Why did the Stalinist regime survive? What was the nature of the “People’s Democracies” of Eastern Europe? What did their creation show about the nature of the Stalinist regime? The theory of state capitalism was developed out of the attempt to answer these questions. The answers defined Stalinist Russia as a state capitalist country.
The first document in which Russia was defined as state capitalist by the present author was a very long duplicated document of 142 pages written in 1948 and entitled The Class Nature of Stalinist Russia. However, to understand the genesis of the theory it is useful to consider the “People’s Democracies”, those countries overrun by the Russian army at the end of the Second World War. Napoleon said, “Une armée dehors c’est l’êtat qui voyage” (an army abroad is but the state on the move), and this maxim applies very well to places like Poland and Hungary whose governments were nothing but extensions of the Russian state. Therefore, the study of these gave an insight into the regime of the “mother country”.
Although it was through the prism of the “People’s Democracies” that one could see clearly the shape of Stalinist Russia, the argument was formulated in writing only after The Class Nature of Stalinist Russia had appeared. In 1950 On the Class Nature of the People’s Democracies was published. It starting point was that if the Eastern European states were truly workers’ states then a social revolution ought to have taken place there; conversely if no social revolution had occurred, then the nature of the East European states had to be re-evaluated.
The discussion was built around Marx and Lenin’s theory of the state. Marx frequently repeated the idea that the political supremacy of the working class is a prerequisite for its economic supremacy. The workers cannot own the means of production collectively – that is, be the ruling class economically – unless the state which own and controls the means of production is in their hands; in other words, unless the proletariat has political power.
In this respect the proletariat is fundamentally different from the bourgeoisie. The latter has direct ownership over wealth; therefore, whatever the form of government, so long as the bourgeoisie is not expropriated, it does not cease to be the ruling class. A capitalist can own his property in a feudal monarchy, in a bourgeois republic, in a fascist dictatorship, under military rule, under Robespierre, Hitler, Churchill or Attlee. Against this workers are separated from the means of production and it is this very fact which makes them into wage slaves. If a situation arises there the state is the repository of the means of production but is totally alienated from the working class, they cannot be the ruling class. 
A few quotations from the great Marxist thinkers illustrate these points. The Communist Manifesto declares:
... the first step in the revolution by the working class is to raise the proletariat to the position of ruling class, to win the battle for democracy.
The proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie, to centralise all instruments of production in the hands of the state, i.e. the proletariat organised as the ruling class ... 
The proletarian revolution is the victory of “the battle of democracy”. The workers’ state is “the proletariat organised as the ruling class”. How could a Stalinist “social revolution” imposed by Red Army tanks entirely from outside it fit the Marxist conception of the role of proletarian class consciousness in the revolution?
Marx repeated hundreds of times that the proletarian revolution is the conscious act of the working class itself. Therefore, if we accepted that the “People’s Democracies” were workers’ states, what Marx and Engels said about the socialist revolution being “history conscious of itself” was refuted. The same would be true of Engels’ statement:
It is only from this point [the socialist revolution] that men, with full consciousness, will fashion their own history; it is only from this point that the social causes set in motion by men will have, predominantly and in constantly increasing nature, the effects willed by men. It is humanity’s leap from the realm of necessity to the realm of freedom. 
Rosa Luxemburg, too, must have been wrong in her summing up of what all Marxist teachers wrote about the place of proletarian consciousness in a revolution:
In all the class struggles of the past, carried though in the interests of minorities, and in which, to use the words of Marx, “all the development took place in opposition to the great masses of the people”, one of the essential conditions of action was the ignorance of these masses with regard to the real aims of the struggle, its material content, and its limits. This discrepancy was, in fact, the specific historical basis of the “leading role” of the “enlightened” bourgeoisie, which corresponded with the role of the masses as docile followers. But, as Marx wrote as early as 1845, “as the historical action deepens, the number of masses engaged in it must increase.” The class struggle of the proletariat is the “deepest” of all historical actions up to our day, it embraces the whole of the lower layers of the people, and, from the moment that society became divided into classes, it is the first movement which is in accordance with the real interests of the masses. That it why the enlightenment of the masses with regard to their tasks and methods is an indispensable historical condition for socialist action, just as in former periods the ignorance of the masses was the condition for the action of the dominant classes. 
Pablo and Mandel sought a way around this problem by talking of a “Bismarckian path of development” of the proletarian revolution, comparing it to the way German capitalism grew under the political rule of the Kaiser’s Chancellor and the old landowning group – the Junkers. These Trotskyists hoped to prove that the proletarian social revolution could be carried without the revolutionary action of the proletariat itself by a state bureaucracy with “a momentum of its own”. This idea, if though out, led to the most shocking conclusions. It is true that the bourgeoisie took power in many and various ways. As a matter of fact there was only one pure case in which they carried through to the end a revolutionary struggle against feudalism – this was in France after 1789. In the case of England they compromised with the feudal landowners. In Germany and Italy, Poland and Russia, China and South America, they came to power without a revolutionary struggle. In America the almost complete nonexistence of feudal remnants enabled the bourgeoisie to avoid an anti-feudal revolutionary struggle.
The “Bismarckian” path was not the exception for the bourgeoisie, but almost the rule. France was the exception. If the proletarian revolution is not necessarily achieved through the activity of the working class itself but by a state bureaucracy, then the Russian Revolution would inevitably be the exception, while the “Bismarckian” path would be the rule. The conclusion would be that no independent revolutionary leadership (by Trotskyists) would be needed.
Moreover, the rise of the bourgeoisie was achieved by mobilising the masses and then deceiving them – whether in the case of the French sans-culottes or the soldiers of Bismarck. If a proletarian revolution can be carried out in this way the law of lesser resistance meant history would choose the path of revolution carried out by small minorities deceiving the big majorities. 
The document The Class Nature of the People’s Democracies ended by pointing out that although members of the Fourth International repeated the basic Marxist conclusions – the liberation of the working class can only be carried out by the working class itself, the workers cannot lay hold of the bourgeois state machine but must smash it and establish a new state based on proletarian democracy (soviets, etc.) – they persisted in calling the “People’s Democracies” workers’ states.
The reason for this lay in conceiving of Russia as a degenerated workers’ state. If Russia was a workers’ state even though the workers were separated from the means of production, had no say in running the economy and state, and were subordinated to the most monstrous bureaucratic and militarist state machine, there was no reason why workers’ revolutions establishing new workers’ states should not be carried out without the independent, call conscious activity of the working class, without the smashing of the existing bureaucratic and militarist state machines. It would have been enough for the bureaucracy to be able to expropriate the bourgeoisie while keeping the workers “in their place” for the transition from capitalism to a workers’ state to be accomplished.
If the Marxist-Leninist theory of revolution had been turned upside-down when the “People’s Democracies” were regarded as some kind of workers’ states, what about the nature of a workers’ state itself? 
The starting point for an analysis of this issue was a critical examination of Trotsky’s definition of Russia as a degenerated workers’ state. Can a state not under workers’ control be a workers’ state?
In Trotsky’s works we find two different and quite contradictory definitions of a workers’ state. According to one, the criterion for a workers’ state is whether the proletariat has direct or indirect control, no matter how restricted, over state power: that is, whether the proletariat can get rid of the bureaucracy by reform alone, without the need for revolution. In 1931 he wrote:
The recognition of the present Soviet state as a workers’ state not only signifies that the bourgeoisie can conquer power in no other way than by armed uprising but also that the proletariat of the USSR has not forfeited the possibility of submitting the bureaucracy to it, or revising the party again and of mending the regime of the dictatorship, without a new revolution, with the methods and on the road of reform. 
Trotsky expressed this idea even more clearly in a letter probably written at the end of 1928 where he wrote in answer to the question, “Is the degeneration of the apparatus and of the Soviet power a fact?”
There is no doubt that the degeneration of the Soviet apparatus is considerably more advanced than the same process in the party apparatus. Nevertheless, it is the party that decides. At present, this means the party apparatus. The question thus comes down to the same thing: is the proletarian kernel of the party, assisted by the working class, capable of triumphing over the autocracy of the party apparatus which is fusing with the state apparatus? Whoever replies in advance that it is incapable, thereby speaks not only of the necessity of a new party on a new foundation, but also of the necessity of a second and new proletarian revolution.
Later in the same letter Trotsky says:
If the party is a corpse, a new party must be built on a new spot, and the working class must be told about it openly. If Thermidor [the reactionary movement during the Great French Revolution which halted and set into reverse the process of revolution] is completed, and if the dictatorship of the proletariat is liquidated, the banner of the second proletarian revolution must be unfurled. That is how we would act if the road of reform, for which we stand, proved hopeless. 
Trotsky’s second definition had a fundamentally different criterion. No matter how independent the state machine may be from the masses, and even if the only way of getting rid of the bureaucracy is by revolution, so long as the means of production are state owned, the state remains a workers’ state with the proletariat as the ruling class.
Three conclusions are to be drawn from this:
The assumption that Russia was a degenerated workers’ state led inevitably to conclusions in direct contradiction to the Marxist concept of the state. An analysis of the role of what Trotsky called political revolution and social counter-revolution will prove this.
During bourgeois political revolutions, for instance the French revolutions of 1830 and 1848, the form of government changed to a greater or lesser degree, but the type of state remained the same – “special bodies of armed men, prisons, etc.”, independent of the people and serving the capitalist class.
However, there is a necessarily much closer connection between content and form in a workers’ state than in any other state. Therefore, even if we assume the political revolutions can take place in a workers’ state, one thing is clear – the same workers’ state machine must continue to exist after the proletarian political revolution as before. If Russia really was a workers’ state, then if the workers’ party carried out a large scale “purge” in a political revolution, it could and would use the existing state machine. On the other hand, for the former bourgeoisie to be restores, it could not use the existing state machine, but would be compelled to smash it and build another on its ruins.
Where these conditions obtaining in Russia? To pose the question correctly goes half the way to answering it. If the bourgeoisie came to power it could certainly use the KGB, the regular army and so on. It is surely evident that a revolutionary party could have used neither the KGB, nor the bureaucracy, nor the standing army. The revolutionary party would have had to smash the existing state and replace it with soviets, people’s militia, etc.
Trotsky partially avoided applying the lessons of the Marxist theory of the state by saying that the revolutionary party would begin with the restoration of democracy in the trade unions and the soviets.  But actually there were neither trade unions nor soviets in Russia in which democracy could be restored. A workers’ state would not be re-established by reforming the Stalinist state machine, but by smashing it and building a new one.
If the proletariat had to smash the existing state machine on coming to power, while the bourgeoisie could use it, Russia was not a workers’ state. Even if we assume that both proletariat and bourgeoisie would have required a “purgation of the state apparatus” (necessarily involving such a deep change as to transform it qualitatively), we must again conclude that Russia was not a workers’ state.
To believe that the proletariat and the bourgeoisie could use the same state machine as the instrument of their supremacy was tantamount to a refutation of the revolutionary content of the theory of the state as expressed by Marx, Engels, Lenin and Trotsky himself.
One feature of Russia which Trotsky stressed proved it was a workers’ state (even if degenerated) was the absence of large scale private property. However, it is an axiom of Marxism that to consider private property independently of the relations of production is to create a supra-historical abstraction.
Human history knows the private property of the slave system, the feudal system, the capitalist system, all of which are fundamentally different from one another. Marx ridiculed Proudhon’s attempt to define private property independently of the relations of production:
In each historical epoch, property has developed differently and under a set of entirely different social relations. Thus to define bourgeois property is nothing less than to give an exposition of all the social relations of bourgeois production. To try to give a definition of property as if an independent relation, a category apart – an abstract eternal idea – can be nothing but an illusion of metaphysics or jurisprudence. 
Capitalism as a system is the sum total of the relations of production. All the categories which express relations between people in the capitalist process of production – value, price, wages, etc – constitute an integral part of it. It was the laws of movement of the capitalist system which defined the character of capitalist private property in its historical context and differentiated it from other sorts of private property. Proudhon, who abstracted the form of property from the relations of production, “entangled the whole of these economic relations [the capitalist relations of production] in the general juristic conception of ‘property’.” Therefore, “Proudhon could not get beyond the answer which Brissot, in a similar work, had already, before 1789, given in the same words: ‘Property is theft’.” 
That one form of private property can have a different historical character to another, can be the stronghold of a different class than another, was made quite clear by Marx. That the same can also apply to statified property is not so evident. This is because history, in the main, witnessed the class struggle on the basis of private property. Cases of class differentiation not based on private property are not very numerous and, on the whole, not very well known. Nevertheless they have existed.
As an example, let us take a chapter from the history of Europe: the Catholic church in the Middle Ages. The church had tremendous tracts of land on which hundreds of thousands of peasants laboured. The relations between the church and the peasants were the same feudal relations as existed between the feudal manor owner and his peasants. The church as such was feudal. At the same time none of the bishops, cardinals, etc, had individual rights over feudal property. It was the relations of production which defined the feudal class character of the church property, notwithstanding the fact that it was not private.
Another feature of Trotksy’s theory of Russia being a degenerated workers’ state was that the Stalinist regime did not constitute a new ruling class. Instead it played the role of a bureaucracy, rather like that of the trade union leaders. He believed this has occurred because in Russia the scarcity of goods compelled purchasers to stand in a queue and the bureaucracy’s function was that of a gendarme who controlled the queue.
Was this the case? Was the bureaucracy’s function limited to the process of distribution, or did it appear in the process of production as a whole, of which the former was but a subordinate part? This issue is of enormous theoretical importance.
Before attempting to answer this question, let us examine what Marx thought about the connection between the relations of production and distribution. Marx wrote:
To the single individual, distribution appears as a law established by the society determining his position in the sphere of production, within which he produces, and thus antedating production. At the outset the individual has no capital, no landed property. From his birth he is assigned to wage labour by the social forces of distribution. But this very condition of being assigned to wage labour is the result of the existence of capital and landed property as independent agents of production.
From the point of view of society as a whole, distribution seems to antedate and to determine production in another way as well, as a pre-economic fact, so to say. A conquering people divides the land among the conquerors establishing thereby a certain division and form of landed property and determining the character of production; or it turns the conquered people into slaves and thus makes slave labour the basis of production. Or a nation, by revolution, breaks up large estates into small parcels of land and by this new distribution imparts to production a new character. Or legislation perpetuates land ownership in large families or distributed labour as an hereditary privilege and this fixes it in castes. In all of these cases, and they are all historic, it is not distribution that seems to be organised and determined by production, but on the contrary, production by distribution.
In the most shallow conception of distribution, the latter appears as the distribution of products and to that extent as further removed from and quasi-independent of production. But before distribution means distribution of products, it is first a distribution, and second, what is practically another wording of the sane fact, it is a distribution of the members of society among the various kinds of production (the subjection of individuals to certain conditions of production). The distribution of products is manifestly a result of this distribution, which is bound up with the process of production and determines the very organisation of the latter. 
This extract from Marx, the essence of which is repeated time and time again throughout his works, is sufficient as a point of departure for the analysis of the place of the Stalinist bureaucracy in the economy.
Did the bureaucracy only administer the distribution of means of consumption among the people, or did it also administer the distribution of people in the process of production? Did the bureaucracy exercise a monopoly over the control of distribution only, or over the control of the means of production as well? Did it ration means of consumption only or did it also distribute the total labour time of society between accumulation and consumption, between the production of means of production and that of means of consumption? Did the relations of production prevailing in Russia not determine the relations of distribution which comprised a part of them? These questions are answered by looking at the historical record.
Marx’s analysis of capitalism involves a theory of the relations between the exploiters and the exploited, and among the exploiters themselves. The two main features of the capitalist mode of production are the separation of the workers from the means of production and the transformation of labour power into a commodity which the workers must well in order to live, and the reinvestment of surplus value – the accumulation of capital – which is forced on the individual capitalists by their competitive struggle with one another. Both these features characterised the Soviet Union during the first Five Year Plan (1928-32). The collectivisation of agriculture in these years was closely analogous to the expropriation of the English peasantry – the enclosures which Marx analysed in Capital under the chapter Primitive Accumulation of Capital. In both cases the direct producers were deprived of the land and were therefore forced to sell their labour power.
But was the Russian economy under pressure to accumulate capital? On this I wrote the following:
The Stalinist state is in the same position vis-à-vis the total labour time of Russian society as a factory owner vis-à-vis the labour of his employees. In other words, the division of labour is planned. But what is it that determines the actual division of the total labour time of Russian society? If Russia had not to compete with other countries, this division would be absolutely arbitrary. But as it is, Stalin’s decisions are based on factors outside his control, namely the world economy, world competition. From this point of view the Russian state is in a similar position to the owners of a single capitalist enterprise competing with other enterprises.
The rate of exploitation, that is, the ratio between surplus value and wages (s/v) does not depend on the arbitrary will of the Stalinist government but is dictated by world capitalism. The same applies to improvements in technique, or, to use what is practically an equivalent phrase in Marxian terminology, the relation between constant and variable capital, that is, between machinery, building, materials, etc, on the one hand, and wages on the other (c/v). The same, therefore, applies to the division of the total labour time of Russian society between production of means of production and of means of consumption. Hence, when Russia is viewed within the international economy, the basic features of capitalism can be discerned: “anarchy in the social division of labour and despotism in that of the workshop are mutual conditions the one of the other.” 
It was during the first Five Year Plan that the mode of production in the USSR turned capitalist. Now, for the first time, the bureaucracy sought to create a proletariat and to accumulate capital rapidly. In other words, it sought to complete the historical mission of the bourgeoisie as quickly as possible. A quick accumulation of capital on the basis of a low level of production, of a small national income per capita, put heavy pressure on the consumption of the masses and their standard of living. Under such conditions, the bureaucracy, transformed into a personification of capital, for whom the accumulation of capital is the be all and end all, and to eliminate all remnants of workers’ control. It had to substitute conviction in the labour process with coercion, to atomise the working class, and to force all social-political life into a totalitarian world.
It was obvious that the bureaucracy, in the process of accumulating capital and oppressing the workers, would not be tardy in making use of its social supremacy in the relations of production in order to gain advantages for itself in the relations of distribution. Thus industrialisation and technical revolution in agriculture (“collectivisation”) in a backward country under condition of siege transformed the bureaucracy, from a layer under the direct and indirect pressure and control of the proletariat, into a ruling class.
Dialectical historical development, full of contradictions and surprises, brought it about that the first step that the bureaucracy took with the subjective intention of hastening the building of “socialism in one country” became the foundation of the building of state capitalism. 
During the first and second Five Year Plans consumption was completely subordinated to accumulation. Thus the share of consumer goods in total output fell from 67.2 percent in 1927-29 to 39.0 percent in 1940; over the same period the share of producer goods rose from 32.8 percent to 61.0 percent. This is in contrast to the period of 1921-28 when, despite the bureaucratic deformation, consumption was not subordinated to accumulation, but a more or less balanced growth of production, consumption and accumulation took place.
This analysis of Russia as bureaucratic state capitalist followed Trotsky’s theory of permanent revolution in taking the capitalist world system as its basic frame of reference. If it is a step forward from Trotsky’s analysis of the Stalinist regime as given in The Revolution Betrayed and elsewhere, it is that it tried to take account of the pressure of world capitalism in the mode of production and the relations of production prevailing in the USSR. Trotsky’s explanation did not reveal the dynamic of the system; it restricted itself to forms of property instead of dealing with the relations of production. It did not supply a political economy of the system. The theory of bureaucratic state capitalism tries to do both.
But let us be clear that only by standing on the shoulders of the giant, Leon Trotsky, with his theory of permanent revolution, his opposition to the doctrine of “socialism in one country”, and his heroic struggle against the Stalinist bureaucracy, could one have any comprehension of the Stalinist order.
It was the opportunity of looking at the Stalinist regime years after Trotsky’s death that made it possible to develop the theory of bureaucratic state capitalism. It was the transformation of Eastern Europe into Stalin’s satellites that led me to question whether Trotsky’s description of Russia as a degenerated workers’ state was adequate.
One tends to see the future in the trappings of the past. For many years the fight against exploitation took the form of a fight against the owners of private property – the bourgeoisie. Therefore, when Lenin, Trotsky and the rest of the Bolshevik leaders said that if the workers’ state of Russia remained isolated it was doomed, they envisaged that doom in a definite form – the restoration of private property. State property was seen as the fruit of the struggle of working people. From here it was only one step to Trotsky’s conclusion that if state ownership existed in Russia it was thanks to the bureaucracy’s fear of the working class, and that this meant the bureaucracy was not free to carry through a counter-revolution that restored capitalism, private ownership and the right of inheritance.
Past experience was Trotsky’s main impediment in grasping the fact that a triumphant reaction did not inevitably mean a return to the original point of departure. Capitalism could result from a decline, in spiral form, in which elements of the pre-revolutionary and of the revolutionary pasts were combined. The old capitalist class content could then emerge cloaked in new “socialist” clothing, thus serving as further confirmation of the law of combined development – a law that Trotsky himself did so much to develop.
In summing up, it may be said that, while Trotsky contributed incomparably more than any other Marxist to an understanding of the Stalinist regime, his analysis suffered from one serious limitation – a conservative attachment to formalism. This is by its nature contradictory to Marxism which subordinates form to content.
The assumption that the Stalinist regime was inherently superior to capitalism, that it was more progressive, was summed up in Trotsky’s assertion that in Russia the productive forces developed very dynamically as against the “stagnation and decline in almost the whole capitalist world”.  Of course, for a Marxist the relative progress of one regime over another is above all expressed in its ability to develop the productive forces further.
In line with Trotsky’s statement that the Soviet regime demonstrated the ability to speedily develop the productive forces far beyond what capitalism was able to achieve, Ernest Mandel wrote in 1956:
The Soviet Union maintains a more or less even rhythm of economic growth, plan after plan, decade after decade, without the progress of the past weighing on the possibilities of the future ... all the laws of development of the capitalist economy which provoke a slowdown in the speed of economic growth are eliminated. 
In the same year, 1956, Isaac Deutscher prophesied that ten years later the standard of living in the USSR would surpass that of Western Europe!
A state capitalist analysis of the Russian regime pointed in an exactly opposite direction: the bureaucracy was, and would become, more and more a brake of the development of the productive forces. The 1948 document The Class Nature of Stalinist Russia had pointed out that, while the bureaucracy’s role was to industrialise Russia by raising the productivity of labour, in the process it entered into sharp contradictions:
The historical task of the bureaucracy is to raise the productivity of labour. In doing this the bureaucracy enters into deep contradictions. In order to raise the productivity of labour above a certain point the standard of living of the masses must rise, as workers who are undernourished, badly housed and uneducated are not capable of modern production. 
Up to a point the bureaucracy could raise the productivity of labour by coercion, but this cannot go on indefinitely. Failure to raise the living standards might have already been leading to a decline in the rate of productivity growth, and to “jerky developments of production”. 
In 1964 a 100 page update to a new edition of the book on Russian state capitalism under the title Russia: A Marxist Analysis pointed out that the Soviet economy inherited from Stalin was more and more paralysed by elements of crisis, and became more and more of a dead weight on the development of production:
Stalin’s method of approach to each new failure or difficulty was to increase pressure and terrorism. But this rigid method became not only more and more inhumane but also more and more inefficient. Each new crack of the whip increased the stubborn, even if mute, resistance of the people ... rigid Stalinist oppression became a brake on all modern industrial progress. 
The book made a detailed examination of how the Stalinist regime became a block on all branches of the economy. On the crisis in agriculture it said:
The legacy Stalin left in the countryside is an agriculture bogged down in a slough of stagnation that has lasted over a quarter of a century. Grain output in 1949-53 was only 12.8 percent larger than in 1910-14 while at the same time the population increased by some 30 percent. Productivity of labour in Soviet agriculture has not reached even a fifth of that in the United States.
The stagnation became a threat to the regime for a number of reasons. First, after the hidden unemployment in the countryside was largely eliminated, it became impossible to siphon off labour to industry on the former scale without raising labour productivity in agriculture. Secondly, it also became impossible beyond a certain point to siphon off capital resources from agriculture to aid the growth of industry. Stalin’s method of “primitive capital accumulation” from being an accelerator, became a brake, which slowed down the entire economy. 
What about industry? Although it had expanded massively over some three and a half decades, the rate of growth was declining. Productivity, which had grown more rapidly than in the West in the 1930s, was now stuck at a considerably lower level than in Russia’s major rival, the United States:
At the end of 1957 the number of industrial workers in the USSR was 12 percent larger than in the United States ... Nevertheless, even according to Soviet estimates, the product turned out annually by industry in the USSR in 1956 was half that in the United States. 
Because of the crisis in agriculture, the lower level of productivity in industry could no longer be compensated for by a massive growth in the number of industrial workers. So the Russian bureaucracy had to pay increasing attention to the proliferation of waste and lower quality output within the Russian economy.
Several of the sources of waste were spelt out in the book: the compartmentalism that led enterprises to produce goods internally that could be produced more cheaply elsewhere ; the hoarding of supplies by managers and workers ; the tendency of managers to resist technological innovation ; the stress on quantity at the expense of quality ; the neglect of maintenance ; the proliferation of “paper work and muddle” ; the failure to establish the efficient and rational price mechanism which managers required if they were to measure the relative efficiency of different factories.  The conclusion was:
If 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. 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. 
Of course many other people offered descriptions of inefficiencies in Russian industry. What characterised the above account was the way the waste and inefficiency were seen as the product of the state capitalist nature of the system. The basic causes of anarchy and wastage in Russian industry were held to be capitalist accumulation in an isolated economy – high targets of output together with low supplies.
Like the two arms of a nutcracker these pressed upon the managers, encouraging them to cheat, cover up production potentialities, inflate equipment and supply needs, play safe by hoarding resources, and in general act conservatively. This led to wastage, and hence further lack of supplies and increasing pressures from above on the manager, who once more had to cheat, and so on in a vicious circle.
High targets and low supplies also led to increasing departmentalism, looking after one’s own sector at the expense of the economy in general – again a vicious circle. The same problem led managers to prioritise. But this priority system and “campaign” methods lacked a clear quantitative gauge and led to wastage and distortions. To combat these features a multiplicity of control systems arose which were in themselves wasteful and in their lack of systemisation and harmony made for even further wastage. Hence the need for more control, for paper pyramids and a plethora of bureaucrats. Again a vicious circle. The vicious circle resulting from the conflict between over-ambition plan targets and low supply basis applied, mutatis mutandis, to the effect of the poor price mechanism. This in turn encouraged still more departmentalism, priority campaigns and a plethora of controls.
Behind all of these problems lay capitalist imperatives – the world competition for power and the tremendous military expenditure required to survive it.
Low productivity was caused not only by mismanagement from above, but also by workers’ resistance from below. It was impossible to judge exactly the extent to which this low productivity was a result of mismanagement and blunders at the top or workers’ resistance. The two aspects naturally could not be divorced. Capitalism in general, and its bureaucratic state capitalist species in particular, was concerned with cutting costs and raising efficiency rather than with satisfying human needs. Its rationality was basically irrational, as it alienated the worker, turning him into a “thing”, a manipulated object, instead of a subject who moulds his life according to his own desires. That was why workers sabotaged production. 
The chapter on Russian workers concluded with these words:
A central worry for the Russian leaders today is how to develop the productivity of the worker. Never has the attitude of the workers to their work meant more to society. By the effort to convert the worker into a cog of the bureaucrats’ productive machine, they kill in him what they most need, productivity and creative ability. Rationalised and accentuated exploitation creates a terrible impediment to a rise in the productivity of labour.
The more skilled and integrated the working class, the more will it not only resist alienation and exploitation, but also show an increasing contempt for its exploiters and oppressors. The workers have lost respect for the bureaucracy as technical administrators. No ruling class can continue for long to maintain itself in the face of popular contempt. 
Bureaucratic state capitalism was sinking into a deeper and deeper general crisis. As Marx explained, when a social system becomes a brake on the development of the productive forces, the epoch of revolution commences.
A post mortem reveals the deep sickness that affected a person when alive. Thus the moment of death of a social order can be its moment of truth. When in the autumn and winter of 1989 the East European regimes installed by Stalin’s army began to collapse, followed by the collapse of “Communism” in the USSR itself, a clear judgement on the nature of the Stalinist regime was thereby facilitated.
The perception of the Stalinist regime as socialist, or even a “degenerated workers’ state” – that is, a transitional stage between capitalism and socialism – assumed that it was more progressive than capitalism. For a Marxist this signified first of all that it was able to develop the productive forces more efficiently than capitalism. We need only to remember Trotsky’s words:
Socialism has demonstrated its right to victory, not on the pages of Das Kapital, but in an industrial arena comprising a sixth part of the earth’s surface – not in the language of dialectics, but in the language of steel, cement and electricity. 
Indeed it was the language of industrial development that explained events in Eastern Europe and the USSR. But what had happened was not victory but a slowing down of economic growth in the late 1970s and early 1980s leading to stagnation and a growing gap between these countries and the advanced West.
In the USSR the annual rate of growth of gross national product was as follows: the first Five Year Plan (though an exaggerated claim), 19.2 percent; 1950-59, 5.8 percent; 1970-78, 3.7 percent; in 1980-82 it was down to 1.5 percent; during its final three or four years there was a negative rate of growth. 
If the productivity of labour had been more dynamic in Eastern Europe and USSR than in the West, one could not understand why the rulers of these countries eventually became enamoured of the market. Then again, the reunification of Germany should have seen the flourishing of East German industry in comparison with that of West Germany. In fact the economy of East Germany has collapsed since unification. The number of workers employed in East Germany in 1989 was ten million, while now it is only six million. Productivity of labour in East Germany is only 29 percent of the Western level.  Thus the East German productivity level, though the highest in Eastern Europe, was still low compared with West Germany and other advanced economies that it now had to compete with.
If the USSR had been a workers’ state, however degenerated, it is obvious that if capitalism assaulted it the workers would have come to the defence of their state. Trotsky always considered it axiomatic that the workers of the Soviet Union would come to its aid if attacked by capitalism, however corrupt and depraved the bureaucracy dominating it. A favourite analogy of Trotsky’s was between the Soviet bureaucracy and the trade union bureaucracy. There are different kinds of trade union – militant, reformist, revolutionary, reactionary, Catholic – but all are defence organisations of the workers’ share in the national cake. Trotsky argued that, however reactionary the bureaucrats dominating the trade unions, workers would always be “supporting their progressive steps and ... defending them against the bourgeoisie”.
When it came to the crunch in 1989 the workers in Eastern Europe did not defend “their” state. If the Stalinist states were workers’ states one cannot explain why its only defenders were the secret police forces of the Securitate in Romania, the Stasi in East Germany, and so on, or why the Soviet working class supported Yeltsin, the outspoken representative of the market.
If the regime in Eastern Europe and the USSR was post-capitalist and in 1989 there was a restoration of capitalism, how was the restoration achieved with such astonishing ease? The events do not square with Trotsky’s assertion that the transition from one social order to another must be accompanied by civil war. Trotsky wrote:
The Marxist thesis relating to the catastrophic character of the transfer of power from the hands of one class into the hands of another applies not only to revolutionary periods, when history sweeps madly ahead, but also to the period of counter-revolution, when society rolls backwards. He who asserts that the Soviet government has been gradually changed from proletarian to bourgeois, is only, so to speak, running backwards the film of reformism. 
The 1989 revolutions in Eastern Europe were remarkable for the absence of large scale social conflict and violence. Except for Romania there was no armed conflict. As a matter of fact there were fewer violent clashes in East Germany, Czechoslovakia and Hungary than took place between the police and striking miners in Thatcher’s Britain.
The transition from one social order to another is necessarily accompanied by the replacing of one state apparatus by another. The state machines were hardly touched in 1989. In Russia the Soviet army, the KGB and the state bureaucracy are still in place. In Poland the military helped to promote the change. General Jaruzelski, the architect of the 1981 coup, and the interior minister and chief administrator of martial law, General Kiszcak, played a crucial role in negotiating the round table agreement with Solidarity, and the formation of Mazowiecki’s coalition government.
If a counter revolution had taken place, if a restoration of capitalism had taken place, there should have been a wholesale replacement of one ruling class with another. Instead we witnessed the continuity of the same personnel at the top of society. The members of the nomenklatura who ran the economy, society and state under “socialism” now do the same under the “market”. Mike Haynes, in his very good article Class and Crisis: the Transition in Eastern Europe, writes:
What it [the state] has succeeded in doing has been to partly shift the institutional base of its power out of a “state pocket” and into a “private pocket”. In the process there had been some upward mobility and the occasional new entrant. There has also been a change in the balance of power within the ruling class between its sections. But, contrary to those who claim that what was at stake was the substitution of the socialist mode of production ... by a capitalist society, there is no evidence that a fundamental social change has taken place in the nature of the ruling class. What is striking is how little change has actually occurred. To sack a general and promote a colonel hardly constituted a socialist revolution any more than selling off a state enterprise to its managers does or renationalising it with a similar group of people in control. Rather it suggests that what is at stake is an internal transformation within a mode of production, in this instance a shift in the form of capitalism from one of strong state capitalism to more mixed state and market forms.
Chris Harman aptly described the development as “moving sideways” – a shift from one form of capitalism to another, from bureaucratic state capitalism to market capitalism.
Finally, if the USSR and East European countries had had a post-capitalist economic and social order, how was it possible that a capitalist market economy could be grafted onto it? One can graft a lemon onto an orange tree, or vice versa, because both belong to the same family – the citrus; one cannot graft a potato onto an orange tree. Mike Haynes describes the successful grafting of market capitalism onto the Stalinist economy:
It is precisely because both sides of the transition show the same structural features that individual opportunism on the scale we have analysed has been possible. We are not merely looking at class societies, but class societies rooted in a common mode of production where what has been changing has been the form rather than the essence. Unless this is understood it becomes impossible to understand how, beneath the turnover at the top, the same people, the same families, the same social networks are still toasting their good fortune in the 1990s as they had toasted in the 1980s. It is true that as they chatter and socialise they might on occasion spare a thought for some of their absent friends but they will not lose sight of the greater whole – that they are still on top despite the transitions. Beneath them is the same working class, still carrying the burden of their wealth, privilege and their incompetence as it has done in the past.
The people who were the real victims of the old order are now also the real victims of the new.
If the expansion of the state capitalist regime into Eastern Europe put the theory of the degenerated workers’ state into question, the collapse of the Stalinist regime answered that question unequivocally. In both cases the theory of bureaucratic state capitalism demonstrated itself as a viable alternative.
Trotsky’s work in analysing the degeneration of the Russian Revolution and the rise of Stalinism as a product of the pressure of international capitalism on a workers’ state in a backward country was a pioneering effort. Trotsky played a crucial role in opposing Stalin’s doctrine of “socialism in one country”. His thoroughly Marxist, historical materialist approach to the Stalinist regime was crucial to the development of the theory of bureaucratic state capitalism. It is necessary to defend the spirit of Trotskyism while rejecting some of his words.
My criticism of Trotsky’s theory was intended as a return to classical Marxism. Historical development – especially after Trotsky’s death – demonstrated that the “degenerated workers’ state” position was not compatible with the classical Marxist tradition which identified socialism as the self emancipation of the working class. To preserve the spirit of Trotsky’s writing on the Stalinist regime, the letter of his writing had to be sacrificed. The end of fake socialism in the USSR and Eastern Europe is opening up opportunities for the rediscovery of the real revolutionary ideas of Lenin and Trotsky, the true legacy of the October Revolution. Despite the so-called “fall of Communism”, the concluding words of my State Capitalism in Russia are as true as when they were written:
The final chapter can be written only by the masses, self mobilised, conscious of socialist aims and the methods of their achievement, and led by a revolutionary Marxist party.
The state capitalist definition of the Stalinist regime followed Trotsky’s theory of permanent revolution in taking the capitalist world system as its basic frame of reference:
... when Russia is viewed within the international economy the basic features of capitalism can be discerned: “Anarchy in the social division of labour and despotism in that of the workshop are mutual conditions of each other ...” 
The theory was able to explain the subjection of the working class in Russia to the dynamic of capitalist accumulation by setting the Stalinist regime in its global context, the international state system dominated by military competition.
38. Ibid., p.61.
39. K. Marx and F. Engels, The Communist Manifesto (Peking 1990), p.59.
40. F. Engels, Anti-Dühring (Moscow 1975), p.336.
41. R. Luxemburg, Gesammelte Werke, vol.3 (Berlin n.d.), pp.63-64.
42. For an elaboration of this argument see T. Cliff, Neither Washington nor Moscow, op. cit., pp.65-66.
43. Ibid., pp.66-67.
44. L. Trotksy, Problems of the Development of the USSR: A Draft of the Theses of the International Left Opposition on the Russian Question (New York 1931), p.36.
45. New International, April 1943.
47. See, for example, L. Trotsky, The Revolution Betrayed (New York 1974), p.289.
48. K. Marx, The Poverty of Philosophy (London n.d.), pp.129-130.
49. Ibid., p.161.
50. K. Marx, A Contribution to the Critique of Political Economy (Chicago 1918), pp.285-286.
51. T. Cliff, State Capitalism in Russia (London 1988), pp.221-222.
52. Ibid., pp.165-166.
53. L. Trotsky, The Revolution Betrayed, op. cit., p.6.
54. E. Mandel, in Quatrième Internationale, no.14, 1956.
55. T. Cliff, The Class Nature of Stalinist Russia (London 1948), pp.134-135.
57. T. Cliff, Russia: A Marxist Analysis (London 1964), pp.197-198.
58. Ibid., p.198.
59. Ibid., p.240.
60. Ibid., p.287
61. Ibid., p.256.
62. Ibid., p.256.
63. Ibid., p.254.
64. Ibid., p.257.
65. Ibid., pp.248-249.
66. Ibid., pp.250-254.
67. Ibid., pp.273-274.
68. Ibid., p.283.
69. Ibid., pp.309-310.
70. L. Trotsky, The Revolution Betrayed, op. cit., p.8.
71. The national income of the Comecon bloc rose annually as follows: 1951-55, 10.8 percent; 1956-60, 8.5 percent; 1961-65, 6.0 percent; 1966-70, 7.4 percent; 1971-75, 6.4 percent; 1976-1980, 4.1 percent; 1981=85, 3 percent; 1986-88, 3 percent. Statisticheskii ezhegodnik stran – Chlenov soveta ekonomicheskoi vzaimopomoshchi (Moscow 1989), p.18.
72. Financial Times, 12 May 1992.
73. L. Trotsky, Writings 1933-34, op. cit., pp.102-103.
74. M. Haynes, Class and Crisis: the Transition in Eastern Europe, International Socialism 54, Spring 1992, pp.46-47.
75. Ibid., p.90.
76. Ibid., p.69.
77. T. Cliff, State Capitalism in Russia, op. cit., pp.221-222.
Last updated on 24.4.2007