Report No. 3452-YU 4r Yugoslavia: Small Scale Industry and Industrial Policy August 28, 1981 Country Programs Department I Europe, Middle East and North Africa Regional Office FOR OFFICIAL USE ONLY Document of the Ubrld Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise .be disclosed without World Bank authorization. Glossary of Abbreviations BOAL = Basic Organization of Associated Labor COAL = Complex Organization of Associated Labor COI = Community of Interest CTOAL = Contractual Organization of Associated Labor GDP = Gross Domestic Product ICOR = Incremental Capital Output Ratio LDR = Less Developed Regions (currently Bosnia- Herzegovina, Kosovo, Macedonia and Montenegro) MDR = More Developed Regions (currently Croatia, Serbia Slovenia and Vojvodina) Exchange Rates Following a devaluation on June 6, 1980, the market rate was adjusted from 21.08 Dinars to the US Dollar (1 Dinar = 0.047 US Dollar) to 27.40 Dinars to the US Dollar (1 Dinar = 0.036 US Dollar). Since then the Dinar has continued to depreciate against the US Dollar and on August 12, 1981, following a further devaluation, stood at 40.125 Dinars to the US Dollar (1 Dinar = 0.025 US Dollar). FOR OFFICIAL USE ONLY YUGOSLAVIA: SMALL SCALE INDUSTRY AND INDUSTRIAL POLICY Table of Contents Page No. COUNTRY DATA MAP SUMMARY AND CONCLUSIONS ............................................ i-v PREFACE ..... 1-4 I. SMALL SCALE ENTERPRISES IN THE YUGOSLAV ECONOMY ............ 5 A. The Size Structure of Manufacturing Industry ............ 5 B. The Evolution of Yugoslavia's Industrial Structure ..... 12 C. Small Scale Enterprises in Non-Manufacturing Industries ......... 21 D. The Regional Distribution of Industry .... .............. 23 II. REbOURCE USE AND PRODUCTIVITY IN SMALL ENTERPRISES ........ 27 A. Factor Intensity and Productivity in Manufacturing Industry ............................................. 29 B. Relative Efficiency in Manufacturing Industry .... ..... 33 C. Some Additional Characteristics of Small Scale Enterprises .......................................... 35 III. INSTITUTIONS, FACTOR MARKETS AND THE SIZE DISTRIBUTION OF INDUSTRY ........... 39 A. bources of Large Scale Bias in Yugoslav Manufacturing ....................................... 40 B. Factor Markets and Capital Intensity ......... .......... 44 C. Enterprise Behavior and Firm Size ...................... 46 IV. PUBLIC POLICY AND SMALL ENTERPRISES .......... ............ 47 A. The Structure of Small Enterprise Policy .... ........... 48 B. Policies Toward Small Enterprises in the Social Sector ....................................... 50 This report, which was written by John Page, represents a portion of the output of a mission which visited Yugoslavia in June 1980. The mission was led by Suman Bery and included John Page and Frederick Kilby as mission members. Additional aspects of the mission's work have been incorporated in a companion report entitled "Raising Productivity in Yugoslav Industry: Some Issues", which was distributed to the Board on August 4, 1981. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Page No. (i) Investment Policy .................................... 53 (ii) Credit and Banking Policies .......................... 54 (iii) Foreign Exchange ..................................... 55 (iv) Zoning Regulations and Construction of Work Places ... 56 (v) Linkages and Subcontracting .......................... 56 (vi) Tax and Subsidy Policy ............................... 57 C. Policies Toward Small Scale Enterprises in the Individual Sector .......................................... 57 (i) Contractual Organizations of Associated Labor ........ 58 (ii) Cooperatives ......................................... 58 (iii) Tax and Subsidy Policies ............................ 59 (iv) Subcontracting Arrangements .......................... 59 (v) The Capital Market and the Banking System .... ........ 60 V. CONCLUSIONS AND PROSPECTS ................................. 60 Annex I Notes on the Measurement of Relative Total Factor Productivity .......................................... 67 STATISTICAL APPENDIX ............................................... 68 List Of Text Tables Table No. Page No. 1. Size Distribution of Firms - Employment and Value Added in Yugoslav Manufacturing Industry 1974 .... ........... 7 2. Manufacturing Activities in which Small Scale Enterprises (1-125 Workers) Employed more than 20% of Total Workers 1974 ... 9 3. Percentage of Total Manufacturing Employment Engaged by Small bcale Enterprises; An International Comparison ........ 11 4. Social Sector Enterprises in which the Employment Share of BOALS Engaging less than 126 Workers exceeds 10 ..... ..... 13 5. The Size Distribution of Industrial Employment for Selected Years: ............................................. 17 6. Annual Growth Rates of Manufacturing Employment by Size of Firm and Type of Ownership 1954-74 ....................... 18 7. Basic Data on Output Growth in Yugoslav Manufacturing by Branches 1955-65 and 1966-74 (at 1966 Prices) ................ 20 8. The Size Distribution of Number of Establishments, Employment and Value Added in Construction, Transport and Catering 1974 ............................................... 22 9. Regional Distribution of Manufacturing Establishments and Employment by Size of Firm 1974 ......................... 24 10. The Size Structure of Regional Industry: Some Selected Indicators 1974 ............................................. 26 11. Relative Rankings of Capital Intensity and Labor Productivity for Selected Industries ..................................... 29 12. Capital Intensity in Small and Large Enterprises .... .......... 31 13. Size Categories of Firms Having Highest and Lowest Efficiency Indices .................................... 36 14. Some Additional Data on the Individual Sector 1974 .... ........ 38 15. Titles and Responsibilities of Signatories to the Social Compact on Small Enterprises for a Commune .... ....... 49 16. Fixed Assets per Worker: Maximum for Small Enteprises 1979 and Average By Product Group 1974 at 1974 Prices .... ........ 52 COUNTRY DATA - YUGOSLAVIA AREA POPULATION DENSITY 255,804 sq. km. 22.0 million (mid-1978) 86 persons per sq. km. Rate of Growth; 0.9% (from 1970 to 1978) 154 persons per sq. km. of agricultural land POPULATION CHARACTERISTICb (1978) HEALTH (1977) Crude Birth Rate (per 1,000) 18.0 Population per physician 762 Crude Death Rate (per 1,000) 8.0 Population per hospital bed 166 Infant Mortality (per 1,000 live births) 34.0 INCOME DIbTRIBUTION (1978) DISTRIBUTION OF LAND OWNERSHIP (1971) % share of household income, lowest quintile 6.6 X owned by top 10% of owners highest quintile 38.7 (social sector Kombinats) 15.1 % owned by smallest 10% of owners (private smallholders) 84.9 ACCESS TO PIPED WATER (1978) ACCESS TO ELECTRICITY Dwellings with piped water (X) 40.5 % of all dwellings (1978) 89.0 rural (1971) 80.0 NUTRITION (1977) EDUCATION Per capita Calorie Supply 3,445 Adult Literacy rate (%) 85 (1975) (136% of requirement) Primary school enrollment (x) 100 (1977) Per capita protein supply (grams/day) 101 Secondary school enrollment (s) 79 (1977) GNP PER CAPITA IN 1979 1/: US$2429 GROSS DOMESTIC PRODUCT IN 1978 AVERAGE ANNUAL RATES OF GROWTH (X, constant prices) US $ Min. % 1970-75 1975-78 1978 GDP at Market Prices 53,765 100.0 6.6 4.9 6.8 Total Consumption 38,597 71.8 6.8 4.9 13.4 Gross Domestic Investment 18,811 35.0 5.9 6.7 -3.3 Gross Domestic Savings 15,168 28.2 5.7 13.8 2.6 Exports of Goods and Nonfactor 5.7 -1.8 2.5 Services 8,655 16.1 6.3 0.7 9.5 Imports of Goods and Nonfactor Services 12,247 22.8 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1978 GDP at Current Factor Cost (1978) Labor Force 4/ Value Added Per Active Resident Worker US$ Mln. X Mln. % US$ (1978) X Agriculture 2/ 5,702 11.7 2.67 33.1 2,136 35.4 Industry 3/ 21,945 45.1 2.69 33.4 8,158 135.2 Other 20,970 43.2 2.70 33.5 7,767 128.8 Total 48,617 100.0 8.06 100.0 6,032 100.0 GOVERNMENT FINANCE, consolidated, 1978 US$ Mi. Consolidated Public Sector Receipts 20,617 Expenditures 20,885 Surplus -268 Ratio of Current Receipts to GDP at Market Prices (W) 38.3 MONEY, CREDIT AND PRICES (in billions of dinars) 1974 1975 1976 1977 1978 1979 Money Supply 5/ (end-year position) 103.4 137.8 214.3 257.2 329.2 386.4 Money Supply as X of GDP at market prices 24.3 25.6 31.4 31.9 32.8 - Bank Credit Total 6/ 359.6 451.7 569.1 699.3 884.6 1,081.4 Enterprises 276.9 350.9 443.1 539.2 682.7 841.1 Government and other Social Sector 54.6 67.2 78.3 98.4 111.6 126.6 Households 28.5 38.7 50.5 65.1 90.3 113.7 Price Indices (Annual Percentage Change) Industrial Producer Prices 29 22 6 10 8 13 Agricultural Producer Prices 14 13 14 12 11 25 Retail Prices 26 26 9 13 13 22 1/ The per capita GNP estimate is at market prices, calculated by the same conversion technique as the 1979 World Atlas. All otner conversions to dollars in these tables are at the prevailing period average exchange rate (see inside cover). 2/ Inclddes irrigation and forestry. 3/ Manufacturing, mining, construction, electricity, gas and water. 4/ Total actLve resident labor force, excluding unemployed. 5/ Currency in circulation, demand deposits and float. 6/ Short- and long-term credits. BALANCE OF PAYMENTS, MERCHANDISE TRADE AND DEBT Annual Data at Current Prices (us$ Millions) 1976 1977 1978 1979 1980 1/ SUMMARY OF BALANCE OF PAYMENTS EXTERNAL DEBT, December 31, 1979 4/ Exports (f.o.b.) 4,893 5,191 5,809 6,795 8,978 US$ Millions Imports c..f.) -7,367 -9,789 -10,439 - -15,064 Trade Balance -2,474 -4,598 -4,630 -7,225 -6,086 Debt Outstanding and Disbursed 13,645 Official (3,326) Non-Factor Service Receipts 2,275 2,755 3,140 3,901 5,075 Private (10,319) Non-Factor Service Payments 2/ -1,102 -1,008 -1,138 -1,414 -1,735 Non-Factor Services Net Balance 1,173 1,747 2,002 2,487 3,340 Debt Service Ratio 5/ (%) 19.9 Debt Service Ratio_6 (%) 14.9 Factor Service Receipts 1,974 2,640 3,120 3,581 4,247 Factor Service Payments -838 -1,135 -1,775 -2,504 -3,792 Factor Services Net Balance 1,l36 1,505 1,345 1,077 455 Current Account Balance 165 -1,346 -1,283 -3,661 -2,291 Medium & Long-Term Loans IBRD LENDING, (as of April 30, 1981) (Million US0) Disbursements 2,096 2,665 2,800 2,438 3,474 Amortization -902 -1,050 -1,300 -1,304 1,446 Outstanding & Disbursed 1,396.2 Net Disbursements 1,194 1,615 1,500 1,134 2,028 Undisbursed 1,082.2 2,478.4 Export Credits Extended (net) -100 -183 -106 -125 -221 Capital Transactions n.e.i. 3/ -205 85 318 1,306 253 Use of Reserves -989 -171 -429 1,346 231 MERCHANDISE TRADE 7! Imports Capital Goods 1,759 2,436 2,559 3,572 2,802 Intermediate Goods 4,697 5,989 6,325 8,935 11,479 Consumer Goods 911 1,208 1,099 1,512 783 Total Merchandise Imports (c.i.f.) 7,367 9,633 9,983 14,019 15,064 Exports Capital Goods 826 1,080 1,132 1,156 1,379 Intermediate Goods 2,589 2,667 2,809 3,627 4,679 Consumer Goods 1,463 1,509 1,730 2,011 2,919 Total Merchandise Exports (f.o.b.) 4,878., 5,256 5,671 6,794 8,978 MERCHANDISE TRADE INDICES 7/ 1976=100 Index of Export Dollar Unit Values 100 113 122 141 162 Index of Import Dollar Unit Values 100 114 119 142 169 Terms of Trade Index 100 101 103 99 96 RATE OF EXCHANGE Annual Averages End June 1981 US$1.00 = Dinar 18.19 18.30 18.64 19.0 24.91 33.94 Dinar = US$0.055 0.055 0.054 0.053 0.040 0.029 1/ Preliminary data. 2/ Including withdrawals from foreign currency deposits. 3/ Includes errors and omissions, short-term loans, IMF account, national and cotmsercial bank credits. (Calculated residually.) 4/ Estimated. 5/ Debt service as a percentage of exports of goods and nonfactor services. 6/ Debt service as a percentage of exports of goods, nonfactor services and factor services. 7! Merchandise trade data are estimated on the basis of statistical exchange rates which differ from period average exchange rates used in calculating balance of payments data during 1976-78. _BRD 13136R A I = T R I A - M'ST) R - F > 9 .r F 44!4~~~~~~~~~x_~ > b6TO"CPuzRv| e TRANSPORTATION INFRASTRUCTURE , 'a - -=; .> 4 r>X f R(rle d PUE 4441 4.4-T ,T4,4' -- ' 11LBAr j IHAK CA 440E A3 rt17 Z4'' )' , 4,14444 4, 44nR 4 4vt .t 44444444 - [[I (. 3 4A _43 - N /FES A L B A 5 | A L f } LJ GN.De F y \91 RUM rn t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ U GA RI TRnANSPORTATIN INFR,ASOITRUCTURE e ~ ~ __ _ __V_t t / a F' G ttg_ xIAi 444444444 44~~~~~~~~~~~~,4444 4 444444A~~~~~~~~~~~~~~~5 ~ ~ ~ ., 41444)~~~~~l 4444444444 44444444.444 .4444444 44444444444 V ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ '4' ~ ~ :l 4 4 44 4 4'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~TTL.IXN SUMMARY AND CONCLUSIONS Introduction i. Interest in and concern for small scale industry is of relatively recent origin in Yugoslavia. Beginning in the 1970's a number of planning studies and policy initiatives were undertaken with the purpose of increas- ing the output and employment contributions of small production units in the social and individual sectors of the economy. This report which is the product of a three week mission to Yugoslavia in June, 1980 focuses on issues identified during the mission as key questions of industrial policy as it relates to small enterprise development. Yugoslav readers will find little here which has not entered already in some fashion into the lively policy debate which surrounds issues of industrial planning. The problems and policy initiatives identified are in large measure those which were pointed out to the mission by the people with whom we spoke. What we have attempted to do however is to bring to bear the perspectives and experience which the World Bank has gained through its analysis of the industrial economies and small scale industrial sectors of a wide range of countries with different economic systems. We have therefore attempted to assess the causes underlying the existing size structure of Yugoslav industry and to consider the extent to which the policy framework developed to encourage the growth of small enterprises is appropriate given the broader goals of industrial policy in the 1980's. ii. It should be noted at the outset that in Yugoslavia a distinction is drawn between producers of manufactured goods in the social sector and producers of manufactured goods in the private (individual sector). Individual sector production of manufactured goods is classified as arts and crafts production while the production of manufactured goods in the social sector is considered an industrial process. By extension, industrial policy in a formal sense is solely concerned with influencing production in the social sector. Individual sector production of manufactured goods, which is constitutionally limited to firms employing less than 10 workers, falls wihin the framework of what is known in Yugoslavia as policy toward the "small economy" (mala privreda). For the purposes of this study, however, and in the interests of international comparability, we have chosen to refer to manufacturing activities in both the private and social sectors as industrial production. Similarly, statements referring to industrial policy should be interpreted as denoting policies concerned with manufacturing activities in both the social and private sectors of the economy. Objectives 1ii. Concern for the development of small enterprises arose from the belief of industrial planners that there were important gaps in the present structure of industry in Yugoslavia. The preface to this report outlines the nature of those perceived gaps and the objectives of the small enter- prise policy developed to deal with them. Goals of the policy framework - ii - fall into three broad categories: (i) altering the structure of social sector manufacturing and services by introducing new product lines in consumer goods and industrial intermediates and/or by altering the geographic distribution of industry; (ii) improving the performance of social sector industry via birth and entry of new firms, improvements in self-management at the firm level and increased competition in the social sector; (iii) developing the relationship between the social and individual sectors and providing outlets for investment and entrepreneurship in the individual sector consistent with the general goals of the society. This is an ambitious set of goals to be combined under the rubric of small enterprise policy. It has given rise to an equally complex set of policy instruments intended to meet the objectives. In order to evaluate properly the probable outcome of these policy initiatives it is first necessary to attempt to understand the evolution of Yugoslavia's present industrial structure and the nature of the forces in Yugoslavia's industrial economy which have produced the existing size structure of industry. The Size Structure of Industry iv. Yugoslavia may be unique among non-centrally planned economies in terms of the extent to which its current size structure of industry is concentrated in large production units. For all manufacturing taken cogether the share of employment in firms of less than 10 employees averages 8.5 percent for high income countries and 31.4 percent for a sample of low and middle income countries. The corresponding employment shares for enterprises with less than 15 workers in Yugoslavia are .07 per- cent for social sector industry and 9.4 percent for all manufacturing, including individual sector and social sector crafts 1/. v. Analysis of the historical record indicates that three major factors have contributed to the evolution of the present size structure of industry. First, there has been a small absolute decline in the number of enterprises and employees in individual sector craft activities. Secondly, there has been very rapid growth of large scale enterprises in the social sector in all product lines, and thirdly there have been higher than aver- age rates of growth of investment and employment in industries char- acterized by plant level economies of scale and large plant size. vi. Geographically smaller firms appear with greater frequency in the more developed republics, a pattern of development which is opposite to the "normal" positive association between per capita income and average size of firm. This anomaly has its apparent origins in the greater levels of individual sector manufacturing activity in the MDR and in the preference for large scale industrial development projects in the LDR. Resource Use and Productivity vii. Given the goals of small enterprise policy it is important to know the extent to which small size is associated with labor intensity and with 1/ These data are based on the 1974 classification of statistical units. - iii - better than average levels of total factor productivity. The evidence on labor intensity is mixed. In the social sector there is a tendency for those activities which have large proportions of small firms to be among the more labor intensive industrial groups. Within single product categories, however, there appears to be no systematic relationship between firm size and capital intensity in the social sector. In short small size does not in itself guarantee labor intensive production techniques. In contrasting the individual and social sectors there is a clear difference in factor proportions, but it is difficult to determine from the data available if the greater labor intensity of privately owned manufacturing activities arises from different techniques of production or from very cifferent types of output produced. viii. Estimates of total factor productivity by size of firm , a measure of the efficiency of total resource use, indicate that small firms in the social sector use resources about as efficiently or more efficiently than large scale enterprises across a wide spectrum of industries in Yugoslavia. Of fifteen product groups analyzed, ten are industries in which the small firm shows higher total factor productivity than the aver- age enterprise. In only three industries, non-metallic minerals, paper products, and rubber products are small firms relatively inferior to the average enterprise in terms of total factor productivity. The evidence suggests that the high incidence of large and very large scale enterprises in social sector manufacturing may have imposed some losses on the economy in terms of overall total factor productivity. Determinants of the Size Structure of Industry ix. Three areas are identified as contributing to the predominance of large scale firms in the industrial structure: (i) insufficient interest in the development of the individual sector on the part of industrial planners and policymakers; (ii) preference by planning authorities for large scale investment projects, particularly prior to the self management reforms of 1974, but also continuing into the present; and (iii) institutional aspects of the self management system which confer on larger scale enterprises economies of size. The first of these issues is currently in a state of flux. Recent efforts to promote the development of modern small enterprises in the individual sector may signal an improvement in the policy environment. The consequence of previous actions with reference to the individual sector, however, have been to make small individual sector manufacturing activities a low productivity residual employment sector. x. The structure of the capital market and the market for foreign exchange and the nature of the social obligations incurred by social sector enterprises may imply that there are economies of large size in Yugoslav manufacturing which are independent of the technology of production. These economies of size help to explain the tendency for social sector firms to expand into new product lines, increase their level of vertical integration and to grow in size even when they have exhausted technological economies of scale. Taken together the three factors outlined above provide the - iv - logic of the present size structure of industry in Yugoslavia and the rationale for the policy initiatives adopted in the 1970's for the promo- tion of small scale enterprises. Policies for Small Enterprise Development xi. As a result of the structure of Yugoslavia's decentralized system of economic management, the general strategy of small enterprise policy is set at the federal level, but actual design and implementation of policies rests with local political authorities. The main instruments employed by these agents are social compacts and self management agreements which commit the signatories to specific actions with regard to the development of small scale enterprises. xii. These parties have agreed in most cases to provide a package of incentive measures designed to counteract some of the problems faced by small firms in the social and private sectors and to promote their growth and development. Specific areas of intervention include the markets for capital and foreign exchange, zoning regulations and the allocation of space for work sites, fiscal incentives, and sub- contracting relationships between the large scale and small scale sectors. xiii. With regard to the private sector two institutional innovations, che Contractual Organization of Associated Labor (CTOAL) and the revitaliza- tion of producer cooperatives, hold the promise of greater opportunities for productive investment by private individuals in small manufacturing and service activities. The CTOAL in particular represents a uniquely Yugoslav solution to the problem of associating private and social capital. Although it is quite early in the development of these organizations, COALs appear to have had striking success in the more developed republics and the cooperative movement seems to be working successfully in localities where the political authorities have taken an active interest in its development. XiV. It is perhaps too early to evaluate fully the success of the policy actions undertaken in support of small scale enterprise. There are however some general reflections on the design and implementation of policy which may be of value at this early point in the discussion. First it is possible that the overall design of policy is too ambitious to be workable. Many of the stated goals of small enterprise policy could equally well be expressed as targets of broad industrial policy. For example changing the industrial composition of output and increasing the labor intensity of production techniques are not linked to the presence or absence of small decision making units per se. Indeed in some social compacts "small units" are not defined with reference to any measure of plant size for the attainment of some policy objectives. It would perhaps be more appropriate to take a selective approach to small enterprise policy by identifying it with only with those areas in which goals are to be attained via the development or growth of small decision making units. Other elements of industrial policy, particularly those structural goals which depend upon the growth of small production units (which may be part of large work organizations) could be set out under general industrial - v development programs. Such a distinction would increase the overall efficiency of policy implementation and would assure that instruments designed to reduce existing biases in tax, institutional and market structures which favor large scale enterprises would be appropriately targeted on small decision making units. It would also allow greater flexibility to attain general industrial development goals at least cost via whatever size unit is appropriate to the task. xv. With regard to the specific instruments of industrial policy con- tained in the social compacts there is some basis for optimism that the incentive measures chosen and the level of incentives are appropriate to reauce some of the economies of size conferred by the existing structure of the market for investment funds and foreign exchange. In a sense, though, the interventions described and evaluated in this report represent at best partial solutions to the allocation problems created by the structure of these markets. As the companion volume to this report makes clear, improvements in the functioning of the markets for the foreign exchange and capital hold the promise of increased efficiency of resource use for all size categories of firms. 1/ Partial solutions designed to affect only the allocation of resources to small firms will not be able to address the larger sources of resource misallocation . xvi. Perhaps the most important area in which this partial approach to policy design is deficient is with regard to the banking system and credit policies. The policy of reserving a line of credit for small firms to be provided at subsidized rates of interest carries with it the potential for severe misallocation of resources unless all proposed investments are systematically evaluated by the lending institutions. xvii. One area of intervention which is lacking from the present structure of small enterprise policy, at least as described to the mission, is an effective program of industrial extension and training for small firms in the social and individual sectors. Extension programs although difficult to design and implement have the potential for high returns and may represent essential preconditions for the success of other policy interventions in the individual sector. 1/ "Raising Productivity in Yugoslav Industry: Some Issues." PREFACE: THE OBJECTIVES OF SMALL ENTERPRISE POLICY 0.1 Yugoslavia's concern for small scale industry is of relatively recent origin. Beginning in the mid 1970's a number of studies undertaken at the federal and republican levels identified the small enterprise sector as an area which had received relatively little attention in the course of Yugoslavia's post war industrial development and expressed concern at the consequences of the high incidence of large scale enterprises which had beome a feature of the industrial structure. 0.2 Yugoslav industrial planners identified several industrial activities as potential areas for small enterprise development: (i) enterprises capable of undertaking small series and individual production of intermediate inputs and capital goods for the large scale, social sector; (ii) service facilities for automobiles, farm machinery and equipment, and consumer durables--particularly in rural areas and smaller cities; (iii) locally-based enterprises processing perishable or geographically dispersed raw materials for final demand; and (iv) enterprises capable of using industrial by-products and wastes as inputs. Yugoslav industrial planners argued that in each of these areas the exist- ing size structure of industry and the composition of industrial output was not capable of meeting current or planned intermediate and final demand. 0.3 It is interesting to note that the areas identified in the plan- ning documents as notably deficient in the development of small scale enterprises are precisely those modern, small-scale activities which normally develop during an economy's transition from low to middle income status in response to changes in the industrial composition of output and to changes in the pattern of consumer demand. This aspect of the problem was not lost on the authors of the studies, and considerable attention was devoted to analysis of the factors underlying the existing pattern of industrial development. In addition to discussion of a number of facets of the self management system which appear to favor large firms in the social sector (and which are explained in Chapter 3), the documents ascribed a significant measure of blame for the low level of development of the small industry sector to failures of the planning process. 0.4 The response of policy makers at the federal level to the need for a small enterprise policy framework was to seek a series of social compacts among the appropriate bodies at the republican and commune level. These social agreements insure a unity of overall design and implementation of policies for the development of small enterprises. At the federal level -2- authorities have outlined the broad general objectives of small enterprise development policy and have defined the categories of enterprises con- sidered to be eligible for incentives under the development programs. 0.5 It became clear during the course of discussion between Yugoslav policy makers and the mission that small enterprise development policy was intended to meet a number of objectives. These fall into three broad categories: (i) objectives intended to alter the structure of social sector manu- facturing and services; (ii) objectives intended to affect the performance of social sector enterprises; and (iii) objectives intended to mobilize savings and entrepreneurship in the individual sector. 0.6 The objectives intended to alter the structure of social sector industry emerge from the specific lacunae in products and services identified by industrial planners. Broadly these fall into two distinct groups, consumer goods and services and specialized industrial intermediate inputs. 0.7 Yugoslav policy makers expressed concern over the lack of spon- taneous development of social sector enterprises capable of meeting geo- graphically dispersed consumer demand for light manufactured articles and services. The high incidence of second jobs held by many craftmen (plumbers, mechanics, etc.) employed in the social sector in providing such services was cited as evidence of an inability of the existing structure of social sector industry to meet some consumer needs. 0.8 Small enterprises in this context are viewed as having a compara- tive advantage in meeting the growing requirements of the light and services consumer goods sectors. They are considered more capable of being geographically dispersed to serve local markets and as having the required flexibility to adapt quickly to changes in demand. 0.9 In social sector manufacturing the role of small enterprises was conceived of largely in terms of increasing the economy's ability to pro- vide specialized industrial intermediate goods. There has been a tendency in Yugoslavia for social sector enterprises to vertically integrate back- wards and to undertake the production of a substantial proportion of their intermediate inputs. In a number of sectors, notably in engineering-based industries, this practice has led to a lack of specialized firms capable of undertaking small series or custom production for a large number of indus- trial clients. Small scale enterprises in such engineering activities are viewed as a means for filling this particular gap in the industrial structure. 0.10 Finally, small scale firms are viewed as having substantial potential for development in industrially less developed areas. This is particularly true of activities which process agricultural commodities or other geographically dispersed raw materials. In this regard small enterprise policy became a vehicle for modifying the regional distribution of income and employment. It is important to keep in mind that the structural objectives of small enterprise policy outlined above could be achieved by other means than the creation of new small scale work organization or Basic Organizations of Associated Labor (BOALs). The fact that these objectives are linked with small enterprise development policy reflects the implicit judgment of Yugoslav policy makers that these goals can be achieved at lowest cost via the development of small firms. 0.11 The second broad set of objectives defined for small enterprise policy in the social sector is tied to improving the employment perfor- mance and, perhaps, the productivity of social sector manufacturing. The categories "small scale" and "labor intensive" were frequently linked by policy makers in discussions with the mission in describing the categories of firms eligible to receive support under incentive programs. Indeed (as the discussion in Chapter 4 makes clear), an explicit capital intensity criterion is fr-equently imposed in defining what constitutes a small scale enterprise. Thus "small enterprise policy" also becomes a policy intended to increase labor intensity by favoring product groups which are labor intensive and by directly limiting the choice of technique in new under- takings to labor intensive methods. 0.12 There is also a belief among some policy makers that facilitating the formation and entry of new small firms into social sector manufacturing may improve the competitive environment and hence the productivity of existing enterprises. The rationale underlying this approach appears to be that small firms in many industries will be willing to operate with lower overhead costs and because of close supervision of production and better coordination in self management may show greater efficiency of resource use than their large scale competitors. As the companion volume to this report documents, the issue of raising productivity in Yugoslav industry has become increasingly important; hence its presence as an objective of small enterprise policy. 1/ 0.13 Finally several discussions and a number of documents pointed to the relative stagnation of output and employment in individual sector manu- facturing activities as an area for potential concern and policy action. Policy makers agreed that means must be found to mobilize private savings, particularly those of returning migrant workers, and to channel them into productive investment activities. 0.14 There was also some concern that methods must be found, consistent with the principles of self-management socialism, to direct private entrepreneurship into manufacturing and seryice activities which are consistent with the needs of society, and that a vehicle must be found to I/ "Raising Productivity in Yugoslav Industry: Some Issues." - 4- allow dynamic individual sector enterprises to grow and transform themselves into social sector firms. In these areas small enterprise policy has come to be the principal means of defining and controlling relations between the social and individual sectors of the economy.O.15 The list of tasks outlined above is a formidible one to be combined under the rubric of small scale enterprise policy. It has given rise to an equally complex and lengthy set of policy instruments intended to meet these objectives. This report describes the evolution of Yugoslavia's present industrial structure and attempts to evaluate the institutional and market forces which have given rise to the preemimant position of large scale enterprises in social sector manufacturing. It then examines the structure of small enterprise policy making in Yugoslavia and describes and evaluates the instruments designed to achieve these policy goals in the social and individual sectors. - 5 - CHAPTER I - SMALL SCALE ENTERPRISES IN THE YUGOSLAV ECONOMY 1. This chapter examines the relative position of the small industry sector in Yugoslavia in historical and international perspective. Section (A) describes the size structure of manufacturing industry in 1974 and attempts to set it in an international context by examining the size dis- tribution of manufacturing employment relative to an international cross section of countries. Against this background, Section (B) attempts to provide an explanation for the historical development of the Yugoslav size structure of industry in the post war period, and in particular for the apparent bias toward large scale enterprises. Section (C) briefly summarizes evidence on the relative position of small production units in non-agricultural industries other than manufacturing, and finally, the regional distribution of industry by size of establishment is discussed in Section (D). A. The Size Structure of Manufacturing Industry 2. The purpose of this section is to examine the relative position of small and medium scale manufacturing enterprises in the Yugoslav economy during the 1970's. Before turning to the available evidence on the size distribution of manufacturing enterprises, however, a word is in order about the statistics themselves. The Federal Institute of Statistics pro- vioes an unusually rich body of data concerning activities in the "social sector", those enterprises in which capital is socially owned and which are labour managed. This advantage is counterbalanced somewhat by less exten- sive coverage of individual (private) sector enterprises and by occasional shifts in definition and product classification, which limit time series analysis of changes in the industrial structure to highly aggregated levels. 3. The principal sources of data on the size structure of industry are the results of three contemporaneous surveys undertaken in 1974: (i) the annual report on Mining, Manufacturing and Quarrying which covers all social sector enterprises classified as industrial by the Institute of btatistics; 1/ (ii) the annual report on "Social Craft Organizations" which covers manufacturing and service activities in the social sector which are not recognized as industries; and (iii) the "Census of Activities Performed with Independent Personal Labor with Means of Labor in Citizens Ownership in 1974" which presents data on craft and industrial activities and is based upon the extent of the division of labor within the individual enterprise. Those activities in the social sector in which production exhibits limited 1/ Manufacturing and mining includes electrical power but excludes other public utilities and construction. - 6 - specialization of tasks are classified as crafts or arts and crafts. Within the individual (private) sector all manufacturing activities are considered craft-based. 4. These three surveys provide a good profile of the structure of Yugoslav manufacturing industry, although a number of difficulties remain. Firstly, the surveys of the social and private craft sectors fail to pro- vide data by industrial activity concerning the size distribution of employment, output and capital stock. Since social sector craft-based enterprises range in size from less than 10 to more than 500 employees this omission reduces the accuracy of the detailed results for individual manu- facturing industries. The problem is less severe for the private sector where firms are limited by law to less than 10 employees. The convention which has been adopted consistently throughout this study is to present data separately at the industry level for each of the three constituents of manufacturing. 5. Table 1 shows the distribution of the number of firms, of employ- ment, and of value added by size of establishment for total manufacturing in 1974. 1/ The aggregate data are not affected by the omissions indicated in the preceeding paragraph, and thus present a complete picture of the size distribution of manufacturing firms. Private sector firms account for 95 percent of all enumerated enterprises but contribute only 9.1 percent of total manufacturing employment and 4.8 percent of manufacturing value added. Social sector craft activities do not exceed ten percent of the total in any category. Hence, the great bulk of manufacturing employment and output is concentrated in social sector industrial enterprises which account for 81 percent of total employment and 87 percent of value added. 6. The predominance of the social sector, particularly of social sector industrial enterprises, has important implications for the size distribution of manufacturing firms, employment and output. Approximately 77 percent of all Yugoslav enterprises classified as manufacturing and craft activities are single proprietorships under ownership. These enter- prises which correspond most closely to the "household" sector of many low and middle income countries consist of very small scale fabrication and repair activities usually located in the proprietor's residence. Private sector enterprises, however, are relatively insignificant in their contri- butions to total employment and output, representing 4.7 and 2.5 percent respectively. At the opposite end of the spectrum social sector industrial enterprises employing more than 500 workers represented less than 1 percent of all manufacturing firms but contributed 55.8 percent of total employment and 60.6 percent of manufacturing value added in 1974. The general picture which emerges from the data is of the very limited importance of small and medium scale firms in Yugoslav manufacturing. Enterprises employing less than 15 employees have a relative employment share of 9.4 percent and an 1/ Data on size of establishment by type of ownership are presented in Table 1.1 of the Statistical Appendix. - 7 - TABLE 1: SIZE DISTRIBUTION OF NUMBER OF FIRMS, EMPLOYMENT AND VALUE ADDED IN YUGOSLAV MANUFACTURING INDUSTRY 1974 NUMBER OF WORKERS IN ESTABLISHMENT Propri- etor Only 1-6 7-15 16-29 30-60 61-125 126-250 251-500 501 + Total Number of Firms Total 103314 25520 490 855 1357 1336 978 976 134836 Percentage Distribution 76.6 18.9 0.4 0.6 1.0 1.0 0.7 0.7 Employment (thousands) Total 103.3 101.3 11.1 37.4 122.7 239.2 346.1 1215.7 2176.9 Percentage Distribution 4.7 4.7 0.5 1.7 5.6 11.0 15.9 55.8 Value Added (million Dinar) Total 4516 4699 965 3234 10082 20109 27914 109891 181410 Percentage Distribution 2.5 2.6 0.5 1.8 5.6 11.1 15.4 60.6 Sources: SFR Yugoslavia Federal Institute of Statistics, Statistical Bulletins 957, 970, 986, 1976. - 8 - output share of 5.1 percent. Extending the size range to sixty employees increases the relative shares by only 2.2 and 2.3 percent respectively. Medium scale firms in the employment categories of 61-125 and 126-250 employees account for approximately 16 percent of total employment and 17 percent of total output. Thus, more than 70 percent of manufacturing employment and 75 percent of value added is produced in firms employing more than 250 workers. 1/ 7. Table 2 lists those industries in which firms employing less than 126 workers contribute at least 20 percent of total employment. The seven "small scale industries" listed are not surprising, since they tend to be dominated by small and medium scale enterprises in most economies. 2/ One omission from this list is conspicuous, however. Textiles, including clothing and manufacturing, are normally a source of high employment and output shares for small firms. 8. Table 2 also indicates the share of participation by private sector enterprises in the employment and output shares of small scale enterprises in these industrial branches. With the exception of printing and publishing, the private sector employs roughly forty percent of all employees engaged in small scale production. Private sector participation is particularly high in food processing and wood products where workers in 1/ Tables 1.2 and 1.3 of the Statistical Appendix present a more a dis- aggregated look at Yugoslavia's manufacturing sector. The size distri- bution of the number of enterprises, employment, and total output is presented for 16 industrial branches. These categories which are according to the pre 1976 classification scheme, correspond roughly to the ISIC three digit level. The basic statistical accounting unit was changed in 1976 from the enterprise to the Basic Organization of Associated Labor (BOAL) - which corresponds most closely to the concept of a plant or a division within a larger manufacturing enterprise. The effect of the change in accounting unit may be seen most clearly by contrasting the size distributions in Table 1.3 with those in Tables 1.4 and 1.5. There is a rise in the relative shares in the size groups 60-125 and 125-250 and a corresponding reduction in the shares of size categories exceeding 500 workers. The results at the industry level confirm the general impressions conveyed by the aggregate data. Although small scale enterprises predominate in terms of number of enterprises in most industries, their contributions to employment and value added are substantially more limited. The 1974 data do not reflect recent decentralization of decision making units into BOALs following the constitutional reform. This has led to an increase in the number of small scale social sector manufacturing units. 2/ See for example J.M. Page, Jr., "Small Enterprises in African Develop- ment: A Survey, "World Bank Staff Working Paper No. 363, October 1979, and Samuel P.S. Ho, "Small Scale Industries in Two Rapidly Growing Less Developed Countries: Korea and Taiwan", World Bank Staff Working Paper No. 584, April 1980. - 9 - Table 2: MANUFACTURING ACTIVITIES IN WHICH SMALL SCALE ENTERPRISES (1-125) WORKERS) EMPLOYED MORE THAN 20 PERCENT OF TOTAL WORKERS 1974 Small Scale as Individual Sector as Industrial Activity Percentage of Total Percentage of Small Industry Scale Total Employment Value Added Employment Value Added Miscellaneous Manufactures 49.6 28.4 38.9 37.3 Printing & Publishing 27.4 28.1 2.9 3.2 Building Materials 25.4 20.4 34.6 25.5 Leather & Shoes 21.6 17.9 41.7 24.0 Metal Products 21.3 19.8 38.5 26.3 Wood Products 21.2 16.4 47.2 26.8 Food Products 19.7 20.2 50.8 53.0 Source: Appendix Tables 1.2 and 1.3. - 10 - the private sector represent 51 and 47 percent of total small scale employ- ment respectively. Value added shares with the exception of miscellaneous manufactures, printing and publishing, and food products are markedly lower than the corresponding employment shares, tending to a value of approxi- mately 25 percent. This result is not surprising. The low relative productivity (employment share exceeding value added share) presumably reflects the greater labor intensity of private sector production. 9. In an attempt to set Yugoslavia's industrial structure within the context of a broader international framework Table 3 shows the employment share of firms engaging less than 10 and less than 50 workers for a sample of high, and middle and low income countries and the corresponding employ- ment shares for enterprises in Yugoslavia employing less than 16 and less than 61 workers. The data are subject to two sources of bias which will tend to raise Yugoslavia's employment shares relative to those of other countries in the sample. First, the cell size for firms classified as small is larger for Yugoslavia than for the other countries, and second, very small scale enterprises (those employing less than 5 workers) frequently are under-enumerated in the industrial surveys from which the comparative data were drawn. The 1974 data for Yugoslavia drawn from the census of private enterprises does not suffer from such underenumeration and thus the employment share for very small firms is probably quite accurate. 10. These two considerations notwithstanding, the evidence indicates that Yugoslavia has relatively low levels of employment in small scale manufacturing enterprises, even when contrasted with the sample of high income countries. For all manufacturing the share of employment in firms of less than 10 employees averages 8.5 percent for high income countries and 31.4 percent for the sample of medium and low income countries. The employment shares for firms with less than 15 workers in Yugoslavia are .07 percent for social sector industrial enterprises and 9.4 percent for all manufacturing, including private and social sector crafts. The disparity is even more striking comparing the relative shares of firms employing less than 50 workers with Yugoslav firms employing less than 60. In this category the mean employment share for the high income sample is 24.4 per- cent and for the middle and low income sample 52.0 percent. The relative shares for Yugoslavia are 2.4 and 11.1 percent for the social sector and all manufacturing respectively. 11. The data on individual product groups confirm the aggregate results. Yugoslavia's employment shares for firms in the smallest size category are similar to those of the high income sample but substantially below those of the middle and low income countries. When the size limit is extended to 50 employees Yugoslavia's employment share is below the mean value for the high income sample in all 13 industries for which comparable data exist and is less than the lower bound of the range in five industries - paper products, printing and publishing, chemicals, non-metallic minerals, and basic metals. Table 3: PERCENTAGE OF TOTAL MANUFACTURING EMPLOYMENT ENGAGED IN SMALL SCALE ENTERPRISES: AN INTERNATIONAL COMPARISON Firms Employing Firms Employing Firms Employing Firms Employing Less than 50 Employees Less than 60 Employees Less than 10 Employees Less than 15 Employees High Income Middle and Low Yugoslavia High Income Middle and Low Yugoslavia Countries Income Countries Social All Mfg. Countries Income Countries Social All Mfg. Range Mean Range Mean 1976 1974 Range Mean Range Mean 1976 1974 Food & Beverages 7.7-60.0 32.0 18.2-98.0 50.3 4.16 14.9 1.1-29.3 12.3 5.1-90.6 31.6 0.11 13.4 Textiles 6.9-48.6 18.2 10.8-90.0 28.7 0.65 ) 0.6-25.6 5.5 1.1-87.2 18.1 0.02 12.5 ) 12.3 Apparel 16.9-58.3 34.1 14.4-99.0 63.6 1.53 ) 2.4-22.4 9.5 5.8-97.0 46.4 0.02 Wood Products 9.8-82.4 56.1 33.5-98.0 71.3 2.81 ) 9.3-32.4 20.7 6.0-85.3 37.1 0.0 18.0 ) 17.4 Furniture 20.2-81.7 44.9 39.4-99.0 71.0 3.07 ) 3.3-36.6 16.1 13.2-96.3 45.1 0.14 Paper Products 4.8-42.4 13.9 16.3-99.0 39.0 2.57 4.1 0.6-14.9 3.0 3.2-46.3 18.0 0.03 3.8 Printing & Publishing 22.7-52.0 34.5 42.7-70.0 53.7 8.77 13.2 5.3-20.2 10.6 8.3-51.6 23.0 0.44 5.5 Leather Products 9.1-67.0 33.3 32.0-91.1 63.8 1.44 19.3 1.2-33.7 11.7 11.6-80.0 38.4 0.11 19.3 Rubber Products 9.2-29.0 16.0 6.6-80.0 40.5 1.90 10.2 1.5-11.3 4.7 4.4-57.1 19.1 0.06 9.8 Chemicals 6.0-20.4 13.5 11.5-85.0 39.0 4.11 1.5 1.1- 4.7 2.8 4.3-78.3 15.0 0.11 0.7 Non Metallic Min. 17.0-45.7 30.4 36.2-85.0 48.0 1.00 4.4 3.8-17.3 8.6 9.4-78.3 25.7 0.03 4.0 Basic Metals 2.5-37.2 9.1 2.3-50.0 18.0 0.55 0.1 0.4-9.2 1.9 1.4-32.0 6.4 0.0 0.0 Fabricated Metals 15.2-58.9 30.7 20.6-94.5 57.3 1.97 19.2 3.0-24.6 10.0 6.4-84.0 34.7 0.06 19.0 Non Electrical Mach. 5.7-39.8 21.9 15.0-92.3 51.5 0.77 NA 0.6-13.4 6.2 4.0-83.0 26.3 0.03 NA Electrical Machines 3.3-20.3 10.0 8.6-99.0 45.1 0.83 12.1 0.5- 5.2 2.3 1.7-91.2 26.6 0.01 11.8 Transport Equip. 3.0-34.0 13.6 9.4-95.0 50.0 0.48 NA 0.5-13.0 4.4 3.0-83.3 31.5 0.03 NA misc. Mfg. 16.3-63.4 40.0 26.0-99.0 64.2 6.17 39.6 3.8-25.9 14.4 5.3-95.2 39.3 0.62 37.8 All Industries 10.4-40.5 24.4 20.0-85.0 52.0 2.44 11.1 1.8-20.1 8.5 4.0-74.0 31.4 0.07 9.4 NOTES: - NA - Not Available High Income Countries: Austria (1964), Australia (1968/69), Canada (1970), Norway (1963), UK (1968), USA (1967) Middle and Low Income Countries: Algeria (1968), Brazil (1970), Columbia (1963), Cyprus (1967), Ghana (1962), Iraq (1964), Israel (1965/66), Jordan (1965), South Korea (1967), Euwait (1965), Lebanon (1964), Malaysia (1968), Mauritius (1967/68), Mexico (1965), Peru (1963), Singapore (1968), Spain (1970), Taiwan (1966), Thailand (1963), Turkey (1964), Puerto Rico (1963). Sources: Randev Banerji, "Small Scale Production Units in Manufacturing: An International Cross Section Overview" Weltwirtschaftliches Archiv, Bawd 114, Heft 1978, pp 66-83. Tables 1.1, 1.3, 1.4. - 12 - 12. Thus it appears that the size distribution of firms and industrial employment in Yugoslavia departs rather substantially from that encountered in most middle income countries. Small and medium firms are under- represented while very large scale enterprises are overrepresented relative to international norms. The divergence from the international pattern is particularly striking when considering modern small industry, those enter- prises employing between 10 and 100 workers which are characterized by substantial division of labor and managerial organization. The limited evidence available from international comparisons appears to indicate that such enterprises are particularly underrepresented in the Yugoslav indus- trial sector. 13. The limited proportion of small scale enterprises in total manu- facturing employment and output is largely a consequence of the skewness of the size distribution of enterprises in social sector manufacturing. The employment shares of BOALS employing less than 60 workers are extremely small for all industries, and only one industrial product group, animal feeds, has more than 50 percent of its total employment in BOALS of less than 126 employees. Table 4 lists those activities in which BOALS employ- ing 125 or fewer workers have an employment share exceeding 10 percent. The industries are largely consistent with those product groups found internationally to be dominated by smaller scale firms, resource processing activities, simple assembly and finishing operations, and products with local markets or relatively high transport costs. There are some notable omissions, however, including textiles, clothing and footwear which serve to emphasize Yugoslavia's departure from international norms. B. The Evolution of Yugoslavia's Industrial Structure 14. Many studies of postwar industrialization in Yugoslavia are now available. 1/ Hence the discussion here will be brief and will focus on those aspects of industrial development and industrial policy which have given rise to Yugoslavia's unique size structure of industry. 1/ See for example Vinod Dubey et. al. Yugoslavia: Development with Decentralization. Baltimore; Johns Hopkins University Press for the World Bank, 1975, World Bank, Raising Productivity in Yugoslav Industry: Some Issues Report No. 3383-YU, March 12, 1981, and Andre Sapir, "Economic Growth and Factor Substitution: What Happened to the Yugoslav Miracle?" Economic Journal, 90 (June 1980) pp. 294-313, and the references cited therein. The latter two references contain especially useful discussions of the recent pattern of industrial growth. - 13 - Table 4: SOCIAL SECTOR INDUSTRIES IN WHICH THE EMPLOYMENT SHARE OF BOALS ENGAGING LESS THAN 126 WORKERS EXCEEDS 10 PERCENT, 1974 Employment Share Percent Industry Category 1-60 Workers 1 - 125 Workers Animal Feeds 19.5 59.8 Miscellaneous Mfg. 6.2 30.2 Printing and Publishing 8.7 24.9 Building Materials 5.9 24.5 Stone and Sand 6.8 22.8 Chemical Processing 4.5 16.9 Food Products 4.1 15.2 Tobacco 3.0 15.2 Beverages 4.8 14.5 Wood Products 2.8 13.8 Furniture 3.0 13.5 Leather Products 1.8 12.5 Chemical Manufacturing 3.8 10.4 Fabricated Metal Products 2.0 10.0 Source: Appendix Table 1.3 - 14 - 15. Rapid industrialization has been a major element in the high rates of economic growth and structural change attained by Yugoslavia. Real industrial output increased at an annual rate exceeding 10 percent through- out the 1950's and 60's, and despite some apparent retardation in the period 1966-1974, industry--and in particular social sector manufacturing-- remains the leading sector of the economy. As a result of this rapid industrial growth real GNP grew at annual rates of 6-8 percent and the share of industry in national income had increased to more than 37 percent in 1974. 16. How has this rapid process of industrialization affected the size distribution of industry and the relative position of small scale indus- try? International comparisons suggest a number of hypotheses concerning the relationship between the level of income (and industrial development) and the relative magnitude of the small industry sector. First, changes in product mix in response to increases in market size and changing compara- tive advantage toward industries characterized by plant-level economies of scale tend to reduce the relative importance of those sectors which are dominated by small scale manufacturing units and, thus, the overall impor- tance of small firms in the manufacturing sector. Second, rising oppor- tunity costs of labor and consumer demands for product standardization reduce the profitability of craft-based activities and lead to a relative, and perhaps absolute, decline in the level of traditional handicraft manu- facturing. Third, economies of management and economies of scale in marketing and finance provide an incentive to concentrate resources under a single management in multi-plant (and multi-firm enterprises. Finally, improvements in transportation and infrastucture reduce the locational advantage enjoyed by small scale market-oriented firms. Thus a growing economy should experience some increase in the modal size of firm during the process of development, accompanied by a relative decline in the employment and output shares of small scale enterprises, particularly in manufacturing industry. Yet in developing countries, as well as in most industrialized economies, large numbers of small enterprises continue to exist in many industries. Apparently there are also factors which favor small and medium scale enterprises, and which are sufficiently important to offset the advantages of large size. 1/ 17. Two principal hypotheses have been advanced to explain the con- tinued competitive position of small enterprises within growing economies. The first asserts that the existence of a dual labor market in which small firms face wage costs substantially below those of larger scale enterprises allows smaller enterprises to remain competitive even when they employ older vintage technologies or fail to achieve minimum efficient scale. The effects of labor market segmentation are frequently coupled with other advantages of small size including less vigorous enforcement of government tax, employment, and safety regulations which provide an implicit subsidy to the small scale producer. 2/ 1/ Ho op. cit. and Page op. cit. document a number of their structural changes in Asia and Africa. 2/ Characteristics of Yugoslavia factor markets and their implications for industrial structural are considered in Chapter III. - 15 - 18. Even in economies without marked labor market distortions, how- ever, small enterprises remain important in some industries. The second hypothesis seeks to explain the size structure of such industries in terms of technical and economic factors which result in diseconomies of large size. btaley and Morse in their seminal study of small scale industries have grouped into eight categories those factors which determine small plant predominance in manufacturing industries. 1/ These are listed below: I. Locational Factors A. Factories which process a geographically dispersed raw material B. Products with local markets and high transport costs C. Service and speciality industries II. Process Technology A. Separable manufacturing operations B. Craft industries C. Simple assembly, mixing, or finishing operations III. Market Influences A. Differentiated products having low scale economies B. Industries serving small total markets It is usually a combination of several of these technoeconomic char- acteristics which make a given industry suitable for small scale establish- ments. Although the international evidence presented in Table 1.5 is at a high level of aggregation, those activities with high levels of small enterprise employment illustrate the nature of the Staley-Morse typology. Wood products, particularly the processing of timber, is an activity processing a dispersed raw material in the initial stage of production which is subject to substantial transport cost protection. Food products, both agricultural processing and production of food for final consumption, enjoy substantial transport cost protection coupled with perishability and technologies exhibiting constant returns. Furniture manufacturing is an example of both craft handiwork and local market orientation, and the hall- mark of the metal products industry is that its production processes can be broken down into many separate operations, permitting a high degree of specialization. 19. Thus, although there is a tendency for firm size to increase during the process of industrial development, a number of important factors contribute to the continued existence of small scale establishments in the manufacturing sector. In Yugoslavia, however, the size distribution of manufacturing employment is strongly skewed, relative to the normal 1/ Eugene staley and Richard Morse, Modern Small Industry for Developing Countries, New York: McGraw-Hill, 1965, Ch. 5-6. - 16 - pattern, toward large scale units. Indeed the most striking feature of the size distribution of enterprises is the virtual absence of firms in the size category 1-125 in the social sector and the very high employment shares of large, social sector enterprises employing more than 1,000 workers. This preponderance of large scale industry has been a persistent characteristic of the Yugoslavian industrial structure throughout the post- war period. Table 5 presents the size distribution of industrial employ- ment for selected years. As early as 1954 more than 40 percent of total employment in manfacturing and more than 60 percent of social sector employment was concentrated in establishments with more than 500 workers. The data reveal a continuous rightward shift in the distribution throughout the 1950's and 60's culminating in 1969 in an employment share in large scale firms (more than 500 employees) of 61 percent of total manufacturing employment and 77 percent of social sector employment. The 1970's have produced an apparent shift toward firms in the size categories 126-250 and 251-500 at the expense of the superfirms (1,000+), but it is difficult to establish the extent to which this merely reflects a change in the statistical accounting unit rather than in the industrial structure. The data reveal a striking and persistent bimodality in the size distribution of employment. A significant share of total employment is concentrated in the private crafts sector, largely in single proprietor enterprises coupled with a virtual absence of firms in the size range 1-125 employees. 20. Table 6 presents the annual growth rates of manufacturing employment by size of plant for the period 1954-1974 and for two subperiods. 1/ For the post war period as a whole the rates of growth of manufacturing employment have increased with plant size. For example, the rates of growth of plants employing more than 250 workers are the only ones which exceed the rate of growth for all manfacturing employment, while private sector crafts and social sector industrial firms employing less than 61 employees experienced absolute declines in employment. 21. When the two sub-periods are examined separately, however, they show significantly different patterns of growth. In the period 1954 to 1965, when the economic system was under substantial direct government control, the overall rate of employment growth was greater and the bias toward large scale industrial enterprises was more marked. The private crafts sector declined at an annual rate exceeding 3 percent while employment in firms in the social sector larger than 500 employees grew at more than 9 percent per annum. Most striking was the rapid decline in employment in small social sector firms in which employment declined at an annual rate of 14.6 percent and 8.8 percent for firms employing less than 16 and 16-60 workers respectively. The relatively high growth rates for employment in social sector craft activities suggest that movement occurred from both private sector employment and small social sector industrial establishments into social craft-based manufacturing. The size 1/ The subperiods correspond roughly to the major shift in the structure of the self management system beginning in the mid-1960's. - 17 - Table 5: SIZE DISTRIBUTION OF INDUSTRIAL EMPLOYMENT, SELECTED YEARS Total Industrial Crafts Social Sector Manufacturing Fmployment < Year (thousands) Private Social -15 16-60 61-125 126-250 251-500 501-1000 1001+ 1954 935.5 21.8 10.6 0.3 2.6 5.1 7.8 11.1 13.2 27.4 1959 1335.7 11.2 12.5 0.1 1.1 3.2 7.3 11.6 15.2 37.9 1965 1715.7 8.5 11.7 0.0 0.5 2.2 5.8 11.2 14.4 45.6 1969 1762.0 10.7 -10.4 0.0 0.5 2.1 5.6 9.6 14.0 47.0 1974 2175.8 9.1 9.9 0.1 0.8 3.2 8.1 14.0 17.2 37.6 Source: Statistical Yearbook of Yugoslavia, 1956, 1961, 1967, 1971, 1978 - 18 - Table 6: ANNUAL GROWTH RATES OF MANUFACTURING EMPLOYMENT BY SIZE OF FIRM AND TYPE OF OWNERSHIP 1954-1974 All Individual Social Social Sector Manufacturing Mfg Crafts Crafts 15 16-60 61-125 126-250 251-500 501 + 1954-1965 5.5 -3.1 6.5 -14.6 -8.8 -2.4 2.7 5.6 9.1 1966-1974 2.9 2.5 2.4 7.4 6.9 8.0 7.3 5.9 1.7 1954-1974 4.3 -0.2 3.9 -4.1 -1.3 1.8 4.4 5.7 7.4 Source: See Appendix Table 1.2 - 19 - distribution for social craft establishments, however, is relatively skewed towards medium and large scale firms (more than 125 employees) thus increasing the tendency toward a high incidence of large scale firms. 22. The period following the 1965 reform was characterized by a substantial reduction in the rate of growth of total industrial employment and a shift in favor of small and medium scale production units at the expense of very large scale plants. Rates of employment growth in units with more than 500 employees declined dramatically while enterprises in the size range 1-250 employees exhibited growth rates more than double the average for all manufacturing. Particularly striking was the shift in the employment performance of the private sector after 1965. The absolute decline in private sector employment was halted and replaced by a positive employment growth rate of 2.5 percent per year. 23. To what extent did the shift in the size distribution of industry toward larger scale production units reflect changes in the structure of the manufacturing sector? Table 7 presents evidence on the rate of growth of output in the manufacturing sector by product category. Of the six industrial groups which were found to have relatively high small scale employment shares three, metal products, food processing and printing, grew at rates faster than the average for total manufacturing in the first sub-period and only one, building materials, grew at a rate exceeding the sectoral average in the second period. The major high growth industries in both periods, electrical products, chemicals, and rubber products are activities characterized by plant level economies of scale which favor large scale units. The period 1955-1965 was one of particularly rapid development in these industries, as well as in pulp and paper manufacturing, another large scale activity. Thus changes in the industrial product mix toward activities characterized by larger scale production units accounted in part for the rapid shift in the size distribution of manufacturing enterprises during the period 1954-1965. 24. The decline in employment in small establishments was not simply a consequence of the changing industrial structure, however. Even within "small scale industries" such as wood products and building materials a marked shift toward large scale enterprises took place. In all manufacturing industries a majority of the increase in employment was in production units with more than 125 workers - a pattern of growth which has had the effect of increasing the average size of establishment in all industries. 1/ 25. In summary, three factors have contributed to the evolution of Yugoslavia's size structure of industry characterized by its high incidence of large scale manufacturing units: 1/ Appendix Table 1.6 presents the percentage distribution of the net increase in social sector manufacturing employment between 1962 and 1974 by product category and size of enterprise. - 20 - Table 7: OUTPUT GROWTH BY BRANCH IN YUGOSLAV MANUFACTURING, 1955-1965 AND 1966-1974 (AT 1966 PRICES) 1955-1965 _ 1966-1974 Percent Annual Percent Annual of Total Growth of Total Growth Branch Manufacturing Rate (%) Manufacturing Rate (%) Ferrous metallurgy 4.95 10.4 4.70 7.8 Nonferrous metallurgy 6.40 8.9 5.45 6.6 Nonmetals 2.95 14.1 3.10 5.7 Metals 21.10 13.7 21.25 7.3 Shipbuilding 2.45 9.0 2.40 9.4 Electrical 4.40 22.2 6.40 8.6 Chemicals 6.20 20.6 10.60 12.1 Building materials 5.05 10.8 4.85 7.9 Wood products 7.70 8.7 6.45 5.8 Paper 1.75 17.8 2.15 7.3 Textiles 15.10 10.2 12.80 4.2 Leather and footwear 2.85 11.4 2.35 3.4 Rubber 1.05 16.2 1.25 7.9 Food processing 10.60 14.0 1.0.30 5.5 Printing 4.00 13.4 4.00 6.7 Tobacco 3.45 6.0 1.95 2.5 Total manufacturing 100.0 12.6 100.00 7.6 Source: See Appendix Table 1.6 - 21 - (i) An absolute decline in the number of enterprises and employees in individual sector craft establishments, particularly in the period 1954-1965. (ii) Rapid growth in the social sector of manufacturing employment in the large size categories across all product groups. (iii) High rates of investment and output growth in product lines which are characterized by plant level economies of scale and which therefore have average sizes of establishment exceeding the average for manufacturing as a whole. The institutional and economic factors which underlie these phenomona are discussed in Chapter III. C. bmall bcale Enterprises in Non-Manufacturing Industries 26. Table 8 presents information on the size distribution of enterprises in the construction, transport, and catering industries in 1974. These activities are traditionally characterized by a size aistribution favoring small scale enterprises. 1/ In Yugoslavia, however, the same tendency for the size distribution of firms to be biased in favor of large and very large scale enterprises--relative to other middle income countries--observed in manufacturing is present in these non-manufacturing industries. 27. Catering is the industry in which small enterprises play the largest role. Approximately 35 percent of total employment and 40 percent of value added originate in firms employing from one to 125 workers. The private sector is quite prominent with an employment share of 15.5 percent and an output share of 23.9 percent. The favorable productivity relative for the private sector is quite striking and may indicate that in this activity private sector firms are operating more efficiently than those in the social sector. 2/ 28. In construction and transport the roles of small enterprises and of the private sector are substantially smaller. The employment share for firms of 125 or fewer employees is less than 3 percent for construction and 1/ Compare for example the evidence presented in Ho, op. cit., pp. 38-39 for Taiwan. In 1971 the employment shares for firms with fewer than 100 employees were 53.3 percent for construction and 58.6 percent for other industries including transport and catering. 2/ It is of course possible that the differential reflects greater capital intensity in the private sector, but in catering this is unlikely. - 22 - Table 8: THE SIZE DISTRIBUTION OF NUMBER OF ESTABLISHMENTS, EMPLOYMENT, AND VALUE ADDED IN CONSTRUCTION, TRANSPORT AND CATERING 1974 Percentage Distribution By Size of Establishment Individual Total Sector <29 30-60 61-125 126-250 251-500 501-1000 1000+ Construction Establishments 1068 46.2 2.3 3.6 6.3 11.6 12.9 9.0 8.2 Employment 329.6 0.2 0.1 0.5 1.9 7.0 14.9 20.2 55.3 Value Added 21753.4 0.5 0.2 0.5 1.9 6.5 13.3 19.8 57.4 Transport Establishments 24456 97.1 0.2 0.3 0.7 0.6 0.6 0.3 0.3 Employment 356.2 6.8 0.2 0.8 4.2 8.1 14.5 15.5 49.9 Value Added 33179.3 5.0 0.2 0.7 4.3 8.1 15.3 15.7 50.7 Catering Establishments 13473 92.0 3.0 1.3 1.6 1.2 0.6 0.3 0.1 Employment 158.0 15.5 2.7 4.8 11.8 18.4 16.8 18.9 11.0 Value Added 11220.2 23.9 2.3 4.1 9.5 15.6 15.6 16.9 12.1 Notes: Employment in thousands; Value Added in million Dinar Sources: Statistical Yearbook, 1976; Statistical Bulletin 968, 1976; Statistical Bulletin 992, 1976 - 23 - 12 percent for transport. In contrast the employment shares for firms of more than 1,000 workers are 55.3 and 49.9 percent respectively. The size distributions for both construction and transport are very similar to the social sector size distributions in manufacturing. There is a virtual absence of small scale social sector enterprises coupled with a very high employment share for firms in the large and very large size categories. D. The Regional Distribution of Industry 29. Differences in regional incomes and industrial development among Yugoslavia's six republics and two autonomous provinces have occupied a central place in the formulation of postwar economic policy. 1/ Attempts to equalize per capita incomes have largely concentrated on the allocation of funds for industrial investment and have had a major impact on the regional distribution of industry. Moreover, because the decentralization effort begun in 1965 has placed progressively more responsibility for industrial policy in the hands of the individual republics and communes, regional policies toward the development of private and social sector handicrafts and small scale enterprises have varied substantially in their scope and implementation. Thus, it is not surprising that the size distribution of industrial employment varies significantly between republics, and that the role of the private sector in manufacturing industry also shows substantial variation. 30. Table 9 presents the distribution of industrial establishments and employment by republic and by size of establishment. The degree of spatial concentration of industry is quite striking. Approximately 64 percent of all manufacturing establishments and 66 percent of manufacturing employment are concentrated in three republics, Croatia, Serbia and Slovenia. Private craft establishments and employment are slightly more concentrated geographically than total manufacturing; 64 percent of all private craft enterprises are in the same three republics and 68 percent of private craft employment. There is a slight tendency for the degree of concentration of employment to increase with scale of firm. Employment in large manufacturing establishments is more regionally concentrated than in smaller enterprises, but the variation in the employment distributions is surprisingly small across all size categories. It appears that because of the many linkages between large and small manufacturing establishments, the degree of spatial concentration of small and large enterprises is positively correlated. Certainly in Yugoslavia the proposition that small 1/ Useful discussions of regional economic development and development policy may be found in Dubey, op.cit., Ch. 8, and in Martin Schrenk, Cyrus Ardalan, and Nawal A. El Tataway, Yugoslavia: Self-Management Socialism and the Challenges of Development. Baltimore: The Johns Hopkins University Press for the World Bank, 1979, Chapterll, and the companion report to this volume, Raising Productivity in Yugoslav Industry; Some Issues. - 24 - Table 9: REGIONAL DISTRIBUTION OF MANUFACTURING ESTABLISHMENTS AND EMPLOYMENT BY SIZE OF FIRM, 1974 EstabLishments Distribuition by Percentage of Size Class Crafts Social Sector Manufacturing Total Private Social -15 16-60 61-125 126-250 251-500 501-1000 >1000 Total Mfg. Total Establishments 128202 2534 126 456 746 976 850 538 408 4100 134836 Bosnia-Herzegovina 11.3 9.1 6.3 7.2 10.1 12.4 11.6 16.2 14.2 11.7 11.3 Montenegro 1.2 2.3 7.9 2.6 2.4 2.2 2.0 1.7 1.5 2.3 1.2 Croatia 21.2 26.6 28.6 23.2 23.1. 18.6 20.2 22.7 23.8 21.6 21.3 Macedonia 7.7 7.5 7.1 9.4 9.7 8.4 8.0 5.6 5.9 8.0 7.7 Slovenia 10.5 16.3 10.3 13.2 11.1 14.2 16.9 16.2 20.1 14.8 10.8 Serbia 32.7 22.2 27.0 31.4 24.9 27.7 26.5 24.2 24.3 26.5 32.3 Kosovo 3.3 1.2 1.6 1.5 3.4 2.6 3.1 2.6 2.9 2.7 3.3 Vojvodina 12.1 14.2 11.1 11.4 15.4 13.9 11.6 11.0 7.4 12.3 12.2 Employment Distribution by Percentage of Size Class Crafts Social Sector Manufacturing Total Private Social -15 16-60 61-125 126-250 251-500 501-1000 >1000 Total Mfg. Total Employees 199.3 215.7 1.1 17.1 68.9 176.8 304.8 374.9 818.2 1761.8 2176.8 Bosnia-Herzegovina 9.7 12.2 8.1 7.0 9.9 12.6 11.5 16.4 16.8 15.0 14.2 Montenegro 1.1 1.3 4.8 2.9 2.3 2.0 2.1 1.6 1.5 1.7 1.6 Croatia 24.7 24.1 27.5 24.1 22.9 18.8 20.5 23.3 25.5 23.4 23.4 Macedonia 6.9 9.2 8.9 8.8 9.7 8.1 8.2 5.6 5.6 6.5 6.7 Slovenia 14.4 15.1 9.1 13.5 11.5 14.1 17.0 16.8 18.5 17.1 16.5 Serbia 28.7 32.5 28.9 31.2 23.3 28.0 26.1 23.2 24.0 24.7 25.6 Kosovo 2.4 1.5 1.8 1.8 3.5 2.4 3.1 2.8 2.5 2.7 2.5 Vojvodina 11.9 ].2.4 10.9 11.1 15.1 14.0 11.6 10.4 5.5 8.9 9.4 Source: See Appendix Table 1.1 Note: Total Employees in Thousands - 25 - enterprises are more geographically dispersed than larger scale firms is not validated by the data. In the past, therefore, small scale enterprises have contributed little to attainment of the goal of geographic dispersion of industry. 31. Comparison of the establishment and employment distributions permits some conclusions to be drawn regarding variations in the average size of private craft establishments across regions. In the two most industrialized republics, Croatia and Slovenia the employment share of private craft activities substantially exceeds their establishment share, indicating that in these two regions the size of private sector establishments exceeds the national average. In three of the less developed republics, Bosnia-Herzegovina, Macedonia, and Kosovo, the inverse relationship holds; private enterprises are smaller than the national average. Another perspective on the relationship between the level of development and the role of the private sector may be drawn from Table 10 which presents several indicators of regional industrial structure grouped by level of development. The share of total industrial employment in the private sector varies quite substantially among regions, from a maximum of 10.6 percent in Vojvodina to 6.1 percent in Bosnia-Herzegovina, and in general the more developed republics exhibit higher relative levels of private manufacturing employment. The data suggest that expansion of the private sector is positively correlated with the level of regional development, although the differences in firm size also undoubtedly reflect variations in regional attitudes toward private enterprise, a topic which we shall address in Chapter IV. 32. Within the social sector there is also significant regional variation in the size structure of industrial employment. Two summary statistics, the employment shares of small firms (fewer than 126 workers) and very large scale firms (more than 1,000 workers), are presented in Table 10, and more detailed regional size distributions are available in Appendix Table 1.7. Despite substantial within group variation, the relative importance of small and very large scale social sector enter- prises appears to vary inversely with the level of regional development. More developed republics have larger relative employment shares in small scale industry and smaller relative shares in very large scale firms. Thus, the bias toward large scale enterprises encountered in Yugoslav industry in general is exacerbated by low levels of regional economic development, a pattern which is opposite to the "normal" pattern of a positive association between level of development and average firm size. 33. The source of these variations in industrial structure probably originates in the system adopted for financing regional development. As noted above, the principal instrument of government policy aimed at equali- zation of regional levels of per capita income has been the allocation of federal investment funds for industrial development. During the period of central planning prior to 1952 investments were allocated directly from central government funds, and approximately 30 percent of total industrial investment was allocated to the less developed regions with a majority of it going to large scale industrial projects intended to exploit power and mineral resources. - 26 - Table 10: THE SIZE STRUCTURE OF REGIONAL INDUSTRY: SOME SELECTED INDICATORS 1974 GNP Per Capita Percentage of Total Manufacturing Employment In Index Individual Small 'Firms Very Large Firms (Yugoslavia - 100) Sector < 125 > 1000 Less Developed Regions Bosnia-Herzegovina 69 6.1 5.7 22.7 Kosovo 33 8.1 6.2 31.8 Macedonia 69 8.3 9.6 23.4 Montenegro 70 6.4 15.5 5.2 More Developed Regions Croatia 124 9.1 12.8 14.1 Serbia 92 9.5 8.4 23.0 Slovenia 201 7.5 10.4 16.1 Vojvodina 121 10.6 15.4 9.3 Sources: Statistical Yearbook, 1976 Appendix Table 1.7. - 27 - 34. After 1952 an increasing proportion of federal government resources was given to the individual republics with only the general sectoral allocation specified. 1/ Decisions on specific projects were left to the individual regional governments. However, during the 1957-1962 plan period the federal government undertook to guarantee a specific volume of investment from the Federal General Investment Fund to the less developed regions. Selection of projects and the allocation of funds was retained under the control of the federal government, although project implementation was left to the individual republics. Between 1957 and 1962 such guaranteed investments provided between 46 and 64 percent of total investments in Macedonia, Montenegro and Kosovo. The guaranteed investment program carried with it an important element in favor of large scale enterprises. because the federal government retained control over th, allocation of funds, it continued the selection of product groups--basic industries, infrastructure, and resource based commodities--which were dominated by large scale enterprises. 35. In 1965 the existing system of guaranteed funds was replaced by the Federal Fund for the Accelerated Development of Underdeveloped Regions. The principal resources of the fund are derived from a compulsory contribution of a fixed percentage of the social product of enterprises in the social sector. The majority of these funds are provided for industrial investment with the general purpose of the investment specified by the federal government. The past tendency has been for the republics to use resources from the Federal Fund for a small number of large scale, capital intensive projects. CHAPTEk II - RESOURCE USE AND PRODUCTIVITY IN SMALL ENTERPRISES 36. One focal point of interest in small scale enterprises has been the widely observed difference in labor intensity which exists between small and large firms. Where small scale enterprises are more labor intensive than their large scale counterparts, the observed differences in the capital-labor ratio may reflect either efficient adaptation to higher wage-rental ratios or the presence of non-homothetic production technologies. 2/ Under such conditions expansion of the small scale sector can engender an efficient labor using increase in output. A problem arises, however, if production techniques are so different between small and large firms that they do not confront the same production function. In such a case small firms may have lower capital intensity, but may be absolutely inefficient in the sense that they employ both more labor and more capital to produce a unit of output than do large enterprises. This 1/ For a comprehensive discussion of reforms in the allocation of resources, see Dubey et. al., op. cit. 2/ A non-homothetic production technology is one in which relative factor proportions vary with scale at a constant wage-rental ratio. - 28 - situation may arise either from the use by small firms of older production techniques which have been dominated by those employed by larger scale enterprises, or from technical or managerial inefficiency in the application of an undominated tech- nology. 1/ In these circumstances expansion of the small enterprise sector involves an implicit employment-output tradeoff. 37. The purpose of this chapter is to review the evidence on resource use and productivity by different sizes of firm in Yugoslavia. Unfortun- ately, valid comparisons of factor intensity and relative efficiency between large and small firms are difficult to construct, both because of limitations imposed by the available data on labor and capital and because of the level of aggregation of product categories in the industrial and craft surveys. Ideally, enterprises should be producing the same final product and must be vertically integrated to the same degree. If for example larger firms undertake distribution of their products while small enterprises sell ex-factory, apparent differences in capital intensity may reflect differences in this ancillary activity, rather than factor substi- tution in the central production process. The Yugoslav data do not permit fine product categorization nor do they allow conclusions to be drawn con- cerning the relative vertical integration (thickness) of enterprises, and therefore conclusions drawn from the data should be viewed with an appro- priate degree of caution. 38. Since capital and labor are central to the analysis, the ways in which they are measured must also be discussed. Labor, represented by the number of workers, is measured by the average number of employees in the establishment for the social sector and by the sum of average employees, working proprietors, and apprentices for individual sector firms. The main weaknesses of the labor measures are that no account is taken of variations in hours worked between firms nor of differences in the skill composition of the labor force. 39. Capital is measured by fixed assets at "purchased value" at the end of the accounting period. This is the book value required by the social accounting service for the purpose of establishing amortization funds and presumably does not include adjustments for depreciation and obsolesence. Fixed assets include buildings and structures, plant and equipment, and miscellaneous tangible assets. Working capital is not included. The problems associated with capital measures based on book values are well known. No attempt is made, however, to adjust the capital stock data to replacement cost. 2/ 1/ A dominated technique is one which is absolutely inefficient in the sense that it requires more of all factors of production to produce a unit of output than an alternative. 2/ Purchased value estimates are revalued, however, to account for infla- tion. Thus the book values for all enterprises are in current prices. - 29 - 40. Ideally, the analysis of production relationships requires the use of capital service rather than capital stock data. Capital stock is a good proxy for the service flow it provides only if it is of similar vintage and subject to similar rates of utilization across the size spectrum of firms. Neither of these issues is capable of being addressed at the industry level with the data at hand, and thus, both represent potential sources of bias. A. Factor Intensity and Productivity in Manufacturing Industry 41. Many studies have reported the tendency for small scale enterprises to be concentrated in industries which are relatively labor-intensive. In addition there are some data to indicate that within individual industries there is a positive correlation between labor-productivity, capital intensity, and firm size. 1/ The evidence from Yugoslavia reveals both supporting examples of these generalizations and a number of important exceptions. 2/ 42. The Yugoslav data reveal a tendency for those industries which have high employment shares in small scale establishments to be among the more labor-intensive product groups, and to exhibit relatively low levels of labor productivity. The six industries out of the fifteen product categories in the pre 1976 industrial classification (excluding miscellaneous manufacturing) with the highest relative employment shares engaged in small scale enterprises are listed in Table 11 along with their relative rankings for capital intensity and labor productivity: Table 11: RELATIVE RANKINGS OF CAPITAL INTENSITY AND LABOR PRODUCTIVITY FOR SELECTED INDUSTRIES Relative Ranking Industry SSE Share Capital Intensity Productivity Printing 1 12 5 building Materials 2 5 8 Leather and Shoes 3 15 15 Metal Products 4 10 9 Wood Products 5 13 12 Food Processing 6 6 7 Source; Appendix Table 1.1. 1/ See for example R. Banerji, "Average Size of Plants in Manufacturing and Capital Intensity" Journal of Development Economics, 1978. 2/ Tables 2.1 and 2.2 in the appendix present the output/labor and capital/labor ratios by size of firm for major industrial branches in 1974. - 30 - Two important exceptions, though, are building materials and food process- ing, both of which are relatively capital intensive but which have relatively high small scale employment shares. 43. Not all industry groups dominated by large plants have high capital/labour ratios, however. Textiles, electrical products and non- metallic minerals all exhibit relatively low levels of capital intensity and labor productivity, but have very low levels of small enterprise employment and output. The diversity of the results for major industry groups suggests that changes in industrial policy designed to encourage labor intensive manufactures may not of themselves lead to a shift in the industrial structure in favor of smaller enterprises. 44. Of perhaps greater interest with respect to the formulation of small industry policy is the relationship between firm size and factor intensity within product groups. Here again no simple relationship appears to hold. An inspection of the data reveals that within the social sector there is enormous variability in the capital/labour ratio across size classes of firms within most product groups. An unambiguous rise in capital intensity with size of firm occurs in only three industries, paper products, shipbuilding and printing, while an inverse relationship between size and capital intensity appears to exist in food processing, rubber products, and metal products. Table 12 contrasts the average capital intensity of small (1-125 workers) and large (more than 500 workers) plants. In eight of the 15 product groups large scale firms are signifi- cantly more capital intensive than smaller firms. In five product groups the opposite relationship holds, and in two there are no significant differences in the capital/labour ratios. Interestingly, three of the five industries in which small scale firms are relatively more capital intensive--metal products, wood products, and food processing--are among those with the largest small scale employment shares. In short no generalizations can be made concerning the relationship between firm size and factor intensity in the social sector. 45. It has also been suggested--and indeed it is essential to the efficient substitution hypothesis--that small firms exhibit higher produc- tivity of capital. Appendix Table 2.3 contains output/capital ratios for the same size and industry classifications previously discussed. Given the variability of the capital intensity data, it is not surprising to encounter similar variations in the data on productivity of capital. The output/capital ratios conform roughly to a neoclassical relationship with capital intensity; capital intensive size classes have lower productivity of capital. There are some interesting exceptions, however. In the metal products and wood products industries small firms appear to dominate large enterprises in the sense that they have both higher labour and capital productivity, as well as greater capital intensity. Similarly, in electrical products and leather and shoes in which capital intensity is the same between large and small firms the productivity of both capital and labor is greater for small size, classes. The results suggest that there may be diseconomies of large scale in these activities, an hypothesis - 31 - Table 12: CAPITAL INTENSITY IN SMALL AND LARGE ENTERPRISES Average Capital-Labor Ratio Small. -Scale Large Scale CLess Than 126) (More Than 500) Iron and Steel 33.0 376.4 Non Ferrous Metals 69.2 358.2 Non Metallic Minerals 81.0 104.6 Metal Products 249.0 85.2 Shipbuilding 26.1 123.7 Electrical Products 69.4 69.5 Chemicals 127.6 192.4 Building Materials 120.6 167.7 Wood Products 72.3 66.9 Paper Products 116.9 231.0 Textiles 81.0 66.7 Leather and Shoes 43.0 43.3 Rubber Products 121.5 109.4 Food Processing 155.2 120.9 Printing 37.1 94.2 lote: Capital/labor ratio is the arithmetic average of the relevant size classes in Table 1.1. Underlined entries are industries with more than 20 percent of total employment in small firms. Source: Appendix Table 2.2 - 32 - which is also supported by the traditionally high levels of small scale industry observed internationally in these industries. 1/ 46. The evidence on relative factor proportions and productivity falls into a more consistent pattern when constrasting crafts with industrial activities and in comparing the private and social sectors. Craft enter- prises in both the private and social sector are uniformly more labor intensive than industrial firms in all product categories. In chemicals, building materials, paper products, textiles and food processing the capital-labour ratio for crafts is less than 50 percent of that for the average industrial firm. There are at least two reasons for the observed differential in capital intensity. The first is again the problem that in most product groups it is unlikely that craft and industrial activities are producing precisely the same products. Second, even where products are sufficiently homogeneous for valid comparisons, the technologies employed by the two categories of enterprise clearly differ, since the degree of division of labor forms the basis for classification of social sector activities into craft and industrial categories in the first place. This distinction is less clear cut for private sector craft enterprises, because all firms in the private sector, regardless of their form or organization, are regarded as crafts. 47. Differences in capital intensity between the private sector and the social sector are quite striking. There is only one product group, rubber products, in which private sector firms are more capital intensive on average than social sector industrial enterprises. In comparing private and social sector craft organizations the private sector is more capital intensive in four activities - printing, rubber products, wood products, and shipbuilding and repair. 48. The productivity figures for capital and labour reveal some examples of industries in which the private sector is apparently employing techniques which are inferior to those of the social sector. Industries in which both labour productivity and the output/capital ratio for private firms are below the average for social sector enterprises include ship- building and repair and wood products. Alternatively, in the chemical, paper products, rubber, food products, and printing industries, private sector enterprises exhibit higher productivity of capital and labour than the average social sector industrial firm. On average private enterprises appear to be relatively efficient in their use of capital and labor. 49. In summary the frequently asserted positive correlation between firm size and capital intensity does not occur with any regularity in the data on Yugoslavia's social sector manufacturing industries. The data do indicate, however, that craft enterprises are more labour intensive than 1/ It is important to recall, however, that at this level of aggregation the problem of product heterogeneity between small and large firms may be severe. - 33 - industrial enterprises within the same product group, and that private firms are usually less capital intensive than their social sector counterparts. B. Relative Efficiency in Manufacturing Industry 50. Information on the relative productivity of capital and labor provides some insight into the relative efficiency of small and large industry, but it cannot systematically address the important issue of the extent to which the techniques of production employed by small firms may be more or less efficient than those of large and medium scale enterprises. To answer this question it is necessary to construct an index of total factor productivity. Differences in output among size groups of firms may be accounted for by two factors: first, changes in output due to changes in the levels of inputs (eg. capital and labor); and secondly, changes in the efficiency of resource use within each size category of firm. An index of total factor productivity permits (under fairly stringent assumptions) the separation of the efficiency component of output differences from the input component. 1/ This is accomplished by expressing unit output for each observation as the sum of the proportion of output due to inputs and a shift parameter. The shift parameter is an index of total factor produc- tivity for the firm (or group of firms) under consideration. A natural index of relative efficiency is therefore the ratio of the firm specific index of total factor productivity to the average index for the industry. The ratio summarizes the differential effects of neutral technical progress and/or neutral variations in the technical efficiency with which a single vintage of technology is operated. 51. Expressed in this way the relative efficiency of any size class of firms indicates the potential for real output gains or losses which would occur as a result of shifting resources from the average enterprise for the industry to a representative enterprise of that size class. One aspect of this measure of relative efficiency deserves special notice. The index of efficiency provides no clue as to the absolute efficiency of any size class of firms or industry. Thus, it is possible that the most efficient class of firms within any industry may be absolutely inefficient when evaluated, for example, at international prices. 52. Appendix Table 2.4 presents the results of two calculations of relative efficiency for each industry. Two factors of production were employed in the calculations, capital (fixed assets) and labor (number of employees), and output was measured by value added. In the first calcula- tion, the factor shares are the actual factor shares reported in the indus- trial survey in 1974. There has been substantial debate over the extent to which capital may be underpriced in the social sector in Yugoslavia. 1/ The specific form of the index number is discussed in Annex 1. - 34 - If this is the case, the amortization funds of social sector enterprises will fail to reflect the true elasticity of output with respect to capital. For this reason, in the second calculation capital's share is set equal to .15K/(.15K +W) where K is the industry's total fixed assets and W is actual payments to labor. The assumption is therefore that the shadow interest rate in Yugoslavia is approximately 15 percent. 53. In view of the great variability of the data on factor proportions and productivity it is not surprising to discover similar variations in the indices of total factor productivity across size categories of firms within individual product groups. On the whole the two sets of relative efficiency measures do not differ greatly. Both sets of calculations tell very similar stories with respect to the efficiency indices of social sector firms employing less than 126 employees. Of the fifteen product groups in Appendix Table 2.4, ten are industries in which small enterprises are relatively more efficient than the average firm. They are: iron and steel, nonferrous metals, metal products, ship building, electrical products, building materials, wood products, leather and shoes, food processing, and printing and publishing. In two industry groups, textiles and chemicals, small enterprises are approximately as efficient as the average firm, and in only three industries, non-metallic minerals, paper products and rubber products are small firms relatively inferior to the average enterprise in terms of total factor productivity. It is interesting to note that in each of the five "small scale industries", those in which small firms have employment shares exceeding 20 percent, the relative total factor productivity of small firms exceeds that for the average firm. Apparently there is a strong competitive basis for small scale industrial plants in these branches. 54. Contrasting the average index for small firms with that for firms employing more than 500 workers results in small enterprises showing higher levels of relative efficiency in ten of the fifteen product categories. These results suggest that small enterprises in the social sector use resources about as efficiently or more efficiently than large firms across a wide spectrum of industries in Yugoslavia. 55. Total factor productivity in private craft activities shows great variation relative to the industry average among product groups. Private craft activities are classified by their level of relative efficiency below: less than .50 .50 - 1.00 more than 1.00 shipbuilding leather chemicals wood products building materials paper products textiles metal products rubber products electrical products food processing non metallic minerals printing - 35 - It is significant that in eight of the thirteen industries in which private craft activities are found total factor productivity is less than the industry average. It is also interesting to note that the private craft activities which show high relative efficiency indices are all modern, small scale activities rather than traditional handicrafts. The results suggest that in traditional craft-based private sector manufacturing the techniques employed by private firms are of older vintage and inferior to those encountered in the social sector. 56. Table 13 indicates the size class of firm as defined in Appendix Table 1.1 which has the highest and lowest relative efficiency index in each industrial branch. It is noteworthy that large and very large scale firms are the most efficient size categories in only three product groups, iron and steel, non-ferrous metals, and non-metallic minerals--all industries which show significant plant-level economies of scale. In the remaining 12 industries the most efficient firm size is consistently smaller than 125 employees. Not surprisingly, the private sector is frequently the least efficient category of firms, but there is also a high relative frequency of firms in the size range 251-1,000 among the lowest efficiency indices. 57. The evidence suggests that the over-representation of large and very large scale firms in Yugoslav manufacturing industry may have imposed some losses in terms of total factor productivity. To the extent that data at a more disaggregated level would support these findings, it appears that small social sector enterprises are as efficient, and in many cases more efficient than large and very large scale firms. Therefore the tendency for firms to cluster in the largest size categories cannot be explained by the superior competitive performance of large scale enterprises, and indeed may have been accompanied by some sacrifice of economic efficiency. C. Some Additional Characteristics of Small Scale Enterprises 58. To this point the discussion of the intensity and efficiency of factor use in small scale enterprises has focused on capital and labor only. A central theme in much of the literature on small enterprises, how- ever, is that small firms provide an important means of human capital formation by acting as an outlet and training ground for entrepreneurs and managers. It has also been suggested that small enterprises may conserve on skilled labor and assist in capital formation by providing an outlet for investable funds. These are aspects of small enterprises about which surprisingly little is known. 59. This section considers evidence on three additional aspects of resource use by small scale activities. First, data on the skill intensity of various industrial groups in the social sector are examined for evidence of any systematic relationship between human capital intensity and the size structure of industry. Second, some characteristics of entrepreneurs in the private sector are reviewed, and third, the extent of linkages between the private and social sectors of the economy is examined. - 36 - Table 13: SIZE CATEOGRIES OF FIRMS HAVING HIGHEST AND LOWEST EFFICIENCY INDICES Size Category With Highest Score Lowest Score Iron and Steel 501-1000 126-250 16-60 126-250 Non Ferrous Metals 16-60 251-250 Above 1000 16-60 Non Metallic Minerals >1000 16-60 Individual 16-60 Metal Products Up to Above 1000 .15 sl000 Shipbuilding 61-125 Private 61-125 Private Electrical Products 16-60 Private 16-60 126-250 Chemicals *15 501-1000 <15 501-1000 Building Materials <15 Private e15 Private Wood Products 16-60 Private 16-60 Private Paper Products Individual 16-60 Individual 16-60 Textiles 16-60 Private 16-60 Private Leather and Shoes 16-60 Private 16-60 Private Rubber Products Private 16-60 Private 16-60 Food Processing >15 251-500 Individual 251-500 Printing <15 251-500 *15 251-500 Source: Appendix Table 2.4. Note: The first entry under each product category is the size category using actual factor shares. The second entry is that due to imputed factor shares. - 37 - 60. The data on the occupational composition of the labor force in the social sector are not ideally suited for a study of the relationship between firm size and skill intensity, since they are not stratified by size of firm and industrial group. Appendix Table 2.9 presents three summary measures of human capital intensity by industry for the social sector in 1976. From these data it is possible to check whether there are significant differences between the skill intensity of small scale industries--those in which firms employing fewer than 126 workers have an employment share of more than 10 percent--and all other industries. 61. The data are not very informative with regard to systematic variations in skill intensity on the basis of any of three measures. Small scale industries are quite uniformly distributed with regard to skill intensity, although there does appear to be a slight tendence for these activities to be relatively less intensive in their utilization of profes- sional workers. In sum at this level of aggregation it is not possible to support any hypotheses concerning the relationship between firm size and human capital use. 62. Table 14 presents some additional data on resource use in the private sector. One of the major goals of recent small enterprise policy has been to provide an outlet in the private sector for the skills and financial resources of migrant workers returning to Yugoslavia from abroad. Column one in Table 14 indicates the percentage of enterprises in each product group founded by returning migrants. Most striking, perhaps, is the very low proportion of firms in all industries founded by migrant workers. This may be due in part to the fact that the data refer to 1974, before the major reflux of migrant laborers, but it also tends to confirm the impression gained in the preceeding two sections that the great majority of private sector enterprises are traditional handicraft activi- ties. Those sectors which have the highest shares of migrant ownership-- transport, catering, rubber products, shipbuilding and repair, and paper and metal products--are all modern small scale activities in which the skills acquired abroad may provide returned migrants with a comparative advantage. 63. The second column of Table 14 presents data on the level of educational attainment of entrepreneurs in the private sector. The percentage of proprietors with less than four years of formal education varies quite significantly among product groups from a high of 62.8 percent in building materials to a low of 8.7 percent in paper products. Less than four years of educational attainment should indicate those entrepreneurs with potential difficulty in achieving functional literacy and, therefore, high percentages of low education entrepreneurs may indicate those industries in which the private sector is deficient in more abstract management skills. Nevertheless, limited educational attainment does not appear to be well correlated with relative total factor productivity. It is interesting to note that the chemical, paper products, and food processing industries all exhibit relatively high total factor productivity and high levels of educational attainment; rubber products and printing and publishing, however, which also have good relative total factor - 38 - Table 14: SOME ADDITIONAL DATA ON THE INDIVIDUAL SECTOR 1974 Percentage of Percentage of Establish- Percentage of Enterprises ments in which the Enterprises and of Established by Owner has less than Sales Selling to Returning Migrants Four Years of Formal Social Sector Education Enterprise Sales Non Metallic Minerals 1.8 46.4 19.6 34.7 Metal Products 3.9 28.2 24.8 56.6 Shipbuilding 4.0 22.3 16.0 30.0 Electrical Products 3.8 11.1 29.1 58.8 Chemicals 2.1 12.5 62.5 63.9 Building Materials 3.4 62.8 13.9 26.5 Wood Products 2.8 46.8 16.9 55.3 Paper Products 3.9 8.7 75.0 61.8 Textiles 2.2 38.0 6.0 32.5 Leather and Shoes 2.2 36.5 7.3 32.2 Rubber Products 4.4 56.1 50.9 60.8 Food Processing 1.7 14.5 10.8 10.7 Printing 2.2 .56.1 76.1 74.8 Miscellaneous Mfg. 3.1 31.4 33.9 58.4 Construction Trades 3.7 50.4 23.9 61.6 Personal & Other Services 2.7 17.2 8.1 21.9 Transport 8.8 30.2 43.2 65.1 Catering 5.4 32.6 8.9 2.0 Trade 2.8 34.6 4.9 1.3 Sources: Statistical Bulletin 985, 1976 Statistical Bulletin 985, 1976 Statistical Bulletin 992, 19-76 - 39 - productivity, have quite high proportions of owners with less than four years of formal education. The relationship between educational attainment and economic performance is, not surprisingly, more complex than the summary data provided here can address. 64. Finally we turn to evidence on the extent of linkages between the private sector and the social sector. The third column of Table 14 gives the percentage of firms in each industry selling a portion of their output to social sector enterprises and the share of total sales in each industry purchased by the social sector. Linkages between the social and private sectors take one of three forms: (i) purchases by social sector trading enterprises of final products produced by the private sector for subsequent wholesale or retail marketing; (ii) subcontracting arrangements between social sector producers and private firms for intermediate industrial inputs, and (iii) putting out systems where small producers perform work on materials provided by social sector enterprises. The list of enterprises with significant linkages to the social sector is unsurprising. Chemicals, metal products, electrical products, printing, wood and rubber products all sell more than 50 percent of their total output to the social sector. Most of these enterprises are presumably sub-contractors to social sector productive enterprises. At the opposite end of the spectrum the food processing, leather, building materials, and textile enterprises in the private sector sell the bulk of their output directly to individual con- sumers. Comparing the enterprise shares with the sales shares indicates that those firms in the private sector which provide inputs to the social sector tend to be among the larger private enterprises. This result is particularly striking in the wood products, metal products and electrical products industries. 65. The spatial distribution of linkage effects closely parallels the regional distribution of per capita incomes. The more developed regions of 6lovenia, Croatia, Serbia and Vojvodina all have significantly greater shares of private sector output purchased by the social sector than do the less developed regions. Appendix Table 2.10 provides a regional breakdown of private-social sector linkages by industry. The limited extent of link- ages in such regions as Kosovo and Montenegro reflects the industrial structure of those regions. The concentration of investment in basic industries and the relative lack of processing activities has left little potential for linkages to small intermediate producers. The high incidence of sales to private consumers also reflects the greater handicraft basis of small private firms in those regions. CHAPTER III - INSTITUTIONS, FACTOR MARKETS AND THE SIZE DISTRIBUTION OF INDUSTRY 66. The preceeding two chapters have examined the size distribution of Yugoslav industry and the relationship between firm size and resource use and productivity. In this chapter a number of hypotheses are advanced concerning the institutional and market sources of Yugoslavia's size distribution of industry. In addition the factors affecting the choice of technique by various size categories of firm are discussed. - 40 - A. Sources of Large Scale Bias in Yugoslav Manufacturing 67. The most striking aspect of the size distribution of employment and output in Yugoslav manufacturing industry is the extent to which large ana very large scale firms dominate most branches of industrial activity. Clearly, there are a number of factors at work which enhance the competitive position of large scale industrial establishments, even in industries which are dominated by small and medium scale firms in most economies. The bias toward large scale has been a persistent characceristic of the postwar industrial structure in Yugoslavia. Its origins lie in the central planning period, 1947-1954, but this bias has persisted through the series of reforms in the 1960's and 1970's which gradually liberalized and decentralized economic policy making. Only very recently have the costs of excessive size in manufacturing and services become a topic for research and policy debate. A consequence of this evolving industrial structure has been a virtual absence of the small scale modern industrial plants which contribute significant shares of industrial employment and output in other middle income countries. 68. Three major historical factors have influenced the size structure of manufacturing industry; (i) Low productivity and stagnation in the individual sector have resulted in very limited development of non-social sector indus- trial activities. Small private firms have not increased in size, nor have they evolved from craft to modern industrial activities. (ii) Economic decisionmakers, either directly through the allocation of investment funds or indirectly by influencing project selection by social sector enterprises, have exhibited a marked preference for large scale industrial projects. (iii) The structure of the markets for capital and foreign exchange and the nature of social services provided by social sector manufac- turing enterprises have conferred economies of large size on social sector firms. 69. The Yugoslav government has pursued a consistent strategy in the postwar period of rapid investment and growth in the social sector coupled with measures which were mildly inimical to the development of private manufacturing activity. The Yugoslav constitution guarantees certain rights to private entrepreneurs and establishes the legal basis for the existence of the private sector. There are, nevertheless, certain restrictions placed on private enterprises. Private firms are limited to not more than five employees, excluding working proprietors and family workers. 1/ This restriction is very clearly reflected in the small size of the average private manufacturing enterprise. It also precludes the 1/ A recent policy change has increased the maximum size of firm to 10 employees in some republics. - 41 - possibilities for expansion of successful small firms into medium scale enterprises and has created incentives for successful private entrepreneurs to diversify their activities rather than concentrate on the development of a single enterprise. 70. There has been considerable variation over time and across republics with regard to the rights and obligations of the private sector. The nature of decentralized policymaking in Yugoslavia has placed great authority for the formulation and implementation of small enterprise policy in the hands of the individual republican and communal governments. The consequence has been that even under a nominally unified legal framework with regard to the private sector, there has been substantial variation in the interpretation and application of laws concerning taxes, social contributions, health and safety regulations, price control, infrastructure and zoning. Notable among these as a constraint on the development of the private sector is the issue of space. In many large cities and new developments worksites were not established for small craft enterprises, and appeals for changes in zoning and applications for the existing workplaces were frequently subject to complex and slow review by local officials. I/ Thus, efforts to found new private craft activities or to expand existing enterprises were frequently hampered by lack of space. Even where policies or administrative procedures were not unfavorable to private firms, the potential for local discretion and changes over time in the policy environment undoubtedly increased the uncertainty faced by private sector entrepreneurs. Such uncertainty tends to bias project selection in the private sector toward short gestation investments with limited non-recoverable fixed costs, and, therefore favors investment in transport and services at the expense of small scale manufacturing activities. 71. Access to the markets for capital and foreign exchange has similarly been quite limited for private sector firms. This is not unique to Yugoslavia. Limited access to the commercial banking system appears to be a universal characteristic of small firms in low and middle income countries. The high unit costs of making small loans coupled with the riskiness of many small ventures, and the frequent lack of managerial skills of small entrepreneurs, all combine to make lending to small enterprises relatively unattractive, particularly where interest rates are subject to legal maxima. All of these considerations apply in Yugoslavia. In addition, the structure of the banking system, with its intimate links to social sector enterprises, frequently results in preemption of funds by Bank members. The Mission found that small private firms in Yugoslavia make very limited use of the banking system for financial capital. Most investment resources are drawn from private savings and, hence, the scope for expansion is constrained by the volume of savings of the enterprise. 1/ The problem of local discretion in the application of policies with regard to the individual sector was raised on several occasions by Federal and Republican officials in discussions with members of the mission. - 42 - 72. The market for foreign exchange is also largely closed to private firms. Foreign exchange for investments in plant and equipment must be obtaineci through "communities of interest" which frequently have many competing claimants for the available resources. 1/ Allocations are determined on the basis of a number of factors including the applicants ability to generate or save foreign exchange and with the exception of Croatia individual sector firms have not been allocated quotas. 73. The foregoing factors have served to some extent as a brake on the development of dynamic small firms in the individual sector of the economy. Lack of growth in the individual sector coupled with the very rapid expansion of social sector enterprises in manufacturing has led to a relative decline in the share of the individual sector in manufacturing output and employment, and the individual sector has contributed relatively little to the development of small modern firms despite the base of skills existing in craft activities. 74. Rapid expansion of the social sector has also carried with it a number of forces which have favored the development of large scale enterprises. 75. Economic decisionmakers have apparently exhibited a preference for large scale projects throughout the history of Yugoslav industrialization. The period of central planning was characterized by very rapid growth of large and very large scale enterprises and by sectoral allocations of investments favoring those branches of industry with significant plant level economies of scale. The impact of the Social Investment Funds on the size structure and regional distribution of industry was discussed in Chapter 1 (D). The result was a very rapid shift in the size distribution of enterprises in the social sector toward enterprises employing more than 500 workers. 76. bince 1955 the relationship between the enterprise, which is now the primary unit for planning of investments, and the socio-political authorities has become a progressively more intricate one. The primary policy linkage which exists at present is that between the commune and the firm. The principles of self-management socialism emphasize the need for consensus among decision making units within the society, and, hence, the desires of political authorities at the commune level will be reflected in the enterprise as objectives (or, perhaps, constraints) of the planning process. beveral writers have empMasized, however, that this relationship bears little similarity to the more conventionally understood hierarchical 1/ Communities of interest are a uniquely Yugoslav institution which exist to perform the function of allocating certain economic resouces among their members. The community of interest for foreign exchange, for example, supplants both the market and the central government as a mechanism for allocating foreign exchange. - 43 - relationship between public sector enterprises and the government in mixed or centrally planned economies. 1/ Nevertheless, communal desires for expanded industrial development are important elements in establishing the investment programs of social sector enterprises. Since large projects are easier to oversee, generate a greater volume of employment and carry a certain element of prestige, it is not surprising to find local authorities pressing for new large scale investments by existing enterprises within the commune. These desires are in turn incorporated into the planning process of the enterprise, and, subject to its investment criteria, may be realized as incremental investments. 77. Within the social sector there are a number of institutional aspects of the markets for capital and foreign exchange which create scope for economies of size in industrial enterprises. Because the accumulated surpluses of individual BOALs remain under their permanent control, banks do not act as autonomous financial intermediaries. They are instead service organizations for their individual members (BOALs and enterprises) which retain the right to make allocative decisions regarding their deposition and are liable without limitation for obligations incurred by the bank. Large enterprises under such a set of institutional arrangements enjoy several important advantages. They are able to mobilize a substantial amount of investment resources within the firm, and they presumably exercise an important degree of influence over the lending policies of their basic banks. They are better able to bear risks and to cover temporary shortfalls in the incomes of constituent production units, and they are better placed by virtue of their size to call upon Federal and Republican government investment funds administered through the banking system. Moreover, since low interest rates on Bank borrowing have resulted in more claimants for funds than there are resources available, large size may confer some advantage in the bargaining process which determines the allocation of bank funds. 2/ These factors may have the consequence of "locking out" smaller enterprises from access to funds from the banking system. 78. The lack of true financial intermediaries within the system also tends to bias project selection by social sector firms toward reinvestment within the enterprise. The absence of channels for investment outside the enterprise means that there are few signals to indicate the returns foregone by undertaking expansion projects. Firms may therefore grow inefficiently large, since the opportunity costs of such growth are not clearly indicated. This problem is exacerbated by policies which keep 1/ See for example Martin Schrenk, "Managerial Structures and Practices in Public Manufacturing Enterprises: A Yugoslav Case Study," Public Finance Division, Development Economics Department, The World Bank, May 1979, and the companion volume to this report "Raising Productivity in Yugoslav Industry: Some Issues." 2/ A fuller discussion of the capital market and its role in promoting the efficiency of industrial investments is contained in the companion volume to this report. - 44 - interest rates on assets low or negative in real terms. Negative interest rates imply a loss in the real value of surpluses not reinvested in the enterprise. 79. The structure of the market for foreign exchange confers similar advantages of large size. Import entitlements for intermediate goods are linked to export earnings at the BOAL level. Large enterprises can organize internal markets in foreign exchange to transfer entitlements from surplus to deficit BOALs. Smaller firms requiring foreign exchange in excess of their entitlements must enter into self-management agreements with net exporting enterprises. Any scarcity value of foreign exchange paid by the smaller firm will be reflected in the transfer price of products negotiated between the enterprises or in explicit resource transfers. The absence of an explicit market for foreign exchange undoubtedly places smaller firms at a disadvantage in such negotiations due to lack of information and the asymmetry of economic power between the agents. 80. The nature and extent of social services provided by enterprises in Yugoslavia may also confer economies of large size on social sector firms. Enterprises are required to provide housing, recreational facili- ties and other social services to their employees, and in a number of these activities, particularly those related to construction, there may exist substantial economies of scale. Thus, the institutional structure of the social sector with regard to the obligations of enterprises to their workers provides additional incentives for increasing the size of firm beyond those derived from plant level economies of scale. B. Factor Markets and Capital Intensity 81. In many countries differences in factor proportions between small and large firms are the consequence of differences in the factor price regimes which they confront. Within Yugoslavia's social sector, however, all enterprises with access to the capital market regardless of size apparently face very similar wage-rental ratios. 82. Because income determination in self-managed firms occurs as a consequence of the division of net enterprise income among the employed labor force, it is possible ex-post to observe substantial variations in the personal incomes of workers with equal attributes among firms. Ex-ante, however there are a number of factors which cause the planning wage employed by all enterprises to be equal for homogeneous skill groups. The federal government publishes extensive statistical data on the incomes and qualifications of workers in various skill categories. These data are translated by enterprises into a system of "work points" which are used for planning purposes. Labor inputs are planned in terms of points and trans- fer prices are established among BOALs and enterprises to insure ex-post realizacion of the planned income for each skill category. New investments are similarly evaluated on the basis of these standardized personal - 45 - incomes. Thus although wages in the neoclassical sense do not exist within Yugoslavia's social sector, a set of shadow or planning wage rates does exist. These shadow wages are uniform across regions and across all size classes of social sector enterprises. 83. Policies are similarly unified with regard to fringe benefits of laborers. In principal the overhead costs associated with a workplace do not vary across firms. Obligations in terms of contributions for health insurance, social security, and stipulated obligations to the commune are equal for all social enterprises. Thus for the purpose of planning investments--if not in the actual realization of incomes--Yugoslav firms in the social sector face a unified labor market with a single structure of planning wages and fringe benefits. 84. Wage rates in the private sector, however, are not part of this unified structure. Minimum wage legislation sets a floor under the structure of wages paid by private sector establishments, and recent legis- lation extends to private sector employees similar fringe benefits to those of social sector workers, but working proprietors and family workers who form the bulk of the private sector labor force are not subject to these legal restrictions. For this reason the opportunity cost of labor to the private sector may be expected to vary across republics and in those areas which are primarily agrarian it may be lower than the planning wage used by the social sector. 85. The capital market is similarly unified in the social sector. bince 1974 the banks have been owned and controlled by the social sector enterprises themselves, and with enterprises as the major borrowers banking policy has been committed to maximization of lending at the lowest possible cost. Interest rates have been upwardly inflexible, and given the rates of inflation experienced, have been persistently low or negative in real terms. 86. The interest rate is not used by banks as a credit allocation device nor is there much variability in the rate in response to the aaministrative costs or level of risk involved in a loan. Under these con- aitions there are more claimants for investment funds than there are funds available. As noted in section (A), credit rationing policies may favor larger borrowers, boch because of their greater influence in determining banking policy and because of the lower real costs of administering loans of large size. 1/ The level of risk attached to loans to smaller sized, social sector enterprises may be greater as well. These factors tend to give the large firm greater access to the capital market, but they do not affect the opportunity cost of funds borrowed from the banking system. bince there are no alternative sources of credit, lack of access to funds from the business banks may retard the growth of smaller enterprises but it does not force them into higher cost sources of capital. 1/ These economies of size derive both from the ability to spread fixed costs over a large loan amount and from the superior ability of the large organization to provide data (eg. feasibility studies) in a form which is readily usable by the banking system. - 46 - 87. The private sector has in large measure been excluded from access to commercial credit. Hence, the opportunity cost of investments in the private sector varies with the origin of the savings of the enterepreneur. bavings denominated in Dinars presumably have as alternative uses investment in private agriculture, which has been subject to low returns, or investment in the banking system which has paid low rates of interest on time deposits. Foreign exchange savings on the other hand have a relatively high opportunity cost. The banking system offers foreign currency accounts which carry relatively high nominal rates of interest and which offer a hedge against inflation. If the bulk of new investments in the private manufacturing and services sector is being made by returning migrant workers, opportunity costs of capital in the private sector probably exceed those in the social sector. 88. This pattern of wage-rental ratios--uniform across all sizes of firm in the social sector and lower for private than for social sector firms--is broadly consistent with the observed factor intensities in the industrial sector. The absence of any systematic pattern of variation in capital intensity with firm size would support the hypothesis that all firms in the social sector face a unified factor price regime. In most industries private sector firms are less capital intensive than their social sector counterparts, and direct comparison of private and social craft activities within a single product group reveals a similar pattern of capital intensity. 89. Dualism in the labor and capital markets also presumably helps to explain the continued existence of those classes of private sector firms which employ inferior technologies at very low relative levels of produc- tivity. There is little opportunity for mobility of capital and labor out of these low profitability activities. C. Encerprise Behavior and Firm Size 90. It would be inappropriate to close this chapter on enterprise behavior and factor price regimes without a brief discussion of the possible ways in which worker self-management may affect the size distribu- tion of firms in Yugoslavia. There is a substantial body of literature which analyzes the implications of self management for the choice of technique and investment planning. 1/ The implications of the theory of the self-managed firm for the size structure of industry have been less thoroughly explored. There are, however, a number of characteristics of self management which point to a tendency to preserve the large-scale bias inherited from the central planning period. First, income maximizing enterprises have an incentive to exercise market power where possible and to aeter new entry, since free entry of competitors is one mechanism by 1/ See for example the discussion in the companion volume to this report pp. 39-41. - 47 - which incomes are equalized. Therefore existing firms will attempt to maintain their market share or expand it through increased investment in promising product lines. Secondly, when self-managed firms are constrained to be wholly self-financed there is a tendency toward underinvestment and sub-optimal size in new enterprises. 1/ In the absence of access to external finance there will be little incentive for formation and entry of new tirms in existing industries. Given the nature of the banking system, the self-finance requirements of existing large scale firms are lower than those for potential entrants thus enforcing a barrier to entry which may effectively deter the formation of new, small firms. Response to increases in product demand will take the form of new investment and capital deepening within existing firms. 91. These considerations suggest that given Yugoslavia's institutional framework, self-management is consistent with and may reinforce a bias toward large scale enterprises. While there are no apparent forces under self-management to encourage the formation and entry of new firms in exist- ing industries. Thus the size structure of industry inherited from central planning was probably reinforced by the behavior of self-managed enterprises in the post reform period. CHAPTER IV - PUBLIC POLICY AND SMALL SCALE ENTERPRISES 92. In recent years the government of Yugoslavia has undertaken a number of policy initiatives intended to stimulate the development of small scale enterprises in both the social and private sectors of the economy. This chapter outlines the structure of policy making with respect to small scale enterprise in Yugoslavia's decentralized planning system and aiscusses the policy instruments which have been proposed for the develop- ment of small scale industry. Section (A) attempts to delineate the goals and responsibilities of the various levels of government, socio-political communities, and economic agents in the design and implementation of small enterprise policy. Section (B) examines the policies which have been applied to small firms in the social sector, and Section (C) considers the role of the private sector in manufacturing and services and discusses the policy initiatives undertaken to stimulate private investment. 1/ This result stems from the fact that self-finance implies that individual worker-investors give up the property rights to the principal invested. Returns must therefore be substantial to compensate for the loss of the principal sum. See Jaroslav Vanek, "The Basic Theory of Financing of Participatory Firms" in Self-Management: Economic Liberation of Man, London: Penguin Press, 1975. - 48 - A. The Structure of Small Enterprise Policy 93. Prior to 1976, no coherent policy with regard to the development of small enterprises had been evolved on the federal level and perhaps as a result, there had been a failure to achieve consensus among the parties charged with the implementation of industrial policy--the communes, the banks and social sector industrial firms, and the communities of interest and other socio-political bodies--on appropriate measures for the develop- ment of small scale enterprises. Lack of consensus at the local level effectively meant that a policy of benign neglect was pursued with respect to the development of small firms in the social sector. In view of the strong institutional and economic incentives for large size in the Yugoslav industrial sector this lack of active intervention had the effect of limit- ing the creation of new small enterprises in the social sector. In addi- tion there was considerably variation in the attitudes and policies adopted by local authorities toward the development of private craft establish- ments, with the result that in some localities their expansion was actively supported while in other areas the policy environment was less supportive. 94. The response of policy makers at the federal level to the question of consistency of the policy framework was to seek a series of social com- pacts among the appropriate bodies at the republican and commune level. These social agreements insure a unity of overall design and implementation of policies for the development of small enterprises. At the federal level signatories to the social compacts on the development of small scale economic activities include the Federal Executive Council and the executive councils of the assemblies of the republics, the conferences of the Socialist Alliance, the Confederations of Trade Unions, and the Chambers of Economy of the federation and of the individual republics and provinces, and the conference of cities and communes. These parties agree by means of the social compact to develop small scale social sector enterprises and to create a policy environment which is favorable to the growth of private craft activities "in line with the needs of society". The document pro- vides a broad general definition of small scale enterprises and binds the signatories to "enact concrete programs for the development of small scale economic activities." 1/ Several specific areas of intervention are dis- cussed including the markets for capital and foreign exchange, the provi- sion of skillea workers, and the allocation of work sites. Actual policy design and implementation, however is left in the hands of the individual republican and communal governments. 95. At the level of the commune, social compacts and self-management agreements define the scope of small enterprise policy and outline the responsibilities of individual signators for the design and implementation of policy. Table 15 presents an outline of the economic and political agents responsible for the development of small enterprise policy within 1/ Socialist Federal Republic of Yugoslavia, Federal Social Compact on the Development of Small Economic Activities, 1980 - 49 - Table 15: TITLES AND RESPONSIBILITIES OF SIGNATORIES TO THE SOCIAL COMPACT ON SMALL ENTERPRISES FOR A CONMUNE Title Responsibility Commune Assembly: Draft and monitor implementation of medium term plan. Facilitate construction of structures. Regulate Private/Social sector taxes and contributions. Grant individuals exemptions of communal income taxes, Provide incentives for the training of apprentices. Establish commercial space for small enterprises. Self Managed Special Interest Commaunity (SIZ) for: a. Employnent Security Provide funds for small enterprise program. Help structure incentives for return of migrant workers and provide investment incentives for their employment in small business. Assist in manpower planning and vocational training. b. Vocational Education Assist in manpower planning and vocational training. c. Housing Provide for the inclusion of a stipulated minimum amount or commercial space in residential areas. Provide rent subsidies and limit rent increases on commercial sites. Grant priority for the aquisition of commercial space to small enterprises. d. Building sites Establish coning regulations favorable to the developnent of small manufacturing and service activities. e. Social Services(a) Exempt small enterprises in the social sector fron a portion ov statutory contributions for health, education, and wrifaro,. Commune Conference of the Initiate the adoption of social compacts and self-manog-mrnt Socialist Alliance (SSRN) agreements on omali enterprise development. Bring influence to bear on the media to concern itself with problems of small enterprise development. Local Communities Include the allocation of space to snall enterprises in the urban planning process. Identify the needs of consumers for products and services. Encourage handicraft and touristic enterprises in private households. Commune Council of the Extend aid to small business to improve work skills. Federation of Trade Unions Insure social benefits and minimum wages are obeerved in the private sector. Stimulate larger organizations of associated lahor to invest social capital in small enterprises. Establish the general basis for self management agreements on personal incomes in small business. Republican Chamber Help establish the criteria governing small enterprise programa. of Economy -To facilitate exports of small enterprise products. Monitor the performance of signators to rho social compact and propose measures to overcone difficulties in imiplementation. Commercial Banks EStablish credit policies for the promotion of small business. Seek and provide sources of subsidized credit to small social sector firms. Equalize lending policies and interest rates between small private and social se.:tor enterprises. Large social sector Provide technical assistance. enterprises Provide financial resources to small social sector firms. Establish small scale BOALs within their own organizations. Bureau for the Development Draft and monitor investment programn for snall and ?romotion of Small enterprise development. Business Draft short and medium term plans for the growth of the small enterprise sector. Establish priorities for allocation of oredit. Encourage the development and growth of individual sector and affiliated private and social sector firms . Oversee the planning process and monitor plan iaplementation. Notes: (a) Includes SIZ for education, child welfare, serial welfare, culture, physical education and medical insurance. Source: Based upon Titograd Commune Secretariat for Economy. Social Compact en Stimulating the Developont and Advancement of Small Business in Titograd Commune, Titogr-d, June 1979. - 50 - the Commune of Titograd and details their principal responsibilities. 1/ There are a number of important additions to the signatories of the social compact at the local level. These are the communities of interest, the banks, and major enterprises in the large scale social sector. As is clear from the table, much of the responsibility for the actual implementation of small enterprise policy rests with these bodies. 96. Primary responsibility for the design of small enterprise plans and for evaluation of projects rests with the newly established bureaus for the promotion of small enterprises. These organizations act within the chamber of economy in a manner analogous to the associations of manufactur- ing industries to represent the interests of their members and to coordin- ate investment decisions. The planning process within the chamber of economy is formalized in self-management agreements which assign quantita- tive targets for investment, output and employment, and which specify the responsibilities of enterprises, banks, and the chamber of economy in plan implementation. 97. Resources for investments in the social sector are made available by the federal government via the newly created "Federal Fund for the Creation of Employment in Less Developed Areas", and by republican and local communal governments. The banks have also undertaken to set aside a portion of their loanable funds for the use of small scale enterprises in the social sector. And. social sector enterprises may be requested to contribute a portion of their accumulation funds to the social capital of a proposed small enterprise. B. Policies Toward Small Enterprises in the Social Sector 98. Because the framework for the design and implementation of economic policy in Yugoslavia is highly decentralized, the specific policy instruments applied to promote small scale industries tend to vary both among republics and across communes within individual republics. Indeed, there is even some variation in the definition of a small scale enter- prise. For this reason the discussion here will be kept at a fairly general level, emphasizing the common elements of industrial policy toward small scale firms. 99. As defined by the federal and local social compacts small scale enterprises in the social sector must be individual production units which are both limited in terms of their total employment and are labor inten- sive. The following categories of social sector enterprises are generally 1/ The Titograd Social Compact was chosen, because it appears to be representative of many communal agreements on small enterprise policy. - 51 - covered by these criteria: (i) Organizations of associated labor which are engaged in the produc- tion of small series or custom order products which carry out production under cooperative arrangements and which meet a sector specific cost per job criterion. These may be: a. BOALs which are members of work organizations employing no more than 125 workers; b. BOALs which are members of larger work organizations provided that BOAL itself is smaller than 125 employees; and c. Work Organizations which have fewer than 125 workers. (ii) BOALs and Work Organizations which are engaged in handicrafts and artistic crafts regardless of the number of workers employed and of capital intensity. (iii) BOALs and Work Organizations which are engaged in repair and service activities for consumers regardless of the number of employees or capital intensity. (iv) Contractual Organizations of Associated Labor. 100. It is clear from these definitions that small enterprise policy in Yugoslavia is intended to serve several simultaneous purposes. It is intended to increase the labor intensity of the manufacturing sector both by favoring product groups which are relatively labor intensive and by establishing a maximum value for fixed assets per worker in the enterprise. Table 16 lists the fixed assets per worker allowed by one social compact and contrasts those values with the average capital-labor ratio for the product group in 1974. The cost per job criterion is not unduly restrictive. Most of the capital-labor ratio ceilings imposed are near the average for the industry in 1974 at 1974 prices. Since some capital deepening has taken place since that time, the labor using bias of the cost per job criterion is apparent. 1/ 101. Product groups on which there are no size or factor intensity limitations indicate those areas which have been judged deficient by industrial planners - personal services, repairs, and crafts. In these industries "small enterprise policy" is a vehicle for industrial promotion. The implicit argument appears to be that such activities are normally carried out by small firms and that there are, therefore, diseconomies of large scale which will naturally limit the size of firm. Given Yugoslavia's institutions and factor market structure, however, the incentives to become large may outweigh the costs, and thus the absence of a size limitation may result in the creation of large scale firms. 1/ See Part I of the companion volume to this report Raising Productivity in Yugoslav Industry: Some Issues. - 52 - Table 16: FIXED ASSETS PER WORKER: MAXIMUM FOR SMALL ENTERPRISES 1979 AND AVERAGE BY PRODUCT GROUP 1974 AT 1974 PRICES Maximum 1979 Average 1974 Product Group 1974 Prices 1974 Prices Non Metallic Minerals 36.0 107.0 Metal Products 84.0 86.7 Electrical Products 54.0 73.1 Chemicals 126.0 174.1 Building Materials 84.0 136.2 Wood Products 60.0 65.1 Paper Products 96.0 208.6 Textiles 54.0 63.4 Leather 54.0 45.1 Rubber Products 78.0 94.8 Food Processing 72.0 130.7 Printing 60.0 69.7 Sources:See Appendix Table 1.1 Titograd Community Secretariat for the Economy, Social Compact on Stimulating the Development and Advancement of Small Business in Titograd Commune, Titograd, June 1979. Notes: 1979 values deflated by capital stock price deflator to 1974 equivalents. - .3 - 102. Policy actions undertaken to promote small businesses in the social sector fall into six principal areas--investment policy, access to capital market, access to foreign exchange, zoning regulations and con- struction of work places, linkages and subcontracting to existing social sector industry and tax and subsidy policy. Detailed programs in each of chese areas vary somewhat among local political authorities but the overall thrust of policy is similar. The new initiatives are designed to mitigate the previously unfavorable environment for small firms and to provide incentives for new investment and expansion in those activities outlined above. (i) Investment Policy 103. Signatories to the social compacts and self-management agreements which exercise control over social capital commit themselves by those instruments to invest in specified social sector activities meeting the small scale criteria. There are two primary sources of investment funds available to small social sector enterprises, resources of the socio- political communities and retained earnings of existing social sector firms. Annual financing plans formed on the basis of the medium term plan and che self-management agreements are based upon overall guidelines estab- lished in the social compact. 104. Funds provided from the retained earnings of the existing social sector enterprises remain by law the social capital of the BOAL in which they originated. Thus, precise arrangements with regard to terms of the investment are determined by negotiation between the parties and formalized in a self-management agreement. The terms can include specifications for repayment of principal, interest, and agreements for technical cooperation or subcontracting. Links between the large scale and small scale social sector may frequently involve a package of investment, product development and foreign exchange between a small scale supplier of components and its large scale customer. 105. Funds provided by the socio-political communities may originate at the federal level either from funds for the development of underdeveloped regions or from allocations from international donors. Local authorities may also provide investment resources from funds for general and community expenditure or from the resources of the communities of interest. These investments are similarly governed by self-management agreements concerning repayment and the required obligations of the recipient. 106. It is difficult to assess the extent to which the terms on which these investments are made are more favorable than average investment terms in the social sector. It is the clear intention of the social compacts, however, that they should be favorable, and it is likely that in practice at least the funds provided by the socio-political communities will represent a subsiay to small investors in the social sector. 107. As with all investment programs, the principal caution to be expressed with regard to proposed direct investments in small scale social - 54 - sector enterprises is that the projects selected be chosen according to a consistent set of evaluation criteria. These criteria should include, in addition to the conditions defining the investment as small scale, economic and financial analysis of the costs and benefits of the undertaking to insure that the returns will be sufficient to make the investment economically and commercially viable. In the absence of such evaluations local political authorities may face the need to provide continuing subventions to enterprises which generate particularly low worker incomes. The basic banks and existing social sector enterprises are particularly well placed to develop and apply these investment criteria on the behalf of the parties to the social compact. 108. It is also important in considering the terms under which investment agreements between large and small scale social sector firms are concluded to be aware of the potential of assymetry of information and economic power between the two parties. The other signatories to self management agreements governing these arrangements should seek to insure equitable terms for both the investing and the recipient enterprise. (ii) Credit and Banking Policies 109. Credit and banking policies are intended to redress the advantages which large size has conferred on the constituent members of the business banks in Yugoslavia. In some localities for example a stipulated percentage (frequently 10 percent) of the increase in the "credit balances" of banking institutions is reserved for lending to small scale enterprises. 1/ Banking institutions are restricted as to the repayment period an interest rate of loans to small enterprises. Interest rates are generally in the range of 6-8 percent with repayments periods of 5-10 years. These terms are generous even by the standards of the low interest rate policies pursued in the social sector, and it is,. therefore, likely that there will be more claimants for funds than resources available, introducing yet another problem of credit rationing. Nevertheless, banks are bound by the social compacts to seek sources of funds to further subsidize loans to small scale enterprises. In the absence of consistent project evaluation criteria these credit facilities may result in the inefficient allocation of the reserved funds. 110. The general characteristics of the interest rate regime and its consequences for the efficient allocation of investment funds are discussed at length in the companion volume to this report. In it, among other recommendations, is one that the structure of interest rates be unified and that nominal rates of interest be increased. If that recommendation is adopted we recommend that any interest rate subsidies to small enterprises be set at a level which compensates for the higher real cost of administering loans to the small scale sector and that the nominal rates charged be aligned with other social sector borrowers. Below market 1/ Credit balances include: demand deposits, personal savings, time deposits of work organizations, and funds derived from repayment of previous loans to the small scale sector. - 55 - interest rates to small scale enterprises carry with them the danger of encouraging the substitution of capital for labor and therefore of mitigating some of the beneficial employment potential of labor intensive small scale firms. A subsidy which just covers the real cost differential of administering loans to large and small borrowers can be justified on the grounds of correcting a distortion between costs of lending to the banking system and costs to the general society. (iii) Foreign Exchange 1ll. The foreign exchange control system in Yugoslavia is quite com- plex. 1/ Funds for the importation of capital goods are administered through the communities of interest whereas intermediate goods imports are governed by entitlements derived from the export performance of the enter- prise. In both of these areas larger scale social sector firms have tradi- tionally had an advantage in obtaining sufficient foreign exchange. Policies to redress this imbalance usually involve linking small firms with larger exporting enterprises as subcontractors or to import-export firms which have the foreign resources. Mechanisms for transfer of foreign exchange entitlements are subject to agreement between the concerned parties are ratified by self management agreements. Local political authorities have also undertaken export promotion activies on behalf of smaller firms through trade representatives and the larger import-export firms. 112. In the absence of a general interest rate reform, programs such as the current IFC Loan to Eight Banks for Small Scale Enterprises, which earmarks a quantity of funds for small enterprise investments, are a useful means of filling the resource "gap" which has historically existed in the banking system. It is important, however, that these projects, like the present IFC project, contain a strong investment evaluation component to ensure efficient allocation of the resources. New projects might also contain an industrial extension component through the banks to facilitate design and implementation of small scale investments. 113. The policies intended to open the foreign exchange regime to smaller social sector firms represent partial solutions to the allocation problem, but as with many direct allocation schemes they will undoubtedly be administratively cumbersome and will vary substantially by locality with regard to their efficiency. A more direct approach would be to revive the market for foreign exchange and price foreign exchange at levels which permit liberalized allocation. This would permit those small firms which can most efficiently use foreign exchange to bid for it on a national basis, and should improve the efficiency of allocation. 1/ For an excellent discussion of the structure of the foreign exchange system, see; Yugoslavia; Export Performance and Policies: Report No. 2972-YU, World Bank, October 1980. - 56 - (iv) Zoning Regulations and Construction of Work Places 114. The absence of suitable sites for the conduct of small scale manu- facturing and service activities was consistently identified to the mission as a major constraint on the development of the small enterprise sector. Strict zoning regulations and the absence of workshops in new residential areas have precluded the spontaneous development of locally oriented con- sumer service industries. Local political authorities are attempting to address this problem by establishing new small industrial estates, by requiring that service facilities be provided in housing areas, and by altering zoning regulations to favor small scale service and repair activi- ties. In addition there are commitments in some localities to subsidize rents on existing or proposed facilties. 115. This is potentially an important area of intervention in small enterprise policy. By providing sites for the development of service and small manufacturing firms the Government can remove what has been identi- fied as a major barrier to the entry of new small industries. It is important to keep in-mind, however, that where small scale activities are highly market oriented, as for example in local services, the development of industrial estates removed from local residential markets may hinder rather than help the desired growth of such activities. Provision of worksites should be carefully tailored to the needs of the industries concerned. (v) Linkages and Subcontracting 116. Most of the social compacts developed at the commune level require that major social sector enterprises develop subcontracting agreements or establish their own Basic Organizations of Associated Labor to supply inputs or process outputs of the large enterprise. As noted above, when these subcontracting agreements are beween separate work organizations the arrangements frequently involve provisions for the supply of investment funds, foreign exchange, and technical assistance in addition to the agree- ment on marketing of output. BOALs and work organizations developed as linked industries must meet the criteria for small enterprises developed in the social compact. If they conform to these criteria, however, component BOALs of large firms receive the same incentives as independent work organizations. In this respect, again, the small enterprise promotion policies appear to be more concerned with employment creation and/or with meeting other objectives than with the development of small independent firms per se. Subcontracting arrangements have been the mechanisms by which a substantial number of small modern firms have developed in middle income market economies. In Yugoslavia, however, there has been a tendency for social sector enterprises to develop their own ancilliary activities as constituent bOALS. It is important, therefore, to raise the question as to whether incentives to subcontracting in the social sector are required. If downstream manufacturing activities are economically viable and are initiated by existing work organizations they should not require additional support. A case can be made for encouragement of subcontractors, however, if policy makers aesire to increase the number of small independent social - 57 - sector enterprises. In these circumstances the incentives provided serve to facilitate new entry of social sector firms. (vi) Tax and Subsidy Policy 117. Local political authorities and communities of interest collect a wide variety of taxes and contributions from social sector enterprises. These include general revenue taxes and specific contributions for such social welfare programs as housing, education and medical insurance. In most localities the social compacts on small enterprise promotion have inclucea provisions for the reduction of these taxes and contributions. In the social sector reductions in the contributions from the net income of the enterprise to social welfare communities of interest are particularly important fiscal incentives. These reductions are of relatively short auration (approximately 2 years) but may be as large as 50 percent result- ing in a substantial short term increase in retained earnings of the enterprise. C. Policies Toward Small Scale Enterprises in the Individual Sector 118. The effects of Yugoslavia's decentralized pattern of decision making and policy implementation are apparent in the relationship between local authorities and the private sector. In the past local governments have varied in their attitude toward development of individual sector manufacturing and service activities, and there is considerable evidence that substantial variation remains in the degree to which the incentive policies described below have been actively pursued at the local level. 119. There are two major goals of small enterprise policy with respect to the individual sector. First, the government is attempting to encourage the growth of privately owned firms in manufacturing and service activities which are not well suited to social sector organization--personal services, repairs, individual arts and crafts--or in which there appears to be an overall deficiency of output from both the social and private sectors. And second, it is seeking to provide a means of tapping the savings of indivi- dual entrepreneurs or returning migrants for productive investment in both the social and private sectors. To these ends recent small enterprise policy has resulted in a number of institutional innovations and incentives designed to facilitate the development of private small scale industrial activities. These institutional innovations include the Contractual Organization of Associated Labor (CTOAL)l/ and the expanded role of producers' cooperatives, while the incentive measures include fiscal incentives, sub-contracting arrangements and improved access to the capital market. 1/ Although the CTOAL is legally a social sector enterprise, it has its origins in private initiatives to form the work organization and is therefore discussed here. - 58 r (i) Contractual Organizations of Associated Labor 120. The Contractual Organization of Associated Labor (CTOAL) represents a uniquely Yugoslav attempt to reconcile social ownership of capital with the need to provide productive outlets for the savings and initiative of potential entrepreneurs. In a CTOAL individuals pool their resources with each other and with society. In most republics there are minimum equity positions required of the contracting individuals who must also by law be active participants in the management or work of the enterprise. In addition to payment for their labor services contracting individuals receive a payment based upon their share in the capital of the enterprise and are, according to the terms of their contract, bought out by their labor force over a pre-specified period. Upon termination of the contract the capital in the enterprise becomes wholly socially owned and the CTOAL becomes a BOAL or work organization. Unlike purely private firms CTOALs may employ workers without limit. Relations between the contracting individuals and the workers are specified in a self-management agreement which also establishes the policy with regard to distribution of income and potential reinvestment by the founders of the enterprise. Distribution of income is accomplished in two stages. First, the workers and founders receive shares of income corresponding to the incomes for their skill category in the social sector. Second, remaining funds are divided among the various investors according to their share of participation in the capital of the enterprise. 121. It is still too early to evaluate the success of this initiative. In Slovenia there are 25 CTOALs with 35 founding members. The existing enterprises are reported as being highly successful, and there are indications that the firms pay substantially greater income per worker than corresponding social sector enterprises. The majority of the founding members are plowing back the full amount of their capital share in response to substantial tax incentives for reinvestment. In such regions as Bosnia-llerzegovina and Kosovo there are far fewer of these enterprises and substantially less is known about their performance, but initial indications are encouraging. (ii) Cooperatives 122. A second institutional innovation with regard to private sector manufacturing and services is the formation or revitalization of coopera- tive associations of private producers. The cooperatives which are organized under the supervision of the Chamber of Economy at the commune level exist to provide financial, marketing, and technical assistance to members. In some republics, Croatia for example, the cooperatives are separated by function, and private firms belong to both a credit coopera- tive and a marketing organization while in others a single cooperative performs all functions. Membership is divided both functionally by product category and by locality. 123. Financial cooperatives provide midterm and short term investment and working capital loans from the resources of member contributions. - 59 - In addition the cooperatives are permitted to become members of the business banks thus providing small private firms with improved access to the social sector capital market. In Croatia where these financial institutions are highly developed officials report that more than 80 percent of all private producers are associated with 24 financial cooperatives. The cooperatives receive a subvention from the commune and have total assets in excess of 911 million Dinars. Loans are limited to 50-100 thousand Dinars to be repaid over a period of five years. Subscriptions by members to the cooperative range from 10 thousand to 50 thousand Dinars and are interest bearing assets. 124. Cooperatives may also provide members with technical training and assistance through their own facilities or in cooperation with the com- munity of interest for vocational education. Extension programs to small firms at their place of business are not well developed, and the majority of cechnical training is undertaken at vocational education institutes. 125. Like CTOALs it is probably too early to offer a definitive appraisal of the success of the cooperative movement. At this early stage of development much of the initial success appears to depend on the char- acteristics of the individuals appointed by the Chamber of Economy to organize and promote their development. In those communes where these individuals are energetic and committed cooperatives appear to have achieved substantial success. (iii) Tax and bubsidy Policies 126. In addition to the institutional arrangements outlined above for the promotion of small private firms, the social compacts on small business promotion frequently specify a number of fiscal incentives intended to encourage private investment in desirable manufacturing and service activi- ties. The principal instrument employed is the exemption or reduction of the commune tax according to a schedule based upon the type of activity, volume of investment or nature of training or apprenticeship provided by the firm. Local authorities are also able to provide subsidized rents for work sites and to exempt employers from contributions to the communities of interest. 127. On the other side of the coin virtually all local governments now have adopted requirements that wages and social benefits in the private sector equal the average for the relevant labour category in the social sector. Although these regulations do not extend to family workers, they tend to raise the cost of labor to the private sector above a market clear- ing wage in labour surplus areas. (iv) bubcontracting Arrangements 128. Many efforts have recently been made to effect subcontracting relationships between large social sector enterprises and "cooperants" in the private sector. Individual sector cooperants take one of two forms, either as orthodox subcontractors which provide a specified input to the - 60 - firm or as individual workers who are engaged in a putting out system in which work is performed on materials provided by the enterprise. The putting out system in particular appears to be designed to take advantage of the dual structure of the labor market in labor surplus areas. Social sector enterprises are able to adjust to changes in demand by altering their own requirements for cooperants rather than by adding new social sector employees. This provides the firm with much greater flexibility particularly during downturns in the business cycle, while the income to individuals supplements farm household incomes. In the long run, however, it is doubtful that the putting out systems will contribute greatly to the development of the types of modern small scale industry desired by Yugoslav industrial planners. They can, however, make an important contribution to household incomes in areas where there is substantial underemployment of women and/or agricultural labor. 129. There is more scope for development of orthodox subcontracting. A number of special suppliers of electronic components, metal products, and custom machine tools have developed, although large social sector enterprises express concern over the quality control exercised by private firms and over their inability to fulfill exclusive high volume contracts. In general, however, subcontracting arrangements in the more developed republics have been reasonably successful. In contrast in Kosovo and Montenegro there are virtually no private subcontractors to social sector enterprises. (v) The Capital Market and the Banking System 130. Historically private firms have had limited access to the market for commercial credit in Yugoslavia. The financial cooperatives discussed earlier were intended partially to correct this deficiency and in addition the social compacts of many loal authorities call for bank lending to private small scale firms. The principal impediment to this lending at present appears to be a common problem of small enterprises world-wide; they are unable to satisfy the bankers as to their creditworthiness and/or they are unable to comply with the administrative requirements for securing a loan. At present the banks do not offer special facilities for small businessmen or simplified administrative procedures, and it is therefore doubtful that in the short run full use will be made of the credit facili- ties intended for private manufacturing and service enterprises. It is important therefore that a component of any special financial interventions in favor of small scale individual sector enterprises is designed to provide technical assistance to applicants. If this technical assistance is to be provided by the banks themselves, they should be compensated for Lhe resource costs involved. CHAPTER V - CONCLUSIONS AND PROSPECTS 131. Small scale enterprises have recently attracted major interest in Yugoslavia. Industrial planners and policy makers reviewing the structure of industry in the mid-1970's emphasized several shortcomings in the size - 61 - and output structure of manufacturing and services. Notable among these were the absence of small firms in most branches of social sector manufac- turing, and lack of certain personal services, mechanical and electrical repair facilities, and light industrial establishments capable of perform- ing small series and custom manufacturing operations. These deficiencies, coupled with increasing concern about problems of job creation in the social sector gave rise to new initiatives to promote the development of small scale enterprises in the social and private sectors. In order to comment on the goals set for small scale industry and the policy framework being designed to support it it is important to understand the characteristics of the existing industrial structure and the forces which have shaped it. This has been a major objective of the present report. 132. The starting point for this study was an analysis of the size structure of manufacturing industry. Yugoslavia is probably unique among non-centrally planned middle income countries in the extent to which its current size structure of industry is biased toward large and very large scale enterprises. Even when contrasted with a sample of high income countries, the employment and output shares of manufacturing enterprises with less than sixty workers are very small by international standards. Particularly striking is the absence of modern small scale manufacturing plants in the social sector. The majority of firms in the under sixty employment category are private sector craft enterprises with less than five employees, many of which are engaged in production by traditional methods. 133. Time series data indicate that the bias toward large scale enter- prises in manufacturing has been a persistent characteristic of the indus- crial structure. In fact the high relative employment shares of large scale firms were more pronounced in the social sector during the central planning and pre-reform periods than in the period following 1965. The sources of this pattern of industrial development were three fold: (i) an absolute decline in the size of the private crafts sector; (ii) relatively rapid rates of growth in manufacturing industries characterized by plants with high minimum efficient scale; and (iii) sector wide growth of large and very large scale enterprises at the expense of medium and small scale firms. 134. Chapter 2 reviewed resource use and productivity by size of firm in the manufacturing sector, in part to determine if superior total factor productivity formed the competitive basis for the rapid development of the large scale sector. The results were mixed. There was very little evidence to indicate a systematic relationship between firm size and factor intensity as measured by the capital-labor ratio. The results with regard to total factor productivity were similarly mixed. There was no general tenaency for large firms to display superior levels of total factor proauctivity than the average for the product group. Indeed in manv industries small firms ranked highest in relative total factor productivity. 135. The analysis did produce some interesting results with respect to the resource use and productivity of individual sector firms. In several - 62 - inaustries private firms had significantly lower capital intensity than their social sector counterparts, and several private manufacturing activi- ties showed very low relative levels of total factor productivity. This suggests that in some industries the private sector represents a low productivity segment of the industry employing traditional methods of production which are dominated by the techniques used in the social sector. 136. If superior total factor productivity fails to explain the pre- dominance of large scale firms in Yugoslavia, what are the sources of large scale bias in the economy? Chapter 3 argues that large scale bias in Yugoslav manufacturing originated in three areas: (i) lack of interest in the development of small modern industries in the private sector; (ii) preference by industrial planners for large scale manufacturing establishments; and (iii) institutional aspects of the self-management system which confer economies of large scale on social sector enterprises. The first of these issues is obviously one of development strategy which presumably reflects fundamental political values of the society. Recent efforts to promote development of the individual sector appear to indicate more favorable official attitudes toward small private industry but the consequence of previous policies has been to make private manufacturing a residual employment activity. Whenever the allocation of funds for invest- ment has been under the control of political authorities at the federal or republican level, as for example with the Social Investment Funds prior to 1965 or the Federal Fund for the Development of Underdeveloped Areas, the pattern of investment has revealed a marked preference for large scale basic industry. This preference has had the effect of shifting the size structure of manufacturing establishments in favor of large scale enter- prises, particularly in the less developed republics and provinces. 137. The structure of the capital markets and of the market for foreign exchange and the nature of social service obligations incurred by social sector firms may also imply that there are economies of large scale in Yugoslavia which are unrelated to the technology of production. These economies of size help to explain the persistent tendency for large firms to grow even when they have exhausted technological economies of scale and to diversify into numerous ancillary activities. 138. Taken together these factors provide an explanation for the present size structure of industry and a background to the policy initiatives adopted in the late 1970's for the promotion of small scale enterprises. 139. Small scale enterprise policy in Yugoslavia is characterized by a large number of objectives. In the social sector of the economy it is charged with the task of providing consumer goods and services which are at present unavailable in sufficient quantities to satisfy effective demand. bmall firms are expected to develop to supply specialized inputs to industrial firms in the social sector and to provide custom and small series products to larger subcontracting organizations. Small enterprises are also intended to assist in raising the labor intensity of social sector manufacturing both by altering the output mix in social sector manufacturing - 63 - toward more labor intensive commodity groups and as a consequence of direct intervention by investment authorities to influence the choice of techniques in new small scale investment projects. There is the further intention that small scale investment projects be used to increase the productivity of enterprises in the social sector via the entry of new firms and increased competition pressures. 140. With reference to the individual sector the goals of small scale enterprise policy are similarly comprehensive. It is intended to provide a productive outlet for the savings of individuals and a mechanism whereby individual organizational skills can be channelled into dynamic firms with the potential to develop into larger social sector undertakings. 141. Because of the structure of Yugoslavia's decentralized system of economic management, although the general structure of policy is set at the federal level, responsibility for the design and implementation of indus- trial policy rests with local political authorities. The principal instru- ments employed by these agents are social compacts and self-management agreements which commit the signatories to specific actions with respect to the development of small enterprises. Among the more important signators of agreements at the local level are communities of interest, the socio- political bodies, the large scale social sector enterprises and the business banks. 142. These parties have agreed in most cases to provide a package of incentive measures designed to counteract some of the institutional discrimination against small firms in the social and private sectors and to promote their growth and development. Specific areas of intervention include the markets for capital and foreign exchange, zoning regulations and the allocation of space for work sites, fiscal incentives, and sub- contracting relationships between the large scale and small scale sectors. 143. With regard to the private sector two institutional innovations, the Contractual Organization of Associated Labor (CTOAL) and the revitalizarion of producer cooperatives, hold the promise of greater opportunities for productive investment by private individuals in small manufacturing and service activities. The CTOAL in particular represents a uniquely Yugoslav solution to the problem of associating private and social capital. Although it is quite early in the development of these organizations, CTOALs appear to have had striking success in the more aeveloped republics and the cooperative movement seems to be working successfully in localities where the political authorities have taken an active interest in its development. 144. It is too early to evaluate fully the success of the policy actions unaertaken in support of small scale enterprises. Many of the social compacts were concluded in 1979 and 1980 and the planning period for which most of the investment and incentive measures are intended is 1980-1985. The text in Chapter 4 contains a number of specific comments on the instruments employed to promote small enterprise development in both the social and the private sectors. Given the multiple and complex goals - 64 - set for small enterprise policy in Yugoslavia, it is perhaps useful to reflect here on the broader questions of the policy framework and the extent to which the policy objectives of small enterprise policy set out in the preface of this report are likely to assist in attaining these goals. 145. It is probable that the wide ranging set of objectives defined for small enterprise development policy is too broad for effective policy design and implementation. Many of the stated goals of small enterprise policy, such as changes in the composition of industrial output, increased labor intensity of new product lines and industrial techniques, creation and entry of new firms and improvements in the competitive environment, are also appropriate objectives of general industrial policy. Small scale enterprises are relevant to those goals to the extent that their economic behavior differs from large scale enterprises, either as a consequence of differing objectives of and constraints on economic agents or as a result of differences in technologies and products which are systematically associated with firm size. Where these links are absent, small enterprise policy can act only as an inefficient proxy for more general industrial policies. 146. Consider for example the objective of increasing the availability of certain industrial intermediate goods and services. In many product groups there is no reason why Basic Organizations of Associated Labor from large working organizations should not be as efficient at supplying these commodities as small independent organizations. Indeed many social compacts specifically include BOALs from large enterprises in the definition of small enterprise for the purpose of meeting this objective. In these circumstances there is nothing gained by placing the policy objective under the rubric of small scale enterprise policy. A general industrial policy designed to establish incentives for specialized sub- contracting of industrial inputs would be a more appropriate mechanism.for achieving the desired objective. 147. It might be useful therefore to review the policy instruments evolved for small enterprise development and to separate objectives which depend for their achievement on the development of small autonomous units from those which can be satisfied by production units which are either autonomous or part of a larger organization. In effect what we are suggestIng is that small decision making units be distinguished for the purpose of policy formulation and implementation from small production units. 148. The BOAL is intended to be the smallest autonomous technical unit producing a marketable output, regardless of whether the output is actually sold or simply transferred to another BOAL within the same enterprise. An important aspect of this form of organization is that BOALs in principle are autonomous decision making units with the power to withdraw from their enterprise and to associate with another or become a new working organiza- tion. If this is in fact the case, the 1976 reforms may have wrought a significant change in the size structure of decision making units in the social sector. There are grounds for some skepticism, however, concerning - 65 - the degree to which the BOAL is analogous to a smaller decision making unit. Enterprise visits conducted during the mission indicated that in many respects the level of decision making exercised by the BOAL correspond more closely to that of a division or "profit center" within a larger enterprise than to that of an individual firm. Investment planning, marketing, financial control, and transfer pricing decisions continue to be taken at the enterprise level. Moreover, the concept of "pooling of resources" via "internal banks" implies that investment decisions will reflect objectives of the enterprise rather than of its individual con- stituents. In view of these limitations on the autonomy of the BOAL its aecision making will frequently reflect the objectives and constraints of the larger enterprise. 149. Many of the policy objectives classified in the preface as structural objectives can be met by small production units which are not necessarily autonomous decision making units. On the other hand, certain of the efficiency goals of small enterprise policy, including the goals of increased labor intensity, improved self management of the enterprise and entry of new competitors may depend crucially on the autonomy of the small scale firm. For these objectives to be met it will be essential to encour- age the formation of independent social sector enterprises. Separating the objectives which can be met by small production units from those which must be met by small decision making units will enhance the ability of policy makers to design instruments appropriate for each objective. 150. A similar argument applies with even greater force to those policy instruments which require that neither the decision making unit nor the production unit be small scale. For example in Chapter 4 we discussed a social compact which defined as "small scale" any production unit engaged in repair or service activities regardless of size. While incentives to such enterprises are appropriate instruments of industrial policy, given the perceived need for increased production in these areas, they bear no relation to scale of firm and therefore are not appropriate instruments of small enterprise policy. Targeting the objectives of small enterprise policy to specific areas where size is a relevant consideration in aftecting economic behavior should enhance the efficiency of policy implementation. 151. In those areas where size is a relevant criterion for the applica- tion of incentives there is reason to believe that the instruments designed to actain the goal of small enterprise development in the social sector may eventually achieve a measure of success. First, because small enterprise development is intended partly as an element in the attack on the employ- ment problem, most incentive measures are applicable only to activities which are small and labor intensive. Secondly, considerable attention was paid in the design of policy to the need to offset some of the economies of large size created by the institutional structure of the self-management system. Third, there are substantial resources committed to investment programs for small enterprises in the social sector, and fourth, many local communities appear to have placed responsibility for policy implementation in che hands of highly energetic and capable individuals. - 66 - 152. The actions taken with regard to the individual sector hold similar promise. The device of the contractual organization of associated labor appears to offer substantial scope for the transition of dynamic private firms into social sector enterprises. The initial success of this innovation in the more developed republics is encouraging, but also points to the need for continued evaluation of these activities. 153. The increased vitality of the cooperative movement and the attempt to forge links between small individual sector enterprises and cooperating social sector firms hold out the prospect of increased investment activity and improved performance in the individual sector.. Actual performance in policy implementation in these areas, however, has depended crucially on the energy and dedication of the local political authorities charged with policy implementation. 154. There are also some shortcomings of the existing policy environ- ment. Perhaps the most important area in which policy design could be strengthened with regard to credit and the banking system. The policy of reserving a line of credit for small firms to be provided at subsidized rates of interest carries with it the danger of severe misallocation of resources unless all proposed investments are systematically evaluated by the lending institutions. For firms in the private sector there is a question of access to lending institutions which is not adequately addressed by the policy of earmarking loanable funds. Since many loan applicants in the private sector cannot comply with the administrative requirements of the banking system, technical training programs to assist private sector entrepreneurs with financial management are also required. 155. Further study and additional efforts are also required in the area of industrial extension and training. Particularly among entrepreneurs in the individual sector but also for small scale social sector enterprises there is a need for management training and technical assistance. Programs of extension and training are difficult to design and administer effec- tively, but they carry with them the potential for high returns. In the private sector such programs may be essential to create the preconditions upon which the success of the investment and other incentives contained in the small enterprise development program depend. In the social sector these programs can assist smaller firms to improve their technical efficiency and productivity. 156. Finally as noted in Chapter 4 it is important that the interven- tions in the markets for foreign exchange and capital be designed to correct existing distortions which discriminate against smaller economic units and that they not create byproduct distortions which further compli- cate the complex allocation systems already in place. Many of the policy interventions described in the companion volume to this report with the purpose of unifying and simplifying the markets for foreign exchange and capital will have important implications for improving the competitive position of small autonomous production units in the social sector, since as we noted in Chapter 3 it is the institutional structure of these markets in Yugoslavia which confers economies of size on large scale social sector enterprises. - 67 - 157. In identifying areas for potential improvement in the design and implementation of policy it is possible to lose sight of the fact that overall the initiatives undertaken represent an important and potentially successful program for small enterprise development. Limiting small enter- prise policies to those areas where size is a relevant analytical category and insuring that the incentive measures adopted are appropriate to redress existing distortions should enhance the prospects for achieving significant growth of small modern firms in the 1980's. Annex 1: NOTES ON THE MEASUREMENT OF RELATIVE TOTAL FACTOR PRODUCTIVITY If the industry production function is of the form: Q.j = A . f. (X1 x2. x') (2-1) . il 1~J i i iJ ii where: Qij = output of firm j in industry i, Xk. = input of factor k in the production of firm j in industry i, and Aij is a firm-specific shift parameter representing the state of the art of production is firm j, a natural measure of relative efficiency is the index of total factor productivity, Aij/Ai, where Ai is the average total factor productivity for the sample of firms in industry i. The shift parameter in this context summarizes the effects of Hicks-neutral technical progress and/or neutral variations in the technical efficiency with which a single vintage of technology is operated. Constraining the production function to Cobb-Douglas form yields an explicit expression for the index of relative efficiency: n Q xk. aik Aiji. / -- v , aik 1 (2-2) L=1 Qe a aX k=1 where the aik are the factor share in industry i. - 68 - Statistical Appendix Tables Table No. 1.1 Size Distribution of Number of Firms, Employment and Value Added In Yugoslav Manufacturing Industry 1974 1.2 Number and Percentage Distribution of Enterprises in Yugoslav Manufacturing by Size of Firm (Employment) 1974 1.3 Manufacturing Employment and Value Added by Size of Establishment and by Industry 1974 1.4 The Size Distribution of Manufacturing Employment 1976 1.5 The Size Distribution of Manufacturing Value Added 1976 1.6 Percentage Distribution of Total Change in Manufacturing Employment 1954-74 1.7 Size Distribution of Regional Employment 1976 1.8 Size Distribution of Regional Output 1976 1.9 Enterprises and Employees in Manufacturing Industry, 1952-76 2.1 Labor Productivity by Size of Enterprise 1974 2.2 Capital Intensity by Size of Enterprise 1974 2.3 Output-Capital Ratios by Size of Firm 1974 2.4 Indices of Relative Total Factor Productivity in Manufacturing 1974 2.5 Value Added per Worker in Manufacturing 1976 2.6 Index Numbers of Relative Labor Productivity 1976 2.7 Fixed Assets per Worker in Thousands of Dinar 1976 2.8 Value Added per Dinar of Fixed Assets 1976 2.9 some Indicators of Human Capital Intensity in Social Sector Manufacturing, 1976 2.10 Data on Individual Sector Manufacturing Enterprises by Republic, 1974 - 69 - Appendix Table 1.1: SIZE DISTRIBUTION OF NUMBER OF FIRMS, EMPLOYMENT AND VALUE ADDED IN YUGOSLAV MANUFACTURING INDUSTRY 1974 NUMBER OF WORKERS IN ESTABLISHMENT Propri- etor Only 1-6 7-15 16-29 30-60 61-125 126-250 251-500 501 + Total Number of Firms Private Crafts 103314 24888 " 128202 Social Sector Crafts " 194 312 357 542 611 360 128 30 2534 Social Sector Manufacturing " 126 143 313 746 976 850 946 4100 Total 103314 25520 490 855 1357 1336 978 976 134836 Percentage Distribution 76.6 18.9 0.4 0.6 1.0 1.0 0.7 0.7 Employment (thousands) Private Crafts 103.3 96.0 199.3 Social Sector " 0.8 3.4 7.9 23.9 53.8 62.4 41.3 22.6 215.7 Crafts Social Sector Manufacturing 1.1 3.2 13.9 68.9 176.8 304.8 1193.1 1761.8 Total 103.3 101.3 11.1 37.4 122.7 239.2 346.1 1215.7 2176.9 Percentage 4.7 4.7 0.5 1.7 5.6 11.0 15.9 55.8 Distribution Value Added (million Dinar) Private Crafts 4516 4198 " " " " " " 8714 Social Sector 52 234 551 1676 3589 4081 2762 1400 14346 Crafts Social Sector 215 414 1558 6493 16028 25152 108491 158350 Manufacturing Total 4516 4699 965 3234 10082 20109 27914 109891 181410 Percentage 2.5 2.6 0.5 1.8 5.6 11.1 15.4 60.6 Distribution Sources: SFR Yugoslavia Federal Institute of Statistics SFR Yugoslavia Federal Institute of Statistics, Statistical Bulletins 955, 957, 970, 986, 1976 Note: " indicates no entry - 70 - Appendix Table 1.2; NUMBER AND PERCENTAGE DISTRIBUTION OF ENTERPRISES IN YUGOSLAV MANUFACTURING BY SIZE OF FIRM (EMPLOYMENT) 1974 Craft Enterprises Private Social Social Sector Manufacturing Sector Sector <10 (a) <15 16-60 61-125 126-250 251-500 >500 Total Iron & Steel No 1 4 9 20 34 % " '' " 2.9 11.8 26.5 58.8 Non Ferrous No 1 2 5 11 19 34 72 Metals % 1.4 2.8 6.9 15.3 26.4 472 Non Metallic No 808 13 " 6 22 35 20 29 933 Minerals % 86.6 1.4 " 0.6 2.4 3.8 2.1 3.1 Metal Products No 21868 415 3 26 90 147 145 196 22890 % 95.5 1.8 " 0.1 0.4 0.6 0.6 0.9 Shipbuilding No 75 11 " " 3 7 8 10 114 % 65.8 9.6 " 2.6 6.1 7.0 8.8 Electrical No 5617 71 11 21 44 62 52 5778 Products X 97.2 1.2 0.2 0.4 0.8 1.0 0.9 Chemicals No 144 8 4 18 46 65 43 45 373 % 38.6 2.1 1.1 4.8 12.3 17.4 11.5 12.1 Building No 4142 24 4 43 95 94 45 23 4470 Materials % 92.7 0.5 0.1 1.0 2.1 2.1 1.0 0.5 Wood Products No 14880 216 11 28 68 101 82 92 15467 % 96.2 1.4 0.1 0.2 0.4 0.7 0.5 0.6 Paper Products No 152 9 " 3 8 11 12 27 222 % 68.5 4.1 i 1.4 3.6 5.0 5.4 12.2 Textiles No 14105 249 1 20 49 119 147 183 14868 % 94.9 1.7 " 0.1 0.3 0.8 1.0 1.2 Leather & No 5723 141 1 17 28 35 40 5985 Shoes % 95.6 2.4 0.3 0.5 0.6 0.7 Rubber No 409 13 1 6 8 9 12 458 % 89.3 2.8 0.2 1.3 1.7 2.0 2.6 Food No 12838 87 4 75 101 130 111 90 13436 Processing % 955 0.6 " 0.6 0.8 1.0 0.8 0.7 Printing No 276 41 88 140 95 71 30 21 762 % 36.2 5.4 11.5 18.4 12.5 9.3 3.9 2.8 Misc. Mfgs. No 4768 113 17 22 15 13 12 3 4955 % 96.2 2.3 0.3 0.4 0.3 0.3 0.3 0.2 Notes: (a) Includes firms employing 1 to 500 employees Sources: Industrijske Organizacije 1974, Statisticki Bilten 955, 1975 Dristvene Zanatske Organizacije 1974, Statisticki Bilten 957, 1976 Popis Delatnosti Koje Se Obualjaju Samostalnim Licnim Radom Srejstuima Rada u Suojini Gradana 1974: Osnovi Podali 0 Banatskim Radnjama, Statisticki Bilten 970, 1976 - 71 - Appendix Table 1.3: MANUFACTURING EMPLOYMENT AND VALUE ADDED BY SIZE OF ESTABLISHMENT AND BY INDUSTRY, 1974 Dictribhted by Size of Establishment (Workers), Percent Total C~a t' EMp (('000) Establishment Social Sector Manufacturing VA (Million - Din.) Private Social -15 16-60 61-125 126-250 251-500 501+ Iron & Steel Employment 62.8 " " 0.1 " 1.0 5.4 93.6 Value Added 7321 " " " 0.2 " 0.5 4.0 95.3 Non Ferrous Metals Fmployment 52.3 " " " 0.2 1.0 3.8 14.2 80.8 Value Added 7964 " " " 0.2 0.5 4.2 9.6 85.5 Non Metallic Employment 49.9 2.2 1.8 " 0.4 3.8 13.4 14.0 64.1 Minerals Value Added 3371 2.0 1.8 " 0.3 3.9 12.2 13.7 66.2 Metal Employment 427.9 8.2 10.8 " 0.2 2.1 6.5 12.0 60.2 Products Value Added 30848 5.2 11.9 0.1 0.3 2.3 6.6 12.5 61.2 Shipbuilding Employment 27.2 0.4 4.8 " " 1.1 4.8 11.4 77.8 Value Added 2503 0.2 3.7 " " 0.1 4.3 8.7 82.3 Electrical Employment 127.6 7.2 4.6 " 0.3 1.6 6.1 17.2 62.9 Products Value Added 9060 4.9 5.0 " 0.5 1.7 5.4 18.2 64.3 Chemicals Employment 102.1 0.3 0.4 " 0.8 4.2 11.7 14.7 68.2 Value Added 13606 0.5 0.3 0.1 0.7 3.8 12.5 12.1 70.0 Building Employment 75.8 8.8 2.6 " 2.4 11.6 21.2 20.4 32.6 Materials Value Added 5939 5.2 2.2 0.1 2.2 10.7 19.9 19.8 39.9 Wood Employment 193.9 10.0 7.4 " 0.6 3.2 9.3 15.0 54.5 Products Value Added 12776 4.4 7.6 " 0.7 3.7 9.5 15.2 58.9 Paper Employment 36.5 0.8 3.0 0.3 1.9 5.5 12.9 75.9 Products Value Added 4540 1.0 2.1 " 0.2 1.6 4.4 12.2 78.7 Textiles Employment 325.4 6.1 6.2 " 0.2 1.4 6.6 16.8 62.4 Value Added 19286 1.8 5.8 " 0.3 1.4 7.0 16.2 67.4 Leather and Employment 78.0 9.0 10.3 " " 2.3 6.3 15.8 56.5 Shoes Value Added 4188 4.3 11.1. 2.5 6.8 16.5 58.8 Rubber Employment 23.6 3.4 6.4 " 0.4 2.5 5.9 15.2 67.8 Value Added 1701 2.5 6.3 " 0.1 2.5 6.9 13.0 68.8 Food Products Employment 189.5 10.0 3.4 " 1.5 4.8 12.5 21.1 46.7 Value Added 16974 10.7 2.6 " 1.7 5.2 12.0 19.2 48.6 Printing Employment 59.7 0.8 3.5 1.3 7.7 14.1 21.1 18.3 33.2 Value Added 5759 0.9 2.7 2.0 8.9 13.6 20.5 16.9 34.4 Misc. Mfgs. Employment 36.7 19.3 18.5 0.3 2.2 9.3 15.3 18.8 16.3 Value Added 5352 10.5 10.2 0.2 1.8 5.6 10.8 14.9 45.7 Source: See Table 1.2 Apprendix Table 1.4: THE SIZE DISTRIBUTION OF MANUFACTURING EMPLOYMENT 1976 Number of Employees 16- 30- 61- 126- 251- 501- 1000- Product Group 15 30 60 125 250 500 1000 2000 2000 TOTAL Electricity 0.14 0.83 5.42 16.78 29.30 25.76 14.26 7.50 0 54551 Coal Mining 0 0.08 0 2.09 6.51 16.78 18.26 28.65 27.63 54361 Coal Processing 0 0 0 0 8.86 22.55 68.60 0 0 1987 Oil and Gas 0.38 0 0 5.66 14.39 35.19 0 44.39 0 3163 Oil Refining 0.13 0 0 4.23 7.88 18.60 42.96 26.21 0 9554 Iron Ore Mining 0 0 0 2.99 0 31.34 65.67 0 0 4116 Iron and Steel 0 0.15 0.40 2.58 7.56 9.04 24.24 31.60 24.42 50285 Other Mining 0 0 0.21 0.44 7.21 13.36 22.77 28.19 27.81 26408 Non-ferrous Metals 0.04 0.18 0 1.71 6.85 42.59 37.58 11.04 0 11993 Smelting and Refining 0.10 0.28 1.90 3.47 6.31 32.61 31.98 23.35 0 13163 Non-Metal. Minerals 0.39 1.22 2.64 14.87 28.94 28.94 14.06 8.95 0 13540 Non-Metal. Min Prod. 0.03 0.20 0.77 3.35 15.91 25.16 30.95 23.63 0 41741 Metal Products 0.06 0.24 1.67 8.02 19.41 31.72 26.92 10.13 1.81 193272 * Machinery 0.04 0.07 0.98 5.66 15.01 29.24 30.65 14.96 3.40 95001 Transport Equip. 0.03 0.11 0.34 2.59 9.87 21.64 23.53 25.29 16.59 111682 Shipbuilding 0.03 0.22 0.73 3.74 13.38 27.34 25.95 5.45 23.17 25894 Elec. Prod. 0.01 0.14 0.69 3.44 11.39 29.70 26.90 18.75 8.97 128911 Chem. Mfg. 0.10 0.32 3.43 6.62 17.74 27.10 25.68 19.00 0 41997 Chem. Proc. 0.12 0.56 3.88 12.44 33.23 26.70 17.11 5.96 0 60629 Stone, Gravel & Sand 0.16 1.19 5.42 16.02 30.97 33.97 12.27 0 0 20121 Building Materials 0.13 0.78 4.98 18.57 30.23 33.01 12.31 0 0 61951 Sawn Timber 0 0.23 2.58 11.01 24.83 36.55 16.27 8.51 0 56265 Furniture and Wood 0.14 0.52 2.41 10.52 29.76 35.45 16.34 4.86 0 107447 Paper Products 0.03 0.40 2.54 5.48 22.68 26.52 33.14 9.20 0 38373 Textiles 0.02 0.12 0.51 3.80 9.92 20.21 39.10 24.42 1.91 124840 Textile Products 0.02 0.28 1.23 5.70 15.53 33.23 29.70 10.02 4.28 196318 Leather 0.07 0 1.68 10.77 22.80 44.63 12.17 7.89 0 14388 Shoes 0.11 0.14 1.19 7.54 13.75 20.93 30.49 22.49 3.37 65742. Rubber Products 0.06 0.29 1.55 5.53 14.58 26.29 22.88 19.96 8.86 24856 Food Products 0.11 0.62 3.44 11.08 23.88 27.91 26.72 6.24 0 154272 Beverages 0.22 0.89 3.73 9.75 29.57 26.80 26.10 2.93 0 34756 Animal Feeds 0.19 2.80 16.53 40.33 40.16 0 0 0 0 5366 Tobacco Mfg. 0.10 0.60 2.27 12.22 23.83 30.87 21.01 9.10 0 17761 Printing and Pub. 0.44 1.35 6.98 16.22 26.26 19.68 23.32 5.76 0 40583 Miscellaneous 0.62 0.80 4.76 23.95 18.15 21.83 29.89 0 0 9039 Source: Industrial Organization, 1976. Appendix Table 1.5: THE SIZE DISTRIBUTION OF MANUFACTURING VALUE ADDED 1976 Number of Employees 16- 30- 61- 126- 251- 501- 1000- Product Group 15 30 60 125 250 500 1000 2000 2000 TOTAL Electricity 0.14 0.87 5.90 16.51 28.50 18.79 20.54 8.75 0 15,591.5 Coal Mining 0 0.13 0 -9.00 7.03 17.51 17.90 34.64 31.79 5,744.6 Coal Processing 0 0 0 0 7.33 21.43 71.24 0 0 532.0 Oil and Gas 0.10 0 0 1.44 5.31 23.64 0 69.50 0 2,182.6 Oil Refining 0.02 0 0 3.81 9.29 9.16 49.64 28.08 0 3,885.6 Iron Ore Mining 0 0 0 3.67 0 42.25 54.08 0 0 575.1 Iron and Steel 0 0.16 0.63 3.73 9.21 6.42 24.75 37.14 17.96 6,775.1 Other Mining 0 0 0.15 0.59 5.31 13.34 22.00 35.19 23.41 3,199.8 Non-Ferrous Metals 0.06 0.15 0 1.57 4.24 47.65 29.18 18.14 0 1,951.6 Smelting and Refining 0.07 0.37 1.50 2.68 4.27 38.00 33.89 19.23 0 1,944.7 Non-Metallic Minerals 0.32 1.06 2.56 14.17 24.24 28.03 9.85 19.77 0 1,320.0 Non-Metallic Min. Products 0.04 0.22 0.69 3.60 19.13 25.62 31.06 19.64 0 3,946.6 Metal Products 0.08 0.33 1.92 8.63 20.23 30.39 26.74 9.58 2.09 20,188.4 w Machinery 0.07 0.06 1.12 5.96 14.63 27.49 31.45 16.55 2.67 11,437.2 Transport Equipment 0.07 0.09 0.35 2.93 8.58 20.45 23.67 27.88 15.89 13,190.6 Shipbuilding 0.02 0.18 0.70 3.25 15.28 24.17 25.19 3.36 27.76 3,724.4 Electrical Products 0 0.20 0.96 4.37 12.48 30.68 27.55 16.37 7.39 13,586.4 Chemical Manufacture 0.12 0.68 5.64 9.37 18.97 22.34 18.64 24.24 0 6,790.1 Chemcial Processing 0.15 1.13 3.27 12.25 31.94 25.36 20.16 5.75 0 8,543.6 Stone, Gravel and Sand 0.34 1.18 5.13 16.61 29.36 38.75 8.63 0 0 1,969.0 Building Materials 0.24 0.77 4.23 17.70 27.86 35.98 13.22 0 0 6,712.0 Sawn Timber 0 0.32 4.43 14.14 26.43 34.13 14.44 6.11 0 4,335.9 Furniture and Wood 0.13 0.57 2.46 10.99 30.64 35/25 16.10 3.84 0 9,496.6 Paper Products 0.08 0.36 2.84 4.56 20.20 26.29 31.37 14.30 0 4,469.7 Textiles 0.02 0.10 0.74 3.90 10.98 19.59 40.63 21.55 2.49 9,726.0 Textile Products 0.04 0.44 1.99 7.50 15.68 33.24 28.30 11.51 1.29 12,896.5 Leather 0.10 0 1.14 9.92 24.97 40.98 13.23 9.66 0 1,542.1 Shoes 0.18 0.11 1.34 7.90 16.73 21.02 30.82 18.75 3.16 4,747.1 Rubber Products 0.08 0.46 1.37 6.18 13.57 26.46 24.17 21.75 5.97 2,313.1 Food Products 0.12 0.70 4.46 10.68 22.59 27.28 27.94 6.23 0 18,780.6 Beverages 0.24 1.13 4.38 10.21 25.47 24.35 29.96 4.25 0 5,433.4 Animal Feeds 0.09 2.94 18.21 41.27 37.48 0 0 0 0 845.7 Tobacco Manufactures 0.04 0.27 1.27 6.53 10.68 25.71 24.36 31.15 0 4,811.8 Printing and Publishing 0.44 1.58 7.15 14.35 23.00 19.16 27.43 6.88 0 4,738.9 Miscellaneous 0.60 1.38 5.78 23.26 20.48 .20.28 28.23 0 0 1,006.1 Source: See Appendix Table 1.1. - 74 - Appendix Table 1.6: PERCENTAGE DISTRIBUTION OF TOTAL CHANGE IN MUXUFACTURING EMPLOYMENT 1954-1974 Percentage Distribution By Size Total Change <15 16-60 61-125 126-250 251-500 501-1000 >1000 Iron and Steel 31.9 - - - 1.6 10.7 9.7 78.8 Non Ferrous Metals 20.3 - - - 6.7 23.6 -1.5 70.4 Non Metallic Minerals 21.6 - -1.9 2.3 13.0 5.1 17.1 64.4 Metal Products 245.3 - - 1.3 7.5 13.3 20.2 57.6 Shipbuilding 14.6 - -1.4 -0.7 5.5 7.5 15.1 74.7 Electrical Products 98.3 - 0.1 1.9 6.7 18.3 12.4 60.4 Chemicals 82.3 - -0.2 3.4 10.8 14.6 7.8 63.7 Building Materials 28.8 -0.7 -11.1 -1.4 24.0 21.2 22.2 45.5 Wood Products 65.6 -0.2 -1.8 -0.3 8.8 28.7 36.9 28.1 Paper Products 27.5 - -0.7 0.4 1.8 8.4 30.2 55.6 Textiles 200.3 - -0.6 -0.8 6.5 18.0 26.2 50.8 Leather and Shoes 44.5 - -4.0 -0.7 4.9 18.7 31.2 47.6 Rubber Products 19.2 - - 2.6 7.3 9.4 20.8 58.9 Food Processing 122.7 -1.1 -3.3 0.1 12.1 25.5 30.2 33.0 Printing 47.9 1.2 7.1 14.2 19.8 18.6 19.0 20.3 Sources: Statistical Yearbook, 1956 Industrial Organization, 1974 Appendix Table 1.7: SIZE DISTRIBUTION OF REGIONAL ENPLOYMENT 1976 Number of Employees 16- 30- 61- 126- 251- 501- 1000- Republic/Province 15 30 60 125 250 500 1000 2000 2000 TOTAL Bosnia-Herzegovina 0.022 0.150 0.939 4.538 16.343 25.451 29.914 16.377 6.266 274591 Montenegro 0 0.456 3.419 11.589 21.418 31.959 26.012 5.147 0 31124 Croatia 0.107 0.480 2.599 9.564 19.738 27.800 25.626 10.089 3.997 446021 Macedonia 0.061 0.320 2.004 7.231 17.886 27.888 21.201 14.713 8.697 132062 Slovenia 0.079 0.375 2.073 7.903 18.248 31.192 23.907 12.989 3.235 321933 Serbia 0.041 0.305 1.664 6.434 17.360 24.802 26.368 17.226 5.801 481998 Kosovo 0.064 0.131 0.418 5.613 13.989 25.609 22.380 22.177 9.620 51256 Vojvodina 0.198 0.548 3.192 11.479 21.998 30.429 22.785 7.738 1.632 175026 l- Appendix Table 1.8: SIZE DISTRIBUTION OF REGIONAL OUTPUT 1976 Number of Employees 16- 30- 61- 126- 251- 501- 1000- Republic/Province 15 30 60 125 250 500 1000 2000 2000 TOTAL Bosnia-Herzegovina 0.03 0.44 1.82 4.77 14.70 22.94 29.02 19.90 6.39 27952.5 Montenegro 0 0.61 4.62 9.91 23.41 31.20 22.12 8.12 0 3028.4 Croatia 0.12 0.49 2.83 10.05 18.79 24.10 27.06 13.53 3.02 55453.3 Macedonia 0.05 0.38 2.67 10.48 20.16 25.68 21.64 11.28 7.68 11322.0 Slovenia 0.13 0.50 2.89 6.99 19.29 30.45 24.36 12.22 3.18 44397.4 Serbia 0.04 0.40 1.68 6.74 17.28 23.22 25.91 19.28 5.45 52116.4 Kosovo 0.11 0.10 1.19 5.81 13.90 19.80 18.97 29.12 10.99 4611.9 Vojvodina 0.22 0.57 3.73 11.63 22.21 29.31 23.48 7.60 1.24 20671.1 - 77 - Appendix Table 1.9: ENTERPRISES AND EMPLOYEES IN MANUFACTURING INDUSTRY 1952-1976 __ Enterpris es Employees Thousands Craft Orgs Mfg Craft Orgs Mfg Individual Social Social Individual Social Social Sector Sector Sector Sector Sector Sector 1952 - - 2091 73.8 562 1953 - - 2330 218.9 79.4 532 1954 155215 4921 2482 204.3 99.5 632 1955 - - 2530 - 109.6 707 1956 - 4173 2541 - 120.3 745 1957 - 4577 2525 - 142.9 814 1958 - 4484 2500 - 152.1 929 1959 115722- 4519 2557 148.7 166.0 991 1960 - 4205 2556 - 181.9 1072 1961 - 4362 2787 144.7 189.8 1128 1962 - 3810 2684 - 185.2 1165 1963 - 3444 2507 - 187.2 1222 1964 105472 3017 2445 134.5 188.3 1319 1965 113120 3168 2466 145.6 201.5 1378 1966 125539 3093 2467 162.1 177.9 1358 1967 138072 3074 2492 178.6 176.5 1352 1968 145031 3035 2508 187.9 181.3 1349 1969 145441 2814 2484 190.2 133.9 1398 1970 141455 2643 2374 187.4 188.9 1454 1971 142142 2608 2398 193.4 191.9 1531 1972 142690 2610 2773 197.0 194.3 1614 1977 144708 2509 3217 199.5 192.0 1665 1974 142990 2534 4100 198.3 215.7 1762 1975 135349 2085 6495 191.3 102.3 1852 1976 132326 2380 7320 189.3 125.3 1873 Sources: SFR Yugoslavia, Social Craft Organizations, 1974. Statistical Yearbook, 1976. Industrial Organization, 1974, 1976. Appendix Table 2.1: LABOR PRODUCTIVITY BY SIZE OF ENTERPRISE 1974 Value Added Per Worker in Thousands of Dinars Crafts Social Sector Manufacturing Private Social z15 16-60 61-125 126-250 251-500 501-1000 71000 Total Iron and Steel 71.5 " 59.2 87.8 155.0 116.6 116.6 Non Ferrous Metals 119.6 81.1 164.4 103.1 206.7 149.0 152.2 Non Metallic Minerals 52.6 68.0 " 46.1 68.4 61.4 66.3 62.9 73.8 67.9 Metal Products 45.6 79.3 566.8 102.8 79.1 73.7 75.1 75.0 72.6 73.8 Shipbuilding 39.4 68.8 " 82.0 81.4 69.9 89.4 93.7 93.6 Electrical Products 48.0 76.9 " 95.5 74.7 63.3 75.1 76.4 71.6 72.6 Chemicals 237.1 127.2 409.7 117.8 121.0 143.9 109.7 118.2 142.1 133.0 Building Materials 46.4 65.2 145.7 71.7 72.0 73.5 75.7 69.7 115.2 82.0 Wood Products 29.3 67.1 ;; 85.3 74.5 66.9 66.8 70.8 71.6 70.2 Paper Products 148.1 85.2 " 85.7 101.0 99.9 118.0 146.6 115.0 125.3 Textiles 17.8 55.3 it 72.9 59.8 62.7 57.3 63.9 63.7 62.4 Leather and Shoes 25.5 57.7 ' 65.4 61.0 58.2 56.4 50.6 59.2 56.3 Rubber Products 101.4 73.2 " 31.5 72.0 82.0 69.5 98.9 62.1 72.9 Food Processing 95.9 66.6 152.6 99.8 98.4 86.2 81.3 91.4 95.5 89.7 Printing 102.3 76.0 139.9 112.0 93.0 93.7 89.2 91.3 109.7 97.1 Source: See Table 1.1. Appendix Table 2.2: CAPITAL INTENSITY BY SIZE OF ENTERPRISE 1974 Fixed Assets Per Worker in Thousands of Dinars Crafts Social Sector Manufacturing Private Social Q15 16-60 61-125 126-250 251-500 501-1000 >1000 Total Iron and Steel 33.0 t 78.5 126.8 495.1 257.7 260.7 Non;Ferrous Metals 77.7 60.6 396.9 209.4 469.5 246.9 283.1 Non Metallic Minerals 32.0 33.5 1 47.4 114,6 110.2 105.9 97.9 111.5 107.0 Metal Products 41.9 64.7 556.8 120.2 70.0 77.0 76.4 75.4 95.5 86.7 Shipbuilding 77.7 66.1 VI 26.1 62.8 54.3 109.8 132.2 115.1 Electrical Products 17.5 51.5 i 66.5 72.3 94.6 78.8 69.6 69.5 73.1 Chemicals 48.9 98.6 122.5 139.9 120.3 152.1 145.3 200.2 184.6 174.1 Building Materials 30.7 61.1 145.7 111.7 104.4 111.7 119.3 111L7 223.7 136.2 Wood Products 45.9 36.3 It 76.4 68.2 56.9 62,1 66.9 67.0 65.1 Paper Products 56.0 65.4 if 119.0 114.7 126.3 145.6 258.4 203.5 208.6 Textiles 9.9 21.9 It 86.1 75.9 49.0 55.7 67.1 66.3 63.4 Leather and Shoes 9.1 18.8 it 26.9 59.1 56.9 44.2 42.2 44.4 45.1 Rubber Products 101.9 50.6 it 168.5 74.5 170.9 88.7 157.5 61.2 94.8 Food Processing 31.7 56.7 152.6 155.6 157.5 132.9 142.3 126.0 116.7 130.7 Printing 51.1 50.0 27.1 35.9 48.3 52.9 78.8 99.2 88.8 69.7 Source: See Table 1.1 Appendix Table 2.3: OUTPUT - CAPITAL RATIOS BY SIZE OF FIRM Value Added Per Unit Of Fixed Assets In Dinars Crafts Social Sector Manufacturing Private Social _15 16-60 61-125 126-250 251-500 501-1000 >1000 Total Iron and Steel 2.17 " .75 .69 .31 .45 .45 Non Ferrous Metals 1.54 1.34 .41 .49 .44 .60 .54 Non Metallic Minerals 1.64 2.03 " .97 .60 .56 .63 .64 .66 .64 Metal Products 1.09 1.23 1.02 .86 1.13 .96 .98 .99 .81 .85 Shipbuilding .51 1.04 " " 3.14 1.30 .81 .81 .71 .81 Electrical Products 2.74 1.49 " 1.43 1.03 .67 .95 1.10 1.03 .99 Chemicals 4.84 1.29 3.34 .84 .99 .95 .76 .59 .77 .76 Building Materials 1.51 1.07 1.00 .64 .69 .66 .63 .62 .52 .60 Wood Products .64 1.85 " 1.51 1.09 1.18 1.08 1.06 1.07 1.08 Paper Products 2.64 1.30 " .72 .88 .79 .81 .57 .56 .60 Textiles 1.80 2.53 " .84 .79 1.28 1.03 .95 .96 .98 Leather and Shoes 2.81 3.07 " 2.43 1.03 1.02 1.28 1.20 1.33 1.25 Rubber Products .99 1.45 " .19 .97 .48 .78 .63 1.02 .77 Food Processing 3.03 1.17 1.00 .64 .62 .65 .57 .73 .82 .69 Printing 2.00 1.52 5.15 3.12 1.92 1.76 1.13 .92 1.23 1.39 '-Ourcc: See Appendix Table 1.1. - 81 - Appendix Table 2.4: INDICES OF RELATIVE TOTAL FACTOR PRODUCTIVITY IN MANUFACTURING, 1974 Crafts Social Sector Manufacturing Private Social <15 16-60 61-125 126-250 251-500 501-1000 >1000 Iron and Steel A - - - 1.088 - .707 .918 1.107 1.000 B - - - 1.678 - .907 1.065 .964 1.000 Non Ferrous Metals A - - - 1.029 .735 1.003 .720 1.221 1.005 B - - - 1.468 1.124 .910 .781 1.060 1.041 Non Metallic Minerals A .929 1.193 - .763 .996 .900 .978 .937 1.063 B 1.097 1.401 - .849 .987 .896 .979 .947 1.041 Metal Products A .668 1.109 6.292 1.346 1.097 1.012 1.031 1.031 .980 B .731 .151 4.999 1.294 1.126 1.027 1.047 1.049 .977 Shipbuilding A .439 .780 - - 1.026 .928 .770 .960 .987 B .466 .845 - - 1.271 1.014 .803 .966 .968 Electrical Products A .756 1.095 - 1.327 1.030 .851 1.027 1.058 .991 B .906 1.144 - 1.343 1.031 .825 1.018 1.065 .998 Chemicals A 2.259 1.064 3.290 .923 .973 1.111 .855 .867 1.058 B 2.866 1.185 3.517 .962 1.040 1.142 .886 .845 1.047 Building Materials A .706 .896 1.760 .901 .914 .924 .939 .875 1.308 B .805 .962 1.750 .916 .936 .941 .950 .890 1.253 Wood Products A .431 1.009 - 1.231 1.056 .965 .956 1.006 1.017 B .448 1.075 - 1.250 1.051 .980 .961 1.003 1.014 Paper Products A 1.443 .811 - .745 .883 .861 .995 1.134 .920 B 2.007 1.085 - .858 1.026 .976 1.089 1.076 .924 Textiles A .346 .989 - 1.132 .941 1.032 .931 1.018 1.017 B .424 1.113 - 1.094 .924 1.063 .945 1.012 1.012 Leather and Shoes A .502 1.084 - 1.201 1.065 1.018 1.003 .903 1.052 B .581 1.174 - 1.258 1.038 .997 1.005 .908 1.053 Rubber Products A 1.379 1.076 - .406 1.014 1.054 .960 1.283 .894 B 1.364 1.177 - .375 1.050 .969 .968 1.194 .952 Food Processing A 1.256 .816 1.670 1.090 1.072 .959 .897 1.023 1.078 B 1.675 .965 1.616 1.050 1.030 .955 .880 1.031 1.103 Printing A 1.076 .800 1.535 1.206 .982 .983 .911 .918 1.111 B 1.116 .833 1.717 1.306 1.025 1.015 .898 .881 1.080 Sources: Calculated From Tables 2.1 and 2.3. Appendix Table 2.5: VALUE ADDED PER WORKER IN MANUFACTURING 1976 (Thousand Dinars per Worker) Number of Employees 16- 30- 61- 126- 251- 501- 1001- Product Group - 15 29 60 125 250 500 1000 2000 2000 Electricity 272.2 298.7 311.3 281.1 278.0 208.5 411.5 333.7 0 Coal Mining 0 165.2 0 455.1 114.2 110.3 103.5 127.8 121.6 Coal Processing 0 0 0 0 221.6 254.5 278.1 0 0 Oil and Gas 183.3 0 0 175.4 254.9 463.6 0 1080.5 0 Oil Refining 50.0 0 0 366.3 479.4 200.3 470.0 435.7 0 Iron Ore Mining 0 0 0 171.5 0 188.4 115.1 0 0 Iron and Steel 0 146.6 208.9 194.8 164.1 95.7 137.6 158.3 99.1 Other Mining 0 0 85.7 163.8 89.2 121.0 117.1 151.2 102.0 Non-ferrous Metals 240.0 131.8 0 149.8 100.7 182.1 122.0 26.8 0 Smelting and Refining 107.7 191.9 116.4 114.0 99.9 172.2 156.5 121.7 0 1 Non-metallic Minerals 79.2 84.8 94.7 92.9 81.7 94.4 68.3 215.3 0 o Non-metallic Mineral Pro 116.7 104.8 85.1 101.6 113.7 96.3 94.9 78.6 0 Metal Products 152.3 140.9 119.6 112.4 108.9 100.1 103.8 98.7 120.1 Machinery 200.0 105.7 138.1 126.9 117.3 113.2 123.5 133.2 94.5 Transport Equipment 275.8 92.9 121.9 133.5 103.8 111.6 118.8 130.2 113.1 Shipbuilding 75.0 119.6 138.8 125.0 164.2 127.7 139.6 88.7 172.4 Electrical Products 46.2 148.1 146.2 133.8 115.5 108.9 107.9 92.0 86.8 Chemical Manufacture 179.5 347.4 265.8 228.6 172.9 133.3 117.4 206.3 0 Chemical Processing 174.6 284.6 118.5 138.8 135.4 133.9 166.0 135.9 0 Stone, Gravel and Sand 203.0 97.1 92.7 101.5 92.8 111.6 68.9 0 0 Building Materials 205.1 107.2 92.0 103.3 99.9 118.1 116.3 0 0 Sawn Timber 0 106.1 132.0 99.0 82.0 72.0 68.4 55.3 0 Furniture and Wood 85.6 95.9 90.3 92.4 91.0 87.9 87.1 69.9 0 Paper Products 276.9 104.5 130.3 97.1 103.8 115.4 110.2 181.0 0 Textiles 77.3 69.9 113.0 80.0 86.2 75.5 81.0 68.8 101.5 Textile Products 120.0 105.4 106.2 86.3 66.3 65.7 62.6 75.5 19.9 Leather 150.0 0 41.1 40.1 41.8 40.3 44.3 47.0 0 Shoes 121.4 54.3 81.5 75.7 87.8 72.5 73.0 60.2 67.8 Rubber Products 128.6 149.3 82.3 104.0 86.6 93.7 98.3 101.4 62.6 Food Products 131.4 137.2 157.9 117.3 115.2 119.0 127.3 121.5 0 Beverages 164.1 200.0 183.4 163.9 134.7 142.0 179.5 226.5 0 Animal Feeds 80.0 166.0 173.6 161.3 147.1 0 0 0 0 Tobacco Manufacturers 105.9 122.6 151.0 144.7 121.5 225.6 314.0 927.0 0 Printing and Publishing 116.8 137.1 119.7 103.3 102.3 113.7 137.4 139.5 0 Miscellaneous 107.1 193.1 135.3 108.1 125.5 103.4 105.1 0 0 Apprendix Table 2.6: INDEX NUMBERS OF RELATIVE LABOR PRODUCTIVITY 1976 (126-250 = 100) Number of Employees 16- 30- 61- 126- 251- 501- 1001- Product Group 15 29 60 125 250 500 1000 2000 2000 Electricity 97.89 107.43 111.98 101.11 100.00 74.99 148.01 120.04 0 Coal Mining 0 144.69 0 -398.56 100.00 96.58 90.68 111.91 106.47 Coal Processing 0 0 0 0 100.00 114.84 125.48 0 0 Oil and Gas 71.91 0 0 68.81 100.00 181.85 0 423.81 0 Oil Refining 10.43 0 0 76.41 100.00 41.79 98.04 90.88 0 Iron Ore Mining 0 0 0 0 0 0 0 0 0 Iron and Steel 0 89.33 127.30 118.70 100.00 58.33 83.84 96.49 60.40 Other Mining 0 0 96.05 183.54 100.00 135.63 131.18 169.48 114.29 Non-Ferrous Metals 238.26 130.86 0 148.67 100.00 180.75 121.15 265.43 0 Smelting and Refining 107.82 192.12 116.54 114.14 100.00 172.39 256.72 121.85 0 Non-Metal. Minerals 97.03 103.89 115.92 113.74 100.00 115.63 83.60 263.66 0 Non-Metal. Min. Prod. 102.65 92.18 74.87 89.37 100.00 84.70 83.51 69.14 0 Metal Prod. 139.85 129.41 109.85 103.28 100.00 91.94 95.30 90.70 110.33 Machinery 170.47 90.11 117.69 108.13 100.00 96.47 105.30 113.56 80.56 Transport Equip. 265.59 89.49 117.44 128.60 100.00 107.48 114.41 125.41 108.94 Shipbuilding 45.67 72.86 84.54 76.12 100.00 77.75 85.00 53.99 104.96 Elec. Prod. 39.95 128.17 126.58 115.86 100.00 94.22 93.42 79.66 75.12 Chem. Mfg. 103.87 200.95 153.76 132.25 100.00 77.10 67.91 119.32 0 Chem. Proc. 128.94 210.13 87.50 102.46 100.00 98.84 122.54 100.36 0 Stone, Gravel & Sand 218.87 104.66 99.89 109.37 100.00 120.34 74.23 0 0 Building Materials 205.34 107.39 92.12 103.39 100.00 118.27 116.50 0 0 Sawn Timber 0 129.37 161.01 120.65 100.00 87.74 83.35 67.48 0 Furniture and Wood 94.07 105.39 99.19 101.50 100.00 96.57 95.68 76.77 0 Paper Prod. 266.89 100.76 125.54 93.54 100.00 111.26 106.25 174.46 0 Textiles 89.60 81.01 131.04 92.75 100.00 87.56 93.88 79.72 117.71 Textile Prod. 180.98 158.89 160.10 130.23 100.00 99.10 94.41 113.81 29.97 Leather 127,79 0 62.22 84.10 100.00 83.85 99.26 111.84 0 Shoes 138.25 61.88 92.83 86.17 100.00 82.56 83.11 68.53 77.17 Rubber Prod. 148.43 172.36 95.06 120.06 100.00 108.13 113.48 117.03 72.32 Food Prod. 114.10 119.11 137.08 101.88 100.00 103.34 110.54 105.53 0 Beverages 121.87 148.53 136.17 121.69 100.00 105.47 133.27 168.18 0 Animal Feeds 54.38 112.85 118.03 109.64 100.00 0 0 0 0 Tobacco Mfg. 87.18 100.98 124.32 119.14 100.00 185.75 258.56 763.26 0 Printing & Pub. 114.16 134.05 117.03 100.99 100.00 111.18 134.31 136.39 0 Miscellaneous 85.35 153.79 107.82 86.10 100.00 82.37 83.73 0 0 Appendix Table 2.7: FIXED ASSETS PER WORKER IN THOUSANDS OF DINAR 1976 Number of Employees 16- 30- 61- 126- 251- 501- 1001- Product Group 15 29 60 125 250 500 1000 2000 2000 Electricity 2.152 3.013 4.126 2.741 2.747 1.876 3.908 2.954 0 Coal Mining 0 0.037 0 0.165 0.183 0.262 0.238 0.336 0.241 Coal Processing 0 0 0 0 1.006 1.853 1.015 0 0 Oil and Gas 0.017 0 0 0.039 0.826 2.532 0 4.092 0 Oil Refining 0.033 0 0 0.876 1.790 0.236 1.027 1.766 0 Iron Ore Mining 0 0 0 0.174 0 0.737 0.404 0 0 Iron and Steel= 0 0.293 0.190 0.410 0.259 0.248 0.692 0.582 0.785 Other Mining 0 0 0.207 0.116 0.128 0.374 0.554 0.547 0.245 Non-Ferrous Metals 0 0.114 0 0.102 0.165 1.070 1.205 1.802 0 Smelting & Refining 0.023 0.065 0.103 0.170 0.138 0.553 0.445 0.416 0 1 Non-Metal. Min. 0.026 0.106 0.189 0.171 0.207 0.207 0.376 0.323 0 0 Non-Metal. Min. Prod. 0.092 0.125 0.070 0.323 0.177 0.214 0.207 0.205 0 Metal Prod. 0.068 0.141 0.117 0.145 0.147 0.141 0.169 0.141 0.107 Machinery 0.195 0.059 0.068 0.116 0.112 0.13J 0.170 0.192 0.040 Transport Equip. 0.136 0.043 0.202 0.146 0.127 0.195 0.160 0.263 0.264 Shipbuilding 0.025 0.082 0.207 0.181 0.231 0.241 0.252 0.159 0.255 Electrical Prod. 0.062 0.064 0.075 0.116 0.131 0.143 0.147 0.126 0.099 Chemical Mfg. 0.184 1.579 0.743 0.502 0.699 0.445 0.446 0.750 0 Chemical Proc. 3.606 0.311 0.258 1.517 0.232 0.222 0.244 0.117 0 Stone, Gravel & Sand 0.524 0.160 0.177 0.200 0.166 0.214 0.101 0 0 Building Materials 0.224 0.294 0.167 0.259 0.218 0.370 0.375 0 0 Sawn Timber 0 0.218 0.146 0.305 0.197 0.134 0.165 0.121 0 Furniture & Wood 0.045 0.059 0.086 0.104 0.108 0.120 0.134 0.139 0 Paper Products 0.392 0.076 0.275 0.361 0.236 0.443 0.450 0.858 0 Textiles 0.168 0.173 0.174 0.161 0.156 0.192 0.193 0.170 0.329 Textile Prod. 0.073 0.105 0.146 0.097 0.072 0.080 0.082 0.084 0.029 Leather 0 0 1.636 0.102 0.203 0.161 0.175 0.175 0 Shoes 0.014 0.010 0.027 0.051 0.061 0.049 0.057 0.054 0.028 Rubber Prod. 0.300 0.056 0.099 0.173 0.107 0.258 0.146 0.319 0.042 Food Prod. 0.215 0.217 0.393 0.228 0.222 0.251 0.238 0.191 0 Beverages 0.268 0.818 0.414 0.432 0.350 0.389 0.231 0.271 0 Animal Feeds 0.140 0.659 0.462 0.505 0.358 0 0 0 0 Tobacco Mfg. 0.182 0.128 0.217 0.183 0.220 0.224 0.255 0.386 0 Printing & Pub. 0.056 0.090 0.100 0.102 0.110 0.188 0.227 0.277 0 Miscellaneous 0.054 0.031 0.092 0.090 0.129 0.098 0.121 0 0 Appendix Table 2.8: VALUE ADDED PER DINAR OF FIXED ASSETS 1976 Number of Employees 16- 30- 61- 126- 251- 501- 1001- Product Group 15 29 60 125 250 500 1000 2000 2000 Electricity 0.126 0.099 0.075 0.103 0.101 0.111 0.105 0.113 0 Coal Mining 0 4.471 0 -2.765 0.625 0.421 0.434 0.380 0.505 Coal Processing 0 0 0 0 0.220 0.137 0.274 0 0 Oil and Gas 11.000 0 0 4.486 0.309 0.183 0 0.264 0 Oil Refining 1.500 0 0 0.418 0.268 0.850 0.458 0.247 0 Iron Ore Mining 0 0 0 0.986 0 0.256 0.285 0 0 Iron and Steel 0 0.500 1.101 0.476 0.633 0.386 0.199 0.272 0.126 Other Mining 0 0 0.414 1.407 0.700 0.324 0.211 0.276 0.417 Non-ferrous Metals 0 1.160 0 1.462 0.609 0.170 0.101 0.148 0 Smelting and Refining 4.667 2.958 1.128 0.669 0.722 0.311 0.351 0.293 0 Non-Metal. Minerals 3.000 0.800 0.500 0.544 0.395 0.457 0.182 0.668 0 1 Non-Metal. Min. Prod. 1.273 0.838 1.223 0.314 0.640 0.449 0.457 0.384 0 c Metal Products 2.253 1.000 1.024 0.774 0.741 0.709 0.613 0.701 1.120 Machinery 1.026 1.805 2.019 1.095 1.051 0.866 0.726 0.695 2.364 Transport Equip. 2.022 2.145 0.604 0.913 0.816 0.573 0.740 0.495 0.429 Shipbuilding 3.000 1.457 0.669 0.691 0.711 0.529 0.554 0.558 0.676 Elec. Products 0.750 2.310 1.952 1.153 0.883 0.762 0.733 0.730 0.878 Chem. Mfg. 0.975 0.220 0.358 0.456 0.247 0.299 0.263 0.275 0 Chem. Proc. 0.048 0.916 0.460 0.091 0.583 0.603 0.679 1.164 0 Stone, Gravel & Sand 0.387 0.605 0.523 0.509 0.557 0.521 0.680 0 0 Building Materials 0.915 0.365 0.550 0.398 0.459 0.319 0.310 0 0 Sawn Timber 0 0.488 0.901 0.325 0.417 0.539 0.414 0.458 0 Furniture and Wood 1.894 1.615 1.054 0.892 0.840 0.733 0.651 0.503 0 Paper Products 0.706 1.376 0.474 0.269 0.439 0.261 0.245 0.211 0 Textiles 0.459 0.403 0.650 0.498 0.554 0.394 0.420 0.405 0.308 Textile Prod. 1.636 1.005 0.728 0.889 0.922 0.822 0.764 0.897 0.684 Leather 0 0 0.045 0.968 0.577 0.611 0.667 0.749 0 Shoes 8.500 5.556 3.014 1.482 1.449 1.481 1.283 1.115 2,404 Rubber Products 0.429 2.650 0.832 0.601 0.809 0.363 0.674 0.318 1.500 Food Products 0.612 0.633 0.402 0.516 0.519 0.474 0.534 0.635 0 Beverages 0.612 0.244 0.443 0.379 0.385 0.365 0.788 0.837 0 Animal Feeds 0.571 0.252 0.376 0.320 0.411 0 0 0 0 Tobacco Mfg. 0.581 0.956 0.696 0.789 0.552 1.008 1.234 2.402 0 Printing & Pub. 2.069 1.531 1.198 1.015 0.930 0.605 0.604 0.504 0 Miscellaneous 2.000 6.318 1.473 1.200 0.972 1,052 0.871 0 0 - 86 - Appendix Table 2.9: SOME INDICATORS OF HUMAN CAPITAL INTENSITY IN SOCIAL SECTOR MANUFACTURING, 1976 Total Production Professional Workers Total Workers Workers Per Admin- As A Percentage of Per One Worker of istrative and Total Workers Higher Education Technical Worker Iron and Steel 3.2 (10) 55.4 (9) 26.1 (23) Non Ferrous Metals 2.1 (21) 69.9 (2) 22.8 (25) Smelting 2.7 (16) 58.3 (6) 29.2 (20) Non Metallic Minerals 3.6 (7) 51.2 (13) 42.2 (14) Metal Products 2.6 (17) 55.6 (8) 45.3 (11) Machinery 1.7 (26) 72.1 (1) 31.2 (19) Transport Equipment 1.8 (25) 62.1 (4) 32.5 (18) Shipbuilding 2.4 (19) 63.7 (3) 34.2 (17) Electrical Equipment 1.9 (24) 48.5 (17) 25.2 (24) Chemical Manufacturing 2.1 (21) 61.7 (5) 16.6 (26) Chemical Processing 1.6 (27) 50.2 (15) 15.2 (27) Stone and Sand 5.0 (2) 56.7 (7) 80.0 (5) Building Materials 4.4 (3) 47.8 (18) 61.3 (10) Wood Products 5.7 (1) 38.0 (27) 80.7 (4) Furniture 3.5 (8) 50.6 (14) 65.2 (9) Paper Products 3.2 (10) 42.7 (26) 43.4 (12) Textiles 4.4 (3) 43.9 (22) 112.3 (3) Textile Products 3.8 (5) 49.4 (16) 161.4 (2) Leather Products 2.9 (15) 43.1 (25) 67.9 (7) Shoes 3.7 (6) 44.1 (20) 189.0 (1) Rubber Products 2.3 (20) 46.4 (19) 40.8 (15) Food Products 3.0 (14) 51.7 (12) 43.3 (13) Beverages 2.0 (23) 51.9 (11) 26.2 (22) Animal Feed 3.1 (13) 44.0 (21) 27.1 (21) Tobacco 3.2 (10) 43.4 (24) 36.0 (16) Printing and Publishing 3.3 (9) 52.7 (10) 65.8 (3) Miscellaneous Mfg. 2.6 (17) 43.7 (23) 72.4 (6) Note: Underlined industries are those with more than 10 percent social sector employment in firms with less than 126 workers. Rank in parentheses. Source: Statisticki Godisnjak Jugoslavije 1978. (Table 117-3) Appendix Table 2.10: DATA ON INDIVIDUAL SECTOR MANUFACTURING ENTERPRISES BY REPUBLIC 1974 Percentage of Individual Sector Enterprises Established By Returning With Owners of Less With Sales to Social Migrants Than Four Years of Sector and Percentage Formal Education of Sales Firms Sales Bosnia-Herzegovnia 3.1 45.9 31.1 28.8 Montenegro 2.3 27.0 40.6 25.0 1 Croatia 6.0 31.3 57.6 52.4 X Macedonia 1.5 66.6 13,4 33.0 Slovenia 6.1 23.3 72.2 49.7 Serbia 1.3 59.2 36.0 36,7 Kosovo 1.0 17.5 7.5 10.5 Vojvodina 1.6 26.1 53.0 42.3 Sources: See Ap?eadix Table 1.1.
World Bank Group · Pre-2003 Economic or Sector Report
Yugoslavia - Small-scale industry and industrial policy
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