Economic development in the backward regions of Yugoslavia, 1953-64

The disparities in the level of development between the richer and poorer regions of Yugoslavia are among the worst in Europe. The level of output per head of the population in 1964 in the poorest of the eight regions was less than one-fifth of its level in the richest, while in the group of the four least developed regions, comprising 40 percent of the country's land area and one-third of its population, it was only one-half of its level in the more developed group.
The period 1953-and4 spans twelve years during which the promotion of the development of the backward regions has been a constitutional obligation of the Yugoslav government, and its active regional policy implemented through the uniquely Yugoslav system of decentralised planning. Following the repudiation, in the years 1950-52, of centralised directive planning on the Soviet model, the Yugoslav authorities instituted a system of economic management based on the decentralisation to the enterprise of responsibility for the organisation of current production, combined with the retention by the state organs of control over the "basic proportions of development", specifically, the level and sectoral distribution of investment and foreign trade. The control of investment was made effective through the strong centralisation in the accumulation of investment funds, from taxes on the enterprise, and their allocation in accordance with plan priorities. The authorities were thus able directly to channel a substantial volume of investment funds to the underdeveloped regions. Extensive government intervention in price formation, in addition to tax concessions and the payment of subsidies to enterprises in financial difficulties severely limited the application of profit and loss criteria to the operations of the enterprise. The system of decentralised planning thus provided a very favourable institutional framework for promoting investment and the expansion of output in the underdeveloped regions.
Development policy for the backward regions, as for the country as a whole, passed through two main phases during these years. Industrialisation was consistently regarded as the centrepiece of development strategy, with the improvement of agriculture and the expansion of tertiary activities playing, for the most part, only a subsidiary role. Between 1953 and 1956 efforts were concentrated on the build-up of the "basic industries", notably the power industries and heavy metallurgy, a continuation of the policy begun under the First Five-Year Plan in the Stalinist years. From 1957, however, a new strategy was adopted, of "development on a broader front", giving much greater prominence to the expansion of manufacturing and consumer goods' industries. This reorientation gave rise to considerable dispersion in the development efforts in the backward regions, both among industrial sectors and into newly designated centres, in contrast to the narrow range of industries developed in the earlier phase and their concentration in the vicinity of the necessary raw materials.
Within this broad pattern, however, the individual underdeveloped regions varied their own development strategies in accordance with their natural resources and other characteristics. In Bosnia- Hercegovenia, which contained a substantial part of Yugoslavia's reserves of coal, iron-ore and water-power, development proceeded rapidly in the earlier years with the expansion of the national priority sectors of coal, steel and electricity, but latterly the transition to a more diversified pattern of industrial development was effected only slowly. The concentration of these resource-based industries into the central parts of the region has left Bosnia-Hercegovenia itself, in spite of substantial local population migration, faced with the internal problem of disparities between its more and less developed areas. Montenegro, the smallest and most remote of the regions, separated from the rest of Yugoslavia by mountain barriers, had initially to devote major efforts and a large volume of investment to the provision of transport facilities before the expansion of production could be begun, and even in 1964 the facilities remained seriously deficient. Because of the region's small size (less than half a million inhabitants) its development strategy comprised only a few individual projects, although the level of investment there was much the highest in Yugoslavia. Macedonia, the most agricultural of the underdeveloped regions, adopted a policy of integrated agricultural and industrial development, the improvement of agriculture being complemented by the establishment of textile, leather and food-processing industries to process agricultural products for the national market. This pattern of development encouraged a high degree of urbanisation in the region, with the concentration of its industries into a number of relatively large centres, each serving its particular agricultural hinterland. For political reasons development efforts for Kosmet, much the poorest of the Yugoslav regions did not begin, on any scale, until after 1957, with the result that development there was scarcely begun. A two-pronged approach, comprising both heavy and light industry, was however being either adopted or planned. Coal, electricity and, eventually, chemical industries were being based on the region's extensive lignite deposits, while non-ferrous metallurgy and related chemicals were being expanded, to exploit local deposits of lead and zinc; complementary to these, the labour-intensive industries of textiles, footwear and food products were being promoted in order to create new industrial employment and thus begin to relieve the acute pressure of agricultural overpopulation.
But, in spite of very high levels of investment in the underdeveloped regions, the disparities between the regional groups in the level of output per head tended to increase over the twelve years, as total output in the underdeveloped regions grew rather less rapidly, and population more rapidly, than in the more developed group. This occurred in spite of considerable emigration, most notably from Macedonia. Only in Montenegro, much the smallest of the regions, was a movement towards convergence with the more developed group achieved. The policy of industrialisation was itself successful, in that each of the underdeveloped regions recorded a rate of industrial expansion higher, sometimes substantially higher, than in the more developed group; but their tendency towards lower growth rates in the other economic sectors, combined with the handicap of an output structure in which industry occupied a lesser place more than offset (except in Montenegro) the successful growth of industrial production. The focussing of development efforts on industrial expansion, while in itself successful, was thus concentrated on too narrow a front to achieve a convergent movement in the growth of total output.
The cost of the policy of development in the backward regions is difficult to appraise, with the artificial prices for certain items of capital equipment and the payment of subsidies in order to maintain production in unprofitable enterprises. But, accepting the Yugoslav valuations of investment and regional product, comparison on a sector-by- sector basis reveals that the growth of output achieved in the underdeveloped regions commonly required a volume of investment at least half as large again, and sometimes several times larger, than in the more developed regions.
On strictly economic grounds, the defence can be offered that a period of twelve years, even of an active development policy, is much too short to achieve the elimination of disparities which have built up over generations, and that investment for "catching-up" in the provision of overhead capital and the time required for the external economies of development to be gained bring a temporary overstatement of the investment cost of development policy. There remains, however, a substantial element in the development efforts which can only be accurately described as "social" or "relief", rather than "development" investment.