Yugoslavia: The Case of Self-Managing Market Socialism

F or many years the Yugoslav economic system appeared to offer a middle way between capitalism and Soviet central planning. The Yugoslavs' brand of market socialism placed reliance on markets to guide both domestic and international production and exchange, with the socialist element coming from the "social ownership" and workers' self-management of enterprises. The system seemed successful until the late 1970s. However, in recent years, many of the problems besetting other socialist economies like Poland and Hungary-like stagnation, international debt, enterprise inefficiency and inflation-have emerged to bring the whole experiment into question. These failures raise wider questions about the compatibility of socialist ownership and control with the market mechanism. I conclude that, while Yugoslav market socialism has not been proven inherently unfeasible, it contained serious flaws concerning the organization of the firm and the operation of the capital market. Reforms paralleling those elsewhere in Central and Eastern Europe are now on the agenda, but the situation has been complicated by ethnic rivalries which bring into question the survival of the Yugoslav state. This paper will first describe how the Yugoslav economy has been distinguished from those of its socialist neighbors. The following sections will describe the economic record of Yugoslavia since the 1950s, and the lessons to be drawn from the long-standing Yugoslav experiment.