Economic Crisis in Russia (1991)

From the October 1991 issue of the Socialist Standard

The current economic crisis in the Soviet Union well illustrates the effect of years of totalitarian state control on a capitalist economy. Having attempted to bring a semblance of order to the anarchic capitalist system, the Soviet Union is now experiencing a devastating period of industrial stagnation and growing unemployment, previously considered unthinkable by its admirers. Gross National Product fell by 4 percent in 1990 and is widely forecast to fall by 10-20 percent this year (Financial Times, 20 August).

The Soviet Union, it was said, could plan away the capitalist trade cycle on the basis of the nationalisation of the economy and the “collectivisation” of agriculture, and ensure steady growth and economic prosperity. But the actual course of events has not proceeded in the way the supporters of the Soviet regime had hoped. There are two basic reasons why this should have been the case.

Firstly—and as the proponents of Western-style private enterprise have always been quick to point out—planning the intricate operations of capitalism down to every investment decision, every price, every wage and so on is impossible. Planning virtually every aspect of economic activity to avoid a disproportionate, unbalanced growth simply cannot be done, and this has been shown through practical experience in the Soviet Union, China and elsewhere. Indeed, it must now be obvious to almost anyone, except, that is, to the small band of faithful defenders of centralised state planning, to be found now mostly in the Trotskyist movement, who still insist that planning the profit system through state control is a worthwhile aim. Belgian Trotskyist Ernest Mandel, for one, has recently praised Soviet achievements on planning and balanced growth as the success of a “post-capitalist” society:

From 1928 onwards . . . growth really was regular and uninterrupted (and) that unlike the capitalist economy the USSR has experienced no recession, no crisis of overproduction leading to an absolute fall in production, for more than 60 years.

(International Socialism 49)

Trotskyists like Mandel are looking at the Soviet Union through rose-tinted spectacles, ignoring, for instance, that the difference between growth rates in maximum growth years and minimum growth years in Russia and other state-capitalist countries has been quite pronounced. When the Western capitalist world was experiencing an economic downturn in the period 1966- 74, the difference was 130 percent in the USSR and as much as 228 percent in Poland. Even though offical statistics are not as reliable as they perhaps might be in many instances, it should also be noted that "absolute falls in production” were not a phenomenon restricted to the Western capitalist world.

Law of value

It is undoubtedly the case that state-capitalist economics are unable to escape the capitalist trade cycle, though this is not to suggest that the operation of these economics is identical in all respects to private-enterprise-based capitalism. The primary difference is that state-capitalist economies are not subject to the direct operation of Marx’s law of value, and herein lies the second reason for the current Russian economic crisis.

Very often, prices have not been related to the labour value of commodities and inefficient enterprises have not been purged from the system as they have in the West. The process by which a slump serves as a means to future development for the capitalist economy has not readily applied, at least until now. What has tended to happen in state-capitalist countries is that inefficient enterprises and productive methods have been supported, and wastage often tolerated, with new technology only being introduced at a generally more pedestrian pace than in the West.

In such a situation, the purging benefits of a fully-blown capitalist slump are lost. The state intervenes to offset the development of mass unemployment by methods such as planned overstaffing, largely at the expense of the more efficient sectors. Instead of capital flowing to the most profitable areas of investment, it is redirected on a mass scale towards units of production that would otherwise be purged from the system. Thus there is an attempt to “cheat” the operation of the law of value.

Though some of the worst effects of the capitalist trade cycle can be avoided in this way, this is only achieved at the expense of the long-term health of the economy. Slumps are not aberrations for capitalism, but are entirely necessary for the overall development of the system, helping to offset the long- term tendency for the average rate of profit to fall caused by the displacement of the sole source of surplus value, variable capital (investment in human labour power), by constant capital (investment in machinery, raw materials etc). Slumps offset this tendency by devaluing the elements of constant capital, through, for instance, the destruction of stocks and even machinery.

Because of the attempts in state-capitalist countries to cheat this process of normal capitalist development, stagnation set in. which eventually undermined the stability of the one-party political structure and the position of the privileged ruling class. A more unrestricted capitalism than has hitherto been allowed to operate in the Soviet Union will provide its own solution to the problem of industrial stagnation— mass unemployment as inefficient productive units are allowed to go to the wall, and attacks on working-class living standards to restore profitability for investors. It will come as no surprise that the only “solution” capitalism knows will be of detriment to the interest of the working class.

Dave Perrin