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This problem has both its domestic and foreign aspects. The smaller a country and its potential internal market the narrower must be the limits of its industrial development. The expanding Yugoslavia's infant industries which were low in productivity and level of earnings led to other structural problems in agriculture housing the production of raw materials power and semi manufactures. These problems were only compound it by a whole confusing system of price supports subsidies privileged interest rates and similar artificial devices meant to boost this or that part of the economy. A partial economic reform in 1961 brought some results in greater efficiency and an industrial boom in 60 to 63. However the structural disproportion actually grew more acute despite stopgap measures. Besides the industrial development
was irrational and wasteful expansion often meant just more of the same. Only in some other republic into six republics in Yugoslavia. Tito was later to call many of the new plants quote political factories. Set up to satisfy political rather than economic needs. The local market could not absorb or support more industrial expansion. The Yugoslav economy was be set by many persistent domestic problems arising from a lack of proper distribution from one area economic activity or enterprise to another. From the economical allocation of investments and the whole maze of artificial supports and administrative restrictions imposed by a top heavy bureaucracy. Beneath healthy looking statistics on rates of growth laid the symptoms of chronic disease which socialists believed to be endemic to capitalism that is unemployment inflation
lower wages and the rising gap between those who live well and those who do not. Indeed socialist Yugoslavia came to experience the same phenomenon as the kingdom of Yugoslavia and its predecessors. The emigration of thousands who went abroad in search of the work they could not find at home. It is estimated that now some two hundred and fifty thousand Yugoslav economic migrants are working in various European countries and of these 100 in 25000 alone in West Germany. How distant the time seems when it was as hard for Yugoslav to go abroad as for many Soviet citizens to get permission to leave their country today. Economic necessity is a hard school. Even where Yugoslavia alone in the world its economic problems would have been acute. However Yugoslavia is forced to exist and compete in a world which is in many ways the economic macro a micro macrocosm of its own problems.
A most alarming phenomenon in the modern world is the rapidly growing disparity between the developed and under developed nations. The main reason for this gap has been a function of the technical revolution of modern times. The already advanced countries are investing more and more in new areas of production based on the latest techniques and discoveries of science. Thus whereas the yearly per capita income in a technological advance country may increase by a hundred dollars a year the annual per capital increase in national income in an underdeveloped country may be only five dollars a year and so the gap grows. And in such a world Yugoslavia and countries like Yugoslavia let alone the less favored are doomed to be perpetually in the rear unless they become a part of the worldwide development and share in the rise. This means that Yugoslavia cannot afford to remain aloof in its own political and economic
borders. It must integrate itself with this modern world whose techniques and markets it must depend. And yet without losing its features as an independent nation and a socialist society there is the problem. Obviously the solution called for drastic overhauling and some radical changes in approach. All existing models pointed to two ways either state control of the economy through centralized planning or the free enterprise of capitalism based on private ownership. The Yugoslav leaders chose neither. As socialists they could not revert to the capitalist system they had destroyed in the name of a higher morality. Given the nature of their critique of the Soviet system neither could they espouse a state controlled which would inevitably lead to the very abuses to which they had objected in Soviet practice. Rather they chose to take the course they had already charted when they instituted
Workers Councils and communes and to take the next turn around the bend. Neither state socialism nor capitalist free enterprise but a socialist free enterprise directly operated by society itself. I'm tempted at this point to remind you of the thesis antithesis and synthesis thesis of capitalism antithesis the state capitalist communism synthesis the Yugoslav way of socialist free enterprise. What Yugoslavia's present reform amounts to is an attempt to construct a model of a socialist system for a developing country which will be able to progress and compete in the world market without government domination of the economy. This is to be accomplished by a process which the Yugoslav economic historian Rudolph Beechen each writing in foreign affairs has very
cleverly called the four Ds the centralisation de atack ization from the word ape droppers steak de politicisation and democratisation. Among the reforms short term objectives are the following. To curb inflation. To get rid of the deficit in the balance of payments. To reverse the spread of unemployment. To restore full production and to raise the standard of living. However the whole point of the reform is to do away with not only the symptoms of the trouble. But the main trouble itself. Even at the price of a regression in the rate of growth. The key to the Yugoslav reform is the insistence on a free market. Indeed it is the Yugoslav boast that their economy may soon be more free of government trolls than the mixed economies of the Western
capitalist countries. Yugoslav leaders view the establishment of a free market economy as necessary from the standpoint of both foreign and domestic trade. In foreign trade the reform aims to put an end to Yugoslavia's autarky. And the view that foreign imports are a necessary evil to provide capital goods. It will strive for an expansion of foreign markets in order to offset the limitations of the domestic market. Moreover it is designed to bring Yugoslavia into the international division of labor so as to make possible intensive rather than extensive industrial expansion at home. That is one based on greater specialisation and selectivity of production. The reform is intended hopefully to improve Yugoslavia's balance of payments in foreign trade so as to eliminate deficits. Its authors hope that Yugoslavia will become more a part of the modern world economy and that
it will share in the latest techniques and scientific achievements brought on by the technological revolution. Yugoslav leaders also look forward to the greater stability to be gained from increased international economic cooperation either regional as through the Common Market or international through the International Bank the International Monetary Fund and similar agencies. To make possible Yugoslavia's fuller participation in the world market the authors of the reform have abolished the system of multiple exchange rates in their foreign transactions and have established a more realistic and uniform rate of one thousand two hundred fifty dinars to the dollar instead of the official seven hundred fifty dinars per dollar both for home and abroad. This important change was made in consultation with the International Monetary Fund which then expressed readiness to extend assistance through various
credit arrangements. The declared ultimate aim of the new currency policy mucus labia is nothing less than the eventual convert ability of the dino with the dollar and other hard currency. With this goal in mind a reserve fund of up to 500 million dollars is being built up to support this step. For the present the goal is to permit the Yugoslavs to conduct their trade on the basis of world prices. Unlike other socialist countries in the East European economic bloc the Yugoslavs use current rather than past world market prices as their base. Moreover they have boldly made current world market prices the measure of their own domestic prices as well whereas the other socialist countries add here to their own pig domestic prices. There's no doubt in my own mind that what this is leading to is Yugoslavia's hope that they can enter the Common Market.
To facilitate foreign trade further the Yugoslavs have reduced their customs duties from 23 to 11 percent. And have declared their intention of reducing the rates even more as circumstances permit. A startling recent development is that you could flood enterprises are now being invited to attract private foreign capital. From the standpoint of the Marxist view of the role of foreign investment in the expansion of capitalist imperialism This is surely one of the more radical departures which the Yugoslav leaders have made. As the aware of this the Yugoslav leaders have been very careful to define the specific conditions under which they would allow foreign investment in Yugoslavia. Let me read to you from my translation of an editorial in the communist daily newspaper Barba March 26 of 1967. In our situation says
BB of business cooperation with foreign capital is largely acceptable only in the form of partnership between a domestic enterprise and a foreign enterprise. Stock companies mixed companies and the like are not to be considered as they are incompatible with the self managing enterprise in the socialist system. Nor do direct independent individual investments of foreign capital seem acceptable among other reasons because of the primary interest of such investments in extracting fast and high profits. As Let us say in mining and in various activities of primary processing rather than in the modernization of our own potentials the interests of the foreign partners to get out a fair profit and of our enterprise to adopt a new technology and foreign production experience as well as to benefit by the business connections of its foreign partner and quote.
Barbara's writer pointed out that both the Yugoslav enterprise and its foreign partner were free to make their contract as detailed and to specific as they like. It was for each worker's Council to decide how far thus to limit its own autonomy to such a partnership. Nor did the foreign partner have to sit at meetings of the workers council. Common problems could be discussed by special committees representing both sides. In any event all would be done within the framework of laws safeguarded the workers rights. Of course Barbara is right her observes one suspects with some anticipation if the foreign partner demanded certain changes or improvements in the organisation of production. Or if you call for a certain number of technicians with the given specialty and the like. It was up to the Yugoslav enterprise to decide how far to go. For the present for by short its readers the participation of foreign capital will not exceed forty nine percent and the share
of any enterprise All in all therefore there should be no danger of penetration by foreign capital simply because in Yugoslavia the inalienable right of the producers to make decisions themselves concerning their enterprises is safeguarded. As for it Yugoslav labor being exploited. Barred by US analysts wrote the truth is that our labor is being exploited now through our necessary dependence on foreign loans at interest rates as high as 13 percent. Instead of relying so heavily on foreign loans in which the foreign lender received a high interest with payment guaranteed by the Yugoslav state board argued it was far better for Yugoslavia if foreigners investing directly in individual Yugoslav enterprises contributed not only their money but their patents their techniques their business connections and research and took a share in the risk.
Furthermore whereas before all foreign currency earned through foreign trade was centrally accumulated and controlled. Now each Yugoslav enterprise will be free to accumulate and draw on its own reserves of foreign currency. The reform measures in the domestic economy are some of them even more spectacular departures for a socialist state than those just described in the area of foreign trade. The far most involves reading the Yugoslav economy of state and communist party interference. While the period from 1950 to 1964 are sought translation from Stalinist centralized control to decentralization. The fact is that the influence of the Communist Party or league as they call it and of the state and bank bureaucracy remain great in the economic sphere. This is especially true in matters related to the building of new factories or to the
allocation of resources and investments. The reform has now virtually completed the process of freeing Yugoslav enterprises from non business controls. This is reflected in the whole planning system as well. While socialist Yugoslavia is giving up a centrally controlled economy it sees no reason to abandon planning. However there is taking place and overhauling of the confused mixture of macro and micro economic planning. The five year plans and your plans as well as federal Republican and communist social plans the reforms abolish the annual plans entirely. It is keeping the five year plan but only as a general goal and guide to the proper coordination of production foreign trade and consumption. Indeed the reform recognises the need for a new system of planning made possible by the more realistic indices of a true market economy.
And thus the formulation of long term development policies remains a feature of Yugoslav planning. Nevertheless it is the operational planning of each enterprise that the reform stresses and relies on. To give the Enterprise's even greater freedom. The reform is allowing them a greater share of their income as well as the greater freedoms how they will decide to use this come before the reform the distribution of the income of each enterprise. And here too the following pattern 60 percent. Went to what was known in the stock parlance as a social community for social services schools hospitals fire stations whatever is needed by the society as a whole. 27 for say the income went to the workers. 13 percent
went to investment. Now each enterprise receives 70 percent. For investment and for workers personal income. And the workers themselves decide how they are going to allocate this 70 percent. Furthermore enterprises have been freed of the previous income tax entirely. The capital tax has been reduced from 6 to 4 percent and the turnover tax is now passed on to the consumers in the form of a sales tax instead of 60 percent. Only 30 percent now goes to the social community. Undoubtedly the most far reaching innovation here is the freedom of each enterprise to make its own investment decisions. The General Investment Fund which had previously controlled investment allocations to each enterprise was
discontinued in 1965. Now phones free of superior administrate of control are in the hands of individual banks which deal independently with enterprises on the basis of sound business principles. This means that enterprises must prove to the banks that they are good risks. As for the banks themselves Edvard card debt emphasized the need for their independence. In his report to the Congress of the League of communists in December 1964 business banks as economic organizations he declared must be sufficiently autonomy as to be able to bear the full responsibility for their financial affairs and for their obligations and to be able in defense of their obligations to say no even to the agencies of government. End quote. Basic to the entire reform is the simple and yet bold thought that the
Yugoslav economy must operate within a free market and regulate itself by the invisible hand of competition based on natural economic laws. The marriage of Adam Smith and Karl Marx seems grotesque. Yet what the Yugoslav reform calls for is a free market economy within a socialist system. In which private ownership of the means of production has been replaced by social ownership. Note I did not say state ownership but social ownership. And direct social and not state control of the means of production. Perhaps the most upsetting application of this approach is the eventual abolition of all state intervention in fixing prices. While a price freeze was held to be necessary in the initial period of the reform until the dust settled and the fixing of ceilings on prices will continue for a while the clear goal of the reform is to make all prices responsive to the free market.
I said all prices not quite out point out a few exceptions. And these prices in Yugoslavia are to correspond not just to the domestic market but to the world markets. One important advantage of this will be that the Yugoslav economy can then depend on a reliable and uniform index to its progress and to its problems. Now the exceptions to this where the government will continue to fix prices as a subsidy emerge from social reasons to keep prices below real costs in certain areas. For example in housing rents in Yugoslavia continue to be very low in transportation in public utilities. These subsidies will come from public funds rather than being charged to the workers collectives of those enterprises. A central proposition of the reform concerns the nature of the further expansion of Yugoslav economy. Everyone agrees that growth is necessary but
what kind of growth. The authors of the reform insist that Yugoslavia must abandon its extensive non specialized growth that is more of the same which could only lead to more non economical and high cost production. Rather Yugoslav expansion must be intensive. In speaking of the goals of the reform a leading Yugoslav official Alexander go to leach got declared recently. The simple increase in existing capacities within the framework of the given structure production does not lead to these goals. On the contrary it is modernization and reconstruction based on how do we develop forms of concentration and integration specialisation division of labor and the high productivity on that basis that correspond to the aims of the reforms. And quote You have been listening to Professor Michael B
Petrovich of the University of Wisconsin Department of History as he offered the first of a two part discussion of the Yugoslav way to socialism. Next week the Yugoslav way to socialism part 2. These lectures are drawn from the 1967 Wisconsin Alumni seminar on the theory and practice of communism and I arranged for radio by WHV the University of Wisconsin again almost speaking this is the national educational radio network.
The theory and practice of communism
The Yugoslav Way to Socialism
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University of Wisconsin
WHA (Radio station : Madison, Wis.)
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University of Maryland (College Park, Maryland)
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For series info, see Item 3358. This prog.: The Yugoslav Way to Socialism, part I
Politics and Government
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Producing Organization: University of Wisconsin
Producing Organization: WHA (Radio station : Madison, Wis.)
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University of Maryland
Identifier: 68-18-10 (National Association of Educational Broadcasters)
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Duration: 00:23:32
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Chicago: “The theory and practice of communism; The Yugoslav Way to Socialism,” 1968-04-01, University of Maryland, American Archive of Public Broadcasting (GBH and the Library of Congress), Boston, MA and Washington, DC, accessed June 21, 2024,
MLA: “The theory and practice of communism; The Yugoslav Way to Socialism.” 1968-04-01. University of Maryland, American Archive of Public Broadcasting (GBH and the Library of Congress), Boston, MA and Washington, DC. Web. June 21, 2024. <>.
APA: The theory and practice of communism; The Yugoslav Way to Socialism. Boston, MA: University of Maryland, American Archive of Public Broadcasting (GBH and the Library of Congress), Boston, MA and Washington, DC. Retrieved from