Yugoslav economy: A brief summary of the economic developments in the Federation


Yugoslavia was one of the most important and biggest countries in Balkans during most of the 20th century that came into existence as a federal republic after World War II. The economy of Yugoslavia was different from that of the Soviet Union and the rest of the Socialist Republics in both Eastern Europe and the Balkans. In spite of the similarities observed in all socialist economies, Yugoslavia differed mainly because, as early as 1948, the Tito-Stalin split occurred, which economically isolated Yugoslavia from the rest of the Socialist states.

Historically after the WW2, our world was divided into the well-known Western countries and the Soviet Block. On one side, we had the United States, which entered the war when it was already reaching its end, therefore it did not suffer the damages of Europe and could economically support the countries of the West. The US aid came in Europe through the implementation of the well-known Marshall plan (1948). According to Marshal Plan, the US would fund a 13bn. dollars assistance in Europe, in order to reconstruct and recreate everything that was destroyed during the war. Moreover the US aid aimed at monopolizing the European market and harshening trade and financial connections between Europe and the Soviet Union, so as to cut the Soviet influence (mainly through shipping materials and machines, which in the form of loans reached Europe with the prospect of returning the loans in the future by creating a market monopoly in Europe, so as not to trade with the Soviet bloc .

Worth mentioning that Cold War began immediately after the WW2. That is why, as a whole, the German businessmen who had worked along with Hitler were freed from the Nuremberg trials to help rebuild Europe through their companies (Deutsche Bank, Krupp's, Siemens, Volkswagen, etc.)

On the other side, there were the socialist states which, under the lead of Kremlin, immediately began their own reconstruction (Molotov plan 1947). Considering that most of them were rural countries, the first part of reconstruction focused on the industrialization of these countries. The construction of major projects in all sectors began immediately. Five-year plans and mass work, mainly of a “voluntary” type, as in a socialist-driven economy profit is not an objective. The aim is thus full employment and equal redistribution of wealth.

So after Yugoslavia started the implementation of five-year projects in all production sectors. Electrification throughout the country, construction of large industrial projects, agricultural cooperatives, etc. due to the economic system, all projects were state-owned, but small private enterprises were also allowed to operate. Particularly, the young workforce played a key role as they were considered as the "future of the society”. Tito knew from the very beginning that within his big state, there were many different national groups with nationalists in each country (Croatia, Serbia, Slovenia, Bosnia, FYROM), therefore he implemented a new kind of "national identity". That of “unity and brotherhood” (mixed marriages, movement and relocation of the population freely to other parts of the country etc.). In fact, the first major project initiated was the “road of brotherhood” that extended from Slovenia to FYROM. Tito, after splitting with Stalin, was seeking for financial assistance from the US and approved it. Stalin had dismissed Marshall's plan a year earlier, and this was one of the reasons for the controversy with Tito.

During the 1950s and 1960s, instead of absolute state-owned industries, Yugoslavia had implemented a hybrid economic system between the Soviet type of controlled economy and a free market economic activity. Control was in the hands of labor councils in every major industry.

The industries that operated were: metallurgy, industrial production units and automobiles, petroleum products, textiles, machinery and equipment, chemicals, wood processing, food processing, pulp and paper, motor vehicles, construction materials. Yet due to the fact that western industries were more developed and technologically advanced, Yugoslavian industrial products could not compete them.

Worth mentioning that the Eastern bloc had achieved great change in a little time (almost three decades), but it has not been able to compete with the West as it is today. Nevertheless it was a memorable effort.

Following Stalin's death in 1953, Yugoslavia comes closer to the Soviet Union, but since the mid-50s the Union has begun to turn into a closed bureaucratic economic model that is not sustainable in the long run as almost no innovation is promoted and the whole control is done by a closed core of elderly men who fear that they will lose their power and head with the slightest procrastination.

In 1970, the oil crisis that affected the global markets and began to change the global economic model (this point was later known as neoliberalism). The crisis raised the external debt of Yugoslavia and its bureaucratic system couldn’t cope with market demands. Indeed, there were embargoes from the West via the International Monetary Fund (IMF) and other global financial institutions. Because Tito was in the Marshall Plan (not officially as the Western states, but informally through financial aid), all of his funding was through the IMF and the World Bank and through state loans. So every time Tito escaped, he had financial sanctions and an embargo. Also exports did not take place in western countries but in eastern, asian and african countries. Again, however, due to the Cold War, economic competition did not allow the products of the Soviet countries to expand across the global market (Japan, South Korea, etc.).

GDP Growth in Yugoslavia 1980-1990
Source: By Tzowu (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

Geographically, the industries were divided into north and south with the northern parts of the country having the lion's share. The southern FYROM, Kosovo and Bosnia were wronged because Tito was geopolitically afraid of neighboring dangers (Bulgaria, Albania, Greece). However, due to the common fund of Yugoslavia, this difference was not felt between north and south. Montenegro was mainly a popular tourist destination.

An excellent example of the Yugoslavian industrial productivity was the Zastava production unit. An industry that has been making cars since 1950 because all the workers decided that they could do it, so they voted and collectively decided to start producing cars. Due to cooperation with the West, FIAT collaborated with Zastava and started producing some of its models in Serbia. LUGGER has also built its own YUGO model.

A Zastava car

Since Tito's death in 1980, the countdown had begun. In the 1980s, nationalism increased among the federation’s countries and in 1990s Slovenia and Croatia declared their independence and they were immediately recognised by the European countries and the United States. By the end of the 90's, Yugoslavia seized to exist.

Source of cover picture: Dado Ruvic/Reuters

Published by Jurgen Doci