoslavia, however, the lack of a sizeable market, the even more backward industrial base, and the necessity to fight against Russian imperialism led to a different development.

Yugoslavia could wrestle itself free from the Soviet Union only to the extent that it managed to develop industrially. This it could only do by directing all its energy to trading in the international market. This necessarily meant the decentralisation of the economy. The reason that induced the Yugoslavs to introduce foreign capital was the need to have a direct means of comparison, within their economic system, to establish the efficiency of their firms and the rate of profit which they needed to reach to make their economy internationally competitive.

Obviously the trend towards decentralisation weakens the central bureaucracy and it is not undertaken other than under some degree of duress. Indeed the development of the Yugoslav economic system was punctuated by bitter struggles between the central and local bureaucracy. For example, in 1961 an attempt to extend decentralisation was blocked, and between the summer of 1965 and the summer of 1966, the 1965 reform was totally boycotted. This fight terminated with the removal of Rankovic from the vice-presidentship of the Republic. [25]

In their life or death struggle for survival the Titoist bureaucracy had to increase efficiency and competitiveness, to extend their base of support, even if this meant to weaken their rule and liberalise the dictatorship. But we must be clear about the nature of the process. The loss of power, no doubt resented and resisted by the central bureaucracy, involved the spreading of a degree of control to the local ranks of the bureaucracy only. The struggle was within the bureaucracy, albeit different levels of it.

In the ‘managerial revolution’ which has taken place the proletariat has reaped no benefit. The so much vented ‘workers’ management’ is nothing but the corporate integration of workers into the system. The number of sackings, for example, are decided by the management, and the departments where these redundancies are to take place are also specified by them. The role of the ‘workers’ council’ is limited to decide who will go – a policy which has resulted in over 300,000 emigrants, and an almost equal number of unemployed. [26]

With regard to foreign capital also, the bureaucracy will find its position weakened. They are not likely to enjoy these investments any more than any capitalist does the pouring of foreign capital in his country. But we must understand that what is at stake is not their rule. However much foreign money pours into Yugoslavia the state will still play a major role. The weakening of the central bureaucracy through the pressure of events, and the consequent spreading of power paradoxically also strengthens them. Constitutional monarchies are less powerful than absolute ones, but they are also stronger.

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1. Socialismo e mercato in Jugoslavia, edited by Carlo Boffito and published by Einaudi, Torino 1968.

2. Ygael Gluckstein, Stalin’s Satellites in Europe, George Allen and Unwin, London 1952, p.152.

3. Ygael Gluckstein, ibid., p.50.

4. Hal Draper, The economic drive behind Tito, in The New International, October 1948, p.231.

5. Ibid., p.232.

6. Ibid., p.233.

7. Ibid., p.233.

8. Ygael Gluckstein, op. cit., p.39-40.

9. Hal Draper, op. cit., p.234.

10. Ibid., p 233.

11. Hal Draper, Class Forces Behind Tito, in The New International, November 1948, p.272.

12. Ygael Gluckstein, op. cit., p.32-33.

13. Hal Draper, The Economic Drive Behind Tito, op. cit., p.235.

14. Ibid., p.235.

15. Ygael Gluckstein, op. cit., p.240.

16. Hal Draper, Class Forces Behind Tito, op. cit., p.275.

17. Ibid., p.274.

18. Ibid., p.274.

19. Milentije Popovic, On Economic Relations Among Socialist Countries, London 1950.

20. Carlo Boffito, Introduzione, op. cit., p.15.

21. Kidric, Carattere dei rapporti monetario-mercantili nella FNRJ (Nature of the monetary-commercial relationships in Yugoslavia), in Carlo Boffito, ibid., p.55.

22. In Monthly Review, New York, April 1967.

23. All figures and tables from Boffito, op. cit., p.23.

24. M. Hadzi Vasilev, La prassi obntrei pregiudizi dogmatici, (Praxis Against Dogmatic Prejudices) in Boffito, ibid., p.181.

25. Ibid., p.24, footnote 5.

26. Ibid., p.42, footnote 1.

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