The conclusions of the Law on Peoples Committees and the 6th Congress of the LCY were formally embodied in the new Constitutional Law in January 1953. Article 3 pronounced the Peoples Committees of municipalities and districts to be the basic organs of state authority and limited the powers of federal and republican governments to the rights (admittedly still considerable) specified by the Federal and Republican Constitutions.So, the devolution of economic power to the enterprises was matched by a devolution of political power to the communes.
But as the reforms begun, the economic situation was becoming more and more complicated. After the beginning of the economic blockade, Yugoslavia found itself in dangerous economic situation. Tito felt bound to turn to the West for economic aid. In late summer 1949 Yugoslavia had applied to the World Bank and the US Export-Import Bank for credits of $250 million. The first formal request by the Yugoslav government for American foodstuffs was made in October 1950.
On 18 November 1950 President Truman recommended the Congress a large-scale scheme of aid to Yugoslavia, and on 29 November, an American-Yugoslav Aid Agreement was concluded. By the end of January 1951, the sum of American aid had reached $17 million, with a further $35 million promised, and a further 2 million from the British.In summer 1952 the US administration made a further $30 million credit available, and by the end of the year Yugoslav foreign trade had again reached its total level of 1948, with the main Western powers taking the place of the Soviet Bloc.
The other result of American aid was the beginning of a pro-Western Yugoslav foreign policy. On 14 November 1950, the US-Yugoslav agreement on the re-equipment of the Yugoslav Army was signed.
The American aid led to the boom of the Yugoslav economy which had been achieved in party by means of a high rate of investment expenditure.But by the end of 1961 the boom had turned into recession. The growth rate for industrial production, which had been 15% in 1960, declined to only 7% in 1961 and an annual rate of 4% in the first half of 1962.
In January 1961 a number of economical reforms were introduced. Banks were made more independent, dinar was devalued. But this mini-reform was unsuccessful.Yugoslav economy needed greater reforms. Yugoslavia already was living beyond its means. In 1964 and the first half of 1965 the country was incurring a balance-of-payments deficit at a rate of more than $200 million annually.
All these problems led to the introduction of the Economic Reform in 1965, which had two principle aims: to make Yugoslav goods competitive in international markets, and to modernise the economy by eliminating uneconomic investment and production and by compelling enterprises to respond to the forces of supply and demand.The Reform had five major components:
1. Lower taxes;
2. the role of the state in investment allocations was henceforward to be limited;
3. very large adjustments in product prices designed to bring relative domestic prices designed to bring relative domestic prices closer to world parities;
4. the dinar was devalued from 750 to 1,250 to the dollar; customs duties, export subsidies and the range of quantative restrictions were reduced; and Yugoslavia become a full member of GATT;
5. private peasants were given the right to buy farm machinery, and the opportunity to obtain bank credits for this purpose.
But the immediate economic results of the Reform were minor. In the first years of the Reform Yugoslavia was facing rapid inflation, a serious recession and growing unemployment.The major effects of the Reform were in the sphere of banking and trade. The foreign trade was expanded.
The economic problems led to a rise of nationalism in Croatia and Slovenia. The most productive enterprises were located in Croatia and Slovenia, and it was in the interests of Croats and Slovenes to have a less centralised country. In Croatia agitation for more autonomy went to the length of demands for sovereign independence (but in Yugoslav confederation) and a separate seat in the UN.Titos response to the national excesses was to force the resignation and replacement of the highest-level Croatian leaders in December 1971. During 1972, the LCY leadership structure throughout the country underwent a major reshuffling.
In general, the 1970s were marked by the two major developments - the reconciliation with the SU, and the introduction of the delegate system by the Constitution of 1974.
Brezhnevs visit to Belgrade in August 1971 symbolised the end of the period of acute suspicion. Tito returned Brezhnevs visit in June 1972, and negotiations were duly begun in September for the huge new Soviet credit ($1,300 million) for the construction of new industries. In October 1973, during a visit to Yugoslavia, Soviet Prime Minister Aleksei Kosygin and Yugoslav Prime Minister Djemal Bijedic agree to non-interference in internal affairs, industrial co-operation, and better understanding.
The major development in the domestic politics was the promulgation of the new Constitution in 21 February 1974. There were three principal aims of this Constitution:
1. to break down larger enterprises into smaller components;
2. to eliminate direct elections;
3. to introduce a new system of voluntary social planning.
Since 1974 Yugoslavia was ruled by delegates, who were given mandates by delegations, who in turn were mandated by the voters.
Tito has proved to be a remarkable statesman, whose deliberate policies, pragmatic leadership have enabled his country to survive great dangers and to build a system which had no analogue.When Tito died in 1980 Yugoslavia was unique. It was the only communist neutral in the world.
The Yugoslav system differed from both the capitalist system and the Soviet-type socialist system. On the one side there was very little private ownership of productive assets except in agriculture; on the other there was no complete system of central planning. Yugoslavia shared with capitalism a market economy; and it shared with the SU a monopoly Marxist Party.
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