From Failed Communism to Underdeveloped Capitalism

Transformation of Eastern Europe, the Post-Soviet Union and China

Adam Zwass

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781315482835
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This text presents an analysis of the sources and general features of the current political and economic situation in the reforming countries of Central and Eastern Europe, the former Soviet Union and China.

Chapter 1

From Semifeudal Russia through Soviet “Real Socialism” to the CIS and Real Capitalism

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The year 1991 saw the demise of an economic, political, and social system that had endured for three-quarters of a century. It also marked the end of a 300-year-old empire founded by Peter the Great and expanded by Catherine II and Joseph Stalin.

There is much dispute over the causes of the collapse, even if some reasons for it are clear enough. The Soviet Union was simply unable to keep pace economically with the industrial states of the West, yet its leaders not only were determined to maintain military parity with the world’s number one economic power, but even aimed for military superiority. Recent statistics have revealed that the Soviet national product, chronically exaggerated by the Soviet government as well as by CIA experts, was only about 28 percent that of the United States. And, while Soviet defense spending was about the same as U.S. defense spending in absolute terms, relative to the national product it was four times as much. The Soviet Union built military bases on all continents of the world until it finally bled itself to death economically in Afghanistan, its Vietnam.

“Fraternal” aid to state leaders such as Ethiopia’s Mengistu Haile Mariam, a cruel and petty dictator, had but one purpose, to which fraternity was utterly irrelevant—to extend the Soviet Union’s military presence. The abuse of Marxism and revolutionary rhetoric used by such personages to mask tyranny dealt the final blow to the official, proclaimed ideology of proletarian internationalism. And, further enhancing the irony, owing in part to Soviet pressure, Western colonialism was at the same time being relegated to history.

This fraternal aid was also prohibitively expensive for the Soviet Union’s ailing economy. Soviet economist Boris Sergeev gives figures for “politically motivated economic aid and loans”: $11.2 billion to Syria, $6.2 billion to Iran, $5 billion to Afghanistan and $4.7 billion to Ethiopia.¹ Subsidies through payment of higher prices in foreign trade were politically motivated: Cuba’s sugar was bought at seven to nine times the price on the world market, which meant an annual subsidy of $2 billion. Richard Nixon quoted politically motivated Soviet subsidies at $ 15 billion per year.²

The deputy prime minister of the former Soviet Union, Kamentsev, stated that at least half the loans granted, most of which went for arms (85 billion rubles), were nonrecoverable. Meanwhile, the nation’s economic performance was steadily deteriorating.

After the failure of Lenin’s War Communism (1919–20), during which economic activity declined by three-fourths compared with its pre-World War I level, and after the New Economic Policy (NEP) (1921–25), which was very successful but was prematurely suppressed, Stalin devised his command system. But in the end, the Stalinist system also proved unsuited to achieve the Soviet Union’s manifest aim of catching up with the West.

Equality remained unattainable. Although the income and power pyramids may have been attenuated slightly for the mass of the population, power and income both tended to be concentrated at the top. Broad layers of the population benefited from more equitable incomes, but only with a net downward shift in the standard of living—a weaker incentive, certainly, for improving economic efficiency than production for profit and access to ever greater personal wealth. Work and the fear of losing one’s job seem after all to be a much stronger incentive to produce than is job security—that is, the certainty of not losing one’s job regardless of either productivity or how the economy is performing.

The extremely hierarchical social system, inspired by fear and terror, which Stalin erected in the 1930s, was no place for Marx’s dream of the new man who would spontaneously behave so as to be useful to himself as well as to others, or, as Engels put it, a society where people behave in such a manner that no regulations are necessary, or, as Trotsky hoped, a system in which the man will become the equal of Aristotle, Goethe, and Marx.

The United States’ “architects” were much more successful in orienting the relations of production in the new society not to the “nobly behaved” human being of their dreams but to a human being who behaved “humanly.” If human beings were angels, remarked James Madison, government would be superfluous.

As it turned out, the idea that an economy administered by a state planning authority would be more productive than a market economy was a presumptuous illusion. The “invisible hand” of the market—the economic mechanisms shaped by the collective wisdom of countless human generations—is, after all, more consonant with human purposes than are the commands of a central economic bureaucracy. Competition among producers to secure a place on a buyers’ market is better geared to the production of good-quality goods than are the production and distribution relations previously on the sellers’ market of a planned economy.

Defeat in competition with the industrial countries of the West was a foregone conclusion once the latter had learned the art of Keynesian deficit spending to mitigate the effects of cyclical crises. The terminology may have fallen out of fashion in an age of monetarism, but deficit spending was in fact still in operation in Reaganomics. In contrast, top–down reforms in the planned economies were never carried through consistently, and in fact were obstructed to the very end by the formidable Soviet bureaucracy.

The endeavor to fulfill the central plan made use of some special and indeed original techniques, intended more to satisfy the authorities in the hierarchy than to meet human needs. Economic performance came to be measured in terms of resource input and not of buyer demand for goods—what counted was the gross product. The ratio of resource input to the gross product was, as Mikhail Gorbachev continually reiterated, twice as high as in the Western industrial nations. Behind the repeated assurances of achievement by factory managers and economic ministries stood, as economist Vasilii Sel’iunin wrote, “phantom statistics,” which were far removed from actual performance.

Even though the ratio of the Soviet Union’s inventories to the national product was two to three times higher than in, for instance, Japan, supply shortages were chronic. The deposits of raw materials and fuels near the industrial centers of the Urals and the European Soviet Union were rapidly depleted; as a result, these vital resources had to be extracted at enormous expense in Siberia and the Far East and transported or piped over long distances to the industrial zones.

Forced Collectivization: The Prime Reason for Mass Terror and Shortages

Even more devastating than forced industrialization and the unbounded growth of a bureaucracy wielding absolute control over the economy was the enslavement of the peasantry, begun in the early 1930s. Forced collectivization was achieved with an unprecedented brutality against the “class enemy,” with millions of victims. In a second stage, the Great Terror of 1936–38, Stalin turned against the regime’s supporters. The liquidation of the Revolution’s old guard cemented Stalin’s one-man dictatorship. The following figures will give an idea of the magnitude of the consequences of collectivization: before World War I, Russia had been literally the bread basket of the world, accounting for 30 percent of the world’s grain exports; in the 1930s it became the world’s leading grain importer, at a rate of 30 million tons per year.

Shortages became chronic. The bizarre ideal that forced requisitions of agrarian products could serve as a source of “primitive accumulation” to finance forced industrialization reduced agricultural productivity to a level that placed the very subsistence of the population at risk.

The 1990 grain harvest was smaller than that of 1913. “The Bolsheviks,” wrote Aleksandr Yakovlev, the ideologue of perestroika, “behaved in their peasant countryside like foreign conquerors …. the peasant was alienated from the products of his labor and from the soil … that most important means of production of all.”³ The peasants were permitted no identification papers and were bound to their collective farms. Under Stalin, the peasants’ small private plots were ruined by taxes; landlessness under Nikita Khrushchev and the prohibition on selling the products of one’s own labor under Brezhnev finished the process. The peasants were so thoroughly enslaved that even today they are reluctant to make themselves independent by leasing land or by some other form of personal possession.

The state monopoly on foreign trade and absolute control over the economy had grave consequences: after 1918, firms producing for export were totally cut off from the world market. Industrial enterprises traded goods produced for export or goods imported from abroad at domestic ruble prices with the state foreign trade organizations, which served as clearing houses. Accordingly, industry had no notion of the relationship between domestic and foreign costs of goods sold or acquired abroad. The official exchange rate was used only as a conversion rate or for statistical purposes; moreover, for reasons of prestige, it was always set higher than buying-power parity warranted. No practicable cost-benefit analysis was therefore possible. Ricardo’s “comparative cost advantage” ceased to function as an incentive to foreign trade.

And thus as well, foreign trade ceased to exercise its function of promoting growth and quality, as it traditionally had done in a competitive market economy. Foreign trade degenerated into a crude stopgap mechanism for an autarkically inclined domestic economy. Goods were imported to fill gaps in supply and exported to finance indispensable imports. In 1939, foreign trade turnover accounted for no more than 12 percent of the 1913 volume, and in the postwar years it was no more than 5 percent of the national product.

According to GATT statistics, the former Soviet Union exported goods worth a total of $78 billion in 1991—that is, less than Hong Kong ($98 billion) and only slightly more than Taiwan ($78 billion), China, and South Korea (each $78 billion). These figures were a long way from the export volumes of the world’s largest exporters: the United States—$422 billion; Germany—$403 billion; and Japan— $315 billion.

Shielded from the competitiveness of international markets, Soviet firms consistently produced low-quality goods and reduced the foreign trade of the world’s number two superpower to the level of the developing countries. Eighty percent of Soviet exports were raw materials and fuels, while manufactured goods, principally high-tech goods that the domestic economy was unable to produce, were imported.

The Soviet Union created a similar structure for trade with its CMEA (Council of Mutual Economic Assistance) partner states. Despite the conclusion of a treaty of October 23, 1963, on “multilateral clearing in the newly created CMEA currency (the transferable ruble) and the establishment of the International Bank for Economic Cooperation (IBEC),” the multilateralization of trade relations never became a reality. Accounting was multilateral but trade remained bilateral. Goods quotas continued as before to be bartered at equivalent value, and quota overhangs were accounted for in monetary deposits or credits, which, however, ultimately had to be settled in goods.

The CMEA was permanently dissolved in 1990. It had never succeeded in making the transferable ruble even partly convertible. CMEA trade continued to be shut off from the rest of the world just as it had been prior to 1964. Because prices within the CMEA countries varied, the CMEA was unable to create its own internal price basis. A five-year average of world market prices was therefore used instead. Prices calculated on this basis differed from prices within the member countries as well as from the current world market prices. After the abrupt rise in the price of crude oil in 1973, a sliding, annually adjusted price structure was adopted, but it continued to be based on a five-year average of world market prices.

One cause of the collapse of the Soviet system was, of course, that the Soviet leaders obstinately pursued their aim of achieving superiority over the West in the arms race, even though the Soviet system was unable to compete economically with the West. But a second factor was the system’s perversion of proletarian internationalism into a policy of conquest.

At the time the architects of the October Revolution were preparing the theoretical foundations of a multinational socialist state, they wholly disregarded Karl Marx’s view of Russia. Marx regarded Russia as a prison of nations and anyone who contradicted this opinion, whether it be the king of Prussia or the British prime minister, he branded as Russian agents.

Stalin wrote his pragmatic pamphlet “Marxism and the National Question” in Vienna in 1913. In it he rejected categorically the federalist concept of the Austro-Marxists Otto Bauer and Karl Renner. The nation was sovereign, asserted the “wonderful Georgian” (as Lenin described him), and had the right of self-determination and succession.

After the victorious Revolution, however, Lenin and Stalin (whom Lenin had appointed commissar for nationality questions) were loath to give up even one small bit of Great Russia’s territory. They used military force to crush the resistance of the “Bastonati” of Central Asia (1917–26), the Menshevik (Social Democratic) government of Georgia, the liberation struggle in the Ukraine, and others. Thereafter, not one republic ever made use of the constitutionally guaranteed right to secede from the union: they knew what was in store for them if they tried. Later on, whole nations together with their political establishments (the Crimean Tatars, the Kalmyks, the Chechen-Ingushi, the Volga Germans, to name a few) were forcibly removed from their homelands and resettled in distant regions on suspicion of collaboration with the Germans. There were no open nationality conflicts in the Khrushchev and Brezhnev eras. The brutal reprisals were too fresh in people’s minds for them to dare a struggle for freedom.

Sixty million Soviet citizens lived outside their national homelands, Gorbachev reported to the CPSU Central Committee on September 20, 1989. Russians, often the pawns of forced migrations, made up 33 percent of the population of Latvia, 38 percent in Estonia, 9 percent in Lithuania, 21 percent in Moldavia, 8 percent in Georgia, 41 percent in Kazakhstan, 13 percent in Turkmenia, 11 percent in Uzbekistan, and 10 percent in Tajikistan.

Many Russians living in other republics have assimilated into their new homelands, even though they were often concentrated in kinds of ghettos around industrial enterprises. Now, however, they have become the particular targets of the renascent nationalism that is sweeping over the union’s former republics. In Estonia, for instance, Russians are regarded as foreigners and treated accordingly. In Moldavia they established the Dnestr republic, which is now embroiled in a conflict with independent Moldova, which regards itself as Romanian. For reasons still unknown, Stalin awarded Nagorny-Karabakh, populated by Armenians, to Azerbaijan, and so set the stage for an endless conflict there that has now escalated into open warfare.

On the three-hundredth anniversary of the Ukraine’s incorporation into Great Russia (Pereiaslavskaia Rada, 1654), Khrushchev awarded to the Ukraine the Crimean peninsula, with its military ports for the Black Sea fleet and the best resorts in the country. No one at the time could have dreamt that this would lead to the current conflict between Russia and the newly independent Ukraine.

It would...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• 1. From Semifeudal Russia through Soviet “Real Socialism” to the CIS and Real Capitalism
• 2. The Collapse of Communism and the Uncertain Future of Post-Communism
• 3. Developments in the Non-Russian Republics
• 4. The Velvet Revolution and the Thorny Path Thereafter
• 5. Prospects: Which Reform Country Has the Best Chances to Effect a Change in System?
• 6. Soviet Communism Is Dead: In China It Survives with “Chinese Features”
• Epilogue by Robert Schediwy
• Appendix
• Notes
• Index
• About the Author