Macroeconomic History in a Nutshell

It is often presumed that Slovenia had a poor economic performance before joining the socialist Yugoslavia, as measured by income per capita.    Yet evidence from the Habsburg Empire (Good, 1994) suggests, via quantitative indices, that differences in terms of income per capita can be noted between different Slovenian regions. These estimates suggest that in 1913 regions such as Littoral, Carinthia and Styria sustained comparatively high levels of income per capita, comparable to that of Imperial Austria, whilst Carniola continually experienced low income per capita and a low rate of growth prior to World War I. In 1913, the Littoral region (Gorizia, Gradiska, Trieste and parts of Istria) enjoyed the sixth-highest income per capita in Imperial Austria. At this time the level of nominal wages in Trieste had also converged to the Prague level.

The emergence of the first Yugoslav state, renamed the Kingdom of Yugoslavia in 1929, was accompanied by divergent levels of income per capita across the country’s different regions. Although the Kingdom of Yugoslavia established national income accounts in 1938, estimates by Broadberry & Klein (2008) suggest that by 1937 Yugoslavia experienced one of the lowest levels of GDP per capita in Europe. In terms of constant 1990 international dollars, it was one of Europe’s most underdeveloped countries in 1938. An observation by the Library of Congress (1992) described pre-war Yugoslavia as a country of stark economic divergence; between the highly-developed North and the less-developed Southern regions. In 1937 Yugoslav income per capita was 30 percent below the world average, whilst the eradication of feudalism left 75 percent of the population below the official poverty line. Slovenia however

enjoyed a substantial advantage in terms of income per capita relative to other parts of the Kingdom. Ljubo Sirc has convincingly argued that by 1939 the level of real wages in Slovenia had been steadily converging to the Austrian level. The empirical regularities of income per capita patterns suggest an unequivocal convergence to the steady state. If Slovenia enjoyed income per capita 100 percent above Yugoslav average, then in 1937 the level of income per capita in Slovenia represented 78 percent of the Austrian level in the same year. It can thus be seen that the adoption of the socialist economic model led to a disastrous economic outcome.

In 1950, the level of income per capita dropped to 34 percent of the Austrian level and remained the same thereafter. One could not describe the Yugoslav miracle (Sapir, 1986) in the late 1960s and early 1970s as a period of sustained growth, since the engine of growth did not incorporate technological change and steady productivity gains.  Instead it was symptomatic of capital deepening based on foreign aid and credit-fuelled expansion amid rachitic productivity growth. From 1960 to 1975 Yugoslavia’s annual average growth rate was 5.42 percent, whilst from 1975 to 1989 the annual rate of growth declined to 1.04 percent; one of the lowest in developing countries (Rodrik, 1998). The foregone experience of hyperinflation and the consequent collapse of the Yugoslav communist economic model resulted in a significant cumulative output decline during the transition from socialism to a market economy.