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Tom Kemp

The Soviet Bid for World Trade

(Fall 1958)

From International Socialist Review, Vol.18 No.4, Fall 1958, pp.124-132. [1*]
Transcribed &marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Conflicting hopes and fears have been aroused in other countries by the increased exports from the Soviet bloc. What is the real perspective?

RECENT spectacular evidence of the technological prowess of the USSR has made the capitalist world increasingly conscious of the economic challenge from that quarter. Serious attention has been paid to Khrushchev’s reiterated boasts of the ability of the Soviet Union to catch up with and outstrip the advanced capitalist countries economically. But while that is a matter for the next few decades, the increasing activities of the USSR, and the other countries in its bloc, in the sphere of international trade and, more recently, as a source of aid for former colonial and “backward” countries, in direct competition with the USA and the advanced countries, has raised the prospect of a new and even sharper immediate challenge.

It is true that not only Soviet propagandists, but also those Americans concerned with impressing Congress and public opinion with the need to step up military spending and foreign aid, have an interest in exaggerating the volume of this Russian aid. Even when allowance has been made for this, there can be no doubt that the Soviet bloc countries are now pressing into the capitalist world market to an extent which was impossible only a few years ago; moreover there are considerable potentialities for this to go much further in coming years. A new, and it must be admitted, incalculable factor is being injected into the political, as well as economic, world relationship of forces. Despite deficiencies and contradictions in the available evidence it is advisable to summarize these new trends and estimate their significance for the future.

The Background

As a preliminary, the past relationship of the USSR with the capitalist world market needs to be sketched in. [1] Lack of exportable surpluses, the hostility of the outside world and to no small degree deliberate policy had, by the 1930’s, reduced the foreign trade of the USSR considerably below that of Czarist Russia. During the Five Year plans, especially the first, the direct impact was felt of conditions in the world market. An indispensable minimum of imports had to be obtained from the capitalist countries, especially of machinery to be paid for with agricultural products. The collapse of prices during the depression, and, consequently, the deterioration of Russia’s “net barter” terms of trade, had a markedly unfavorable effect on the plan. [2]

The policy of building “socialism in one country,” apart from its political aspect, meant a degree of self-exclusion from the world market which could only increase the burden of heavy investment required by industrialization under pressure. Not that the USSR could be completely self-sufficient – certain raw materials, machine tools and manufactured goods could only be obtained in the course of trade. Indeed, when the normal channels were interrupted by the outbreak of war in the West in 1939 it was indispensable to rush through trade deals with countries which were still accessible.

Then, after 1941, the economic contact with the capitalist world greatly increased, primarily because of the need for strategic commodities and armaments. This took the form of a large import surplus covered by the Lease Lend agreements with the USA, Britain and Canada. No doubt in the short-lived false dawn of the Teheran and Yalta conferences closer economic ties with the Western countries were expected.

You Can Say That Again

“Nobody in his right mind wants war. But it is questionable how many people in their right minds direct the world’s destiny.”
– C.L. Sulzberger in the July 21 NY Times.

However, the extension of the Soviet sphere in Eastern Europe, the Marshall Plan and the “cold war,” culminating in the Korean affair, resulted in the East-West exchanges being greatly reduced. The USA sought to deprive the USSR, and later China, of strategic materials and imposed this policy on her clients in the Marshall Plan itself in 1948. The Labour government in Britain imposed its own ban in 1949. In the course of the next few years these restrictions were made more detailed and were reinforced by the passage of the Battle Act in the USA in 1951. In addition an embargo was imposed upon trade with China through a resolution of the United Nations.

From the Soviet side a theoretical consecration of the reduction in trade was given by Stalin in his last work, Economic Problems of Socialism, in which he spoke of “two parallel world markets.” He claimed that this outcome represented an aspect of “the general crisis of the world capitalist system”; with the “socialist camp,” as a result of its fast rate of industrial development, moving to a position where its members will “not only be in no need of imports from capitalist countries, but will themselves feel the necessity of finding an outside market for their surplus products.” [3]

Not long before in the same year, 1952, an International Economic Conference was held in Moscow as a climax to a great campaign to break through the trade embargo and increase the volume of exchanges with the capitalist countries. In terms of its effects on trade, this piece of junketing was a failure, though it no doubt scored some propaganda points. On the basis of Stalin’s pronouncements the persistent demands for East-West trade voiced by the Communist parties in the capitalist countries appear contradictory – unless it was to provide a market for those “surplus products” of which Stalin spoke. It was more likely that Stalin was rationalizing a situation which was far from being to the advantage of the USSR and that the trade embargoes were having adverse effects not only on the Eastern European countries – cut off from their traditional markets – but on the USSR itself. [4]

Looked at from the technical standpoint of, say, the economists of the Economic Committee for Europe at Geneva, the price that was being paid by both sides for the artificial division of the old continent was harmful and unnecessary. [5] It was not difficult to point out that the abnormal reduction in the volume of exchanges did nobody any good, and that complementary economies were being kept apart at great cost. In practice, however, no iron curtain divides politics and economics. There were, of course, politicians and businessmen in the West who would have liked to see a greater volume of East-West trade, which could have eased the balance of payments difficulties of the Western countries and provided a way out of economic, political and military dependence on the USA. However, in the main, and no doubt correctly, the West European bourgeoisie estimated that its survival was linked with the USA, as the dominant segment of the capitalist world system. The costs and risks of the “cold war” – with American support – were preferred to the problematic advantages of “peaceful coexistence”; that is, maintenance of the status quo in face of gathering revolutionary processes which Western imperialism felt must be rolled back if capitalism were to avoid extinction. Of course, the nature of the problem changed with the development of the world situation. By the mid-1950’s, if not earlier, among the allies of the USA there was growing dissatisfaction with the trade restrictions.


East-West trade, as such, offered no panacea for an evil which was rooted historically in the dire problems of an outworn social system on the one hand and the contradictions of bureaucratically degenerated, or deformed, regimes on a progressive base on the other. Although the prosperity of the capitalist world in this period made the problem less serious, the latent trade war breaking into the open became increasingly burdensome to both sides – the demands of the world market were reasserting themselves.

Not only, as Stalin had foreseen, did the Eastern bloc have export surpluses, but it also needed goods from the rest of the world in increasing volume to carry through its industrial plans and meet the demands of consumers for a greater choice and variety of goods. At the same time, the world political situation offered possibilities of strengthening relationships with the “uncommitted countries,” such as India, Burma and Indonesia, through the offer of industrial, technical and military aid. On the side of the capitalist states, the passing up of lucrative trading possibilities became increasingly irksome, especially as the danger of imminent war receded and problems of overproduction and increased trade competition loomed ahead for certain industries.

“Peaceful Coexistence”

In the view of the Soviet leaders, “peaceful coexistence” presupposes increased trade between the “two world markets.” Thus Mikoyan, at the Twentieth Congress of the Communist Party of the Soviet Union, brought out the doctrine of comparative costs to underline the point. [6] No doubt such arguments express a sincere desire for a modus vivendi through the normalization of trading relations with the capitalist states. At the same time they express the fact that the USSR is not, and cannot be, isolated from the capitalist world market.

Since 1955, when summit talks took place in Geneva, trade between Eastern and Western European countries has been increasing. In 1956 it rose by 20% and a further rise occurred last year. But on both sides restrictions remain which are bound up with the political division of the world. In any event, the further industrialization of the USSR, and more particularly Eastern Europe, may have reduced the possibility of export from the area of the “traditional exports,” mainly food and raw materials. Their demands upon the world market will likewise have been undergoing change. The simple complementarity of the two “halves” of Europe is no longer as plain. By this time more manufactured exports could figure in the trade of the East European countries; on the face of it they may penetrate more easily into the less developed countries outside the Soviet bloc rather than into Western Europe.

The goods which Western Europe has been sending East in greater quantities in recent years are “raw materials for capital goods industries” and “engineering products” – an index of the demands of industrializing countries. For example, the Soviet Union and Poland have, in recent years, placed important orders for complete industrial plants and power station equipment. [7] On the other hand, it is well known that such countries also export complete plants or “aggregates,” mostly to others in the bloc, but in some cases outside it. Thus specialization and the advantages of the international division of labor are asserting themselves once again, if at a higher level.

The end of the phase of apparently boundless prosperity in the capitalist countries reinforces the demand for a reappraisal of the possibilities offered by these markets. In 1957 Britain decided to seek trade with China, despite the embargo, though still within the limits of the restrictions on strategic exports. Under conditions of a spreading trade crisis in the West there may well be a struggle for a place in these markets. [8] While these openings cannot avert a trade decline they can alleviate the position for those countries which are prepared to go along with the Soviet Union and her allies in other respects. A situation might, therefore, arise in which the USSR would be able to drive hard bargains because of the anxiety of the capitalist countries to find a market for their goods. On the other hand, the arrival on the world market of goods of which the USSR has an oversupply herself might aggravate the decline in prices of such products and worsen trading problems in the capitalist world. A recent example of this is the sale of aluminum, which has obliged Canadian producers to lower their prices. [9] However, the role which foreign trade plays in the capitalist economies and those which are centrally planned is different in certain important respects. The capitalist countries, as well as having to provide themselves through foreign trade with commodities which it is impossible or uneconomic for them to produce in their own territory, need markets to realize their goods at a profit. At the same time, because of the anarchic nature of capitalist production relations, to continue to realize goods at a profit in the internal market may depend upon not merely maintaining but increasing the export market. For capitalist countries, “export or die” becomes an economic imperative in time of slump. While, as regards the USA, its disproportionate development in relation to the rest of the capitalist world market has produced unrealizable surpluses – in goods or productive capacity – and to sustain the level of profits and activity a permanent unpaid export surplus is necessary. Of course, the surpluses are disposed of in such a way as to serve the interests of American capitalism.

In the case of the USSR and similar planned economies, foreign trade is bound up with the plan itself. However, it does present some special problems. For example, since agricultural production varies with the harvests there may be years in which surpluses are available for export or when imports are required in order to meet a shortage in the harvest. For the rest, the endeavor will be made to regulate the volume of import-export flows in accordance with the requirements of the plan. Of course, plans may not be achieved, or they may be overfulfilled; but, once the plan is operating, changes in exports and/or imports will require reallocation of resources within the plan. This may limit the willingness of such countries to participate in multilateral trade in the world market. Generally, they will have a preference for bilateral agreements which determine in advance the amount and kind of goods to be exchanged – and for a capitalist economy it may be difficult for such an undertaking to be fulfilled. [10]

If some inflexibility in foreign trade arises from a plan, the plan does not dominate foreign trade to the extent it does internal economic developments. As one authority puts it: “If the State is master of all the economic levers of command inside the USSR, the bodies concerned with external trade have, on the contrary, to take account of price and production movements, fluctuations in supply and demand, which occur independent of their will. Also, given the profound repercussions which, in certain circumstances, the non-fulfillment of the plan for foreign trade will have on the execution of the production plan, one reaches here one of the weakest points of all planning carried out on the scale of a single country, large as it may be. [11]

Under planning, then, there are definite limitations to the scope for altering the volume of imports or exports in the short run – assuming that they first have to be paid for out of current (planned) production by the sale of goods at world market prices; while exports can only be increased at the expense of (planned) investment or consumption unless output has exceeded that planned. Failure to import on the scale planned or to sell what had been planned at favorable prices will affect the plan adversely. On the other hand, the necessary readjustments can be made under the control of the planning bodies. There is not the same drive to dispose of export surpluses at all costs, such as is found in the capitalist economies. It is, of course, fundamental that there should be a state monopoly of foreign trade.

What this very terse summary of a complex problem shows is (1) that the world market and the international division of labor impress themselves on a planned economy in one country; (2) that in the short run the foreign trade of such an economy cannot be varied entirely to order. It is true that increased imports can be paid for from reserves of gold and foreign exchange, or even from credits, while exports could be supplied on credit or made as grants, but, apart from overfulfillment of the plan in that line, only at the expense of domestic consumption and/or investment.

This implies that there are definite, and it may be, in the short run, quite narrow limits to the increase possible in East-West trade. Within these limits, however, trade and aid can be consciously directed and employed with deliberation by the USSR and, to some extent by the East European countries, as a political weapon. Again its effectiveness will depend upon circumstances. The ability to turn trade on and off, to switch imports from one country to another and provide aid in the service of foreign policy has been demonstrated many times over the past decade or two. Thus the political significance of the purchase of part of the Egyptian cotton crop or even of the Icelandic trawler catch. Credits were withdrawn from Yugoslavia at the time of the break with the Cominform; new credits were extended after the reconciliation in 1955, and withheld as part of the virulent anti-Tito campaign in the summer of 1958. The entry of the USSR into the world economy on a growing scale as buyer, seller and creditor opens up ways of altering the political balance in her favor.

Even with the growth in trade between East and West which has taken place in recent years it remains below the prewar level. It is still very small in relation to the total trade of Western Europe. Thus imports from East Europe and the USSR were 8.4% of the total in 1937; in 1956 they were only 3%. Exports at 6.8% in 1937 were down to 3.5% in 1956. The only countries whose trade with the Eastern European countries exceeded 15% of the total were Iceland, Finland, Yugoslavia and Turkey – geography, rather than politics, played a major role here. [12]

As far as the Soviet Union is concerned it seems probable that means of payment are no problem when goods are urgently required – gold, foreign exchange, arms, or whatever it may be, are made available. Use is made of multilateral payments; for example, earnings in sterling from the sale of goods to the United Kingdom may be used for the purchase of raw materials from the Sterling Area. Since the absolute volume of the exchanges with the Western countries is still so low, it seems likely that they would have to increase many times over before means of payment became a real problem. Political factors at present play the main role. This seems to have been the case, for instance, with the large “shopping list” publicized at the time of the Bulganin-Khrushchev visit to Britain. Only a fraction has been bought, even though much of it was not covered by the embargo on strategic goods. [13]

For the other East European countries the political obstacles are even more apparent. Their desire to sell in the West – their main prewar market – is no doubt still important and they would be only too happy to follow Poland in obtaining credits from the same sources, although they may not like to say so openly, since imports could ease internal economic strains. It is difficult to see any possibility of closer economic inter-penetration on the basis of “peaceful coexistence.” Indeed, the development of the European Common Market, so far as it succeeds, will probably constitute an obstacle to reestablishing trade links between East and West. [14]

Recent Appeals

Notable efforts have been made lately by the USSR to develop a larger volume of East-West exchanges. American newspapermen, economists and finally the President himself have been appealed to with arguments of mutual interest. Thus the Soviet economist, Aboltin, in a special communication to the American Economic Association, indicated that the “socialist” countries “offered a stable market not subject to cyclical changes.” Attuned to the current recession, he made the point which is a frequent standby of Soviet propaganda; that is, that “In case of an economic crisis the guaranteed stable market provided by the countries of the socialist system can substantially improve the lot of the working class and the peasantry and also alleviate the difficulties of industrialists hit by the crisis.” [15] Khrushchev made a similar point in his letter to Eisenhower of June 2, 1958. The substantial purchases from the USA which he contemplated “would enable American industries to work at a higher percentage of their capacity and would raise the level of employment.” [16]

It can hardly be assumed, however, that Khrushchev and his academic cohorts are only thinking of the welfare of the working class, or of industrialists, in the capitalist countries. Khrushchev is capable of speaking for hours about the future, with its competition between socialism and capitalism, without referring at all to the role of the working class in the advanced countries. Nor should the contradiction in the idea of the Soviet Union offering itself to capitalism as a life line in a period of crisis have escaped his academicians. Indeed, the goods which are obtained by trade still have to be realized in the internal market. How can that be accomplished when such commodities are glutting the market owing to depression?

Everyone knows that Khrushchev acts quite empirically, and speaks as he acts – by definition, as it were, he cannot be a “revisionist.” In the letter to Eisenhower the motives of the East-West trade campaign, from the Soviet side, seem quite transparently revealed. If the grandiose 15-20 year plans upon which Khrushchev is staking his reputation are to be realized, tremendous additional investment will be needed – he loses no occasion, for example, to stress “the paramount task of developing heavy industry.” However, the lags and disproportions in Soviet economy, for all the rapid expansion of recent years – and in part because of it – are manifest. There is, therefore, an imperative necessity to alleviate the strains, as far as possible, and to increase the flow of goods on to the market without prejudicing the fulfillment of the plans.

Here foreign trade can play an important role. Especially when there is a desire to “catch up” in fields where the Soviet Union is especially backward. If finished goods can be obtained in such fields, considerable investment can be avoided and valuable time bought. This is especially true in relation to plastics and chemicals – in which serious lags behind developments in the advanced capitalist countries exist. Although Khrushchev says: “The Soviet Union has every opportunity, and all the necessary resources, for successfully fulfilling the programme” [17], he goes on straight away to admit, in effect, that this is only so in the long run. Meanwhile he proposes a long list of machinery which the USSR would like to buy in the USA at once, offering in exchange, it may be said, the raw materials which typically figure in the export lists of a less developed country.

The attractive prospect held out to capitalism of alleviating crisis by trade with the Soviet Union disguises Khrushchev’s purpose of diminishing the strains of the present phase in Soviet economic development. This recognition is not, of course, an argument against East-West trade. But it does stand in contrast to some of the official boasts or claims that the Soviet Union has broken away from the capitalist world market, built “socialism in one country,” and so on.

The Economic Committee for Europe falls into such a mistake when it says: “The costs of autarchy are by now probably insignificant for the Soviet Union ...” and draws a contrast between its situation and that of the smaller countries of Eastern Europe. [18] The statement is valid only in the most abstract way; i.e., in the light of the mass and variety of Soviet natural resources. In terms of the real world it is meaningless.

For one thing the USSR is closely tied up with the other countries in the bloc, and through them with the world market. And more directly, as has been seen, not only the political but also the purely economic costs of autarchy are far too high for Khrushchev to be able to meet. His efforts to secure a larger place in the capitalist world market give the lie, too, to Stalin’s pretensions regarding the parallel world market.

The “Second” World Market

The economic relations of the USSR with the “peoples democracies” have shown many contradictions over the past decade. Most of these countries were economically backward; the first task, after the reconstruction phase in the early postwar years, was industrialization. At the same time, the economic links of these countries had formerly been predominantly with the Western European area. Under the new conditions, however, the leading trading role was played by the USSR both as an exporter and an importer. In addition, some of these countries were obliged to pay reparations to the USSR. [19]

What was most remarkable was the limited nature of the progress achieved in coordinating the economies of these countries, although they were all, after 1948, organized on a planned basis under the control of Communist parties, The Council of Economic Mutual Aid (CEMA), set up in 1949 as a counter to the Marshall Plan (which some of the East European countries might have sought to join but for Soviet opposition), did little more than facilitate agreements for trade and industrial and technical assistance between pairs of countries. [20] There were innumerable bilateral bargains amounting to barter deals – nothing as flexible as the multilateral clearings possible between the Western countries in the European Payments Union (EPU). [21]

At the same time, within these countries, all of which were small, and all except East Germany and Czechoslovakia backward, the attempt was made, in a short space of time, to establish a rounded industrial structure with emphasis on heavy industry on the lines of the Five Year plans of the Soviet Union. This served to underline their dependence upon the USSR – especially for industrial raw materials such as iron ore – which also became a main outlet for their exports. There was, however, little specialization between the countries in the industrialization plans, apart from that which was obviously imposed by physical factors.

The upshot of the unimaginative following of the Soviet model was a sequence of strains and stresses, particularly marked from 1953 onwards and culminating in the Polish October and the Hungarian Revolution in 1956. These methods had been costly in popular good will as well as in resources. It was particularly obvious that there had been inadequate coordination of planning and trade, despite CEMA.

At its sixth session in December 1955, CEMA took steps to bring in a greater degree of division of labor as far as engineering products and fuels were concerned. Provision was also made for greater coordination in the separate national plans. However, it was not until the Warsaw meeting of CEMA, in July 1957, that proposals were put forward for long-term coordination of the national plans for ten or fifteen years. Permanent commissions were set up to consider the problems of particular industries and to secure a greater degree of cooperation in research and development. A multilateral clearing was also to be worked out for facilitating trade within the area. These belated projects, which are still in the formative stage, are a token of the previous lack of such coordination, of which there have been many complaints in the East European countries in the last two years. [22]

Congressmen at Work

The need for legislation to lower restrictions on trade with other capitalist countries has been urged by Eisenhower as “vital” to “free world” strength. That the message did not fall on unit elligent minds is illustrated by the record of Congress at its last session.

Exemption on duties was granted muzzle-loading pistols and revolvers, since these are “artistic antiques” and would have “no adverse effect on American employ merit.”

Also duties on harpsichords and clavichords were lowered from forty to the eighteen per cent levied on pianos. The old rate, naturally, must be paid on instruments imported from Communist-controlled countries.

The legislators likewise did their duty by beating back an attempt to restrict imports of wood charcoal by charging a tariff of $4 a ton, another attempt to bar imports of cobra snakes and eggs, and still another to regulate imports of piranha fish for tropical aquariums.

However, on the other side of the ledger, the congressmen killed a bill to give exemption to bagpipes, kilts and other items “particularly and specifically pertaining to Scottish Highland attire and use.”

Similarly to be weighed against their achievements was rejection of a measure that would have ended import duties on “common horse, mule or ox shoes, of wrought iron or steel.”

Finally, before adjourning, they refused to permit free import of Cheddar cheese for “the international Cheddar cheese scoring contest at Fond du Lac, Wis.”

It has now become customary to castigate the mistakes of the earlier period and to accept the proposition that considerably greater advantage must be taken of the international division of labor. Of course, the advanced countries, Czechoslovakia and East Germany, in this area were particularly disadvantaged by the shrinkage of foreign markets as well as by the inadequate degree of division of labor within the bloc itself. Thus V. Kaigl, Director of the Economic Institute of the Academy of Science of Czechoslovakia, has stressed the elementary truth that in order to take advantage of the economies of large-scale production and automation the heavy fixed costs must be spread over a large volume of output. [23]

For a country with a small home market and a high degree of specialization in manufacturing, like Czechoslovakia, that means fuller participation in external trade, “the need to intensify specialization and the co-ordination of production between all the countries of the socialist camp.” It is true the Kaigl speaks only of the “socialist camp,” but no doubt it would be greatly to the advantage of Czechoslovakia to extend its market more broadly in other parts of the world, in the underdeveloped countries, for example, to which it could export machine tools and other products needed for developing industry.

The economic strains experienced by the countries in the Eastern European bloc has led to greater interest being taken in participation in the international division of labor. In order to determine the goods which it will be advantageous to trade with the rest of the world, however, more careful assessment will have to be made of relative costs of production.

According to a recent number of the Economic Bulletin for Europe it is anticipated that endeavors to take fuller advantage of the international division of labor will result “in some reversion to commodities traditionally exported to Western Europe which had been neglected in the past, and increased efforts may be made to push the production of those commodities among the new export items which appear to be competitive on western markets at prices more or less reflecting domestic production costs.” [24] The same journal notes that Hungary, East Germany and Poland have “granted enterprises the right to conclude deals directly with foreign firms in some industries.” An instance of such a deal is that between Poland and India in 1956, concerning state enterprises on both sides in which Polish steel and cement were exchanged for Indian iron ore. [25]

Up to now, however, the East European countries have been highly dependent on the USSR. To a considerable extent Soviet trade took the form of an export of raw materials which later, in part, returned to the Soviet Union in finished form. But a good deal of the industrialization of the area was carried through with the help of machinery and even fully equipped plants from the Soviet Union. Continuing industrialization, especially because of the disproportions involved in the method by which it was undertaken, has increased dependence on the USSR. Meanwhile the flow of finished goods back to her market now constitutes an important addition to supplies for consumers increasingly insistent upon the availability of more and better quality goods.

No doubt these countries have been assets to the Soviet Union, at least until the last two years or so – she has been able to get the better of trading bargains. Since no balance of payments figures are published and such items as military aid are unknown it would be an impossible task to draw up a balance sheet. Even hostile critics now admit that the current net balance is flowing the other way. [26] Hungary has become a heavy liability. Considerable aid and concessions have had to be made to Gomulka’s Poland and, in a lesser degree, to East Germany and Albania. [27]

China Needs Aid

The victory of the Chinese Communists and the need to carry forward the economic development of a backward Asiatic country of 600,000,000 people simultaneously raised new and immense problems. The major part of the capital for investment in Chinese industrialization had to come from domestic resources. But outside assistance was imperative and, with the hostility of the capitalist world, it could only come from the USSR and Eastern Europe – themselves by no means endowed with a surplus of capital in this period.

Although a great deal of equipment for industries and collective farms was received from these countries, this aid was offset to some extent by that which China had to grant to North Korea and Viet Nam. The Chinese economy was under considerable pressure to export, and still is, in order to expand trade with its trading partners in Eastern Europe or anywhere else so far as trade restrictions allow. The economic problems of China have not been unlike those of the East European countries in recent years. The Soviet Union has taken the place of the rest of the world as a trading partner – accounting for about 80% of Chinese trade in 1954. Several loans have been obtained from the USSR to be paid off in agricultural and mineral products and handicraft goods.

Still capital is short and some raw materials have to be bought abroad. This imposes a strain on agriculture, which is the main sector from which exports can be derived. While agricultural production increases too slowly, domestic consumption tends to rise; as a consequence, “planned targets for export often have to be lowered because of increased domestic demand.” [28] There is no doubt that the trade embargo imposed by the United States has, as was intended, increased the strain of industrialization. [29] Or putting it another way, if China could have participated more freely in the world market her economic development would have been smoother.

Whether in its European or Asian segments the so-called “parallel world market” has been inherently incapable of compensating for lack of fuller participation in the world market. Indeed, the fullest possibilities of international division of labor within this market have not been seized as they could have been. In large part because of the nature of the economies which compose it, the volume of their exchanges is very much smaller than those in the rest of the world. The raising of income levels within it both depends upon, and will make necessary, increasing specialization and exchange – thus does the world market impose itself.

Soviet Prestige

In the last decade or so the attractive power of Soviet central planning has been particularly marked in those countries which, having recently acquired political independence, have been seeking to carry forward policies of economic development. Even where this influence has not taken the form of the emergence of an influential Communist party, it has, nonetheless, been evident in the prestige of the USSR and the interest taken in its economic achievements. Indeed, the experience of the USSR is directly relevant to countries faced by the need to embark upon heavy investment programs in order to raise future income levels. The remarkable economic development in Soviet Central Asia, for example, cannot fail to impress when compared with the continued stagnation or sluggish growth of similar areas. [30]

Further, the existence of a non-capitalist group of powers provides the ruling groups in the newly emancipated countries with valuable possibilities of maneuver and of leaning upon the Soviet Union in order to counter the influence of imperialism. [31] Until the last few years, however, although the USSR might proffer counsel and facilitate cultural exchanges and the like it could hold out little in the way of material assistance to compare with the flow of US dollars. But this pattern is changing. To a certain extent, and in growing measure, the countries of Asia today, perhaps those of Africa tomorrow, can turn to the USSR for technical and financial assistance, thereby reducing their dependence on the capitalist countries and contributing to the rounding out of their new-won status.

As already pointed out, there is a double possibility of propaganda exaggeration in the extent of the aid so far given. On the other hand some capitalist critics have been busy deflating these exaggerations to something like their true dimensions.

Of the total of $1,900,000,000, for total Soviet aid to “uncommitted” countries since 1955 publicized by the State Department, one-quarter went to Yugoslavia, one-quarter in arms to Egypt, Syria and Afghanistan, and, according to The Economist, of the remainder, “only a fraction has actually reached the recipients.” [32] There are, of course, sour grapes in this writing down of a new threat to world capitalism which actually cannot but give grave concern both in the USA and in Britain Indeed the increasing attention it receives in the press is an index of mounting anxiety. After all, the arms shipments to Egypt were a thorn in the side of the imperialists; nor can the more recent aid to Indonesia, relatively small as it is, be brushed off so easily. [33] Since the credits so far granted are for a period of years, the whole sum has not yet actually been received in goods; but it will be – and there will be more to follow. The significant thing is that a beginning has been made.

However, when all has been said and done, both aid and trade are, so far, on a relatively small scale. Future aid depends upon the ability of the Soviet economy; and also upon the health of the East European countries and China, which will undoubtedly have prior call on available resources.

What are the prospects here? Clearly, continued rapid growth on the scale necessary to fulfill Khrushchev’s promises will require considerable new capital investment in the USSR. Some sectors of the economy, in particular, will require either expansion or a greater effort at re-equipment. Certain geographical areas, including Central Asia, lag behind in income levels and still need much new investment if they are to be brought up to the level of the more advanced regions. Agriculture, transport and power, for example, all need huge new investments of capital if per capita income is to be brought up to West European levels. Likewise, in Eastern Europe, further Soviet aid may be needed in order to bolster the economy. As for China, there will, for many years to come, be an inexhaustible demand for capital.

Great demands are therefore likely to be made on Soviet productive capacity in the coming period, so great that a tremendous outflow of aid to “uncommitted” areas is unlikely. On the other hand, there will undoubtedly be “surpluses,” both of raw materials and of capital goods, as capacity expands, which it will be in the interests of the Soviet Union to exchange on the world market or to deploy in aid in accordance with international political needs. Indeed, it may, in the interest of external security, be worthwhile, or necessary, to supply these goods on long credit terms to underdeveloped countries. On the other hand, taking Khrushchev’s protestations of “peaceful coexistence” at their face value, the Western countries may propose, as The Economist suggests, Soviet participation in a United Nations program of aid to the underdeveloped countries.

Trade, as distinct from aid, between the USSR and Eastern Europe and the other continents, also remains of comparative insignificance. Thus a United Nations report states, “Even after the increases in recent years, trade with overseas areas is still of relatively small importance in the foreign trade of East European countries. In 1956 it probably accounted for some 6-8% of their total foreign trade and some 30% of their trade with the Western trading region.” Similarly, “For the overseas trade-partners the relative importance of the trade is even smaller and rarely amounts to more than 3%.” [34]

Trade with Latin America is small – since that area is under the dominance of the USA – so is that with Africa. Even in Asia and the Far East, where the prestige of the USSR is highest, trade is still small compared with that of the capitalist countries. Thus India’s trade with the USSR and Eastern Europe is roughly only one-tenth that with the United Kingdom. The same is true of Indonesia, where trade with the USSR in the first six months of 1957 amounted to only £8,000,000 for imports and exports combined.

The Soviet impact on world trade, while growing, so far remains small. There is no special pressure to sell, though there is clearly an advantage in exchanging surpluses for goods which can contribute positively to internal economic development. But Soviet transactions – selling, buying or making credits – can be pursued with one eye on the political implications. The politically independent underdeveloped countries, seeking to extricate themselves from economic subservience or wishing to find a support in opposition to the imperialist powers, turn increasingly to the USSR for economic aid. Political expediency, as well as the claims of economic advantage, will in fact largely determine the kind of bargains into which the USSR will enter. And in the existing political division of the world there is not the choice of abstaining. From this standpoint, too, the USSR finds itself inextricably involved in the world arena. In particular it cannot stand by and watch the “underdeveloped” countries swinging into the balance against the Soviet Union, behind the USA under the rule of American stooges.


This survey suggests that the economic impact of the “Eastern bloc” on the capitalist world market, while growing, is still modest. There appear to be distinct limitations to spectacular growth in the immediate future, though no doubt the trends of recent years towards a greater volume of exchanges will be continued.

The further growth of those economies will impose the need for greater specialization – both within the so-called “socialist camp” and between its component countries and others in the capitalist orbit. As pointed out, the Czechs, with their advanced industry and confined territory, are especially sensitive to this factor. But to a greater or lesser degree these needs are felt from China to Rumania.

Increasing contact with the world market will impose the need for greater flexibility and will reveal weaknesses – exposing bureaucratic mismanagement to the scrutiny of comparison. Indeed this has long been the case, especially with East Germany and Czechoslovakia. Thus the United Nations Economic Bulletin for Europe pointed out that in both these countries in 1957 “the relatively high rates of growth of over-all output which have so far been maintained conceal continuing failures to produce the assortment and quality of goods required and to reduce production costs according to plan. The familiar reports of failure to meet export contracts continue in Eastern Germany, where the annual plan for export deliveries was fulfilled only to the extent of 44% in the first 8 months of this year [1957].” In Czechoslovakia “equally familiar complaints persist – of failure to deliver machines and equipment of required type and quality, both to domestic users and to export, and of shortfalls in planned supplies of rolled steel and other foundry products.” [35]

In the period of the first Five Year plans in the USSR, what impressed world opinion was not only the tempo of growth which was achieved but the coincidence of it with falling production, chronic depression and stagnation in the capitalist world. In assessing the full economic impact of the USSR in the coming period, therefore, it is not only its relations with other countries and the world market which will be significant. To a greater extent this will reside in the possibility of economic difficulties, stagnation or even decline in the capitalist world side by side with continued expansion in the centrally planned economies. Then, for example, the question of the influence which this will have, not only on the underdeveloped countries, but also on the working class of the advanced countries becomes of paramount importance.

The terms of the problems of East-West economic relationships are simplified and vulgarized in the current propaganda of the Soviet leadership and its faithful echoes throughout the world. In fact, far from being straightforward, these relationships are shot through with all the contradictions which arise from the confrontation of the two systems resting on incompatible bases.

On the one hand both “camps” are part of a world market – which asserts itself upon all countries despite political barriers. Indeed, these two “camps” compete and conflict in and through this market – for example to win the allegiance of “uncommitted” countries – just as they carry on economic dealings which are mutually advantageous. But beyond this the development of the non-capitalist segment weakens permanently and progressively the economic and political hold of the capitalist world system. It withdraws whole areas of the world from imperialist exploitation. It provides a point of leverage which other peoples use to win or extend their freedom of action.

On the other hand, the weakening position of capitalism, which shows through despite the prosperous recent phase of its development, leads individual countries to look to their own possibilities of extending their market by trade with the Eastern bloc. This tendency has been more pronounced precisely since the boom has shown signs of flattening out and has even given place to the probability of recession on a world scale. Under these conditions it becomes more difficult for a common policy of trade embargoes and restrictions to be imposed at the command of the USA.

At the same time, the economic development of the Eastern European countries, the USSR and China proceeds amid disproportions, distortions and sudden turns. Their productive forces expand, but not smoothly and in a straight line. There are weak links, unsolved problems, and the overhead of the bureaucratic political regime. A prime need is that of increased coordination and specialization to smooth the process of industrialization and to satisfy the demands of consumers for more goods, greater variety and quality. The pressure towards fuller participation in the world market follows – but not on the lines indicated by the “peaceful coexistence” nostrum of maintenance of the status quo. The basic issue in the long run is: Will capitalism be able to continue to dominate the world market? This is already so apparent that even comparatively slight encroachments by the USSR cause alarm and speculation, especially where the “underdeveloped” countries are concerned.

The working out of the issues discussed here will be inextricably involved with all those political and economic forces determining the fate of mankind in coming years. No tidy set of slogans can provide an answer; but in elaborating policy for the working-class movement careful note must obviously be taken of all the trends and possibilities, of which some indication has been given, in order to utilize them to the best advantage.

Editor’s Note

1*. Tom Kemp, a contributor to the British socialist publications Labour Review and The Newsletter, teaches economics at Hull University.



1. For more extensive background see M. Dobb, Soviet Economic Development; A. Baykov, Soviet Foreign Trade; H. Schwartz, Russia’s Soviet Economy. Postwar developments are well covered in the publications of the United Nations, especially the annual World Economic Survey, the Economic Survey of Europe and the quarterly Economic Bulletin for Europe. For developments up to 1950 see Soviet Development Bulletin (University of Birmingham) No.5, March 1951, and other bulletins in the series.

The statistical “thaw” in the USSR has made available fuller information about external trade – hitherto covered by a thick security blanket The Economic Committee for Europe had frequent cause to complain of this; cf., their Survey of Europe, 1956. While welcoming the new data in the Survey of Europe, 1957, they point out that statistics are still inadequate as regards geographical and commodity patterns and for making a full appraisal of the significance of foreign trade in the economies of the USSR and East Europe.

2. See, for example, Dobb, op. cit., p.238 and note 2 “Such foreign credits as the country was able to obtain in those years were used up in offsetting the unfavourable movement in the net terms of trade.”

3. J. Stalin, Economic Problems of Socialism. Stalin also indicated that this would mean “that the sphere of exploitation of the world’s resources by the major capitalist countries (USA, Britain, France) will not expand, but contract; that their opportunities for sale in the world market will deteriorate, and that their industries will be operating more and more below capacity.” Thus it was inferred that Stalin’s theory “regarding the relative stability of markets in the period of the general crisis of capitalism” and Lenin’s “that in spite of the decay of capitalism, ‘on the whole, capitalism is growing far more rapidly than before’,” were both now valid. See pp.34-I.

4. There have been many discussions, about this from the Communist party standpoint in the past decade or so. For an early example, see A. Rothstein, Economic Relationships Between the Two Worlds in The Modern Quarterly, No.4, 1951. His conclusion was that it was time to normalize trade relations and that this should be “the particular duty of all those engaged in trade, industry and economic studies – whatever their political standpoint – who are concerned for the welfare of their respective countries.” This in the leading “Marxist” theoretical journal in Britain.

5. In the section devoted to East-West economic relations in the Economic Survey of Europe Since the War (1952), the Economic Commission for Europe deplored the keeping apart of “two areas with highly complementary production structures.” It went on to say that the economic effects of this split are profound, as witnessed by western Europe’s difficulties in financing food imports from overseas, and in the strains involved in eastern industrialisation under conditions of low imports of commodities (not to speak of capital) from outside the area. The economic loss arising from this political split does not lend itself to measurement? (P. 215) In purely “economic” terms the ECE was right – but to sever the economic from the “political” and regard the latter as opposing an artificial barrier to the first was to misunderstand the whole nature of the problem.

6. “Lasting peaceful co-existence is inconceivable without trade, which provides a good basis for it even after the formation of two world markets.” (Mikoyan’s emphasis) Trade would be “mutually beneficial” being “determined by the very necessity of the social division of labour, by the generally known fact that not all goods can be produced to the same advantage in all countries.” Soviet News Booklet, No.8, p.11.

7. See Economic Bulletin for Europe, Vol.9, No.2, p.47. “Press reports indicate substantial eastern European orders for western European machinery during the current year [1957]. Poland, for example, has ordered mining equipment and electrical equipment in several western European countries. The Soviet Union is reported to have ordered several complete industrial plants from the United Kingdom, including one for the manufacture of rubber tires.” Total exports of machinery from West to East totalled $150 million in 1956, but this represented only 2.4% of total machinery exports. Ibid., p.46.

8. This was in Mikoyan’s mind when, in referring to the Western embargo on trade to China, he said that this “could enable some of them [i.e., the Western countries] to avoid curtailing production during the period of inevitable crisis.” On the other hand. Communist party demands for East-West trade are often couched in terms which suggest that it can provide a specific against unemployment. While to a limited extent this may be true, the market in the Eastern bloc could only provide an outlet for certain countries, or parts of industry in such countries. The basic problem of capitalist crisis still remains.

9. Aluminum sales were reported in The Manchester Guardian, March 31, 1958, with the comment: “The range and size of Russia’s exports of primary materials is rapidly growing.” It was suggested that in certain lines – raw materials, heavy industry – output had grown ahead of ability of user industries to absorb it. The changes in the composition of armaments was instanced as another factor.” The article concluded: “We must expect growing Russian exports of raw materials and capital goods, if necessary, financed by loans, credits, and aid.” Should this influx of raw materials reach sufficient dimensions it could have a serious effect on markets already suffering for some time from oversupply and falling prices; and the “underdeveloped countries” would be the first and worst affected in all probability.

10. This point is made in virtually all studies of Russian foreign trade.

11. C. Bettelheim, L’Economie Sovietique, 322.

12. Economic Bulletin for Europe, Vol.9, No.2, Table 3. D.37. Other points to note: “The share of western Europe in total eastern European trade increased from only a little over 15% in 1952 to almost 19% in 1956.” (p.36) In the world context, the World Economic Survey, 1956, reported: “Although in 1956 the value of trade of the centrally planned economies with the rest of the world reached an all time high of more than 5 billion dollars, it still accounted for less than 3% of world trade ... The trade of mainland China with countries outside the centrally planned group rose by more than one-third, and that of the Soviet Union by nearly 30%. The trade of other eastern European countries with the rest of the world rose by only 15%.” The increase in the share of Western trading regions with the Soviet Union and Eastern Europe, in the Economic Survey of Europe, 1956, was stated as “probably to be explained-largely as a result of special difficulties in trade between east European countries and the Soviet Union.” (p.17)

13. According to The Financial Times, March 25, 1958, “only a trickle” of these orders have been received, although a billion pounds sterling was spoken of at the time of the Bulganin-Khrushchev visit.

14. This is put as follows in the Economic Survey of Europe, 1956: “One effect of the Free Trade Area rules will be to make it more difficult for west European countries to enter into trade agreements with the countries of eastern Europe and the Soviet Union which involve any discrimination in favour of imports from these countries as compared with imports from other members of the area.” As Soviet trade is carried on through bilateral agreements, the FTA would cut at the root of East-West trade bargains. No doubt this will not at all disturb the initiators of the BCM and FTA. It may lead, however, as the Economic Commission suggests to an intensified trade drive by the eastern European countries in other areas.

15. Aboltin, in the American Economic Review, May 1958, p.388.

16. Soviet News (London), No.3852.

17. Ibid.

18. Economic Survey of Europe, 1957, Chapt.VI, p.30.

19. See, for example, the study by a critic, N. Spulber, in The Economics of Communist Eastern Europe, which is useful for data.

20. V. Kaigl, Fraternal Collaboration and the International Division of Labour within the World Socialist Camp, originally appearing in Vodrossy Ekonomiki. French translation in Problemes Economiques, No.532, March 11, 1958. He describes the errors and limitations of this cooperation which, according to him, was leading, until 1953, to “autarchy and economic isolation.” He points out that successful industrialization requires “the largest possible development of the international division of labour within the socialist camp,” etc.

21. The Statist, January 25, 1958.

22. Kaigl, op. cit. The July meeting was reported somewhat nonchalantly in the Communist party press considering the criticism it reflected of previous practice.

23. Kaigl, Characteristics of the Building of Socialism in Czechoslovakia, in Etudes Economiques (published by the Economic Section of the Central Committee of the French Communist party).

24. Economic Bulletin for Europe, op. cit., pp.47-8.

25. Economic Survey of Asia and the Far East for 1956, p.32.

26. For example, see the very biased article by V. Winston in the US Information Service’s Problems of Communism, Jan.-Feb. 1958. According to Winston the Soviet economy will, for the future, have to bear “the added burden of supporting a weakened satellite system” which will constitute “a significant irritant and strain.”

27. For aid to Hungary see Economie et Politique, July 1957, pp.84-92; for Poland, Economic Bulletin for Europe, Vol.9 No.1.

28. See the Economic Survey of Asia and the Far East, 1956, for a short study of recent trends in Chinese foreign trade. The share of Eastern Europe and the Soviet Union in Chinese trade rose from 23.4% in 1950 to about 80% in 1954. The USSR has supplied numerous industrial plants and equipment for state farms on long-term loans. Detailed figures of Chinese trade are not available.

The Economic Bulletin for Asia and the Far East, reported that the volume of Chinese trade was expected to fall in 1957 owing to a cut in food exports.

29. By 1957 the embargo on trade with China was becoming increasingly irksome to Western countries. Thus Britain placed her trade with China on the same basis as that with the rest of the Soviet orbit. (The embargo remains on “strategic exports.”) A Commercial and Technical Mission from China visited Britain in the winter of 1957. (See Board of Trade Journal, March 7, 1958. ) It was reported to he willing to purchase some £700,000 of textile machinery. But the Board of Trade Journal also noted: “Most firms reported that a serious impediment to their prospects of expanding their trade with China was the continuance of the strategic embargo, and it was instructive to note in this connection that a very wide range of the products in which the Mission was most interested were embargoed goods.” There seems little doubt that it is only in deference to the US State Department that these restrictions are maintained. Without restrictions it is doubtful whether China could afford to buy “strategic” commodities in sufficient quantities to have any real strategic significance.

30. See, for example, the article in The Economic Bulletin for Europe, Vol.9 No.1, on Soviet Central Asia, which gives a balanced picture of what has been accomplished, what remains to be done and the deficiencies which have persisted.

31. Hence a note of anxiety in newspaper items. Thus in The Times, March 28, 1958, while recording that the USSR had made one hundred agreements with underdeveloped countries in 1957, the correspondent wrote, “It seems certain that the Soviet Government intends to win its competition with the free world in the fields of trade and aid in the uncommitted countries.” While insisting that so far aid from the Western countries far exceeds that from the Soviet Union it was added ominously that “the pace is likely to get hotter. “

32. Escape from the Aid Maze, The Economist, March 1, 1958. There is some truth in the point made that “the Communist powers can reap a rich propaganda harvest even from their more hollow gestures.” This was demonstrated at the Cairo Conference. The Economist does not, of course, understand why this is so. It arises essentially from the anti-imperialism of the former colonial or semi-colonial countries whose people hail with relief the prospect of what they view as disinterested assistance through which they can move towards economic emancipation. It is true that their hopes are exaggerated and there may also be truth in what this journal of the City writes – “that the novelty of Soviet aid is wearing off, and that the recipients are learning to scrutinise it more carefully.”

33. Recent Soviet sales to the Indonesian government include ships and aircraft, the latter for use against the rebels. The State Department meanwhile affirms that it will not sell arms to the Indonesian government and appears to be supporting, at least morally, the reactionary military rebellion.

34. Economic Survey of Europe, 1958. About three-quarters of the foreign trade engaged in was between members of the “socialist camp.”

35. Economic Bulletin for Europe, Vol.9 No.3, p.15.

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