In this chapter I have described the evolution of self-management and social ownership in Yugoslavia. I have identified three moments important for the emergence of self-management: the tradition of peasants’ cooperatives; the need for better economic coordination; and political conflict that influenced the introduction of the new variant of socialism, so-called market socialism.
A pure theoretical model describes self-management as a variant of the labour managed firm. While the classical capitalist firm maximises profit, the labour managed firm maximises income per worker. Early analyses (Ward, Vanek) demonstrated that self-management might be competitive under particular conditions. In the case of an incomplete market self-management requires regulatory support for the optimal allocation of resources. The political system in socialist Yugoslavia was decentralised, and so were the financial system and ownership rights after the abandonment of central planning. While domestic authors (Uvalic, Horvat) conclude that bureaucracy suppressed self-management, Furubotn and Pejovich conclude that self-management wouldn’t be viable without regulatory support.
Instead of a static analysis, the self-management system of property rights must be viewed from a dynamic perspective. Self-management was perhaps an appropriate structure for small companies at the beginning of its development. Later, the workers’ councils in larger companies often took the role of unions in capitalism. Development of the economy influenced the rise of a class of professionals and a management class. Their higher participation in the use of a flow of income from resources was prevented by communist egalitarianism. Flaws of the self- management system were clearly visible in the banking industry. Since the principles of self-management weren’t appropriate for running a bank, workers’ councils in the banks didn’t have the same role as they did in other companies. The development of the financial system (banking) followed and reflected changes in the ownership regime and in the market. Banking was decentralised but the Party at a local level strongly controlled the allocation of financial resources. In the chapters about privatisation in Croatia and Slovenia particular scrutiny will be devoted to the destiny of the management class and to the development of the financial system.
5.2.1 Ownership structure and the self-management legacy
Furubotn and Pejovich conclude that the self-managed firm is not a viable ownership structure because: 1) Property rights over capital were divided between the community and workers and the transferability of capital was restricted; therefore workers’ councils were reluctant to invest. 2) The growth of the wealth of the firm didn’t increase the wealth of those who contributed to that increase by their decisions or by the input of skilled labour; the divergence of interest between workers and management was noted. Both objections have the same
common denominator – property rights in self-managed firms weren’t clearly and adequately delineated. While there is truth in these objections it shouldn’t be concluded from them that an ideal ownership structure exists which is efficient for all kinds of resources and institutional environments. It was explained in chapter III, section 4.3 that the success of a particular ownership structure depends on such things as the size of the company, the technology of production, the characteristics of assets, the characteristics of the market in which the firm has to win its competitive advantage and survive (Fama & Jansen 1983). The local public body was responsible for the control of the use of resources and had the right to endorse the manager that was selected by workers’ council. Abstracting from the influence of the party and communist ideology of the equality of income, the heaviest burden on self-management was the restricted transferability of company’s savings and investment (capital). Accordingly, self-management was not an adequate ownership structure for the financial industry.
However, it was shown in the previous theoretical chapters that a general framework of principles and beliefs that holds together a particular property regime always exists. Looking from this side, the rights of local communities to control resources and endorse management were extensive, but not generally unacceptable; in the countries with market economies, social norms often impose restrictions on the use of resources and affect the selection of managers. The viability of various forms of collective ownership is also explained. Society employs principles and beliefs to regulate formally and informally the use and transferability of property rights, while owners of property rights individually or collectively use resources. Though self-management and social ownership weren’t efficient it doesn’t imply that the problem was a division of the use of resources and restrictions on transferability of capital as such. The problem was that (1) the ownership structure was enforced for all resources without possibility of its evolution and (2) an inadequate regime for the transferability of financial capital.
Furubotn and Pejovich noted the divergence of interests between workers and management. This - in my opinion - signifies that the self-management economy developed in such a way that the evolution of its ownership structure was necessary. The changed characteristics of business activities required a transformed financial system. Principles of distribution of income favoured low skilled employees. This legacy of income equality, collective consumption; non- pecuniary payment, and such a wide participation in business decisions that the
proclaimed autonomy of the company and professionals in their field of expertise was effectively suppressed, was in conflict with what was needed for the necessity of development of the property regime.
It was mentioned in chapter II (section 3.4 The distinctive feature of initial
appropriation) that the Slovenian economist Bajt considered the priority of reforms
to be to liberate the relationship between employees inside the firm; for instance, the abolition of the narrow proportion between the highest and the lowest wages that would open the market for those with skill and knowledge. The next chapter about the privatisation debate will show that Croatian economists were focused on a formal reform of the ownership structure, while the important legacy of the economic culture that was developed under the system of self-management was neglected.