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International Socialism, May 1976

Mike Haynes

The USSR and the Crisis

From Notes of the Month, International Socialism (1st series), No.88, May 1976, pp.35-38.
Transcribed & marked up by Einde O’Callaghan for ETOL.

The mid 1970s have seen western capitalism move into its worst crisis since the 1930s, but unlike then, when the high growth rates of Russian state capitalism led many to identify it with socialism, the picture in the east is equally grim. Not only is there the problem of internal economic difficulties but more and more as Russia is forced to trade on the world market, it faces the necessity of directly internalising world economic fluctuations. The ninth five year plan, 1971-1975, has failed to meet its major targets, not only in the widely publicised agricultural sector but throughout the economy.

Particularly important is the failure to meet consumer goods targets as the original ninth plan had placed a new emphasis on these after much political controversy. In the wake of the disastrous 1975 grain harvest, the 1976 one year plan had set the lowest targets since the bad years of the 1930s and the target for consumer goods is the lowest ever. The draft of the tenth five year plan, 1976-80, with its emphasis on ‘quality’ and ‘productivity’ extends this low growth perspective to the medium term. At the same time to achieve these low targets, provision is made for even greater economic links with the West for the provision of necessary goods and technology. For the doctrine of Socialism in one country is substituted the notion that the

‘... utilisation of the advantages of the international division of labour is an objective need for all states irrespective of their social system or economic level. This requirement becomes particularly obvious in the conditions of the contemporary scientific and technological revolution and the further internationalisation of production.’ [3]

Some five years ago Chris Harman suggested that the 1970s would not provide any solution to the problems developing in the sixties. [4] This prediction would seem to have been born out. Why has this developed and what is the situation now?
 

Unresolved Economic Problems

The main problem facing the Russian ruling class is the dramatic decline in the growth rate of the economy. The decline isapparent in both Russian and Western data:

This is a decline which is occurring in spite of short ‘booms’ such as that experienced in the early 1970s.

In trying to locate the factors behind this slower growth three areas have to be considered. The first is the switch from ‘extensive’ to ‘intensive’ growth. By this is meant that in the early industrialisation period growth was largely a product of increasing the inputs – capital, land and labour – to the economy (extensive growth) and not by increasing productivity (intensive growth). This situation obviously could not continue indefinitely since sooner or later the unused resources run out. After this growth depends upon moving to an ‘intensive path’ of increasing the efficiency of use in inputs. [6] But the economy has shown no signs of being able to make this transition.

Combined with this is the problem of particular economic sectors dragging down the overall rate of growth. Agriculture is only the most notable of these. In the period 1960-73 it grew on average by only 3-4 per cent per annum with notable decline in 1963 (7.5 per cent), 1969 (3.3 per cent) and 1972 (4.1 per cent). [7] The record grain harvests of 1973 and 1974 have of course been followed by one of the lowest in 1975, since the mid 1960s.

But while considerable attention is devoted to these issues (and especially the latter) they are both underpinned by an even deeper problem – namely the rate of profit in the Soviet economy (i.e. profit per unit of invested capital) is falling. There are two clear indications of this. The first is the decline in productivity. On the basis of recomputed Soviet data the growth of factor productivity (the increasing efficiency of the use of inputs) has actually been negative in recent years:

The other indication is that the capital/output ratio is rising. This measures the amount of output generated by each new unit of investment. An indication of the extent of this declining ‘effectiveness’ of investment is given in the following table from a Polish study:

The effect of this is analogous to someone trying to go up a ‘down’ escalator and suddenly finding it speeded up – he has to go faster and harder just to maintain his position. One western calculation is that unless this problem is solved, then to maintain the rate of growth of capital stock that existed in the 1950s and 1960s would mean investing between 40-50 per cent of GNP by 1980. [10]

It is this problem which is at the root of the economic crisis and which accounts for the failure to solve the particular problems of the economy, such as that of agriculture. But how does this work in practice?
 

State Capitalism

The International Socialists have consistently argued that Russia cannot be understood without a recognition of its state capitalist nature. The historical argument should by now be fairly clear. [11] Throughout the 1920s, with its working class base destroyed and in the absence of the expected relief by revolutions abroad, the revolution increasingly degenerated. The culmination of this process was reached in 1928 when the bureaucracy, under Stalin, determined to completely subjugate the Soviet economy to compete with the West and so join the race to accumulate capital. This involved not merely the direct competition of rival military establishments but transforming the whole socio-economic system in order to provide the capacity to compete. Hence when it is argued that Russia is ‘state capitalist’ it is not just because military competition includes accumulation, nor that the change to this state of affairs involved the final emasculation of working class rights and power but also that an economic system had to be created that would give expression to this drive to accumulate. It is in this need to mobilise resources for competition that one finds the origin of the modern characteristics of the Soviet economy – the emphasis on central commands, the particular type of planning, the problems of co-ordination etc. – not in the writings of Lenin, not to any great extent in the practice of the 1920s. The discontinuity between post 1928 and the ideals and groping practice of the early Revolution was not partial but total.

Since 1928 the course of the Russian economy has been determined by its external relations with the West particularly through the medium of arms competition but increasingly also by trade. But if the course of the economy and its organisation is determined by this subjugation to the world economy then it will also be subjugated to the contradictions of that system, accentuated by the particular weaknesses of the internal workings of the economy.

The problem is this – that in the process of competing the rate of extraction of surplus value, the rate of profit, begins to fall as the amount of labour embodied in production begins to fall. A number of factors can offset this temporarily – technology is one, but the Soviet Union cannot even match the West’s rate of innovation, destruction of capital through waste such as arms is another. Over the long term, however, neither of these factors can halt the trend as can be seen in the West today. In the state capital of the Soviet Union this is also what is happening – in a situation of relative technological stagnation and low productivity, the rate of profit is falling.

The solution to this problem is to increase investment and try to re-organise the economy to capture massive productivity gains. But there are two factors at work preventing this. In the first place, while it is arms production that acts as the fulcrum of competition, it is also arms production that drags off vital resources. The burden is all the more heavy because of the overall backwardness of the Russian economy. Western estimates put the range of defence spending for 1974 at between $93 billion and $103 billion. [12] This is equivalent to 11-12 per cent of GNP and between one third and a half of the investment effort each year. The effect of this is cumulative – it is not just that agriculture and consumer goods are denied resources but that in denying them resources it then becomes impossible to offer workers living standards in line with the needs of a modern economy. This is one of the main reasons why, even using identical equipment, Russian workers are much less productive than their western counterparts.

It is because of arms production, then, that the constantly restated goal of boosting agriculture and consumer goods has resulted in only limited practical progress. In fact the proportion of investment going into the production of the means of production is now greater than at the beginning of the 1960s when the drive towards the consumer paradise was begun in earnest.

It is not only that these sectors are deprived of resources but also that when they get into difficulties new investment is found by redistributing investment between them rather than by drawing it away from heavy industry and military spending. Hence to meet the difficulties imposed by the harvest failure in 1975, the planned growth of consumer goods for 1976 has been reduced to 2.7 per cent. [14]

The second contradiction preventing a solution to the problem lies in the nature of the organisation of the economy. In order to effect the massive transformation needed to compete with the West, Stalin and his planners were forced to create an institutional framework to mobilise and direct resources to key areas of the economy. This framework was the so called ‘command economy’ – wonderfully efficient at shifting resources, as is evidenced by the high growth rates of the 1930s and the 1950s, but very inefficient when it came to problems of efficiency and productivity. Yet it is this system which the economy retains today in spite of attempts to reform it. The problem is not merely economic but social. In creating this system of organisation Stalin also created a system of privileges and interest groups linked to it. Reform is therefore a political question as well as a technical economic problem. [15] In the past decade the Russian ruling class has not only shown itself incapable of formulating a reform path, but it has also shown a lack of will to force major change through.

The situation is therefore one where the organisation of the economy is incapable of adapting to new needs. How all this gels together can perhaps best be seen byexamin-ing two sectors – agricultural and consumer goods.
 

Agriculture

Unlike other advanced economies, in the Soviet Union agriculture still plays a major role. Currently it absorbs a third of the labour force and a quarter of total investment but produces only a fifth of gross national product. This situation exists because low productivity has not permitted resources to be shifted to other sectors of the economy. Agricultural output is roughly 80 per cent of the United States level, but to achieve this it takes eight times more labour and a significantly larger land input. Soviet grain yields are less than half those obtained in the US and livestock yields are equally low.

Now it is true that soil and climatic conditions are such that at no time could comparable Russian inputs yield the same as US ones, but the point is that investment has been so low that comparatively little has been done to overcome these difficulties. Indeed the lack of investment and consequent overfarming has in some respects accentuated them making agriculture even more dependent upon the climate. The fluctuations in the grain harvest can be seen in the following table.

The beginnings of dust bowl conditions have been reported in some parts of Russia and the problem of soil erosion is becoming increasingly widespread. In the Kirgiz Republic for example – a major grassland area – there is considerable overgrazing. Although some seven million tons of fodder are needed only 4.2 million tons are produced. [17]

The basic problem of agriculture lie in the factors to which we have drawn attention. At the root is a lack of investment combined with a deficient organisational structure.

The lack of investment occurs at four levels First, lack of investment in capital equipment. For instance there are only a third of the number of trucks found on American farms yet they have to service a much greater area. The shortage extends through the whole range of farm machinery to tractors and harvesters – part of the crop is still harvested by hand. Not only is there a shortage of machinery, spare parts and servicing but also inadequate and therefore the value of the existing capital stock is often less than numbers suggest. The situation is improving, but only slowly. Last summer, for example, Pravda reported that in Kursk 97 granaries were being built but not all would have modern equipment! [18]

Secondly there is a lack of investment in land ‘improvement. Fertiliser production in particular is far from adequate, nor has there been sufficient investment in land reclamation and irrigation. Simple but vital points such as adequate barbed wire fencing are often neglected and hence there is a failure to develop good grazing practices.

Thirdly there has been only a limited investment in research and the diffusion of new methods and seed strains. Not only has this been an important source of grain in the West but it also holds out the best prospect for combating the natural conditions found in Russia.

Fourthly there has been a lack of general development in the Russian countryside. Social and cultural conditions as well as wage levels still compare unfavourably with urban areas. This has been a major cause of migration, particularly of skilled agricultural workers that the industry cannot afford to lose. Continued change here is essential if incentives are to be improved and the productivity of agricultural labour raised.

All these factors combine with a poor organisational structure – over-centralisation, bureaucratic interference, inefficient farm sizes etc to make agriculture the weakest sector of the economy. Failure here drags down the economy overall and also threatens political repercussions given the unfulfilled promises to raise the standard of living.

The continued existence of this situation can only be explained by the way resources have historically been denied to agriculture and by the way in which they continue to be denied. Valiant attempts have been made to increase investment, but always an upper limit is imposed by the needs of arms production. The result is that not only is the potential of agriculture not realised but in some respects it is made more precarious.
 

Car Production – the Problems of Consumer Goods

Consumer goods production is the other sector which bears the full brunt of the costs of arms production. In spite of the necessity of increasing output to raise living standards only a limited amount has been achieved. The problem of car production well illustrates the problem involved.

Russia has historically lagged in automobile production but within the last decade more resources have been devoted to overcoming this. This demands, however, investment in at least four sectors.

Such a programme would be immensely expensive, especially given Russia’s backwardness and the arms burden. It has therefore only been possible to concentrate on car production itself, this development was felt to be so necessary that Fiat was invited to develop the large capacity Togliatti plant producing the Zhiguli, based on the Fiat 124. As a result of this car production has improved considerably and will continue to do so until the plant reaches full capacity. Although these models still compare unfavourably with those in the West the Russian motorist who can afford them (a Zhiguli costs 2-3 times more than the average yearly wage) has only to wait a few months for his car. This is not an unimpressive achievement, given the low level from which production started. It is at this however, that the troubles of the Russian motorist really begin.

In the first ptace there are not sufficient accessories available. These shortages range from vital snow tyres through to rear view mirrors. Production has simply failed to keep pace with car production itself. (There is a thriving trade in stolen removable parts).

Even more serious is the inadequacy of the service network. There is a critical shortage of general spare parts and a lack of service stations to effect repairs. The whole of the country has only 30 service stations for the new mass produced Zhiguli models. In Moscow with a population of seven million there are only three. Moreover Pravda has reported that many repairs are beyond the capacity of the average service station which is designed, more often than not, for preventive work. Even where repairs can be undertaken, work is hampered by shortages of lubricants, solder, putty, paints etc. [19] Not surprisingly therefore a black market has grown up in car repairs.

More serious of all, however, is the lack of development of the road system (the bulk of passenger and freight transport is by rail). Roads are both limited and bad and only a massive investment programme could change this. In spite of being twice as large as the United States, Russia has only a twelth of the surfaced roads and one twenty fifth of the cement or asphalted roads. According to one Russian source, over two thirds of all the roads in Russia are still unsurfaced. [20] While the new draft five year plan is continuing an attempt to move the priority away from railways and to develop the road system and particularly trunk roads, even if the full programme is completed, the problem is so massive that there will only be a partial alleviation.

The problem of car production typifies the consumer goods problem generally – the lack of resources for any widespread development. The consequence is a situation of low worker incentives, low productivity, high costs and low returns to investment. In these conditions the economy is in a state of permanent crisis with no immediate prospect of any change satisfactory to the ruling class. Where, in this situation, can it turn?
 

Ruling Class Options

One traditional solution to the problems described is to hold down workers living standards in order to push up the amount available for investment. This solution is ruled out though, because these low living standards are part of the problem to be cured. This is not to say that such action will not be practised in the short term but that the risk is that it will only intensify the problem of perpetuating low labour productivity. There is also the risk of political repercussions to such a policy.

This has been widely recognised in Russia and therefore there is only one other course open – to attempt to court the West to obtain vital consumer goods and more particularly technology and even some investment. It is no accident that one of the main instances of overfulfilment in the ninth five year plan was in East-West trade. The new tenth plan also aims at a high rate of increase.

But even here there are no easy solutions. The balance of payments problem is a major obstacle. The Russian economy needs more from the West than the West wants from it, and the gap is growing. The fall in the price of gold in the past year has also meant that Russia does not have the resources to finance a large long term trade gap. To a very real extent then, this trade depends upon the West’s willingness to support the Russian trade gap.

Even if this situation was to continue there would still be problems because economically the acquisition of new technology does not equal the capacity to produce it nor does it imply an ability to make other investment linkages (such as we illustrated in the case of cars) to take full advantage of that technology. Indeed there is much to indicate that however great the West’s contribution it will be insufficient in the present situation. [21]

Politically, of course, the problem is even greater. Since it is Russia that is in need, the West can begin to make political demands on it to change its policies. On top of this, with the resurgence of the right in the West and particularly the United States, the demand for major concessions can be expected to grow.

Thus a very big question mark must remain over how far western help will provide relief or will be allowed to provide relief.

We are left therefore, with a picture of the Russian economy struggling on in crisis but incapable of generating a solution that does not imply a change in the system. But does this revolutionary challenge exist?
 

Dissent

Since the mid 1960s many westerners, including Marxists have looked to the dissident movement for a source of change. There is now a widespread recognition that this is unrealistic. It is not just that much of the movement is now in disarray, smashed and hounded by the KGB, its leaders exiled, but that it had and continues to have grown political weaknesses. This should not, of course, restrict our defence of the dissidents, but equally we cannot remain uncritical of their arguments.

The key point is that the vast majority of dissidents accept the Russian ruling class’s definition of political power, ie rule in the name of the working class but not by the working class.What they argue for is reform and a change in the leadership – not a change in the system. This applies not only to the right but throughout the spectrum to the ‘left’ Roy Medvedev and even the ‘ultra-left’ Grigorenko.

The reasons for this stance are three fold. First there is the simple hegemony of the ruling view of Russian society which dominates all spheres of life. In so far as a total critique of Russian society is not permitted it is not surprising that criticism should take the existing categories of thought for granted. Secondly the’passivity’ of the Russian working class has confirmed for many dissidents their pessimistic expectations of it. The mainstream dissident movement often attributes the main responsibility for Stalinism to the working class and for the ‘left wing’ it appears as something to be manipulated. [22]

But above all the weakness of the dissident movement and its perspectives derives from the fact that it is an expression of sections of the Russian intelligentsia whose current interests are opposed to both the ruling group and the working group. They are interested in improving and securing their own position, if necessary at the expense of the working class. This is not the place to begin a detailed analysis of the intelligentsia, suffice it to say, here this fact determines both the possibilities and limitations of the movement. [23] It is for this reason, the total lack of identification with the working class, that dissidents generally look to the West for support and change. So long as it remains constrained by these immediate interests, although it may grow again it will not transcend its previous limitations.

Why then is the dissident seen as such a threat to the stability of Russian society? There are two simple reasons. One is that the reforms they demand, however much the leadership might sympathise with them, cannot be given in the current situation.

Secondly the danger is that in making these demands they will either attract the attention of the working class or, as in Eastern Europe, may even be tempted to use the working class as a stage army to gain concessions for themselves. In so doing the chances are that a pandora’s box’ will be opened leading to the creation of a real revolutionary force. [24] For these reasons the regime attempts to maintain a constant pressure on criticism and dissent and to keep it within well defined limits.

The result of moving beyond these limits is subjection to the familiar forms of repression. Amnesty International has recently detailed the appalling treatment received by political prisoners and the sophistries of Soviet lawthat allow this. Competent observers also suggest that the number of political prisoners at the moment is now greater than in Tsarist times! [25]

To look for sources of change we must look to the working class.

The Working Class and Change

Any understanding of the Russian working class must start from the fact that it has been subjected to two forces since 1928. The first is political repression, the second is rapid social change. It was the latter that enabled the former to operate so effectively.

The great industrialisation drive involved the creation of a new working class. Between 1929 and 1937 for instance, the number of manual workers in heavy industry rose from 2.8 million to 6.2 million. Although the concepts behind the official statistics are not particularly clear the following table gives some idea of the change that occurred.

These new workers were herded from the Russian countryside into expanding cities where housing and work conditions were totally inadequate, food shortages frequent and the standard of living low. In these appalling physical conditions the social and cultural process of the formulation of a working class took place at twice the pace experienced in other industrial countries. It is not surprising, therefore, that the working class was disorientated.

At the same time, in order to fill the posts created by the new state capitalist structure and just as quickly emptied by the purges, the rate of social mobility was high. The working class was thus deprived of workers who would in other circumstances have become their leaders.

If this were not sufficient, the massive repressive apparatus of the Stalinist system was turned against the working class. Reasonably reliable estimates of prisoners in forced labour camps range from nine to 13.5 million in 1941. The secret police came to dominate Russian life. Trade Unions lost all autonomy and were directed against the working class to push up productivity and stamp on any dissent.

In this situation what is surprising is how many did protest, how much reaction there was, rather than how ‘passive’ or ‘inactive’ the Russian working class was in this period. Yet the fact remains that for the majority political action was impossible and so opposition took on less open forms – high labour turnover, damage to machinery, low productivity etc. For others alienation itself in escape through alcoholism.

This picture has changed in many ways since the height of the Stalinist period but the legacy still remains. The working class has now become more stable socially. Most workers are now part of an hereditary proletariat with a growing tradition behind them. Rates of social mobility have declined and are now much as in the West. At the same time the degree of constant repression has had to be lessened, if only on the grounds of its economic inefficiency.

But the situation for the Russian worker is still very different from his western counterpart. His standard of living, his work conditions are much worse and aboce all he cannot have a political life to challenge the situation in any radical way. Trade unions can only defend the worker individually via the legal system (since conflict between the worker and society cannot exist, all such onflict is treated as a problem of inappropriate or wrongly applied laws) – there is no collective bargaining, no right to strike, no institutional expression of working class power.

Given this state of affairs many still express their hostility through alcholism and drunkenness, a major problem for Russian industry. If opposition does become open then political repression awaits the worker, not in international show trials, reserved for intellectuals, but quietly, more efficiently by long prison sentences and even the simple disappearance. [27]

But the Russian working class is stronger than it has ever been since the 1920s and its potential for overturning state capitalism is growing. At the moment such a move is unlikely given the lack of opportunity for open discussion and political activity but should a stimulus come from outside. from revolutionaries in the West or revolt in Eastern Europe, then the very heartland of state capitalism could also be open for change.

Yet equally, stability is not assured in Russia. Over the past two decades living standards have slowly risen but not in line with the promises of the leadership. The economic crisis puts a continual rise in jeopardy. Nor is it sufficient just to push up wages. Consumer goods must be available to be purchased and they must be of a sufficient quality to be worth having. This is why the next five year plan is putting a major emphasis on ‘quality’. Whether it will succeed is another matter.

At the same time the need to increase labour productivity is putting more pressure on the work situation, with constant calls for more efficiency and output. The summer of 1975 saw the 40th anniversary of the Stakhanovite Movement celebrated in a blaze of publicity and encouragement of further ‘socialist emulation’:

‘Emulation in all stages of the building of socialism and communism was and remains a powerful means of developing the initiative of the masses, the forming of socialist collectivism.’ [28]

There is a premium upon successful schemes to increase productivity generally and this emphasis can be expected to continue.

Such a situation then is bound to begin to test the hegemony of the Russian ruling class.

Whether it goes further will to a large extent depend upon aid from socialists in the West and particularly the example of practical successes.

 
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Notes

1. Final plan document. Pravda, 14/2/1971. For a detailed breakdown of the targets see the appendix to R. Clarke, Soviet Economic Facts, 1972.

2. Pravda, 14/12/1975.

3. B. Pichugin, East-West: Economic Cooperation, International Affairs, August 1975, p.58.

4. C. Harman, The Stalinist States, International Socialism, No.42, Feb./March 1970.

5. H.S. Levine, An American View of Economic Relations with the USSR, The Annal of the American Academy of Political Science, 1974, p.4

6. Western accounts often give unwarranted importance to this cause. In fact if the period of fast growth 1950-58 is compared with one of slow growth 1958-67 then the rates of growth of capital and labour are similar. But it is assuming more importance. A. Bergson Towards a New Growth Model, Problems of Communism, March/April 1973, pp.2/3.

7. Narodnoe Khoziastvo v 1973, 1974, p.56.

8. H.S. Levine, op. cit., p.4.

9. Quoted by Z M Fallenbuchl, Comecon Integration, Problems of Communism, March/April 1973, p.28.

10. A. Bergson, op. cit.

11. For a general theoretical statement cf. P. Binns, The Theory of State Capitalism, International Socialism, No.74, January 1975, and for an account of the degeneration in the 1920s, C. Harman, How the Revolution Was Lost.

12. Quoted in the Financial Times, 16/12/75. p30.

13. Narodnoe Khoziastvo SSSR, 1922-1972, 1972, p.130; CMEA, Statistical Ezhegodnik, 1974, 1974, p 71. Due to the way Soviet statistics are drawn up the ‘means of production’ figure does include some consumer goods e.g. cars.

14. Pravda, 5/12/75.

15. M. Lewin, Political Undercurrents in Soviet Economic Debates, 1975, is the best account of this relationship.

16. Narodnoe Khoziastvo SSSR v 1973,1974, pp.342-343.

17. Current Digest of the Soviet Press, 1975, vol.XXVII, no.39.

18. Current Digest of the Soviet Press, 1975, vol.XXVII, no.29.

19. Current Digest of the Sovet Press, 1975. vol.XXVII, no.30; Guardian Weekly, 16/11/75.

20. G. Gudkova and B. Moskin, The Development of Motor Roads in the USSR, Soviet Geography, 1974, vol.XV, p.573.

21. There is a good discussion of these problems in The Technology Balance, Hearing before the US House Subcommittee on International Cooperation in Science and Space, December 4-6. 1974. The contribution by H. Levine is particularly valuable in cutting away many of the right-wing arguments about the economic problems of detente.

22. The underground journal Chronicle of Current Events only included one account of working class activity in the whole of its period of existence and this was the main organ of the intellectual dissident.

23. M. Cox, The Politics of the Dissenting Intellectual, Critique, no.5, 1975, is a useful analysis of this.

24. See C. Harman, Bureaucracy and Revolution in Eastern Europe, 1974, on how this developed in Eastern Europe.

25. Amnesty International, Prisoners of Conscience in the USSR, 1975; A. Nove, Stalinism and After, 1975, p.161.

26. D. Lane, The End of Inequality?, 1971, p.25

27. For the best account of how protest and strikes are dealt with see M. Holubenko, The Soviet Working Class: Discontent and Oppression, Critique, no.4, 1975.

28. Ekonomicheskaya Gazeta, no.35, August 1975, p.10.

 
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