Stalinism and state capitalism

Submitted by cathy n on 22 February, 2005 - 5:24 Author: Martin Thomas

“The organisation of the capitalist mode of production, once fully developed, breaks down all resistance… The dull compulsion of economic relations completes the subjection of the labourer to the capitalist. Direct force, outside economic conditions, is of course still used, but only exceptionally… It is otherwise during the historic genesis of capitalist production…” - Karl Marx, Capital Volume I, ch.28.

Since the mid-1980s, a turn against “statised” economic enterprise — rapid or slow, cautious or dramatic — has taken place all across the world, from Mexico to Moscow, from Sydney to Saigon. It has been accompanied by great popular revolutions in Eastern Europe and by an ideological offensive branding all “statised” economics — mildly social-democratic, nakedly nationalist, or Stalinist — as failed “socialism.”

None of the variants were ever socialist. Back in 1891 Karl Kautsky declared, in the most influential codification of Marxist politics in that era, his commentary on the German socialists’ Erfurt programme, that: “The theory that… the Cooperative Commonwealth could be the result of a general nationalisation of all industries without any change in the character of the state… arises from a misunderstanding of the state itself… As an exploiter of labour, the state is superior to [i.e. worse than] any private capitalist. Besides the economic power of the capitalists, it can also bring to bear upon the exploited classes the political power which it already wields.” Only if the workers ruled could state ownership be socialist.

What, then, was the significance of the “statised” economies of the 20th century? What was their role and place in history? Turkey, after the Young Turk coup of 1908 and especially after 1923, pioneered pattern s for the Third World. During World War One, “Under the guise of making provision for the capital city and the army, the [government] instituted allocation mechanisms which totally bypassed the market… Moslem businessmen were brought together under the aegis of the party organisation to found ‘national’ companies for the financing and carrying out of trade…”

Between 1915 and 1924, “probably 90% of the pre-war bourgeoisie,” Greeks and Armenians, were pushed out of Turkey or killed. In the 1920s, the government “actively invested in the economy, notably in an ambitious campaign of railway construction and in two sugar factories. After 1929 it began purchasing foreign-owned railway and other concessions… in addition to nationalising all foreign companies delivering public services. The new character of state capitalism appeared with what was called, in an obvious allusion to the Soviet experience, the First Five-Year Industrialisation Plan (1934). The plan was, however, no more than a list of fifteen investment projects… What distinguished these projects was their scale — obviously beyond the capabilities of private capitalists at the time…”

The bureaucrats dominated even private industry. “In 74.2% of all firms established between 1931 and 1940 (and still surviving in 1968) the founding entrepreneurs were bureaucrats”. [C. Keyder, State and Class in Turkey, p.63, 69, 105-6.] A proto-totalitarian one-party state was established.

The role of the state increased in the advanced capitalist countries, too, so that by the 1980s about 50% of national income passed through the hands of the state (and it’s not much less today.) The average was about 20% in 1929. More than half the surplus-value produced is taken by the state rather than by private capitalists. In most advanced capitalist countries, however, state spending is mostly on the military and on public services. The state usually plays a very secondary role in investment. “The public sector in most developing countries,” however, “account[ed] for… some 50 to 60 % of total investment” [World Bank World Development Report 1983 p.48.]

Some Third World economies had strong private capitalist classes: Mexico and India were examples. Even for India, an Indian Marxist wrote:

“The trend towards state capitalism, true in general for the advanced capitalist countries in the twentieth century, manifested itself with particular keenness in the underdeveloped countries after they became formally independent in the post-Second World War period… The government just could not leave the matter in the hands of individual capitalists because, first, they were ill-equipped for those investments that were essential but least paying, particularly in the short run and, secondly, they lacked, in general, funds, initiative, and experience.

“In other words, those segments of the economy that needed huge investment, modern and sophisticated technology, and a long gestation period before being able to provide a strong base for massive industrialisation were brought under the direct purview of the state. Hence in almost all underdeveloped countries the government, irrespective of the particular ‘ideology’ it professed, took a significant part in the functioning and controlling of the economy.” [P. Chattopadhyay, ‘State Capitalism in India’, Monthly Review March 1970; Financial Times 18.2.85.]

Even some vocally pro-capitalist governments used the pattern of a one-party state; mass organisations controlled by that party; Five-Year Plans; and a heavy state role in the economy. Two examples were Tunisia and the Ivory Coast.

In Tunisia state-owned enterprises accounted for 60% of value added in manufacturing [1978-81; WB WDR 83 p.51.] In the Ivory Coast 61% of investment was by the public sector [1980-5; WB WDR 88 p.47.] The state controlled marketing of agricultural produce. It owned the biggest plantations and ancillary factories. Its share of total industrial capital rose from 10% in 1976 to 53% in 1980. Almost all the rest of industry was foreign capital operating under detailed conditions imposed by the state. Researchers could find only five Ivorians who could be described as private industrial capitalists. [H S Marcussen and J E Torp, Internationalisation of Capital].

In those countries, as also partly in Turkey, the state nurtured a native private-capitalist class. In others, the state substituted for and clashed with private capitalists. In Algeria the FLN (National Liberation Front) took power in 1962 after a long and bloody war for independence from France. Most of industry and large-scale agriculture had been owned by the French state, or by European settlers, who quit. Workers took over many enterprises and estates. The new regime moved in to nationalise and establish state control.

By 1968-9 the government controlled foreign trade, banking, and most major industry. The takeover of oil and gas — now the country’s major earners — was completed by 1971. FLN political control was also made complete. The previously independent though sympathetic trade union federation, the UGTA, was brought under government control. In 1967-9 the public sector made 92% of industrial investment. In 1986 its share was estimated at 95%. [T Benhouria, L’economie de l’Algerie, p.256-8; J P Entelis, Algeria: the revolution institutionalised, p.1 28.] The private sector continued to include a lot of small-scale enterprise. In 1983 it employed 33% of the workforce, including agriculture. [R Tlemcani, State and revolution in Algeria, p.119]. A tremendous drive was launched to build up heavy industries and modern technology. “Under Boumedienne, the landscape looked like a vast building yard” [Tlemcani, p.114]. 60% of agriculture was in state farms, and the state had a monopoly on buying agricultural produce; the prices were set low by decree so as to siphon surplus value into industry [Entelis p.142; Benhouria p.69, 117].

Until the early ’80s, all state company profits went direct to the government, and all investment was financed by state credits. Later, state enterprises were allowed to keep some of their profits, but all their investment projects were controlled by the state banks and the supervising ministries. All prices were theoretically subject to state control, though — apart from agricultural and food prices — not all in fact were control led. Despite strict controls on paper, in practice, it was said, “The central political power’s control over the [state] corporations is very loose”. Foreign capital was quite active in Algeria, under deals arranged with the state. [Entelis, p.126; M E Benissad, Economie du developpement de l’Algerie 1962-82, p.200, 220; Tlemcani, p. 161; Benhouria, p.288].

For Algerian workers, however, this implied no relief. The state co-ordinated not only investments but the exploitation of labour. An Algerian Marxist commented on the regime:

“The omnipotence of the state, the overwhelming weight of the superstructure in relation to the infrastructure, is itself a fundamental class fact, quite apart from the goals of the state’s actions… When the simplest of problems, at whatever level of social life, needs in order to deal with it a formal procedure, haggling, an administrative decision; when the press, publishing and cinema are only state monopolies run by officials concerned above all to consolidate their privileges; when the unions are only transmission belts of the single party, which itself is only an annexe of the State, all questions are overshadowed by the basic one: the total domination of society by the State… “ [Benhouria p.330].

Here the State was more than a powerful agency and partner of private profiteers.

“The State domination which here precedes, protects and accompanies the development of capitalist exploitation cannot be considered as an episode of that development, leading at the next stage to a liberalisation, or ‘Sadatisation’ to take the example of Egypt, but is the basic characteristic of this development… Here is no longer a question of a State which provisionally administers the interests of the dominant classes, but of a structure which partially substitutes itself for them… There is no point looking behind this State for a dominant class which is using it, as… in France… A fraction of that dominant class, to be precise the state bureaucratic fraction which is also the hegemonic fraction, only exists through and thanks to the State” [Benhouria p.430].

“The bureaucratic form of Algerian capitalism is a product of history. On the basis of State property, wage-labour is juridically, socially and politically insufficient to ensure a problem-free reproduction o f the relations of production… State capitalism, for the worker, is wage-labour plus control and surveillance” [Benhouria, p.395-6]. Plus, indeed, very often, police-state terror. As Nikolai Bukharin put it, extrapolating (extravagantly for the time) from statised economics in World War 1:

“State capitalist structure of society, besides worsening the economic conditions of the working class, makes the workers formally bonded to the imperialist state… The workers… become white slaves of the predatory imperialist state, which has absorbed into its body all productive life.” [Imperialism and World Economy, 159-60.]
Structures similar to Algeria’s existed in many countries of the Middle East and North Africa. “By 1960, the bulk of economic activity in the region, with the important exception of oil, had passed into the hands of the governments or the native bourgeoisies. The next two decades saw a powerful wave of socialisation. Outside agriculture and housing the national private sector was reduced to insignificance in Egypt, Syria, Iraq, Sudan, Algeria, Libya, South Yemen, and, most recently, Iran, and severely curtailed in other countries. The takeover of the oil industry since 1973 has completed this process” [C Issawi, An economic history of the Middle East and North Africa, p.15].

In Syria, a first wave of nationalisations in 1961 was followed by another in 1963. “Most of the industrial sector and foreign trade, as well as financial institutions, have been nationalised”. The public sector accounted for 74% of the capital invested in industry in 1972, and 75% in 1976. [E Kanovsky, The Economic Development of Syria, p.9, 42; Economist Intelligence Unit QER Annual Supplement 1976]. “Extensive price controls and subsidies are the norm in the Syrian economy” [Kanovsky, p.110], though economic outcomes diverged from government plans much more even than in Algeria, where the divergences were sizeable enough.

In Iraq, a revolution in 1958 was followed by the nationalisation of “the few large plants still in private hands” in 1964. All banks became state-owned after 1964; all foreign trade state-controlled after 1976; the oil industry was nationalised in 1972-5. The public sector accounted for 75% of total investment in the 1970-4 Pl an. There were extensive price controls. In the public sector. “the achievement of physical targets of production features very importantly, perhaps even more so than profitability”. [EIU QER Annual Supplement 1976; Y A Sayigh, The Economies of the Arab World].

Egypt showed a fairly similar pattern to Syria, though with different government rhetoric. There was a coup by reforming military officers in 1952. Over the next ten years they forced out British troops; nationalised the Suez Canal; confiscated the big landlords’ land, redistributed it to peasants, and later grouped the peasants into state-supervised co-operatives; expanded social services; nationalised most major industry and commerce, without compensation, in 1960-1; and launched an industrialisation drive.

From 1967 Nasser’s ‘state-capitalist’ policy was gradually reversed and replaced by an all-out drive to promote private enterprise and attract foreign investment under his successor, Sadat. Many former capitalists had in substance retained their positions despite the nationalisations. Jewish and other non-Egyptian capitalists did genuinely have their property confiscated by the Nasser regime; but Egyptian construction bosses, for example, continued to run their companies and draw profits from them even while they were formally nationalised. Under Sadat the private capitalists reasserted themselves. Egypt, however, still had a heavily statised economy well into the 1980s. The public sector made 65% of all investment in 19B1-5. State-owned enterprises accounted for 65% of a ll value-added in manufacturing in 1979 [WB WDR 88]. There were big price subsidies on basic foods, like bread.

Burma is an instructive example because there a more-or-less complete “Stalinist” structure was established by purely military methods. There was a coup by nationalist army officers in 1962. Over the next two years, “the Revolutionary Council declared illegal all political opposition, took over the direct management of most educational and cultural organisations, and established the nucleus of a political party with ancillary mass organisations”. There followed “the nationalisation of external and internal trade, and of large sectors of manufacturing, together with the introduction of quantitative physical planning as the basic mechanism of economic control…” Private capitalists were forced out, not so much because they were capitalists as because they were almost all Indian or Pakistani. In May 1964 all large currency notes were declared worthless.

Enterprises were run by military officers, as military operations. Prices were set by the government. It was of no concern to the government whether individual enterprises showed a profit or a loss. Agriculture remained in private hands, but the state became the sole buyer of agricultural produce. A number of private businesses remained: “However, these figures belie the control the state has over the activities of the private sector. After 1962, firms which were not nationalised were placed under strict supervision”. Or, as another report puts it: “A great majority of the private firms were small family operations… and the strict government control and regulation over them was almost equivalent to de facto nationalisation”. The public sector accounted for virtually 100% of investment. [R H Taylor, T e State in Burma; O I Steinberg, Burma’s Road Toward Development; K Bandyopadhyaya, Burma and Indonesia; EIU QER Annual Supplement 1976].

All the Third World states examined above — and many others besides — modelled themselves in many respects on Stalin’s USSR. Benhouria’s comment — “In Algeria, Stalinism appears more and more as the ‘theory’ of the manager” [p.426] — applies to administrators, officials, and army officers in many other countries, too. Common features were the single party monopolising politics — or in India and Mexico, partially doing so — the state-controlled mass organisations monopolising social life (except in India); the Five-Year Plans; the bias towards heavy industry, developed by the State without regard for immediate profitability; the squeezing of the peasantry to boost that heavy industry.

Within these common features there were very important differences. In Mexico and India, the state was itself a capitalist on a large scale, but it did not aspire to control the economy in any detail, and it worked in partnership with a strong private capitalist class.

In Egypt, and probably also Syria and Tunisia, there was again a state/private-capitalist partnership, but with the proportions changed. The state was the major capitalist, and it intervened more minutely in the economy, though leaving a great deal to the market. It dominated and regimented labour, banning all independent workers’ action.

In Algeria and Burma, the proportions changed again. The state utterly overshadowed private capital. It was not representing or acting for a private capitalist class, but to a large extent replacing or substituting for it. It controlled the bulk of investment, and systematically manipulated the economy by setting production targets and decreed prices.

As well as the countries where there was a foreign bourgeoisie, or virtually no bourgeoisie, before the state took control of the economy, there are also ones where a bourgeoisie existed and was ousted by revolution — Yugoslavia, China, Cuba, and others — revolutions which, however, were more nationalist than social, chiefly aimed against the bourgeoisie because of its close links to foreign and landlord interests. What variants did they add to the pattern?

China between 1958 and 1978, Yugoslavia in 1948-50 and partially to 1955, and Cuba from the early ‘60s, all followed the economic model of Stalin’s USSR closely. In the USSR major industry had been nationalised in 1918 not by a middle-class group seeking national economic development, but by the workers’ government put into power by the workers’ revolution of October 1917. From 1918 to 1921 the economy was run on a makeshift basis of ‘war communism’, without planning but without normally functioning markets either. Goods were requisitioned and allocated according to immediate availability and immediate need. From 1921 to 1928 the market was the chief regulator. A state planning organisation, Gosplan, was set up in April 1921, but outside key sectors of heavy industry the nationalised enter prises generally guided themselves by the market. Private enterprise was given wide scope in trade.

In the 1930s a centralised command economy was imposed. Peasants were herded into state-controlled farms. Private traders were banned. All trade-union independence was crushed, the Bolshevik party was destroyed, and terroristic domination of society by the state bureaucracy established. Enterprises now received detailed instructions from central government about how many workers they would have, what wages they would pay, what inputs they would receive, and what outputs they must produce. Prices were also decreed by central government. It was like a war economy, raised to screaming pitch.

In principle this ‘command economy’ made prices irrelevant — mere accounting symbols — except for consumer goods and labour power. Whether an enterprise made a profit or a loss in terms of the decreed prices did not necessarily signify anything about the enterprise (rather than the decrees) and did not matter. Until the mid-’50s’ workers’ movements from job to job and place to place were strictly limited by law; millions were in forced labour camps; and excess demand for consumer goods could not produce much increase in official prices or in supply.

Marx had argued that socialism needed material abundance — enough produced for everyone to have what they want. Stalin’s “socialism” could work only on the basis of extreme scarcity. Workers would buy whatever food, shelter, and clothing they could get, and that would be all they could afford. The planners need not concern themselves with what people wanted — as might be indicated by price movements on a free market, or by votes in a workers’ democracy. All they need do is plan enough basic food, shelter and clothing to provide a minimum subsistence.

From 1928-9 to the early ‘30s, indeed, many goods were distributed by rationing. But the system never, in practice, made money irrelevant. The command economy was never all-embracing. Peasants kept private plots and sold quite a lot of food on the free market (about 25% in the 1980s). In addition to legal free markets there were black markets. In some parts of the USSR in the 1980s, such as Armenia, the black market was said to yield two-thirds of total incomes [Economist 9.4.88]. Legal controls over movement of labour were never very effective. In fact the USSR had a very high turnover of labour: workers frequently changed jobs to find less gruelling conditions or better pay. Piece rates and bonuses were widely used. Money mattered.

Prices were unstable in the 1930s. In 1933 and 1946 the decreed prices for food had to be increased drastically to bring them more in line with free-market prices. Always, the bureaucrats had to push hard to re strain price inflation, and never fully succeeded, despite the total administrative control they had in theory. Factory managers always found ways to increase product prices. There was an officially-tolerated “grey market” for producer goods to be bartered between enterprises, and an illegal “brown market” for stolen or illegally-produced spare parts [A Katsenelinboigen, ‘Coloured Markets in the Soviet Union’, Soviet Studies January 1977.]

The command system did, however, make the economy operate differently from a market system in many ways. Vast resources were thrown into heavy industry and military production, by state command, and everything else managed as best it could. As the system matured, other tendencies became clear. There was a tendency to lurch to and fro, from splurges of over-investment to “tightening-up” to over-investment again. Every ministry (i.e. branch of industry), region and enterprise wanted as many investment projects as it could get, because then it got more supplies and more power. At any time there were about 2 1⁄2 times as many investment projects underway as the economy could handle; and large projects took about 2 1⁄2 times as long to complete as in the West. Delays and pauses were routine. [D A Dyker, The Process of In vestment in the Soviet Union, p.36, J. Sapir, Les fluctuations industrielles en URSS, 1941-85.]

Plans were calculated to be “taut”, giving each enterprise only the inputs it needs and requiring it to work at full capacity. To calculate otherwise, the planners reckon, was to encourage waste. In fact “taut” planning meant that there were always shortages. Because there were shortages, enterprises hoarded supplies — which makes shortages worse. Because there were shortages, enterprises worked at half-pace most of the time and then made up their plan targets by “storming” — turning out products frantically, any old how — at the end of the month. A lot of the products were unusable — and that, in turn, made shortages even worse.

After the first rush of Stalinist industrialisation, the central bureaucrats oscillated between high-pressure attempts to push industry along by repression and coercion, and subtler attempts to use market mechanisms to spur on the factory managers. Both tacks had very limited success, and the whole system eventually broke down as Gorbachev made one last effort to get it moving.

Over the whole range of the Stalinist economies there was, however, wider variation than in the USSR. Yugoslavia scrapped all detailed plan directives for enterprises in 1955, and decentralised more and more thereafter. By the 1980s central government spent only 6% of national income.

Yugoslavia was still a nationalised economy. In 1983, 83% of all output and 95% of industrial output came from state-owned enterprises. But each of those enterprises was run by a management committee more or less free to pursue maximum profit for the enterprise. Surveying the price structures of 31 underdeveloped countries, the World Bank found that Yugoslavia’s was one of the least distorted by subsidies, controls and decrees.

Some features of the “command economy” remained. A loss-making enterprise did not generally close down; it just got more in debt, and might have a temporary manager appointed from above. Conversely, a successful enterprise could not take over and asset-strip other enterprises.

The hallmarks of a market economy were there, too. “The ability to grapple with factors external to the success of the individual enterprise and small region has disappeared,” commented Granick. “The Yugoslav economy [was] run along Adam Smith lines to a degree that is quite unusual for Europe as a whole.” Yugoslavia had roaring inflation and high unemployment.

Yugoslavia was extremely open to the world economy, exporting 30% of its production, and 54% of that outside Eastern Europe. In 1985 it had 187 joint ventures with Western capitalists operating, and seven Free Trade Zones in which multinationals could do business free of usual tariffs and formalities. [F Singleton and Carter, ‘The Economy of Yugoslavia’; WB WDR 83, 85, 88; D Granick, Enterprise Guidance in Eastern Europe; A Nove, The Soviet Economy, p.310-14; Wall Street Journal 4.8.83; Yugoslav Economic Review; Yugoslav National Bank Quarterly Bulletin].

Before the Maoist revolution of 1949 some 60% of China’s industrial capacity was state-owned, and much of the rest was owned by a clique close to Chiang Kai Shek’s government. When Chiang Kai Shek and his clique fled to Taiwan, Mao’s revolutionaries took this over. By 1952, 80% of China’s heavy industry was in government hands, and 30% of light industry. Taiwan, meanwhile, had a more statised economy than mainland China.

Gradually, however, the Maoist government established total state control of the economy. Between 1958 — when agriculture was collectivised — and 1978 — when the market-oriented economic reforms began — China was run on the strict Stalinist model. All important prices were fixed by the state, the main ones centrally. Practically all enterprise profits went directly to the state budget, making up the greater part of public revenue. The bureaucracy allocated investment funds and issued production targets.

Industry was built up even faster than in the USSR under Stalin. Despite heavy economic losses and vast destruction of human life at the time of the Great Leap Forward (1958) and the Cultural Revolution (1967), electricity generation grew at an average of 13% a year between 1949 and 1987, steel production at 15%, cotton yarn production at 7%, and rice output about 5% (1949-82).

Even in its most Stalinist period, the Chinese economy had some important differences from the USSR’s. The plan, it seems, was always less detailed and “taut”. Enterprises would get some of the supplies they need through the plan, but some through more-or-less free markets. The labour market, however, was more tightly controlled in China than in the USSR. Until 1960, China, unlike the USSR, had mass unemployment in the cities — about 10 to 20 million unemployed, or 15 to 30% of the workforce. The government dealt with this by forcing people out of the cities into the countryside and imposing strict controls on urban labour. “The control of labour allocation [was] more far-reaching in China than in Eastern Europe and the USSR… Neither workers nor enterprises [had] much say in job assignments, and most workers expect[ed] to spend their working lives in the enterprise they [were] assigned to when they leave school… The wage and bonus system [was] just as rigid as the labour allocation system in theory and nearly as rigid in practice.” Modern, large-scale enterprises accounted for only about two-thirds of urban labour. On the whole wages (and side-benefits) in big state-run enterprises were less bad than in petty enterprise; and — as in many other Third World countries, Pakistan for example — employment in a big state enterprise was considered almost a privilege. Children hoped and expected to “inherit” their parents’ jobs.

Since 1978 the system has been changed drastically, so that, while the regime is still Stalinist, agriculture has returned to individual peasant production and state enterprise accounts for less than half of industrial production. [N Harris, The End of the Third World p.49; G Tidrick and Chen Jiyuan (eds), China’s Industrial Reform; C Howe, ‘China’s Economy’; Economist 1.8.87.]

Some East European economies also showed paths away from the strict Stalinist model. In Hungary, plan directives to enterprises from central government were scrapped in 1968. The economy was made much more open to the world market. Exports increased from 19% of output in 1966 to 40% in 1986; the proportion going outside the USSR and Eastern Europe increased from 34% to 51% (1983). Hungary joined the IMF (in 1982), and borrowed heavily from Western banks.

On paper, Hungary became almost as market-oriented as Yugoslavia. Most prices were freed. Enterprises were supposed to aim for profits and to find money for investment from profits and bank loans at interest. In fact, bureaucratic string-pulling still played a big role. Bargaining with central government over taxes and subsidies was as important for enterprise bosses as commercial profit. Yet, as in Poland, even before 1989, the visibly rich of Hungarian society, with their BMWs and Mercedes, were private capitalists. [Financial Times 10.5.8 3; J Kornai in Tidrick and Chen Jiyuan, op.cit.; P Hare, H Radice and N Swain, Hungary: A Decade of Economic Reform; L’Alternative, May-August 1982].

East Germany showed another variant. A lot of planning was decentralised to industrial cartels, which could haggle and bargain with each other. Plans were slack, not taut. Meeting their production targets was not a problem for enterprises; making profits was a greater concern. Banks played a big role because of “the emphasis placed by the entire economic system upon financial results”, especially profit.

Enterprises had great freedom in setting wages. Until 1972, 15% of the labour force in industry and in trade was in private and semi-private enterprises; then there was a clampdown, but 5% of the non-agricultural labour force was still in the private sector in 1979, a bigger proportion than elsewhere (in the legal economies, at least) in state-monopoly industrialisms.

“[East German] experience shows that it is apparently not entirely true that ‘the system needs administrative pressure in order to perform. When there is slack and a relatively free supply system, some sort of market pressure may develop even in a bureaucratic economy” [Nove, quoting Keren.] [J-C Asselain, Planning and Profits in Socialist Economies; D Granick, Enterprise Guidance in Eastern Europe; I Jeffries and M Melzer, The East German Economy; A Nove, The Soviet Economy, p.314-316.]

The extreme terror used by Stalinism in the USSR, by brutalising, atomising and bureaucratising the society, seems to have reduced the USSR bureaucracy’s ability to experiment effectively in economics below that of its homologues who used smaller terror, since they had no Bolshevik party to extirpate in order to settle their rule.
Stalinism was (is) thus more a social regime, a particular method of class organisation, working extreme torsions on the underlying statised capitalist infrastructure, than an original mode of production. As regards their economic mechanisms, Stalinist command economies could be changed into market economies (albeit heavily-nationalised), and vice versa, by government decision, without a social revolution or even a change of government. Yugoslavia and Hungary changed from command economies to largely market-regulated economies. China has also made a gradual change from a (heavily-nationalised and controlled) market economy to a command economy in the 1950s, and then back again.

What cannot and could not be changed so readily is class identity and class power. No private capitalist class has been dispossessed without a revolution, or drastic military action — not even when many of the private capitalists were later to become state managers, as in China and Eastern Europe. For a state-monopoly bureaucracy to cede place to (and partially transform itself into) a private capitalist class has also been difficult. In the USSR and most of Eastern Europe, it took popular revolutions, led by the middle class and mobilising (at least partially) the working class, to crack the central bureaucracy’s monopoly regime. Yet there were profound economic imperatives pushing the same way.

There is a connection between the state-monopoly economies being parallel to market capitalism in economic development, and their constant use — however residual and limited at times — of money and the market. In modes of production before capitalism, the allocation of labour is determined by subsistence, custom, and the desire of the rulers for particular goods. The working people produce enough to feed, clothe and s helter themselves in some fashion; then on top of that they are dragooned into making lavish meals, rich clothing, palaces, cathedrals or Pyramids for their rulers. The potential for expansion is limited. There is no drive for general, mobile wealth, as distinct from the wealth embodied in particular goods. Under capitalism there is that drive. And the market provides a mechanism to stimulate that drive and evaluate different projects. Under socialism the drive to unlimited expansion of humanity’s productive capacities will continue, but in more human, rational, and equal form. Calculation of costs and benefits, based on labour-time accounting, will enable us to evaluate projects. Even a workers’ government, however, would have to use market mechanisms, and the information on costs, supply and demand given by free-moving prices, for a very long time. Short of socialism with general abundance, a high level of social solidarity and responsibility, and advanced techniques, there is no other way.

The USSR could launch its drive to build power stations, steelworks, and coal mines in the 1930s-50s — and China could follow it in the 1950s — with only the sketchiest market mechanisms because they could copy what needed to be done from Western capitalism, and they could keep the mass of the working people down to bare subsistence.

If the goal of those state-monopoly industrialisms had been simply to produce those particular goods — steelworks, power stations, and a military machine — they would have stopped there. Indeed, the great state despotisms of the past did become static once they reached a particular level of splendour. They became static even if, like the Ottoman Empire, they were in military competition with more dynamic societies.

But the 20th century state-monopoly economies did not stop there. They had a drive to develop wealth in diverse and new forms. These hideous bureaucratic regimes could not conceivably regulate and manage that drive through socialist methods. That left none other than market methods.

When choosing between 100 different investment projects, how else can you decide than by having information on costs provided by prices that mean something? When you expand consumer-goods production beyond the minimal necessities, but are still far from general abundance, how do you decide what to produce without supply-and-demand information?

Thus the bureaucrats’ insistent drive for “rational pricing” in the USSR and Eastern Europe. Thus their free-market experiments. They could not have a form of economic regulation superior to market capitalism; they would not settle for a form of economic regulation inferior to it. Their regimes had been not socialist, but an especially brutal means of driving through “the historic genesis of capitalist production.”

Objection 1: Capitalism is a market system. A command economy can’t be capitalism.

Answer: For Engels, under state capitalism, “freedom of competition [would] change in to its very opposite — into monopoly; and the production without any definite plan of capitalistic society capitulates to the production upon a definite plan of the invading socialistic society [but] so far still to the benefit and advantage of the capitalists” [Anti-Duhring p.329]. Engels was thinking of a highly-developed capitalism becoming statised, rather than a newly-industrialising economy: but the point remains. Capitalism is the system of exploitation of wage-labour by capital, whether carried out in a free market or a state-controlled economy.

Trotsky thought state-capitalism would be impossible in practice because of the conflicts between the capitalists and because the single state capital would be “too tempting an object for social revolution.” Engels thought the same: “No nation will put up with… so barefaced an exploitation of the community by a small band of dividend-mongers.”

In fact the state-bureaucratic classes suppressed their internal conflicts in the process of banding together as military groups for combat against the old regime. In fact they established regimes with enough repressive strength (and, in some cases, political credit for their achievements against the colonialists and landlords) to keep control. But Trotsky and Engels were not entirely wrong. These regimes were inherently tense and vulnerable.

Objection 2: The workers are not really wage-workers under state-monopoly industrialism. They are state slaves. Wage-labour implies a more or less free labour market.

Answer: Yes, state repression redoubled exploitation. But there were labour markets in the state-monopoly industrialist societies. Instead of being handed rations, or living from what they could produce with means of production they owned themselves, the workers were paid wages and bought their subsistence. The bosses used piece-rates and bonuses. There was a difference between the situation of the bulk of the workers — wage workers — and that of the slaves in Stalin’s forced-labour camps.

The political question is this: did the state-monopoly industrialisms create a wage-working class of t he sort discussed in Marxist theory? A class with socialist potential? A class which by liberating itself can liberate humanity, as no other class in history could do? The answer of Hungary 1956 and Poland 1980-1 was: yes!

Objection 3: The statised system, at least as it existed in the USSR, was very different from what we know as capitalism in Britain. What is the sense in applying the same term to two such different societies?

Answer: Only in the textbooks does history proceed tidily from stereotype slavery to stereotype feudalism to stereotype capitalism. Each of the major modes of production known to history has seen wide variations. History is full of hybrid and exceptional formations which cannot be slotted tidily into one category or another.

Capitalism, the most dynamic and flexible mode of production yet known, has had especially varied forms. The capitalism of 14th century Florence or present-day Zaire were and are quite different from what we know in Britain, and the capitalism of most of the world in the era 1945-80 was closer to the USSR model than to what we know in Britain.

Objection 4: Wage-labour alone does not define capitalism.
It is wage-labour and capital. You need to show that capital existed in the USSR. Machinery and factories are not of themselves capital. Capital is a social relation.

Answer: The state-monopoly industrial systems aimed not just for the production of particular use-values — be they palaces or power stations — but for the production of wealth in general, wealth not limited to any predefined form. That is capital.

Objection 5: Wage-labour is not special to capitalism. A workers’ state would continue to use wage-labour long after the overthrow of capitalism.

Answer: A workers’ state would be governed by an increase in the living standards of the working class, so that gradually the wage relationship would cease to be a market relationship governed by the value of labour power, and the working class would cease to be a working class. Investment would be directed to social need rather than self-expansion of capital; commodity forms would be eroded with basic services and goods distributed freely.

There was none of that under Stalinism. The Stalinist systems were located within the era of capitalism not just by an abstract economic category shared in common (wage labour), but also by their development of technology and of social classes.


Submitted by Anonymous (not verified) on Sun, 03/07/2005 - 22:55

So the AWL is in fundamental agreement with the IS/SWP on state-capitalism?

However I thought you guys used to be the Trotskyist Opposition within IS?

So when did your line change?

And how do you deal with the paradox that the one thing the IS/SWP rejected from Trotskyism was the one thing Trotsky got right - that the Stalinist USSR was ruled by a bureaucratic caste that eventually would divide up the state as private property and restore capitalism.

Given that Cliff and co. used to deny categorically that there was any need for capitalist restoration there as they already had what was in effect the highest form of capitalism, I've always wondered how they dealt with it when it happened.

Your explanation would seem to be 'the price problem' but that just sounds like a capitulation to von Mises' and Hayek's (very powerful) critique of socialism.

More generally from this article it would appear that all that happened in the USSR, China, etc was nothing more than a peculiar form of statist primitive capitalist accumulation made inevitable by the underdeveloped nature of their economies.

This seems rather reductionist and logically would lead one to the conclusion that actually it was the Mensheviks who were right in 1917 given that an 'ordinary' bourgeois revolution would probably have been infinitely less bloody and destructive than the state-capitalist one that resulted from the Bolshevik seizure.

(as a matter of fact this is broadly my own position but I don't really expect the AWL to share it)

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