The Economic Situation of Soviet Russia

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These theses formed the foundation of the report given by me, at the 4th congress of the Comintern, on the question of the economic position of Soviet Russia. – L.T.

1. The question of the direction taken by the economic development of Soviet Russia must be understood and estimated from two different standpoints by the class conscious workers of the whole world: firstly, from the standpoint of interest in the welfare of the first workers’ republic in the world, its permanency, its strength, its enhanced well-being, its evolution towards socialism; and secondly, from the point of view of the lessons and conclusions to be drawn from Russian experience, by the proletariat of other countries for application to constructive activity after seizure of state power.

2. The methods and rapidity of the economic constructive activity of the victorious proletariat are determined by:

• a. the stage of development which has been reached by the productive forces, not only in the general economy, but in its separate branches, and especially in the relations between industry and agriculture;
• b. the level of culture and organization of the proletariat as the ruling class;
• c. the political situation subsequent to the seizure of power by the proletariat (resistance of the fallen bourgeois classes, the attitude of the petty bourgeoisie and the peasantry, the extent of the civil war and its consequences, military interventions from outside, etc.).

The more developed the productive forces of a country, the higher the level of culture and organization of the proletariat, and the weaker the resistance of the fallen classes, the more rapid, systematic, regular, and successful can the transition from capitalist to socialist economics be carried out by the victorious proletariat.

A remarkable combination of historical circumstances has willed it that Russia is the first country to tread the path of socialist evolution, and this, although Russia, despite the far-reaching concentration of the most important branches of its industry, is economically backward, although its masses of workers and peasants, despite the extraordinarily admirable revolutionary political quality of the proletarian vanguard, are backward in culture and organization.

These contradictions in the economic, social, and political structure of Russia, and the fact that the Soviet republic has been, and remains, surrounded by capitalism during the whole of its existence, determine the fate of the economic constructive work of the workers’ and peasants’ government, determine the changes made in this constructive work, and the reasons for adopting the present so-called New Economic Policy.

3. The complete expropriation not only of the larger and middle bourgeoisie, but also of the petty bourgeoisie in town and country, was a measure necessitated by economic expediency and political necessity alike. The continued rule of capitalism over all the rest of the world, had the effect that not only the Russian large bourgeoisie, but even the petty bourgeoisie, did not believe that the workers’ state could be maintained and this disbelief led to the formation of reserves for the bourgeois large-agrarian counter-revolution. Under these circumstances the resistance of the bourgeoisie could be broken, and the Soviet power maintained, only by the complete expropriation of the bourgeoisie and of the exploiting upper strata of the village population. Victory for the workers’ state was only secured by this determined and ruthless policy, which forced the vacillating masses of the peasantry to choose between the restoration of the land-owners and the workers’ state.

4. The workers’ state thus came into possession, immediately on beginning to exercise its power, of the whole of the industrial undertakings, down to the very smallest. The mutual relations of the various branches of industry to one another, had already been thrown completely out of balance and order long before the revolution, by the reconstruction of industry during and for the war. The personnel of the main apparatus of economic administration had either emigrated or was occupied al the White fronts. In so far as certain elements were still present in Russia, these sabotaged where they could.

The conquest and maintenance of power by the working class was purchased at the price of a rapid and ruthless destruction of the whole bourgeois apparatus of economic administration, from top to bottom, in every department, and all over the country.

These were the conditions under which the so-called “war communism” originated.

5. The most urgent task of the new regime consisted in securing the food supply for the towns and for the army. The imperialist war had already forced the change from free trade in com to monopoly. The workers’ state, having destroyed all the organizations of trading capital under the pressure of the civil war, was naturally unable to make a beginning by reestablishing free trade in com. It was obliged to replace the. commercial apparatus which it had destroyed by a state apparatus, this working on the basis of compulsory collection of the surplus produce of agricultural undertakings.

The distribution of food-stuffs and other articles of consumption took the form of giving out a uniform state ration almost completely irrespective of the qualification and productivity of the receivers. This “communism” was rightly earned “war communism”, not only because it replaced economic methods by military ones, but because it served military purposes above all others. It was not a question of securing a systematic development of economics under the prevailing conditions, but ot securing the food supply for the army at the fronts, and to prevent the working class from dying out altogether. War communism was the regime of a besieged fortress.

6. In the sphere of industry a roughly centralized apparatus was created, based on the trade unions, this apparatus pursued the immediate aim of at least gelling out of the industrial undertakings totally ruined by the war, the revolution, and the sabotage the minimum of products necessary to enable the civil war to be carried on. Something resembling a uniform plan was obtained only by utilizing the existing productive forces to an inconsiderable extent.

7. Had the victory of the Russian proletariat been speedily followed by the victory of the Western European proletariat, this would not only have shortened the civil war in Russia to an extraordinary degree, but the resultant closer relations of Soviet Russia’s economy with those of the more highly developed proletarian countries would have unfolded new possibilities of organization and technics for the Russian proletariat. In that case the transition from “war communism” to real socialism would doubtless have been carried out in a much shorter time, and without the convulsions and retreats which isolated proletarian Russia has had to undergo during these 5 years.

8. The economic retreat – or, to speak more correctly: the political retreat at the economic front was perfectly unavoidable as soon as the fact was finally established that Soviet Russia was confronted with the task of constructing her own economy, aided solely by its own organizations and technical resources during the indefinite period required to prepare the proletariat of Europe for the seizure of power

The counter-revolutionary events in February 1921 showed that it was quite impossible to further postpone the better adaptation of the economic methods of socialist constructive work to the needs of the peasantry. The revolutionary events in Germany, in March 1921, showed that it was absolutely impossible to further postpone a political “retreat”, in the sense of a preparatory struggle towards winning over the majority of the working class. These two movements of retreat were contemporaneous, and stand, as we have seen, in the closest reciprocal connection. They can only be designated as retreats tn a qualified sense, for what they demonstrated was the necessity, in Germany as in Russia, of a certain period of preparation; a new economic course in Russia, a fight for transitional demands and for the united front in the West.

9. The Soviet state turned from the methods of war communism to the methods of the market. The compulsory collection of agricultural surplus was replaced by taxes in kind, the peasantry thus being given the possibility of freely selling its surplus in the market, monetary traffic was restored, and a number of measures taken to stabilize the rate of exchange; the principles of commercial calculation were re-introduced into the state industrial undertakings, and wages were again made dependent on the skill and output of the workers, a number of small and medium industrial undertakings were let to private persons The essential character of the “New Economic Policy” lies in the revival of the market, of its methods and systems.

10. After five years of existence of the Soviet republic, its economics can be roughly outlined as follows:

• a. All Land and ground belongs to the state. About 95 per cent of the arable land is at the disposal of the peasantry for cultivation, the taxes in kind paid to the state by the peasantry in the course of the past year amounted to over 300 million puds of rye from one crop, approximately three quarters of a medium pre-war crop.
• b. The entire railway system (more than 63.000 versts) is state property. The employees and workmen numbering more than 800,000 perform at the present time, about one third of the work done before the war.
• c. All industrial undertakings belong to the state. The most important of these (more than 4,000 undertakings) employ about a million workers, and are conducted by the state itself. About 4.000 undertakings of second and third rank, employing about 80,000 workers, are let on lease. Each state enterprise employs on an average 207 workers, each leased undertaking an average of 17 workers. But of the leased undertakings only about one half are in the hands of private persons; the other half have been leased by separate state bodies or cooperative organizations.
• d. Private capital operates at the present time chiefly in the sphere of commerce. According to the first calculations which have been made, but which are only approximate and unreliable, about 30 per cent of the total commercial turnover falls to private capital, the remaining 70 per cent consisting of sums owned by the state organizations and the cooperative organizations closely connected with the state.
• e. Foreign trade, amounting during the current year to one quarter of the pre-war import and a twenzieth of the pre-war export, is completely concentrated in the hands of the state.

11. The methods of war comnumism, that is, the methods of an extremely crude centralized registration and distribution, are replaced by the new policy: by market methods; by buying and selling, commercial calculation, and competition. But in this market the state plays the leading part as the most powerful property owner, and buyer and seller. The overwhelming majority of the productive forces of industry, as well as all means of railway traffic, are directly concentrated in the hands of the state. The activity of the state economic organs is thus controlled by the market, and also to a considerable extent directed by it. Commercial calculation and competition serve for ascertaining if the separate undertakings are working profitably. The market serves as the connecting link between agriculture and industry, between town and country.

12. In so far as a free market exists, it is inevitable that private capital should function in it, and that this should enter into competition with state capital, at first in commerce only, but later it attempts to penetrate into industry. Civil war between the proletariat and the bourgeoisie is being substituted by competition between proletarian and bourgeois industry. And just as one of the main points of contest in civil war is the political conquest of the peasantry, in the same manner the present struggle revolves chiefly around control of the agricultural market. In this struggle the proletariat has mighty advantages on its side, the most highly developed productive forces of the country, and the state power. The bourgeoisie, on the other hand, possesses the advantage of greater skill, and to a certain extent of connections with foreign capital, especially that of the emigrants.

13. Special emphasis must be laid on the taxation policy of the workers’ state, and on the alliance of the credit institutions in the hands of the state, these being powerful mediums for securing the ascendancy of state forms of economics, that is, of forms socialist in tendency, over private capitalist forms. The taxation policy is one permitting increasingly greater portions of private capitalist incomes to be utilised for state purposes, not only in agriculture (taxes in kind), but also in commerce and industry. In this manner even private capital (the concessions!) is compelled by the proletarian dictatorship to pay tribute to the socialist accumulation now beginning.

On the other hand the commercial industrial credit concentrated in the hands of the state, supplies (as is proved by the statistical data of the last few months) the state undertakings to the extent of 75%, the cooperatives 20%, and the private undertakings 5 per cent at most.

14. The assertion of the social democrats, that the Soviet state has “capitulated” to capitalism, is thus an obvious and crude distortion of the actual facts. As a matter of fact the Soviet state is following the economic path which it would doubtless have pursued in the years 1918–1919, had not the imperative demands of the civil war obliged it to completely expropriate the bourgeoisie at one blow, to destroy the bourgeois economic apparatus, and to replace this by the apparatus of war-communism.

15. The most important political and economic result of the new economic policy is the real and permanent understanding attained with the peasantry which is stimulated to extend and intensify its operations by admission to the free market. The experience of the last lew years, especially the increase of winter crops, afford every reason to expect a continued and systematic betterment of agriculture. This signifies not only the creation of a reserve of foodstuffs for Russia’s industrial development, but a highly important reserve of goods for foreign trade. From now onwards, Russian corn will appear in ever increasing quantities in the European market. The significance of this factor for the socialist revolution in the West is obvious.

16. The branches of industry working for immediate consumption, and especially for the rural market, have made undoubted and very noticeable progress during the first year of the new economic policy. The situation of heavy industry is admittedly still extremely difficult, but this backwardness of heavy industry, caused solely by the conditions obtaining during the last few years, will be relieved in proportion to the progress made in the reconstruction of the exchange of goods; real impetus can only be given to the development of machine building, metal working, and fuel production, which are naturally sure of receiving the utmost attention from the state, after the first successes have been obtained in agriculture and light industry. The state will extend its economic sphere, concentrate an ever-increasing turnover capital in its hands, and then renew the fundamental capital by means of state, (the original “socialist”) accumulation. There is absolutely no reason to assume that state accumulation will proceed more slowly than private capitalist accumulation, and that private capital is thus likely to come out of the struggle as victor.

17. In so far as foreign capital is concerned (mixed companies, concessions, etc.) the role played by it in Russia, apart from its own extremely hesitating and cautious policy, is determined by the considerations and calculations of the workers’ state, which invariably preserves the limits required for the maintenance of the state economy when granting industrial concessions or entering into commercial contracts. The monopoly of foreign trade is in this respect an extraordinarily important security for socialist development

18. Despite this transference of its economics to the principles of the market, the workers’ state does not renounce the plan of systematic economics, not even for the coming period. The fact alone that the whole railway system and the overwhelming majority of industrial undertakings are exploited and financed by the state, renders a combination of the centralized state control over these undertakings with the automatic control of the market inevitable. The state concentrates more and more attention on heavy industry and means of traffic, as economic fundamentals, and adapts its policy with regard to finance, revenue, concessions, and imposts, to a very great degree to the requirements of these factors. Under the circumstances of the present period the state economic plan does not set itself the Utopian task of substituting universal prevision for the elementary effects of demand and supply. On the contrary: starting from the market as the fundamental form of distribution of economic produce and of regulation of production, the present economic plan aims at securing the greatest possible dominance of the state undertakings in the market by means of combining all factors of taxation, industry, commerce, and credit, and at establishing the reciprocal relations between these undertakings on the highest possible degree of previous calculation and uniformity, so that, supported by the market, the state can progress rapidly, especially in the sphere of the reciprocal relations between the state undertakings.

19. The inclusion of the peasantry in the systematized state plan of economics, that is, of socialist economics, is a still more complicated and tedious task. Cooperative organizations controlled and directed by the state are paving the way towards this by satisfying the most imperative needs of the peasant and his enterprises. This process will be carried out with the greater economical rapidity in proportion to the increased quantity of the products of town industry which can be allotted to the villages through the intermediation of the cooperative societies. But the socialist principle can only he completely victorious in the province of agriculture after the electrification of agriculture has been accomplished, and the barbaric disunity of agricultural production put an end to. The plan of electrification thus forms an important constituent of the collective state economic plan, and as its importance will increase in proportion to the increase of the productive power of agriculture, it will gain in ascendancy in the future, finally rendering it the fundamental of the whole socialist economy.

20. Economic organization consists of the correct and purposeful distribution of forces and means among the various branches and undertakings, and in the rational, that is, the most economical utilization of these forces and means within each undertaking. Capitalism attains this aim by supply and demand, competition, favorable markets, and crises. Socialism will attain the same aim by the conscious construction of the national and then of the world economy, as a uniform whole, on a general plan founded on the existing means of production anti on the existing requirements, and thus completely comprehensive and at the same time extraordinarily elastic. Such a plan cannot be made a priori; it has to be worked out in accordance with the economic inheritance bequeathed to the proletariat by the past, and systematic alterations and reconstructions are to be made, with increasing boldness and decision, in proportion to the increase of economic experience and technical powers of the proletariat.

21. It is quite clear that a long epoch must inevitably elapse between the capitalist regime and complete socialism, and that during this epoch the protetariat must make use of the methods and forms of organization of capitalist intercourse (money, exchange, banks, commercial calculation) for the purpose of gaining an ever increasing control of the market, to the end that this may become so centralized and unified as to be finally abolished, and repaced by a centralized plan based on the whole previous economic evolution, and forming the prerequisite for the further development of economics. The Soviet republic is now treading this path. But it is only at the beginning of the path, and still far from the goal. The fact that the Soviet republic was compelled by conditions to adopt war communism, and forced by the delay of the revolution in the West to beat a certain retreat – a retreat however more formal than material – has veiled the picture, and has afforded opportunity to the petty bourgeois opponents of the workers’ state to speak of a capitulation to capitalism. In reality however, the course of evolution in Soviet Russia is not from socialism, to capitalism, but from capitahsim – temporarily pressed, against the wall by the methods of so-called war communism to socialism.

22. The assertion that the decay of productive forces in Russia is a result of the irrationality of the socialist or communist economic methods is completely untenable and historically absurd. In reality this decay was above all a result of the war, further a result of the revolution in the form it took in Russia, that of a protracted civil war the French Revolution, which created the premises for the mighty capitalist development of France and of the whole of Europe, had for its immediate result the greatest devastation and economic ruin. 10 years after the beginning of the French Revolution. France was poorer than before the revolution. The circumstance that in the Soviet republic, industry did not produce more than a quarter of the average pre-war productivity during the past year does not prove the failure of socialist methods, for it has not even been possible to apply these yet, but solely the greatness of the economic ruin inevitably attendant on revolution as such. But so long as human class society exists, every great advance will have to be paid for by the sacrifice of human lives and of material, whether the transition be from feudalism to capitalism, or the incomparably more far reaching transition from capitalism to socialism.

23. The above answers in itself the question as to the degree in which the economic policy designated as new in Russia, forms a necessary stage of every proletarian revolution. Two elements must be distinguished in the new economic policy: a) the moment of “retreat” characterized above; b) the economic management of the proletarian state on the basis of the market with all its methods, procedures, and arrangements.

• a. As regards the “retreat”, this can also occur in other countries as the result of purely political events, in consequence of the necessity, in the rush of civil war, of depriving the enemy of a considerably greater number of undertakings than the proletariat is economically able to organize. The partial retreats resultant on this are likely to occur in every single country, but in other countries they are not likely to bear so severe a character as in agrarian Russia, where the actual civil war did not actually begin until after the proletariat had seized power. Today we can no longer doubt that in the majority of capitalist countries the proletariat will only come into power after an obstinate, severe, and lasting civil war, in other words, the proletariat of Europe will have to strike at the roots of the enemy’s power before conquering slate power, not after this conquest In any case, however, the resistance of the bourgeoisie military, political and economic will be weaker in proportion to the number of countries in which the proletariat has already seized power This means that the moment of armed conquest of industry, and the following moment of economic retreat, will probably play an incomparably more insignificant rifle in other parts of the world than in Russia.
• b. As regards the utilization of methods and organizations made by capitalism for regulating our economics, all workers’ states will, in a greater or lesser degree, have to pass through this stage, on the road from capitalism to socialism, in other words, every new workers’ government, Sifter unavoidably destroying in a greater or lesser degree the capitalist economic organizations during the civil war (file exchanges, banks, trusts, syndicates), will restore these arrangements again, subordinate them politically, and after having ordered them in the organization of the collective mechanism of the proletarian dictatorship, will have to master them by creative work, in order to gradually carry out with their aid the reconstruction of economics on a socialist basis. The greater the number of countries in which the proletariat is already in power, and the more powerful the proletariat seizing the power in any country, the more difficult it will be for capital, or even the capitalists, to emigrate, and the weaker will be the support afforded for sabotage on the part of administrative and technical intellectuals, and as a result the slighter will be the derangement of the material and organized capitalist apparatus, and the easier the work of restoring it.

24. The speed with which the workers’ state runs through this stage, during which the socialism coming into existence is still enveloped and developing within its capitalist chrysalis – this speed, as already indicated, will depend upon the military and political situation, further, on the level of organization, and culture which has been reached by the working class, and on the degree of development and the condition of the productive forces existing when the workers’ state comes into power. The further advanced the degree of evolution of these factors, the more rapid, obviously, will the workers’ state pass through the transition to socialist economics, and from here to perfect communism.