Beginning in 1985 the Yugoslavian Zastava Automobile Company began to manufacture and export to the United States a newer version of what became popularly known as the “Yugo”, a steep discount fuel efficient car that would compete with other cheap car models produced for the American market by European and Asian manufacturers. At an introductory price of $3990 the Yugo was the cheapest car sold in the United States at that time. The Yugo became popular among American car buyers looking for a cheap, fuel efficient car and it sold quite well for the first few years after it was introduced. Despite its low cost the Yugo became very profitable for its capitalist importers and retail dealerships. However, as American car manufacturers began to offer their own price competitive, smaller and more fuel efficient cars in response to rising gas prices, sales of the Yugo began to decline a few years after it was introduced. The beginning of the end for the Yugo and the Zastava Automobile Company, not just in America but Europe and other countries as well, was hastened by the collapse of socialism in Eastern Europe and the dissolution of Yugoslavia with subsequent political instability, civil war and the devastating bombing campaign of Serbia by the US and its NATO allies in 1999 through 2000. Of particular concern was the deterioration of worker security and protection under the socialist regime as market capitalism with its predatory impact on worker rights replaced labor participation and prosperity from the production and sales of the Yugo in foreign markets.

During the post-World War Two period in the late 1940s and early 1950s, the socialist government of Yugoslavia led by Josip Broz – Tito began to adopt a more decentralized and independent form of socialism that was significantly different from the more centralized and authoritarian Soviet regime of Joseph Stalin. With the death of Stalin and reform policies adopted by his successor Nikita Khrushchev, Yugoslavian society became much more decentralized with greater flexibility and more freedom for its citizens with particular emphasis on economic affairs. Unlike its Eastern European neighbors, Yugoslavia pursued a much more liberal economic policy and nonaligned foreign policy with a closer economic and political relationship toward Western Europe and North America. The decentralization of the Yugoslavian economy, as well as its political system, was featured by a policy of worker “self-management” and greater citizen participation in the political affairs of the country. Labor unions became more independent of political authority and more responsive to the welfare and prosperity of their workers.

The enlightened policy of worker “self-management” and political autonomy was perhaps best exemplified by the economic and financial success of the Zastava Automobile Company. Zastava began as an arms manufacturer for the Serbian army in the nineteenth century. In the early twentieth century the company began to manufacture trucks, mostly for military use. In 1941, however, the German Army invaded Yugoslavia and production at the Zastava factory was halted. After the war a new socialist regime headed by the leader of the Communist Party and hero of the anti-Nazi resistance movement, Josip Broz – Tito, was established and began over the next few years to develop an economic and political system that was a mix of both market-based policies, individual autonomy and socialist management of productive resources.

The new policy of worker self-management and individual autonomy manifested itself after World War Two when workers at the Zastava company decided for themselves to begin producing automobiles. The company signed a licensing agreement with the Italian FIAT company to manufacture cars designed by FIAT. At first Zastava manufactured cars mostly for its domestic market, however by the 1970s the company began to export cars to other Eastern European countries. As Yugoslavia’s mix of economic decentralization and worker self-management resulted in greater prosperity for the working class, sales of the Zastava cars increased significantly. At prices that were affordable for workers, it became easier for consumers to take advantage of benefits for owning a car.

As the 1980s began sales of the Yugo increased significantly when the Zastava Company began to export the Yugo to countries in Western Europe. The gas shortages in the 1970s also made American consumers more receptive to purchasing cheap, gas efficient cars like the Yugo. A group of American investors got together and made arrangements to finance the import of Yugo cars into the American car market. At first sales were slow but increased during the next few years as dealers became more receptive, a large advertising campaign, and consumers were more familiar with the Yugo as an affordable option to American cars and more expensive foreign imports.

By the late 1980s the Zastava Company was producing more then 200,000 cars a year while exporting 30,000 Yugos a year to Western Europe and North America. The company was prosperous, and that prosperity typified the Yugoslavian economy at that time. Guided by the Socialist regime established by Josip Broz – Tito, and domestic policies emphasizing worker self-management, individual autonomy and cooperative efforts to manage industrial production, Yugoslavia became the most prosperous country in Eastern Europe.

With the Socialist regime in Yugoslavia factory workers at the Zastava Motor Company, and other industrial workers in Yugoslavia as well, achieved a high level of prosperity and financial security, more so than other countries in Eastern Europe. Contributing to worker benefits and welfare was the socialist policy of worker self management which emphasized labor participation in the management and use of capital resources, as well as to influence policies affecting worker compensation, benefits and job security. Worker satisfaction and productivity at  the Zastava factory was among the highest in Europe among all industrial workers at that time.At the same time labor costs at the Zastava factory did not significantly contribute to inflated prices and supply shortages. Yugo sales, especially in Europe and North America, continued steady through the 1980s as the car remained price competitive with American and foreign cars offering similar advantages.

The beginning of the end for the Yugo and the Zastava Motor Company began in the late 1980s with the collapse of communism in Eastern Europe and the Soviet Union. Regime change in Eastern Europe was particularly affected in Yugoslavia which was divided into various ethnic  and religious entities who were historically at odds with each other over various issues. The break-up of Yugoslavia did not go peacefully. Civil War broke out between ethnic and nationalist factions resulting in widespread bloodshed and significant damage to property and infrastructure. Though the Zastava Company Motor continued to operate on a much smaller scale, it became increasingly difficult to keep the company afloat as the domestic market for cars collapsed. The problems were exacerbated by supply chain shortages and other issues associated with the imposition of tariffs and other restrictive measures as each geographic entity in what formerly was Yugoslavia had their own respective policies concerning the movement of capital goods, labor, and other products between the new borders that were being established by various regimes. When Yugoslavia was a united country it was easy to move capital and labor between various parts of the country. Those advantages no longer existed and the Zastava Company could not continue to compete effectively with car companies in other countries.

The problems for the Zastava Company associated with the end of a unified and efficient central government in Yugoslavia, and lack of a coordinated economic system became exacerbated with the continuing civil war and the military intervention by NATO member countries beginning in 1999, led by the United States, to destroy what was left of the socialist Republic of Yugoslavia. The continuing military bombardment of what was left of Yugoslavia did not differentiate between civilian and military targets. In an effort to cripple Yugoslavia’s industry and economy the NATO military campaign targeted the Zastava factory in Serbia. In a vain attempt to discourage the US and NATO from bombing the factory, thousands of Zastava workers and their families organized themselves as a human shield to defend the factory. However, the US and NATO bombed the factory anyway inflicting serious and significant civilian casualties, in what would be considered a war crime against humanity if any other country carried out the attack because the factory was a civilian target surrounded by factory workers and their families.

With the end of the war in 2001 the Serbian economy was a total wreck, especially its industrial base and infrastructure. The NATO policy of regime change was implemented, enabling the US and its allies to impose an American style of market capitalism and laissez-faire economics on the Serbian people. The capitalist version of rugged individualism, “dog-eat-dog” and law of the jungle economics was installed to replace the socialist concept of worker self-management, financial security and job protection for Serbian workers and their families. The result was disastrous for the working class and other middle-income Serbians.

With the policy of promoting industrial privatization and the imposition of a vulture capitalist market economy, the Serbian government was anxious to maximize profits at the Zastava factory to attract foreign investors. The Serbian government secured loans from the World Bank in exchange for privatization and reducing labor costs. As a result unemployment in Serbia increased dramatically as thousands of workers were laid off, and the ones still employed left with wage cuts and reduced benefits. The Zastava factory became a shell of its former self, morale among the workers left at the plant was extremely low, and production was significantly reduced as the Serbian government sought a buyer for the company and its assets. Eventually the Zastava Company declared bankruptcy and the multinational firm FIAT purchased the assets for pennies on the dollar. Although FIAT operated the factory and kept it open, employment conditions for the workers was much below the compensation and benefits they received when the company was managed by workers with labor protections and financial security offered by the socialist regime.

The closing of the Zastava factory and end of Yugo production symbolizes the destructiveness of neo-liberal economic policies imposed on Yugoslavia and other socialist countries. The conditions set by financial institutions like the World Bank resulting in privatization and maximizing investor profits at the expense of workers and their families was disastrous for those most vulnerable to economic change and working conditions. While Serbia today is relatively prosperous, much of that prosperity disproportionately benefited the upper-income investor and business class, while the working class at best maintained a precarious, marginal standard of living, and in many instances saw their living standards deteriorate significantly. In a market economy driven by private ownership of capital resources, the rich in Serbia have gotten a lot richer while workers and the middle class have gotten poorer or, at best, stagnant.

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