The post-World War Two Yugoslavia was in many respects a model of how to build a multinational state. The Federation was constructed against a double background: an inter-war Yugoslavia which had been dominated by Serbian ruling class; and a war-time slaughter in which the Nazis made use of the earlier Serbian oppression to use Croatian fascism for barbarous slaughter and also exploited anti-Serb sentiment amongst the Kosovo Albanian—and some elements in the Bosnian Muslim—population to bolster their rule.
There had been one structural element in the post-World War II Yugoslav state's stability: the joint concern of the USSR and the USA to maintain the integrity of Yugoslavia as a neutral state on the frontiers of the super-power confrontation in Europe.
The economic crisis was the product of disastrous errors by Yugoslav governments in the 1970s, borrowing vast amounts of Western capital in order to fund growth through exports. Western economies then entered recession, blocked Yugoslav exports and created a huge debt problem. The Yugoslav government then accepted the IMF's conditionalities which shifted the burden of the crisis onto the Yugoslav working class. Simultaneously, strong social groups emerged within the Yugoslav Communist Party, allied to Western business, banking and state interests and began pushing towards neoliberalism, to the delight of the US. It was the Reagan administration which, in 1984, had adopted “Shock Therapy” proposal to push Yugoslavia towards a capitalist restoration.
This, naturally, undermined a central pillar of the state: the socialist link between the Communist Party and the working class. The forms and effects of this varied in different parts of Yugoslavia. First in Kosovo in 1981, where the links between Yugoslav communism and the population had always been weakest and where the economic crisis was most intense, there was an uprising demanding full republican status for Kosovo, as well as unification with Albania.
In 1989 Jeffrey Sachs was in Yugoslavia helping the Federal government under Ante Markovi? prepare the IMF/World Bank shock therapy package, which was then introduced in 1990 just at the time when the crucial parliamentary elections were being held in the various republics.
One aspect of Yugoslavia's Shock Therapy programme was both unique within the region and of great political importance in 1989-90. The bankruptcy law to liquidate state enterprises was enacted in the 1989 Financial Operations Act which required that if an enterprise was insolvent for 30 days running, or for 30 days within a 45 day period, it had to settle with its creditors either by giving them ownership or by being liquidated, in which case workers would be sacked, normally without severance payments. In 1989, according to official sources, 248 firms were declared bankrupt or were liquidated and 89,400 workers were laid off. During the first nine months of 1990 directly following the adoption of the IMF programme, another 889 enterprises with a combined work-force of 525,000 workers suffered the same fate. In other words, in less than two years “the trigger mechanism” (under the Financial Operations Act) had led to the lay off of more than 600,000 workers out of a total industrial workforce of the order of 2.7 million. A further 20% of the work force, or half a million people, were not paid wages during the early months of 1990 as enterprises sought to avoid bankruptcy. The largest concentrations of bankrupt firms and lay-offs were in Serbia, Bosnia-Herzegovina, Macedonia and Kosovo. Real earnings were in a free fall, social programmes had collapsed creating within the population an atmosphere of social despair and hopelessness. This was an critical turning point in the Yugoslav tragedy.
In the spring of 1990, Markovi? was by far the most popular politician, not only in Yugoslavia as a whole, but in each of its constituent republics. He should have been able to rally the population for Yugoslavism against the particularist nationalisms of Milosevi? in Serbia or Tu?man in Croatia and he should have been able to count on the obedience of the armed forces. He was supported by 83% of the population in Croatia, by 81% in Serbia and by 59% in Slovenia and by 79% in Yugoslavia as a whole. This level of support showed how much of the Yugoslav population remained strongly committed to the state's preservation.
But Markovi? had coupled his Yugoslavism with the IMF Shock Therapy programme and EC conditionality and it was this which gave the separatists in the North West and the nationalists in Serbia their opening. The appeal of the separatists in Slovenia and Croatia to their electorates involved offering to repudiate the Markovi?-IMF austerity and by doing so help their republics prepare to leave Yugoslavia altogether and ‘join Europe’. The appeal of Milosevi? in Serbia was based around the idea that the West was acting against the Serbian people's interests. These nationalist appeals were ultimately successful: in every republic, beginning with Slovenia and Croatia in the spring, governments ignored the monetary restrictions of Markovi?'s stabilisation programme in order to win votes.
The newly elected regional government then turned their efforts to the break-up of the country. They were aided by the US government's stance of sidelining Yugoslav cohesion in favour of pushing ahead with the Shock Therapy programme. Indeed, it is likely that the internal dynamics towards Yugoslav collapse into civil war may have been inadvertently accelerated by the actions of the Bush administration. The few European states with strategic interests in the Yugoslav theatre tended to favour fragmentation.
It would be wrong, of course, to suggest that there were no other, specifically Yugoslav, structural flaws which helped to generate the collapse. For instance, many would argue that the decentralised Market Socialism was a disastrous experiment for a state in Yugoslavia's geopolitical situation. The 1974 Constitution, though better for the Kosovar Albanians, had given increased power to the republics, whilst dampening the institutional and material power of the federal government. Tito's authority substituted for this weakness until his death in 1980, after which the state and Communist Party became increasingly paralysed and thrown into crisis.