Part 1
Good question.
Firstly, it would be useful to understand the background of the political situation that led Tito to introduce some of the reforms that characterized the Yugoslav system. Tito who led the Yugoslavian Communist Party had managed to achieve victory over Nazism on his own and thus had achieved a certain degree of independence from USSR. Initially, Tito followed the traditional Stalinist model of Nationalization of all large and medium-sized enterprises, collectivization of agriculture, self-sufficiency, minimization of foreign trade even with fellow "Socialist" countries, monopoly of political power by the Communist Party with a police State to boot. One major difference was that Nationalization was not done in one blow and private agriculture was still present and this was to continue throughout the existence of Yugoslavia. Tito himself had carried out a purge of Yugoslavian Communist Party and executed over 200 people as "agents of British Imperialism". Tito was enthusiastically praised by the Soviet press and Stalin had sent a lot of specialists to aid Yugoslavia in its program of economic development as Yugoslavia remained a largely agricultural country. At the end of the war, the party numbered around 141,000 members, and the figure rose to 468,000 by July 1, 1948. Development of the Youth was no less impressive – 1,415,000 enrolled members.
Nonetheless, many of these countries were much more integrated with the world economy (especially Western Europe), unlike the Soviet Union which practiced autarchy after the establishment of State monopoly of Foreign trade in 1930. Yugoslavian leaders wanted a Balkan Federation which included Bulgaria and Albania. Greece too wanted to join the Federation and Yugoslavia supported the Greece Communist Party in it's struggle without being aware of the deal between Stalin and Churchill that had kept Greece in the Capitalist sphere. If it was allowed then this Federation would probably have achieved a greater degree of Independence from Kremlin. Stalin had wanted to achieve complete subjugation of these countries to the Soviet Union and he rejected the prospect of Balkan Federation. Meanwhile, Yugoslavia had also rejected the idea of Associated Companies that Soviets had proposed and which had been set up in other Eastern Europe. They were to be set up with the Capital of Soviet and the native country but its profits were to be sent to the Soviet Union for its own reconstruction. This soon led to problems within Yugoslavia for the Soviet specialists. Indeed, here is what the Daily Worker had to say,
The leadership of the Yugoslav Communist Party is carrying out a policy unfriendly toward the Soviet Union and to the All-Union Communist Party. In Yugoslavia, an unworthy policy of belittling Soviet military experts and discrediting the Soviet Army has been permitted. Soviet civilian specialists in Yugoslavia have been subjected to a special regime, on the basis of which they were put under the surveillance of State security organs and subjected to shadowing. The representative of the All-Union Communist Party (Bolsheviks) at the Information Bureau, Comrade Yudin, and a number of official representatives of the Soviet Union in Yugoslavia were subjected to the same shadowing and supervision on the part of the State security organs of Yugoslavia.
All these and similar facts prove that the leaders of the Yugoslav Communist Party have taken up an attitude unworthy of Communists, on the basis of which the Yugoslav leaders began to identify the foreign policy of the USSR with the foreign policy of the imperialist powers and behaved towards the Soviet Union in the same manner as toward the bourgeois states. Precisely as a consequence of that anti-Soviet attitude, slanderous propaganda - borrowed from the arsenal of counter-revolutionary Trotskyism - on the degeneration of the All-Union Communist Party, on the degeneration of the Soviet Union and so on has become current in the Central Committee of the Communist Party of Yugoslavia."
After Yugoslavia was famously expelled from the Cominform, the Yugoslavian Communist Party reinstated its demand for Federation of Balkan States which was condemned as "nationalist" and "imperialistic" by Stalin. The reasoning was pretty clear. Yugoslavia's expulsion, however, created a problem for Tito regime since it left it relatively isolated. Soon, the Soviet press started criticizing the presence of "Capitalist" elements that were present in Yugoslavia. One interesting point is that Yugoslavia had been more tolerant of rich peasants as Tito declared that they had patriotically supported the Party in its fight for independence and it would wrong to alienate them.
"Inside Yugoslavia, the Party does not have any internal party democracy, elections are not held, there is no criticism or self-criticism. The Central Committee of the Party…consists in its majority not of elected but co-opted members…It is quite intolerable that in the Yugoslav Communist Party the most elementary rights of party members are being trampled upon, that the slightest criticism of the incorrect way in which things are run in the Party is followed by grave repressions. The Information Bureau regards as disgraceful such facts as the expulsion from the Party and arrest of members of the Central Committee Comrades Zujovic and Hebrang because they dared to criticise the anti-Soviet attitude of leaders of the Yugoslav Communist Party and to advocate friendship between Yugoslavia and the Soviet Union. Such an ignominious, purely Turkish [!!] terrorist regime cannot be tolerated by the Yugoslav Communist Party…the leaders of the Yugoslav Communist Party, are infected by excessive ambition, haughtiness, and conceit."
Tito, of course, had to formulate a clear theoretical explanation for the break with his former allies without a wholesale denunciation of Socialism. In the initial years, Tito more or less maintained the same order. In April 1948, the State expropriated all the remaining Enterprises that were not small shops thereby completing what they called the Socialist reconstruction of the economy. As per a report made by the Yugoslav Government, about 1 percent and 9 percent of the national income was consumed by urban and rural Capitalists, 25 percent by salaried employees, 23 percent by middle and lower peasants, 4 percent by petite bourgeoisie elements and the rest by the Socialist sector. They gradually planned to eliminate the other remaining Capitalist elements through superiority of productivity in Socialist sector which was to be achieved by Central planning. The Yugoslavian planners targetted an increase of 272 percent in the output of the mining sector, quadrupling the output of electricity, irrigation of 8 million hectares of land, construction of 15,000,000 squares of housing and building of 110 hospitals.