Žarko Lazarevi Slovenian Academy of Sciences zarko.lazarevic@guest.arnes.si YUGOSLAVIA: SOME ECONOMIC ASPECTS OF THE POSITION BETWEEN EAST AND WEST Introduction After the World War II, Yugoslavia had a particular political and economic position in the relations between the East and the West. This specific position stemmed from the particular historical circumstances and only later from the actual measures taken by the Yugoslav authorities. This intermediate position had very diverse manifestations, in particular in the area of international economic cooperation. Looking from today s perspective, two particular events have to be considered when dealing with Yugoslavia s position in the international environment. They were the milestones in the internal political development and therefore set out the general features of Yugoslavia s integration in the European economic area. The first was the conflict with the Soviet Union and the resulting political and economic reorientation of Yugoslavia. Consequently, it was also the beginning of Yugoslavia s efforts for changing the rigid central-planning economic system, abolishing state monopoly in foreign trade, etc. The second milestone goes back to the mid-1960s, when the economic reforms led to a major liberalisation of foreign trade. In the paper I wish to present only selected elements of the Yugoslav foreign trade system. In the end, I will outline some final conclusions about Yugoslavia s position in the European economic area from the point of view of foreign trade flows. The Consequences of the Conflict with the Soviet Union After 1945 Yugoslavia embarked on a path of radical social and economic transformation incorporated under the term socialist revolution. This inevitably led also to a changed international economic position of Yugoslavia compared to the prewar situation. It became a central-planning economy with a clear tendency for autarchy. 1
The state took over control over all the economic mechanisms; it became the factor determining in short and long-term period the forms of enterprises, the locations and scope of investment, the volumes of production and also a detailed structure of product distribution. In 1947, Yugoslavia was the first among the new socialist states in Europe which started to implement its first and the last Five-Year Plan. This plan set out the mechanisms and the frames of the integration of the Yugoslav economy in international trade. In the period until 1952 the centralist state monopoly prevailed in foreign trade. Foreign economic relations were set forth in the plan and well adjusted to the planned development goals. The state monopoly was to do away with all the transitional forms of cooperation between domestic and foreign enterprises at once, and in this manner to distance the domestic planned economy from other market economies (but also from other planned economies!). Besides, it would help avoid any cyclic oscillations. To achieve this, international trade cooperation had to be strictly separated from the domestic economy. And above all, foreign trade was considered to be the necessary evil. In the concept of autarchic development of a state, which meets more or less all its needs by its own production capacities, there was not much room for foreign trade. Exports were to be conducted only to meet the needs of the most urgent imports. Given these facts, it comes as no surprise that it was the state bodies which were responsible for foreign trade relations, in addition to special state export-import enterprises established only for this purpose. 1 In this initial period, Yugoslavia relied completely on the Eastern European socialist states and in particular the Soviet Union, and that is from the very first days after the end of the War. As much as three quarters of its exports thus went to this part of the world, and goods from these countries met almost 70% of its total import needs. The realisation of a large part of the goals set forth in the five-year plan depended on the Eastern European state. Yugoslavia counted heavily on the assistance from these countries not only as regarded material assets and loans but also the volumes of international goods trade. 1 Rudolf Bi ani, Economic policy in Socialist Yugoslavia. Cambridge University Press, 1973, p. 145; Vladimir Pertot, Ekonomika me unarodne razmjene Jugoslavije. Knjiga I, Analiza razdoblja izme u 1919. I 1968. godine, Zagreb, 1971, pp. 105-132. 2
Despite all great wishes and expectations, the reality was different. The five-year plan ended in a complete fiasco. Apart from internal troubles resulting from unrealistic planning and the lack of resources, also the external support was falling behind. After the political break-up between the Soviet Union and Yugoslavia, an economic boycott was imposed in spring 1948. The Soviet Union and the countries related to it immediately terminated all the agreements on economic cooperation, broke off trade relations and the established credit lines. Yugoslavia ended up economically and politically isolated, and with not to close relations with the western countries. Besides, it was under a constant threat of an armed Soviet intervention. This was also the reason why Yugoslavia had excessively large armed forces. The Yugoslav authorities had to reallocate a large proportion of funds aimed at development projects to the defence purposes. In the years immediately after the conflict with the Soviet Union, the expenditures for defence represented almost a quarter (23 %) of total Yugoslav national income. 2 The economic boycott of the eastern block as an external factor and the resulting latent threat of reallocating the funds from civil to military purposes could not remain without consequences. The already low standard of living of the population further dropped. The state also responded with revising the five-year plan. 3 The planned scope of investment was reduced and any rise in household consumption was kept down. 4 The economic activity was in a steep decline. The annual rates of economic growth averaged at only 1.8 % in the period up to 1952. 5 As a result of this strained economic situation, the Yugoslav authorities eventually realised that the conflict with the Soviet Union was of a long-term nature and that the country most urgently and imminently needed to break out of international economic and political isolation. Besides, the events were forcing them to redefine the long-term political and economic position of the country in the international environment. In the given circumstances, the only possible solution was to establish relations with the western countries. The precondition for this was, however, political and economic opening up of Yugoslavia, payment of reparations for nationalised 2 Dušan Bilandži, Historija socialisti ke federativne republike Jugoslavije. Zagreb 1985, p. 162. 3 Jože Prin, Slovenska industrija v jugoslovanskem primežu, Novo mesto, 1992, pp. 68-84. 4 Neven Borak, Ekonomski vidiki delovanja in razpada Jugoslavije. ZPS, Ljubljana, 2002, p. 44. 5 Bilandži, Historija socialisti ke federativne republike Jugoslavije, p. 162. 3
property of foreigners, and settlement of debts of the Kingdom of Yugoslavia. 6 Although rather unwillingly, the Yugoslav authorities agreed to meet these preconditions. In the times of cold war, the western governments considered of strategic interest to assist Yugoslavia in overcoming the difficulties of the Soviet economic and political blockade. As from 1950, Yugoslavia was a recipient of assistance from the western governments in the form of food, industrial goods and military equipment. By 1952 the western governments managed to make up for around one-fifth of the losses suffered by Yugoslavia as a result of the Soviet blockade. The USA was the most generous in their assistance to Yugoslavia, contributing as much as 82.5 % of total western assistance in the period 1950-1954. 7 The economic reorientation of Yugoslavia towards the western countries resulted in a changed structure of foreign trade. The proportion of western countries increased strongly. In the period from 1947 to 1952, their share in Yugoslav exports increased threefold and their share in imports as much as fourfold. 8 And the raw materials became the main Yugoslav export good. 9 The Period of»commercialisation«of Foreign Trade While normalizing the relations with the western countries, Yugoslavia already redefined its international economic position. The changed international position, in turn, dictated also internal economic changes and a different attitude towards foreign trade. The economic and political reforms immediately led to changes in foreign trade. Thus, the period from the early 1950s (1952) to mid-1960s is referred to as the period of»commercialisation«of foreign trade. It involved a complementary shift in the process of broader economic reforms with one common characteristic: a gradual withdrawal from the classical central planning model and the transfer of responsibility for business results on the enterprises. In this context, also the state monopoly in foreign trade was gradually abolished. With the enterprises becoming increasingly responsible for their own economic success, 6 Borak, Ekonomski vidiki delovanja in razpada Jugoslavije, p. 44; Bilandži Historija socialisti ke federativne republike Jugoslavije,p. 163. 7 Bilandži, Historija socialisti ke federativne republike Jugoslavije, p. 163. 8 John Lampe, Jugoslavija kao istorija. Beograd, 2004, p. 225. 9 Borak, Ekonomski vidiki delovanja in razpada Jugoslavije, p. 44. 4
also the foreign trade system had to change. At the macro level, autarchy and a rapid industrial development remained the prevailing tendencies. But the authorities concluded that macroeconomic results would be easier to attain without the administratively set modalities of economic life and international trade. They allowed enterprises to purchase goods abroad at the most favourable prices, and the same rule was to apply also to exports. Imports were still controlled by the mechanism of central distribution of foreign exchange, but the exports were freer, with only a few exceptions, for which export permits were obligatory. Also the general approach changed. The goal was no longer the levelled trade balance with every single state, but the levelled state foreign trade balance as a whole. A double system of foreign trade relations was established, divided in terms of the manner of keeping the accounts of foreign trade. One group comprised of the countries with a convertible currency (largely western European countries and the USA), the trade with which was conducted by the market principles. The other group included Eastern European socialist countries, with the clearing manner of payment. As trade with the two groups of countries was entirely different, two separate balances had to be kept. Typical for this period was thus a constant surplus in the balance with the clearing states and a deficit in trade with convertible states. 10 But even these new foreign trade principles failed to overcome the problems of disparities between foreign market prices and domestic administrative prices. Domestic prices were still administratively regulated and this problem was particularly pressing in the trade with western countries. To be able to bring into line the prices, a complicated system of foreign trade export and import coefficients was applied to balance foreign prices with domestic ones and vice versa. Of course, the exchange rates and coefficients were set entirely administratively and in many cases unreasonably. Thus, exports were in principle free, but imports, on the contrary, were still determined in social plans, which, however, were not as specific in setting out the direction of economic development as the five-year plan. The state still directly controlled imports by using the mechanism of the distribution of convertible currencies necessary for paying for the imported goods. The right to imports of goods began to be 10 Bi ani, Economic policy in Socialist Yugoslavia, p. 148; Pertot, Ekonomika me unarodne razmjene Jugoslavije, pp. 133-272. 5
conditioned also on the export efficiency of individual enterprises. As from the early 1960s, when import and export coefficients were abolished, a provisional customs tariff was applied for imports and exports were accelerated by export premiums. 11 Integration in the International Division of Labour The next milestone mentioned in the introduction goes back to the mid-1960s. One of the features of the broad economic reforms was a new definition of the concept and principles of foreign trade. The important novelty was the end of the declarative orientation to autarchy. Instead, the decision was made to become integrated in the international division of labour on the basis of comparative advantages of the Yugoslav economy. This resulted in the liberation of foreign trade. 12 All these measures permitted Yugoslavia to accede to GATT (25 August 1966). This had many-sided effects. The state applied a fixed customs tariff, which had no real significance in the existing system, as it had by that time applied only to physical persons and not the companies. This was because of a wide administrative regulation of foreign trade. It is therefore not so difficult to understand why the pre-war customs tariff of 1925 continued to be applied for many post-war years. Moreover, they abolished export premiums, imports of goods were regulated by regimes and the proportion of free imports gradually rose. Great changes occurred also in financing of imports. The state gave up largely the centralized control of the distribution of foreign currency for covering imports. Enterprises were allowed to retain the assets which they earned through exports on their own bank accounts and use them to finance their import needs. Or, they could give/sell these assets with the intermediation of banks to other companies within the system of»foreign currency rights«. These rights were still determined by the state administration. Such a foreign trade system remained in place only with a few adjustments practically by the end of the Yugoslav state. 13 11 Ferdinad Trošt, Mednarodni ekonomski sistem in položaj Jugoslavije in Slovenije v mednarodnem gospodarskem sodelovanju, Ljubljana, 1982, pp. 92-93. 12 Bi ani, Economic policy in Socialist Yugoslavia, p. 150. 13 Ferdinand Trošt, Politika izvoza in uvoza v sistemih ekonomskih odnosov Jugoslavije s tujino, IV. Del, Ljubljana, 1989. 6
It is not surprising that the changed principles of foreign trade relations aggravated internal economic problems. Opening of the country through liberalizing exports and largely liberalizing imports strained the position of the enterprises that were oriented mostly to the Yugoslav market. The issue of disproportional domestic and foreign prices was raised again. Usually, domestic prices were higher than the foreign ones. These disparities started to be more than ever balanced by means of the national currency exchange rate, devaluations were a regular measure up to the break up of the Yugoslav state. The second important issue was that Yugoslavia's opening to the international economic environment had a considerable impact on the technological modernisation of the export as well as import sectors of the Yugoslav economy. 14 Between the East and the West Immediately after the end of the World War II, Yugoslavia applied a concept of industrial development that was typical for the developed world on the first half of the 20 th century. From the point of view of its later integration in the European economic area and trade, this meant two things: exports and imports relied on the existing trade flows and on the existing export/import structure. This meant that it exported final industrial products, either consumer goods or investment equipment, to the European east, and raw materials to the west. The concept of rapid industrial development rested largely on the imports of capital, technology and the necessary materials from the western countries. As from the early 1970s, Yugoslavia further intensified its international economic integration. It increased its domestic product and the share of international trade in it. Exports and imports growth regularly exceeded the growth in production volume. However, this was also the period when the negative tendencies emerged. The volume of Yugoslav international economic trade started to decline, with exports data being the most worrying. Because of the great import boom in the second half of the 1970s, stemming from huge imports of capital from the west, the negative trends remained somewhat concealed. In the period of less than 10 years, Yugoslavia s foreign debt soared at least five times. The imported capital was largely invested in the 14 Bi ani, Economic policy in Socialist Yugoslavia, p. 150. 7
economy, in various industrial facilities, which however, failed to assure quality higher than that achieved in the 1970s. Thanks to the imported capital, the state managed to preserve high growth rates of the physical volume of production, but it was of static quality and without the prospects of being sold on the western markets. It therefore came as no surprise that enterprises oriented their excessive low quality production to the Eastern Europe and that all forms of domestic consumption were rising by 1980. This resulted in Yugoslavia s constantly huge deficit in the trade with the western countries and a constant surplus in trade with Eastern European countries (on a clearing basis). 15 As the geographical breakdown of the Yugoslav foreign trade flows shows, Yugoslavia's trade was predominantly oriented to the Eastern European markets throughout the period after the World War II. The share of foreign trade with these countries was particularly high in the first post-war years. In the 1950 however, the situation reversed, when because of the political conflict with the Soviet Union and other Eastern European countries, the Yugoslav authorities were forced to look for substitute markets in the Western part of Europe. Only after warming of the political relations between Yugoslavia and the Soviet Union in the mid-1950s did trade with COMECON countries pick up again and it gradually gained importance. The cooperation was formalised with a number of trade agreements between the members of COMECON and Yugoslavia, which even gained an observer s status in this group. After that, trade with this group was constantly on the rise, which was not favourable for Yugoslavia in the long run. Such trends were particularly worrying from the point of view of collecting convertible currencies, which the Yugoslavian government needed for meeting its financial obligations abroad. The Yugoslav debts were denominated in convertible currencies. Furthermore, the trends were unfavourable for the structure of trade, as the Yugoslav authorities failed to assure such a trade structure to guarantee sufficient supply of energy resources from the Soviet Union. The Soviet Union was the most important trading partner in this group. In order to reverse the negative trends and ease Yugoslavia s dependency on COMECON countries, the government in its projections for the 1980s planned a relative drop in trade with the Eastern European 15 Ferdinad Trošt, Jugoslavija v mednarodnih ekonomskih odnosih. Ljubljana, 1982., p. 6 8
countries. These efforts, however, failed, and the statistics continued to record rising Yugoslav exports to COMECON countries. 16 As the shares of trade with COMECON countries rose, the shares with the Western European countries shrank. These latter countries recorded the highest relative levels in Yugoslavia s trade in the mid-1950s, before Yugoslavia started re-establishing relations with the Eastern European countries. The Western European partners were important partners on the export and import sides. They represented important markets not only for goods but also for Yugoslav workers, who were allowed to emigrate Yugoslavia as from the early 1960s. The emigration not only eased Yugoslavia s unemployment problems, but the money transfers of emigrants contributed importantly to Yugoslav balance sheets. Most trade was conducted with European Economic Community countries, notably Germany and Italy. Forming of a free market within the EEC, however, eventually led to a drop in the volume of Yugoslav trade with these countries. Particularly unfavourable were enlargements of the EEC and the integration of less-developed countries with higher shares or highly developed agriculture. These unfavourable conditions were eased with various agreements, the two most important being a General Scheme of Preferences put in place in 1972 in an Agreement on Cooperation between the European Economic Community and Yugoslavia of 1980. These institutional frameworks gave Yugoslavia a newly industrialised state concessions on exports to the common market, in order to remove the trade imbalances and reach equilibrium on the trade balance. Nevertheless, the scope of industrial and agricultural products that were exempted form the favourable export regime was rather extensive. This is why the Yugoslav authorities endeavoured up the break up of the country to extend the list of articles under the favourable regime for entering the EEC market. Moreover, they also struggled for the lowest possible import tariffs and the highest possible quotas for the articles of regulated exports. 17 With the outbreak of the debt and general economic crisis in 1980, which further aggravated in the following years, the Yugoslav international economic position further worsened. Exports and imports lagged behind the volume of production, with import 16 Ljubiša Adamovi (ed.), Jugoslavija i SEV. Intenzifikacija ekonomske saradnje Jugoslavije i SEV-a. Beograd, 1985, pp. 35-55. 17 Gordana Kova evi, Spoljnotrgovinska saradnja Jugoslavije sa EEZ. Ljubiša Adamovi (ed.), Jugoslavija i EEZ, Beograd, 1988, pp. 48-51. 9
growth considerably lagging behind export growth. Instead of export expansion, Yugoslavia pursued a restrictive import policy to assure international liquidity. As a result of strong dependency on imports, such a policy led first to a relative and towards the end of the 1980 also to an absolute drop in production volumes. 18 And only shortly after, the deep political and economic crisis led the country to the final break-up. 18 Aleksandar Vaci, Jugoslavija i Europa. Uporedna analiza privrednog razvoja Jugoslavije 1971-1987, Beograd, 1989, p. 196-218 10
Table: Regional orientation of Yugoslavia s foreign trade in the period 1945-1986 19 in % Year COMECON 20 EEA 21 EFTA 22 Other Europe 23 Europe total Export Import Export Import Export Import Export Import Export Import 1946 75.5 68.9 14.4 18.8 6.2 7.7 0.3 0.1 96.4 95.5 1948 56.9 47.3 22.0 29.7 12.5 11.0 0.6 0.4 92.0 88.4 1950 - - 55.5 53.6 17.5 11.2 0.1 1.5 73.3 65.3 1955 13.7 7.5 43.6 34.3 10.6 8.0 2.7 1.9 70.6 51.7 1960 32.1 25.9 33.5 41.6 7.8 8.0 3.9 1.0 77.3 76.5 1965 41.9 28.5 28.7 31.1 5.2 5.8 2.7 1.9 78.5 67.3 1970 32.1 20.5 39.1 46.3 5.6 11.6 5.4 2.2 82.2 80.6 1975 45.9 24.2 22.8 43.1 3.4 8.7 2.3 1.6 74.4 75.6 1980 44.3 29.3 24.6 34.1 4.5 8.0 2.8 1.6 76.2 73.0 1986 47.4 31.9 25.1 32.2 3.4 6.7 1.3 1.0 77.2 72.1 19 Trošt, Mednarodni ekonomski sistem, pp 86-87; Trošt, Politika izvoza in uvoza v sistemih ekonomskih odnosov Jugoslavije s tujino. III. del, p.7 20 Bulgaria, Czechoslovakia, Hungary, Poland, GDR, Romania and the Soviet Union 21 Belgium, Luxembourg, France, Italy, the Netherlands, FRG, GB, Denmark, Ireland 22 Austria, Norway, Portugal, Sweden and Switzerland 23 Albania, Greece and Spain. 11
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