The Conundrum of Russian Capitalism

The Post-Soviet Economy in the World System

Ruslan Dzarasov

• Publisher: Pluto Press
• Year: 2013
• Edition: 1
• eBook ISBN:
  9781849649100
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The fall of the Soviet Union and the emergence of contemporary Russian capitalism are often all too often read as a juncture with the past. In reality, Russia's current capitalist system originated in the degenerated Soviet bureaucracy, alongside the pressures of global capital. From Roman Abramovich to Leonid Mikhelson, the reign of the CEO in Russia corporations mirrors the autocracy of the Soviet Union's leaders: the Russian tradition of the Cult of Personality lives on. The conception of the massive corporations, and the autocrats that lead them, occurred towards the end of the Soviet Union, when the would-be owners seized corporate assets and, taking advantage of Gorbachev's reforms, transformed publicly owned industry into private enterprises with themselves at the helm. By comparing the practices of Russian corporate governance, labour practices and investment strategies to the typical models of corporate governance and investment behaviour of big firms in the West, Ruslan Dzarasov exposes the parallels between the core and the periphery of the capitalist world-system. Drawing on the theory of Leon Trotsky, as well as Immanuel Wallerstein and Robert Brenner, this study disrupts many of the myths about Russia's political economy.

1

Global Accumulation and the Capitalist World-system

1	Introduction

This first chapter provides a general framework for analysis of the Russian economy as part of the current capitalist world-system. A brief review of the main features of this world-system is necessary for discussing both the major formative factors of modern Russian society and its position in the world. The chapter begins from the Marxian perspective of capitalism as a society in which appropriation of value dominates over production of use-value. This approach is found to be in accordance with a Veblenian emphasis on a deep contradiction between the industrial and financial logic of the capitalist business enterprise. This contradiction finds its salient expression in the opposition that exists between the enterprise as a going concern and its share value. In the so-called ‘Golden Age of Capitalism’, from the late 1940s to the early 1970s, the typical US corporation was characterised by separation of ownership and control, the latter function residing with the managers. These were times when it was more or less possible to reconcile the contradictory interests of different stakeholders by paying relatively high wages and sound dividends, while at the same time making necessary investments in expanding and renovating productive capacity.

The ‘Shareholder Revolution’ of the 1980s transformed the US model of corporate governance: big business was compelled to sacrifice long-term growth for the sake of short-term benefits for the owners. This drastic shift initiated deep changes in the capitalist world-system. Material production was largely shifted from the US and other core capitalist countries to their periphery, with the aim of exploiting cheap labour. Global production networks were established, in which high value-added processes resided with western multinational corporations and low value-added processes were moved abroad. Financial and speculative capital increasingly supplanted productive capital in the core countries, while state, corporate and consumer debt soared both in the core and on the periphery. From the emerging system of intensive global exploitation of labour, a growing gap appeared between global aggregate demand and global aggregate supply, thus engendering the current global economic crisis.

The second section of this chapter provides a brief review of the Marxian ‘duality of labour’ approach to analysing capitalism, and of Veblen’s concept of the dual nature of the capitalist enterprise. The third section takes up the issue of the Eichnerian ‘megacorp’, which is characterised by a separation of ownership and management and having long-term growth as its prime objective. The fourth section focuses on the so-called ‘Shareholder Revolution’ through which the separation of ownership and control was overcome, and maximising shareholder value replaced long-term growth as the corporation’s main goal. Various facets of the financialisation of the US non-financial corporate sector are examined. Using a global value-chains approach, the fifth section then examines the shifting of production to low-wage countries. This phenomenon is interpreted as both a result of financialisation, and an important factor in allowing it to proceed. The sixth section examines the shift of investment strategies of US non-financial corporations from productive to financial goals, with the corresponding changes in the structure of capital. The seventh section reveals how financialisation and growing exploitation of the periphery led to the current world economic crisis, while the final section provides some concluding remarks.

2	Marx and Veblen on the Duality of Capital and Enterprise

Marx’s vision of the income of capitalists is based on his concept of the duality of labour (Afanas’ev et al. 1986) and on the ‘ascent from the abstract to the concrete’ (Dzarasov 2010a). The commodity – the point of departure of the Marxian system – embodies the dichotomy in which use-value is the product of concrete labour, and value is the product of abstract labour. These are opposing characteristics – as use-values, all commodities are different, while as values they are all identical.¹ At the same time, they do not exist without each other, since the only labour that creates value is that which creates use-value. This dichotomy of labour conditions duality as the main structural characteristic of capitalist economic relations at all steps of the ascent from the abstract to the concrete. Using this perspective, many obscure aspects of the question confronted here can be unravelled.

Capital thus has its material form, represented by an array of commodities (productive equipment, labour power, raw materials, output, inventories, and the like). But it cannot, as the neoclassical school assumes, be reduced to the property of yielding a return, the reason being that capital is represented by a definite quantity of value embodied in the capital goods.² Ostensibly, capitalist production is about supplying commodities or services. However, its main aim is the production of value, use-value being only a means to that end. Marx saw the nature of capitalist profit as being manifested in the phenomenon of surplus value, that is, in the product of unpaid labour appropriated by capitalists. From this source stem the other types of income that dominate in a mature capitalist economy:

Up to the present, political economy … has never separated surplus-value from profit, and never even considered profit in its pure form as distinct from its different, independent components, such as industrial profit, commercial profit, interest, and ground-rent. (Marx 1959 [1894]: 146)

Elsewhere, Marx adds taxes to the components into which profit is divided (see, for instance, ibid.: 32). Thus, the whole variety of the incomes accruing to capitalists is seen as resulting from a transformation of surplus value that takes place in the sphere of distribution and exchange, hence resulting from the exploitation of hired labour. The domination of value over use-value as the aim of capitalist production has important repercussions.

One of the most important is that appropriation of surplus value is not the only means of exploitation under capitalism. Marx also considered ‘profit upon alienation or expropriation’, ‘resulting from zero-sum transactions that relate to money revenue or existing stocks of money, accruing through transactions in financial or real assets’ (Lapavistas and Levina 2011: 8). In contrast to surplus value, this kind of profit is not predicated on the creation of new value, but supposes a redistribution of value that already exists. Marx demonstrated this through his theory of the ‘primitive’ or ‘original’ accumulation of capital, using such examples as the ‘enclosures’ through which commoners were deprived of their rights over the land and peasants were coerced into become hired labourers: the destruction of pre-capitalist modes of production, the plunder of colonies, slavery, and usury. In none of these activities was new wealth created, but redistribution of already existing values took place. ‘All the features of primitive accumulation that Marx mentions have remained powerfully present within capitalism’s historical geography up until now,’ argues David Harvey in his persuasive account of the ‘new imperialism’. This can be seen in the neocolonial exploitation of the periphery of the capitalist world-system, involving the displacement of peasants and their conversion into landless proletarians, the privatisation of public services and many other destructive activities (Harvey 2003: 145). Above all, this type of income appropriation is peculiar to modern finances. Since ‘profit by alienation or expropriation’ has marked not only the dawn of the capitalist era but its entire history, Harvey calls it ‘accumulation by dispossession’ rather than ‘original accumulation’. These ideas are commensurate with Veblen’s account of capitalism.

The founder of institutionalism distinguished between the logic of industrial and pecuniary business (Veblen 1936). The logic of industrial business requires understanding an enterprise as a going concern, and favours the ‘uninterrupted interplay of the various processes which make up the industrial system’ (ibid.: 27). Modern industry, Veblen argues, has become so intertwined on a world scale that disturbances to established supplies and deliveries cause increasing damage to the community at large. However, the aim of the so-called ‘captains of industry’ is pecuniary gain, not the common good. There is thus a deep contradiction between the industrial and pecuniary logic of capitalism, and the former is often sacrificed to benefit the latter.

Within Veblen’s approach, it is not difficult to discern a modification of Marx’s notion of the duality of labour. Indeed, Veblenian industrial logic corresponds to the processes of concrete and pecuniary logic – to the processes of abstract labour. The domination of value over use-value under capitalism engenders not only increases in production, but also from time to time ‘a set-back to industrial plants’. This can be treated as accumulation by dispossession. Veblen related this type of enrichment to the vestiges of predatory behaviour in pre-industrial societies. Under capitalism, such behaviour resurfaces with the ascendancy of finances. The strategising of each capitalist ‘is commonly directed against other business interests and his ends are commonly accomplished by the help of some form of pecuniary coercion’ (ibid.: 31–2). Here the vital link between finances and coercion is established (Henry 2012).

Meanwhile, financial capital and its dynamics make up another important area in which the principle of the duality of labour applies at the new level of the ascent from the abstract to the concrete. The value of labour in its purest form is represented by money. Since capital in the form of money is central to the capitalist mode of production, finances take on an apparently independent existence in the form of interestbearing and loanable capital (Lapavistas and Levina 2011). Taking economic relations at a superficial level, it may seem that money when employed in financial markets produces money. But nothing can sever financial from productive capital, because it is only in the sphere of production that new value is created, while financial markets merely redistribute it. The deceptive appearance of money creates ‘a world of illusion’ disguising fraud and alienation (Henry 2012).

In summary, the ‘“organic relation” between expanded reproduction on the one hand and often violent processes of dispossession on the other’ may be said to have ‘shaped the historical geography of capitalism’ (Harvey 2003: 141–2).

3	The Megacorporation and Shareholder Power

Among the tacit assumptions underlying the Marshallian ‘represe...

Table of contents

• Cover
• Half-title Page
• Title Page
• Copyright
• Contents
• List of Figures
• List of Tables
• Acknowledgements
• Introduction
• 1. Global Accumulation and the Capitalist World-system
• 2. From Central Planning to Capitalism
• 3. Russian Big Business: Corporate Governance and the Time Horizon
• 4. Rent Withdrawal, Social Conflict and Accumulation
• 5. Insider Rent and Conditions of Growth in the Russian Economy
• 6. The Accumulation of Capital by Russian Corporations: Some Empirical Evidence
• Conclusion
• Notes
• Bibliography
• Index