In 1948, the Yugoslavs created a self-management system that democratized the country's enterprises. It required democratic decision making whereby the workers elected their leaders and approved business plans and budgets through elected workers' councils.
It was an incredible experiment in developing a system of market economy with a socialist ideology through democratization of all enterprises. It was an attempt to create the third way, not capitalism and not socialism per se but a fusion of the two systems into a third system.
It was democracy all right, but in most cases it was only on paper. People did not know how to manage democratically. All their experiences, starting with family life, were with hierarchical, top-down organizations.
Furthermore, it was impossible to have democratic micro-organizations within a dictatorial macro system. The systems interrelated. Because the market system was relatively controlled by political considerations and without any opposition, many economic decisions on the macro level were governed by political rather than economic reasoning. This impacted economic performance.
Moreover, because of Yugoslavia's Communist ideology there was no recognition of capital. The self-management theory struggled with how to handle the formation of capital and how to reward longstanding employees who with long term employment created equity. Many theories on minuli rad, past work, which is how communist ideology tried to justify the concept of capital emerged, but it did not solve the problem. The result was that the country's entrepreneurial spirit was suffocated. There was no reward for starting and building a business. It further impacted economic performance.
Another problem with self-management was that it reversed the status of the hierarchical organization. In the traditional management paradigm, management is at the top of the hierarchy with the power to decide, the workers are at the bottom and supposedly powerless. Self-management reversed this structure, making the workers all-powerful and the managers dis-empowered. Many companies were left with no one wanting to serve in a leadership role.
Because of political intervention in economic decision making, non-recognition of capital, and the reversal of the hierarchy, the self-management system was inefficient, extremely time consuming and frustrating, and did not produce exceptional economic results.
It held together while the dictator, Josip Broz Tito, was alive. No one dared to challenge the system. Self-management collapsed when the political system that protected and promoted it collapsed. With Tito's death, the presidency was replaced by a Presidential Office, composed of leaders of the Yugoslav Federation's republics. The central power became weak as it become managed by a committee.
The straw that broke the camel's back was Kosovo. Kosovo was, and is still today, viewed by Serbia as central to its national heritage. Kosovo is where the Serb nation was born hundreds of years ago in a battle against Ottoman dominance.
Over the years, through demographic expansion and illegal immigration, Kosovo came to be populated by 2 million Albanians. Local Serbs felt unwelcome and moved to Serbia. The Albanians majority asked to be separated from Serbia and wanted equal recognition in the federation. Due to its nationalistic pride, Serbia refused (and still refuses today). It is our Jerusalem, they claim.
Kosovo needed financial support since it was an underdeveloped area of Yugoslavia. As long as Tito was alive, funds to support the region were provided by each Yugoslav republic. After his death none of the republics other than Serbia felt any emotional attachment to Kosovo and refused to send funds there. Serbia forced their hand by unilaterally using federal funds. That served as an excuse for all the other republics to request the dissolution of the federation.
Today, each state that was once part of Yugoslavia is in worse shape that it was when it was part of the federation. In my visits there, people lament the dissolution of the Yugoslav Federation. There was more economic success, more pride and standing in the international community then, they say. Now it is all gone. Today the hope is to join the European Union.
My heart hurts for Yugoslavia, the country of my birth that does not exist anymore.
Ichak Kalderon Adizes
(1) Based on my books: Industrial Democracy Yugoslav Style and Self Management, New Dimensions to Democracy ( with Elizabeth Mann Borgese.) Available from www.adizes and my consulting to the Prime Ministers there.