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International Socialism, March 1975


Dave Hughes

The Eastern Bloc Crisis


From Notes of the Month, International Socialism, No.76, March 1975, pp.5-6.
Transcribed & marked up by by Einde O’Callaghan for ETOL.


Dave Hughes writes: Russia and East Europe are in no way free from the dynamics and effects of the escalating world crisis. In the east, as in the west, the crisis is sharpening the competitive struggle of the ruling classes for their own survival. The bureaucracies of Russia and East Europe face particular problems in that competition. In order to withstand the challenge of other ruling classes and in order to withstand the challenge of their own working classes each bureaucracy has been precipitated into a frantic battle for survival.

The rules of the struggle are simple and time honoured. Each ruling class in East Europe can only survive firstly at the expense of its own working class, secondly at the expense of other ruling classes and lastly by pawning areas of their economy to western investors attracted by the prospect of new secure outlets for their capital. The class and national tensions in East Europe limit the possibilities for the bureaucrats. The particular structure and history of the Russian and East European economies makes their struggle for survival that much more difficult.

The problems of Russia are slightly different to those of the other East European states. Its relative economic backwardness has meant it is still less enmeshed with the Western European economies than are, for example, Czechoslovakia or Hungary. Its political and economic domination of the East European states gives it particular advantages too.

But the Russian economy is in a state of developed crisis. Moving into the last year of the current five year plan, most of the major projects of that plan are well behind target. For example the much heralded Kama river project for a large lorry factory was due to be in production by 1974. It is still far from completion despite 50,000 building workers who were drafted in and deprived of alcohol in an attempt to catch up. Plans for gas and oil production are short of target and Russian miners seem to have produced less coal in 1974 than in 1973. Delays with these top priority projects can only further strengthen the imbalance of the Russian economy.

The roots of these failures are not to be found only in the inefficiency and chaos of Russian bureaucratic management. Nor in the apathy of the Russian worker. The problem faced by the Russian bureaucracy is one of locating new sources of capital for the ever more massive rounds of investment of all ruling classes in the competition for survival on the world market. For example, it is estimated, that it takes at least five rubles of investment to exploit one ruble worth of Siberian oil. Unless the level of labour productivity is perpetually raised, unless more can therefore be exploited from the working class, the investment schemes and competitive economic strength of the bureaucracy are undermined.

But the Russian workers need incentives. Plan after plan for more consumer goods have been underfulfilled. Again last year proportional growth was higher in machine and metal construction than in light industry. There still are periodic and seasonal shortages of basic foodstuffs. The level of labour productivity in Russia lags far behind those of both West and East European rivals.

The bureaucracy must look elsewhere for sources of capital for Investment. Firstly It can look to the West, itself entangled in crisis and offer its raw materials and dragooned labour force as lure for investment and capital. Likewise it can import Western technology and knowhow wholesale. This needs hard convertible currency or credits secured at world inflation levels of interest rates. The recent £1,000 million British credit is an example.

The Russian bureaucracy has begun to discuss the prospect of direct profitable private investment from the West in Russian enterprises (this already exists in Rumania, Hungary and Yugoslavia). Most of the major projects of the bureaucracy involve either Western credit or technology or both. The £575 million borrowed from West Germany for a new steelworks at Kursk will be paid back at 11 per cent interest. Russia originally insisted on 6 per cent interest loans but has been forced to pay more in its hunger for capital. The mass import of Western machinery is developing rapidly: it increased by 60 per cent in 1973 alone.

But how can the bureaucracy pay for this? It can, of course, sell its raw materials on the world market at world inflation prices. Russia is rich in gold, oil and gas. But production plans are so behind that this strategy is not enough. In March of last year, for example, Russia was unable to fulfil promised oil deliveries to West Germany. Secondly it can try to cut the consumption levels of the working class. However the bitter experience of the workers’ revolts in Poland in 1970 forewarns the bureaucracy of the dangers of going too far down this road. Brezhnev and Khrushchev before him, has perpetually promised higher consumption levels and more consumer goods to the Russian workers.

The third opening for the Russian bureaucracy is to further intensify its exploitation of East Europe. We can see this developing already. In order to sell to the West for hard currency Russia has rationed oil supplies to Cuba, North Vietnam and East Europe. Also Russia has been buying natural gas from Afghanistan at 6.5 dollars per thousand cubic centimetres and from Iraq at 10.3 dollars while selling its own gas to Poland at 18.5 dollars and Czechoslovakia at 19.5 dollars. Agreed prices for Comecon (the East European ‘Common Market’) come up for negotiation later this year. All indicators suggest big price increases for Russian raw materials – oil prices from Russia to East European states play a greater role in developing the Russian economy. Already the East German youth league have sent ‘volunteers’ to help build a joint pipeline and Czechoslovakia has been offered slightly cheaper oil in exchange for investment in transportation. There is no prospect for this strategy unless the Russian rulers can maintain and intensify repression at home. The brunt of this repression is felt by the socialist and national oppositions inside Russia. Recent trials in Armenia and the Ukraine highlight the national tensions existing within the so-called Soviet Union. Continued arrests and brutality demonstrate the resilience of opposition currents inside Russia. Only by increased repression can the bureaucracy hope to weather the world crisis and their own internal contradictions.

Squeezed between Russia and the western economies the future of the East European states is bleak. Because the East European states are more deeply involved in trade with the West their inflation rates, at present, are higher than those of Russia. The international crisis is not the crisis of one particular economy but of the entire world system. Increased prices for Russian raw materials and increasing production costs must lead to large price rises throughout East Europe this year. Hungary, for example, increased its producer goods prices by 8 per cent at the beginning of the year. Textile prices were raised by between 18 and 20 per cent. This must mean a cut in living standards for Hungarian workers. The bureaucracy this year will attempt to fix a ceiling of 3.6 per cent on consumer prices rise while holding wage rises to 3.5 per cent. Only increased repression can ensure wage controls. (Last year’s arrests of left critics inside Hungary are signs of that increased repression.) World crisis will ensure the collapse of any attempts to hold down prices unless other areas of the economy are to pay the price.

In order to complete their investment plans the East European states have been forced to open ever greater areas of their economies to direct Western investment. Each ruling class is scared of further attempts to cut workers’ living standards. Poland’s investment programme depends on massive long term credits from West Germany and Hungary has borrowed 40 million dollars from Kuwait to be repaid at 10½ per cent. The Eastern European bureaucracies are joining the desperate scrabble and queue for Arab capital to solve their problems.

The picture is a familiar one. The priorities of the bureaucracies are the priorities of all capitalists in the present period. To solve their problems at the expense of their workers, and of other ruling classes if possible, in order to survive the accelerating competition of the world market. Against their own workers the interests of the Russian and East European rulers lie with that crisis-ridden world system, not with the destruction of it.

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