This diary series is a slightly edited version of Contradictions of Capitalism, a book that I wrote in the early 90's which is still available now on Amazon. I have updated some parts of it to reflect the very important changes in the corporate economy since the mid-1990s with the appearance of a global economy rather than a national, which has important effects which much of the socialist movement has still not fully grasped.
Previous entries in this series can be found here:
Part One: http://www.dailykos.com/...
Part Two: http://www.dailykos.com/...
Part Three: http://www.dailykos.com/...
Part Four: http://www.dailykos.com/...
Part Five: http://www.dailykos.com/...
Part Six: http://www.dailykos.com/...
SEVEN: The Basis of Leninism
When the Bolsheviks came to power in Russia in 1917, they found themselves to be in a unique position. They were the first neo-colony to free themselves from imperialist control in the economic sphere as well as the political. And, as a consequence of this, the new Soviet state was the first ascension to power of the petty bourgeoisie as a class. Despite the Leninist claim that the party represents the interests of the working class, the Russian and all other Leninist revolutions were in fact made by the peasantry, led by the petty bourgeoisie.
Since the petty bourgeoisie had never before managed to attain state power as a class, the Leninists were left to face the awesome task of rebuilding Russia’s shattered economy with no historical model to base themselves on; no “petty bourgeois mode of production” had ever existed before. It thus fell to the Leninists to discover, through trial and error, how a petty bourgeois economic order would function.
The primary task faced by the new Leninist state was the immediate buildup of industrial output. This buildup was vital to allow the growth of agricultural productivity so the new nation would be able to feed itself. The hostility of the imperialist monopolists to the new nation, moreover, as demonstrated by their military attempts to overthrow the Leninists and re-establish a pliant comprador state, gave the petty bourgeoisie an additional incentive to industrialize rapidly—they needed to increase military production and arm the nation against foreign intervention.
The immediate task of the Leninist state was to guarantee its economic independence from the imperialists. In order to break the feudal/monopolist hold on the economy, the first act of the Leninist state was to nationalize the Tsarist landholdings and expropriate the lands of the feudal nobility, and to take over all of the foreign-owned heavy industry in Russia. This, at one stroke, placed nearly all of the nation’s economic resources under native control and effectively shut out the foreign monopolists. The Leninist state was now ready to face the problems presented by its economic independence.
In order to expand the ability of the agrarian sector to produce food, the ex-colony had to find capital to invest in the industrial sector of the economy, as well as a method of freeing surplus agrarian labor for employment in manufacturing. In Europe, this had been done through the gradual development of the capitalist market system, which prodded the serfs and rural peasants from the land to the cities. This process had, however, taken decades or centuries, and the ex-colony, if it was to survive as an independent economy, did not have the time to wait for such a gradual market-spurred growth. In order to produce rapid industrial expansion, the Leninist ex-colony would have no alternative but to resort to a non-market method of growth.
This had already begun when the Leninists nationalized the feudal and imperialist assets and placed them under state control. The swiftest way to expand the economy’s production capability was to invest resources in this sector under the direction of the state. To do this effectively, however, it would be necessary for the state to assume direct control over industry and over investments, and this flow of investment had to be carefully mapped out beforehand to prevent duplication of effort and other wasted resources. In this manner, the need to rapidly expand productive ability forced the Leninists to adopt the expedient of the state-planned economy.
In other words, the Leninist state found itself playing the role of investing and accumulating capital, or producing and appropriating surplus value for investment in the expansion of productive capacity. In the absence of an existing surplus-producing manufacturing sector, and in the absence of the possibility of borrowing or importing capital from the foreign monopolists, the surplus needed for industrial growth could only come from the agrarian sector.
The Leninists therefore had to find a reliable and efficient method of transferring a surplus from the agrarian sector of the economy to the tiny industrial sector. Under the initial policy of “War Communism”, the state attempted to set the prices of manufactured goods above their value, thus obtaining a surplus profit from all of the manufactured goods sold to the peasantry. The peasantry, however, responded by withholding grain and other agricultural products rather than trading them for inflated industrial prices.
Under the New Economic Policy, therefore, the state attempted to use low prices on industrial goods to entice the peasantry into producing and selling more agrarian products. This, however, was greatly favorable to the peasants and provided no way for the state to obtain the necessary agrarian surplus.
When all of these various attempts to use the market process failed to produce the needed surplus, Stalin solved the quandary in a practical, if brutal, manner. It was decided by the Leninists that the peasantry would no longer be enticed to produce a surplus for re-investment in industry—they would simply be coerced into producing a surplus which would then be forcibly expropriated by the state.
The system imposed by Stalin is still in effect, in various forms, in all of the remaining Leninist countries. Under this scheme, the peasants were forcibly gathered into large “collective farms”, which were then provided with what machinery was available from the industrial sector to increase production. To extract an investable surplus from the collectives, the state set a quota of agricultural output which was provided to the state at prices below value. Any output over quota was divided up between the members of the collective. At first, the mandatory state quota was taken as a “tax in kind”. This was later altered to a monetary tax.
This relationship is, of course, essentially feudal in nature, with the state directly appropriating a portion of the peasant’s labor. In this manner, the Leninists obtained the surplus they needed for reinvestment into industrial expansion.
The interests of the state and the peasantry are, in the Leninist system, wholly irreconcilable. The Leninist state’s interests lie in appropriating an ever-increasing portion of agrarian output. The interests of the peasantry are to own their own land and thus to keep their production for themselves. Thus, the Leninist state is forced to combat the interests of the peasantry with force; the Leninists must use purely repressive methods to safeguard their position of domination.
Originally, industrialization is seen as a means to expand agrarian output. If the ex-colony is to maintain its economic independence, however, it must also strive to be as completely self-sufficient, economically, as possible, and must develop a productive capacity large enough to meet its own internal needs. This must take the form of a massive growth of production-sector commodities—in effect, an Industrial Revolution. Since investment in consumer-oriented commodities means a correspondingly lower investment in production-oriented goods, the Leninists are forced, in order to industrialize as rapidly as possible, to lower the output of consumer goods. Consumer commodity production is restricted to the lowest level necessary to bring about bare consumer subsistence and political stability.
Since the resulting shortages and rationing provoke hostility among the peasants and the workers, the Leninist state is once again forced to resort to a repressive network of police and military forces to protect its position of privileged access to scarce consumer goods.
In China under Mao Zedong, where the peasantry was a much larger and more powerful force than in Russia, the immediate introduction of this Leninist strategy was politically impossible, and would have provoked opposition and internal conflict. Mao, therefore, attempted to placate the peasantry by reducing the expropriation of the agrarian surplus and by producing consumer commodities at the expense of heavy industry.
As a result of the Maoist peasant-oriented strategy, however, economic growth in China has never approached the level achieved by the Soviet Union. To the extent that investment in the production-goods sector of the economy is less than total, the growth of productive ability is slowed and economic independence takes that much longer. Thus, although factions within the Leninist countries may argue over questions of “market methods vs. planned methods” or “consumer goods vs. industrial goods” or “agrarian investment vs. industrial investment”, economic necessity will force them to adopt the “planned rapid industrialization” program as the only way to maintain economic independence.
In order to plan effectively for the swiftest possible industrial growth, it is necessary for the Leninist state to concentrate all economic resources in its hands. This is accomplished by the simple expedient of nationalizing the entire production process, in essence putting the entire economy under government ownership. Since the government is made up by a petty bourgeois bureaucracy, Leninist state ownership of industry is essentially petty bourgeois ownership of industry. While in the monopolist economy the bourgeoisie controls the means of production and uses the state to safeguard its position, in the Leninist mode of production the petty bourgeoisie uses the state as the means of controlling the means of production. Rather than simply protecting the ruling class, the Leninist bureaucracy actually is the ruling class.
We would expect, in Marxian terms, that this new economic system would be organized so as to allow those who control the means of production to make their living by extracting surplus value from the economy, as the feudal lord makes his living by expropriating the labor of the serf and the bourgeois capitalist class makes its living by extracting unpaid labor from the working class. Study of the Leninist economic system shows this to be true. This expropriation takes place through the mechanism of the Leninist pricing system.
In the non-market Leninist system, prices are not determined by “social necessity” in the marketplace, but are set solely by government fiat. A commodity “costs” such and such a price and the worker is paid such and such a wage because that is what the state planners have decided the price and wage should be. Therefore, state planners are free to set wages and prices in such a way as to create as much surplus as they wish.
Under War Communism, prices were set high so as to generate a higher “profit” for the state when they were sold. This, however, led the agrarian farmers to simply withhold their stocks of grain rather than trading them on unfavorable terms. The next alternative, the NEP, lowered industrial prices and wages so as to try to entice more output from the peasantry. This, however, benefited the peasantry more than the state.
Once forced collectivization took place, however, the ability of the peasantry to withhold production was ended, and the price system evolved into a combination of these two strategies. Now, industrial prices could be set high to generate a large surplus, but wages could also at the same time be kept low to increase this surplus.
The relationship between the worker and the state, therefore, is similar to the basic formula M-C-M’, where the state invests a certain amount of money M (which it extracted from the agrarian sector) and uses it to produce a commodity C which is then sold at a price which returns more money to the state. The Leninist state thus acts as an owner of capital, as a capitalist; and, since the state is the only producer in the economy, as a monopoly capitalist. The Leninist system can be viewed as a sort of “state capitalist” system.
In the capitalist system, the production of surplus value is a function of producing commodities for less than their value and then selling them at their full value. Under monopolist conditions, commodities can be produced for less than their value and then sold for more than their value, thus producing super-profits. In the Leninist system, there is no market to influence the final price of commodities. The state is a true monopolist and can set whatever price it wishes. And, since the state sets the wages as well, it can directly determine the amount of surplus value it will receive.
In capitalism, the wages paid to the workers cannot fall below the minimum labor value needed by the worker to live. In Leninist state capitalism, however, this labor value itself can be predetermined, by setting a wage scale and then manipulating prices to cheapen this wage. The minimum means of living are sold at prices which are themselves set by the state. Thus, the Leninist state is able to set the prices of the worker’s means of living at artificially low levels, lowering the worker’s labor value and allowing the state to extract even more surplus value.
This surplus can then be increased even further by simply raising the price received for the commodity which is produced. In practice, it is easier (both administratively and politically) for the state to influence its profit levels by changing prices rather than wage levels.
The profit levels appropriated by the state are thus determined by the wage levels chosen for the economy and by the price level chosen for each commodity. For example, let us assume that it costs the Leninist state 3 rubles in depreciated machinery and 5 rubles in wages to produce a commodity, and that the state wishes a surplus value of 75%. To obtain this profit level, the state must set its price for this commodity at 32 rubles. The extra 24 rubles, which are not related to the costs of production, go directly to the state, much as an assessment or tax would. In fact, this added quantity is known as the “turnover tax”, and the prices of all goods sold in the Soviet Union carried it, as well as an additional state tax known as the “deduction from profits tax”. Also, the enterprise itself was allowed to tack on a small profit to be used for reinvestment into its own operations.
The total surplus for the commodity is thus:
S = T + D + P
where T is the turnover tax, D is the deduction from profits tax and P is the enterprise’s profit for reinvestment. Of these, T and D go directly to the state, where they are appropriated as surplus value.
The Leninist petty bourgeoisie (organized as the state) thus makes its living by appropriating the surplus value created by the workers and peasants. The total value of T plus D is allocated at the discretion of the state planning apparatus. Of this amount, a portion goes for reinvestment into expanded productive ability. A portion, however, is used for the salaries, bonuses and other perks enjoyed by the apparatchiks and government officials. By virtue of its role as state-capitalist owner of the means of production, the petty bourgeois bureaucracy is able to force others to produce its living for it.
In its role as ruling class, the Leninist state exercises the privilege of directing the national economy in the manner that will best serve to protect and expand its interests. The Five Year Plans shift in their emphasis from heavy industry to military output to space exploration to consumer industry as the international and domestic situation demands. State power to control wages is used to selectively raise wages in one industry in order to attract workers, and to lower wages in other industries to encourage workers to move to other areas. Price controls create artificially low prices for essential consumer goods (food, clothing, etc) both to cheapen the value of labor power and to defuse popular resentment at the constant shortages and rationing.
Thus, the basic operation of the Soviet state is purely exploitative. The state bureaucracy extracts surplus value from the agrarian sector in a semi-feudal relationship, and directs this investment towards heavy industry. And, as a state capitalist, the bureaucracy extracts surplus value through wage and price control, and uses this surplus value for itself.
The class dynamics of the Leninist state are thus inherently hostile. The petty bourgeoisie rules by virtue of its control of the state planning apparatus, which sets economic goals and priorities. The agrarian sector is ruthlessly exploited by the state bureaucracy, and the workers receive artificially low wages and live in an economy of artificial poverty and shortages.
These intra-national conflicts are compounded by inter-national pressures. In order to continually feed the expanding heavy-industrial program, the Leninist state must have sources of labor and raw materials, as well as constant sources of new investable surplus. The lack of investment in the agrarian sector limits the amount of resources which can be diverted from it to the industrial program, and quickly leads to a “labor crunch” in the Leninist economy. This in turn slows the rate of industrial growth.
The solution to this problem lies in extra-national expansion in a search for new labor sources. The Leninist state is therefore, like the monopolists, driven by economic pressures into an expansionistic foreign policy, and is driven to seize and hold its own economic colonies. After installing a pliant comprador state, the Leninist imperialists impose heavily lopsided trade agreements and economic alliances which are of benefit to the Leninist economy. In the captive nations of Eastern Europe, for instance, the Soviets used the Comecon economic “alliance” to utilize native labor and resources to produce subassemblies which were shipped back to Russia, assembled there and then sold back to the natives at inflated prices. In essence, the Soviet Union used the Comecon structure, propped up by the Warsaw Pact military network, to siphon resources from Eastern Europe for investment in the Soviet economy.
Thus, in the international arena, the inherent expansionism of the Leninist system makes it vulnerable to many of the same stresses which plague international monopoly capitalism. The Leninist system itself, moreover, has its own internal economic stresses which steadily weaken and undermine it.