Part 2: the liberal economic reforms, the troubled 70s and lessons for contemporary Bulgaria
1965 Economic Reforms
In order to address the structural problems of Yugoslavia’s foreign-trade policy, the Belgrade government introduced a major economic reform in 1965, which was a “complete abandonment” of classical Marxist theory (Margold, 1967: 66). The new economic programme made industries more responsible for their gains and losses, which meant a strengthening of the self-management system, a de-politicisation and decentralisation of the economy, stricter policies towards unprofitable enterprises (such as the cancellation of subsidies), a new banking system that would make banks more responsible for giving out loans and credits and boosting exports by focusing on quality and price without subsidy (Margold, 1967: 66-7). As Obadić writes (2014), between 1965 and the early 70s, Yugoslavia had developed into a federalist society, based on “national” equality and market economy. The reforms strengthened Yugoslavia’s cultural and economic openness to the West.
Implementing the reforms seemed to be an uphill struggle, as there was significant internal resistance, especially from the southern republics. The closure or merging of unprofitable industries affected the southern republics more (which subsequently produced the least economic output), where local or provincial authorities were given various privileges under former policies. These republics believed that market socialism did not fit within the structure of the Yugoslav economic system because of the great disparities of wealth between the regions themselves (Pirjevec, 2012). On the other hand, Croatia and Slovenia, the more developed republics, strongly supported the reforms, as their own economies had already established closer ties with Western Europe and even asked the central Belgrade authorities for their own semi-official missions in Western Europe. The liberal reforms failed in 1968 because they failed to address Yugoslavia’s major long-term economic challenge: “the inability to integrate free-market mechanism within the socialist foundations of society” (Batović, 2009; see also Singleton and Carter, 1982) and began to cause significant divergences in economic productivity within Yugoslavia itself, which Tito sought to prevent from the beginning of his leadership.
Yugoslavia’s renewed relations with the EEC and the 70s relationship crisis
The full implementation of the CAP hit the primary Yugoslav export to the EEC – agricultural products, due to the asymmetrical nature of EEC-Yugoslav trade relations. Beef was one of the most important Yugoslav export products (Obadić, 2014) and the Belgrade authorities even adapted its beef production to the demands of the Italian market. There was increasing competition from French farmers, who also diverted their attention to the production of beef, which turned out to be the most profitable sector in the agricultural industry. Beef remained a contentious issue during the negotiations for a trade agreement between the EEC and Yugoslavia, with French obstructionism even leading to a stalemate in negotiations. However, other member states’ dissatisfaction with France finally led to a three-year Trade Agreement signed in 1970, two years after the EEC and Yugoslavia formally established relations, and also after the Soviet invasion of Czechoslovakia – a major exogenous factor contributing to Western enthusiasm for an agreement with Yugoslavia.
The signing of this agreement was undoubtedly a great achievement for the Belgrade authorities – it covered trading arrangements for beef and other important Yugoslav agricultural products, as well as tariff concessions for Yugoslav industrial exports and was a non-preferential trade agreement whereby each party granted the other the status of most favoured nation (Artisien and Holt, 1980). “Although the EEC had been negotiating preferential trade agreements with Mediterranean and EFTA countries, Belgrade insisted on a non-preferential agreement because [it] considered that the discriminatory nature of preferential agreements would discredit the Yugoslav policy of non-alignment in the Third World countries.” (Obadić, 2014: 340). Yugoslavia was also included in the General System of Preferences (GSP) programme, which provided exemption from customs duties on imports of industrial products from developing countries. Hence, the Yugoslav relationship with the EEC was unusual: on the one hand Yugoslavia was a beneficiary of GSP, deriving the most benefit from this scheme (Yugoslavia and the European Community, 1979); on the other hand, its relations with the EEC were arranged by the Trade Agreement.
Although all this sounds great for the Yugoslav economy, the problem of the balance-of-payment deficit remained unresolved, leading to a decline in EEC-Yugoslav trade relations in the 70s. Exogenous factors such as the 1973 oil crisis led to the EEC introducing further protectionist measures to protect industries and workers (Frangeš, 1976). Safeguard clauses were applied to the beef and veal sectors between 1974 and 1977 and, by then, Yugoslavia had developed a dependence on migrant remittances, which were, too, hampered because of the rising unemployment in Western Europe. Figure 4 shows an increase in exports unable to match the increase of imports, thus contributing to the deficit in the balance of payments. Figure 5 shows a similar trend: a steady rise in the invisible balance of payments, characterised mainly by Yugoslavia’s dependence on migrant remittances, but insufficient to counter the steeper decline in the visible balance.
The liberals in power in Belgrade were thus replaced by conservatives, who sought to legitimise their authority by expanding investments that were financed by further international loans – possibly not the most economically rational decision. However, both the EEC and Belgrade authorities were interested in improving trade relations, especially the former, as Yugoslavia began diverting its economic attention to COMECON once again. After an intensification of diplomatic relations, a Joint Declaration of Belgrade was signed in 1976 and a Cooperation Agreement in 1980, the latter of which was stimulated by major exogenous and endogenous political events – the Soviet invasion of Afghanistan and the death of Josip Broz Tito.
Lessons for contemporary Bulgaria?
Although it might initially seem unusual to draw conclusions from Tito’s Yugoslavia for Bulgaria as an EU member, there are significant lessons learned from Yugoslavia’s foreign trade relations between the late 40s and 70s. Firstly, Yugoslavia’s expulsion from the Soviet bloc in 1948 mirrors the fall of communism in Eastern Europe in the late 80s and early 90s. Western Europe sought to seize the opportunity to establish economic relations with communist Yugoslavia in order to exert its market power and, possibly, seek to overcome communist economic ideals. The West arguably did the same with Eastern Europe in the early 90s. Damro provides an analysis of the EU’s international power being exerted through its market presence (Market Power Europe: Damro, 2012), arguing the EU’s identity is not a particular set of collective norms but rather a comparatively large regulated market with institutional features. After all, the EU has evolved from its origins as a market integration experiment into the world’s foremost economic bloc. This has obviously remained the case during Bulgaria’s accession in 2007 – as the four pie charts below show, consistently about two thirds of Bulgaria’s imports and exports have been from and to the EU.
Source: Bulgarian National Statistical Institute
Despite Stalin’s death, Tito insisted on a non-aligned Yugoslavia, which did ultimately cause the Yugoslav economy’s headaches, considering the rising balance-of-payments deficit. This insistence could be reflected in the UK’s desire to leave the EU, whilst retaining EU market privileges.. This is yet another example of Europe’s market power – numerous analysts have made pessimistic predictions for the British economy should the Brexit negotiations outcome be a hard one.
The integration of the EEC and the establishment of the CAP caused a steep reduction in Yugoslav agricultural exports and, consequently, hit the Yugoslav economy. However, Bulgaria’s membership has produced mixed results in the agricultural sector: there has been increases in the production of wheat and barley since accession in 2007 (see Figures below; Agriculture and Food Ministry, 2012), but significant decreases in the production of other agricultural products, such as tomatoes.
Yugoslavia’s foreign policy attention towards the Third World, although arguably unsuccessful in the long run, has shown that exporting to these countries may not be a sustainable economic growth model. If Sofia is now looking towards the Western Balkan countries, it can focus more on importing from these countries products that are in deficit in the Bulgarian economy, but, more importantly, the export of relatively cheaper know-how and technology to neighbouring countries has the potential to create much-needed regional cooperation. Similarly, Bulgaria and other countries in the Balkan region ought not to rely on migrant remittances, which is unfortunately the case for Bulgaria today: according to Bulgarian National Bank data for 2017, migrant remittances to Bulgaria have overtaken foreign direct investments. Such a trend is not only vulnerable to exogenous financial crises, but seriously contributes to the rising levels of brain drain.
This analysis may have confirmed what many analysts already knew about Eastern Europe’s economic challenges, but it also tried to give an objective account of the politics of non-alignment in a bipolar world. The post-Cold War world may have been the result of a victory of capitalism and democracy, but it has also shown that the maintenance of a non-aligned trade policy is extremely difficult to achieve for developing or semi-developed countries in the presence of a single (as in the case of Bulgaria and the EU) or two major trading blocs (Yugoslavia in the Cold War period).
Tito’s insistence on a non-aligned policy contributed to the diverging economic performances of the separate republics of Yugoslavia – Slovenia and Croatia proved their economic productivity to Western Europe, as there were calls for certain concessions for trading with those two regions, whereas republics that lagged behind were critical of the 1965 liberal reforms. From the perspective of international trade, Bulgaria is not in the exact same position today as Yugoslavia was in the Cold War, but both cases prove to us that they are/were countries on some sort of economic periphery around the core of the EU/EEC.
Author: Yoan Stanev
2018 Millennium Club Bulgaria
- Agriculture and Food Ministry (2012). Agrostatistical reference book 2000 – 2012 / Агростатистически справочник 2000 – 2012. [online] Sofia, Bulgaria: Ministry of Agriculture and Food of the Republic of Bulgaria. Available at: http://www.mzh.government.bg/bg/statistika-i-analizi/ [Accessed 14 May 2018].
- Batović, A. (2009). The Balkans in Turmoil – Yugoslav Political Crisis and its Position Between the Blocs 1966–1971. Lecture, London School of Economics, 20 January 2009. https://wikileaks.org/gifiles/attach/128/128054_Croatian%20Spring.pdf [Accessed 9 May 2018].
- Bilateral Clearing Agreement. (n.d.). In: Business Dictionary. [online] Available at: http://www.businessdictionary.com/definition/bilateral-clearing-agreement.html [Accessed 14 May 2018].
- Damro, C. (2012). Market power Europe. Journal of European Public Policy, 19(5), pp.682-699.
- Frangeš, B. (1976). Jugoslavija i regionalna saradnja razvijenih zemalja – odnosi sa Evropskom ekonomskom zajednicom (EEZ). Međunarodna politika, 27(637), pp.22-24.
- Holt, S. and Stapleton, K. (1971). Yugoslavia and the European Community 1958-70. JCMS: Journal of Common Market Studies, 10(1), pp.47-57.
- Margold, S. (1967). Yugoslavia’s New Economic Reforms. American Journal of Economics and Sociology, 26(1), pp.65-77.
- Obadić, I. (2014). A troubled relationship: Yugoslavia and the European Economic Community in détente. European Review of History: Revue européenne d’histoire, 21(2), pp.329-348.
- Pirjevec, J. (2012). Tito i drugovi. Ljubljana, Slovenia: Mozaik knjiga.
- Singleton, F. and Carter, B. (1982). The Economy of Yugoslavia. Basingstoke: Palgrave Macmillan.
- Yugoslavia and the European Community. (1979). Europe Information, [online] (20). Available at: http://aei.pitt.edu/8241/1/31735055282218_1.pdf [Accessed 14 May 2018].