A comment on the debate over state-capitalism

(CV #46, November 2011)

June 31, 2011

Dear comrade Yury Shakhin,

I hope the work of your group for a conference of Ukrainian Marxists that regard the Soviet Union as having been state-capitalist is going well, and I would be interested in knowing the outcome. It is important to have anti-revisionist communism develop as a real trend.

About half a year ago you sent me two articles about state-capitalism. One was  "State capitalism and socialism: continuation of the discussion" by S. Gubanov refuting D. Yakushev. The other was your article entitled "The theory of state capitalism of S. S. Gubanov: A critical analysis". It took four months for a CVO comrade to provide me with a rough translation, and additional time for me to be able to study this material and reply. I hope it's not too late to comment.

My comrade did his best to translate these articles, and I am grateful to him for his efforts, but the translation wasn't very clear. For this and other reasons, I may have made some mistakes about what is being said. I kept revising my views about some things in these articles. But finally I decided just to write you about what I thought was being said, and to apologize in advance if I have inadvertently misunderstood what is being said.

I thought that your article on Gubanov was very insightful, and I hope it had a good reception among activists. It pointed out some of the basic inadequacies and contradictions in Gubanov's theorizing, as well as his illusions in the Stalinist period of the 1930s to 1950s. It also raised the need for a class viewpoint. There is need not just to deal with technical points of the economic structure, but to see which class rules, and what struggle between classes has taken place.

There was one side of the issue, however, that I wish you had dealt with explicitly. That is the issue of the conception of the transition to socialism, and perhaps of socialism itself. When you and I talk about the Soviet Union having been state-capitalism, this means condemning the class nature of the regime. But there are others who envision the transition to socialism in the form of a special kind of state-capitalism. And especially these days, there are those who envision socialism itself in that light -- there are "market socialists" and even people who deserve to be called "market communists". Perhaps you had this in mind when you pointed to Gubanov's illusions in the Stalinist period and that he may even believe that the regime was a workers' regime at that time. But I think it would be helpful if the issue of how one conceives of the transition is dealt with more explicitly.

I would like to elaborate on some of these points.

To begin with, I strongly agree with your emphasis on a class evaluation of what the Soviet system was. Your article pointed to the development of a dictatorship of the bourgeoisie in the Soviet Union, presumably referring to a new bourgeoisie, different from the old bourgeoisie that was overthrown (although some elements of the old bourgeoisie were absorbed by it). I also thought you did well in criticizing Gubanov for regarding the "truly conservative parties" of Zyuganov, Anpilova and others as communists. This is an important issue. You sharply pointed out that it is wrong to regard them as simply "opportunists". These parties are conservative, social-chauvinist, and even reactionary parties with a hostile class mission to communism and the working-class.

What interested you and other activists in Gubanov's views is that he tries to give a firm economic basis to calling the Soviet system state-capitalism (insofar as he actually does call it state-capitalist). He seeks to refute Yakushev's argument that the Soviet economy had features that prove that it had nothing to do with capitalism. Gubanov refutes this by, for example, discussing how the turnover tax represented surplus value, even if not in the form of profit to the enterprise.  He also tried to show how the law of value operated in the Soviet economy. And he stresses that the basic problems of the Soviet economy come from inside the economy, not from its relations to other countries. But, as you point out, his views are inconsistent, and his economic analysis is tailored to prettify the Stalinist period.

Indeed, Gubanov's economic analysis is often very one-sided, and he repeatedly oversimplifies economic reality. For example, he refers to the well-known highly centralized aspects of the Soviet economy, but, when talking of the  anarchy in the Soviet economy, he says that there was no vertical or horizontal integration of Soviet enterprises. Of course, Gubanov is aware that the plan, the ministries, and other economic bodies sought to provide such a vertical integration of Soviet enterprises. Nevertheless, Gubanov says that, since the individual workplaces didn't take part in national economic calculation, there was no economic integration. This is a surprising argument, especially as he contrasts the lack of integration in the Soviet economy to the integration that  exists in "corporate capitalism". But Western capitalism definitely suffers from the anarchy of production. It combines anarchy with monopolies and other forms of economic integration. (Indeed, even inside conglomerate corporations, managers are concerned mainly with their own interests and those of their department, and not those of the overall corporation. This is not the main source of anarchy in private-capitalism, but it is enough of a problem that bourgeois economics even has a name for it: it is one aspect of the so-called "principal-agent problem".)

True, as we have discussed [in previous letters], it's important that the Soviet economy did not operate as a single factory or workplace. But it also had a certain economic integration. In modern capitalism, a brutal anarchy of production exists side-by-side with monopolization, centralization, and socialization of production;  monopolization and centralization, while suppressing some features of anarchy, intensify others.

Gubanov's one-sided view of economic integration is not simply a minor error, but a key part of his economic theorizing. This is what allows him to advocate that nationalization in the Soviet Union was only "formal", and not "real" nationalization. He regards that the centralization and integration of enterprises had no economic basis in the Soviet Union. Indeed, he apparently thinks that, until recently, they didn't have much of a economic basis elsewhere in the world either. Hence Gubanov — according to your summary  — presents "corporate capitalism" and "state-monopoly capitalism" as developing only in the late 20th century.

Besides being one-sided, such theorizing tramples on the real economic history of the last century. Monopolization and state-capitalism have a much longer history than Gubanov says. Indeed, while Gubanov says that the lack of integration in the Soviet economy was inherited from the pre-revolutionary economy, the Tsarist economy, while backward, had a highly concentrated industry and finance. He undoubtedly knows that. But he seems to give phenomena his own special definitions, and then theorize on the basis of his idealized picture of economic phenomena, rather than what they actually are.

I think that what is behind Gubanov's inconsistencies and exaggerations is that he has a glorified view of the economic integration of enterprises, and especially of nationalization. It's not that integration and nationalization didn't exist in the Soviet Union; it's that they don't live up to Gubanov's conceptions of them. He seems to regard them as simply good things, without their own internal contradictions, and without relation to the ongoing class relations. So, according to Gubanov's way of thinking, when the Soviet economy shows really ugly features, it must be because of sham or formal nationalization, not true nationalization. This is a really unfortunate position, because its ultimate result would be to preserve the idea, common to reformism, Stalinism and Trotskyism, that nationalization is pro-working class and socialistic in itself. The class-conscious working class has to be able to fight, not only against private capitalism, but against oppressive and heartless forms of government regulation and nationalization; it has to distinguish different ways of carrying out nationalization even when it is demanding nationalization; and it will be hamstrung in these fights if it has to be pretend that bad forms and uses of nationalization are really only a matter of the nationalization supposedly being a "sham".

This brings us to the question of whether Gubanov distinguished true nationalization and "Soviet state-capitalism" from the transition to socialism. You pointed out in your article that Gubanov still has illusions about the Stalinist period of the 1930s-1950s. Does his picture of an economy in transition to socialism, or of socialism itself, differ much from what existed in the 1930s-50s, but carried out in a "real" rather than "formal" way? Is this the meaning of his views about "incomplete transition to socialism" and about there being "Soviet state-capitalism" in the Stalinist period?

In the article you sent me, while Gubanov has economic analysis of what constitutes state-capitalism, he does not give an analysis of the transition economy. Maybe he has it in other articles. But I think it would be important for the discussion of state-capitalism to include an explicit comparison of what state-capitalism is, and what a transitional economy should be. As it is, the relation between state-capitalism, the transitional economy, and socialism is left unclear in his article and your comment on it. But I presume that the Russian, Ukrainian and other activists who are participating in the discussion about state-capitalism differ not only on their assessment of the Soviet Union, but in their very conception of what socialism is, as well as of what the transitional period would be like. It's not a matter of laying down a complete recipe for everything that will happen in the transitional period. It's that there needs to be a general conception of the nature of the transitional economy.

A socialist or communist society can't come into existence right after the overthrow of the old bourgeoisie. I would expect that there would be a protracted transitional period, during which the economy still had many capitalist features. It would have a capitalist shell, so to speak, including money, commodity production, and financial categories of various types. The fundamental new feature in the economy would be the growing control of the economy by the working class -- not just in taking over from the private capitalists but also in the working class being able to actually control those institutions that speak in its name; in determining the overall priorities and planning of the economy; in directing its operations workplace by workplace; in having management gradually lose its distinctiveness from the mass of workers themselves; etc. This new feature of the transitional economy is incompatible with capitalism. And yet the transitional economy combines this new feature with the capitalist (or state-capitalist) shell. This is one of the deepest and most profound contradictions of the transitional economy, and it would last until there is a  socialist economy, socialist in the Marxist sense, in which commodity production has been done away with. According to this conception, the main indicator of progress towards socialism isn't the exact level of vertical and horizontal integration of enterprises nor the precise financial systems that still exist, but whether the working class is actually gaining the ability to consciously and collectively control the economy and direct it according to its aims and according to the material circumstances that the society faces.

But it seems that the conceptions of both Yakushev and Gubanov are different from that. Yakushev, if he refers to the ability of the workers to run the economy, probably repeats the old revisionist myths. I presume he not only regards that the old Soviet economy operated like a single enterprise, but holds that the workers were in command. Meanwhile Gubanov, as you point out, neglects the class struggle of the workers against the old revisionist system, and perhaps even thinks that the 1930-50s were a period where the revisionists represented the working class. That is a very important point.  Similarly Gubanov misses the key class criterion of whether the workers actually run the economic system or not. He doesn't even raise it. Instead Gubanov exaggerates the significance of certain changes of detail in how the state-capitalist system worked, and in its changes after the Stalinist period. He misses the forest for the trees, and in this sense, his detailed economic analysis of details clouds the actual class relations involved.

Of course, a transitional economy will rapidly develop a dominant state sector. And since this transitional economy still has money, commodity production, and so on, it will formally resemble state-capitalism in a number of ways. Nevertheless, I don't believe that a real transitional economy, where the workers have not been brought back under the control of the old bourgeoisie, nor subjugated to a new one, can be described as state-capitalist. The growing direction of the economy by the working-class control is not consistent with capitalism, and it doesn't make sense to theorize that there is a  "good" capitalism that serves the workers' will. (If Gubanov thinks that he has found this supposedly good capitalism in capitalism "without profit but with surplus-value", then he is profoundly mistaken. This type of theorizing is very common with market socialists and market communists. Each has their own scheme for producing the good capitalism, but they all share the belief that they have discovered the way to civilize marketplace forces.) At the same time, the capitalist shell of the transitional economy is not consistent with socialism. Thus the transitional economy has deep class and economic contradictions, as all such revolutionary periods do. As I have mentioned before, I think the transitional economy is not simply a mixture of capitalism and socialism, but an economic phase of its own, with some features that are distinct from either capitalism or socialism. On the other hand, an economy with a dominant state-sector which is also the dictatorship of a bourgeois ruling class, as happened in the Soviet Union, really is state-capitalism; it is not a transitional economy.

Gubanov, however, seems to believe that the transitional economy can be defined as "true state-capitalism" and has "actual nationalization". He regards "real state-capitalism" in an absurdly idealized form, with 100% state ownership, with gigantic enterprises that are vertically integrated, and without anarchy. If I understand his article right, near the end he even states that "actual nationalization" would do away with the division of labor! I was astonished by this assertion. Either Gubanov simply identifies nationalization and communist economy, or his "real state-capitalism" is a mythic state-capitalism that has never existed and never will exist. Such concepts also put much too great a separation between state capitalism in the USSR and the type of state  capitalism that has developed in the Western countries, or in various developing countries.

It seems to me that, even if Gubanov and other activists aren't using this formula explicitly, still his views about nationalization may be inspired by the formula that the transitional economy is "state-capitalism under workers' rule". In any case,  the formula "state-capitalism under workers' rule" is widely taken to be Lenin's formula. Nevertheless, I don't actually think Lenin equated "state-capitalism under workers' rule" with the transitional economy: when he used this formula, he would usually be careful to say that he didn't mean state-capitalism in the usual sense. He was stressing the need for a transitional period with what I have called above a "capitalist shell", which is described elsewhere in CVO literature as "capitalist methods". But whether Lenin really defined the transitional economy as "state-capitalism under workers' rule" or not, I don't think that we should. Lenin and the Bolsheviks dramatically advanced communist theory concerning the transition to socialism. There is simply no comparison between what this theory was prior to 1917 (Kautsky's essay of 1902, The Day After the Revolution, can probably be taken as representative of this), and what it was after the Bolshevik revolution. Nevertheless, we have to go further in the analysis of the transitional economy and of state-capitalism than the Bolsheviks went, and take account of the subsequent experience since then, and years ago I wrote an article explaining what I think is wrong with the term "state-capitalism under workers' rule".

Gubanov used his formula about real versus formal nationalization both to refute Yakushev and to deny the fundamental continuity in the structure of the Soviet economy between the Stalinist period and the period after Stalin's death. Gubanov stressed that Yakushev just repeated old myths about the Soviet economy operating as a single corporation or enterprise, but, as you so rightly say, he seems to retain various of his own illusions about the Stalinist period.

In fact, the anarchy of production in the Soviet economy was just as strong in the 1930s-1950s as afterwards. The forms of struggle between enterprises in the 1930s often took on a very blatant form. Nor did the enterprise managers, in their struggle to make their quotas, show great respect to their general instructions. One professor who studied Soviet management wrote that "Even at the height of the 1930's purges, there were some plant directors who went out of their way to write signed articles in the national press describing how, in their own work, they had been violating both the law and instructions from superiors, announcing that they considered these violations to be quite proper, and stating flatly that in the future they had every intention of continuing and even extending the violations." [David Granick, The Red Executive: A study of the Organization Man in Russian Industry, 1960, Ch.10, "Bureaucracy and how to live with it", pp. 134-5.]

Gubanov's description of the reason for the anarchy of production in the Soviet economy seems to differ from passage to passage. In some places, he seems to relate the anarchy of production in the Soviet Union simply to the structure of the state sector. For example, he makes a point that, even at its peak, the state sector didn't embrace the whole economy. But in fact, the state sector dominated the Soviet economy.

He makes a major point of claiming that Soviet enterprises didn't have horizontal and vertical links, unlike the situation in "corporate capitalism". But the Soviet ministries did, in fact, link the state economy together. They linked it together in the capitalist way, which differs in form between capitalism and state-capitalism, but which has in common that integration is combined with anarchy.

Gubanov stresses the important point that "Not the arms race, not the 'cold war' exhausted the Soviet Union. The Soviet economy ... was undermined by the race to [self-financing] cost balance". It is probably one of the most attractive features of his article that he points strongly to the internal features of the Soviet economy as the means reasons for its weakness. And it's true that the drive of each Soviet director for himself helped tear the Soviet economy apart, as did the fight between rival factions in the ministries. And it's also true that the Soviet revisionists repeatedly tried to get out of their problems by economic reforms that gave more scope to enterprise profit-seeking, and this continually deepened the problems.

But what follows from this? Does Gubanov believe that if only there hadn't been enterprise financial balances, that there wouldn't have been any anarchy of production? Is it all simply a mistake on the part of the political leaders of the state sector? We both seem to get this impression of what Gubanov is saying. You raise the possibility that Gubanov is thinking along these lines, and your article says that Gubanov "also directly writes that the Soviet leaders did not understand what they were doing" and that Gubanov believed the Soviet society fell because "because nobody in the leadership of the USSR understood [the lack of economic integration] and they couldn't take the conscious actions recommended by Gubanov."  Such ideas by Gubanov would correspond to his view that nationalization was simply superstructural and political.

But what really happens during the transitional period? There will be commodity production and the use of some type of financial measures. They will exert a continual pull backwards on the economy towards capitalism; the working class will have to use its growing organization, class-consciousness, and activity to oppose this. True, the way the revisionists carry out financial balances will become uglier and uglier. But there is no "good" form of commodity production which in itself is inherently socialist or pro-working class. There is no perfect form of transitional institutions which can avoid a protracted struggle between the working class and the negative tendencies resulting from commodity production and capitalist financial methods -- a pull stemming not just from outside the state sector, but manifested inside the state sector itself. The issue of class relations, of working class action and organization -- not in name, but in reality -- is not just a political question, or a superstructural issue. It is a fundamental part of the economy during the transitional period. This is one of the most basic characteristic features of that economy. Yes, the working class will create and make use of a dominant state sector in the economy. Nevertheless, it's not perfect nationalization or perfect integration of the economy that moves things forward by itself. It's working-class control of the economy that pushes towards socialism and creates the conditions to eliminate commodity production itself.

Gubanov doesn't talk about this struggle depending on the working class. Nor does he make clear what measures he would recommend as opposed to what was done. He does repeatedly raise that the problem is that the individual workplaces or enterprises are not taking part in the national-economic balances, but he doesn't specify how he would avoid this. How would his "real nationalization" avoid this problem? He does mention the issue of the division of labor, but only to say that "real nationalization" would eliminate it. That is absurd.

Far from "real nationalization" being the solution to all the Soviet Union's problems,, the anarchy of production in the Soviet economy followed from the economic nature of nationalization in capitalist and state-capitalist economics. In the absence of the working class being able to unite as a class and to direct the economy consciously, in the presence of the dictatorship of a bourgeois ruling class, the state sector will inevitably develop deeper and deeper private and conflicting interests right inside itself. The bureaucratic bourgeoisie, while ruling the country as a class, will be split by private interests and rivalries. These rivalries will act at the enterprise level, and they will also act within the ministries, and elsewhere throughout society. This is why there will never be the glorified state-capitalism that Gubanov imagines, and this is also the main source of anarchy inside the Soviet economy. This rivalry doesn't spring from nationalization only being a formality: Soviet nationalization was real; the old bourgeoisie was displaced as a class; the new managers owed their positions in their enterprises to their place in the bureaucracy; and so forth. The anarchy of production springs from state-capitalism as well as from private-capitalism. The way the anarchy of production manifests itself under private and state-capitalism varies, but the same basic economic law of capitalism operates in both capitalist forms.

This has been a long note, but there's one additional issue I want to raise. At the end of his article, Gubanov puts forward another seriously mistaken point. He is seeking to refute Yakushev, who apparently pretends that great steps to communism would have been achieved in the Soviet Union if only they had had different forms of economic calculation. Yakushev lives in a fantasy world, which ignores the basic economic and class contradictions in the Soviet Union, and sees only different ways in which the ministry could make decisions. So Yakushev dreams of replacing financial calculation with a "new system of assessment of efficiency of the national economy". This is, in Yakushev's view,  apparently a mere technical matter of devising a new index for use by the bureaucrats and ministries. And, it seems, he indulges in the time-worn revisionist dream that better computing power would have solved the problems of the Soviet economy.

Gubanov, for his part, doesn't think that such a new method of calculation would have anything to do with the basic ills of the Soviet economy, and that's true. Unfortunately, Gubanov goes further and ruins the point. He ridicules the idea of economic calculation that takes account of the natural properties of product as "feudalism" and only good for a "subsistence economy". And he presents calculation via labor-hours as something which is Marxist, socialist, and liberating, by presenting it as concern for the workers' free-time.

But in actual fact, calculation by the labor-hour is the underlying basis of capitalist value, and an economy run via these calculations is an economy dominated by the capitalist law of value. By presenting calculation via the labor-hour as the only form of economic calculation, Gubanov inadvertently takes bourgeois calculation to be eternal.

It's true that some left communists, in thinking about the future society, not only throw out financial calculation, but any economic calculation at all. They can't imagine economic calculation except in the form of money; so they can't imagine socialism, the elimination of commodity production, and the fading away of the law of value except as the end of all economic calculation. But Gubanov makes the opposite error, regarding labor-hour calculation as inevitable if there is to be economic calculation. He think that this is a serious blow at Yakushev's views. Actually, I suspect that most economists who uphold calculation via the labor-hour are close to Yakushev in their assessment of Soviet society.

I presume that Yakushev pointed out that the Soviet Union pioneered the method of material balances, which takes account of goods being materially distinct products. Yakushev probably tried to conclude from this that the Soviet Union wasn't capitalist, since it used material balances in the five-year plans. But this would be a shallow argument. All systems, even capitalist ones, take a certain account of the material qualities of goods. During war-time, for example, the most diehard capitalist governments seek to ensure that they have sufficient goods to produce war goods. And after World War II, some Western capitalist countries themselves made use of a certain amount of "material balances" in the form of input-output analysis. And, for example, until the rise of neo-liberalism and deregulation, American state governments would generally regulate the supply of energy to ensure that there would be sufficient electricity, natural gas and heating oil to supply both businesses and homes: the capitalist utilities would be given extravagant financial guarantees for living up to this plan, but the state would ensure that a certain material amount of energy was available. True, under capitalism and state-capitalism, planning according to "natural units" will always run into contradiction with financial planning. But a certain amount of material planning is carried out by both corporations and capitalist governments.

I wrote a series of four articles arguing that the labor-hour is not the natural unit of socialist economic calculation. In it, I both dealt with Marx's statements about economic calculation,  and the experience of the last century on this issue.  I think the hardest part of this issue is imagining how it is possible to have economic calculation without assigning to every economic product a "value" of some type. So, among other things, I tried to give at least some indication of what economic calculation without either money or a labor-value would be like. This issue of  the technical method of economic calculation is, of course, only a side point with respect to the ongoing discussion of state-capitalism. But it has some value in its own right. It gives some idea of the radical difference of socialism from capitalism; it debunks the financial craziness of the way market fundamentalists think;  material calculation also comes to the fore whenever a regime is taking serious account of social needs; and finally the issue of calculation via natural units will come to the fore as soon as serious environmental measures are taken. The market measures for dealing with the environment (such as carbon trading, the carbon tax, the establishment of "true costs", etc.) are a fraud: there will instead have to be direct regulation and control of carbon emissions and other environmental substances.

So these are some considerations that I hope are relevant to the issues raised in you article and that of Gubanov's. I think the discussion of Gubanov's theories, and the contrast between your and Gubanov's standpoint, would be strengthened, if there was a more explicit discussion of what the transitional economy is conceived of, and how it compares to state-capitalism. But I thought your article on Gubanov was very good. Aside from pointing out many of Gubanov's inconsistencies, you also raised important class issues that Gubanov ignores, and you pointed out that he ignores the history of working-class struggle in the Soviet Union. These are crucial issues, both from the theoretical standpoint and with respect to political practice.

Comradely regards,

Joseph Green  <>

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