In the name of ethnic autonomy, Tito ceded the right of the central Government to set economic policy and allowed each republic to go its own way without regard to the interests of the country as a whole.

The system has engendered conflict, confusion and inefficiency. To many Yugoslavs, it combines the worst of decentralization with the worst of central control. Stories of industrial disaster are on everyone's lips. The Bosnians lost 2.3 billion dinars (about $7.3 million, according to the recent rate of exchange) on a potato-processing plant built where there were barely any potatoes. A huge tile-making factory was installed near the Bulgarian border with machinery that couldn't process the local earth. Elsewhere, an aluminum complex was built to be near bauxite deposits that, it was discovered too late, never existed. Agriculture isn't exempt: while Vojvodina was exporting 7,000 tons of grain last year, other republics were spending desperately needed hard currency to import more grain from abroad.

Disgust with the confusion is widespread. As a waiter in a Belgrade cafe told a customer, ''To decide the price of this little glass of apricot juice, delegations from eight separate republics and regions have to agree.''

T HE ONLY NOMI-nally ''national'' institution is the 2-million-member League of Communists, as the Yugoslav Communist Party is officially called. In each republic, the party still controls the machinery of government and retains the power to open and close the valves on free debate. Even the Communists, however, are torn by regional loyalties as well as by conflicts between reformers and conservatives. In Slovenia, for example, Ciril Zlobec, who last spring led the Yugoslav Writers' Congress in a public call for an end to punishment for ''verbal crimes,'' is a respected member of the republic's parliament and cultural director of the Slovenian state radio. By contrast, party and military leaders in Bosnia and Croatia are increasingly promoting totalitarian theories as ''Tito's way.'' The result, as one dissident put it, is a ''patchwork totalitarianism'' to match the country's crazy-quilt economics.

Decentralization, along with economic stagnation, has rekindled age-old national jealousies. Serbs are prone to blame the ''selfishness'' of the wealthier Croats for the country's ills, and the Croats lay them at the door of alleged Serb ''hegemonism.'' Affluent Slovenes complain that poverty-stricken Kosovo and Macedonia are a ''bottomless pit'' for their ''foreign aid,'' and Macedonians rail at the Serbs and Hungarians of Vojvodina for selling their grains abroad. ''People in every republic now feel that each decline in their standard of living is the result of their exploitation by the other republics,'' explained Branko Puharic, a hardline official of the Croatian government. Of all the ethnic antagonisms in Yugoslavia, the most volatile is that of the Albanians of Kosovo. They number 77 percent of the province's population, and their birthrate is the highest in Europe. Nationalists among them demand a Yugoslav republic of their own, or the right to secede and unite with Albania, whose rugged mountains beckon in the west.

In a land of Slavs, the Albanians are the odd men out. Their culture is alien and their language incomprehensible to neighboring Serbs. Their scrubby fields and barren hills form Yugoslavia's own ''third world,'' where per capita income is just $500 a year, compared to $1,200 in Serbia and $4,000 in Slovenia, far to the north. No less than 70 percent of the province's budget comes from the federal dole.

''Albanian nationalists blame the Yugoslav system for everything they don't like, and they imagine that a separate state would solve all their problems,'' said Gemajl Hasani, a leader of Kosovo's League of Communists. In 1981, nationalist fervor exploded in the streets of Pristina, the provincial capital. At least nine Albanian nationalists were killed, more than 250 were injured and thousands were arrested during riots in which, admitted a local Communist official, ''even the smallest children were in the streets shouting for an Albanian republic.''