First published in International Socialism 2:7, Winter 1980, pp. 18–50.
Transcribed by Marven James Scott.
Marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
In the last twenty years a remarkable change has occurred in the debate on the nature of the so-called ‘socialist world’. In the first place, whereas the western communist parties had systematically vilified anyone who suggested that these societies were anything less than pure; now, in their Eurocommunist phase, they are rushing to distance themselves from them. To do this they now need an explanation of what went wrong and this has led them directly to their former bête noire, Leon Trotsky. Whether it be in the elegant prose of Carrillo’s Eurocommunism and the State or in its less sophisticated imitations it is undoubtedly The Revolution Betrayed which informs the analysis. But just at the moment when orthodox Trotskyists have tentatively begun to welcome their new found friends so this aspect of Trotskyism has lost its dominance amongst the marxist left. Instead we are now faced with the growing popularity of arguments which insist that these are entirely new forms of class societies. Moreover this view has gained strength not only in the west but also in eastern Europe where the beginnings of a small self-conscious marxist tradition has added a vital new element to the debate.
The widening of the debate to include ‘dissidents’ in eastern Europe itself is something all marxists will welcome. The genuine marxist tradition there is still very weak and in conditions of isolation the position of individuals is by no means stable. Nevertheless it is characterised by a surprising unanimity of view. Most of these eastern European marxists reject any argument that these societies are socialist. Equally they also reject the Trotskyist argument that these societies are in some way transitional between capitalism and socialism. Their critique attempts to build a new analysis on new foundations.  In this way they arrive at conclusions closely related to the efforts of various western marxists who have equally decisively broken with the Trotskyist analysis. In particular the argument that these are qualitatively new forms of class society which correspond neither to capitalism nor to socialism nor to any unstable combination of the two has been developed in Britain by the journal Critique, guided by Hillel Ticktin, and also by Fantham & Machover; in the United States by contributors to Telos; in Italy by Carlo and Melotti.  In each case there are important differences in the argument but we shall try to show that they are united not only by the similarity of their conclusions but above all by the way they reach them.
That Eurocommunists can apparently live quite happily with their own washed and pre-shrunk version of Trotsky on Russia should not occasion too much surprise. The fundamental weaknesses and ambiguities of the concept of a ‘degenerate workers state’ thesis have long been apparent. More surprising is that an alternative to this approach should be found in the developments of strands of various ‘new class society’ theories that flowered briefly in one form or another in the 1940’s. In part the explanation lies in simple ignorance of what we would argue is the only viable analysis – the theory of state capitalism elaborated by Tony Cliff (State Capitalism in Russia, Pluto, 1974), but there is clearly much more to it than this. In particular we ourselves have failed to insist on the central issue – namely that state capitalism is not an analysis of eastern Europe but an analysis of capitalism in general of which these societies are a part. To the extent that state capitalism has been presented as a theory of eastern Europe it has contributed to the more general growth of theories based on ‘exceptionalism’ which hive off parts of the world and try to explain them in ‘their own terms’. It is this conception which lies at the basis of these new theories whether it be in the more limited forms of ‘eastern European exceptionalism’ in the works of Ticktin, Rakovski, Carlo etc. or a more general ‘second world exceptionalism’ in Bahro and Fantham & Machover. Thus the time is clearly overdue to confront this issue directly. In the first part of this article we shall attempt to do this by examining these new theories, in the second part we shall present a restatement of the state capitalist analysis.
To understand how these theories have developed it is important to begin by examining their critique of the Trotskyist concept of the ‘degenerate workers state’ and the ‘transitional society’. In the first place, for Rakovski,
“A society is transitional when the institutions are grouped round antagonistic power centres and when relationships between them are not yet regulated by legitimate and universally recognised mechanisms but by more or less open struggle”
While such a description fits the 1920’s it is hardly adequate to explain the nature of the society which arose out of the period of the first five year plan and which has now spread to encompass one third of the world’s population over the past fifty years. As Bahro insists the practice of this type of society cannot be explained in terms of some unstable combination of laws, “‘actually existing socialism’ has arisen on the basis of completely different foundations to those originally conceived”. 
Secondly, there is a complete fetishisation of ‘nationalisation’ and ‘planning’. In spite of the fact that “it is plain that in the Soviet Union, the working class has absolutely no control over the state”, in spite of the fact that the state is clearly used against the working class, planning and nationalisation are assumed to be in the interests of the working class:
“Trotskyists incorrectly assume that the existence of planning and nationalised property must be in the interests of the working class, regardless of who makes the plans and who controls the nationalised property ...” 
Nor is it any argument to suggest that because capitalism has existed with a number of different political forms the same can be true of socialism. This can only be maintained if one ceases to see socialism as working class power which is, of course, exactly what does happen.
But if the theory is inadequate in the above senses it also fails to relate in any meaningful way to the needs of the opposition in these countries. It provides no explanation of the emerging crisis because it is paralysed by fear of the danger of ‘restorationist tendencies’. As a result “the theory of ‘transitional society’ constantly swings between misplaced criticism and superficial excuses”. In fact, according to Bahro the only serious restorationist tendencies are to be found in the approach itself:
“When Trotsky assumed that at some point the functionaries in charge would seek to appropriate the factories privately, he only provided proof of the anachronistic character of the model with which he sought to grasp the Stalin period.”
The practical consequence of this can be seen in respect of the reform movement:
“... the tendencies identified by the Marxist (i.e. Trotskyist – PB/MH) critique as restorationist are precisely those tendencies such as the decentralisation of the power structure, the re-establishment of so-called bourgeois freedoms and of horizontal mechanisms of economic regulation, which in soviet societies themselves are upheld by progressive critics against neo-Stalinism.” 
It is this recognition of the theoretical and practical cul-de-sac that the concept of a degenerate workers state leads to – (“... it is high time for revolutionary Marxists to abandon all theories of ‘deformation’” (Bahro)) – which makes these new theories so attractive.
But it is at this point that we must part company with these new class theories for they argue, to quote Rakovski: “If Marxism is possible at all in Eastern Europe, it has to stand on a completely new theoretical foundation.”  Instead we shall argue that these ‘exceptionalist’ approaches both prevent an understanding of these societies and in doing so also prejudice our understanding of the west.
The claims that are made of these theories vary from Bahro and Fantham & Machover who see themselves as presenting a general theory (with some important differences) of “non-capitalist industrialisation”, an alternative road for the development of backward pre-capitalist economies, to writers like Ticktin who see the Soviet Union as a particular social formation but repudiate the idea that it is a mode of production in its own right. The difference, however, often becomes a little vague when e.g. Fantham & Machover attempt to incorporate both Ticktin and Carlo into their more general analysis. We shall first of all deal with the argument about a new mode of production/social formation in relation to capitalism. For Bahro:
“It is clear enough ... that the new organisation cannot be a transition period between capitalism and communism, even though in the ideal case it actually does bypass capitalism. Its place in history is determined by the way that, just like capitalism, it brings the productive forces to the threshold of socialist restructuring, but in a completely different manner so far as the social formation is concerned.”
For Fantham & Mahover there has similarly been a “bifurcation of modes of production” and these societies now develop “in parallel to capitalism”. Much the same point is made by Rakovski who suggests that in eastern Europe there is “a class society sui generis, a different kind of class society existing alongside capitalism”. All of them argue against what Rakovski calls “he traditional structure of historical materialism (where) there is no place for a modern social system which has an evolutionary trajectory other than capitalism and which is not simply an earlier or later stage along the same route”. 
The first problem here is what is, understood by the phrase “the traditional structure of historical materialism”. Essentially it is a conception which developed in the Second International and was parodied under Stalin in the eastern bloc. Social development was seen in the crudest possible terms as linear development through a set of stages, from feudalism to capitalism to socialism and so on to communism. This process was a national one. Economies developed on parallel lines, distinguished only by how far they were up or down the track from the station of socialism. This notion has little serious support in the west today but it still remains important in the eastern bloc. What is peculiar is the way in which these writers try to break with it for they do not reject it for the world as a whole but only for certain parts of it! Their aim is to establish a series of ‘branch lines’ which will bring some parts of the world to the same destination but by a different route. To do this they must maintain the simplistic and narrow conception of capitalism as a mode of production that is characteristic of the linear approach they reject. One must immediately contrast this with the other attempt to break free of this type of ‘stages’ thinking; namely the approach of Luxemburg, Trotsky, Bukharin and Lenin. Rather than create ‘new branches’ they solved the problem by recognising that capitalism can only exist in an uneven but combined form. But this is in no way meant that there were new modes of production or even qualitatively distinct social formations.
The problems here become even more apparent when we look at the way in which these new forms are supposed to co-exist with capitalism as a dynamic system. Whilst on the one hand it appears that they are distinct from capitalism, it often also seems that it is capitalism which provides them with a dynamic. Thus Bahro writes that”... it is the pressure of the industrial productive forces created by capitalism that gives this process its decisive impulse”. Not all of them go this far but they all leave this crucial area ambiguous. With the exception of Carlo, to whom we shall return later, there is no attempt to analyse the specific forms that the pressure of world capitalism has and the ramifications that exist for the internal working of these economies. What we have instead are assertions about the ‘internal nature’ of their dynamic. 
But most serious of all is not the problems that this line of thought creates for the analysis of eastern Europe but the way in which it backfires on any understanding of western capitalism. The theoretical consequences of these ‘exceptionalist’ theories does not stop at the frontiers of a part of the world. This can be seen if we look at the way in which they reject the analysis of these societies as capitalist.
At the root of the problem is the identification which is made between capitalism and commodity production. Having shown that commodity production does not exist within the Soviet economy considered purely on its own, they then conclude that it is not capitalist. It is decisive that “goods produced in the Soviet Union do not function as commodities. Labour power is not a commodity”, that, as Ticktin puts it, the commodity is not “the immediately perceivable all-pervading aspect” of the system. 
This identification of capitalism and the commodity is increased as the analysis develops. Thus Fantham & Machover attempt to avoid the problem of relations with the world economy through a significant analogy. Thus they write of the “slave societies in the southern USA, Latin America and the Caribbean until the late nineteenth century” as being “social formations dominated by the slave mode of production which nevertheless completely integrated into rising world capitalism”. We will leave aside here both the fact that Marx does not speak of a ‘slave mode of production’ and the fact that this use of the term appears to link societies separated by thousands of years. The key point is the equation between capitalism and the commodity makes their argument quite logical but in flat contradiction to Marx on top of from his comments in Capital states quite explicitly in the Grundrisse that “not only (do we) call the plantation owners in America capitalists, but ... they are capitalists”. Even more importantly (since our argument is not based upon textual exegesis) their argument runs in flat contradiction to the work of marxist historians of these societies whose work starts from the argument that they did represent particular forms of capitalism. 
Having identified capitalism in this way way and proceeded to distinguish it from the social formations existing in these types of societies, the new class theorists then attempt to consolidate their analysis by drawing a series of comparisons. But this is not marxism, it is crude empiricist sociology and in the case of Rakovski it has been recommended as such.  This slippage from marxism into sociology is most apparent in the various contributors to Telos. There Marx regularly gives way to Weber and obscure, vague sociologese. In this way Castoriadis can conclude that:
“The Russian regime is part of the socio-historical universe of capitalism because the magma of social imaginary significations that animate its institutions and are realised through it is the very thing that is brought about in history by capitalism. The core of this magma can be described as the unlimited expansion of a ‘rational’ mastery.” 
Similarly Ticktin when he writes that “the law of value... means profit, competition and the market” almost directly paraphrases (no doubt unconsciously) Hilferding writing forty years ago. Hilferding too concluded that the USSR was neither capitalist nor socialist but unlike Ticktin he was sufficiently perspicacious to see that on the same definition neither could the west be capitalist.  It is therefore no coincidence that Bahro who has flashes of real insight also is led to attempt to revise crucial aspects of the marxist analysis of capitalism. Indeed one wonders more generally what role marxism has if these are new social formations which are neither capitalist nor socialist. Marx was explicitly writing a critique of capitalism, not providing a grand historical theory. How then can his analysis be applied to societies in which the law of value is said not to operate, in which in some instances there is even said to be no working class? Of necessity minus its most fundamental ingredients marxism can only be maintained as a supra-historical theory embodying a number of familiar but ultimately empty categories.
It should not be surprising that these writers come to very similar conclusions because, in spite of other differences, they all have a very similar methodology in examining the relationship of these societies to capitalism. Indeed it is noticeable that they make no attempt to develop a general theory – their concern is with particular units, social formations whose relationship to the rest of the world is taken for granted in the first instance. Capitalism is what exists and it appears to present no problems. This has been put most clearly by Ticktin – “If the USSR is either capitalist or hybrid capitalist-socialist then all its laws are already known.”
This is reflected in their rejection of and misunderstanding of the argument about state capitalism. In rejecting this they dismiss what Ticktin calls ‘facile comparisons’. Bahro sees important ‘analogues’ but nothing more. For Rakovski there is merely a certain ‘parallelism’ and for Carlo the USSR cannot be capitalist “because there is no category of surplus value”. In each case the key is in the comparison. Capitalism is taken as given – as an ideal type which needs no analysis. A limited number of features are drawn out and then compared to another set of features drawn from eastern Europe. Some comparisons, analogues, parallels are found but the differences are too great for the beasts to be of the same kind.
This is very different to Marx’s own method. He was not in the least interested in answering questions on how things should be classified isolated from the process of learning about how they are moving so as to be able to change them. Merely attaching labels to things does not help us to understand them properly. Unless the categories directly help us to show how they change, they can only obscure rather than clarify what is going on.
This, unfortunately, is what all these theorists of eastern European exceptionalism do to a greater or lesser extent. In this way the view that “goods produced in the Soviet Union do not function as commodities” is taken to prove conclusively that the USSR cannot be part of capitalism. The assumption here is obviously the view that capitalism can be confined and tied-down by a set of timeless categories – the “free market”, the “commodity” and so on – and that their supposed absence prevents the USSR being a species of capitalism. In other words capitalist production is seen as a species of commodity production, and the latter is seen not as a historical (and therefore a changing) phenomenon, but as an abstract category that we ourselves, bring to history so as to periodise it in one way or another.
Such a method – and such conclusions – stand in the sharpest contrast to Marx’s. Marx refers to the Capitalist, the Feudal, the Ancient modes of production (and sometimes to the Oriental, the Celtic, the Slavonic &c &c) but never to the “Commodity mode of production”. Yet if capitalism is just a species of commodity production he would certainly have had to.
This was no oversight on Marx’s part because he had the very best reasons for not doing this. He knew that commodities have always been subordinate to the dominant mode of production, hence there is the Ancient commodity form, the Feudal commodity form and the Capitalist commodity form. In each epoch the form, the content and the extent of commodity production has been altered and limited by each of these modes of production in various ways.
So why then does Marx begin his analysis of the Capitalist mode of production, in volume 1 of Capital, with the commodity? For two main reasons.
Firstly because historically capitalist commodity production grew out of simple commodity production. The artisans, the outworkers, and the craftsmen of the immediately pre-capitalist society that was transitional from Feudalism, were the immediate precursors of the small capitalist producers who were to follow them. In the pre-capitalist society they produced simple commodities, governed by simple commodity exchange. Based on rudimentary instruments of production, this ensured – overall and as a whole – that exchange took place on the basis of values that directly reflected the socially necessary labour time that went into making them.
The second (and the more important) reason why Marx begins with the commodity, is because it forms the logical starting point for understanding capital. It is not just that capitalist production (historically) arises out of simple commodity production, but also because the only possible way of understanding capital is to begin with it as a particular commodity alongside other equivalent commodities.
Yet while it arises as a commodity that exchanges equivalently with all the others, it is fundamentally and essentially very different from them. They are all of them values, but only capital – in its various forms – is self-expanding value. This unique property is of crucial significance, for wherever it gains a hold it completely undermines the simple commodity values on the basis of which capital was formed in the first place.
In Capital Marx charts this logical progression from simple commodity production in several stages. In volume 1, he moves from particular to generalised commodity production, showing how when labour power itself becomes a commodity, surplus value appears for the first time. Here he abstracts from the competitive relationship between various units of capital to focus on the global relation between the working class and the capitalist class. He therefore assumes that commodities exchange at their social or market values, i.e. on the basis of the labour time, both surplus and socially necessary needed to produce them. This assumption is then rejected in volume 3 where he shows that where the purpose of production is the self-expansion of value, i.e. in capitalist society, capital will flow to the areas of highest profit until the various rates of profit are equalised. The assumption that total prices are the same as the total of necessary and surplus labour time remains but the connection is broken for the individual commodities themselves. Instead of exchanging at simple commodity values, they now exchange at what we can describe as capitalist values. Capitalist values, therefore, although they are developments from simple commodity values, are actually antagonistic to them. The capitalist value form has thus abolished simple commodity value forms everywhere they have met. To argue then that the presence of capitalism can be detected by the existence of the pure commodity form, as do the theorists of eastern European exceptionalism, is thus wholly inconsistent with Marx’s analysis. The capitalist value form can only exist to the extent that the simple commodity form does not exist, and vice versa.
What these theorists have done is to conflate the historical order in which capitalism arose and the logical order in which it must be understood, with the real order of what dominates what within capitalist society. While the category ‘capital’ is a product of the category ‘commodity’, and while real capitals historically arose out of real commodities; today production as it is, is governed by profit, by capitalist rather than simple commodity values. Failing to follow this approach can only lead to the substitution of a theory for understanding the world by an empty and sterile labelling process.
If we turn now to the problem of the dynamic of the eastern European societies, to their ‘political economy’ we can see how these contradictions work out in practice. It is important to note firstly that a number of these writers do not have a ‘political economy’ at all. This is particularly true of the eastern Europeans themselves. Zimin, Rakovski and Bahro all present us with a political-philosophical critique in which the essence seems to be alienation. Bahro is the most developed in this respect. “Exploitation” is not used in his work in respect of these societies. Instead he attempts to avoid this question altogether by relating the social and political forms directly to the division of labour. Thus he can write that “The problem of subalternity is the cornerstone of my alternative conception”.  In so far as economic issues arise at all it is in the form of global resource crises etc. Now it may well be that in time they will develop an analysis of the dynamic of these societies but it seems more likely that the very concepts they use will prevent this. This is certainly the case with some of the contributors to Telos. Castoriadis, for example, argues that bureaucratisation has destroyed the basis of capitalism’s earlier economic laws and that social structure now dominates the economy. Weber and the psychology of the bureaucrats replaces Marx and the economic function of the proletariat – a conclusion that echoes Hilferding’s forty years ago. 
Fortunately we are saved from arguing the need for a ‘political economy’ of these societies (if an argument is indeed needed). In particular Ticktin and Carlo have done this job for us but is their alternative any better? In the case of Ticktin the answer is certainly not. What he has produced is “a descriptive political economy” based around the idea that the all pervading feature of these societies is ‘waste’: “the central economic feature of the USSR today is its enormous wastefulness”. Now it is unquestionably true that the USSR is very wasteful. But how could this ever be its “central economic feature”? The question that immediately arises is wasteful in the production of what – in the production of exchange values and profit?, in the production of use values?, in the production of feudal dues? Capitalism too is very wasteful – but of use values in the ruthless pursuit of surplus value. Its central characteristic is its pursuit of the latter, and this explains why it is so wasteful of use values. But the one thing you cannot do is to begin with the abstraction ‘waste” and expect to reach any worthwhile concrete conclusions. Waste may clog up the machinery once it gets going, but it can hardly be what moves the machinery in the first place. The mode of production has to be defined first of all. Hence Ticktin and those like Fantham & Machover who follow him have got the logical cart before the horse.
In view of the fact that they give us no satisfactory law of motion for these societies it is no surprise that these accounts should also be completely ahistorical. Bahro for example devotes in a 450 page book almost no space at all to developments in the Soviet Union in the late 1920s and the 1930s. Rakovski does not go beyond a description of the historical ‘detours’ of eastern European marxism. Zimin provides only a series of contrasts between what he sees as the central features of Stalinism and the earlier bolshevik tradition. Ticktin gives us only a few isolated historical comments and the same is true of Fantham & Machover.
So far we have made few comments about the work of Antonio Carlo. This is because his is an infinitely more sophisticated version of the Bureaucratic Collectivist argument. Indeed Carlo is right about so many features of the USSR, including the whole dynamic of its development that what sometimes appears to be at issue is simply a question of names, what he calls state/bureaucratic collectivist we call state capitalist. But the difference does remain important because Carlo himself flagrantly disregards his own analysis when it comes to China and this feeds directly back into his understanding of the USSR.
Let us begin first with what we can agree on if only to illustrate what separates Carlo from the other writers we have discussed. According to Carlo the ownership of the means of production “belongs to the bureaucracy considered collectively as a class”. This exploitative class society
“is explained by the requirement for broadened reproduction, posed by the need to conquer backwardness and by the antagonisms with capitalist countries which force the Soviet Union to reinvest the greater part of the surplus. The same is true for Europe and the USA where the consumption of luxuries by the capitalists, although significant, absorbs only a minor part of the surplus. Most of it is reinvested to feed broadened capitalist reproduction.”
Furthermore Carlo locates the creation of Russian class society out of the ruins of the 1917 workers’ state, in exactly the right place at the right time. Internally with the growth of the NEP men and bureaucrats in the 1920s and externally due to the pressures of hostile imperialism – a factor which he considers has been greatly “underemphasised”. Thus for these reasons forced industrialisation became a “necessity”. 
Moreover unlike those who think that simply to give a definition of capitalism is to understand it and in particular that we can equate capitalism with commodity production, Carlo is well aware that capitalism has undergone great changes since its apogee in the mid nineteenth century. He understands that capitalism has derived surplus value from productive bases as varied as slavery in the USA and serfdom in Russia. He also knows that with the advent of monopoly competition it has changed considerably; being more ferocious and less price-based, leading to wars and coups. He also understands that in general Russian-type societies
“can only come about under the conditions of a weak local bourgeoisie, incapable of controlling the state apparatus that tends to become autonomous, and a weak exploited class, incapable of presenting a socialist alternative taking power and thus forestalling the bureaucracy.” 
All the elements exist then for an understanding of the USSR as a bureaucratic state capitalist regime; and yet this is precisely what Carlo denies to be the case. Why? There would seem to be four reasons, two are trivial and two more serious.
Firstly he argues that labour power cannot be a commodity in the USSR because with only one company (USSR Ltd) purchasing it there cannot be a genuine labour market there. With this (considered purely on its own) we have no quarrel. But he implies that to establish this is to show that capitalism does not exist in the USSR. In this he is entirely mistaken. But fortunately we do not have to argue against this because Carlo has already demolished his own argument. In the first part of his article he argues at length that “wage labour is not necessary for capital”, giving a wealth of references to Marx on American slavery and Lenin on Russian serfdom. And there is no doubt that he is right here. Considered purely on its own the non-existence of a pure wage market in the USSR no more prevents it from being capitalist than it did the plantation owners.
Secondly, Carlo advances the view that the USSR cannot be capitalist because there are no crises of overproduction. “All this is lacking in Russia because there is no category of surplus value”. It is difficult to take this argument at all seriously for in a similar vein we might venture to suggest that the permanent existence of butter mountains, wine lakes etc. in Europe, clearly proves that the Treaty of Rome has succeeded in abolishing capitalist agriculture throughout western Europe too. Fortunately we are again spared developing these points by Carlo himself, for he soon makes clear that although overproduction of goods does not lead to bankruptcy it does lead to massive disproportions between the capital goods and the consumer goods sectors of the economy. And he then concludes “if machines to produce consumer goods are built, sooner or later, they will have to be used to produce those goods, otherwise they will represent a real waste”. In other words, so far from crises of overproduction being absent in Russia, they are actually permanent states of affairs there. Any further comment is redundant here.
What then of the two more serious objections? The first is the question of whether or not surplus value is produced in the USSR. Since this is an important question in its own right we shall deal with it separately below. His other objection brings us directly to Carlo’s illusions over China. According to him, writing in the early 1970s, China has not yet had its equivalent of the 1928 counter-revolution. The subordination of the consumption needs of the masses to the accumulation needs of the bureaucracy has therefore not yet occurred. Now since China is indisputably in a weaker position than the Soviet Union in 1928 (which for all its backwardness was the world’s fifth industrial power) Carlo can only maintain this position by backtracking on his analysis of the Russian situation and arguing that after 1928 what was created was a highly unstable society and that today there are “ponderous forces pushing towards the restoration of capitalism”, i.e. that it is a transitional but class society.
So it now appears that the forces of capitalist encirclement were insufficient by themselves to enforce a capitalist dynamic. This makes nonsense of all his earlier remarks about how ageing capitalism relies more on coups, wars and other non-market forms of competition, and how external pressures on the USSR have been “underemphasised”. He thus abandons his earlier understanding of the important changes that have taken place in capitalism this century. To be consistent he would have to abandon his Maoism, for China in the 1970’s and 80’s is so much weaker than the USSR that the creation of a “bureaucratic collectivist” class society would be inevitable there.
In the end therefore he abandons his marxism to fellow travel with the gang of four. Ascribing the USSR as non-capitalist thus serves as a smokescreen behind which the opportunist tactics of the Chinese leadership are dressed up in a socialist guise.  He knows that to characterise the USSR as a transitional society, as a workers state is not even remotely plausible any longer given the palpably exploitative nature of that society. But equally the understanding that it is a state capitalist society, because it locates the source of its dynamic in the world capitalist economy, leads inevitably to the conclusion that China must be even more a victim of these same forces. There is no third road for Carlo to find between the apologetics of the “workers statists” and the revolutionary internationalism of the theory of state capitalism.
The issue of Carlo’s politics raises the more general problem of the political conclusions drawn by “exceptionalists”. In this respect the arguments of those like Bahro and Fantham & Machover are especially dangerous. In their work not only are these societies presented as non-capitalist roads to industrialisation but a progressive significance is attached to this. In the case of Bahro this leads him to fatalistically accept the necessity of Stalinism and the historical role of the bureaucracy and reject the concept of permanent revolution. Fantham & Machover are more complex in that they recognise the problems this kind of apologetics raises. Thus they argue that on a world scale Trotsky and the Bolsheviks may well have been right about the necessity for international revolution but for individual countries:
“To the extent that state collectivism enables these societies to climb out of the pit of underdevelopment in which world capitalism has trapped them, to the extent that it offers them a way to industrialise, raise the productivity of labour and along with it the standard of living, culture, education and medicine – to this extent it is initially truly progressive. But in the course of its development it – like other modes of production, and indeed like capitalism, – becomes a shackle on society.” 
The unresolved contradiction here is obvious and Fantham & Machover pull back from drawing Bahro’s conclusions for they then go on to argue that these “progressive” regimes may still pursue highly reactionary policies. This confusion over what is and what is not progressive in writers like this is far more dangerous than the analysis of Ticktin and Rakovski etc. because it widens the whole problem of exceptionalism to the ‘third world’ and again is made palatable with a mishmash of comments on China. It is also tied to a denial that these regimes can be properly imperialist though why this should flow from their argument is never clear.
In fact what we have is a regression in marxism towards a new form of the stages theory of development – a fact not unconnected, as we have seen, with the peculiar way in which the ‘linear model’ is rejected. It is moreover a theory which could be used to justify all minor imperialisms past and present. Even if we ignore China’s praise for NATO, Pinochet, de Gaulle et al; there is Castro’s support for the butcher Mengistu, Brezhnev’s for the Shah and so on. Against this the record of Kaiser Wilhelm in the 1914-18 war stands up very well, with his support of revolutionaries in Ireland and India – not to mention of course a certain sealed train to the Finland Station ... In the light of the evidence why do we need a new ‘mode of production’ a new ‘social formation’ to explain these societies? And if they are really some new type then how does one explain the fact that these states behave in exactly the same way as every subordinate imperialism has done since the beginning of the century?
The danger of this hazy concept of ‘necessity’ and ‘progressiveness’ is equally apparent when we look at the internal policies of these regimes. Leaving aside the further perpetuation of myths about China, what exactly is meant? The concept does not lead them to support them against relatively “less progressive” regimes and they are clearly not “progressive’ in the degenerate workers state sense. So the label does not seem to mean much at all. Indeed the only way it can be made remotely plausible is to conflate the concept with that of the development of the productive forces. But this is hardly of any use to socialists for it would make British capitalism under Atlee and MacMillan “progressive” and Mussolini’s Italy in the 1930’s very “progressive”.
Furthermore we do not only get confusion from following this line of thought, but it also lays the basis for something very much more reactionary. For the crucial question is “progressive” in respect to what? For revolutionary socialists the answer is clearly in respect to an international socialist revolution. Yet by their own admission such regimes are as much a barrier to socialism as are capitalist regimes. So if they are (even if only “initially”) “progressive” then writers like Bahro and Fantham & Machover must be using criteria derived from gradualists and other head-in-the-sand believers in socialism in one country. Thus their theoretical confusions do not just muddy things up but as with Bahro they lead straight to his support for Eurocommunism. Fantham & Machover are certainly revolutionary socialists in contrast to Bahro, but in this way they too are also paving the way for the wretched right wing distortions of marxism that have been peddled by communist parties for decades.
Methodology and politics aside, the substantial question remains of how and in what way are the eastern economies to be assessed as regards the production of values? This is turn forces us to look at how these questions are to be answered for ageing capitalism in the west.
We have already seen that while in pre-capitalist economies commodities can exchange at their market-values, under capitalism itself they do not and can not. This does not mean, however, that value is not the dominant category that distinguishes capitalism from pre- and post-capitalist societies. In pre-capitalist societies labour may have been embodied in commodities in a ‘purer’ form – they may have exchanged at closer to their market-values – but value itself, whether in a pure or in a modified form was not the thing that dominated the development of these societies. It was instead the relationship between the master and the slave, the lord and the serf etc. – which were not themselves dependent on value – on which these societies were based.
Thus the essence of capitalism is that value remains the foundation of its laws and has real enough consequences for its development even though it assumes ‘impure’ forms. This means that we cannot simply deduce value from exchange. The individual capitalist’s profits are not at all the same as the surplus value he extracts from his work force. It is at the aggregate level that the total of all profits (and therefore the average rate of profit) is determined by the total of surplus value in the economy as a whole. Thus value has to be related to the dynamic of capitalism as a system, to accumulation, a rising organic composition of capital and a falling rate of profit. We can only determine the connections between surplus value and profit for the entire economy, that is the world economy.
This then is the first consequence of the transition from simple commodity production to capitalist production. But as capitalism ages these impurities in market values are further magnified by the centralisation of capital which itself is intimately connected to the self-expansion of value. As monopolisation increases so markets are carved out and fixed by administered corporate decisions. The increased role for the ‘visible hand’ of management means that prices are increasingly internal to the firm both nationally and internationally. For example, fully one half of all US foreign trade is between different subsidiaries of the same corporation.  Here ‘value’ is determined by the need to jump tariff walls, transfer pricing, concealment of the movement of capital and so on. Nor is it just the commodity market that ageing capitalism subverts in this way, but the capital market too. The collapse of the capital market in the 1929 crash fed directly into the crisis of the 1930s because of the volume of capital raised there. Today the situation is quite different. Already by the 1950s less than a third of capital was raised there and today the figure is considerably lower due to the increasing role of the state and banking in carrying out funding.  Moreover, if one were to look closely at the dominant corporations the extent of internal funding would be even greater.
Thus the focus on the market and the commodity becomes even more absurd under ageing capitalism. The problem is manageable only so long as we deal with it from the point of view of the theory of capitalist development and crisis. Ageing capitalism’s urge to accumulate and the extent to which it does so, the rise in the organic composition of capital, the decline in the rate of profit and the explanation of crisis: all these are instead inexorably linked to the proportions of living to dead surplus value in the system as a whole.
The thing which links the early mercantilist stage of capitalist development with later stages like those of 19th century private capitalism and 20th century state monopoly capitalism is the nature of the accumulation process. Marx characterises capitalism in the Communist Manifesto as where “... the labourer lives merely to increase capital, and is allowed to live only in so far as the interest of the ruling class requires it. In bourgeois society, living labour is but a means to increase accumulated labour”.
In Capital he stressed that the motive force of this process is not the consumption of the capitalist, but the fact that in order to fulfil his role as a capitalist he has to accumulate. It is competition which drives the capitalist to do this and it does so by threatening him with extinction by rival capitalists if he doesn’t. Without this competition each capitalist could freely decide whether to consume the surplus product, accumulate it, or even to return it to the workers who created it. In this way “competition makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws”.
But because competition necessarily subverts the autonomy of the market on which it was originally based, it must assume forms other than price competition between commodities produced by private capital for an anonymous market. This has two consequences. The first is that ‘peaceful competition’ becomes transformed more and more into military competition and ultimately war. It takes the form of the physical seizure of raw materials, exclusion of rival capitalists by the erection of tariff walls etc. Price competition is forced to give way to new forms of competitive coercion and this gives us an insight into one of the crucial results of the ageing of capitalism, one that Lenin examined in depth in his Imperialism: The Highest Stage of Capitalism.
The second related consequence is the inescapable trend towards an increasing role, direct and indirect, of the state as a producer; fulfilling the same role as that performed previously by purely private enterprise.
The results have been remarkable. Already by the 1960s in Italy the state was responsible for the majority of fixed capital formation; in Bangladesh it holds 85% of the assets of what it termed ‘modern industrial enterprise’; in Algeria it moved from being the employer of 15% of the workers in industry, construction and trade in 1965 to 51% in 1972; in Turkey it was responsible for 40% of value added in industry in 1964; in Brazil for over 60% of all investment by the mid 1970s; and in Britain for 45% of fixed capital formation even before the nationalisations of Rolls Royce and Leyland. The figures would be higher still if municipalised property, quasi-public cooperatives and minority state holding in private firms were included. 
Even in those countries where the tendency was less strongly marked to begin with, most are moving rapidly in the same direction. In the non-subsistence sector of the Tanzanian economy the state expanded its share of the GDP from 5% in 1966 to 11% only four years later. In Mexico the state’s 15% of gross investment in 1952 rose to 22% in 1962, and has risen much faster since then. Even in the industrialised giants – USA, Germany and Japan – the same tendency, though less marked, is clearly apparent. 
In the 1950s and 1960s faced with modernising economies ravaged by years of imperialism and underdevelopment, nearly all of the emergent third world countries opted, at least initially, for the use of the state to marshal the scant resources for key development projects. Direct public ownership played the dominant role here, most strikingly in Nasser’s Egypt and other ‘Arab socialist’ countries, Nkhrumah’s Ghana and the similar ‘African socialist’ states and so on. 
But the movement was not confined to Africa and the mid-East. India’s first few 5-year plans bore remarkable similarities to those of Russia in the 30s, and its neighbours Burma, Singapore and even Iran (at the time of Mossadeq) similarly equated their nationalism with public ownership of industry. Even in Latin America regarded in the USA as its own private domain for 50 years – the process was clearly marked: most obviously in Venezuela, Bolivia and Brazil, but also in Peru and Mexico. Even in Chile the right wing conservative government of Frei opted for nationalising copper production. 
This tendency has also been present in all countries in the industrialised west in the 1970s. But it has been most strongly marked in those with the weakest industrial base such as Italy, Austria and Britain. In Britain, and above all in Italy (with the exception of Fiat) it has spread to many diverse branches of industry. At its most extreme – for instance in Italy – it has reached the point where the state is already the dominant agency for capital formation, exceeding the combined efforts of all the private capitals. The reason for this development is a simple one. Units of capital are so large and so interwoven – in terms of both production and finance – that the ‘natural’ function of the capitalist crisis – to bankrupt the weakest capitals and thereby strengthen the rest - cannot now be allowed to take place. If they were to, the viability of the whole national economy would be in jeopardy, and with it the legitimation of its rulers. The western capitalist ruling class have thus increasingly resorted to the state not merely to underwrite the general conditions of production (as in Marx’s day), not merely to strengthen the monopoly power of crucial cartels and trusts (as in Lenin’s day), but actually to become, increasingly, the most important agencies for the accumulation of capital themselves. 
Viewed then in these terms, in the context of the coercive dynamic of an increasingly ageing world capitalism rather than an idealised market the situation of the eastern economies appears far from unique and it is to this that we now turn.
For many years the revolutionary left – including Trotsky himself were mesmerised by the wholly unique feature of the Russian social formation: it was the product of a society that had had a successful workers’ revolution. Trotsky of course, was only too aware of the Stalinist reaction, but he failed to draw the conclusion that under Stalin there was an actual counter-revolution even when it became apparent that the bureaucracy was consolidating its rule in the 1930s. His thoughts were based on two premises. Firstly that state ownership of industry could only be provided by a workers’ revolution, and the failure to eliminate it in Russia showed that the state had not completely degenerated. Secondly he accounted for the failure of the workers to throw off the bureaucratic “caste” in terms of the temporary threat to the state’s existence by Nazi invasion.
Unfortunately Trotsky was no economist. Unlike Lenin, Bukharin and Luxemburg he did not understand or even see the processes of the statisation of capital taking place in the western economies. All the same, had he not been murdered by Stalin, he would have seen the foundations for his own view crumble. After the war the bureaucracy emerged not weaker, but stronger than ever: the workers did not cast them aside. And much more important, new regimes emerged in eastern Europe – in Poland, Hungary, Czechoslovakia, Romania, East Germany and Bulgaria – which were set up not by workers’ revolution but by the Russian army itself; in many cases (e.g. in Hungary) using fascist collaborators from the old regime. These societies rapidly acquired a structure that was identical with that of Russia even though they were not preceded by a workers’ revolution.
It soon became apparent that what was unique about the USSR was not the structure or the dynamic of its society, but the quite exceptional way it came about as the degeneration of a successful workers’ revolution. With hindsight we can now see that the much more general case is that of a weak compromised bourgeoisie, perhaps sitting on top of a peasant rebellion, with a petty bourgeoisie desperate for national development and organised in a Stalinist or nationalist party as the prospective recipient of the collective national capital.
By contrast in the Russian revolution of 1917, the exercise of power by a new class – the proletariat – required a totally new form of state. Not only was the old state smashed, but a new one was created – the soviet state – which was based on recallable delegates from councils of direct workers’ power in the factories and barracks. The new state therefore presupposed both the existence of factories and of workers. The tragedy of course, was that this basis of the state was itself destroyed by the failure of the international revolution. As a result the workers’ state found itself blockaded and invaded by 16 imperialist nations. The vanguard of the class left the factories for the Red Army, and the factories were unable to function because of the blockade. Production declined to one fifth of its 1913 level and the remaining workers deserted the factories for the villages because they were starving.
Without workers and without production, the new state had lost its social base. For a time the Bolshevik party substituted itself for the class, basing itself on the perspective of helping the international revolution. But from 1924 on Stalin changed all that. Not only did he seal the fate of the revolution by calling for the building of ‘socialism’ in one country, but he also destroyed the proletarian basis of the party, swelling its numbers with ex-Tsarist officers, factory managers and so on, so that the party that in 1923 was more than 70% proletarian in composition was by 1927 only 30% proletarianised – and completely bureaucratised too.
The state was thus cut loose from its original social base. Having become heavily bureaucratised it moved decisively to take upon itself the role of massive capital accumulation in the first 5 year plan 1928–33. It did so because of the increasing pressure from world imperialism. As Stalin put it in 1931:
“No comrades ... the pace must not be slackened! ... On the contrary we must quicken it as much as is within our powers and possibilities ... To slacken the pace would be to lag behind; and those who lag behind are beaten ... We are fifty or a hundred years behind the advanced countries. We must make good this lag in ten years. Either we do it or they crush us.” 
The essence of this process was the forced accumulation drive to ‘catch up and compete’. Acting as the agent for the accumulation of capital, the bureaucracy emerged as the collective capitalist at the same pace as the economy itself took on the same features of the giant corporations in the nations of the west that Russia was competing against. Accumulation was dominated in the 1930s to the 1950s by strategic and military competition to an extent which it seems some earlier studies have underestimated. This entailed the most extreme subordination of consumption to the needs of production that has ever been known. The drive to accumulate not only necessitated the political expropriation of the working class but also a massive rise in the rate of exploitation. 
We are arguing therefore that in an epoch of ageing, militarised and statised capitals, the Russian segment of the world system fits in merely as one of its more extreme examples. Its uniqueness does not consist in its institutional structure (which is different in degree rather than kind) but in the tragedy of its formation on the ashes of the 1917 revolution.
The return of the world capitalist system to crisis in the 1970s has not left the eastern state capitalist economies untouched. The evidence here is irrefutable. It can be seen in (1) declining growth rates, (2) falling rates of profit, (3) marked cyclical tendencies, (4) an increasing technology gap, (5) huge balance of payments deficits which have required vast borrowing on the international finance market. As we shall see the effects of this crisis on the eastern bloc economies has been very serious indeed. In the USSR it would be even more serious were it not for its large deposits of oil and gold. Any analysis of these societies must be able to explain the dynamic and form that the crisis has taken there. We will argue that this cannot be done without a concept of state capitalism.
The essential point in this respect is that the planners lack not simply control of the internal institutions of these economies but that they lack of any control of the total dynamic of the system, as does the private capitalist, and this feeds through into the anarchic internal structure. It is this that lies behind the boom and slump mechanism and the well-known gap between plan and achievement.  The constraints that the planners operate under extend far beyond ‘internal social processes’, a point better recognised in some Soviet literature than in that of the ‘exceptionalists’. 
This decline can be seen in the way in which cyclical fluctuations combine with a secular decline in the rate of growth. At the root of both of these related phenomena is the lack of control that the planners have over investment and the rate of exploitation. Moreover as these economies have begun to link more directly to the world economy so that rhythm of fluctuations has come to more closely follow that of the world economy. There is now an extensive literature on these fluctuations which, with the exception of Rakovski, has been almost totally ignored by marxists looking at these economies.  It is not hard to see why this should be so since, although these fluctuations are not simply reproductions of the classical trade cycle they are a function of the dynamic of these societies mediated through the various institutional structures. Their analysis therefore demands some clarity over the nature of the dynamic which as we have seen is precisely what is missing in these accounts. So far as we are aware the only attempt to begin to develop an analysis of fluctuations on the left is the one made by Chris Harman some years ago in this journal. 
These cyclical tendencies, while significant, are not so important as the overall growth rate itself. Exact figures for growth are however quite difficult to assess. Russian statistics are very obscure and certainly overstate the economy’s achievements. In addition there are important differences in the various western attempts to quantify what is going on. However, whichever statistics are used, they all point in the same direction: towards a marked and continuous decline in growth rates for most of these economies.
Rates of Growth
(Sources: C. Harman, Bureaucracy and Revolution in Eastern Europe, London 1974, p. 255,
With the possible exception of Poland (which as we shall see has been able to sustain its growth only through its integration into western finance), the picture is one of steady decline.
This decline is a symptom of something much more fundamental: the decline in the rate of profit. For it has taken place in circumstances of increasing investment. Between 1950 and 1955, 70% of USSR production was devoted to producer goods. By 1970–75, this had increased to 75% – i.e. the percentage of the economy devoted to consumption had declined by 1/6 from 30% to 25%. Equivalent figures for Poland are 55% and 65%, and for Czechoslovakia 55% and 61%. In the present period (1976–80) investment in Russia is planned to rise such that the incredible figure of 80% of production would be devoted to consumer goods. 
Until recently the USSR still had a surplus rural population, and hence from 1950–70 it was able to expand the urban labour force by around 4% per year. Even with stagnant labour productivity it was therefore guaranteed a minimum growth rate of 4%. Now however the urban labour force is growing at less than 1% per year and it has therefore become crucial to expand productivity. 
Just how urgent this is, is revealed by the fact that today the eastern European economies have growth rates that are broadly similar those those of the western countries (i.e. somewhat better than Britain and somewhat worse than Japan), but that they are only able to achieve this on the basis of twice the level of investment.  This would suggest then, a rough-and-ready figure for the rate of profit at about 50% of that prevailing in the West.
The Russians themselves have published figures showing how rapidly the rate of profit has been falling in the 12 years 1960–72. They have assessed it according to two indicators as follows:
USSR: Decline in the Rate of Profit 1960–1972
Indicator I – National income as a percentage of fixed productive capital at the beginning of the year.
The eastern economies have no option but to improve labour productivity if they are to compete with the western economies. Indeed their leaders are, quite understandably, obsessed by the question. Yet all the indicators suggest that in spite of huge efforts they are failing on the productivity front – and failing quite badly. In spite of the quite stupendous sums devoted to investment, and in spite of having a highly educated workforce the gap between western and eastern levels of productivity is actually growing. Twenty five years ago Khruschev boasted to American capitalism that “we will bury you” as a result of economic development. American capitalism has indeed declined since then, but the beneficiaries are to be found in Frankfurt and Tokyo, not in Moscow.
The eastern country with by far the best labour productivity is East Germany. It also started out with a good industrial base, and it was concentrated in growth areas like precision engineering. On top of that it has shown just about the best growth in productivity due to science and technology as opposed to sheer capital size in the east. Yet a comparison of this eastern leader with an equivalent western leader like West Germany reveals the underlying weakness. The industrial output per worker in East compared with West Germany in 1967 was 72%. Yet by 1976 this had declined to 65%. In agriculture the situation was much worse, with equivalent figures of 92% in 1967 falling to 61% in 1976. During this period the agricultural work force fell from 14% to 10% of the total East German labour force – i.e. the yield per hectare compared with West Germany must have fallen even faster. 
The widening technology gap between west and east has forced all the eastern European countries (and also China for that matter) to depend much more heavily on imported western technology, and this certainly has been the economic basis of the détente period of the middle-1970s. Even in the case of the USSR, which was more willing and able to resist this due to its size, there was a 7-fold increase from 1970–75 in its imports – mainly of high-technology precision engineering equipment – from West Germany. Yet it has still been unable to solve its chronic problem of low profitability.
Nor for that matter have the other eastern European countries. They however have be been forced to integrate themselves into the rest of the world market to a much greater extent than the USSR, and they have therefore suffered accordingly as the world market slumped in 1974–75. (There is also no doubt that the 1979–80 slump will have an effect at least as serious.) Take Poland for instance, which, as we have seen, has had one of the best eastern growth records. Its leaders were forced by the strikes and uprisings of 1970–71 to increase living standards. They paid for this and increased their growth by a massive increase in trade with the west, which was itself undergoing a short but very rapid boom from 1971–73. Imports from the west tripled from 1970 to 1973, and by 1975 only 45% of Poland’s trade was with all the other eastern countries put together. Then came the slump. Poland’s exports plummeted, and the cost of the imports needed to maintain growth soared. Having participated in the world boom, the Polish bureaucracy was hit by the inflationary pressures it created. By 1975 eastern Europe’s net borrowing from the west rocketed to $20 billion, of which Poland’s share was an incredible $7 billion.  Servicing this debt took a quarter of all its foreign earnings.
Then there is the case of Hungary which has perhaps gone furthest in this direction. Foreign trade now accounts for fully 50% of its GNP, and half of this is with the west. The government has dismantled all controls other than fiscal and credit over enterprises, and is now eliminating all import subsidies. As a result, inflation, which stood at 4% in the late ‘70s is expected to be running at 10% in 1980. To reduce costs and increase flexibility the government is encouraging mass sackings: the creation of a reserve army of the unemployed. The National Bank has declared itself in support of the convertibility of the forint, and there is a good 50% chance that Hungary will join the IMF. On top of this Hungary has moved into the world of finance capital in a big way. It permits majority foreign participation in financial and service ventures, and it has itself, in conjunction with US Tungsram established factories in the USA. It has also set up joint ventures in Brazil, India, Greece and Algeria; making use of starvation wages in textiles and footwear. Finally it is currently negotiating with Creditenstalt Bankverein and Manufacturers Hanover Trust for the creation of a speculative off-shore hard currency institution. Its $1 billion deficit in 1978 – financed by the west – means that it is now no longer able to reverse this integration into the world’s finance market. Not surprisingly the US Congress has granted Hungary “Most Favored Nation” status! 
In the light of these facts, the view that in the east it is impossible that “capitalism be restored without a full scale revolution”  looks ill-informed at best. The rhythm of boom and crisis, the long-term stagnation with low productivity, the necessity to export to pay for the advanced technology without which productivity cannot be improved – all these have effectively prevented the eastern nations becoming isolated islands within a capitalist world economy; a system which as we have seen is becoming increasingly dominated by partial or complete state capitals.
Nonetheless there are quite specific features of the crisis in state capitalist countries which should not be ignored. They can be distinguished into two main types: the general crisis of state capitalism and the particular crisis of USSR-type ‘autarchic’ state capitals. The former occurs also in the state capitals of the west (irrespective of how ‘partial’ they are), while the latter is of much more limited significance there.
The general crisis of state capitalism can only be understood in relation to the world economy. In its turn the world economy only has the features it does have as a result of the fact that state capitals have helped to create it. The significance of this can be seen by contrasting the current crisis to the classical crisis of laissez-faire capitalism. In both cases the long term decline in the rate of profit provides the underlying cause. However, as a result of this under laissez-faire demand declines, overproduction begins, investment ceases and then capital values collapse. Out of the crisis the weakest units of capital become bankrupt and are absorbed at bargain prices by the stronger units of capital. This restructures capital and makes it possible for it to function again. With rivals bankrupt and capital values much lower, the rate of profit temporarily recovers and the cycle begins anew.
Under state capitalism the situation is different. While it may be ‘rational’ for the world system as a whole for one or another state capital to become bankrupted it certainly is not for for the state in question. Indeed the modern capitalist state is increasingly forced to bale out private corporations whose collapse would seriously jeopardise the national economy. And in an increasingly statised world economy there therefore ceases to be a purely automatic mechanism connecting overproduction to the restructuring of capital. The greater the degree of statisation, the greater will be the problem.
In the case of the USSR the scale of the problem should now become clear. There is no automatic mechanism to restructure capital. Because investment decisions are centrally administered their implementation is necessarily bureaucratic and capable of being resisted by those units that are to be restructured. Far from being crisis free the result is that the economy is in a state of permanent crisis. The economy is driven to accumulate but it fails to expand the sum total of use values. The full impact of this was delayed in Russia because until the 1950s underutilised labour was so freely available that primitive accumulation could proceed and absorb new investment profitably. Until then Russia could continue to devote its principle accumulation resources to expanding the means of production. But because all means of production must, after an initial lag, contribute to the means of consumption, this merely delayed the crisis. It could not stop permanent stagnation occurring but only ward it off for a time which has now passed.
But on top of this general crisis there is also the particular crisis of autarchic state capitals: those like the USSR that have attempted to “go it alone”. To understand the crisis of autarchy it is important to remember that Marx saw two important tendencies inherent in capitalist development: (a) the increase in the size of capitals as a result of the concentration and centralisation of capital, and (b) the increasing division of labour on a world scale, this resulting from the increasing complexity of production plus the reducing costs due to returns to scale, long production runs etc. State capitalism solves the first problem by fusing all the nation’s capital resources into one unit. But if it does so by the autarchic method – removing the home economy from exchange with the rest of the world – then it has to replicate the machinery to make all the vast number of components that a modern economy needs entirely from its own resources, thus incurring enormous costs because of the tiny production runs that are needed.
Considerations such as these were also important in the formation of the EEC. Its proponents in the 1950s argued that without a market and a division of labour that went beyond that of the individual nations, Europe would never be able to compete with the USA. Their arguments were based on a number of studies that explained the differences between British and American productivity almost entirely on that basis.  And there is no doubt that they apply with equal weight to the Russian economy today, for even if the eastern Europeans were to pool all their resources, they would still be able to command less than 20% of world production. Because of its historic relation to the world division of labour production is much more ruthlessly integrated in the remaining 80% of the world and this gives to the west an insuperable lead in productivity. Superimposed on this is the rapid centralisation – inside and also outside the state – in the west. Western capital, therefore, increasingly combines both the advantages of capital size and those of integrated markets and production.
The return of slump to the world system therefore doubly sharpens the pressure on the eastern nations, weighed down as they are by their past history of autarchic development. Those which have made a break from autarchy like Poland, Romania and Hungary, while suffering in the same way as every other capitalist nation in the current crisis, have certainly done better than had they remained outside the division of labour.
The USSR itself, while also subject to the same pressures, has moved much less in this direction. The fact that it has a much larger and more diversified industrial base than the others, coupled with its vast natural resources and the boom in commodity prices has seen to this. But this has not helped it to avoid the crisis. As we have seen its growth rate for the last few years has been less than those of its less well-endowed neighbours. The price of the losing battle to retain autarchy has been starkly revealed in the declining percentage of production that is now devoted to consumption (20%), and in the fact that in spite of unprecedented sums being devoted to accumulation, the capital stock was planned to rise in the 1976–80 period by only half as much as in the 1971–75 plan. In other words so far from being helping the USSR avoid the crisis, the retention of so much of its old autarchic form has actually compounded it.
An immediate conclusion that we can draw is that no remotely plausible conclusions about the dynamic of the eastern societies can be drawn except on the basis of the theory of state capitalism; least of all from the empty empiricist sociology of the theorists of eastern European exceptionalism.
But the argument is not really about eastern Europe at all. For the mistakes made by these latter-day theorists of bureaucratic collectivism would be much less significant in that case. Many of these theorists are in the forefront of the struggle to support workers in struggle against the system there. Their theories have clearly not stood in the way. Nor for that matter have they followed their mentor Shachtman who used just such theories to support American Imperialism.  Why then devote so much space to showing why they are wrong?
Because of the implications for our understanding and strategy in the West. For if the latter-day Shachtmans are allowed to go unchallenged, there will very soon arise some latter-day Hilferdings who will be able, with impeccable logic, to show that the West is also non-capitalist by the same reasoning. Once that happens the whole perspective of the necessity of proletarian revolution disappears.
Nor is this imaginary. Indeed it has begun to happen already. One example is the academic “Marxism” of Hindess and Hirst that Alex Callinicos reviewed in Intenational Socialism 2:2. Another is that of Geoff Hodgson who in this issue of the journal argues against the revolutionary road to socialism and who elsewhere argues, along with Hilferding, that Marx’s theories of crisis are mistaken. In short the argument is ultimately the argument against reformism in the west.
In this section we shall argue that (1) surplus-value itself can be produced even if the labour that creates it is not a commodity – i.e. is not wage-labour, (2) that as a result surplus-value can be, and is, produced in complete state-capitalisms such as the USSR.
(1) Wage-labour is a phenomenon that combines two elements that are conceptually quite distinct: the production of surpluses and the valorisation of these surpluses in the form of surplus-value. The former is the physical or technical basis upon which all class societies are based, and has nothing directly to do with a specifically capitalist form of class society. Labour-power, as variable capital, is only able to be variable in virtue of its technical capacity to survive and reproduce itself on the basis of a consumption of commodities which require less necessary labour time to produce than that which can be extracted for the worker her/himself.
This is the material form of wage-labour, the essence of its capacity as capital to be variable. But there is also the value form, and this is due to the fact that wage-labour can be hired as a commodity on the market. When the two go together – i.e. when the capitalist buys his commodity, labour-power, and then sets it to work for him – the surplus content appears in a value form: as surplus-value.
Yet the production and the valorisation processes do not have to go together in order for surplus-value to be produced. They are separable not only in logic but also in time and space. Several examples immediately spring to mind in this respect. Two we have mentioned already: 19th-century American slavery and 18th-century Russian serfdom, neither of which Marx doubted to be (partially or wholly) capitalist and surplus-value producing. The fact that the cotton and the wheat were destined for sale in capitalist England, meant that the slave owners and the feudal landowners contributed to the pool of surplus products at the command of those with the money to purchase them. Through this exchange they became valorised with respect to all other commodities: the surplus products became surplus-values, and their owners became capitalists. But the workers who produced them did not thereby become wage-labourers.
The above conclusions are not just ours, but also Marx’s. Why then does Marx not distinguish these separate elements in wage labour in a rigorous analytical form in Capital? For two reasons. Firstly because he thought – correctly – that slave and serf labour would prove an impractical and inefficient source of surplus-value, and would therefore shortly be consigned to the dustbin of history.
Secondly, and perhaps more importantly, because Marx was never unravelled all the elements (“determinations” in the language of the Grundrisse) that were built into the phenomena he was studying, only those that were relevant for revolutionary theory and politics. And when he does so, he does it in a specific order. For instance Capital vol. 1 is concerned only with capitalist production, and this only as a general form. In doing so questions that concern distribution and exchange between many capitals are ignored; to be taken up only in vols. 2 and 3. For the sake of convenience Marx lets the assumption ride that production is valorisation in vol. 1. Yet in vol. 3, as we have seen in our section on methodology above, he shows that they are sharply separated and that while the production of surplus-value is directly related to the hours worked for a capitalist, it is valorised in the form of profits which are directly related to the mass of his capital instead.
It should be clear now why Marx treats wage-labour in the way he does. In volume 1 of Capital he is concerned with wage-labour (or capital for that matter) from the point of view of production only, and it is as the productive source of surplus-value that it has significance. And when we come on to vol. 3, although there can be sources of surplus-value other than wage-labour, they do not introduce new principles for the distribution of surplus-value. In this respect they do not have the effect that the introduction of ‘many capitals’ has. They therefore do not merit separate treatment along with the conceptual development that that would involve.
(2) For all intents and purposes there is only one employer in the USSR: the state. The purchase and sale of labour-power there does not therefore, by doing so turn it into a commodity. It is therefore not as a result wage-labour in Marx’s sense of the word. In the same way as with southern slaves in the USA, the surpluses that Russian workers create do not appear immediately in the form of surplus values. They only become such as a result of an external valorisation process, and this is different from the classic case of private laissez-faire capitalism where the external world – the market – is needed not to create but only to realise the values that are already there as a result of the fact that labour power and the means of production have been previously purchased by the capitalist in a competitive market.
As with Marx’s capitalist plantation slavery, latter-day state capitalism stands in need of an external process of valorisation to make it a form of capitalism; and a failure to realise this, e.g. in Bettelheim and other’s theories of capitalist restoration in the USSR, only results in an impoverished understanding of what capitalism is all about.
In the case of capitalist slavery, the form of this external valorisation process was quite simply the market. The cotton was destined for the market in Lancashire and New England. And this converted the slave-produced surpluses into values.
But in the case of the USSR and other complete or nearly complete state capitalisms, the world commodity market absorbs only a small part of their produce. How then is the surplus valorised?
To begin with it is important to be clear about what ‘valorisation’ actually means. It is the process in which the various qualitatively different labouring activities are reduced to different quantities of their common substance: labour time. We then have a common measure – Marx referred to it as abstract general labour – for assessing values. But this is not just an accounting device, it is a real process through which the products of labour socialise their producers in definite ways. It occurs through competition, the confrontation of the products of labour with one another. For it to exist it therefore has to be the case that the various products of labour are piled up against each other.
In price competition, the precise results of this process vary according to whether the market is a pre-capitalist commodity market, laissez-faire or monopoly. Valorisation in these latter two cases takes place, as we have seen already, such that price is not equal to market value. What is preserved however, is that domination of the system ultimately by its ability to extract living surplus-value and by the limitations imposed by its very success at extracting surplus-value in the past.
For valorisation to take place in USSR Ltd., it has to be the case therefore that Russian products of labour are piled up against those of its competitors. Without this its labour would remain concrete and specific, not abstract and general.
But for this valorisation to be specifically capitalist, it also has to be the case that the economy is ultimately dominated by the surplus-values – living and dead – to which it gives rise.
Both these conditions exist in Russia today as we have made clear in the main text. The form of competition is mainly strategic and military, the products of human labour that are piled up against each other are basically armaments; and the entire economy is subordinated to this sector. It is this subordination to the military sector that enforces the rule of the category of surplus-value throughout the system, and which has brought about the incontrovertible signs of crisis that we drew attention to above.
1. The main examples of this in eastern Europe are from Hungary: M. Rakovski (1977), Marxism and Soviet Societies, Capital and Class, no. 1, and (1978), Towards an East European Marxism (Alison & Busby); (Rakovski is a pseudonym for two writers); from East Germany: R. Bahro (1977), The Alternative in Eastern Europe, New Left Review, no. 106, and (1978), The Alternative in Eastern Europe (New Left Books); from Russia: A. Zimin (1976–77) O sotsializme i neostalinizme (as yet untranslated), and (1977), On the Question of the Place in History of the Social Structure of the Soviet Union, in R. Medvedev (ed.), Samizdat Register 1, (Merlin).
2. See in particular: H. Ticktin (1973), Towards a Political Economy of the USSR, Critique, no. 1, (1976), The Contradictions of Soviet Society and Professor Bettelheim, Critique, no. 6; J. Fantham & M. Machover (1979), The Century of the Unexpected, Big Flame; A. Carlo (1974), The Socio-Economic Nature of the Soviet Union, Telos, no. 21; U. Melotti (1978), Marx and the Third World (Macmillan); C. Castoriadis (1978–79), The Social Regime in Russia, Telos, 1978.
3. Rakovski (1978), p. 13; Bahro (1977), p. 6.
4. Fantham & Machover (1979), p. 7.
5. Rakovski (1978), pp. 13,12; Bahro (1977), p. 6.
6. Rakovski (1978), p. 15.
7. Bahro (1977), p. 10; Fanthan & Machover, (1979), pp. 4, 11; Rakovski (1978), p. 15.
8. Bahro (1977), p. 9. Ticktin (1973), for instance, recognises external pressure but makes no serious attempt to relate it to his analysis, except at an empirical level. See also Fantham & Machover (1979), pp. 9–10.
9. Fantham & Machover (1979), Ticktin (1976), p. 32.
10. Fantham & Machover,(1979), p. 9; K. Marx, Grundrisse, 1977, p. 513. Patterson, Slavery in Human History, New Left Review, no. 117, 1979, admirably refutes both the idea of a ‘slave mode of production’ and the notion that the American slave South was not capitalist, drawing attention to the considerable marxist work on this question.
11. See the journal Comparative Studies in History and Society, 1978, vol. 20, no. 2 which reprints chapter 4 of Rakovski (1978) with a warm introduction from Alain Touraine.
12. Castoriadis (1978), p. 46.
13. Ticktin (1973), p. 23. For Hilferding see his State Capitalism or Totalitarian State Economy, reprinted in R. Daniels (ed.), The Stalin Revolution, 1965.
14. Bahro (1977). Even when these writers admit exploitation, its extent and limits remain unclear, because the dynamic of these societies remain indeterminate or “contradictory” (sic).
15. A point recognised by Castoriadis when he writes that “Up to a point modern bureaucracy can be comprehended within the Marxian frame of reference. Beyond that point, however, it explodes it.” (1978), p. 40.
16. Carlo (1974), pp. 7; 51–52.
17. Ibid., pp. 12–13, 71.
18. On these illusions see Tim Potter, China – Revisionism in Power – Reply, International Socialism, 2:3. Carlo’s ‘fellow-travelling’ even extends to his use of sources quoting such authoritative commentators on China as Joan Robinson, Paul Sweezy and Leo Huberman!
19. Fantham & Machover (1979), p. 4.
20. United Nations, Transnational Corporations in World Development: a reexamination, p. 43.
21. Public Sector Enterprise, The Economist, Dec. 30, 1978.
22. Sources: Ragioneria dello stato, Il Bilancio dello Stato dal 1862 al 1967, vol. 4, (allegati statistici. Le spese, Roma 1969); Workshop on Research Needs on the Management of Public Enterprise in Asia, International Development Research Centre, Kuala Lumpur, Country Papers, March 1974; Ministry of Finance and Ministry of Finance and Planning, Algiers, La situation, de l’emploi de la durée du travail et des salaires en 1972; Cf. R. Medina, Desnacionalizacto: Crime contra o Brasil? (Rio de Janiero 1970); and R. Munck, State and Capital in dependent Social Formations: the Brazilian Case, Capital and Class 8, Summer 1979; W. Shepherd (ed.), Public Enterprise (Lexington 1976), p. 214; HMSO, Cmnd4578.
23. W. Shepherd, op. cit., p. 214; C. Reynolds, The Mexican Economy (Yale 1970), pp. 270, 284–85; F. Pryor, Property and Industrial Organisation Communist and Capitalist Nations, (Indiana UP, 1973), pp. 46–47.
24. C. Issani, Egypt in Revolution (London 1963), pp. 46–75; I. Birmingham et al., A Study of Contemporary Ghana, vol. 1 (London 1966), pp. 411–16.
25. N. Harris, Economic growth in India and China, International Socialism 1:60; C. Onslow (ed.), Asian Economic Development (London 1965), p. 10; R. Freeman, Socialism and Private Enterprise in Equatorial Asia (Stanford 1968), pp. 36–40; A. Meyer, Middle Eastern Capitalism (Harvard 1959), pp. 99–100; M. Hassan, Orecimento Economico y Problemas de Empleo en Venezuela (Caracas 1973), pp. 133–168; Plan Nacional de Desarrollo Economico y Social, 1962–1971, Resumen, Junta Nacional de Planimiento (La Paz 1962); R. Munck, op. cit., pp. 44–48; R. Thorp, G. Bertram, Peru 1890–1977 (London 1978), p. 303; J. Ross, The Economic Structure of Mexico (Stanford 1971), pp. 43–59; J. Behrman, Chile (New York 1976), pp. 108–109.
26. By “dominant” we mean here that, irrespective of the size of one sector of the economy compared with the rest, it tends to set the pattern of accumulation, rate of exploitation, rate of profit &c. for the rest of the economy.
27. I. Deutscher, Stalin (London 1966), p. 232
28. T. Cliff, State Capitalism in Russia, 1974, apart from its theoretical significance is still a valuable discussion of these developments. More recent historical work is discussed in M. Haynes, The Resurrection of Bukharin, International Socialism, 2:2, Autumn 1978.
29. See, for example, K. Fitzlyon, Plan and Prediction, Soviet Studies, 1970, vol. 21 no. 2.
30. See V.P. Shredov’s Economika ipravo, 1967 and the discussion of it in M. Lewin, Political Undercurrents in Soviet Economic Debates (Pluto), 1975, chap. 8.
31. See for example R. Hutchings, Periodic Fluctuations in Soviet Industrial Growth Rates, Soviet Studies, vol. XX, Jan. 1969, and his Fluctuations and Interactions in Estimates of Soviet Budget Expenditure, Ost Europa Wirtschaft, 1973, no. 1. Both pieces contain references to the other literature on this topic.
32. C. Harman, Poland the Crisis of State Capitalism, International Socialism, 1st series, 1976, no. 93. We say begin because we do not want to suggest a definitive solution has been offered.
33. For further details cf. A. Zauberman, The Eastern European Economies, Problems of Communism, March/April 1978.
34. Cf. Grossman, Problems of Communism, March 1976.
35. C. Harman, Bureaucracy and Revolution in Eastern Europe, p. 256.
36. A. Zauberman, op. cit., pp. 57–61.
37. Cf. C. Harman, Poland, op. cit.; A. Zauberman, op. cit., p. 68.
38. B. Caplan, Hungary tests the market, Banker, June 1979.
39. Fantham & Machover, (1979), p. 9.
40. For instance, L. Rostas, Comparative Productivity in British and American Industry, 1948.
41. For a thorough exposition, and exposure of Shachtmanism, cf. T. Cliff, A Critique of the Theory of Bureaucratic Collectivism, International Socialism 1:32.
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