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Yugoslavia Adjustments in the 1970s
Yugoslavia entered the 1970s in an economic crisis. Growth
was slowing because more investment was needed to achieve each
additional unit of growth. At 34 percent, Yugoslavia's rate of
inflation was the highest in Europe in 1974, and the government
reimposed the price controls that had been relaxed under the 1965
reform. Growing unemployment prompted large numbers of Yugoslav
workers to migrate to Western Europe. The government
wholeheartedly supported this trend because the
hard currency (see Glossary) earnings brought into
Yugoslavia by the guest
workers mitigated the effects of increased foreign debt and
export stagnation. The disappointing results of the reform and
nationalist uprisings in Croatia and Kosovo between 1968 and 1972
led Tito to end the market socialism experiment by putting
economic policy making back under party control in 1974.
The new Constitution of 1974 and the Law on Associated Labor
of 1976 reorganized the economy from top to bottom. Large and
medium-sized enterprises were dissolved into smaller, selfcontained units called basic organizations of associated labor
(BOALs). Under this system, workers gained more control over
management decisions, banks, and social services. At the same
time, Yugoslavia became more federalized as party authority was
decentralized to republic and provincial governments and local
communes
(see Political Innovation and the 1974 Constitution
, ch.
4). The new statutes introduced a system of self-management
agreements to coordinate interaction among basic organizations of
associated labor, and social compacts to coordinate interaction
between economic and political bodies.
As this new system went into place, the economy was hit by a
severe increase in world petroleum prices. Because Yugoslavia
depended heavily on imported petroleum products, this development
aggravated existing inflation and foreign debt. Nevertheless,
Yugoslavia tried to overcome its balance-of-payments problems by
placing even stronger emphasis on output growth, increased
spending (particularly on nonproductive investment and
consumption), and foreign borrowing. The result was a dramatic
rise in foreign indebtedness and inflation and a decline in
living standards. When petroleum prices rose again in 1979 and
the world entered an economic recession, Yugoslavia could no
longer afford to maintain its debt burden. Foreign loans became
inaccessible, and inflation continued to climb. By 1980 these
conditions clearly called for slowing the pace of development and
adjusting the system so as not to jeopardize future growth.
Data as of December 1990
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