A Red Wall Street?

Yugoslavia is sometimes described as 100% Marxist--50% Karl and 50% Groucho. Although it is Communist, it maintains a market economy that is based on competition between state-owned but individually run companies. That zany-sounding blend of socialism and free enterprise has given the 20.5 million Yugoslavs the fastest growing economy in Eastern Europe. In major cities, modern, wide-windowed apartment complexes dot the skyline, autos clog the streets and stores are stocked with television sets, radios and kitchen appliances. Lately, however, the system has developed enough problems to bring the nation to a crossroad at which its leaders must decide how much further they are willing to go toward a freer economy. Some are prepared to go all the way to the establishment of a Communist stock and bond market.

Yugoslavia's economic split personality began emerging in 1950, when Marshal Josip Broz Tito rejected Soviet-style central planning in favor of economic decentralization. Under his "self-management" system, workers' councils set wage rates and product prices in each enterprise, and theoretically have the power to fire managers, who are responsible to the councils rather than to a state ministry. Kiro Gligorov, a leader of Yugoslavia's League of Communists and the nation's chief economist, explained to TIME Correspondent Strobe Talbott: "We believe that the state cannot replace private owners in the management of enterprises. Enterprises must manage themselves." They did efficiently enough in 1970 to lift "social product"--the Yugoslav term closest to gross national product--to $14 billion, a 6.7% rise after discounting inflation factors. Among European Communist countries, only Bulgaria and Albania had a lower total output, but none had such a rapid growth rate.

But industrial democracy has also brought the capitalistic combination of rampant inflation and a ballooning balance of payments deficit. By last August, Yugoslav consumer prices were 16% higher than a year earlier, and the balance of trade deficit soared 20%. In response, the government retreated toward central control of the economy. It held down wages, froze most prices, limited credit, restricted imports and devalued the dinar twice. The program held retail-price increases in the first quarter of 1972 to an acceptable 1.3%. In March, to bolster its trading ability, Yugoslavia obtained a $ 100 million stabilization loan from a trio of New York banks: Chase Manhattan, First National City and Bankers Trust.

Now Yugoslav leaders feel able to start what might be called Phase II of their "Economic Action Program," designed to loosen controls and stimulate growth while holding inflation to 5%. In a few months, Finance Secretary Jan-ko Smole will supervise decentralized units of management, labor and government representatives that will set wage rates in each enterprise by a kind of collective bargaining within broad limits imposed by the state. The government is also trying to spur corporate expansion by increasing the proportion of foreign-currency earnings that companies may keep for reinvestment rather than handing over to the central bank. The limit in most enterprises has been raised from 7% to 20%.

Foreign Cash. Yugoslavia, however, still faces a shortage of capital for industrial expansion. Despite recent growth, its companies cannot provide jobs for all workers. More than 800,000 Yugoslavs labor abroad and send more than half their pay back home.

In order to attract more capital, Yugoslavia now seems willing to open its economy wider to investment from other countries, including the U.S. Foreign investment in Yugoslavia has totaled only $62 million since 1967, mostly because the government has insisted that Yugoslav companies retain control of any joint project by owning at least 51 % of it. Two months ago, however, the government permitted the nation's largest copper and brass fabricator to form a fifty-fifty partnership with Bieler National Industries, a smallish U.S. marketing firm. Other equally owned ventures may be allowed in industries where Yugoslavia lacks up-to-date technology, such as electronics and chemicals. Since the U.S. Government will now ensure American investments in Yugoslavia, Allis-Chalmers, Greyhound and other Yankee firms are considering such deals.

A far more radical way to raise capital would be to organize an internal money market--a sort of Communist Wall Street--yet Yugoslavia is moving in that direction also. Two firms, the Zastava auto concern and the Belgrade-Bar railroad, have been allowed to float issues of interest-bearing and resalable bonds. More such issues are likely to be permitted, and government leaders recognize that they eventually will have to set up a market in which the bonds can be regularly traded.

Stane Kavcic, premier of the Republic of Slovenia, has proposed that companies sell dividend-paying stocks too. "Instead of taking a vacation, someone could give his money to an enterprise, which in turn could give him interest and maybe even something else as well," Kavcic says. His proposal has horrified some Communist purists. Edvard Kardelj, Yugoslavia's chief ideologist and a close associate of Tito's, argues that stock ownership is anti-Marxist because it inevitably involves the "exploitation of other people's work." But the need for more capital may eventually overcome such inhibitions.

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