Yugoslavia entered the 1970s in an economic crisis. Growth was slowing because more investment was needed to achieve each additional unit of growth. At 34 percent, Yugoslavia's rate of inflation was the highest in Europe in 1974, and the government reimposed the price controls that had been relaxed under the 1965 reform. Growing unemployment prompted large numbers of Yugoslav workers to migrate to Western Europe. The government wholeheartedly supported this trend because the hard currency (see Glossary) earnings brought into Yugoslavia by the guest workers mitigated the effects of increased foreign debt and export stagnation. The disappointing results of the reform and nationalist uprisings in Croatia and Kosovo between 1968 and 1972 led Tito to end the market socialism experiment by putting economic policy making back under party control in 1974.
The new Constitution of 1974 and the Law on Associated Labor of 1976 reorganized the economy from top to bottom. Large and medium-sized enterprises were dissolved into smaller, selfcontained units called basic organizations of associated labor (BOALs). Under this system, workers gained more control over management decisions, banks, and social services. At the same time, Yugoslavia became more federalized as party authority was decentralized to republic and provincial governments and local communes (see Political Innovation and the 1974 Constitution , ch. 4). The new statutes introduced a system of self-management agreements to coordinate interaction among basic organizations of associated labor, and social compacts to coordinate interaction between economic and political bodies.
As this new system went into place, the economy was hit by a severe increase in world petroleum prices. Because Yugoslavia depended heavily on imported petroleum products, this development aggravated existing inflation and foreign debt. Nevertheless, Yugoslavia tried to overcome its balance-of-payments problems by placing even stronger emphasis on output growth, increased spending (particularly on nonproductive investment and consumption), and foreign borrowing. The result was a dramatic rise in foreign indebtedness and inflation and a decline in living standards. When petroleum prices rose again in 1979 and the world entered an economic recession, Yugoslavia could no longer afford to maintain its debt burden. Foreign loans became inaccessible, and inflation continued to climb. By 1980 these conditions clearly called for slowing the pace of development and adjusting the system so as not to jeopardize future growth.
Data as of December 1990