Do workers need capitalists? New lessons from Yugoslavia’s socialist experiment

Do workers need capitalists? New lessons from Yugoslavia’s socialist experiment, by Victoria Bateman.

Amongst other things, these work councils were now free to decide on the distribution of income between wages and investment. In one sense, this policy change was a success: income per worker increased and wages became a bigger share of the economic pie. However, labour-managed firms seem to have reaped such rewards by hurting other members of the labour force, restricting the employment of new workers so as to limit the worker-based labour market competition that could scupper the wage demands of the “insiders”.

Naturally, unemployment soared, from under 5% in the 1960s to close to 15% by the end of the 1980s. Whilst in a free-market economy there would have been an incentive for new businesses to enter and compete with incumbents, employing some of the unemployed labour along the way, the entry of firms was severely restricted under the socialist regime. Business people were viewed with suspicion.

The result: the insiders, whether already employed workers or already established firms, gained at the cost of the outsiders (new workers, including the youth, and potential but never established new firms).

hat-tip Matthew