Tony Cliff

State Capitalism in Russia

Chapter 1:
Socio-economic relations in Stalinist Russia
(Part 4)


Changes in the relations of distribution

In his April Theses Lenin stated that the Party’s policy was, “To pay all officials, who are to be elected and subject to recall at any time, not more than the pay of a good worker.” [175] In his State and Revolution (August-September 1917) he posed the question of the mode of payment of wages and salaries immediately after the socialist revolution, in a society which “is ... in every respect economically, morally and intellectually still stamped with the birthmarks of the society from whose womb it emerges”. [176] In these circumstances the following is attained: “Equality for all members of society in relation to the ownership of the means of production, that is, equality of labour and equality of wages.” [177]

All citizens are transformed into the salaried employees of the state, which consists of the armed workers. All citizens become the employees and workers of a single national state ‘syndicate’. All that is required is that they should work equally – do their proper share of work – and get paid equally.” [178] “The whole of society will have become a single office and a single factory, with equality of work and equality of pay.” [179] Hence Lenin posed as “an immediate objective” of the Bolsheviks the following: “technicians, managers and bookkeepers, as well as all officials, shall receive salaries no higher than a ‘workman’s wages’.” [180]

A few months after the revolution (in March 1918) Lenin again declared his support “for the gradual equalisation of all wages and salaries in all professions and categories”. [181] He accepted the necessity of certain exceptions to equality in the case of specialists, as he well know that in the face of their scarcity, and their hostility to the workers’ state, such an aim could not be achieved, but he insisted that the income differences should right away be much lower than under tsarism, that the tendency in future should be towards increasing equalitarianism, and above all he did not shrink from calling any inequality imposed by backwardness on the Soviet government a retreat from socialist, and a concession to capitalism. Thus he wrote: “In this transition period we must grant them [the specialists] the best possible conditions of life ... When we discussed the question of rates of pay with the Commissar of Labour, Comrade Schmidt, he mentioned facts like these. He said that in the matter of equalising wages we have done more than has been done anywhere and more than any bourgeois state can do in scores of years. Take the pre-par rates of pay: a manual labourer used to get 1 rouble a day – 25 roubles a month – while a specialist got 500 roubles a month ... The expert received twenty times more than the worker. Our present rates of pay vary from six hundred roubles to three thousand roubles – a difference of only five times. We have done a great deal in the matter of equalisation.” [182] The high payment to specialists was “payment according to bourgeois relationships”, “a step backward”, a “concession” to capitalism imposed by the objective reality on the Soviet government. [183]

In 1919 the Russian Communist Party stated its wages policy in these terms: “While aspiring to equality of reward for all kinds of labour and to complete communism, the Soviet government cannot consider as its task the immediate realisation of this equality at the present moment, when only the first steps are being made towards the transition from capitalism to communism.” [184] The Tenth Party Congress in 1921 decided that while “for a variety of reasons differences in money wages corresponding to qualifications must temporarily be maintained, nevertheless the wage-rate policy must be built, upon the greatest possible equality between wage rates”. [185]

At the same congress it was declared necessary “to work out completely adequate measures to destroy inequality in the conditions of life, in wages, etc., between the specialists and the responsible workers on the one hand, and the toiling masses on the other, as this inequality undermines democracy and is a source of corruption to the Party and lowers the authority of the communists.” [186] Yet under the regime of War Communism there was practically complete equality of wages and salaries. According to data given by the Soviet statistician, Strumilin, the wages of the most highly paid workers were, in 1917, 232 per cent of those of the lowest paid, and by the first part of 1921 were only 102 per cent, or practically equal. [187] (On the other hand, the conditions of scarcity which prevailed under War Communism frequently gave officials the opportunity of abusing their control over the sources of supply and distribution).

The virtual equality of wages ended with the introduction of the New Economic Policy. A unified scale of wages was introduced in 1921-22, which contained seventeen grades ranging from apprentices to the top specialists, and which gave the most highly skilled worker three and a half times as much as the lowest-paid unskilled worker. Specialists could earn a maximum of eight times as much as the unskilled workers. (This did not apply to Party members, who had a special scale of maximum wages, much below that of non-Party specialists).

The income differences were very much smaller than those existing prior to the revolution. The wages and salaries of railway employees before and after the revolution will illustrate this. In 1902, the income of signalmen was 10-20 roubles a month, of machinists, 30-60 roubles, while that of heads of a railway service was 500-750 roubles, and of the director-in-chief, 1,000-1,500 roubles. [188] In March 1924, the differences ranged between 13.29 gold roubles a month for line-workers and 26.80 roubles for administrative staff. [189]

In industry, the average wage of workers in March 1926, was 58.64 chervonets roubles, while a factory manager received 187.90 chervonets roubles if he was a Party member, and 309.50 chervonets roubles if he was not a Party member. [190]

There were some factors, however, which mitigated these differences until the introduction of the First Five-Year Plan. First of all, no member of the Communist Party was allowed to earn more than a skilled worker. This provision was of great importance, as the majority of the directors of enterprises, departments of industry, etc., were Party members. In 1928, 71.4 per cent of the personnel of the managing boards of the trusts were Party members, as were 84.4 per cent on the boards of the syndicates, and 89.3 per cent on those of individual enterprises.

An additional factor, which made the differences much smaller than they would seem from the unified scale of wages, was that the total number of specialists (a section of whom were Party members who thus did not earn more than skilled workers) was very small. In 1928 they constituted only 2.27 per cent of all those engaged in industry.

A general picture of the income differentiation in Russia was given in the Statistical Handbook of USSR 1926 (Russian), according to which the annual average income of manual workers in pre-war roubles was 465 in 1926-27. At the same time the maximum allowed to specialists was 1,811. Excluding the bourgeoisie, the NEP men and the kulaks, there were only 114,000 people who earned this maximum. They made up 0.3 per cent of all earners, and their income made up only 1 per cent of the national income. [191]

With the inauguration of the Five-Year Plans under the banner of “Victorious Socialism”, all the Bolshevik traditions of egalitarianism were overthrown. Stalin led the attack declaring “Uravnilovka [a term of abuse for egalitarianism] has as its origin the peasant outlook, the psychology of equal division of all goods, the psychology of primitive peasant ‘communism’. Uravnilovka has nothing in common with Marxian Socialism.” [192] Woe betide anyone who would now dare to oppose income differences in Russia, no matter how great they were. Molotov went as far as to declare at the Seventh Congress of Soviets of USSR: “Bolshevik policy demands a resolute struggle against egalitarians as accomplices of the class enemy, as elements hostile to socialism.” [193]

The rule limiting the income of Party members was modified in 1929 and later [I] abolished altogether. The law by which people who held two posts – as many specialists do – could get only one-and-a-half times the maximum salary in force, was abolished. The “general law of wages” of 17 June 1920 [194], which laid down that anyone exceeding the norm in piece-work was not to receive more than 100 per cent above the normal rate was also repealed. On the other hand the law prohibiting the payment to any worker on piece-work of less than two-thirds of the norm was abrogated. [195]

No further restrictions on inequality of incomes remained, and they grew at an alarming rate.

After 1934 the Russian statisticians ceased to publish figures relating to the division of workers and employees by income, and published only the average income of all workers and employees, a figure arrived at by averaging the incomes of charwomen, unskilled labourers, skilled workers, specialists, chief engineers, managers, and so on. [J]

In spite of this lack of information, certain facts can be adduced, particularly that there was a sharp rise in the level of salaries taken by the bureaucrats, and sharp drop in working class wage levels.

For instance, in 1937, when plant engineers were earning 1,500 roubles a month, directors 2,000 roubles – unless the government gave special permission for more to be earned – and skilled workers 200-300 roubles, the Soviet government introduced a minimum wage of 110 roubles a month for piece-workers and 115 roubles for time-workers. That many workers earned only the bare minimum is clearly established by the fact that the law fixing these minima led to a budget grant of 600 million roubles for 1938. [196] By comparison with such wages as these, 2,000 roubles a month was no mean salary. Not only this, but in addition to fixed salary, directors and plant engineers received bonuses, the size of which depend upon the extent to which their enterprise exceeds production quotas laid down in the economic plan. For instance, in 1948, it was reported that the rates of bonuses paid to managements of automotive transport enterprises for the fulfilment and overfulfilment of the plan were [197]:

Bonus and percentage of basic salary


For fulfilment of plan

For each per cent of
overfulfilment of plan

Senior management
(director, chief engineer)

up to 30%

up to 4%

Intermediate management
(chiefs of departments)

up to 25%

up to 3%

Junior management
(shop chiefs, etc.)

up to 20%

up to 3%

And so a director of a plant that overfulfils the plan by only 10 per cent get a bonus of up to 70 per cent of his basic salary; a 20 per cent overfulfilment is rewarded by a bonus of 110 per cent; 30 per cent overfulfilment by a bonus of 150 per cent; 50 per cent overfulfilment by a bonus of 230 per cent.

Yet another source of income is the Director’s Fund, an institution which was established on 19 April 1936. [198]

According to the law, 4 per cent of the planned profit and 50 per cent of all profits above this, were to be put in the Director’s Fund. One Russian economist has given figures for 1937 which show the sums involved [199]:


of plan in %

Actual cost as %
of planned cost

Director’s fund
in million roubles

Director’s fund per
worker (roubles)

Petroleum industry





Meat industry





Spirit industry





Since the average wage of all workers and employees in 1937 was only 254 roubles per month [200], these figures show that by exceeding the plan by only a small percentage, the year’s Director’s Fund averaged out per workers amounted to more than one average monthly wage in the petroleum industry, in the meat industry three, and in the spirit industry more than four-and-a-half. According to another Soviet economist: “In the five industrial Commissariats the Director’s Fund per workers was 6.3 per cent the average annual wage. However, in several branches, this percentage is considerably higher and reaches 21.5 per cent in woodworking, about 25 per cent in the fur and leather footwear industries, and up to 55 per cent in the spirits, macaroni and food industries.” [201] It is obvious, therefore, that huge sums are concentrated in the hands of directors of industries employing thousands of workers.

The Director’s Fund’s ostensible aim is to build houses for workers and employees, clubs, canteens, crêches, kindergartens, to give bonuses for outstanding achievements at work, etc.

We have no statistical data on how the Director’s Funds are distributed. The only indication we have is given by the paper Za Industrializatsiya of 29 April 1937, which published figures concerning the distribution of the Director’s Fund in the Porchean plant in Kharkov:

Of the 60,000 roubles constituting the Director’s Fund, the Director appropriated 22,000 for himself, the secretary of the Party Committee 10,000, the chief of the production office 8,000, the chief accountant 6,000, the president of the trade union committee 4,000, the head of the workshop 5,000. [202]

Other sections of the privileged classes also enjoy exceptionally high incomes. A letter to Pravda from the writer, Aleksei Tolstoy, and the playwright, V. Vishnevsky, which aimed at dispelling “the misunderstanding on the exceptionally high earnings of authors on the fantastic royalties” [203], gave the following figures of authors’ earnings:

Monthly earnings in 1936


No. of persons

More than 10,000 roubles


6,000-10,000 roubles


2,000-5,000 roubles


1,000-2,000 roubles


500-1,000 roubles


Up to 500 roubles

about 4,000

When it is recalled that, in that same year of 1936, the average income of all Soviet workers and employees was 2,776 roubles, or 231 roubles a month [204], comment becomes superfluous.

Today, government officials who, according to Lenin, should not earn more than the average skilled worker, have widely varying incomes. By a decision of the Supreme Soviet of the USSR of 17 January 1938, the Presidents and Vice-Presidents of the Council of the Union and Council of Nationalities have salaries of 300,000 roubles a year, and each deputy of the Supreme Soviet 12,000 roubles a year, plus 150 roubles per day of session. [205] The President of the Supreme Soviet of the RSFSR and his deputies receive 150,000 roubles a year. [206] Presumably the presidents and vice-presidents of the other Federated Republics have the same salaries. A Soviet Army private got 10 roubles a month during the war, a lieutenant 1,000 and a colonel 2,400. In the US army, which can by no stretch of the imagination be called a socialist army, the monthly rate of pay of a private was 50 dollars, of a lieutenant 150 dollars, and of a colonel 333 dollars. [207]

Bureaucrats have yet another possible source of income from various state prizes. The original decree announcing the establishment of the Stalin Prizes in honour of the leader’s sixtieth birthday limited their value to a maximum of 100,000 roubles each. [208] The maximum has since been raised to 300,000 roubles, and each year as many as a thousand Stalin Prizes are awarded, ranging from 50,000 to 300,000 roubles each, all tax-free.

Another clear pointer to the tremendous income differences in Russia is the income tax rates. The income tax rates of 4 April 1940, listed a range of incomes that stretched from less than 1,800 roubles a year to more than 300,000 roubles. [209]

A senior government official, a director or a successful author, has a house in Moscow, a summer house in the Crimes, one or two cars, a number of servants, and so on, as a matter of course.

Even during the war, when in the face of the emergency, all efforts were made to get the maximum production out of the workers, there existed extreme differences in the conditions of the different classes. A maid with two children, one of ten and another of three, told Alexander Werth in 1942: “The children live chiefly on bread and tea; the little one receives substitute milk – what can you do? – stuff made of soya beans, without taste and of little nutritive value. With my meat coupons this month I only got a little fish. Sometimes I get a little soup left over at the restaurant – and that’s about all.” [210]

At the same time, Alexander Werth could write in his diary: “That lunch at the National today was a very sumptuous affair, for, in spite of the food shortage in Moscow, there always seems to be enough of the best possible food whenever there is reason for any kind of big feed, with official persons as guests. For zakuski there was the best fresh caviare, and plenty of butter, and smoked salmon; then sturgeon and, after the sturgeon, chicken cutlets à la Maréchal, then ice and coffee with brandy and liqueurs; and all down the table there was the usual array of bottles.” [211]

The differentiation of Russian society into privileged and pariahs was shown very graphically in the rationing system during the war. A differential rationing system was introduced, a thing that no-one would have dared to suggest in the democratic capitalist states of the West. It is true that this was shocking even to the Soviet people, so much so that neither Pravda nor Izvestia mentioned the subject at all and the rationing system as a whole was shrouded in mystery. [212]

In point of fact, the luxuries of the rich are relatively much cheaper than the necessities of the poor. This will be clearly perceived if we repeat a few figures of the turnover tax rate [213]:



Salt in bulk


Meat (beef)




Radio sets




As a result: “In mid-1948, the equivalent of the car Moskvich [costing 9,000 roubles] was 310 pounds of butter [butter cost 62-66 roubles a pound], while in the United States a somewhat better car was worth about as much as 1,750 pounds of butter.” [214]

Income differences lead to large variations in inherited property. In the early days of the Revolution, by the decree of 27 April 1918, all inheritances of more than 10,000 roubles were confiscated. [215] This was in the spirit of the Communist Manifesto which put forward as one of the demands of the transition from capitalism to socialism the abolition of all right of inheritance. A few years later the law changed radically, and by 1929 there was already in existence a table of inheritance tax ranging from 1,000 roubles and less to 500,000 roubles and above. [216] At present, the inheritance tax does not go beyond 10 per cent. This is very low, even in comparison with the inheritance taxes in capitalist Britain and United States.

During the last war a spate of reports emanating from the Russian press told of people who gave loans to the government of a million or more roubles. The ‘Friends of the Soviet Union’ explained this in the following manner: “In the Soviet Union the millionaire has acquired his roubles by his own toil and by services to the Soviet State and people.” [217]

It we examine this statement, we find that, as late as 1940, the average income of workers and employees being only 4,000 roubles, to collect a million roubles would have taken an average worker 250 years – provided he spent no money on himself at all. The Soviet millionaire gets, in interest alone, 50,000 roubles for every million, which is many times more than the income of any worker.

But the clearest expression of the differentiation of Russian society into the privileged and the pariahs is the government pensions scheme. If an army private, who was a worker or employee before his call-up, dies, his family receives a pension of between 52.5 roubles and 240 roubles a month. If he was not a worker or employee, his family receives 40, 70 or 90 roubles, according to whether he had one, two, three or more dependents unable to work. People in rural areas get only 80 per cent of these rates. As against this, the family of a deceased colonel receives 1,920 roubles per month. [218] Dependents of a worker killed through accident at work receive a maximum of 200 roubles per month (except in some rare instances in which they get 300). [219] As against this, some privileged people receive large sums on the death of the head of the family. When M.F. Vladimirsky, deputy of the Supreme Soviet, died, his widow was granted a lump sum of 50,000 roubles and a life pension of 2,000 roubles per month, while his sister got a life pension of 750 roubles a month. [220] When Colonel-General V.A. Yuskevich died, his widow was granted a lump sum of 50,000 roubles and a life pension of 2,000 roubles a month. [221] The press is full of other such instances.

Part and parcel of the antagonistic relations of distribution is the ladder of education.

Article 121 of the Stalin Constitution of 1936 declared: “Citizens of the USSR have the right to education. This right is ensured by universal, compulsory, elementary education, by education, including higher education, being free of charge,” etc., etc. But even when all education is free, there is no real equality of opportunity for study between the children of the poor and the rich, because the former have to start earning as soon as possible, and because many parents cannot afford to maintain their children while they study. It is therefore not surprising that the proportion of children in the USSR benefiting from education decreases as education becomes more advances. In the school-year 1939-40, for instance, the total number of students attending all education institutes was [222]:


Number (000s)

Elementary school (classes I-IV)


Junior secondary schools (classes V-VII)


Full secondary schools (classes VII-X)


Secondary technical and factory schools


Universities and higher technical schools


If we knew the number of children of different ages in the country, it would be possible to calculate what proportions of children of different ages attended school. But even without this information, on the basis of the above figures, the disparity between educational opportunities of children of different ages is obvious. Assuming that all children aged 7 to 11 attend school, less than half that number were lucky enough to stay for more than four years. Only one in ten had more than seven years’ schooling; and less than one in twenty finished the ten-year course (as against ten years’ compulsory schooling in capitalist Britain).

Even prior to the establishment of fees for universities, technical colleges and other high schools many of the pupils who succeeded in reaching the universities and higher technical schools had to leave before finishing their studies because of financial difficulties. Between 1928 and 1938, the total number of people admitted to engineering colleges training for industry and transport was 609,200, while only 242,300 graduated. The number admitted to technical colleges was 1,062,000, and the number of graduates only 362,700. [223]

In 1938, 42.3 per cent of all students in higher school were children of the intelligentsia. [224] Since then so statistics of the social composition of student have been published, but no doubt the percentage of students from ‘good’ homes has increased, because of the imposition of fees from 1940 onwards.

Article 146 of the Stalin Constitution states: “The Constitution of the USSR may be amended only by the decision of the Supreme Soviet of the USSR adopted by a majority of not less than two-thirds of the votes cast in each of its chambers.” This did not prevent the government from imposing fees for higher secondary and university education without even convening the Supreme Soviet to amend Article 21 of the Constitution, cited above, which decreed that education should be free. The decree of the Council of People’s Commissars, published on 2 October 1940 [225], imposed a fee of 150-200 roubles a year for the higher classes of secondary school (VIIIth, IXth and Xth grades of school), and 300-500 roubles a year for colleges. The size of these sums can be appreciated by comparing them with the average wage and salary of the period – 335 roubles a month, and with the wage of many workers actually standing at a mere 150 roubles a month. It is obvious that the imposition of fees is an effective barrier to higher education, especially in families where there are three or four children.

To make matters worse, the Soviet government had the temerity to declare that the imposition of fees was a sign of the growing prosperity of the people. The preamble to the decree declared: “Taking into consideration the higher level of material well-being of the toilers and the great expenses of the Soviet state for the building up, maintenance and equipment of the constantly growing net of secondary and high schools, the Council of People’s Commissars recognises the necessity of imposing a part of the expense of education in secondary and high schools of the USSR on the toilers themselves, and therefore resolves ...” The same brand of logic leads to the conclusion that a really prosperous country is one in which even elementary education has to be paid for!

It must have been obvious to the students that the need to pay fees was no evidence of prosperous circumstances. Between the school year 1940-41, during which fees were introduced, and 1942-43, some 20 per cent left high schools in the RSFSR due to “the sifting out in connection with the introduction of fees for tuition and the changes in the methods of allotting stipends.” [226]

Another decree issued the same day, 2 October 1940, on State Labour Reserves of USSR authorised the annual draft of 800,000 to 1,000,000 boys between fourteen and seventeen years of age (the age of classes VIII to X) into compulsory vocational education. The quota of children to be supplied by each area is stipulated, and the responsibility for carrying out the order was to be that of the district and town Soviets. [227] Commissions were set up consisting of the Chairman of the town or district Soviet, a trade union representative, and the local secretary of the Komsomol, which instruct each school to provide a certain quota of children to be selected by the teacher. As pupils of the VIIIth to Xth classes are exempt, this regulation falls almost exclusively on pupils from poor families. (The harshness of the discipline imposed on youths recruited to vocational schools is clear from the fact that for leaving without permission and other violations of discipline, they are subject to punishment of up to one year’s confinement in a reformatory.) [228] To widen the net, the Presidium of the Supreme Soviet decreed on 19 June 1947, that the age limits for Labour Reserve should be raised: in a number of industries it was raised to nineteen years of age. [229]

Looking at the two decrees issued on 2 October 1940, one cannot but be reminded of the circular issued in 1887 by Delianov, Tsar Alexander II’s Minister of Education. “The Minister, desirous of improving the quality of pupils in the secondary schools” decided that “the children of coach-men, servants, cooks, laundresses, small shopkeepers and such-like persons should not be encouraged to rise above the environment to which they belong”.

In conclusion, it is clear from what has been said above that the difference between income differentiation before the Five-Year Plan and that after its introduction necessarily leaves the realm of quantity alone and becomes a qualitative difference also. If a specialist or factory manager receives between four and eight times more than an unskilled worker, it does not necessarily mean that there is a relation of exploitation between the two. A skilled worker, specialist or manager produces more values then an unskilled worker per hour of work.

Even if the specialist receives more than the difference in the values that they produce, it still does not prove that he exploits the unskilled worker. This can be simply demonstrated. Let us assume that in a workers’ state an unskilled worker produces his necessities in six hours a day, and that he works eight hours, the other two hours being devoted to the production of social services, to increasing the amount of means of production in the hands of society, etc. As these two hours of work are not labour for someone else, but for himself, it would be wrong to call it surplus labour. But to avoid introducing a new term, and to distinguish the two hours from the first six hours, let us call it “surplus labour”, while the six hours we shall call “necessary labour”. For the sake of simplicity let us say that an hour of unskilled labour produces the value embodied in 1 shilling. The unskilled worker thus produces 8s. and receives 6s. Let us assume that the specialist produces 5 units of value, or 5s., in an hour of his labour. If the specialist earned five times more than the unskilled worker, i.e., 30s., there would clearly be no relation of exploitation between them. Even if he earned six times more than the unskilled worker, while he produced only five times more, there still would not exist a relation of exploitation, as the specialist would be earning 36 shillings a day, while he produces 40s. But if the specialist earned 100s. or 200s., the situation would be fundamentally changed. In such a case a large part of his income would necessarily come from the labour of others.

The statistics at our disposal show conclusively that although the bureaucracy enjoyed a privileged position in the period preceding the Five-Year Plan, it can on no account be said that in the majority of cases it received surplus value from the labour of others. It can just as conclusively be said that since the introduction of the Five-Year Plans, the bureaucracy’s income consisted to a large extent of surplus value.



Bureaucratic mismanagement

Under capitalism based upon private ownership of the means of production, the capitalist uses for his financial compass the automatism of the market, with its blind determination of the prices of factors of production as well as of the commodity produced. He must operate an accurate accounting system. His punishment for miscalculation is a financial loss; for a grave mistake, bankruptcy. Under a statified economy, were most of the prices are determined administratively, and where the real income of the plant manager has no direct correlation to the real economic situation of his plant, accurate accounting becomes even more vitally necessary, as the manager of a plant can conceal the defects of the enterprise for a long time should it become necessary; he is not subject to the market law alone. Without accurate accountancy any distortion in one enterprise can be assimilated as an element in the calculations of other enterprises, and so on cumulatively. The Kremlin can punish the manager who fails, but the failure comes to light only after the damage is done. Again, the administrative and extremely harsh nature of the impending punishment (demotion, imprisonment, etc.) merely gives an added urgency and encouragement to the dissembling manager, and provides greater incentive for such managers to plot with other officials of the administration. Further, the same ruthless quality of retribution engenders a high degree of circumspection, not to say timidity, in any manager faced with the need to take a risk or to make a decision. Hence a marked tendency throughout the managerial side of Russian industry to “pass the buck” and to increase, ad nauseam, the number of unproductive officials. Yet again, such managers are sharply conscious of the implacably administrative nature of the sanctions hanging over them, and, therefore, of the great extent to which their own fate depends upon arbitrary decisions derived automatically from a current genera policy which can be and is frequently superseded overnight by one of an entirely different character.

Finally, it is a commonplace that the high complexity and diversification of any modern industrial economy necessitates a maximum degree of local autonomous initiative and the widest field of managerial discretion. But this is a state of things in direct conflict with the extreme bureaucratic rule in Russia.

The Stalinist industrialisation drive is planned, if by planning we understand central direction. Under private capitalism the economy operates blindly, so that at any given moment it represents the sum total of many private and autonomous decisions. [K] In Russia, however, the government decides almost everything. If, however, by the term “planned economy”, we understand an economy in which all component elements are adjusted and regulated into a single rhythm, in which frictions are at a minimum, and, above all, in which foresight prevails in the making of economic decisions – then the Russian economy is anything but planned. The First Five-Year Plan was launched upon the assumption that agriculture would remain mainly in private peasant hands (the kolkhozes were to produce only 11.5 per cent of the total grain output of the country during the last year of the Plan). [230] It ended with 70 per cent of agriculture in kolkhozes and sovkhozes. It forecast the following increase in livestock: horses, 6.1 million; cattle, 14.5 million; pigs, 12.2 million; sheep and goats, 28.8 million; altogether 61.6 million [231]; in fact the numbers of horses declined by 13.9 million, cattle by 30.2 million, pigs by 14.4 million, sheep and goats by 94.6 million, altogether a decline of 153.1 million. [232] The Plan also assumed that the relations between all branches of the economy would be based upon market-exchange – and yet the period actually ended with total rationing. Another assumption was that the number of workers employed in state economy would increase by 33 per cent [233] – but in point of fact it rose by 96.6 per cent. [234] Standards of living were supposed to rise, instead they declined. It can be assumed that production targets of different goods are mutually linked, yet the rate of fulfilment of the different targets differed over a very wide range. The Plan assumed that the rural population would grow by 9.0 per cent, the urban population by 24.4 per cent, and the total population by 11.8 per cent, but actually the corresponding figures were 1.1, 40.2 and 8.1 per cent. The same is true for the later Plans too. Inflation (a rise of no less than 1,500 per cent, in the price level during the two decades of the Plan era), the terrible famine of 1932-33, the harsh administrative measures against peasants and workers – these are some of the symptoms of the bureaucracy’s lack of foresight in running the economy, and of the disharmony between the different interdependent elements of the economy.

There is a great lack of co-ordination between different plants. To give an example: according to the chief engineer of the Stalingrad tractor factory, Demianovich, there were 753 tractors worth 18 million roubles piled up in the yards of the factory in October 1940, because parts to be bought from small plants to the value of 100,000 roubles were missing. This led to a serious interruption of production. [235]

The great dislocations in the economy are revealed also in a phenomenon that is strangely peculiar to Russia in such an extreme form: different enterprises producing the same product show tremendous differences in costs of production. Thus the annual output of pig iron and steel per worker in various plants in 1939 was [236]:


Pig iron


Magnitogorsk Combine



Kuznetsk Combine



Krivoy Rog Plant









Kirov Plant



Dzerzhinsky Plant



Petrovsky Plant



Kramatorsk Plant



Ordzhonikidze Plant



Frunze Plant



In the book from which the above table is quoted it is made quite clear that the basic reason for these large variations in the productivity of labour does not lie in differences in the natural conditions of production, but in the technical equipment of the enterprises. [237] In many cases, even where there are no big differences in the technical equipment of the plants concerned, the production costs vary a lot. Thus, Izvestia wrote: “Often two enterprises under the same Ministry and with the same equipment show very different costs of production, in one case administrative costs being two or three times as great as in the other ... Hundreds of thousands of superfluous workers can be released and the cost of production can be considerably reduced if order is established with regard to shop personnel.” [238]

Another cause of cost differences is the big variation in the proportion of defective goods. In his report to the Supreme Soviet on the State Budget of 1947, the Minister of Finance, Zverev, said of two factories producing electric bulbs that in one the cost of production was five times higher than in the other. The reason he gave was that in the one 47.3 per cent of the output was defective, which in the other only 7.3 was. [239] It is obvious that such differences in production costs could not exist under conditions of capitalism based on private property. The backward enterprise would early have been driven out of production. Obviously preserving these plants without equalising or nearly equalising their costs of production involves, from a general economic standpoint, immense wastage.

This lack of co-ordination among different industries and the inconsistency of their development is shown in the spasmodic rise and fall of prices and in the absence of harmonious relations between them. Dr Jasny has illustrated this very clearly. One of the examples he gives is this:

The development of the prices of timber and lumber during the Plan era was fantastically inconsistent. After a small decline in 1927-28, the lumber prices were raised by more than 100 per cent, effective 1 April 1936. They remained unchanged, thereafter, for almost 13 years in spite of inflation, the extreme shortage of times, and the cutting of forests far in excess of what was economically reasonable. The lumber prices were raised almost three-fold, effective 1 January 1949, to become about 7 times as high as in 1926-27.

Round timber, large quantities of which are used directly in construction in the USSR, declined in price 14.7 per cent from 1926-27 to 1927-28 and then was raised only moderately in 1936. Timber prices were raised slightly again in 1944, but even after this they still were only moderately above prices of 1926-27. Then, to make up for all such arrears, timber prices were boosted in one stroke more than 4.5-fold in 1949. Roughly the timber prices were close to 50 per cent of those of lumber (sawn timber) in 1926-27; in 1936 they became little more than 20 per cent of the latter; the percentage was raised to about 30 in 1944 and exceeded 40 in 1949.

The prices of railway ties, a simple timber product, showed yet another course: doubled in 1936 and again more than doubles in 1943. Again they were more than doubled in 1949, with the result that the prices effective 1 January 1949, were almost 10-fold their 1927 level. [240]

In another book Jasny gives yet another example of the lack of tie-ins between the prices of competing goods or between the prices of raw materials and finished products: “In 1933,” he writes, “the price of kerosene for technical purposes, f.o.b. destination, was raised about 10-fold, to a level about 45-fold that of good Donbass boiler coal, f.o.b. mine. In 1949, the same kerosene most not quite six times as much as coal. There is no justification – there cannot even be any explanation – for such shifting ground. The varying rates between kerosene and coal prices are an extreme case, but the number of unjustified large shifts in price and rate relationships is almost infinite. In 1949, important types of rolled steel cost about 5-6 times as much as coal; in the second half of 1950 the relation was only about three to one.” [241] And again: “It was a great blunder to raise machinery prices 30-35 per cent in one year (1949) and then to eliminate the entire increase and more the next year (1950); or to raise railway freight rates on short distances much less than on long distances (rate revision of 1939) and to do exactly the opposite in the next revision (1949).” [242]

The crowning example of the crude methods employed in adjusting prices and the absence of tie-in between them was given by Stalin himself:

our business executives and planners, with few exceptions, are poorly acquainted with the operations of the law of value, do not study them, and are unable to take account of them in their computations. This, in fact, explains the confusion that still reigns in the sphere of price-fixing policy. Here is one of many examples. Some time ago it was decided to adjust the prices of cotton and grain in the interests of cotton growing, to establish more accurate prices for grain sold to the cotton growers, and to raise the price of cotton delivered to the state. Our business executives and planners submitted a proposal on this score which could not but astound the members of the Central Committee, since it suggested fixing the price of a ton of grain at practically the same level as a ton of cotton, and, moreover, the price of a ton of grain was taken as equivalent to that of a ton of baked bread. In reply to the remarks of members of the Central Committee that the price of a ton of break must be higher than a ton a grain because of the additional expense of milling and baking, and that cotton was generally much dearer than grain, as was also borne out by the prices in the world market, the authors of the proposal could find nothing coherent to say. The Central Committee was therefore obliged to take the matter into its own hands and to lower the prices of grain and raise the prices of cotton. [243]

What a muddle! And in the very highest quarters of the land.

One other peculiar phenomenon that reveals that lack of integration between individual plants, is the rise of a group of middlemen who make a living by finding out plants with surpluses and deficits and arranging barter agreements between them, violating the prices fixed by the authorities. Planovoe Khoziaistvo reported a case in which a heavy machinery factory promised a building organisation, in exchange for 2.5 million bricks, not only the official price of the bricks, but also the following extras: 800 tons of coal, 250 tons of timer, 11 tons of kerosene and various amounts of a number of other commodities. [244] All this is illegal, but nevertheless very widespread: the bureaucratic government that prohibits this, is, after all, the cause of its appearance.

Another example of the same species is the kolkhoz market, particularly flourishing during the war, with its food rationing, and which in all but name was a “black market”.

Hence, also, the appearance of the tolkach – the supply expeditor – who, quite illegally, takes an enormous commission for acquiring materials, machines, etc. Hence also the great importance of blat, or personal influence, for acquiring material, machines, etc., to which the factory director is not entitled. Russian publications give ample testimony that it is a major phenomenon there.

The vast extent of the conflicts between enterprises, trusts, glavks, ministries, etc., is revealed in the exceptionally large number of law-suits between them. In 1938, for instance, over 330,000 cases were litigated in Gosarbitrazh (State Board of Arbitration, a special system of courts for disputes between economic organs). [245] This figure does not include the disputed between economic units – glavks and plants within an individual ministry – which are dealt with by departmental arbitration boards. Berman writes: “The types of disputes that come before Gosarbitrazh are amazingly diverse. Many arise over the quality of the goods supplied under the contract. A large number involve the question of prices, for despite the fact that prices are fixed, many devices exist for avoiding or evading the established prices.” [246]

One of the most important elements in bureaucratic mismanagement is the swift, arbitrary changing of decisions by the central government itself. A few examples will be given.

For a number of years it had been an act of faith to believe that the bigger the enterprise the better it was irrespective of optimal technical levels of efficiency. Thus, for instance, Stalin declared: “All the arguments of ‘science’ against the possibility and expediency of creating large grain factories of 50,000 to 100,000 hectares each have collapsed and crumbled into dust.” [247]

In 1930, a kolkhoz was organised, consisting of 50 villages and 84,000 hectares; another encompassed 29 villages and 33,553 hectares. [248] However, after terrible losses, the government beat a retreat; in 1938 the average kolkhoz had an area of 484 hectares of arable land. For nine years (1928-37) the enthusiasm for gigantic enterprises held sway before a reaction set in, after which “gigantomania” was declared the result of the pernicious activities of “Trotskyist-Fascists”.

At other times targets of production were put at a ridiculously high level, leading to adventuristic tempos, at a formidable cost in wreckage, wear and tear of machinery, and wastage of material and labour. Thus, for instance, G.K. Ordzhonikidze, Commissar of Heavy Industry, stated at the Seventeenth Party Conference (30 January 193) that the task for 1932 was this: “In the course of one year we must more than double the capacity of the metal factories, raising it to 13.5-14 million tons [of pig-iron] ... What does fulfilling the production programme of the iron and metal industry in 1932 mean? ... It means to yield in one year an increase of 4 million tons ... How much time did it take the countries of capitalist to achieve the same thing? ... England took 35 years to accomplish this ... It took Germany ten years ... the United States eight years. The USSR must cover the same ground in one year.” [249] Actually, it took not one year but six to seven.

The organ of Gosplan adopted an even more absurd position when drafting targets for the Second Five-Year Plan. It announced that in 1937 USSR would produce: 450-550 million tons of coal, 150 million tons of crude oil, 60 million tons of pig iron, 150 million kilowatt hours of electrical energy. This plan had to be slashed by more than half at the Seventeenth Party Conference (January 1932), and by still more at the Seventeenth Party Congress (January 1934) which passed the final draft. A simple comparison of the targets shows how arbitrary and adventuristic is the planning of the government [250]:

Production plan for 1937


Gosplan Plan

17th Party

17th Party


Coal (million tons)





Crude oil (million tons)





Pig iron (million tons)





Electricity (million kwh.)





Another curious yet typical incident. In 1931 an important member of the Supreme Council of National Economy was so bold as to say that he did not believe that it would be possible to produce 60 million poods of cotton, but only 30 million. [251] He was brought to court, and the prosecutor declared: “Just the two figures are enough to show the practical harm of Sokolovsky’s work.” Sokolovsky “confessed”, and said that actually 60 million poods could be achieved. (The “confession” did not save him, and he had to pay for his former scepticism with ten years’ imprisonment). Four years later, in 1935, at a conference of cotton growers, the Commissar of Light Industry, Lubimov, and the Commissar of Agriculture, Chernov, informed Stalin that great successes in the cotton programme would render it possible to produce in that year ... 32 million poods of cotton! Stalin considered it unattainable and sceptically questioned: “Are you not carried away by enthusiasm?” [252]

In summing up, it may be said that, in Russia, instead of a real plan, strict methods of government dictation are evolved for filling the gaps made in the economy by the decisions and activities of this very government. Therefore, instead of speaking about a Soviet planned economy, it would be much more exact to speak of a bureaucratically directed economy. Actually the totalitarian, bureaucratic political dictatorship helps to overcome the results of bad planning, which at the same time, has its origin in this self-same bureaucratic set-up.

One should, however, avoid the mistake of assuming that the mismanagement corroding Russia’s national economy precludes very substantial, nay, stupendous achievements. Actually, between the bureaucratic mismanagement and the great upward sweep of Russia’s industry, there is a tight, dialectical unity. Only the backwardness of the productive forces of the country, the great drive towards their rapid expansion (together with a whole series of factors connected with this) and, above all, the subordination of consumption to capital accumulation, can explain the rise of bureaucratic state capitalism.



Russia – an industrial giant

The efforts and self-sacrifice of the people, have raised Russia, despite bureaucratic mismanagement and waste, to the position of a great industrial power, from being, in terms of industrial output, fourth in Europe and fifth in the world to being first in Europe and second in the world. She has stepped out of her sleepy backwardness to become a modern, powerful, industrially advanced country. The bureaucracy has thus earned as much tribute as Marx and Engels paid to the bourgeoisie. “It has been the first to show that man’s activity can bring about. It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts and Gothic cathedrals ... The bourgeoisie ... draws all ... nations into civilisation ... It has created enormous cities ... and has thus rescued a considerable part of the population from the idiocy of rural life. The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together.” [253]

The price paid for these achievements has, of course, been human misery on a scale impossible to estimate.

From a socialist standpoint, however, the decisive criterion is not the growth of production per se, but the social relations accompanying this tremendous development of the productive forces. Is it or is it not accompanied by an improvement in the economic position of the workers, by an increase in their political power, by a strengthening of democracy, a reduction of economic and social inequality, and a decline of state coercion? Is the industrial development planned, and if so, planned by whom, and in whose interests? These are the basic socialist criteria for economic advance.

Marx visualised that the development of the productive forces under capitalism would drive humanity towards a crisis out of which there were only two ways: the one, a socialist reorganisation of society, the other, a decline into barbarism. The threat of barbarism takes the form, before our very eyes, of hitching the productive forces of humanity, of industry and science, to the chariot of war and destruction. The place of Magnitogorsk and Oak Ridge in man’s history will be decided not by their tremendous material achievements, but by the social and political relations underlying them.




I. This rule was repealed in such secrecy that it is not known exactly when it happened, but it became evident from news in the Russian press that it was not in existence in 1934.

J. It is interesting to note that a Soviet book on economic statistics criticises US statistics for its custom of including in the wages and salaries bill the salaries of company directors thus raising the average wage and salary. (Dictionary Handbook of Social-Economic Statistics (Russian), Moscow 1948, p.12.) What is sauce for the goose is apparently not sauce for the gander!

K. It is beyond the province of the present essay to investigate the interesting subject of centrally directed plan within existing private capitalism, especially as a manifestation of war-time expediency.



175. V.I. Lenin, Works (Russian), Vol.XXIV, p.5.

176. K. Marx, Critique of the Gotha Programme. Quoted by Lenin, State and Revolution, London 1942, p.70.

177. Lenin, op. cit., p.76.

178. ibid., p.77.

179. ibid., p.78.

180. ibid., p.40.

181. V.I. Lenin, Works (Russian), Vol.XXVII, p.13.

182. ibid., Vol.XXIX, p.159.

183. ibid., Vol.XXXIII, p.64.

184. AUCP in Resol. 4th ed., Vol.I, p.337.

185. ibid., p.444.

186. Minutes of the Tenth Congress of the Russian Communist Party (Bolsheviks) held in Moscow, March 1921 (Russian), Moscow 1933, p.317.

187. S.G. Strumilin, Wages and Labour Productivity in Russian Industry in 1913-22 (Russian), Moscow 1923, p.35.

188. M.N. Pokrovsky (ed.) 1905 (Russian), Moscow-Leningrad 1925, Vol.I, p.439.

189. Labour in USSR, Statistical-Economic Survey, October 1922 - March 1924 (Russian), Moscow 1924, p.158.

190. S. Zagorsky, Wages and Regulation of Conditions of Labour in the USSR, Geneva 1930, pp.176, 178.

191. L. Lawton, Economic History of Soviet Russia, London 1932, Vol.II, pp.359-361.

192. From Z.M. Chernilovsky (ed.), History of State and Law (Russian), Moscow 1949, p.29.

193. Quoted by D.I. Chernomordik, The Economic Policy of USSR (Russian), Moscow-Leningrad 1936, p.240.

194. Labour Code 1922 (Russian), Moscow 1922, Article 57, pp.9-10.

195. ibid. Abrogated 17 March 1934 (Coll. Laws USSR 1934, No.15, Article 109).

196. Coll. Laws USSR 1937, No.71, Article 340.

197. L.A. Bronstein and B.N. Budrin, Planning and Accounting in Automotive Transport (Russian), Moscow 1948, p.150.

198. Coll. Laws USSR 1936, No.20, Article 169.

199. G. Poliak, On the Director's Funds in Industrial Enterprises, Planovoe Khoziaistvo, 1938, No.4.

200. Socialist Construction 1933-38, op. cit., p.138.

201. L. Vilenski, Financial Questions of Industry, Planovoe Khoziaistvo, 1938, No.4.

202. Quoted by Yvon, op. cit., p.111.

203. Pravda, 27 June 1937.

204. Socialist Construction 1936, op. cit., p.513.

205. First Session of the Supreme Soviet of the USSR, Stenographic Report (Russian), Moscow 1948, pp.124, 205.

206. Isvestia, 18 January 1938.

207. New York Times, 23 August 1943.

208. Pravda, 21 December 1939.

209. Isvestia, 6 April 1940.

210. A. Werth, The Year of Stalingrad, London 1946, p.126.

211. ibid., p.104.

212. ibid.

213. See above chart.

214. Jasny, The Soviet Price System, op. cit., pp.44-45.

215. Coll. Laws RSFSR, 1918, No.34, Article 456.

216. Coll. Laws USSR, 1929, No.8, Article 78.

217. R. Bishop, Soviet Millionaires, London 1945, p.3.

218. I.I. Evtikhiev and V. A. Vlassov, Administrative Law of USSR (Russian), Moscow 1946, pp.164, 418.

219. ibid., p.408.

220. Pravda, 4 April 1951.

221. Pravda, 17 March 1949.

222. Large Soviet Encyclopaedia, Vol.USSR (Russian), Columns 1225, 1228 and 1233.

223. Cultural Construction USSR (Russian), Moscow 1940, pp.111-112.

224. ibid., p.114.

225. Coll. Decisions USSR, 1940, No.27, Article 637.

226. The People's Education in RSFSR in 1943 (Russian), 1944, p.42.

227. Directive of the All-Union Communist Party (Bolsheviks) and the Decisions of the Soviet Government on Education. Collection of Documents 1917-1947 (Russian), Moscow-Leningrad 1947, Vol.II, pp.109-111.

228. Decree of 28 December 1940, Supreme Soviet USSR Gazette (Russian), 1941, No.1.

229. ibid. 1947, No.21.

230. I Plan, Vol.I, Part 1, p.329.

231. ibid., pp.324-325.

232. Socialist Construction 1933-38, op. cit., pp.xxiv-xxv.

233. I Plan, Vol.I, p.94.

234. Ful. I Plan, p.170.

235. Pravda, 27 October 1940.

236. I.P. Bardin and N.P. Banny, Iron and Steel Industry in the New Five-Year Period (Russian), Moscow-Leningrad 1947, p.166.

237. ibid., p.165.

238. Izvestia, 24 May 1952.

239. Meeting of the Supreme Soviet of USSR (Third Session), 20-25 February 1947 (Russian), Moscow 1947, p.20.

240. N. Jasny, Soviet Prices of Producers' Goods, Stanford 1951, pp.83-84.

241. Jasny, The Soviet Price System, op. cit., pp.9-10.

242. ibid., p.10.

243. J.V. Stalin, Economic Problems of Socialism in the USSR, Moscow 1952, pp.24-25.

244. Planavoe Khoziaistvo, 1946, No.3, pp.38-39.

245. H.G. Berman, Justice in Russia: An Interpretation of Soviet Law, Cambridge, Mass. 1950, p.66.

246. ibid., pp.76-77.

247. Stalin in Pravda, 7 November 1929, Problems of Leninism, p.301. In Stalin's Works (Russian), Vol.XII, p.129, the same article is reproduced with the substitution of 40-50,000 hectares for 50-100,000 hectares..

248. Izvestia, 20 January 1930.

249. G.K. Ordzhonikidze, Industrial Development in 1931 and the Tasks for 1932, Moscow 1932, pp.40-41.

250. Planovoe Khoziaistvo, 1931, Nos. 5-6, p.29; II Plan, Vol.II, pp.276, 278-280.

251. Izvestia, 8 March 1931.

252. Komsomolskaia Pravda, 6 December 1935. Quoted by Gordon, op. cit., pp.389-390.

253. K. Marx and F. Engels, The Communist Manifesto in Selected Works, London 1942, Vol.I, pp.208-210.


Last updated on 26.7.2002