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The Collapse of Stalinism

Part one

41. This process led to the formation of peculiar hybrid states, in which counter-revolutionary governments moving to establish capitalism, rested on the economic foundations inherited from the workers' state. This is not the first time in history that hybrid or transitional forms of society have emerged. Under such conditions it is not always possible to apply a fixed social category: capitalist state or workers' state. The regime of the Sandinistas in Nicaragua (1979-90) was a hybrid of a different type. A new state was created by the victory of the guerrillas over the old dictatorship, which had every possibility of moving in the direction of proletarian bonapartism and breaking the power of the capitalists. But under the influence of their Soviet advisers, the Sandinista leaders refused to complete the revolution, and for a decade the new state coexisted uneasily with an economy dominated by the capitalist class. Such a situation, however, cannot exist indefinitely and eventually, in the case of Nicaragua, the capitalists were able to re-establish their control over the state apparatus.

42. In eastern Europe and the former Soviet Union we have seen a similar process develop in the opposite direction. Following the defeat of the political revolution, for the reasons explained above, bourgeois governments came to power, resting upon wholly state-owned economies. While there are variations, with this process acquiring a more rapid tempo in some countries than in others, these are all transitional regimes, moving in the direction of capitalism, but where capitalist economic relations are still far from firmly established.

43. Immediately after the victory of pro-restorationist regimes in eastern Europe, we characterised these as bourgeois regimes in the process of formation. Of course, in a rapidly changing situation the forces of revolution and counter-revolution do not mark time. It is therefore necessary to make a more precise definition, taking account of how this process has developed. Because of the weakness of the subjective factor and the disorientation of the proletariat, we have seen a further strengthening of the counter-revolution. This is especially the case since the collapse of Stalinism in the former USSR, which gave a further impetus to reaction throughout eastern Europe. While economically, the shift to capitalist relations is encountering enormous difficulties, a decisive transformation has taken place within the state apparatus in all these societies. The commanding sections of the armed forces, civil service, and management of state industry, have shifted over to a bourgeois standpoint. In these societies the foundations of a bourgeois state have been established.

44. As Trotsky explained:

"If... a bourgeois party were to overthrow the ruling Soviet caste, it would find no small number of ready servants among the present bureaucrats, administrators, technicians, directors, party secretaries and privileged upper circles in general. A purgation of the state apparatus would, of course, be necessary in this case too. But a bourgeois restoration would probably have to clean out fewer people than a revolutionary party." (Revolution Betrayed, Social Relation s in the Soviet Union, page 253)

 

45. This process has taken place in all the former Stalinist states. The scale of actual purges of the old state officials varies, but in most countries it has been minimal. In Czechoslovakia, within a year of the collapse of the Stalinist regime, 30,000 political officers had left the army. Most of these were demoralised ex-Stalinists who resigned or retired, rather than being dismissed. 50,000 of the Soviet Army's former political officers were removed after the defeat of the August coup, though more than half were re-employed in other positions. In the former East Germany, a more thorough purge took place as West German capitalism installed its own officials in key positions in the state. In general though, rather than a physical purge, we have seen a shift in allegiance and class outlook within the state apparatus. The mass of the old functionaries, generals and police chiefs have gone over to a pro-bourgeois position. Moves in most of these countries to establish smaller, professional armies, abolishing conscription, are intended to underpin this transformation. In Hungary, where unlike most of eastern Europe no mass movement developed against the old regime, nevertheless the regime and its state apparatus went over, almost en bloc, to capitalist restoration.

46. Therefore these are bourgeois states which have not yet succeeded in establishing viable capitalist economies. The degree to which capitalism has made inroads into these economies varies from state to state. In some, particularly Poland, Hungary and the Baltic States, the private sector already accounts for a significant proportion of GDP (30 per cent in Poland in 1991, according to the World Bank). I others, the bourgeois regimes have barely begun to dismantle state ownership. But even if decisive sections of the economy remain in the state sector, this does not exclude the predominance of capitalist relations. In Portugal, after the 1974 revolution, 70 per cent of the economy was nationalised, nevertheless it remained a bourgeois state. Given the weakness of the nascent bourgeois class, a large nationalised sector is likely to remain. Unlike under Stalinism in the past, these industries will not be integrated into a plan, and will function as individual "state capitalist" concerns, like the existing nationalised industries in the capitalist countries.

47. This is the case in many underdeveloped capitalist countries, where the state is forced to step in and run certain branches of industry. This is done on a capitalist basis, and serves the interests of developing a capitalist economy. Lenin explained, in 1921, that:

"state capitalism in a society where power belongs to capital, and state capitalism in a proletarian state are two different concepts. In a capitalist state, state capitalism means that it is recognised by the state and controlled by it for the benefit of the bourgeoisie, and to the detriment of the proletariat." (Report on the Tactics of the R.C.P., Collected Works vol. 32, page 491.)

 

48. It is clear from the above that Lenin's concept of state capitalism is not to be confused with the mistaken theory of state capitalism which argues that the Stalinist planned economies were just a variant of capitalism.

49. While capitalist relations are not consolidated in these societies, nevertheless the task facing the proletariat has now fundamentally changed. The advances of the counter-revolution mean that a political revolution is no longer in itself sufficient to bring the proletariat to power. The political revolution was posed in the past as a 'supplementary' revolution to clear out the bureaucracy and establish workers' democracy, on the basis of the planned economy. The destruction of the planned economy, with the development of a bourgeois state and increasingly bourgeois property, poses the need for a new social revolution in these societies, which would overthrow the bourgeois state, reverse the denationalisation of major companies and draw up a democratic plan of production. This can only be accomplished by the proletariat armed with the programme of Marxism.

50. Marxists completely reject the idea that capitalism is capable of playing a progressive role in these societies, by developing the productive forces. On the contrary, the return to capitalist relations is wreaking a trail of economic destruction across eastern Europe and the former USSR. In eastern Europe as a whole, GDP declined by 15 per cent in 1991. Poland's GDP has slumped by 30 per cent since 1989. Unemployment in Poland now stands at 12 per cent and is forecast to reach 18 per cent since 1989. Unemployment in Poland now stands at 12 per cent and is forecast to reach 18 per cent by the end of 1992. Even in Hungary and Czechoslovakia, with stronger economies, GDP has fallen by 15 per cent and 25 per cent respectively during the last two years.

51. The prospects for economic development in the former Stalinist states are tied inextricably to the perspectives for world capitalism. If a new period of capitalist upswing, on the lines of 1950-73 was in prospect, then it would be entirely possible for at least some of these states to overcome their problems and establish viable capitalist economies. However, this is an extremely unlikely perspective. Against a background of deepening international capitalist crisis, these fledgling capitalist states face a desperate future as weak, semi-colonial economies.

52. The new bourgeoisie is drawn primarily from the ranks of the old bureaucracy and the mafia of former black marketeers. These are the only sections in a position to profit from the plundering of state assets. The former mayor of Moscow, Gavriil Popov, for example, is now the fifth richest man in Russia. Far from developing productive forces, this emerging capitalist class plays a completely parasitic role. In Poland, 87 of every 100 new businesses are trading companies which do not themselves produce anything. Likewise, most foreign investments and acquisitions have not led to any real development or increased production. For many, the aim is simply to establish an outlet within the national market for part-assembled imports to be finished by cheap local labour.

53. These societies do, of course, offer a reservoir of cheap skilled labour for world capitalism. Wage levels in Poland are now, according to the Economist (21.9.91), half the level in Mexico at current exchange rates, while wage levels in Bulgaria have actually fallen behind India! But despite this, foreign investment has been negligible. In the case of Poland, less than $1 billion has been invested since 1989. Even Hungary, which has attracted more foreign investment than any other country in eastern Europe, has only received $2.5 billion. A supply of cheap labour is not enough for the capitalists. They will only invest if they can make profits and if there is a market for their goods either in these societies or in an expanding world market. These low wage economies offer an extremely limited market for capitalism. In Czechoslovakia, for example, consumption fell by 23 per cent last year, as the government's savage monetarist policies took effect.

54. In addition to the limits of the domestic market in these states, the capitalists face a problem of excess industrial capacity in the West and the likelihood, at best, of low growth in the world economy. All these factors limit the scope for major investment in Russia and eastern Europe. Alongside economic factors, there are important political factors which act as a disincentive to foreign investment, namely the extreme instability of these regimes, and the fear that this transition can be reversed. There is growing popular resentment towards foreign capital making off with the "family silver". This is also connected with historical factors such as Czechoslovakia's domination by Germany and Austria in the past. This pressure prompted the government in Czechoslovakia to make an appeal for "non-German investment".

55. This is not to say that further foreign investment is excluded. Especially in more developed sectors, in Hungary, the Czech lands, the Baltics, parts of Russia, there will be a certain degree of investment. But in general, the character of this investment will be 'colonial', with the aim of exploiting cheap labour in order to export back to the western market. The acquisitions of Hungarian electrical producer Tungsram by General Electric, and Skoda cars in Czechoslovakia by Volkswagen, are typical of this kind of investment.

56. As the biggest investment project in eastern Europe, the example of Skoda is instructive. Skoda sales last year (1991) fell to 30,000 against a target of 123,000. Production has been cut from 930 to670 cars a day and 1,800 production workers have been sacked. While VW have not announced any plans to introduce new technology, their first act was to close all Skoda's export contracts. While in future it can't be excluded that VW may modernise its Czech plants and even shift some production from Germany, the aim of this takeover was clearly predatory - to transfer Skoda's market share to VW with a minimum of new investment.

57. Therefore, even with certain pockets of foreign investment developing, especially in the most technologically advanced sectors of the economy, this will not have a decisive effect on the economy as a whole. In the former Stalinist economies, production is concentrated in outdated, technically obsolete branches of industry, where no private investment is seriously in prospect. The limited foreign investment of the last period is miniscule in comparison to the sums needed to modernise and re-equip industry. While private capital has generally been reluctant to intervene, western governments and their agencies have been forced to offer certain concessions in the form of aid and loans to prevent further destabilisation threatening Imperialism's worldwide interests. However, these sums in no way meet the requirements of fledgling capitalism in eastern Europe and the former USSR.

58. Consequently, even according to the most optimistic assessments of western economists, these countries face years of deep recession. The World Bank predicts that output per head in eastern Europe will not return to its pre-1989 levels until 1996 or later. According to the Institute for International Economics in Washington, to catch up with average incomes in the EC in the next ten years, the six countries of eastern Europe (including the former Yugoslavia) would require $420 billion a year of investment. Nothing like this sum is being offered by world capitalism.

59. Realisation of the enormity of the tasks confronting nascent capitalism has already divided these regimes and their imperialist advisors. The "fast track" school argue that a "big bang" is necessary to break up the old structures as quickly as possible in order to lay the basis for capitalism. If the state continues to play an economic role and the nationalised industries are not privatised then, they argue, there is the continuing danger that the restoration process can be reversed. Their opponents argue that the "big bang" itself threatens the restoration process by plunging the economy into chaos. This runs the risk, sooner or later, of provoking mass opposition to capitalism.

60. At this stage the protagonists of the "fast track" school clearly have the upper hand. This school rejects Keynesianism and state intervention and espouses rapid privatisation of state enterprises and the freeing of trade. Various schemes have been unveiled for sweeping privatisation of the economy. It has become clear, however, that this approach is already encountering massive problems.

61. Firstly there is the sheer scale of the privatisation which has been proposed. As the Economist survey on eastern Europe explained (September 21^st 1991):

"The biggest privatisation effort in history has been Chile's disposal of 470 enterprises, producing 24% of the country's value-added and employing 5% of its workers, between 1973 and 1989. Even this was accomplished only because many of the firms were simply handed back to previous owners... By comparison, Hungary has about 2,300 state-owned firms, Poland 7,500, Czechoslovakia 4,800, Bulgaria 5,000 and Romania 40,000."

 

62. Secondly, there is the evident reluctance of foreign capital to invest. Again, according to the Economist survey:

"Undoubtedly sales to foreigners will continue. But many of the most promising firms, those with a recognised brand name such as Skoda, the Czech car maker sold to Volkswagen, have already been snapped up. Even wild optimists expect only 15-20 firms a year to be sold to foreign investors."

 

63. Given this, where is the capital to come from to finance these grandiose privatisation plans? In Poland, the entire stock of personal savings is equivalent to less than 10 per cent of the estimated value of Polish industry. The only sections of society who have been able to but up newly privatised companies, and these have mainly been in the small business sector to date, are the ex-bureaucrats and black marketeers. This is producing a political backlash, as workers see these crooks profiting from the privatisation process.

64. In order to quickly circumvent these barriers to rapid privatisation, and to overcome the resistance of the working class, many of these bourgeois regimes have opted for voucher schemes, either sold cheaply or given free to every citizen. In return for vouchers, each citizen is promised a certain number of shares in the future, creating the impression of shared ownership and a form of 'popular capitalism'. In Czechoslovakia over 8 million people, assured that a US $35 stake now will be worth US $4,150 in two years' time, have bought the vouchers.

65. But despite the apparent success of the Czechoslovak scheme, with workers taking out insurance against the hard times ahead, these voucher schemes are deeply flawed. Most of the industries in these societies are simply not viable without massive investment and modernisation. According to the most optimistic assessments, 20 per cent of companies in Czechoslovakia will go bankrupt this year (1992) and only 35 per cent are likely to survive the next 5 years. Again, as the Economist survey pointed out:

"Many east European firms are also "value subtractors" - that is, at world prices the value of the resources they consume is worth more than what they produce... According to one recent study, 20-25% of manufacturing industries in Poland, Czechoslovakia and Hungary could be value subtractors."

 

66. The Achilles' heel of all the proposed voucher schemes is that they only signal a transfer of ownership. They do not create any new wealth for investment in new technology. The revenue from vouchers, if there is any, goes to the government not the companies concerned. It does not therefore directly generate any new investment, which is the main barrier to economic development in these states.

67. At this stage, given the confusion within the working class and its organisations, these schemes can delay and complicate the task of mobilising mass resistance to privatisation. Sections of the workers' movement have advocated participation in the schemes, arguing that at least this will enable workers to exercise some influence over the privatisation process. Partly as a reaction to bureaucratic control under Stalinism, the idea of employee shareholding schemes, and the confused concept of 'self-management' has support among leftward moving workers. But experience will demonstrate that this is a trap for the proletariat, an attempt to neutralise its opposition to the plundering of state assets. The Russian government, for example, are proposing to give workers in large enterprises 25 per cent of the shares. But as elsewhere, these will be non-voting shares, with real control passing to the banks, investment funds and big shareholders. When the inevitable bankruptcies and redundancies take place, these employee-held shares will be show to be worthless.

68. All the current attempts to provide a cushion against popular resistance to privatisation could turn into their opposite. Mass opposition could develop, not just as a result of redundancies and closures. The funds which are to administer the new vouchers or shares are extremely shaky. When the wild promises of big dividends fail to materialise, this itself could provoke a movement. Also the issue of foreign ownership and control is highly controversial in these societies. In Poland, 20 funds have been established to manage the shares created by the new scheme. While nominally run by Polish directors, these funds, which will control 25 per cent of total industrial output and 12 per cent of industrial employment, are to be manages by western companies and banks. This idea is already inflaming mass opposition.

69. If, as is entirely possible, one or a number of the funds crash, swallowing the life savings of tens of thousands of workers, this in itself could provoke a social crisis. In Czechoslovakia, there has been blatant criminal involvement in the newly established Investment Privatisation Funds (IPFs). Government advisers warn that only 30-60 of these funds are themselves likely to survive the next two years. They have already raised the scenario of re-nationalisation to prevent mass closures and strikes.

70. Why then, have the fledgling capitalist class embarked upon this course? Partly because they are under the sway of the prevailing Reagan-Thatcher ideology of the bourgeois in the West. But a further decisive factor is the need to create a new capitalist class as quickly as possible and thereby create a social base for these unstable bourgeois regimes. At this stage, in so much as a bourgeois class actually exists in these societies, it is little more than the 'shopocracy' of small businessmen and traders which Engels described in Prussia during the 1840s. Rapid privatisation, despite all its obvious drawbacks, also reflects the desire of the ex-bureaucrats and black marketeers to legitimise the source of their wealth and income, in the form of capitalist property relations.

72. Even from a bourgeois standpoint, it is hard to conceive of a worse approach to re-establishing capitalism on a viable basis. It completely ignores the experiences of Japan in the post war period, or South Korea in the 1960's and 1970's where the state played the decisive role in developing these capitalist economies. The state developed the necessary infrastructure, where private capital refused to invest, and directed investment into key sectors of the economy. Both these economies also developed on the basis of protectionism, the opposite of what is now taking place under the bourgeois regimes of eastern Europe and the former Soviet Union. While trade between the old Comecon partners has collapsed, for some east European countries there has been a marked growth in trade with the West. Czechoslovakia increased its exports to the OECD by 39.2 per cent in 1991 while Hungary achieved a 20;8 per cent export rise, and Bulgaria 30.2 per cent (Financial Times11.5.92). The EC new accounts for 54 per cent of Polish exports and 48 per cent of imports. But on the basis of the abandonment of all trade and exchange controls, this will mainly benefit western companies with vastly higher productivity, at the expense of domestic industry.

72. Even if the nascent bourgeois were to abandon this approach and adopt the methods of Japanese capitalism in the period after the Second World War, this would not solve their problems. In Japan, and later South Korea, these policies succeeded within the framework of the prolonged upswing of world capitalism. This is the decisive difference with today's situation.

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