On a scorching hot day last July, I wandered off the motorway into Belgrade and past crumbling tower blocks and up the steps to what was once an impressive villa. Now the steps were cracked and the fountain was dry and empty. I was entering the Mausoleum of Tito, the Communist ruler of Yugoslavia from 1945 to 1980. Beside his final resting place was an information centre, part of which was dedicated to Yugoslavia’s experiment in Worker Self-Management, as it was called. It was here that I was introduced to an idea I had never considered before, that of workers democratically running their workplace the same way democracy runs the government. Did this novel experiment work?

Some quick notes beforehand. First of all it’s not easy to research Yugoslavia as few books and articles have been written about it or translated into English. In fact the vast majority of people don’t know anything about Yugoslavia. My university library had only a single book on Yugoslavia and self-management. It was written in 1970 and last taken out in 1983. Almost all of the articles I found were written in the 70s and 80s. During the Col War, statistics became a propaganda tool so they should not always be taken at face value (I don’t know if Yugoslavia was as bad as the Eastern Bloc and have to trust that the academics took this into account). Another problem is that the system was constantly being reformed and changed which makes comparison difficult.

Before considering the success or failure of self-management we must first put it in context. Yugoslavia was devastated by the war with only China, Soviet Union and Germany suffering more casualties. It was also an overwhelmingly agrarian and underdeveloped society, which would pose trouble for any economic system. It was an extremely divided society comprised of Slovenes, Croats, Bosnians, Serbs, Montenegrins, Macedonians and Kosovars. There were large regional differences with the Northern area of Slovenia and Croatia being much richer than Southern Yugoslavia in present day Serbia and Macedonia. It was only the iron rule of Tito that kept the country united and after his death there was major ethnic conflict. Finally it was a Communist dictatorship. While it was more liberal than the Eastern Bloc, it was still a one party state without free speech or a properly functioning market.

Yugoslavia tried to position itself between the capitalism of the United States and the state planning of the Soviet Union. So while it was more market based than the Communist countries, it was still prone to interference by the Communist party. The economic history of Yugoslavia can be broken into 4 time frames. From 1945-50 Yugoslavia followed the example of the Soviet Union in terms of state planning and collectivisation like the rest of Eastern Europe. However, by 1950 they had split with the Soviet Union and set up their own model of self-management which they followed from 1950-65. However there was still a large degree of state control. It wasn’t until the reforms in the 60s that the system became more market based and the self-managed firms became more independent. This period lasted from roughly 1965 until 1974 when the Communist Party began to fear the independence of the self-management firms and constrained their power, moving to a system based on negotiation (i.e. collusion and cronyism) which lasted until Yugoslavia collapsed.

The idea of self-management was essentially to make every firm in the country a co-operative. All the staff would elect a workers council which would act like a board of directors, appoint managers and deal with the affairs of the company. Every worker would have one vote regardless of position, pay, experience or qualification. Instead of receiving wages, the profits of the company would be shared among the staff. The intention is that neither the state (as in the Soviet Union) nor private capitalists (as in America) but rather the worker should run the business. It was described by Archie Brown as “more impressive in theory than practice.”

The workers council would pick its membership from the staff of the firm who would serve for a year. This presumes there are enough qualified people to serve, which is not always the case. There was particularly a scarcity of trained professionals in firms, mainly due to the poverty and underdevelopment of Yugoslavia. As worker council meetings take place after hours and are not paid, they were often seen as a burden or a chore. There is also the theory (known as the Iron Law of Oligarchy) that a in any grouping a handful of people will dominate and be continuously serving on councils. It was found that professionals often dominated the management. Positions run the risk of being popularity contests rather than based on skill.

By its very nature, self-management is dependent on the staff of the firm. If they are energetic and enthusiastic it will likely be a success. If they are disengaged or incompetent, it will likely be a failure. It is therefore hard to generalise about something that is highly dependent on local factors. It was found that participation would initially be high before dropping off over time. Workers were also more engaged in issues that they could relate to. The largest determinate would be the skills and creativity of the firm. Therefore there will be a large variance in the results of self-management. This problem also occurs in capitalism, with some successful and some incompetent managers. Which is the exception and which is the rule?

Self-management was initially immensely successful. After the Second World War, Yugoslavia was one of the fastest growing economies in the world, regularly matching Japan. Between 1952 and 1979 growth averaged 6% a year. Interestingly, Estrin has noted that growth was highest during the 50s and early 60s (roughly 13% per year) when state planning was at its height. It dropped by half with the move towards independence in 1965. The drop was mostly in employment, while capital and productivity increased. This implies self-managed firms focused on increasing the wealth of their current employees rather than expanding the firm.

Yugoslavia was marked by large inefficiencies in the market. There were large wage differentials between firms after 1965, much larger than those found in a market economy. This is because there was no market wage, instead wages were based on the profitability of the firm and its number of members. Wages had less to do with supply and demand than with the degree of power each force contained in its bargaining and its connections. The economy lacked dynamism and innovation as entry of new firms was very limited to the point of non-existence. Only politicians could set up new firms and they focused instead on existing ones rather than on setting up new ones. There was a severe insider-outsider divide, as those who had jobs had an incentive to limit the number of employees in order to keep their income high. This made it difficult for new workers to break into the job market. This meant that while income grew impressively, the growth of employment was a lot less.

There is a lack of consensus over the level of investment in a self-managed firm. Some (like Saul Estrin) argue that there was a bias towards short term profits at the expense of long term investment. There was also a bias towards investments in areas that would affect them, as opposed to other enterprises or those in different parts of the country. Some (such as Duncan Wilson) argue that to the contrary, self-managed firms didn’t spend all their income on wages but did invest as well. Mitja Kamusic seems to take both sides of the debate (or is at least claimed by both sides). All of which shows the problems of finding independent facts. It’s worth noting that capitalism too gives an incentive towards short term profits. Most CEOs and managers make decisions that will not take full effect until after they move on and their predecessors take over and the financial crash is the most obvious example of short term profit leading to long term crisis. This bias towards the short term instead of the long term is also a problem with politics.

While Yugoslavia was less repressive than the Soviet Union, it was still a one party dictatorship. Many critics argue that the Communist Party still had large amount of control and self-management did not live up to its name. According to Broekmeyer: “in reality the power position of the individual worker has not changed all that much. The political party structures were, and still are, of paramount importance.” Yugoslavia suffered from the same problem that affected the Eastern Bloc, that of political interference and decisions being made not on their economic merit, but rather based on political connections. The party was willing to allow some, but not much independence from its line. In fact the self-management experiment was severely constrained after 1974 when the firms were getting too independent and the Party feared a threat to the power. This raises the question of how self-management would have turned out in a free and open society.

Workers themselves viewed self-management as more formal than realistic. They still perceived directors and managers as having control and workers being on the bottom. Broekmeyer argues that power structures did not change very much, with managers still running the company. Some viewed the workers council as mere window dressing to disguise the true source of power. Many noted the gap between the ideal and the reality. So while the Yugoslav Model sounded like a radical departure from the past, many contend that the Communist bureaucrats still maintained power (though less than in the rest of the Eastern Bloc).

One point that suggests that workers had less control than in theory was the prominence of strikes. If workers truly ran the company than surely there would be no strikes, as they would be striking against themselves. However strikes became a common phenomenon that undermines the rosy image painted. The strikes showed the limitation of workers power and their divide from mangers even in a self-management firm.

After 1974 the economic moved towards political and bureaucratic interference. The main effect of this new institutional framework was to replace competition with collusion throughout the system. Yugoslavia began to suffer the worst of capitalism and communism. The economy stagnated during the 1980s as the country was hit by a mixture of triple digit inflation, mass unemployment, emigration (over one million Yugoslavs left the country), a balance of payments deficit and rising national debt (at a time when interest rates skyrocketed). There was a lack of a capital market with decisions being taken politically rather than based on rates of return, leading to a misallocation of resources. Like in the Eastern Bloc, there was a lack of incentives and motivation. Over-egalitarianism lead to a lack of incentive for professionals, workers were guaranteed an income and a job while managers were not always judged based on performance. Layoffs were virtually unknown and bankruptcies were almost non-existent. There was price distortion due to reliance on government planning instead of the market. Regional disparities grew wider until they eventually split the country apart in mass ethnic bloodshed.

The model of self-management was a roaring success before crashing down. So what lessons can we draw from it? Even its critics recognise that it achieved some impressive results. Self-management involved the worker more in the running of the company. It greatly helped the industrialisation of the country, which happened quicker and smoother than elsewhere and without famine or upheaval. It increased motivation and creativity as well as energising the workforce. Studies from around the world show how co-operatives boost the productivity of their workforce. People like to be informed of decisions that will affect their working lives and how their superiors will be chosen. Self-management increased social mobility and gave ordinary workers a chance to take part in the running of a company, an opportunity they probably never would have otherwise had. It was summed up as “participation diminishes the meaninglessness of work, although it does not diminish the powerlessness of the worker.”

Many of the failings of Yugoslavia were the same failings of Communism. It is hard to have a creative, motivated and energised workforce when they know they are living in a Communist dictatorship. The economy was still planned to a large extent by the Communist Party who were prone to political intervention. It suffered from cronyism where getting resources was more dependent on who you knew rather than economic calculations. The lack of a market created all sorts of disincentives and inefficiencies. All of this raises the question of what would have happened if self-management had been introduced in a free society? What if it had been introduced to a wealthy, developed, open society with a market system, free from mass government and political intervention and without ethnic tensions?

It is hard to tell which problems and successes were caused by self-management and which happened despite it. Before drawing conclusions, it is worth thinking of the words of Marius Broekmeyer: “it is very dangerous to draw a lesson from the Yugoslav experience, fascinating though the experiment is to observe.”

Bibliography

Broekmeyer, Marius (eds), (1970), Yugoslav Workers Self-Management, Reidal Publishing Company, Dordrecht, Netherlands

Broekmeyer, Marius, (1977), “Self-Management in Yugoslavia”, Annals of the American Academy of Political and Social Science, Vol 431, p. 133-140

Brown, Archie, (2010), The Rise And Fall Of Communism, Vintage Books, London

Estrin, Saul, (1982), “The Effects Of Self-Management On Yugoslav Industrial Growth”, Soviet Studies, Vol. 34, No. 1, p.69-85

Estrin, Saul, (1991) “Yugoslavia: The Case Of Self-Managing Market Socialism”, The Journal of Economic Perspectives, Vol. 5, No. 4, p. 187-194

Narayanswamy, Ramnath, (1988), “Yugoslavia: Self-Management or Mismanagement?”, Economic and Political Weekly, Vol.23, No. 40, p. 2052-2054

Prašnikar, Janes, (1983) “The Yugoslav Self-Managed Firm and Its Behavior”, Eastern European Economics, Vol. 22, No. 2, p. 3-43

Sirotković, Jakov, (1981), “Influence of the Self-Management System on the Development of the Yugoslav Economy”, Eastern European Economics, Vol. 20, No. 2, p. 46-62

Wilson, Duncan, (1978) “Self-Management in Yugoslavia”, International Affairs, Vol. 54, No. 2, p. 254-63