1980s >> 1988 >> no-1009-september-1988

Where is Russia Going?

Russia has – and at no time since the 1917 revolution ceased to have – a capitalist economy characterised by the existence of commodity-production, wage-labour and capital accumulation. What has changed, and is changing again under Gorbachev, is the way in which economic decision-making within this system is organised.

Capitalism is a class society in which those who do the actual work of production, whether manual or intellectual, are separated from the means of production and have to live by selling their mental and physical energies to those who monopolise the farms, factories, mines, warehouses, offices and other places where wealth is created.

What distinguishes capitalism from other class societies is the fact that the great bulk of wealth is produced by wage-labour, for sale on a market. It is a society where all wealth is produced with a view to being bought and sold, which is what Marx meant when he spoke of capitalism as involving generalised “commodity production”. A commodity is an item of wealth that has been produced for sale and, as Marx put it in the opening line of Capital: “The wealth of societies in which the capitalist mode of production prevails appears as an immense collection of commodities”.

Commodity-production in Russia
Wage-labour has never been abolished in Russia; on the contrary it expanded massively as more and more peasants were transformed into wage-workers for developing industry. The existence of wage-labour as the predominant form of productive work has been in itself sufficient proof of the capitalist nature of the Russian economy. But what about commodity-production? Can this too be said to have always existed in Russia since 1917?

There has never been any argument about consumer goods in Russia being commodities; they are quite obviously produced with a view to being sold and are just as obviously bought for money. In Stalin’s time, however, the official Russian position was that producer goods such as raw materials, machinery and other elements of production were not commodities.

The case for denying that producer goods, called “means of production” in the debate, were commodities rested on the nature of the system of central planning instituted in Russia in the 1930s. Under this system, the factories and other places where wealth was produced received strict instructions from the central state, not only about what to produce but also to whom they should deliver their products and from whom they should get their supplies. Factories were in effect supplied by the central state with the materials and equipment they needed for production.

Stalin argued that, as this amounted to a system of direct supply in kind, the products involved were not commodities but simply useful things being physically transferred from one unit in the productive system to another. As he argued in 1951 against a certain Notkin who, apparently, had dared to argue that producer goods in Russia were commodities:

“A commodity is a product which may be sold to any purchaser, and when its owner sells it, he loses ownership of it and the purchaser becomes the owner of the commodity, which he may resell, pledge or allow to rot. Do means of production come into this category? They obviously do not. In the first place, means of production are not “sold” to any purchaser, they are not “sold” even to collective farms; they are only allocated by the state to its enterprises. In the second place, when transferring means of production to any enterprise, their owners – the state – does not lose the ownership of them; on the contrary, it retains it fully. In the third place, directors of enterprises who receive means of production from the Soviet state, far from becoming their owners, are deemed to be the agents of the state in the utilisation of the means of production in accordance with the plans established by the state.” (Economic Problems of Socialism in the USSR)

In other words, according to Stalin the central state was simply engaged in transferring wealth it owned from one of its factories to another; just as, for instance, the Ford motor company did when parts produced in one of its factories were transferred to another for incorporation into the final product.

Faced with this argument those in the Marxist tradition responded with a number of possible, and not always compatible answers. One was to accept that Russian producer goods were not commodities and that therefore Russia was not capitalist but some new form of exploiting class society.

Another was to accept the analogy with Fords and argue that Russia was a single, giant capitalist firm operating within the context of the world capitalist system.

A third argument was that the products Russian enterprises transferred to each other were commodities because they had to be paid for, the receiving enterprise having to transfer a sum of money from its account to that of the supplying enterprise. So what the central planners in Russia were planning was not the simple physical transfer of productive resources between productive units but the exchange of commodities among commodity-producing enterprises.

This last was undoubtedly a correct analysis as the central planners not only had to plan the physical transfer of producer goods from enterprise to enterprise but also to fix prices’ generally. Since the death of Stalin the Russian authorities have come to accept that producer goods in Russia are commodities (which leaves a few die-hard orthodox Trotskyists as the only defenders of Stalin’s position).

The following, then, is a more accurate description of the system of imperative (that is, compulsory, binding) central state planning in Russia, an understanding of which is essential to a comprehension of the changes proposed by Gorbachev under the name of perestroika:

“In the Soviet Union some three-quarters of total production is made up of means of production. In a Western type commodity-capitalist economy production and exchange takes place through market relations established directly between enterprises, i.e. in a decentralised way. In the Soviet system, on the other hand, production and exchange relations between enterprises are not directly established horizontally but take place via a vertical centralisation. It is the system of material supply that controls and plans the circulation of commodities. Herein lies the fundamental element of the originality of the Soviet economy. The enterprise receives orders not only on what it must produce and in what amounts. It also has precise instructions on the destination of the commodities it produces: their buyers and users are laid down by the planning authorities. And, above all, the origin, amounts and specifications, and delivery date of their own supply of raw materials, semi-finished products and equipment – the input of their production – are similarly planned. Thus the major part of inter-enterprise exchanges are controlled and organised by administrative apparatuses situated outside and above the units concerned.”  (B. Chavance, Le système économique soviétique).

To which must be added that, as indicated, the prices which enterprises must pay their suppliers and must charge their customers are also fixed centrally.

In other words, what the central state in Russia has been planning from Stalin’s time to today has not been the simple physical transfer of wealth between the various productive units it owned but the exchange of commodities between them. Productive units in Russia produce wealth to be sold (commodities), even if they have not been free to decide to whom to sell and at what price. But despite this state control there is still commodity-production by wage labour, and so therefore capitalism.

Failure of central planning
The aim of production in Russia, as in any capitalist country, is to maximise the amount of surplus value extracted from the class of wage and salary earners. To do so requires some measure of the rate of exploitation of wage-Iabour, of the surplus produced by workers over and above the value of their wages and salaries. This can only be provided by a price structure in which the prices of resources used in production accurately reflect their cost of production plus the average rate of profit (what Marx called their “price of production”).

In Western-type capitalism such a price structure is brought about more or less spontaneously through the operations of market forces. In Russia the central planners had to try to work it out themselves. For various reasons they failed, as has been admitted by Academician Abel Aganbegyan, one of Gorbachev’s top economic advisers and a leading theorist of perestroika, when he writes in his recent book The Challenge: Economics of Perestroika (Hutchinson, £8.95):

“The existing system of prices does not give a true valuation because prices do not reflect social costs and the efficiency of production. Up to now this common denomination has been lacking in the Soviet Union.”

This has meant that the Russian ruling class has been deprived of an accurate measure of the rate of extraction of surplus value at enterprise and industrial branch level as well as at the level of the economy as a whole, and so hasn’t been able to calculate properly where to invest new capital so as to make the most profit and achieve the highest possible average rate of profit over the whole economy.

Although central planning has been successful in developing one or two specially selected industrial sectors; in ‘particular the military (for such a comparatively backward country economically, Russia’s advances in weaponry and space research, whatever else may be said about them, represent a considerable technological achievement), it has proved a failure for the rest of industry .

This is not just the consequence of an inability to develop a coherent price system, but also because it could not provide a substitute for competition as a spur to enterprises increasing labour productivity through technological innovation and advance.

This failure has been evident to the Russian rulers since the late 1950s and various reforms have been introduced to rectify things, but all to no avail. In Khrushchev’s time, the economist Liberman proposed that enterprises should be allowed more freedom to seek and retain profits. Experiments in this direction were made but were never extended to the whole economy, as this would have demanded the complete dismantling of central state planning. As reform after reform failed, and the Russian economy continued to stagnate in terms of productivity and technological advance (it is not for nothing that the Russian rulers refer to the 20 years of Brezhnev rule as “the period of stagnation”), this question had finally to be faced. Which is what Gorbachev has done and what perestroika, or restructuring, is all about.

Perestroika and market forces
The restructuring that perestroika involves is precisely the abandoning of central state planning of commodity production and exchange in favour of allowing enterprises to buy and sell directly from each other at prices fixed by the market.

As explained by Aganbegyan, the first step towards this has already been taken in the “Law on Socialist Enterprises” passed in June 1987 and operative on 1 January this year. Under this law individual enterprises have been granted their independence from the state:

“Enterprises and associations are to become independent, self-accounting, self-financing and self-managing. These four characteristics all involve the responsibility of the enterprise, and imply a completely new economic situation for the basic production units in the Soviet economic system. Only in these conditions can the working collective of an enterprise really be master, owner and director of the resources of production available to it.”

Since such independence is being guaranteed by a law enforceable in the Courts this amounts to a virtual “privatisation” of these enterprises. This time it is not just a question, as it was in a previous law passed at the time of the Liberman experiments in 1965, of allowing enterprises to retain some of their profits as an incentive to get them to carry out the central state’s orders and instructions efficiently. Enterprises are to become autonomous legal and economic units dependent for their income on the sale of the commodities they produce.

“Enterprises are changing over to full self-accounting, in which all expenditure must be covered by income. What does full economic accounting mean? It may be contrasted with partial economic accounting. Currently enterprise income covers only running costs, while at the same time a significant part of capital investment of the enterprise comes from centralised resources. Full economic accounting, above all, implies that there are no subsidies so that the income of an enterprise from production covers both its running costs and its capital expenditure.”

In a later chapter Aganbegyan expands on what this will mean:

“Enterprises will receive their earnings from the sale of their output. The gross revenue of enterprises will be formed by these earnings after material input expenses have been met (on raw materials, finishing, and even amortisation). From this gross revenue an enterprise makes payments for resources used (natural resources and labour, and the use of capital stock), makes contribution to the budget, local authority rates and to ministry funds, pays off bank credit and any fines 10 contractors and makes any other payments due. The remainder is self-managed income at the full disposal of the enterprise’s working collective, determining its well-being and further development. To receive a large self-accountable net income more goods must be sold, through increasing both the quantity and quality of production, and by trying to get higher prices. For this a competitive edge will need to be maintained against other similar enterprises and higher quality and a better technological level of output will need 10 be attained. All this is a precondition for a larger self accountable income. The self-accountable income also depends on production costs. The lower the fuel, energy and raw material consumption, the larger the enterprise’s income.”

In other words, the enterprises are going to be expected to behave in the same way as private and state enterprises do in the openly capitalist West: to seek to maximise their retained profits (“self accountable income”) both by minimising costs and increasing sales.

Their relationship to the banks is to be similar too. “It will be advantageous for an enterprise”, writes Aganbegyan, “to draw on credit and this will increase its self-accountable income if the credit is well used so that the profit is increased at a greater rate than the interest paid on the credit”.

The next step in perestroika after this granting of legal and economic independence to enterprises will be to allow them to choose their own suppliers and customers and to agree among themselves the prices of the goods they trade with each other. Aganbegyan does not disguise the fact that this will have to involve the dismantling of the old system of central state planning described above, under which enterprises’ suppliers, customers and prices were fixed centrally:

“Up to now the market in the Soviet Union has been both restricted and deformed. Most means of production have been centrally allocated by the state through a material and technical supply system. They are not freely bought and sold . . . During perestroika market relations in the USSR will be deepened and broadened. Above all the market is set to more than double in size thanks to the transition from centralised material and technical supply to wholesale trading in means of production, including direct commercial links between enterprises. In this way a well-developed market in means of production will be created, and the proportion of centrally set prices will be retained only for the most essential products, to control their rate of growth and to stave off inflation. At the same time the scope of contracted and free prices will grow significantly.”

The abolition of “centralised material and technical supply” (as described above by Chavance) and “centralised pricing” which have been features of the Russian economy since the 1930s would represent a really radical change in the organisation of the Russian economy, but the timetable for this has already been laid down. By 1990 60 per cent of all production is to take place through wholesale trading, rising to 80-90 per cent in 1992. Similarly, the number of prices set centrally is to be reduced so as to cover only the more essential products (such as fuel, electricity and certain raw materials and steel products). The rest are to be determined by market forces and even then the prices of those commodities which remain centrally fixed are to be linked to their world market price. Planning will still remain but be indicative -providing global estimates of market demand – rather than imperative.

Return of the bondholder?
If it is implemented – and it remains to be seen whether or not this reform will suffer the fate of previous ones – perestroika will represent a fundamental change in the form of capitalism that has existed in Russia until now. It will represent a transition from centrally planned commodity production and exchange to a more competitive system in which the competing units would be, as in the West, legally and economically autonomous enterprises. The economic laws of capitalism will come to operate in Russia through competition rather than through the State which, Aganbegyan admits, has proved to be an inadequate substitute.

Other changes can be expected to follow. In his book Aganbegyan dismisses the idea that a stock exchange could develop in Russia. Other advisers to the Russian rulers are not so sure, according to a recent newspaper report:

“A senior Communist Party official yesterday predicted that the Soviet Union could eventually have its own stock exchange under reforms promoted by Gorbachev. Mr Evard Figuranov, of the Party’s Central Committee’s economic department, said creation of an exchange was the logical extension of new forms of stimulating use of savings introduced over the past year. “It is not under consideration yet, but I think it will be in the future”, he said at one of a series of news briefings, organised to coincide with the current Party conference in Moscow . . . Over the past year, small, state-owned enterprises around the country have begun offering shares to employees and bonds for specific development projects as control by ministries in Moscow has been relaxed. Mr Figuranov said a bond market could arise alongside a share market for the construction of social projects like kindergartens and sports complexes.” (Daily Telegraph, 2 July 1988)

This would indeed be a logical extension of perestroika, and not just kindergartens and sport complexes. For, if enterprises are to be allowed autonomy to seek to maximise their so-called “self accountable income”, why should they be obliged to go to the banks when they want money to pay for some development project? Why shouldn’t they be allowed to offer bonds and shares for sale to the general public? It should not be imagined that there are no rich people in Russia. There are – the children of scientific and artistic prize-winners who have inherited wealth from their parents, for instance, as well as the top members of the nomenklatura and their families, and black marketeers past and present – and many of these would be only too keen to invest their wealth for profit.


Next month we look at the consequences for Russia’s paper commitment to be working towards a moneyless society of Gorbachev’s acceptance of so-called “market socialism”.

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