Equality, Participation, Transition: Essays in Honour of Branko Horvat

126 Market Socialism in Yugoslavia
system was legalized by the 1974 Constitution and by the 1976
Associated Labour Act. In subsequent years, parts of the system were
gradually adapted to conform with these laws. Every single part of the
economic system was affected, and an entirely new and rather awkward
terminology was invented. The most important new organizational
forms were: the so-called ‘income relations’ and ‘pooling of
labour and resources’, the institutions of ‘free exchange of labour’, and
the system of social planning.
The Basic Organization of Associated Labour (BOAL) became the
basic economic unit. According to the Constitution and the Associated
Labour Act, a BOAL is the form in which workers directly and on terms
of equality exercise their economic and self-management rights. The
official proclamation that maximization of income is the basic objective
of BOALs, as well as Working Organizations (WOs, or enterprises)
and Composite Organizations of Associated Labour (COALs), allegedly
resolved an old debate. This debate had started when Ward’s ‘natural
and rational’ objective (Ward, 1958), although accepted by most foreign
economists (Domar, 1966; Vanek, 1970; Sapir, 1980) was criticized
in Yugoslavia (Horvat, 1972; Dubravcaić, 1970).
It was assumed that social property and self-management promoted
cooperation rather than competition. This required an invention of a
new instrument which was to replace contracts between the parties in a
market economy. A Self-Management Agreement (SMA) was considered
to be an appropriate name for it. An SMA was a binding contractual
agreement, signed by two or more parties, for the realization of a specific
project with a view to maximizing their income. The agreements
were supposed to serve as microeconomic devices for inter-enterprise
and inter-BOAL communication, replacing in that role the planning
agencies under Soviet socialism and price signals under capitalism. The
SMAs were supplemented by the system of Social Contracts (SC), agreements
among political communities (governments at different levels),
or between such communities and other agents in the economy,
including chambers of commerce, trade unions, and Self-Managed
Associations of Interest (SMAIs). SMAIs were the organizational form
that linked the interests of those who used the services and those who
produced them, for example, in housing, education, and health care.
SCs were used to state policy objectives in areas such as planning and
income distribution. They were thus typical macroeconomic devices to
regulate or to help promote laws regulating economic activity.
The institution of both vertical and horizontal pooling of labour and
resources was to be another cornerstone of the system. It served above