Is There a Future for State Capitalism? (1950)

From the April 1950 issue of the Socialist Standard

A Tory M.P., Mr. Hugh. Linstead, has tried to define the issues that will divide the parties in coming elections and has concluded that the electors will be asked to decide the question: “Is it State capitalism or private capitalism which can provide the largest amount of wealth for our community?” (Times, 8/3/50). Looking still further ahead he sees the possibility of a new division arising, that of Labourism versus Socialism. His second forecast is correct, but the first is over-simplified to the point of unreality. The Labour Party would now not attempt to fight an election on a programme of all-round Nationalisation, and the Tories are fully committed to retaining most of the existing Nationalisation schemes and to accepting some form of State regulation over the operations of private industry.

A better appreciation of the election is shown by the editor of the Observer (5/3/50) when he says that the Labour Party’s advocacy of further Nationalisation “was small and, in its character, noticeably lukewarm”; and by an Italian journalist in London who wrote: “The welfare State is accepted by all. Some parties want more and some less Nationalisation of industries, but this difference does not constitute a real battle. It is more a question of confidence as to who can guide the vessel of State better.” (Il Mondo, Rome. Quoted in Manchester Guardian, 22/2/50.)

Nationalisation is not very popular and the Labour Party is taking due note of the fact. One Labour supporter, Mr. Hannen Swaffer, wrote: “The British people decided last week that, for the present at least, it did not want any more Nationalisation.” (People, 26/2/50.) A Labour Peer, Lord Strabolgi, said in the House of Lords (7/3/50), “We did not get a mandate for further Nationalisation; we did not even get a mandate to continue the Iron and Steel Act.” The Minister of Agriculture, Mr. Tom Williams, assured the House of Commons, “the simple fact is … that land nationalisation forms no part of our programme and policy to-day.” (“Report,” 8/3/50, Col. 396). And one Labour M.P., Mr. R. Crossman, is reported by the Times (4/3/50) to have told the Oxford University Labour Club that he “thanked Heaven that the motorcar industry was still under private enterprise. He would rather have private enterprise with Government control and regulation than one of the gigantic public corporations which had been taken out of politics and over which there was no public control.”

The Ebb Tide of Nationalisation

As far as Western Europe and the British Dominions are concerned (except perhaps industrially very backward countries like India and Pakistan) the history of the years after the first world war is being repeated. After a brief period of widespread extension of Nationalisation a reaction has set in, at least for a time. New governments in Australia and New Zealand are opposed to its extension and in the ranks of the defeated Australian Labour Party a move is on foot to commit the party to the maintenance of “private enterprise” as the rule, with the introduction of Nationalisation as the exception. It is reported from France that Nationalisation is now so unpopular that for the next election “no party …. has yet advocated any extension.” (Daily Telegraph, 28/2/50.) All three of the Scandinavian Labour Governments, Denmark, Norway and Sweden have expressly or tacitly abandoned further Nationalisation. Sir Arthur Salter goes so far as to claim that the British Labour Government’s pre-election intention to extend Nationalisation to sugar, cement and insurance placed it in the position of being “alone in Western Europe, in the Commonwealth, in the whole of the free world.” (Manchester Guardian, 18/2/50.)

State Industries in Russia

Russia, too, has her problems of Nationalised industries, the interesting feature being the great extent to which their operations conform to the British pattern. While British Communists may criticise Nationalisation here for its "capitalist” features – as if basically it could have any other – State concerns in Russia show quite clearly that the Communists in power have found no means of running State industry to meet the needs of a capitalist world, except the traditional methods of Capitalism.

Some Labour Party theorists have argued in the past, and still do, that State capitalist enterprises can be run without the need to show a profit, i.e., either at cost or even at a loss, the loss being met out of State subsidies; and also that so-called “workers’ control” can be grafted on to Capitalism. In 1918 the Labour Party was committed to “democracy in industry,” “Nationalisation and workers’ control “; and the Communists in the early days took a similar line. None of them ever squarely faced the meaning of what they demanded, for if the workers who form the great majority were allowed “democratic” control of industry that would include control over its finances and power to take it over and stop the payment of profits or interest to shareholders or bondholders. In practice no Labour Government or Communist Government intend to concede such power – if it did the result would simply be to bring Capitalism to chaos. So in Russia, as in Britain, management of State industry and its finances belongs to directors appointed from above by and under the continuous control of the Government. And if in Britain nationalised concerns produce commodities for sale and have to show a profit, so they do in Russia.

In private industry if a firm cannot make a profit goes under. So every firm must strive to keep production costs below selling price. And nobody has yet discovered any other way of achieving low production costs in Nationalised industries than by requiring them to make a profit. In Russia, in addition to paying to the Government a turnover tax which is a percentage of what the concern receives from its customers, State enterprise has to pay profits to the Government. The procedure is explained in The Soviet Financial System by M. L. Bogolepof, Director of the Financial Division of the Russian State Planning Commission: —

  “Each establishment, having received from the State for its exclusive use both equipment and capital, proceeds to operate on its own. with its own financial accounting, bank account, credit facilities and, finally, with the right to make a profit,” (p. 9.)

What he here oddly calls the “right to make a profit” is in fact an obligation, rigidly enforced by the Government, and the profit does not belong to the undertaking—” his profit, as well as the proceeds from the turnover tax belongs to the State . . . .” (Bogolepof, p. 9.)

How much of the profit is kept by the Government and how much is returned to the undertaking depends on whether it can show that it requires additional capital for expansion. According to another Russian writer, A. Antonov (Soviet Weekly, 25/9/47), in some cases the Government keeps as much as 91 per cent. of the profits, while in other cases it may keep as little as 10 per cent.

Bogolepof explains (p. 34) how every State undertaking is compelled to go to the State bank for a loan (on which of course interest is paid) if this is needed as additional capital for short periods; and is likewise compelled to apply to the bank if it finds that it needs for an extended period more working capital than was planned for it.

Then the State bank acts as an inspector into the way the undertaking is being operated.

  “If the deviations from the production programme . . . are due to the fault of the enterprise, the bank refuses to supply additional credit, and the financial difficulties of the enterprise become the object of investigation by the competent authorities. As bank loans are provided on the basis of an analysis of the borrower’s financial and economic position, they have become one of the most valuable and effective forms of control by the Government over the activities of State enterprises.” (p. 34.)

It will be seen that if Mr. Bogolepof were to find himself transferred to one of the British nationalised industries he would find the capitalist-financial atmosphere remarkably like the one he breathes at home.

In one respect Russian State Capitalism does differ from British, because in Russia there is no burden of compensation to the original owners. (In the East European Russian satellites, however, some compensation is the general rule.) But while this was an important difference in the beginning it has become of less importance as the new army of bondholders has come into existence who have lent to the State the money used to provide new capital for State enterprises. The interest they receive is much higher than the rates received by Government bondholders in England.

Nationalisation of the Land

The Labour Party has disowned land nationalisation but they used to declare that it was an essential part of their policy. As set out in their 1918 programme, Labour and the New Social Order, their intention was to nationalise the land and organise agriculture on the combined basis of large “national farms,” small holdings, municipal farms, and farms run by cooperatives. In the meantime the Russian Government has established a farming system very much like the Labour Party’s scheme. It consists of large State farms, small family-farms, and co-operative or “collective” farms in which, however, the farmers also have their own private holdings. The whole idea of being “collectivised” was detested by large numbers of farmers and force had to be used. Large numbers, though they had to submit, have never become reconciled to it, and during the war while the authorities had their hands tied with the German invasion they saw their chance and seized collective farm land and added it to their own farms. According to a correspondent writing in the Manchester Guardian (1/3/50) the public reproof administered late in February to the Minister in charge of agriculture, A. A. Andreyev, rested on the allegation that his method of organising collective farmers into small units working only on their own collective farm (as against large units working on any farm) encouraged them in their attachment to the idea of private farming.

Late in 1946 a move was made to compel the farmers to give back the land they had illegally appropriated, and according to an official statement quoted by the writer referred to above, the authorities secured the return of some 11 million acres. But the illegal acts have continued and further large-scale seizures have been reported as recently as November last. A new campaign is now reported with the object of persuading the farmers not only to restore land taken illegally but also to throw their own legal holdings into the pool. “In this way all private ownership of even the smallest plot of land, it may be assumed, will be gradually eliminated.” Whether that writer’s anticipation will be borne out remains to be seen. With all the main features of Capitalism in full force, with the growing emphasis on inequality of income and ownership, the accumulation of property will continue to be universally attractive and the peasants are not at all likely to give up easily the private ownership of which every effort of the Government has so far failed wholly to deprive them.

The Myth of Nationalisation

One thing the experience of Nationalisation has shown is that the conception of all-round State Capitalism as a workable and stable alternative to private Capitalism is a myth. If Nationalisation is only partial, as in Britain (about 20 per cent. of all industry is nationalised) it has to be run on normal capitalist lines and brings no comfort to the workers; and if it is wholesale Nationalisation, as in Russia, it likewise has to be run on strictly capitalist lines, and likewise fails to satisfy the needs and desires of the population.

Events have played havoc with the theories of the nationalisers, here and in Russia, and the Labour Party now finds its propaganda robbed of one of its main ingredients. The deep-seated discontent of the working class has never been wholly satisfied with promises of immediate social reforms. There was always, in addition, the vague but persistent desire for some more alluring ultimate objective. Among the early Labourites Keir Hardie met this desire by the argument that Nationalisation, though not much worthwhile for its own sake, was justified because it was a necessary step to the achievement of Socialism (or “free Communism” as he sometimes called it). Later Labourites dropped Keir Hardie’s argument and put in its place the view that wholesale Nationalisation is the ultimate aim, to be achieved gradually industry by industry. But to make this acceptable they had to claim that Nationalisation is itself of great and immediate advantage. A generation of workers were converted to this belief and are only just learning that it is false. Now Nationalisation propaganda has turned sour on the Labour Party and they find that their responsibility for running Capitalism for five years has turned them into a Party trying to live on past achievements, a Party of “conservers” of what exists – the so-called Welfare State. Like the other Conservatives, the limit of what they can hold out as a glittering future prize is almost comprised in the ever-receding prospect of overcoming the crisis.

The Communists in Russia are in a like dilemma. Copying the Labour leaders whom they affected to despise so much, they have given to State Capitalism the name Socialism; but unlike the Labour Party, they have adhered to Keir Hardie’s line of holding out as a solace for present troubles an ultimate but never materialising Communism.

It remains to be seen for how much longer the partial and the complete nationalisers will be able to hold the allegiance of the working class in face of evils for which neither group of distorters of Socialism can find a remedy.

Edgar Hardcastle