Chris Harman


Crisis of State Capitalism

Part II

(January 1977)

From International Socialism (1st series), No.94, January 1977, pp.26-31.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

The first part of this article appeared in International Socialism 93.

Poland from 1970 to 1976

The crisis of December 1970 took the leaders of the Polish bureaucracy completely by surprise. But Kuron and Modzelewski had predicted five years earlier:

‘The investment programme means a further increase of 20 per cent in the share of investment in the national income ... We know from experience that the realization of the investment programme will require much higher investments than planned. It means that the “inflation barrier” will be crossed so that real wages will be pushed below the minimum level socially necessary ...’ [1]

It was this that led to their conclusion: ‘revolution is inevitable’.

In December 1970 in order to try and continue with vast investments already under way, Gomulka pushed up meat and other prices by 20 per cent. Even after workers strikes and uprisings in the Baltic ports had caused the removal of Gomulka himself his successor Gierek tried to justify continuing with the price increases. He told strikers,

‘We voted (at the party congresses) for increasing living standards. These were ignored because it was not wished to annul certain decisions on investments which were very drawn out and had to be completed.’ [2]

Kuron and Modzelewski insisted that in one respect the next crisis would differ from previous ones. In 1957 the bureaucracy had been able to increase wages and buy off discontent because it had certain ‘reserves’; in the next crisis, they said, these reserves would not exist and the crisis would be insoluble. Again, when the crisis broke out Gierek admitted as much:

‘Whether you believe me or not is your affair, but we have lot the least reserves which would allow us to carry through a more rapid increase in the standard of living.’ [3]

In the years immediately following 1970 it seemed both that Gierek was lying and that Kuron and Modzelewski were mistaken. Under pressure from strike action Gierek finally agreed to cancel the price increases and allow real wages to rise quite substantially.

Average net earnings in industry grew from 2,389 zlotys a month in 1970 to 2,873 zlotys in 1973 – an increase of 448 zlotys compared to an increase of only 368 zlotys in the five years prior to 1970 (and in those five years prices rose by nine per cent, while they were officially frozen from 1970 onwards). [4] It is claimed that personal consumption rose by 7 per cent in 1971, by 9 per cent in 1972 and by 11 per cent in 1973.

These figures have to be taken with a big grain of salt, since the alleged growth of total personal consumption of 29 per cent during 1970-3 was not matched by a corresponding growth in the consumption of the most important items for the standard of living. [5] But there is no doubt that a limited increase in living standards did take place. How is this to be explained?

Not by any increase in the proportion of the national income going to the workers.

Despite the rise in real wages, the ‘gains of the Enterprises’ – the surplus value accruing to the enterprises – grew more rapidly than wages. The rate of capital accumulation also increased.

Net fixed capital formation grew from 21.8 per cent of the national income in 1970 to 26.9 per cent in 1973. Wages could only grow because the Polish economy entered a boom in the early 1970s of an intensity that was completely unexpected – above all by the Polish Bureaucracy.

Distribution of National Income




‘Gains of

Income of













Growth Rate (at constant prices)













(million zlotys)











Developed Western Countries





to Developed Western Countries

(million zlotys)









The ‘plan’ for 1971-5 was not finally agreed until 14 July 1972 (when it was already supposed to have been in operation for 18 months). What happened to the economy had little to do with the plan targets. The national income growth of 59 per cent from 1971-5 was half as much again as the planned growth of 40 per cent. Investment grew at roughly twice the planned rate. The bureaucracy, frightened out of its wits by the uprisings and strikes of 1970-71 was prepared to try to buy off workers with real wage increases – providing accumulation could expand as well.

This upsurge in the Polish economy more or less coincided with an upsurge in the economies of the other East European countries. (For instance in Hungary the rate of economic growth in 1973 was nearly 7 per cent – half as much again as the targeted figure). Significantly, it also took place at the same time as the most rapid burst of economic growth known in the Western states since the Korean war – the short-lived but very rapid boom of 1971-3.

It seems that the Polish bureaucrats behaved very like every other capitalist in the world in these years – they saw the global expansion of production and markets that was taking place, and decided that they could solve their own internal problems if they expanded their own output so as to take advantage of the boom. They let the investment take place at a very high rate throughout the economy, at the same time as letting money wages increase. They took on extra workers in the factories. And they scoured the world for the raw materials and manufactured components that industry needed. They assumed that they would be able to cover their increased wage and materials costs by selling more goods – as did the western capitalists who participated in the world boom.

In the first full year of the boom – 1972 – imports from the west rose by a full 50 per cent. In the next year they rose by even more – by 80 per cent, until they were three times the level they had been in 1970.

By 1975 55 per cent of Poland’s trade was with non-Comecon countries. In short, the high growth rates of these years were based upon a complete transformation of Poland’s pattern of trade, with a massive integration into the booming western ‘world’ market.

But something else of great significance also happened. The growth of exports to the west did not by any means keep up with the growth of imports.

Exports to the west nearly doubled in three years but meanwhile imports had increased more than three-fold.

This was no more ‘planned’ than the size of the boom itself. The 1971-5 ‘plan’ targeted an increase in foreign trade of 55 per cent over five years. This figure had already been surpassed by the end of the second year of the plan. The total increase in foreign trade between 1971-5 was more than 250 per cent (five times the alleged target of the planning mechanism).

The behaviour of Poland’s bureaucrats was identical to that of the capitalists throughout the world in the years of the boom. They believed that if they only expanded at the fastest possible rate everything else would take care of itself. As a Financial Times correspondent wrote of Gierek:

To give Poland the strongest possible push, he deliberately ignored the cost, calculating that once the economy had achieved a certain momentum it would start paying its bills automatically.’ (FT, 5 December 1975)

In this period the same blind optimism that characterised western apologists for the capitalist system (witness Peter Walker’s claim in November 1973 that Britain was entering an era of ‘unprecedented prosperity’) characterised the statements of the Polish authorities. Thus

‘Mr Dlugosz, deputy minister for foreign trade, stated that inflation in the west was not resulting in inflation being imported into Poland.’ [6]

To pay for this expansion – again like the western capitalists – they had to resort to borrowing on a massive scale. A trade deficit which reached 677 million pounds in 1974 could only be bridged by turning to sources of credit in the west.

‘Poland is financing its investment programme through comparatively cheap credits from Western countries.’ [7]

But it was the fact capitalists everywhere were buying up raw materials as quickly as possible, using up all available skilled labour, and borrowing massively from the banks that forced up international commodity prices and interest rates through 1973. The last straw of course was the tripling of the price of oil in November 1973. The immediate occasion for this was the Middle-East war; but OPEC could only increase its price because the oil-consuming nations had increased their consumption during the boom at a much greater rate than the increase in global oil production.

The biggest world boom since the Korean war rapidly gave way to the biggest recession for 35 years. In the main western countries investment and employment fell and markets were reduced, while the rate of inflation remained at a very high level.

The combination of inflation plus recession had devastating consequences for the Polish bureaucracy. They were in the same position as western firms which had borrowed heavily in the boom on the assumption that they would be able to pay off their debts through increased sales.


THE cost of Poland’s imports of raw materials and manufactured components rose as world prices did. This pressure became even worse when the Russians began raising the price of their oil to catch up with the world market price by stages. A United Nations survey told how ‘prices between the Soviet Union and its allies rose at an unprecedented rate in 1975. It cited oil up 130 per cent.’ [8]

According to the West Berlin based German Institute for Economic Research,

‘price rises of Soviet exports in the main raw materials this year cost Comecon countries such as Hungary, East Germany and Czechoslovakia one third of their planned growth in the national income.’ [9]

Prices inside Poland were put up as a result, despite the freeze on food prices. In 1974 the prices of petrol products, alcohol, and canteen meals were put up by the state. The prices of fruit and vegetables sold by the peasants on the free market also began to rise. The result was a rise in the official price index of 4.7 per cent in that year and 5 per cent last year.

Supporters of the Polish regime now admit to ‘the growth of inflation. But they speak of it as ‘imported’ from the west. But as we have seen the Polish economy has endemic inflationary tendencies of its own. What is more its uncontrolled growth contributed to the world boom and to the international inflation that this produced.

Just to take one example. Poland – along with the other Eastern European States – increased the amount of oil it bought on the world market in the months before October-November 1973 (when OPEC put the price up) just as did the various western countries; Poland’s oil imports rose by 50 per cent from 1970-73. Poland was not just a victim of the world inflation; it helped to create it.


If it has been hit on one side by the worldwide inflation, the Polish bureaucracy has been hit also by the other by-product of the world boom in 1971-3 – the recession in the advanced western countries.

‘The Western recession has damaged Poland’s terms of trade; the value of exports has not kept pace with the inflated cost of imports; and the prospects for sales in the West have not been the best.’ [10]

Not that the Polish bureaucracy responded to the recession initially by cutting back production. They allowed the bureaucrats who run particular industries to expand both production and investment. They seem to have assumed that despite the world recession they would be able to sell this increases production abroad. But despite the fact that Poland is one of the largest coal producers in Europe and could expect to gain from the oil crisis through increased coal sales, its imports have continued to be much greater than its exports. [11]

The total trade deficit in 1974 was 7,198 million zlotys; for the first nine months of 1975 it was more than twice that at 18,000 million zlotys. The accumulated deficit to the western countries is now immense; it stands at 4,200 million dollars – a figure greater than Poland’s export earnings for a single year. Polish spokesmen admit that servicing this debt now eats up 20-22 per cent of export earnings. [12]

By the time the five-year plan for 1976-80 was formulated last year Poland’s rulers could no longer ignore the stark reality of their trade deficit and their indebtedness. The plan targets stress the need to cut imports below exports. They claim that in 1976 imports will only grow by 9.4 per cent; exports by 15.5 percent. But exports cannot be increased at will, as British capitalism has long learned to its cost. Gierek is no more a miracle worker than Callaghan. In the first three months of this year exports rose by only 3.7 per cent – not nearly enough to meet the target.

Imports have been equally intractable. There are still a great many investment projects remaining unfinished from the last plan. To complete them, managers have to buy materials and components from abroad. Imports in the first three months of 1976 grew by 19 per cent. The trade deficit with the western states for the three months was 772 million dollars – half as big again as in the corresponding period last year. No wonder Eduard Gierek explicitly compared his dilemma to that of the western capitalists:

‘Every nation which proceeds with large investments has market troubles.’

Responses to the Crisis

The crisis-riven state of the Polish economy leaves the Polish bureaucracy with three options:

  1. Expand still further its borrowing abroad arid integrate the economy still more with the western economies.
  2. Make the workers pay for the crisis by slashing living standards.
  3. Make sections of the workers and sections of the bureaucracy itself pay for the crisis by cutting back production in certain areas of the economy, closing factories and sacking workers. [13]

The first response, as we have seen, of the Polish authorities in 1974 and 1975 was to turn to massive foreign borrowing. They have continued to try using this expedient. They have turned to individual western banks to finance particular projects (like the expansion of the Ursus factory – financed by Barclays and undertaken by Massey Ferguson), to the Eurodollar market (where East European borrowing rose by a massive 5.4 billion dollars in the first nine months of 1975 [14]) to finance coal equipment and a PVC plant, and even to the Shah of Iran for 250 million dollars for food and paper plants.

But, as the Labour government in Britain found at the end of its first year in office there are limits to which it is possible to avoid the effects of the international crisis by borrowing internationally. The western banks are getting more and more wary about lending Poland money. As the Financial Times has noted:

‘By 1975 Poland had acquired the reputation of being one of Comecon’s less good risks.’ [15]

Under the circumstances the loans which Poland gets are more and more tied to particular projects, which mean not only Polish dependence on western credits, but also a direct connection between sections of Polish industry and the market operations of particular western firms. So for instance one of the Fiat-built plants that has just come into production in Silesia provides components for the Fiat factories in Milan. The Financial Times reports:

‘A consortium of German companies led by Krupp is expected to land orders worth £565 million for two coal gasification plants, a plant to extract various other chemicals from coal, and equipment for a large new mining operation in Upper Silesia ... The Poles are interested in setting up a joint marketing operation with Krupp to sell the various projects abroad. A consortium of West German banks is working on the financing of the new deal ...’ (1 June 1976)

The centrepiece of the next five-year plan is the expansion of Polish copper production through a massive £250 million investment. This is to be provided by a consortium of western banks. But these have demanded as a condition for the loan detailed information about the copper deposits, and the power to ‘demand changes in copper export strategy as necessary.’ [16]

The foreign loans provided a breathing space for the bureaucracy to overcome the crisis of 1970; they also enabled it to ignore the world recession for two years. But they present it with immense long-term problems.

The loans will have to be repaid at some point, if more and more of the Polish economy is not to be devoted to raising interest for Western money lenders. Indeed the Western money lenders will withdraw even the loan facilities they have so far made available if repayments do not take place as expected. And most of the repayments fall due around 1980. Further; the more the bureaucracy depends upon exports to service previous loans as well as its imports, the more the whole functioning of the economy depends on the ups and downs of the western economy.

Already it is possible for the bureaucrats of one East European state (Hungary) to recognise that the success of their own ‘planning’ depends upon the hope of a western boom. They believed, a Financial Times correspondent wrote in July

‘The signs of a new upswing, coupled with growing personal consumption and the build up of stocks provide more favourable circumstances for fulfilment of Hungary’s “planned” targets.’ [17]

The Polish bureaucracy is relying on being able to export, for instance, 70,000 Polski Fiats a year. Whether it can do so or not depends upon there being a boom in the West. The same applies to its ability to sell other Fiat components to Milan (if Fiat cannot sell its cars, Poland won’t be able to sell components), to sell coal, PVC and so on. Few commodities fluctuate more in price than copper. The success of the biggest single investment in the next five years depends not on the ‘planners’, but on the world market for copper on the one hand, and on the western banks who have the power to control Poland’s sales of the metal, on the other.

The point is crucial. In the past Poland’s internal economic dynamic has been determined by a drive to accumulate arising from its relationship with the world system. But at the same time the monolithic control exercised over industry by a single bureaucratic group has enabled this group to isolate the internal cycle of crisis in Poland from the international boom-recession cycle. Over the last six years, the fluctuations inside Poland and in the world at large have more and more interacted, with Poland booming as part of the 1971-73 world boom. In order to evade the consequences of this the Polish bureaucracy tried to prolong its own boom longer than either the world boom or than any other previous spell of high growth inside Poland, by turning to the international banks. But this has been a short-term expedient that now makes Poland’s ability or otherwise to conquer the world markets a life and death matter. Polish industry’s future is mortgaged to the hope that the west will enter into a real boom. But even if, by some miracle, this materialises, the relief for the Polish bureaucracy will be short-lived.

As in the last boom, Poland will contribute to all the classical features of the upturn – rising world commodity prices, shortages of materials internationally, increased borrowing and higher interest rates. But by doing so the Polish bureaucracy will also be contributing to the forces which make the world economy increasingly unstable.

An Internal Recession?

The second alternative open to the bureaucracy is that of solving the foreign trade gap by closing inefficient factories, cutting back production in other sectors of industry, and sacking workers. Effectively this would mean cutting back the pace of economic activity until it was regulated by what could be sold in the world market – in short, responding to the western recession by imposing an internal recession within Poland.

There is nothing intrinsic to the bureaucratically controlled economy that prevents such a response. As we have seen, Yugoslavia has cut production and forced up unemployment on several occasions. Over the last year, industrial production has fallen to a mere 95.7 per cent of the previous year’s figures, partly because ‘internal and foreign demand has been weak for all categories of goods’. [18] Unemployment has grown from 315,000 in 1972 to 537,000 in 1975 – (10.1 per cent of the labour force) [19].

However, the bureaucrats are usually loath to resort to such an approach, for a number of reasons.

  1. It means abandoning, at least temporarily, the pretentions to catch up with their more economically advanced rivals.
  2. In an economy dominated by only one employer unemployment becomes a political question more rapidly than where several employers can blame each other for it. A policy of deliberate unemployment would create very powerful social tensions. (In Yugoslavia resentment at unemployment and economically enforced emigration has been a very powerful factor feeding the national antagonisms between Croats, Serbs, Macedonians, etc that have seemed to threaten the unity of the country.)
  3. Closing down sections of industry so as to restore the balance of trade may not work even in purely economic terms. Even in the west the state has usually stepped in in recent years to prevent any of the major firms from going out of business because of the havoc this would create in the rest of the economy, (destroying demand for other firms’ output, cutting exports ‘at a stroke’ etc.) – hence the state support for or take-over of firms like British Leyland, Chrysler UK, UCS, Rolls Royce, etc. [20]

In the Eastern European states, to allow any major component of the economy to be forced out of business because it was proved inefficient in relation to world market forces would cause even more havoc. Although the national economies are smaller than most of the advanced western countries, the average size of industrial enterprises is bigger. The average number of workers employed per enterprise is as great as in the US (despite the much smaller size of the economies) and is much greater than in economies of comparable size (e.g. Italy). [21]

So until now the Polish bureaucrats have preferred to borrow abroad. But, in all likelihood, by the time of the next world recession, Polish industry will be so interlocked with western markets as to leave the bureaucracy with little choice but to shut down plant and lay off workers. When Fiat, Milan, stops heeding components from Silesia will the Polish bureaucracy keep producing them? What will it do with its own Polski Fiats when the world market for cars declines again?

The renewed world crisis will not only affect the Polish economy – it is also likely to hit it in very much the same way as it hits many western economies.

In any case, the course of the Polish economy over the next five years is going to be very different to that of the last five years. The ‘plan’ for 1976-80 talks of a much lower growth rate than that achieved in 1971-76.

The national income is targetted to rise by 55 per cent, as against 62 per cent claimed for the last five years, with consumer incomes rising by only 18 per cent, compared with a claimed 40 per cent.

But even these limited goals do not seem at all realistic. For they are expected to be attained with an increase in the level of investment of only 40 per cent, compared with a 90 per cent increase in the last period.

In the last five year period, it took a 2.25 per cent increase in investment, to get a rise of 1 per cent in the national income. They are claiming that over the next five years the same 1 per cent increase in the national income will be got by a mere 0.75 per cent increase in investment. It seems that the long years of more or less peaceful coexistence with the hierarchy of the Catholic Church have made the Polish bureaucracy believe in miracles.

They will soon discover the real world will confront them with two grim alternatives.

Either the pattern will be as in the last few months. Investment will be much higher than it has been ‘planned’ (as it has been in the first few months of the ‘plan’), causing a much more than targetted increase in exports and a massive trade deficit.

Or the growth rate of the National Income will be cut right back. This will lead to a fall in investment, rising unemployment and even factory closures. If past form is anything to go by, Polish bureaucrats will put their faith in the western boom for as long as possible. But this will only mean that they will be still more severely hit as the boom collapses – even being forced to cut back production and employment so as to restore their finances.

Wage Cuts

In the mythology of vulgar bourgeois economics there was always an alternative to increased unemployment in a crisis. This was for the workers to allow their wages to fall so as to keep accumulation profitable for the capitalists.

This is the ‘alternative’ which the Polish bureaucracy has been trying to resort to, in addition to foreign borrowing.

The first proposal of the government was to increase food prices to between 50 and 100 per cent, thus effectively reducing both real wages to a level less than in 1970, and the value of workers’ accumulated savings.

The strikes in June forced them to retreat on this proposal. They then spoke of delayed price increases of 30-40 per cent.

In preparation for this, they have unleashed a massive wave of repression against the workers. Reports in the French revolutionary daily, Rouge, speak of hundreds of arrests and thousands of sackings. In factories like Ursus the bureaucrats have taken a leaf out of the book of Spanish capitalists and have been victimising literally hundreds of workers (in Ursus a fifth of the workforce). The Open Letter from Jacek Kuron to the Italian Communist Party speaks of ‘an anti-worker terror’.

Clearly the regime feels compelled by the pressing needs of capital accumulation to deal more viciously with workers than has been the case in the last five years. The response of the working class to this mass victimisation is not yet known. But the bureaucracy are now saying the food price increases will be delayed at least for a year. At the same time, however, it is cutting living standards by other means – sugar is rationed, meat and sausage are in such short supply that workers are having to do without and there are warnings of power cuts. If the workers are intimidated into accepting the cuts in living standards, then it is possible that the bureaucracy will ride the crisis. But only temporarily.

For wage cutting does not provide an ultimate answer to capitalist crisis. And it cannot provide an answer for the bureaucratic states that participate in the world capitalist system.

  1. It cannot overcome one of their major weaknesses – the low productivity of labour. For instance, in the Fiat Polski works in Warsaw, productivity has been found to be 15 per cent less than in an identical plant in Turin. The gap could only be bridged if some way could be found to overcome the extreme alienation which Polish workers feel from the productive process. That means not cutting living standards, but raising them to the Italian level.
  2. At the same time as leading to a low level of productivity even in the most advanced areas of industry wage cutting encourages the less efficient sections of industry to remain in operation (and prevents the updating of inefficient and obsolescent sections of industry and therefore, in the long term impedes precisely the capital accumulation it is meant to aid.
  3. Finally, cutting living standards can only contribute to the global instability of the wo,rld system. An individual capitalist or an individual state capitalist country can solve its problems to a degree by cutting wages, underselling its competitors and increasing the surplus value at its disposal. But all capitalists or state capitalists cannot do that without increasing the contradictions of the system. They add to the discrepancy between the scale of production and the narrow powers of consumption of the masses. [22]

This is bound in time to express itself in a new crisis, of ‘over-production’ of capital and commodities.

The Next Crisis

The Polish bureaucracy may ride the present crisis. It may be able to borrow more from the western banks, to persuade the workers to accept substantial cuts in their real wages, and to increase its exports on the tide of the developing world boom (or boomlet). But its next crisis is already in view before this one is over.

The world boom needed to help exports would definitely put up the price of imports.

It would also cause the cost of servicing Poland’s accumulated debt to rise still more.

‘The biggest drawback of a (world) boom would be a sharp rise in the cost of finance on which Poland continues to depend, and a drop in export credits from western governments no longer concerned at exporting at any cost.’ [23]

Finally, it would ensure continued full employment, and therefore continued confidence for Poland’s workers, even if they are intimidated into accepting wage cuts in the short term.

The enhanced inflation will also most certainly be reflected in renewed pressure on wages, just as internal inflationary pressures against attempting a too ambitious rate of growth come to the fore.

The result in 1978-9 could be catastrophic for the Polish bureaucracy, (even if they survive the next few months, without more strikes and uprisings). Many of their foreign loans will fall due just as internal inflationary pressures peak and world markets shrink. Then they will have to either turn on the workers still more viciously, risking a repetition of 1956 and 1970, or suffer a full blown recession (which they might also see as a way of weakening the bargaining power of workers). [24]

Awareness of this has produced a deep crisis of confidence within the ranks of the bureaucracy itself, with the possibility of the sorts of open splits that preceded the Hungarian revolution of 1956 and the Czechoslovak upheaval of 1968. And the Financial Times can report that

‘East Germany is now worried that the widespread Polish discontent over the deteriorating food situation could build up to another outburst such as June’s riots.’ (September 1976)


This analysis has focussed on Poland, since that is the Eastern European state where the class struggle has been most acute. But its conclusions are applicable to a greater or lesser extent to the other so-called Communist countries.

They too face falling growth rates and have attempted to deal with these by raising their imports, particularly their imports of modern technological equipment (and food). They too have resorted to foreign credits to deal with their trade gaps. They too are now worried about world interest rates and the trend of world trade.

In Hungary, for instance,

‘Only 75 per cent of the added growth of the GNP will be used for consumption and investment during the current five year plan. The rest will be directly and indirectly channelled into the promotion of exports. During the forthcoming difficult period the gap must be bridged through foreign credits. Reports talk of accumulated hard currency debts of 2.3 billion dollars. Debt servicing oscillates between 10 and 15 per cent of export earnings.’ [25]

In Czechoslovakia,

‘The main problem is foreign trade, where the worsening trends of the last two years are taking a heavy toll.

‘The drop in the demand for industrial products, weak raw material prices and the sharp rise in energy costs have, according to Prague bankers, exhausted foreign currency reserves.’ [26]

The North Korean five year plan has been completely disrupted by the inability to pay back foreign credits and the consequent difficulty of getting more credits. And even in China the debate within the bureaucracy upon the extent of the need to buy plant abroad is related to the difficulty of finding the funds to do so.

In the case of Russia the growth of foreign trade and foreign credits has been relatively less pronounced than in the case of Poland or Hungary. The grandiose schemes of a few years ago to develop the vast untapped mineral resources of Siberia with US and Japanese credits were vitually abandoned.

Nevertheless, there has been a continual and substantial increase in the dependence of the USSR both on the world market and on foreign credits.

‘West Germany companies exported 3.6 billion dollars more in heavy machinery and plant to the USSR last year than they bought in return.’ [27]

The USSR had a trade deficit with the West off 1,688 billion in the first 6 months of 1976 – 25 per cent higher than a year ago. And, of course, the disasterous harvest last year, means that the Russian bureaucracy is having to sell gold to buy grain abroad.

Yet the main pont that emerges from an examination of the Russian economy in this respect is a negative one: because the bureaucracy has been loath to increase its dependence on its military rivals, it has not expanded trade as much as satellites – and it has fallen behind them in terms of economic growth. The Vienna based Institute for International Economic Comparisons reports that in the last five year plan period,

‘the overall economic performance of the Comecon countries, excluding the Soviet Union, was considerably better than the Soviet Union itself.’ [28]

While Poland (with its massive expansion of imports) had a claimed growth rate of 9.8 per cent a year, that of the USSR fell to 5.5 per cent. [29] Most of the targets of the last five year plan were not achieved, even after they had been modified downwards in the course of the plan itself. This followed on a failure to achieve the original targets of the 1966-70 plan.

The plan for the next five years predicts the lowest growth rates since the 1920s, with consumer goods production due to increase hardly more than the increase in the population. Even if by a rare accident, this portion of the plan is achieved, Russian workers’ real wages will hardly rise at all!

A crude conclusion is possible from the Russians’ performance: opting out of massive increases in trade does not allow you to opt out of the pressures of the growing forces of production at an international level. Not buying modern technology on the scale of the Poles, the Russian economy grows much less quickly. But it still has to pay for an arms effort comparable to that of the biggest western state, the US. The Russian bureaucracy can only respond by holding down wages, hoping that the outcome is not a Russian version of the Polish strikes and uprisings.

But it is not only to the so-called Communist countries that the analysis has relevance. It also shows how their situation is very similar to the other state capitalisms we referred to earlier, to the ‘developing countries’ where the state has endeavoured to supplement, or even substitute itself, for a low rate of private investment.

Our description of Poland trying to expand its way through the world recession by a combination of massive foreign borrowing and increased exports based upon low wages, could almost apply to Brazil, for example. And the results have also been similar – internal inflation so as to distribute national income away from the workers, increased dependence of the national ruling class upon international capital, a faltering growth rate.

‘Brazil is experiencing the same difficulties in maintaining a satisfactory external balance as several non-Opec developing countries, such as Mexico, Columbia, Singapore and Turkey’ [30] – and we might add, Poland, Hungary and North Korea.

The Polish crisis is an expression of something much greater. The era in which the state could protect national capitalism from the direct impact of world crisis is drawing to an end. Discussion on ‘state capitalism’ needs to give way to discussion of the world system of state capitalism.

The national capitalist class – whether in Poland or Brazil, Argentina or Britain, the USSR or France – can only keep up in world competition (in trade or arms production) if it has access to productive resources wider than those of the national state and if it has

access to technological advances taking place on a wider scale, usually in the biggest firms of the most advanced countries. It cannot get access to these without increase dependence upon international trade, the international capital market, and the multinational firms. Yet, at the international level there are no institutions comparable to the national state capable of imposing order. Each national state capitalism is more and more sucked into a chaotic, disorganised, world system where the only order is that which is provided by the crises and destruc-tiveness of the world market itself.


1. J. Kuron & K. Modzelewski, A Revolutionary Socialist Manifesto (An Open Letter to the Party), pp.37 and 30.

2. Source, see C. Harman, Bureaucracy and Revolution.

3. ibid.

4. Figures from Concise Statistical Yearbook, 1974, issued by the Central Statistical office, Warsaw.

5. Meat consumption per head grew by only one sixth (16½ per cent), egg consumption per head by one twelfth (8½ per cent), and consumption of milk, sugar, fabric for clothing, shoes and most other items hardly increased. Indeed the only item in most workers budgets that increased in accord with the official claim for total consumption was vodka and spirits.

6. Financial Times, 18 June 1976.

7. F.T., ibid.

8. International Herald Tribune, 18 March 1976.

9. F.T., 24 April 1975.

10. F.T., 4 December 1975.

11. Economist Intelligence Unit, Quarterly Report 1976/2.

12. F.T., 5 December 1975.

13. N.B. These three alternatives are not, of course, any different to those facing the western and ‘third world’ states in the crisis – they too move from dependence on foreign loans, to ‘incomes policies’, to letting the international recession wreak havoc with their own economies.

14. F.T., 3 March 1976.

15. F.T., 5 December. 1975.

16. ibid.

17. F.T., 15 July. 1976.

18. F.T., 11 June. 1976.

19. O.E.C.D. Survey, 1976. The increase is only partly accounted for by the return of 60,000 ‘Gastarbeiter’ from West Germany.

20. See e.g. Mike Kidron, The Wall Street Seizure in IS 44; see also Chris Harman, Marxist Economics Today in IS 76.

21. Cf. F.L. Prior, Barriers to Market Socialism in Eastern Europe, Studies in Comparative Communism, April 1970.

22. Of course this discrepancy can be overcome temporarily by increasing the scale of investment – but in the medium term that only serves to increase the organic composition of capital and to cut still further the rate of profit.

23. It is even possible to conceive of a point being reached where a general recession would become inevitable – the point which Marx refers to as ‘absolute overproduction of capital’ (Capital, vol.III, p.246), where no new investment takes place, since its impact is to cut the total surplus value produced (by forcing up employment and wages, and by increasing the amount which the individual capitalist, in this case the Polish bureaucracy has to pay to other capitalist for raw materials and debt servicing.)

24. This note is missing in the original text. – ETOL

25. F.T., 13 August 1976.

26. F.T., 5 February 1976.

27. International Herald Tribune, 17 August. 1976.

28. F.T., 18 May 1976.

29. ibid.

30. E.I.U. Brazil, no.5, 1975.

Last updated on 16 November 2009