Mark W Hopkins
Mark Hopkins

Fellowship Title:

The Yugoslav Economy: Reform and the Consumer 

Mark Hopkins
January 21, 1970

Fellowship Year

Yugoslavia’s drift toward a consumer economy, symbolized by growing car ownership, has transformed the Square of the Republic in Belgrade into a parking lot.

It was a wholly typical Saturday on the Terazije. The streets emptying into Belgrade’s prime shopping intersection gave off mingled sounds of small Fiats, Volkswagens, Mercedes, and lumbering British-made buses. The nearby Square of the Republic, once the leisurely preserve of pedestrians and now serving ignobly as a parking lot, was bumper to bumper. Only with luck could a driver find a vacant parking meter or sidewalk space along the curbs. Belgraders, out to satisfy their robust consumer appetite, surged in and out of shops in what was clearly a buying mood.

In the main Beograd Department Store, for example, a mother sized up a full-length leather coat for her young daughter, a well-made piece of clothing, luxurious by any standards: price—700 dinars ($56 at the official exchange rate of 12.5 dinars to the dollar). On the floor above, the radio-TV section bustled with customers eyeing foreign and domestic products, and one aisle was nearly impassable with a stack of Ljubljana-manufactured sets: price each—2,500 dinars. At the cashier stations, indifferent clerks mechanically dispensed receipts for minutiae: 38 dinars, 79 dinars, 142 dinars.

A few doors away, at a shop specializing in musical instruments, a schoolboy ran his fingers over the keyboard of a glistening black accordion, his father glowed and nodded to the sales clerk: price—2,100 dinars. Further along, just off the Terazije, a salesman at the Citroen agency displayed a new sedan to a prospective buyer: price—66,740 dinars. Up and down Kneza Mihajla, closed to traffic to create a shopping mall, there was business in Italian-made shoes at 240 dinars a pair and up, and in handsome 800 to 1,200 dinar pantsuits and knits.

Amidst the display of consumer goods, the discriminating buyer could, true enough, find shoddy and tasteless products. The first impression of abundance is tempered when one discovers that virtually the same selection is available in Belgrade stores wherever one goes. But among Europe’s Communist countries, there is no doubt that Yugoslavia is the leading consumer society. Car ownership, to note one measure of consumer wealth, has grown tenfold since 1960 when there were only 55,000 automobiles on the road.

Khasan Fazlich in Borba
Borba’s comment on last year’s squeeze on consumers

The puzzling question for anyone matching standard of living statistics with personal observations is how do the Yugoslavs manage it all? As Borba dryly reported, the average monthly wage of factory and office workers is only 1,000 dinars. True, that is 150 dinars above the monthly income a year ago. And it is true also that there are ordinarily two wage earners in a household, that apartment rents consume only about 5-6% of income, and that averages conceal wide disparities in incomes by regions and occupations (thus, almost one million Yugoslav workers have incomes of less than 600 dinars a month; bankers earn about 1,400 dinars and top government officials, 5,000 dinars a month; the per capita income in the underdeveloped Montenegrin republic is two-thirds the national average). And, finally, it is true that moonlighting is a national pastime.

After all caveats, however, the display of consumer affluence is surprising. The day of cheap living in Yugoslav cities (the countryside is an entirely separate economic balance) seems in its twilight hours. Since the adoption of the economic reform in 1965, government statistics showed declining price indices and the growing purchasing power of the dinar. But this past year, and particularly these past few months, Yugoslavs have become progressively discontented over the high cost of living. Their complaints are not unfounded. The government market inspection office reported that in October, prices of meats and vegetables soared by 22% to 35%; woolen materials increased by more than 20%; and some household goods had gone up almost 90% in price. The consequence of such monthly spirals is that the cost of living rose by 8% in 1969, the most pronounced increase since the economic reform began.

Granted that wages also have marched ahead, by up to 15%. But the new wealth is not uniformly distributed and to the Yugoslav factory worker or office clerk, it seems that the dinar does not buy as much as it used to. In sum, the heralded economic reform appears to many Yugoslavs to be losing its brilliance.

Certainly, there is a psychological element at work. As stores fill with larger stocks of goods, the compulsion to consume races ahead of incomes. Belgraders and other city dwellers are tempted by TV sets, automatic washing machines, refrigerators, and automobiles in ample quantity (but also at substantial prices). They can buy imported clothes, toiletries, liqueurs, dishwashers, tape recorders, cameras, foods, and books and periodicals (the most recent entry, Playboy)—all heavily taxed but of good quality. Travel in and out of the country lures Yugoslav consumers. They can always divert dinars—50,000, 100,000, 200,000—to the purchase of a small cooperative apartment or even a villa. And while many Yugoslavs can afford the warm joys of a developing consumer economy, many more find that their incomes do not stretch as easily as their wants and desires.

The plight of the consumer is, of course, a mirror image of the Yugoslav economy. These are, by all accounts and analyses, boom times. The country’s industry, agriculture, tourism, construction, and foreign trade all advanced substantially last year. Yugoslavia, to be sure, remains a poor nation (it is now among the “medium developed nations,” President Tito has said). It still pales before cities of Western Europe in terms of convenience and diversion, not to mention health services, education, and housing. But most Yugoslavs compare their present lot to their own past within the country, and not to conditions elsewhere (although it is true that Yugoslavia’s some 400,000 workers in Western Europe are carriers of other values). On that scale, progress since the economic reform began has been visible.

The problem now is more the ills of success than of failure. In a swift, energetic expansion, many factories and enterprises have borrowed beyond their means in the past two years or so. Credit has been easy. Yugoslav banks, freed also from daily state management, have been more than willing to share in and profit from economic growth. And the more ambitious retail entrepreneurs have granted consumer credit in ever-increasing amounts.

The result, it gradually became clear last year, was an economy spending beyond its means. As an October session of the League of Communists presidium reported, a third of Yugoslav enterprises were threatened by insolvency. Quickly thereafter, the Yugoslav government proposed a package of laws to the federal assembly designed to tighten credit and discourage unsound borrowing. And Mitja Ribicic, chairman of the federal executive council, told the Yugoslav parliament in November that “stability” would be the objective of the government’s 1970 economic policy.

Since then, commissions and chambers of the federal assembly have engaged in continuing debate over the soundness of the economy and the reform itself. The “very exhaustive and thorough debates” (in Borba’s rather accurate assessment) yielded 170 amendments to a draft resolution on 1970 economic policy, and ultimately a final guideline policy. It commits the government, among other things, to reducing the balance of payments deficit, which has been growing luxuriously with the import of foreign goods. It further envisions a 6.5% to 7.5% economic growth for this year, an increase in industrial production of 9% to 10% (a little less than in 1969) and a 3% rise in employment. The resolution also contains some rather vague wording that could allow government price freezes if the current inflation continues.

In essence, the economic discussions of recent months and government actions give the impression that the economy has burgeoned more rapidly than is good for it, and this year there will be a consciously managed slowdown. The retrenching has stirred rumblings about the weaknesses of “self-management” and decentralization of the economy. And though government publicists assert that the most trying days of the transition are past, Politika, the most respected Belgrade newspaper, has acknowledged that the economy contains grave problems.

What seems true is that the greater the compulsion for government intervention in the economic system, the less progress in the development of market socialism. In political terms, the “conservatives”—those who are inclined to more rigorously planned economics, if not social affairs in general—gain to the extent that “self-management” yields balance of payments debts, inflation, and unemployment. It is not an either-or issue. Certainly, the government can manipulate the economy with the levers of taxation, some price controls, investment policy, and credit without interfering in the broad autonomy of industrialists to produce and distribute as they think most profitable.

Comment in Jez, Belgrade magazine of satire, on inflation. -Cub is labeled “prices.”

The government, however, has several constituencies. It is committed under the economic reform to allowing factories and enterprises to function in a relatively free marketplace. But it is also under pressure from the public at large to provide better goods and services. And elements of the public have found reason to be dissatisfied. Last fall, for example, many parts of Yugoslavia suffered a shortage of electrical power ostensibly because reservoirs went dry during an unusually warm and rainless autumn. But consumers, subject to periodic and unannounced power shutdowns, questioned why electric utilities had no contingency plans to maintain service. And this winter, Belgraders discovered to their dismay that there was a shortage of fuel oil for home heaters. As they shivered in long lines at the Jugopetrol gasoline stations, their confidence in a “self-managed” fuel industry was scarcely enhanced.

Beyond these inconveniences, the rise in prices creates the most popular discontent. The workers’ collective at a Rijeka shipyard recently demanded an explanation from their regional trade union council for the price increases. They threatened not only to take the matter to the federal trade union organization but to demand a recall of their regional assemblymen if no action was taken to “halt the rapid rise in prices and deterioration of the standard of living.” This type of organized protest from the working masses cannot very well be ignored by the government. It increases the pressure to regulate the economy, insofar as “self-managed” institutions cannot efficiently manage themselves and advance the popular welfare.

Within the general problem of balance of economic growth in Yugoslavia, there are several separate quandaries. One of the most intriguing, and one bound to spur periodic controversy, is the subject of foreign investment in the country. Alone among Communist nations, Yugoslavia two years ago paved the way for foreign private capital. The political import of that decision has so far been more pronounced than the economic. Ekonomska Politika, a solemn, informed authority on financial affairs, reported a few weeks back that only 14 foreign investment contracts have been completed. And Politika noted that the main foreign investor has been East Germany. Asked about the prospects for American capital investment in Yugoslavia, Maurice Stans, secretary of commerce, was perfunctorily optimistic after meeting with officials in Belgrade.

The chief reason for lukewarm interest in the Yugoslav economy is, it seems, the restriction on the use of foreign exchange. A Yugoslav enterprise selling abroad is entitled to keep only 7% of the hard currency it earns, and as Politika pointed out, that is little enough to share with a foreign investor (few of whom want their profits in dinars). The newly created International Corporation for Investment in Yugoslavia, a combine of foreign and Yugoslav banks that will allot $12 million to encourage investment here, may help things along. But generally, the invitation to foreign capital has not resulted in a rush.

This deflates opposition political elements, which warned of an inevitable capitalist hold on the Yugoslav socialist economy. But it also means that if Yugoslavia is to find investment money elsewhere than its own pockets, it will have to liberalize regulations on how much profiteering can be done by foreign entrepreneurs.

Profit is not wholly a derogatory word here. Yet, profit gained by capitalist enterprises continues to offer political ammunition for those who remain ideologically opposed to a socialist-capitalist mix. That such ideological undercurrents exist was demonstrated recently in a debate in the Serbian republic parliament over draft regulations to cover private enterprise. As press reports recalled, the Yugoslav constitution permits groups of citizens to establish their own enterprises, of which there are now 327 employing about 3,200 people, chiefly in the crafts. There are further 150,000 private entrepreneurs—operators of taxis, photo studios, watch repair shops, bakeries, and the like—who compete with quasi-state organizations. These do not add up to much of a private sector, but it is noticeable, not least because it provides needed consumer services.

The objection to private enterprise in the Serbian parliament stemmed more from politics than economics. One deputy lamented: “I am sorry for all those comrades who have sacrificed their lives for a socialist rather than a capitalist prosperity.” And another challenged: “I believe that after 25 years of our socialist society, the day has now come to begin discussion of this matter and the struggle against private factories and private capital.”

An editorial comment or two condemned the remarks as being outdated. They do seem, in any case, more a display of emotion than intellect. For whatever the accusations from within or without, Yugoslavia has yet to embrace capitalism. Admittedly, the Crvena Zastava plant south of Belgrade where Fiats are manufactured issued bonds a little more than a year ago (100 million dinars worth). And the Slovenija Les furniture enterprise in Ljubljana reportedly intends to go a step further, by selling 100 million dinars in bonds that will pay 6% interest.

However, the backbone industry remains socialized within the framework of “self-management” and is subject to government regulation. Neither the resurgence of a shopkeepers’ class nor the trickle of private foreign capital provides a rational argument for a struggle against private factories and private capital.

Yugoslavia’s economic problem is more complex than a simple capitalism versus socialism. It is rather the danger that the country’s finances will be monopolized by big business and big banking, and that economic resources and benefits will be spread disproportionately among the population. Under conditions of the economic reform, the best-managed and most productive enterprises are likewise the most profitable. They are further the ones that will expand, merge, and multiply. The handmaidens in this process are the banks which supply some at least of the new capital. And the observable trend, though it has not progressed very far, is the concentration of resources in fewer hands.

Dushan Ludvig in Borba

The new Yugoslav dream of youth—to be a captain of industry.

It is possible, of course, to tax excessive corporate wealth or otherwise to discourage monopoly. But the economic reform was designed to nurture initiative, incentive, and autonomous management in Yugoslav industry. To penalize outstanding enterprises would be to punish success. And to move into the economy once more with overbearing government direction would be to delay the reform itself.

These are the broad possibilities, and certainly, Yugoslavia will not be absorbed wholly in one. Concessions are made, compromises are struck, and problems are dealt with piecemeal as they appear. But the momentum of change here is toward the recreation of yet another privileged element—not the political bureaucracy, but the manufacturers and financiers who are at once the indispensable performers in the reform and its beneficiaries. Why, one may ask as a leading question, should an industrialist be provided with a new Mercedes when not many miles away there is not a decent school for the children of farmers? Or how is it that a factory manager possesses a spacious villa when ample numbers of people still crowd into small apartments where they share kitchens?

It is not that pure economic equality is the objective in Yugoslavia, nor that disparities between the haves and the have-nots are more discussed than eliminated. There is acceptance of the system of greater reward for greater work and talent (especially, of course, by those who are rewarded). And a rational assessment of Yugoslavia’s possibilities would argue that the poor cannot be made rich by redistributing the available money.

The problem here is in creating conditions that will spawn socially conscious entrepreneurs, that will encourage innovation and growth and, at the same time, will prevent any one segment of society from reaping an inordinate share of the wealth. This is not simply an economic issue but a matter of social justice. It is also a matter of some international weight. All of the more traditional or orthodox Communist countries, foremost the Soviet Union, predict the failure of the Yugoslav experiment and continue to denounce it as a wild distortion of Marxism-Leninism (and, indeed, Yugoslavia cannot really be classified as a “Communist” society if that means identity with the Soviet model). The ideological assaults are not much considered here, but Yugoslav social managers remain aware that their evolving form of socialism draws international attention, disproportionate perhaps to the size of the country.

Jez cartoonist M. Stojanovic on present-day affairs in the factory—the worker may be lauded as the prime force in “self-management,” but pay envelopes reveal another relationship between management and labor.

Received in New York on January 21, 1970.

©1970 Mark W. Hopkins

Mark W. Hopkins is an Alicia Patterson Fund award winner on leave from The Milwaukee Journal. This article may be published with credit to Mr. Hopkins, The Milwaukee Journal, and the Alicia Patterson Fund.