Failure of the Labor-Managed Type Economy

Abstract

The labor-managed economy of Yugoslavia—the only type of labor-managed economy that has been tried on a serious basis—has failed. It has produced a crisis of enormous proportions in Yugoslavia. By the end of December, 1989, the rate of inflation was about 60 percent per month, the value of the dollar rose from 4,500 dinars in December, 1988, to about 125,000 dinars in December, 1989. Unemployment in Yugoslavia is in two digits, while real personal incomes have been declining. Many Yugoslav firms are in the red and are being subsidized in order to protect the ruling elite from the political consequences of an even larger increase in unemployment. By most accounting standards in the West, a majority of Yugoslav banks are illiquid. Table 19-1 provides some key statistical data on the Yugoslav economy. Those data are quite revealing. Clearly, it is important to raise a question: what is wrong with the labor-managed economy?