YUGOSLAVIA: 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%.