What led to the collapse of the Eastern bloc 20 years ago

Poland and crisis of state capitalism
(This appeared as a two part article in International Socialism in 1977-8. It was my second major overview of the crisis tendencies in the former Eastern Bloc. It refutes the claim, for instance by Marcel van der Linden in Western Marxism and the Soviet Union , that those who analysed the former Eastern bloc as "state capitalist" could not foresee the crisis that was eventuzlly to tear it apart)

WHEN the workers of Poland struck on 26 June they did more than force a postponement of price increases. They also exploded a myth—the claim that the societies of Eastern Europe are somehow immune from the crises of the world economy.

The myth has been widely propagated. It remains an article of faith for the Communist Parties of Western Europe, even when they claim to have broken with Stalinism and discovered 'Eurocommunism'. As the British Communist Party put it at its last congress.

'In contrast to the deep economic crisis in the capitalist world, the Soviet Union and the other socialist countries continue their steady advance, without soaring inflation, mass unemployment, insecurity or cuts in social services'.

The myth has also been given currency by genuine opponents of Stalinism like Ernest Mandel. In for example, his article The Generalised Recession of the International Capitalist Econonn: 'While the recession is hitting all the capitalist economies, the countries with non-capitalist economies are escaping the overall effects of the recession . . . '

This perhaps is more guarded than his claim of 20 years ago i hat 'the Soviet Union maintains a more or less even rhsthm ol economic growth, plan after plan, decade after decade, u ithout the progress of the past weighing on the possibilities of the future' (Quatrieme Internationale 1956 no 1-3). But it is equally contused

International economic crises

CAPITALIST crises have never hit all capitalist countries with the same intensity at the same time. The fact that a world economy exists means that no particular country can escape being alleeied in some way by the crisis. But there can be very considerable variation in the exact form these effects take.

This can be shown by looking at the biggest ever crisis that of the earty 1930s.

This led to a catastrophic drop in production and living standards in the two most powerful industrial economies, the US and Germany.
Industrial Production
U S Germany
1929 100 100
1930 80.7 85.9
1931 79.1 67.6
1932 53.8 53.3
In both countries industrial output fell to nearly half its 1928 figure.

Real wages fell substantially in Germany and by a third in the US.

In France and Britain there were also considerable drops in industrial production, of 30 per cent and 16.5 per cent respectively. These figures were not nearly as bad as for the US and Germany. And in Britain employed workers actually saw their real wages rise in the recession.

This was because the wage cuts enforced on workers were less than the drop in the price of imported food.

Japan was every bit as much a capitalist country as the US or Germany.

But the impact of the recession was much less marked. Industrial production fell 8'/2 per cent between 1929 and 1931. In 1932, however, when the crisis continued to get worse in the other main countries, production picked up in Japan, until it overtook the 1929 figure in 1933 -something that did not happen in Germany and the IS for another three years.

The different impact of the world crisis upon different economies is shown even more vividly in the second crisis of the 1930s, that of 1937-8.

In the case of the biggest capitalist economy, the US, industrial production fell by a fifth, to below the 1928 figure, despite all the talk of Roosevelt's "New Deal'. In Britain too industrial production fell and unemployment began shooting up. But in Nazi Germany where the economy certainly remained capitalist, industrial production soared ahead despite the world recession, from a figure of 106.3 in 1936, to 117.2 in 1937 and 126.2 in 1938 (1928 = 100).

In Japan too the growth of production did not falter in these years.

Such instances show how misguided are those who point to the lack of a western type recession in the last two years as proof that the East European countries are 'non-capitalist'.

The East European states have not been hit by the most recent crisis in exactly the same way as the main western states. But they have not been able to avoid it affecting them deeply, although in ways that differ in some respects from countries like the US or Britain.

Indeed. one of the most significant things about the last couple of years has been the way in which there has been a growing intermeshing between a form of cyclical crisis experienced by the East European economies and the crises of the west.

'Internal' crises in Eastern Europe

DESPITE the mythology the expansion of the East European economies has never been at an even pace. Nor, for that matter, has it been planned, in the sense of being guided by pre-ordained targets that lead to the whole economy growing according to a single rhythm.

There have, in fact, been very sharp fluctuations in the rate of economic growth and, in particular, of the rate of investment.

This is shown by the two graphs (1 and 2) for Poland and Czechoslavakia. Fluctuations in the latter country have been even more sharp than the 'particularly marked' fluctuations that Mandel notes in France (Late Capitalism p. 234) but ignores in Eastern Europe.

The fluctuations often have nothing whatsoever to do with the targets laid down in the so-called 'plans", as is shown, for example by the Yugoslav economy in the early 1960s (when it was was still run on more or less the same basis as the other East European countries).

Rate of Growth

plan achievement
1961 12 per cent 7.2 per cent

1962 12.6 per cent 7.0 per cent

1963 10.3 per cent 15.6 per cent

Itonly needs to be added that in 1951. 1952 and 1967 there was a negative of growth in Yugoslavia (as there was in Czechoslavakia in the early 1960s).

Real wages are likewise subject to sudden and unplanned fluctuations. For instance, the Hungarian 'plan' of 1950 called for an increase in workers living standards of 35 per cent by 1955. During the 'implementation' of the 'plan' living standards actually fell by 20 per cent. '

In Poland there have been very wide fluctuations in real wages over the last 26 years. Between 1950 and 1955 they fell by about 10 per cent. Then, after the strikes and demonstrations of 1956-7 the official figures show them as shooting up by about 17 per cent by 1959. But in 1960 they fell by Wi per cent.

After that they began to rise again slowly (although no increase at all is shown for the year 1964-5) so that the average increase for the period 1960-70 was under one per cent.2

When account is taken of price rises not included in the official statistics and of a restructuring of the wages system to the benefit of managers, it seems likely that real wages hardly rose at all, and may even have fallen. 'The yearly increases in wages of one or two per cent did not mean real wage increases for.the mass of the workforce.' '

At the end of this period, in December 1970 Gomulka decreed increases in the prices of food, clothing, furniture etc that had the effect of pushing real wages below the figure for 1960—until strikes forced Gomulka's successor Gierek to abandon the increases.

It is no wonder that the Polish economist Pajerska has pointed to the 'highly irregular growth of real wages.'

But the wage fluctuations do not take place in a vacuum. They are not an accidental phenomenon, but a logical consequence of other premises in the field of development policy'.4

They are part and parcel of the tendency of the whole economy to oscillate wildly.

'Analysis of the dynamics of industrial production in Czechoslovakia, the GDR and Hungary supplies an interesting picture. The rate of growth shows relatively regular fluctuations... These fluctuations are still more pronounced if analysis is confined to producer goods.'5

How do these fluctuations occur?

Many East European economists have pointed to what is sometimes called 'over-investment', 'to a tendency for over fulfilment of plans in the higher stage manufacturing industries'.6

All the bureaucratically centralised economies tend to embark on vast investment projects, on a scale that cannot be sustained by the resources internal to the economy. As the famous Polish economist, Kalecki, put it: 'When the rate of growth of the national income exceeds a certain level, the output of certain industries,

particularly those producing raw materials, lags behind the demand for those products owing to technological and organisational factors . . . '7

Expansion runs into what is sometimes called the 'raw material barrier', and begins to grind to a halt.

The initial period in which investment and apparent economic growth soared is now followed by a period in which growth rates stagnate. So as to complete some of the investments, raw material and components are switched from other investments, which are 'frozen', left uncompleted for years at a time.

There is enormous economic waste as whole chunks of wealth are tied down in unfinished projects.

At the same time, other investments are completed, but turn out goods which can only be utilised in conjunction with the products of other investments that are frozen. So, for example, a tyre producing factory may be finished, but a car factory will not be finished. The vehicles for which the tyres are intended do not exist; stocks of tyres accumulate for which there is no outlet.

The total effect of these two forms of waste can be immense—in Hungary in 1961-4 this accounted for eight per cent of the national income for Yugoslavia in 1960-70 for 10 percent, 8 in Poland in the years 1960-63 increased stocks alone accounted for 5-8 per cent of the national income.9

According to Moshe Lewin, four billion rubles of equipment were unused in 1965-7 in the Soviet Union as 'producers' goods remained unmarketed or kept accumulating in some parts of the economy when they were needed in some other.'10

The official figures for economic growth include much of this waste as 'increased production'—although, in fact, it does not increase the real national wealth at all. So, for instance, in Czechoslovakia in 1967 the official figures for economic growth hid the scale of economic crisis—for three quarters of the official 'increases' was made up of unusable stocks.

The authorities are forced to 'freeze' investments so as to deal with a crisis produced by their own tendency to over-invest. But their intervention serves, in the short term, only to increase the chaos in the economy. 'Administrative intervention', according to the Yugoslav economist Horvat, 'intensifies economic fluctuation'.

At the factory level, the result is the very negation of planning. Managers are told by 'planners' to switch repeatedly from one sort of output to another, at the shortest possible notice. 'Paradoxically, a system so heavily planned from above, left the factory unplanned, unable to prepare itself correctly for future tasks . . . ' "

Managers try to protect themselves in advance from such unpredictability by hoarding supplies of raw materials, com¬ponents and skilled labour. The worker in turn does his best to conceal from the manager the amount of output he can produce when really pushed. The overall result is that no-one knows, least of all the 'planners', how much the economy is really capable of producing.

Instead of real planning taking place 'strict methods of government dictation are evolved for filling the gaps in the economy made by the decisions and activities of the government itself.' I2

However, the crisis due to the 'raw material barrier' and the freezing of investments does not last indefinitely.

Eventually the pouring of resources into a select group of 'priority' projects enables them to be finished and to pass into production. At that point the output of the whole economy begins to rise at an accelerating speed. Resources can then be released to finish other investments. The economy moves from crisis and a slow real growth rate to an overcoming of the immediate crisis and a very rapid growth rate. Meanwhile, however, the crisis has produced unfortunate by-products.

The first is inflation

The vast expansion of investment at the beginning of the cycle necessarily involves an expansion of the workforce (usually through turning peasants into workers, although also now through the use of immigrant labour—eg Czechoslavkia and East Germany have imported labour from Poland, from Cyprus and even from Vietnam). The new workers are paid money wages on the assumption that the expansion of the economy will itself produce an increased flow of goods for these to be spent on.

At the same time, in all sections of the economy enterprises are borrowing from the banks to buy materials and components for new investments. And they rely upon a quick increase in production. When the crisis begins and production does not increase as expected, the classic inflationary situation occurs of an expanded supply of money chasing a fixed number of goods.

The actions of the authorities to deal with the crisis by freezing some investments to finish others aggravates this state of affairs. Usually it is the resources intended for consumption and agricultural investment that are raided so as to finish projects in heavy industry. The result is that consumers have more money at their disposal than the worth of the existing stock of the consumer goods.1!

The regime has two ways of dealing with such a devlopment. One is to let prices of consumer goods and food rise. That is why countries like Poland had a rate of inflation similar to that of western states during the 1960s.

But in a state where there is only one employer, inflation is likely to get blamed on the government and to have very explosive political consequences (as in Poland in 1970 and 1976). The bureaucracy is often frightened to allow too many obvious price increases, and freezes many prices in the state sector (although not in the quite large semi-private sector—the prices in the Kolkhoz markets in Russia, prices on the black market, the price of so-called cooperative housing, prices in hard currency shops).

However, price freezing does not do away with the cause of inflationary pressure—too few consumer goods being available compared with the money in the population's hands. What is often called 'hidden inflation' results. There are not enough goods to go round, and nothing can be obtained without queuing (except by the bureaucracy itself, which is well supplied by goods from its own shops in its party offices etc).14

It becomes a near-impossibility for workers to find enough supplies in the shops to spend their weekly wage on. Despite many hours spent queuing, they still have unspent monev in their pockets at the end of the week. This they can either spend in the highly inflationary non-state sector or effectively give it back to the state by putting it in the savings bank.

So, for instance, last year it was claimed that wages in Poland rose by about 9 per cent. But at the same time savings rose by a figure equal to 6.8 per cent of wages. It seems that workers were unable to spend more than about two per cent more than the year before (even though average prices had risen nearly five percent). Of course, the worker might eventually be able to use his accumulated savings—except it takes so long to save to buy the sort of things the worker would want to spend them on. like a cooperative flat (a worker can have to wait more than seven years before being able to take possession of a flat after paying down the deposit) as to virtually guarantee that the savings will be devalued by inflation before that point is reached. I5

The crisis has another important side effect. In order to complete as many investments as possible, the bureaucracy will be strongly tempted to step up its imports from abroad. But it will not have the same ability to arbitrarily increase exports. The result is a balance of payments deficit (as growth runs into what is called the 'foreign trade barrier').

The root of the crisis

SO FAR we have described the cycle of crisis and its by-products, inflationary pressure, foreign payment problems, and a lack of accounting and inefficiency throughout the economy.

But why does the cycle begin in the first place? After all, if the initial cause is 'over-investment', surely the bureaucracy can so arrange things as to fit the rate of investment to the resources of the economy?

That would certainly be the case if the Eastern countries really were socialist economies, where production was determined by need and. in Marx's words, 'accumulated labour is but a means to widen, to enrich, to promote the existence of the labourer.' I6

But this is not the case in these states.

Competition, not need, provides the driving force of their economies.

Superficially it seems that competition plays no role, since the state owns almost all of industry, and its monopoly of foreign trade reduces the direct impact of external competition on particular sectors of the economy to a minimum.

But the barriers erected to trade between each of the East European states and the rest of the world (including each other!) do not stop their having relations with the rest of the world. The world system continues to dominate their internal running, because the bureaucracy is committed above all to trying to 'catch up and overtake' its capitalist neighbours. The main goal set the economy is economic growth, particularly in the section of the economy that produces means of production. The bureaucracy deliberately imposes on the economy as a whole the necessity of competing in growth terms with the western economies. The accumulations of means of production outside their borders determine the drive to accumulate means of production inside each of the East European states.

The initial drive to accumulate (in the period 1948-55) was motivated above all by military considerations. Stalin saw the development of heavy industry as providing the military potential he needed in his conflict with the western powers.

However, the very drive to accumulate produced a new pressure for accumulation. As we have seen, accumulation soon exhausted the raw materials to hand within the individual country. Imports were necessary to sustain it.

But imports could only be obtained if exports were increased (and. in practice, this applied just as much to exports to the 'socialist' countries as to the west—the state capitalist countries have rarely been prepared to give each other real economic aid). The more industrialisation proceeded the more the East European states depended on pushing up their sales abroad, until with states like Hungary. Czechoslovakia or Poland these account for a very high proportion of the national product.

The Eastern states found themselves in a situation not appreciably different to that of any western capitalist. So as to accumulate they have to sell their goods. But they cannot sell their goods unless they are accumulating as fast as their competitors, continually expanding the scale of production, introducing new technology, keeping wage costs to a minimum, finding the cheapest possible source of raw materials. To survive they have, in fact, to subordinate the internal development of their economies to the needs of external competition.

The result is that once they have embarked on the path of competitive accumulation, there is no turning back and no end to it.

It is this which explains why the rate of accumulation is set at a level that is too big to be sustained by the resources within the economy. They are competing with economies larger and more advanced than themselves. They can only survive if they invest at a similar sale in particular industries as their competitors, even if that scale is too great for the local economy.

The forces of production operate on a world scale, as part of an international social organisation, but they are controlled, ap¬propriated, within the private boundaries of the national bureaucracies. The result is inevitably a continual clashing between the forces of production and the national boundaries. Hence the raw material barrier, the foreign trade barrier, the inflation barrier, the periodic crisis.

The crisis of state capitalism and the classical capitalist crisis

THE UPS and downs of the bureaucratically centralised economy bear an uncanny resemblance to the 'business cycles' experienced by western capitalism throughout most of its life.

In both cases rapid accumulation leads to shortages of raw materials and skilled labour. These shortages can only be solved by a slump in the growth rate (or even a cutback in production, as in the most recent western recession or the recessions in Yugoslavia, or in Czechoslovakia in the early 1960's). But this in turn enables an equilibrium eventually to be restored so that production can shoot ahead once more, until again shortages are encountered, etc.

In both cases the cause of the initial too-rapid boom is the competition between rival capitalist establishments (in one case rival firms, in the other rival national ruling classes). In both cases, too, the boom leads to production lagging behind demand for raw materials and consumer goods, and therefore to inflation or hidden inflation.

There is, however, one significant difference between the operation of the cyclical crisis typical of the East European states over the last 25 years and that typical of classical western capitalism (ie prior to 1940). The western boom-slump cycle went something like this:

When the economy moved from boom to slump, this was expressed in the fear that each capitalist had of being driven out of business.

The boom had pushed up his raw material costs, his interest repayments and the money wages he paid his workers. For the least efficient firms these increases could be enough to wipe out all the profits and to drive them into the red. The increased cost of new investment meant that they can no longer be embarked upon with any certainty of making a profit. New investment declined. But this meant that there was a sudden drop in the demand for the output of the sector of the economy producing means of production (eg construction, machine tools). Workers in this sector were sacked. Without wages they couldn't buy the goods produced by other factories, which sacked their workers in turn.

There was very rapidly a movement from an inflationary boom— too much money chasing too few goods, to a deflationary slump— too little money chasing too many goods. A general crisis of overproduction resulted.

In the crisis many individual firms went bankrupt. Their workers were thrown on to the dole queues for hire at lower wages by more efficient capitalists, and their factory space, machinery and raw materials were sold off at cutprice rates.

Eventually this combination of cheap means of production and cheap labour power would create the conditions for a new burst of profitable investment, a new boom. Paradoxically, it was the event which drove capitalist society to desperation, the slump, that prepared the ground for a new burst of optimism in the boom.

The bureaucratic state, as we have seen, experiences the first part of this cycle, the phase of 'over-investment'. But it tries to react to it in a slightly different fashion to the classical entrepreneur. Instead of relying on blind competition to determine which sections of the economy go under and which survive at their expense, the bureaucratic state itself intervenes to reestablish equilibrium on a different basis. It is able more or less to dictate which sections are frozen' and which expand at their expense. Bureaucratic directives, not the market, determine that workers and resources move from making one thing to making another.

The result is that although the crises have cut growth rates and produced unused productive capacity in various sections of industry, they have not usually led to a fall in industrial output, plant closures and sharp rises in unemployment.17

The bureaucracy, with its centralised control over all the internal industrial resources of the economy18 has an ability to intervene and deal with the effects of the crisis that under laissez faire capitalism neither the single firm nor the state could. The individual firm was too small in relation to the national economy to intervene in this way, and the state was politically too weak to impose a single will on the rival capitalist concerns: they would not, for instance, allow it to take control of investable resources and instead insisted that they themselves decide when it was profitable to start investing again.

However, dependence for resolving the crisis on administrative direction rather than blind market forces does not mean that the East European economies are qualitatively different to those in the west and the so-called third world.

Two important considerations apply here.

(1) Within western capitalism the last 80 years have seen a growing tendency for the state to merge with the most powerful capitalist interests. Sixty years ago Lenin and Bukharin already referred to the western states as 'state monopoly capitalisms.'

Today the process of monopolisation and stratification has gone much further than in Lenin and Bukharin's time. The corollary of this has been an increasing tendency for the state to try to impose some sort of planning of the constituent parts of the national economy in the interests of the major capitalist groups.

There are still limits to this. In countries like the US, Britain, present day western Germany, etc, the component sections of the capitalist class are still too distrustful of each other and of the capitalist state to permit a single economic power centre to emerge to direct their national accumulation "'Tor*. Particular, competing

interests are powerful enough to prevent a full blooded transition from state monopoly capitalism to state capitalism, as Wedgewood Benn with his scheme for state capitalist directed investment through the National Enterprise Board found to his cost.19

However, the tendency has still been for the role of the state to increase, and even in certain circumstances to dominate the whole economy.

In Germany and Japan in the 1930's the different sections of the ruling class forgot their distrust of the state. They enhanced its powers to smash the working class organisations, to force up the rate of profit and to expand out of the crisis at the expense of rival capitalist powers.

In Nazi Germany, by 1937 the state had a complete monopoly of foreign trade, directed a growing proportion of investment, and was over-riding the objectives of particular giant firms to its schemes for saving German capitalism.20

It was on this basis, that German capitalism could expand at precisely the point when the US and Britain entered the second deep slump of the 1930's.

A similar process, of course, happened in 1939-40 in Britain and the US in response to the threat from a reinvigorated German capitalism. The state and the major capitalist groups imposed a war economy, which compelled the individual capitalist groups to accept a centralised direction to the economy. Their mutual antagonisms remained powerful enough, however, to ensure the partial dismemberment of the after 1945. Even then, the state through the permanent arms economy continred to control a substantial sector of the economy and to direct a huge amount of investment more or less regardless of the ups and downs of the non-state sector.

But it has been in the so-called 'developing' countries where this process of state intervention has gone furthest. In many of these the individual capitalist groups have been too weak to prevent the state dominating the industrial sector of the economy—indeed, in many cases this has been the only way individual capitalists could conceive of overcoming their own weakness compared with the giant firms of the west.

In the most extreme cases (eg Egypt and Syria in the early 1960's) this has led to a virtual state monopoly of industrial production.

In other cases it has meant the state playing the dominating role in the most important sectors of industry (even if these are a minority of the total) and banking.

So, for instance, even in Brazil the state controls 72.3 percent of the shareholding in the 100 biggest companies; in Mexico there is 'a strong state presence in the vital sectors of the economic system. The state owns the major part of the banking system, of the oil and petrochemical industry, of the electrical production industry and transport. It has a strong articipation in trade, iron and steel and heavy industry ... "' In Argentina, theindustrialcapitalists'usedthe state between 1930 and 1950 to transfer capital from the agricultural export sector to internal industries .. They nationalised foreign capital linked to export industries and made productive1 services and transport into state monopolies .. .After 1953 the state was used in a new cycle to transfer capital from light industry to heavy industry and engineering . . ,'22

In these countries the state does not respond to a crisis as the individual classical capitalist would, by waiting for a rise in profitability before investing. To do that would be to abandon the pretentions of its national capitalists to 'catch up' with their international competitors. Rather the state is likely to step up its own direct and indirect investment to compensate for the failure of the private sector of the capitalist class to invest.

'The Argentine bourgeoisie opted for a plan of development through the production of means of production . . . This politics resolved in a bourgeois manner the narrowness of the internal market for means of consumption and the low rate of profit that caused the fall in private investment. Through successive instalments of inflation and of economic contractions, the rate of surplus value was raised, while capital was transferred from production of means of consumption to production of means of production . . ."-,:3

In Brazil the role of the state helped to ensure that the economy has continued to expand (although at a reduced rate) through the world recession, on the basis of a continuing growth of production of means of production.24

The rate of growth for 1976 is expected to be 2.5 to 3 percent. But capital goods output will rise to 15 per cent, 'due to provision of official finance on.a massive scale.'25

(2) But a second point has to be noted both in relation to the East European state capitalisms and to the various hybrids between state monopoly capitalism and bureaucratic state capitalism. The state may be able to reorganise the internal economy so as to deflect some of the classical products of the crisis (above all a collapse of new investment). But it cannot exercise the same control over the external economic relations of the national capital—unless it is in a position to expand in an imperialist manner, as did Germany and Japan in the 1930s.

And the more accumulation takes place, the more important foreign trade and its impact becomes. Productive forces operate increasingly at an international level, and it becomes increasingly difficult for any national capitalism (state capitalist or otherwise) to accumulate in isolation from the world system.

We will expand on this point later, but first it is necessary to look briefly at another vital component to the crisis in the Eastern states.

Declining growth rates and the crisis

IF THE cyclical crises were the only difficulty facing the Eastern European economies, the bureaucracy could sleep easily. For by definition, cyclical crises pass and give rise to a new period of expansion and optimism. Trotsky remarked that 'capitalism lives by slumps and booms, just as a human being lives by inhaling and exhaling."6

The same might almost be said of the East European state capitalisms.

However Trotsky was quick to add that on top of its cyclical crises, capitalism was faced with a long term tendency at work through slump and boom, to make each crisis worse than the one before. Marx located the origin of this in the trend for the long term rate of profit to decline.

The bureaucratic state capitalisms also face a long term trend towards crisis, on top of their cyclical difficulties.

The more they develop industrially, the more their rate of economic growth tends to decline.

Twenty five years ago they claimed growth rates two or even three times that of their western rivals. Today, their growth rates are only about the same as western growth rates. As Branko Horvat has noted, 'expansion in the most important countries of the world, capitalist and centrally planned alike, is slowing down . . ,'27

The fundamental cause of state capitalism's declining growth rates lies in the fact that new investment is less and less productive.

Growth of national income per unit of investment, Poland

1951-54 0.373

1955-58 0.335

1959-63 0.20128

In eight years, the new output produced by each unit to increase in investment fell by more than 40 per cent!

Average increase in industrial output per rouble of investment (USSR)

1951-5 1956-60 1961-65

6.4 5.1 4.7

In this case the fall was by more than 25 per cent in ten years.29 It might be asked: does this matter? After all, total production is

continuing to rise. The use values at the disposal of the state grows
ever more massive.

But it is no the volume of use values at the disposal of the rulers of
Russia and the East European states that worries them. They do not live in either a socilaist society where what matters is the use values available to feed, clothe, shelter and give a happy life to the population. Nor do they live in a hermetically sealed, bureaucratically run state that can forget what is happening elsewhere in the world, and therefore measure its success by the quantity of use values at the disposal of the bureaucrats.

They know that their long term survival depends upon being able to maintain a level of accumulation as high as. if not higher than their rivals'. If the bureaucrats' economy produces inferior goods at a slower speed than its rivals, then in the long term they will have the economic and military potential to force the bureaucratic state into a subordinate client state role.

Therefore what obsessed the bureaucrats is the success they have in producing greater quantities of goods with less outlays of labour than their rivals—or in Marxist terms, the production of exchange values."1

As Brezhnev has put it, 'the fundamental question in the economic competition between the two world systems is not only how much you produce, but also at what cost, with what outlays of labour.'31

Yet the rulers of the bureaucratic states find that it takes greater and greater quantities of accumulated labour, of'dead' labour, to expand the value of production.32

They face the same long term problem as western capitalists. The more accumulation takes place, the more they are confronted with a tendency for the rate of profit to decline.33

As a result, the decline in the rate of growth continues, even though the proportion of industry devoted to producing means of production, to accumulation, grows.

Today about 75 per cent of industrial output of the USSR consists of producer goods, compared to only about 70 per cent in 1950-55; in Czechoslovakia 61 per cent compared with 55 per cent; in Poland 65 per cent, compared with 55 per cent.'34

It is this which gives added urgency to the short term cycle of crisis. The long term decline in growth rates means that the bureaucracy has fewer reserves for dealing with each crisis than the one before. As in the classical capitalism of Marx, crises get progressively worse, and have more and more political ramifica¬tion, (as in 1956, 1968-9. 1970-71)."

Indeed, in some ways the trend is more pronounced than Marx foresaw for western capitalism.

Despite all its faults, the periodic crisis served a positive function for capitalism in Marx's day. By leading to the bankruptcy of some capitalists, it cleared the ground for others to prosper.

(a) The most inefficient capitalists would be driven out of business, and the more efficient capitalists could buy up machines and factory space on the cheap. The system as a whole was restructured on the basis of'the survival of the fittest'.

(b) The recession created a temporary excess of raw materials, which cut their price.

(c) it created a pool of unemployed which served to weaken trade union organisation and cut money wages.

The cheapening of labour, raw materials and means of production did away with the inflationary pressures that had developed during the boom. And it counteracted the long term tendency of the rate of profit to fall.

In the bureaucratically centralised economies this semi¬automatic process of 'rationalisation' of production does not take place. There is no automatic mechanism, for instance, for diverting resources from backward, inefficient factories to modern, more efficient ones.36 Nor is there any automatic countering of the long term inflationary pressures.

It was analyses of the way in which the system was more and more driving towards crisis that enabled revolutionary Marxists writing in the early sixties to foresee and repitition of the workers uprisings of 1953 and 1956. This was especially true of the pioneering









Footnotes to part one

1. According to Ivan Berend of the Hungarian Academy of Science.

2. Figures given in Lidia Beskid, Ekonomista 1968 no 2, translated in East European Economies Vol II no 3.

3. R \ Ciorski. Der Wirtschaftspolitische Hintergrund und die Folgen der De/ember 1970.....Ereignisse in Polen, in Ost-Europa-Wirtschaft Dec 74.

4. Josef Pajetska. Ekonomista 196S no 2, translated in East European

work of the Polish Marxists Kuron and Modzelewski.37

Economics, vol V no 2.

5. Goldman and Korba, Economic Growth in Czechoslovakia, Prague 1969 p 41 cf also Branko Horvat, Business Cycles in Yugoslavia (Eastern European Economics vol X no 3-4). According to the Mandclsof this world it should have been impossible for Horvat to have written a book with such a title, let alone to get it published in Yugoslavia, cl also Periodic Fluctuations in Soviet Growth, Soviet Studies. January 1969. p.331

6. Goldman and Korba. op cit p 43. see also Beskid op cit.

7. Introduction to the Theory of Economic Growth in a Socialist Economy, p44 8. Sources quoted in C Harman, Bureaucracy and Revolution, p 257

9. J lCuron and K Modzelewski, A Revolutionary Socialist Manifesto (An Open Letter to the Party), p 31.

10. Political Undercurrents in Soviet Economic Debates, p 143.

11. Lewin op cit p 145.

12. Tony Cliff, Russia A Marxist Analysis, London 1964, p 274.

13. This trend to satisfy the needs of completing heavy industry investments through raiding consumption is sometimes called 'crossing the inflation barrier'.

14. Many Poles thought the party shops had disappeared until the strikes in June, since the notorious shops with 'yellow curtains' no longer existed in the streets. But it is reliably reported that when striking workers in Radom entered the local party first secretary's offices to get an explanation for the price rises thry found a well stocked party shop there. It was this which provoked their anger and turned a strike into a near-uprising.

15. Apologists for Stalinism of various hues in Britain (see Red Weekly 7 July 1976) claim the increased production of cars shows that the bureaucracy has the interests onext issue. Edf the workers at heart. But the average worker w ould have to save all his earnings for two years to buy a small Fiat. Even then there is only one car manufactured for every 70 salary or wage earners. Moreover, as the Financial Times has pointed out (25 February 1976) 'Polski-Fiat will remain the main vehicle for the attack on overseas markets, exporting a little over half its production'.

16. Communist Manifesto, In Marx: Revolutions of 1848, p 81.

17. Although as we have pointed out above, this has happened in Yugoslavia.

18. Although not always of agricultural resources—in Poland, for instance the large agricultural sector is still controlled by millions of independent peasants.

19. And. of course, an important factor here is that the most powerful firms in a country like Britain are nationally based multinationals (ICI. Shell, BP etc) who do not want their multi-national effort subordinated to the needs of the less profitable firms that make up the rest of British capitalism.

20. Of course, it did all this collaboration with the giant monopolies, but that did not stop it ignoring their particular interests, as with the building of the Hermann Goering Works.

21. Paesi Emergenti, Citta Futura, Rome January 1976, pp21 and 26.

22. ibid p 5.

23. Miguel Angel Garcia, Argentina, Citta Futura, March 1974 p 14.

24. Steel output rose 10 per cent in 1975. cast iron output 14.9 per cent. electricity output 12.8 per cent, EITJ Quarterly Review, Brazil, 1975 no 4.

25. ibid 1976 no 2.

26. First Five Years of the Cominterm 1. p 200

27. Horvat, op cit p 203.

28. J Pajetska, Ekonomista (Warsaw) 1965, 2.

29. Figures given in K Fitslyon, Soviet Studies, Summer 1969, p 179.

30. For elaborations of this argument see Tony Cliff State Capitalism in Russia. C Harman Bureaucracv and Revolution.

31. Pravda 24 April 1970.

32. This too is in the main a reflection of the fact that the value to them of total output depends upon its exchange value on a world scale. They are forced to match insofar as they are also improvements in productivity and innovations in the technology taking place outside Russia, and therefore to jack up the ratio of dead labour to living labour.

33. Of course, the output investment ratio is not identical with the rate of profit. To find the rate of profit it is necessary also to take account of any change in the amount of national income going to productive workers as a result of the new investment. This can make the rate of profit change by a bigger or smaller amount than the output-investment ratio. But the trend is likely to be in the same direction.

34. C Harman op cit.

35. Of course, for Marx there were 'counteracting tendencies' that affected the particular expressions of this long term trend. The same applies in Eastern Europe: a harvest failure can make the crisis very acute, an oil find can alleviate a particular crisis.

36. Quite the opposite. The desperate search for components to complete half-finished projects means that antiquated obsolescent plant is kept in operation, even if its costs of operation are very high. What matters to the frantic bureaucrat, looking for resources to achieve priority targets is quantity not quality. (There is a whole literature on this from East European economists, although they rarely even hint at what the cause of the phenomenon is). As Peter Bains has put it, 'Western capitalism has mechanisms of greater or lesser efficiency for restructuring capital in crisis, but Russia has not internal means for doing so...' It only needs to be added that it is 'classic' western capitalism that has means for restructuring through cyclical crisis—with later, state monopoly capitalism things are much more difficult.

37. Op cit. It was also true of part two of Tony Cliffs 1964 edition of Russia A Marxist Analysis (not included in the 1974 edition) and of Prospect for the Seventies, The Stalinist States by C Harman in IS 42. There is, as far as I know, no analysis of the economic dynamic leading to crisis in any of the works of the proponents of the 'post-capitalist' view of Russia, (unless you count writings in the thirties, of Trotsky, who did not believe the Stalinist regime in Russia could survive the world war).










PART TWO

Poland from 1970 to 1976

The crisis of December 1970 took the leaders of the Polish bureaucracy completely by surprise. But Kuron and Modzelewski had predicted five years earlier; 'The investment programme means a further increase of 20 per cent in the share of investment in the national income. . . We know from ex¬perience that the realization of the invest¬ment programme will require much higher investments than planned. It means that the "inflation barrier" will be crossed so that real wages will be pushed below the minimum level socially necessary.. .'Htwas this that led to their conclusion: 'revolution is inevitable'. In December 1970 in order to try and continue with vast investments already under way, Gomulka pushed up meat and other prices by 20 per cent. Even after workers strikes and uprisings in the Baltic ports had caused the removal of Gomulka himself his successor Gierek tried to justify continuing with the price increases. He told strikers, 'We voted (at the party congresses)

for increasing living standards. These were ignored because it was not wished to annul certain decisions on investments which were verv drawn out and had to be completed.'1

Kuron and Modzelewski insisted that in one respect the next crisis would differ from previous ones. In 195" the bureaucracy had been able to increase wages and buy off discontent because it had certain "reserves": in the next crisis, they said, these reserves would not exist and the crisis would be insoluble. Again, when the crisis broke out Gierek admitted as much: 'Whether you believe me or not is your affair, but we have lot the least reserveswhich would allow us to carry through a more rapid increase in the standard of living.'3

In the years immediately following 1970 it seemed both that Gierek was lying and that Kuron and Modzelewski were mistaken. Under pressure from strike action Gierek finally agreed to cancel the price increases and allow real wages to rise quite substan¬tially.

Average net earnings in industry grew from 2,389 zlotys a month in 1970 to 2,873 zlotys in 1973—an increase of 448 zlotys compared to an increase of only 368 zlotys in the five years prior to 1970 (and in those five

years prices rose by nine per cent, while they were officially frozen from 1970 onwards).4 It is claimed that personal consumption rose by ~ per cent in 1971. by 9 per cent in 1972 and by 11 per cent in 1973.

These figures have to be taken with a big grain of salt, since the alleged growth of total personal consumption of 29 per cent during 1970-3 was not matched by a corresponding growth in the consumption of the most important items for the standard of living.5 But there is no doubt that a limited increase in living standards did take place. How is this to be explained?

Not by any increase in the proportion of the national income going to the workers.

Despite the rise in real wages, the 'gains of the Enterprises'—the surplus value accruing to the enterprises—grew more rapidly than wages. The rate of capital accumulation also increased.

Net fixed capital formation grew from 21.8 per cent of the national income in 1970 to 26.9 per cent in 1973. Wages could only grow because the Polish economy entered a boom in the early 1970s of an intensity that was completely unexpected—above all by the Polish Bureaucracy.



Distribution of National Income

wages 'gains of enterprise' income of peasants



1970 32.8% 16.9% 16.6%

1971 31.6% 22.5% 17.1%

1972 31.7% 22.8% 17.9%


IMPORTS (million zlotys)

70 71 72 73

Comecon 9,488 1 0,372 11,419 12,902

Developed western countries 3,721 4,407 6,680 11,597

EXPORTS to developed western coun¬tries (million zlotys)

1970 71 72 73

4,028 4,622 5,515 7,303

The 'plan' for 1971-5 was not finally agreed until 14 July 1972 (when it was already supposed to have been in operation for 18 months). What happened to the economy had little to do with the plan targets. The national income growth of 59 per cent from 1971-5 was half as much again as the planned growth of 40 per cent. Investment grew at roughly twice the planned rate. The bureaucracy, frightened out of its wits by the uprisings and strikes of 1970-71 was prepared :c try to buy off workers with real wage increases—providing accumulation could expand as weli.

Thi s upsurge in the Polish economy more or less coincided »:th an upsurge in the economies o: the ether East European countries. (For ir.stir.ee in Hungary the rate of economic growth .r. '.9'} was nearly " per cent—half as much again as the targeted figure). Significantly, it a.so took place at the same time as the most rapid burst oi economic growth known in the Western states since the Korean war—the short-lived but very rapid boom of 1971-3.

It seems that the Polish bureaucrats behaved very like every other capitalist in the world in these years—they saw the global expansion of production and markets that

was taking place, and decided that they could solve their own internal problems if they expanded their own output so as to take advantage of the boom. They let the investment take place at a very high rate throughout the economy, at the same time as letting money wages increase. They took on extra workers in the factories. And they scoured the world for the raw materials and manufactured components that industry needed. They assumed that they would be able to cover their increased wage and materials costs by selling more goods—as did the western capitalists who participated in the world boom.

In the first full year of the boom—1972— imports from the west rose by a full 50 per cent. In the next year they rose by even more—by 80 per cent, until they were three times the level they had been in 1970.

By 1975 55 per cent of Poland's trade was with /jo«-Comecon countries. In short, the high growth rates of these years were based upon a complete transformation of Poland's pattern of trade, with a massive integration into the booming western *world' market.

But something else of great significance also happened. The growth of exports to the west did not by any means keep up with the growth of imports.

Exports to the west nearly doubled in three years but meanwhile imports had increased more than three-fold.

This was no more 'planned' than the size of the boom itself. The 1971-5 'plan'targetted an increase in foreign trade of 55 per cent over five years. This figure had already been surpassed by the end of the second year of the plan. The total increase in foreign trade between 1971-5 was more than 250 per cent (five times the alleged target of the planning mechanism).

The behaviour of Poland's bureaucrats was identical to that of the capitalists throughout the world in the years of the boom. They believed that if they only expanded at the fastest possible rate

everything else would take care of itself. As a Financial Times correspondent wrote of Gierek;

'To give Poland the strongest possible push, he deliberately ignored the cost, calculating that once the economy had achieved a certain momentum it would start paying its bills automatically'. (FT 5 December 1975).

In this period the same blind optimism that characterised western apologists for the capitalist system (witness Peter Walker's claim in November 1973 that Britain was entering an era of 'unprecedented prosperi¬ty') characterised the statements of the Polish authorities. Thus 'Mr Dlugosz, deputy minister for foreign trade, stated that inflation in the west was not resulting in inflation being imported into Poland'.6

To pay for this expansion—again like the western capitalists—they had to resort to borrowing on a massive scale. A trade deficit which reached 677 million pounds in 1974 could only be bridged by turning to sources of credit in the west. "Poland is financing its investment programme through com¬paratively cheap credits from Western coun¬tries.""

But it was the fact capitalists everywhere were buying up raw materials as quickly as possible, using up all available skilled labour, and borrowing massively from the

banks that forced up international com¬modity prices and interest rates through 1973. The last straw of course was the tripling of the price of oil in November 1973. The immediate occasion for this was the middle-east war; but OPEC could only increase its price because the oil-consuming nations had increased their consumption during the boom at a much greater rate than the increase in global oil production.

The biggest world boom since the Korean war rapidly gave way to the biggest recession for 35 years. In the main western countries investment and employment fell and markets were reduced, while the rate of inflation remained at a very high level.

The combination of inflation plus reces¬sion had devastating consequences for the Polish bureaucracy. They were in the same position as western firms which had borrow¬ed heavily in the boom on the assumption that they would be able to pay off their debts through increased sales.

Inflation

THE cost of Poland's imports of raw materials and manufactured components rose as world prices did. This pressure became even worse when the Russians began raising the price of their oil to catch up with the world market price by stages. A United Nations survey told how 'prices between the Soviet Union and its allies rose at an unprecedented rate in 1975. It cited oil up 130 per cent'.8

According to the West Berlin based German Institute for Economic Research, 'price rises of Soviet exports in the main raw materials this year cost Comecon countries such as Hungary, East Germany and Czechoslovakia one third of their planned growth in the national income'.9

Prices inside Poland were put up as a result, despite the freeze on-food prices. In 1974 the prices of petrol products, alcohol, and canteen meals were put up by-the state. The prices of fruit and vegetables sold by the peasants on the free market also began to rise. The result was a rise in the official price index of 4.7 per cent in that year and 5 per cent last year.

Supporters of the Polish regime now admit to'the growth of inflation. But they speak of it as 'imported' from the west. But as we have seen the Polish economy has endemic inflationary tendencies of its own. What is more its uncontrolled growth contributed to the world boom and to the international inflation that this produced.

Just to take one example. Poland—along with the other Eastern European States— increased the amount of oil it bought on the world market in the months before October-November 1973 (when OPEC put the price up) just as did the various western countries; Poland's oil imports rose by 50 per cent from 1970-73. Poland was not just a victim of the world inflation; it helped to create it.

Recession
If it has been hit on one side by the world¬wide inflation, the Polish bureaucracy has been hit also by the other by-product of the world boom in 1971-3—the recession in the advanced western countries.

'The Western recession has damaged Poland's terms of trade; the value of exports has not kept pace with the inflated cost of imports; and the prospects for sales in the West have not been the best.'10

Not that the Polish bureaucracy respond¬ed to the recession initially by cutting back production. They allowed the bureaucrats who run particular industries to expand both production and investment. They seem to have assumed that despite the world reces¬sion they would be able to sell this increases production abroad. But despite the fact that Poland is one of the largest coal producers in Europe and could expect to gain from the oil crisis through increased coal sales, its imports have continued to be much greater than its exports."

The total trade deficit in 1974 was 7,198 million zlotys; for the first nine months of

1975 it was more than twice that at 18,000 million zlotys. The accumulated deficit to the western countries is now immense; it stands at 4,200 million dollars—a figure greater than Poland's export earnings for a single year. Polish spokesmen admit that servicing this debt now eats up 20-22 per cent of export earnings.12

By the time the five-year plan for 1976-80 was formulated last year Poland's rulers could no longer ignore the stark reality of their trade deficit and their indebtedness. The plan targets stress the need to cut imports below exports. They claim that in

1976 imports will only grow by 9.4 per cent; exports by 15.5 percent. But exports cannot be increased at will, as British capitalism has long learned to its cost. Gierek is no more a miracle worker than Callaghan. In the first three months of this year exports rose by only 3.7 per cent—not nearly enough to meet the target.

Imports have been equally intractable. There are still a great many investment projects remaining unfinished from the last plan. To complete them, managers have to buy materials and components from abroad. Imports in the first three months of 1976 grew by 19 per cent. The trade deficit with the western states for the three months was 772 million dollars—half as big again as in the corresponding period last year. No wonder Eduard Gierek explicitly compared his dilemma to that of the western capitalists: 'Every nation which proceeds with large investments has market troubles'.

Responses to the Crisis

The crisis-riven state of the Polish economy leaves the Polish bureaucracy with three options:

(1) Expand still further its borrowing abroad arid integrate the economy still more with the western economies.

(2) Make the workers pay for the crisis by slashing living standards.

(3) Make sections of the workers and sections of the bureaucracy itself pay for the crisis by cutting back production in certain areas of the economy, closing factories and sacking workers.13

The first response, as we have seen, of the Polish authorities in 1974 and 1975 was to turn to massive foreign borrowing. They have continued to try using this expedient. They have turned to individual western banks to finance particular projects (like the expansion of the Ursus factory—financed by Barclays and undertaken by Massey Ferguson), to the Eurodollar market (where East European borrowing rose by a, massive

5.4 billion dollars in the first nine months of 197514) to finance coal equipment and a PVC plant, and even to the Shah of Iran for 250 million dollars for food and paper plants.

But, as the Labour government in Britain found at the end of its first year in office there are limits to which it is possible to avoid the effects of the international crisis by borrow¬ing internationally. The western banks are getting more and more wary about lending Poland money. As the Financial Times has noted; 'By 1975 Poland had acquired the reputation of being one of Comecon's less good risks.'15

Under the circumstances the loans which Poland gets are more and more tied to particular projects, which mean not only Polish dependence on western credits, but also a direct connection between sections of Polish industry and the market operations of particular western firms. So for instance one of the Fiat-built plants that has just come into production in Silesia provides com¬ponents for the Fiat factories in Milan. The Financial Times reports; 'A consortium of German companies led by Krupp is expected to land orders worth £565 million for two coal gasification plants, a plant to extract various other chemicals from coal, and equipment for a large new mining operation in Upper Silesia. . . The Poles are interested in setting up a joint marketing operation with Krupp to sell the various projects abroad. A consortium of West German banks is working on the financing of the new deal. . .'(1 June 1976).

The centr»-piece of the next five-year plan is the expansion of Polish copper production through a massive £250 million investment. This is to be provided by a consortium of western banks. But these have demanded as a condition for the loan detailed information about the copper deposits, and the power to 'demand changes in copper export strategy as necessary.' "

The foreign loans provided a breathing space for the bureaucracy to overcome the crisis oi 19"'0: they also enabled it to ignore the world recession for two years. But they present it with immense long-term problems.

The loans will have to be repaid at some point, if more and more of the Polish economy is not to be devoted to raising interest for Western money lenders. Indeed the Western money lenders will withdraw-even the loan facilities they have so far made available if repayments do not take place as expected. And most of the repayments fall due around 1980. Further: the more the bureaucrac> depends upon exports to sen ice previous loans as well as its imports, the more the whole functioning of the economy depends on the ups and downs of the western economy.

Already it is possible for the bureaucrats of one East European state (Hungary) to recognise that the success of their own 'planning' depends upon the hope of a western boom. They believed, a Financial Times correspondent wrote in July, 'The signs of a new upswing, coupled with growing personal consumption and the build up of stocks provide more favourable circumstances for fulfilment of Hungary's "planned" targets.'17

The Polish bureaucracy is relying on being able to export, for instance, 70,000 Polski

Fiats a year. Whether it can do so or not depends upon there being a boom in the West. The same applies to its ability to sell other Fiat components to Milan (if Fiat cannot sell its cars. Poland won't be able to sell components) to sell coal. PVC and so on. Few commodities fluctuate more in price than copper. The success of the biggest single investment in the next five years depends not on the 'planners', but on the world market for copper on the one hand, and on the western banks who have the power to control Poland's sales of the metal, on the other.

The point is crucial. In the past Poland's internal economic dynamic has been deter¬mined by a drive to accumulate arising from its relationship with the world system. But at the same time the monolithic control exercised over industry by a single bureaucratic group has enabled this group to isolate the internal cycle of crisis in Poland from the international boom-recession cycle. Over the last six years, the fluctuations inside Poland and in the world at large have more and more interacted, with Poland booming as part of the 1971-73 world boom. In order to evade the consequences of this the Polish bureaucracy tried to prolong its own boom longer than either the world boom or than any other previous spell of high growth inside Poland, by turning to the inter¬national banks. But this has been a short-term expedient that now makes Poland's ability or otherwise to conquer the world markets a life and death matter. Polish industry's future is mortgaged to the hope that the west will enter into a real boom. But even if, by some miracle, this materialises, the relief for the Polish bureaucracy will be short lived.

As in the last boom, Poland will con¬tribute to all the classical features of the upturn—rising world commodity prices, shortages of materials internationally, in¬creased borrowing and higher interest rates. But by doing so the Polish bureaucracy will also be contributing to the forces which make the world economy increasingly un¬stable.

An Internal Recession?

The second alternative open to the bureaucracy is that of solving the foreign trade gap by closing inefficient factories, cutting back production in other sectors of industry, and sacking workers. Effectively this would mean cutting back the pace of economic activity until it was regulated by what could be sold in the world market—in short, responding to the western recession by imposing an internal recession within Poland.

There is nothing intrinsic to the bureaucratically controlled economy that prevents such a response. As we have seen, Yugoslavia has cut production and forced up unemployment on several occasions. Over the last year, industrial production has fallen to a mere 95.7 per cent of the previous year's figures, partly because 'internal and foreign demand has been weak for all categories of goods'.18 Unemployment has grown from 315,000 in 1972 to 537,000 in 1975—(10.1 per cent of the labour force)19.

However, the bureaucrats are usually loath to resort to such an approach, for a number of reasons.

15 per cent less than in an identical plant in Turin. The gap could only be bridged if some way could be found to overcome the extreme alienation which Polish workers feel from the productive process. That means not cutting living standards, but raising them to the Italian level.

(2) At the same time as leading to a low level of productivity even in the most advanced areas of industry wage cutting encourages the less efficient sections of industry to remain in operation (and prevents the updating of inefficient and obsolescent sections of industry and therefore, in the long term impedes precisely the capital accumulation it is meant to aid.

(3) Finally, cutting living standards can only contribute to the global instability of the wo/ld system. An individual capitalist or an individual state capitalist country can solve its problems to a degree by cutting wages, underselling its competitors and increasing the surplus value at its disposal. But all capitalists or state capitalists cannot do that without increasing the contradictions of the system. They add to the discrepancy between the scale of production and the narrow powers of consumption of the masses.22

This is bound in time to express itself in a new crisis, of 'over-production' of capital and commodities.

The Next Crisis

The Polish bureaucracy may ride the present crisis. It may be able to borrow more from the western banks, to persuade the jvorkers 30

to accept substantial cuts in their real wages, and to increase its exports on the tide of the developing world boom (or boomlet). But its next crisis is already in view before this one is over.

The world boom needed to help exports would definitely put up the price of imports.

It would also cause the cost of servicing Poland's accumulated debt to rise still more. 'The biggest drawback of a (world) boom would be a sharp rise in the cost of finance on which Poland continues to depend, and a drop in export credits from western governments no longer concerned at expor¬ting at any cost.'23

Finally, it would ensure continued full employment, and therefore continued con¬fidence for Poland's workers, even if they are intimidated into accepting wage cuts in the short term.

The enhanced inflation will also most certainly be reflected in renewed pressure on wages, just as internal inflationary pressures against attempting a too ambitious rate of growth come to the fore.

The result in 1978-9 could be catastrophic for the Polish bureaucracy, (even if they survive the next few months, without more strikes and uprisings). Many of their foreign loans will fall due just as internal inflationary pressures peak and world markets shrink. Then they will have to either turn on the workers still more viciously, risking a repetition of 1956 and 1970, or suffer a full blown recession (which they might also see as a way of weakening the bargaining power of workers).24

Awareness of this has produced a deep

crisis of confidence within the ranks of the bureaucracy itself, with the possibility of the sorts of open splits that preceded the Hungarian revolution of 1956 and the Czechoslovak upheaval of 1968. And the Financial Times can report that 'East Germany is now worried that the widespread Polish discontent over the deteriorating food situation could build up to another outburst such as June's riots'. (September 1976).

Conclusion

This analysis has focussed on Poland, since that is the Eastern European state where the class struggle has been most acute. But its conclusions are applicable to a greater or lesser extent to the other so-called Com¬munist countries. bureaucracy has been loath to increase its dependence on its military rivals, it has not expanded trade as much as satellites— and it has fallen behind them in terms of economic growth. The Vienna based In¬stitute for International Economic Com¬parisons reports that in the last five year plan period, "the overall economic performance of the Comecon countries, excluding the Soviet Union, was considerably better than the Soviet Union itself.'28

While Poland (with its massive expansion of imports) had a claimed growth rate of 9.8 per cent a year, that of the USSR fell to 5.5 per cent29. Most of the targets of the last five year plan were not achieved, even after they had been modified downwards in the course of the plan itself. This followed on a failure to achieve the original targets of the 1966— 70 plan.

The plan for the next five years predicts the lowest growth rates since the 1920's. with consumer goods production due to increase hardly more than the increase in the population. Even if by a rare accident, this portion of the plan is achieved. Russian workers' real wages will hardly rise at all!

A crude conclusion is possible from the Russians' performance: opting out of massive increases in trade does not allow you to opt out of the pressures of the growing forces of production at an international level. Not buying modern technology on the scale of the Poles, the Russian economy grows much less quickly. But it still has to pay for an arms effort comparable to that of the biggest western state, the US. The Russian bureaucracy can only respond by holding down wages, hoping that the outcome is not a Russian version of the Polish strikes and uprisings.

But it is not only to the so-called Communist countries that the analysis has relevance. It also shows how their situation is very similar to the other state capitalisms we referred to earlier, to the 'developing countries' where the state has endeavoured to supplement, or even substitute itself, for a low rate of private investment.

Our description of Poland trying to expand its way through the world recession by a combination of massive foreign borrow¬ing and increased exports based upon low wages, could almost apply to Brazil, for example. And the results have also been similar—internal inflation so as to distribute national income away from the workers, increased dependence of the national ruling class upon international capital, a faltering growth rate.

"Brazil is experiencing the same difficulties in maintaining a satisfactory external balance as several non-Opec developing countries, such as Mexico, Columbia, Singapore and Turkey'1"—and we might add. Poland. Hungary and North Korea.

The Polish crisis is an expression of something much greater The era in which the state could protect national capitalism from the direct impact of world crisis is drawing to an end. Discussion on 'state capitalism' needs to give way to discussion of the world system of state capitalism.

The national capitalist class—whether in Poland or Brazil, Argentina or Britain, the USSR or France—can only keep up in world competition (in trade or arms production) if it has access to productive resources wider than those of the national state and if it has

access to technological advances taking place on a wider scale, usually in the biggest firms of the most advanced countries. It cannot get access to these without increase dependence upon international trade, the international capital market, and the multi¬national firms. Yet, at the international level there are no institutions comparable to the national state capable of imposing order. Each national state capitalism is more and more sucked into a chaotic, disorganised, world system where the only order is that which is provided by the crises and destruc-tiveness of the world market itself.

notes

1. J. K. Modzelewski, A Revolutionary Socialist Manifesto, (an Open Letter to the Party) pp 37 and 30.

2. source, see C. Harman, Bureaucracy and Resolution

3. ibid.

4. figures from Concise statistical yearbook, 1974 issued by the Central Statistical office, Warsaw.

5. Meat consumption per head grew by only one sixth 116:: per cent), egg consumption per head by one twelfth (S'/i per cent), and consumption of filk. sugar, fabric for clothing, shoes and most other items hardly increased. Indeed the only item in most workers budgets that increased in accord with the official claim for total consumption was vodka and spirits.

6 Financial Times. IS June 1976. ". F.T. ibid.

8. International Herald Tribune. 18 March 1976. '

9. F.T. 24 April 1975.

10. F.T. 4 December. 1975.

11. Economist Intelligence Unit quarterly report 19"?6 2.

12. F.T. 5 December. 1975.

13. N.B. These three alternatives are not. of course, any different to those facing the western and 'third world' states in the crisis—they too move from dependence on foreign loans, to 'incomes policies', to letting the international recession wreak havoc with their own economies.

14. F.T. 3 Marchl976.

15. F.T. 5 December. 1975.

16. ibid.

17. F.T. 15 Julv. 1976.

18. F.T. 11 June. 1976.

19. O.E.C.D. Survey, 1976. The increase is only partly accounted for by the return of 60,000 'gastarbeiter' from West Germany.

20. see e.g. Mike Kidron, The Wall Street Seizure in l.S. 44; see also Chris Harman, Marxist Economics Today in I.S. 76. ji

21. cf F. L. Prior. Barriers toWarket Socialism in Eastern Europe. Studies in Comparative

. Communism, April 1970.

22. Of course this discrepancy can be overcome temporarily by increasing the scale of investment—but in the medium term that only serves to increase the organic composition of capital and to cut still further the rate of profit.

23. It is even possible to conceive of a point being reached where a general recession would become inevitable—the point which Marx refers to as 'absolute overproduction of capital.' (Capital vol Hip 246), where no new investment takes place, since its impact is to cut the total surplus value produced (by forcing up employment and wages, and by increasing the amount which the individual capitalist, in this case the Polish bureaucracy has to pay to other capitalist for raw materials and debt servicing.)

25. F.T. 13 August. 1976.

26. F.T. 5 February. 1976.

2". International Herald Tribune 17 August. 1976.

28. F.T. 18 May. 1976.

29. ibid.

30. E.I.U. Brazil, no. 5. 1975.