Workers' Control and Nationalization - Part Three

In Part Three we look at so-called workers’ self-management in Yugoslavia, at the time hailed as a genuine alternative to the Soviet model. But what was the real nature of workers’ self-management in Yugoslavia and what are the lessons we can learn for the developing struggle for workers’ control in Venezuela?

The Yugoslavian Experience

I wanted to spend a few minutes on Yugoslavia and the question of workers’ cooperatives and so-called market-socialism. This is an important topic and very relevant to the question of workers’ control in Venezuela. Much of this also applies to ideas that are being put forward by the so-called New Left in China today as well.

In Yugoslavia enterprises were state-owned and were officially entrusted to the workers to run through their workers’ councils or self-management committees. The most important thing to realize and to keep in mind when discussing these self-management committees is that they functioned in the market – they competed both nationally and internationally. These firms and companies were advertising, competing, and doing anything they could to increase profits. It was this pursuit of profits that led to the domination of the enterprise managers and specialists over the workers.

It was the Tito-Stalin split that sparked off this development of so-called self-management in Yugoslavia. Until 1948, Yugoslavia had a system very similar to that in the USSR. In fact, the Yugoslav party was the most loyal to Stalin. But Tito had led the armed struggle against the Nazis and had come to power on his own as it were, without the assistance of the Soviet Red Army. He had his own power base, and this led to a series of disputes with Stalin and the Soviet bureaucracy. After the Tito-Stalin split the Yugoslav leadership suddenly announced that the Soviet Union had degenerated into “State Capitalism”.

In an attempt to find an ideological justification for the split with Stalin, the Yugoslav bureaucrats further argued that state ownership was only a precondition for socialism – which is broadly correct. What they argued was that in order to build socialism, socialist relations of production needed to be developed, which is, of course, also correct. However, they believed that socialist relations of production would be fostered by self-management, believing that otherwise the system would degenerate into bureaucratic despotism (this was a clever means the Yugoslav bureaucrats used to gain the support of the working class in the struggle against the USSR and for the proposed “reforms”). They attacked the central control of the economy in the USSR. However, it was not central control that was the problem, but the lack of workers’ control. Market reforms were also proposed as a means of boosting the sluggish economy and finding other sources of trade now that Soviet assistance was cut off (Trade with the USSR and other Eastern Bloc countries accounted for 50% of both imports and exports. By 1950, this was reduced to 0%).

In 1950, Yugoslavia introduced a new law on workers’ self-management. They argued that the decentralization of workers’ self-management was the beginning of the withering away of the state. In reality, real power was in the hands of the state bureaucracy. The First Five Year Plan (1947-1952) did not achieve its targets. The quality of products was low, and by 1949 the productivity of labour was decreasing. The Yugoslav bureaucrats began to search for an “automatic procedure” to regulate the economy – similar to how the market functions under capitalism. In the absence of genuine workers’ control as a means of controlling the quality of production, the Stalinists were forced to search for “market mechanisms”. From the outset it was clear that these measures would unleash a whole series of contradictions. The Stalinists were trying to square the circle in trying to open up to market and yet trying to maintain central control at the same time.

The management of enterprises became the responsibility of the workers’ councils of the enterprise rather than of the state ministers. Detailed plans for production were shifted to basic planning for investment. Wage levels were set centrally, but supplemented and augmented by bonuses in the individual enterprises, tying higher wages to the pursuit of profit. However, this was only on paper. The self-management committees were controlled by the enterprise managers, who were close to the state ministers and bureaucrats. These committees were strictly subordinate to Party and trade union control. Managers were often appointed on the basis of political loyalty to state ministers, and of course received wages higher than those of the workers they commanded.

The other important thing to keep in mind is that these companies were now taxed (as opposed to revenues being transferred to the state), and these funds were used by the state for new investment and the creation of new enterprises. These new enterprises were quickly turned over to the “workers’ councils” to run. Profit made by these companies was not redistributed by the state, but remained within the company.

It is important to realize that the workers only had formal control of their workplaces. Under self-management, the workers supposedly ran the factories and were free to make their own production and marketing decisions. However, it was actually the state that still controlled the economy and the enterprises under workers’ self-management. The state had the power to appoint factory directors and allocate money for each enterprise. Although production did boom, state control of investment led to continued funding and survival of inefficient enterprises funded by the state, particularly those politically favoured by the state bureaucracy.

This system did enjoy a brief period of success, as Yugoslavia had the most rapidly growing economy in the world in the 1950s. However in 1957, the Congress of Workers’ Councils (the first and only meeting of the Workers’ Councils) demanded more power. It is important to understand that these councils were bureaucratic bodies under the control of the managers and specialists in the enterprises rather than the workers themselves. They wanted state regulations relaxed and taxes lowered. These firms wanted more money left to them so that they could invest individually rather than have the State making investment decisions.

The self-management committees were becoming increasingly self-aware of their own interests, which they counter-posed to the interests of the state bureaucrats and ministers. It was argued that these measures were a move away from “State Capitalism” towards socialism. In reality it was the introduction of the market and a move towards capitalism, or more correctly it was preparing the transition to capitalism. Under a genuine workers’ state, in the condition of isolation, it would not be wrong to introduce limited market reforms, such as the Bolsheviks did with the NEP. Market reforms were used to sort out irregularities and inefficiencies in the economy, and boost production (particularly agricultural production). This would have been the case in Yugoslavia with its bureaucratic plan, where inefficiencies and low productivity were obvious, especially after they had been isolated by the USSR. However, market reforms under Stalinism develop their own internal logic, as we eventually saw in Yugoslavia and we see in China today. Rather than the market being used to develop the state sector and the plan, the state sector and the plan can end up funding the market. It also creates the conditions whereby the bureaucrats and managers become interested in legitimizing and formalizing their power and control – by becoming bourgeois.

The high growth of the 1950s collapsed in the early 1960s, and as a result the reforms proposed by the workers’ councils were introduced. This represented a greater shift towards the market and the growing power of the managers. However, in 1962 the Third Economic Plan was abandoned after only 1 year due to economic crisis. Industrial production plummeted to half of the level in 1960, imports spiralled, exports collapsed, and inflation increased massively.

The response of the state bureaucracy was to move further towards “market socialism”. The state wanted Yugoslav companies to be competitive in the world market and the state monopoly on foreign trade was removed and the currency was made convertible. The Yugoslav bureaucrats argued that if the workers were not making the key investment decisions through the workers’ councils, then they were not really in control. It was all summed up in the saying: “He who rules over expanded reproduction rules society”.

And here is the question: does the working class rule society when it is the atomized working class, through individual enterprises and firms that control investment and reproduction, or is it when the working class as a whole, through the state, controls investment and reproduction? Obviously it is the latter. Under the Yugoslav model, it was the individual firm in pursuit of profits that ruled, and not the working class. It is the nationalized, state-owned, democratically planned economy that guarantees the workers’ control of the overall economy and not just one industry or factory. It also safeguards the socialized nature of the economy and the development of socialist relations of production. Socialism means the centralized, democratic control of the overall economy by the working class, to develop the economy as a whole and guaranteeing the interests of the working class as a whole – not just guaranteeing the individual self-interest of a given factory or industry. The problem in Yugoslavia was not so much that power over the factories was handed to the self-management committees, this would have actually been a very progressive and democratic step forward as long as the economy was organized into a centralized democratic plan, under the control of the working class, involving a genuine workers’ state. The problem was that control of the economy was decentralized, and the economy left to the interests of individual firms. This pursuit of profit and the self-interest of the enterprises resulted in the control of the managers and specialists over the self-management committees.

The result of these reforms was predictable. Inequality increased in the 1960s, between firms in the same industry, between different industries, between town and country, and between regions. By the mid to late 1960s income levels in Slovenia were six times greater than those in Kosovo. The rich got richer, and predictably the influence of the workers fell in relation to the experts in the enterprises, because if the aim was produce for profit, then the workers tended to rely more and more on the specialists and managers to make that profit. Had the economy remained centralized, and the economy democratically planned for the benefit of all, then the influence of the workers would have risen in relation to the experts, as the expertise and knowledge of the specialists would have been used to the benefit of the economy as a whole rather than to fulfill their narrow self-interest. Workers’ democracy could have replaced the market as a means of regulating the economy.

Another major step towards capitalism was the dismantling of state investment and the central state bank. Accumulated state investment funds were dismantled and invested in self-management banks, which then lent money to enterprises on a profit-oriented basis.

All of these measures led to rebellion against the market in the late 1960s and early 1970s, led by the students and youth and the people in the poorer regions. There was a general attack on the market, the growth of inequality, and on the significantly growing power of the banks and the managers over the enterprises.

By 1974 “market socialism” had been abandoned in the face of massive worker unrest, which culminated in a seven-day occupation of the University of Belgrade under the slogan “down with the Red Bourgeoisie”. Eventually planning was brought back, but it was neither the bureaucratic Soviet model, nor genuine democratic planning. Individual firms negotiated Five Year investment “deals” with the state.

Looking at the history of Yugoslavia, one can see there was always a struggle between centralization and de-centralization, as well as a struggle between the managerial caste and the state bureaucratic caste. Stalinism fundamentally failed to solve the regional disparity in Yugoslavia. When decentralization and the market reforms were introduced in the 1950s, it was seen as a victory for the various national bureaucrats. Their narrow national interest meant that they were interested in developing their own national economies as against the others. This also put more power into the hands of the mangers. When the central state attempted to re-introduce measures of centralization in the 1970s, it was resisted by the national bureaucrats and the managers (especially those in Slovenia and Croatia). It was a struggle between the different sections of the bureaucracy, representing different interests. On the one side the national bureaucratic cliques and the managerial caste pushed for further de-centralization in order to further their interests and power, while the central state pushed for centralization (in the 1970s). The abandoning of “market socialism” was an attempt by the state bureaucrats, who realized that market reforms now threatened their power, to re-assert their control over the managers and regional bureaucratic cliques. For example, if by the mid-1960s wages in Slovenia were six times greater than in Kosovo, it is easy to see why the Slovenian bureaucrats, whose narrow national outlook dominated all their decisions, would have an interest in decentralization – so that they could reap the benefits of their regional wealth rather than see it go to their neighbours.

The Yugoslav model of self-management had major problems – problems that played a significant role in the brutal break up of the country. Because each individual firm competed on the market, the self-managed firms were self-interested. They were interested in maximizing the profit of the company, so that part of the profit (the part not earmarked for expenses or further investment) could go to increase the income of the workers. This placed all power in the factory not in the self-management committees of the workers, but in the managers and specialists. We will see these same problems when we discuss workers’ control in Venezuela. The cooperatives there, because they still operate under a capitalist economy, are under pressure to maximize profits. This creates contradictions in the company and tends to place control in the hands of the managers rather than the workers’ committees. The pursuit of profits sets firms against one another in competition, sets workers against workers in competition, and also leads to internal differentiation in the individual factory, where the managers and specialists look to tighten their control in order to gain power and access to profits. This is precisely why it is imperative that nationalized industries be integrated into a democratic plan, and essential that all nationalized industries are placed under the control of the local workers, the trade unions, and the state.

To combat this inequality between firms in Yugoslavia, the poor companies attempted to raise wages. This left them with less money to invest if they wanted to meet their wage bills, which in turn hurt their economic growth, thereby hurting wages. As a result they began borrowing from the self-managed banks, became heavily indebted, and increased the inflation rate.

There was also the problem of unemployment. In general, the self-managed enterprises did not sack people or lay people off. However, they also did not create many jobs. Why? Because the income of the workers was directly tied to profits – so the more workers that were hired, the less wages everyone would receive. This meant that poor people from the countryside ended up going to Western Europe to work. In 1971, the unemployment rate in Yugoslavia stood at 7%, however, an incredible 20% of the workforce was working outside the country.

The other major problem was the atomization of the working class. The Yugoslav leadership argued that their model of self-management would lead to the development of socialist relations of production. However, if socialist relations of production are the goal, then investment decisions cannot be left to individual companies, because they have no sense of the needs of society or the economy as a whole. Again, it was the interests of the individual firm, not the working class that ruled. In fact, the interests of the workers were submitted to the interests of their firm. They were interested in investment to make further profits. As the proportion of wages to profits was fixed, the only way to raise wages was to increase profits, which meant the increased exploitation of the working class. This, along with the fact that the workers could see the contradiction between what they were told workers’ self-management was supposed to be, and what it really was, led to demoralization and disinterest on the part of the working class, with notable increases in absenteeism by the 1970s.

This system, again, resembled the anarchy of capitalism more than the harmony of socialist relations of production. The Yugoslav bureaucrats also dismantled the state monopoly on foreign trade, which put the individual Yugoslav enterprises in direct contact with the world market. This allowed for the direct intervention of capitalism and imperialism in the Yugoslav economy with no central control or monitoring.

During the 1970s, self-managed companies borrowed heavily from Western banks. The original idea was that they would borrow, sometimes extensively, and invest this money in the expansion and modernization of the individual firms with the hope that they would be able to export to Western Europe and pay back the loans. However, the international recession of 1979 shattered these hopes. The individual firms found it difficult to repay their loans. Furthermore, because there was no state monopoly on foreign trade, no one knew the total amount of foreign debt. In the end, Yugoslavia had to assume the debt as a nation. The standard of living collapsed. Between 1982 and 1989 it fell by 40%. Inflation skyrocketed – in 1987 the inflation rate was 150%, by 1989 it reached 1950%.

In 1988 Yugoslavia had the highest per capita foreign debt in all of Europe, totalling over US$ 20 billion. Between 1984 and 1988, Yugoslavia paid some US$ 14 billion in interest on its debt, crippling the economy.

By the 1980s the IMF had slapped on strict conditions for loan renewal. Of course, this meant the reduction of the “social sector”. The IMF forced self-managed banks to become private banks, and self-managed enterprises to become companies with clear ownership status – i.e. into capitalist corporations.

It is important to underline that all of this was a direct result of the policies of “market socialism”, and that this led directly to the brutal disintegration of Yugoslavia. In fact, from self-managed companies and banks, it was not a big step to move to private, capitalist companies. The managers of the so-called self-managed firms assumed ownership of the enterprises, now making profits rather than receiving higher wages.

The economic crisis that hit Yugoslavia in the 1980s is what led to the political crisis. The ruling bureaucratic cliques in the different regions turned to nationalism and the old policy of blame your neighbour. Faced with the possibility of a genuine workers’ revolution, they turned to rabid nationalism – and we all know the result.

What are the lessons of the Yugoslav experience? It seems obvious that what is required is state ownership of the commanding heights of the economy and a state monopoly on foreign trade. The withering away of the state does not occur simply by handing over nationalized industries and enterprises to the workers and the managers and making them shareholders. In Yugoslavia, where the managers controlled the self-management committees anyway, this simply led to the atomization of the working class. Simply making the workers owners of individual companies is not social ownership: the self-management committees (controlled by the managers) functioned like private owners and this led directly to the full restoration of capitalism. The key to the socialist transformation and the withering away of the state in the deformed workers’ states was genuine workers’ control. Socialism is not simply about looking after the interests of the workers in local, individual enterprises. Socialism is looking after the interests of the working class, the economy, and society as a whole. For this, state ownership is required. State ownership defends the socialized character of the economy, but does not signify social ownership. A nationalized economy, centralized into one democratic plan, where each factory has a board of directors composed of 1/3 local workers, 1/3 trade unions, and 1/3 state representatives (or some variation thereof), defends the interests of the workers, the class as a whole, and is capable of recognizing the needs of the economy and society as a whole in a way that atomized self-management committees were not. It is on this basis that productivity can be increased and the potential power of the economy, liberated from the straightjackets of private ownership and the nation state, can be unleashed. The inequalities in society can be overcome, such that state-ownership becomes genuine social ownership.

Another important lesson of Yugoslavia is internationalism. The break-up of the Soviet Union and the collapse of the Eastern Bloc was a result of the narrow national outlook of the ruling bureaucracy in each country. They were left to organize their own backward economies and trade amongst themselves. On the basis of genuine Bolshevism and internationalism it would have been possible to integrate the different national economies and build an integrated, democratically planned economy using the resources and labour power of all countries from Havana to Beijing. This would have unleashed the productive forces of these countries, fostered the socialist development of the economy, and led to the development of socialist relations of production and genuine social ownership of the means of production.

See also Part One, Part Two and Part Four