The Stalinist System
(The Internal "Evolition" Towards "Liberalization")

Written by Hiroyoshi Hayashi (1972)
Translated by Roy West

1. The Laws of Commodity Exchange and Socialism
2. The Relations of Production Under the Stalinist System
3. The "Socialist" Planned Economy and the Category of Capital
4. Economic Reforms and the Bourgeois “Evolution” of the Stalinist System
5. The “Overall” Development of Commodity Production and the “Shift to Communism”
6. Criticism of ‘Socialist’ Economics

D. Economic Reforms and the Bourgeois “Evolution”
of the Stalinist System
The Content of Economic Reform

The new economic system, which began to be implemented in September 1956, is generally been referred to as “liberalization”. This “liberalization” took place over a period of roughly ten years beginning from the time of Stalin’s death, and was one inevitable outcome of the debates on value, price and profit. However, its significance is not limited to this. More than “liberalization” being an outcome of these debates, the debates themselves are an expression of the “evolution” of the Soviet economic system.

Already at the time of Stalin’s death, several reforms were carried out, including the adoption of a decentralized management mechanism, a raise in the price of agricultural products, the dissolution of MTS, expanded autonomy for the kolhozy and state enterprises, and an increase in material incentives. Moreover, starting from the 1962 Liberman proposals, which Khrushchev supported, the new economic policy implemented in 1965, while developing the earlier policies, represented a qualitative turning point. By July 1970, about forty thousand enterprises, representing 90% of industrial production and 95% of its profits, had been transferred to the new system.

First, let’s take a quick look at the content of the new policy. The basic idea underlying the new policy is to increase the “efficiency” in the management of enterprises by expanding their autonomy. This is seen, first of all, in the remarkable decrease in the number of mandatory directives (from 30 to 9) from upper state organs to enterprises. For the sake of reference these are listed below.

(1) Total realized output (sales amount); (2) output of important items expressed in quantity; (3) profit ratio as the comparative ratio between total profit and production funds; (4) deliver to and subsidies from the state treasury; (5) total sum of wage funds ; (6) total sum of basic state investments; (7) fixed funds from centralized key investments and the amount of operation starts of production facilities; (8) Development of new articles, technological processes and the automation of mechanization of production; (9) the amount of raw materials and machinery supplied by the upper state organs.

Out of these nine new indications,

(1) and (3) are particularly important. Before the reforms, “total output” and “cost” were two of the thirty obligatory indexes. But the former was replaced by (1) “total realized output”, and the latter by (3) “profit (amount and ratio)”. Now each enterprise has the right to “hoard” (accumulate) money income for enterprise funds according to the profit (amount and ratio) generated. The index of “use-fees for production funds” was also added, replacing the former “free funds”. Enterprises now pay fees to the state treasury when they borrow fixed or liquid funds depending on the size of the sum. Of the former four directives concerning workers (number of workers, labor productivity, average wages, and the wage fund), only the index of the wage fund remains, and even this is to be eliminated in the near future.

The meaning of these reforms is the following. First, the fact that “total output” was replaced by “sales amount” shows that the commodities of enterprises must now be “realized”, i.e. sold. Production can no longer be the only concern for each enterprise. In order to achieve the mandatory directives, enterprises now cannot simply produce a great quantity of products, and accumulate unsold goods. “Profit” (quantity and ratio) has replaced “cost-price” to indicate the efficiency of production. This could be said to be the core of the economic reforms, and characteristically reveals the essence of the new economic policy.

The official recognition of the use of this quintessentially bourgeois concept of “profit ratio” to measure the “efficiency” of capital, above all demonstrates that the hidden capitalistic relations in the Soviet Union are assuming an increasingly clear figure. Not accidentally, along with the proposal to “introduce profit”, the theory of “production price” as the foundation of “price formation” is now dominant in the Soviet Union. Of course, “production price” is a category particular to bourgeois society, and has no relation to simple commodity production, not to mention socialist society. But Soviet scholars, on the basis of the idea that since “socialism” is closer to capitalism than commodity production, argue that “price formation” should be based on “production price” rather than “value”.

What Determines the “Liberalization” Stage of State Capitalism?

Of course, basing “profitability” on invested capital rather than “cost-price” was a change with great practical significance for the Soviet economy. During the time when capital was unable to display its essence as self-augmenting value (under the Stalinist system capital was under strong state control and management and its nature was so suppressed that it couldn't develop freely) it was forced to accumulate contradictions inherent to this. These contradictions emerged as a disinterest in “efficiency”, “frozen” capital (the storage of raw materials, machinery and equipment), and the general stagnation of production. Various examples can be cited to show how the “efficiency” of state capital has improved under the new system. For example, in the late fifties, the excess stock of “flowing” funds had reached 16.6 billion roubles, but under the system of “free funds”, enterprises inevitably hoarded or concealed excess stock. Moreover, just prior to the reforms of mid to late sixties, over one third of the fixed capital concentrated by the state and then invested in “planning” was spent just for repairs, and roughly two million workers were engaged in repair jobs. In spite of this, the quality of goods hardly improved!

Soviet state statistics quoted in the journal Keizai hyoron [Economic Review], December 1966.Still, the economic reforms begun in 1965 greatly changed the relationship between the state and enterprises, putting “economic” relations at the center of “administrative” relations. In this sense, the reforms abolished the system of “free funds”, in line with the general objective of expanding the autonomy of the enterprises and increasing the “efficiency” of funds.

Prior to the reforms, the state gave funds to managers of enterprises “free of charge” in order to create and expand enterprises. This can be called the characteristic “accumulation method” for backward countries to invest capital in the twentieth century. The state was naturally more concerned with the formation of capital itself than its “efficiency”. Before the efficiency of national capital even enters into the equation, it must be accumulated and actually exist.

However, once national capital is formed, the next question becomes its “efficiency”. In the case of Japan, this “efficiency” was achieved in the Meiji Period in the form of the privatization of government managed enterprises, and in the current stage of the Soviet Union this is appearing as “liberalization”. The attempt to ensure the “efficiency” of national capital is witnessed by the effort to connect the total invested capital to the “rate of returns”, and the conversion of the relationship between the state and enterprises into a type of “credit relationship”. The latter represents the negation of the free fund system (its direct existence as state capital). The capital, which up to that point had been “distributed” by the state, is now a type of compensation loaned out (at roughly 6 percent). Each enterprise has to pay the state a “fund use-fee” in order to obtain fixed and liquid funds. This sort of interest on state capital is supposed to replace the profit deductions and turnover tax as the main source of state revenue in the future. A system of direct capital (capitalist relations) is becoming manifest. This demonstrates that the bourgeois categories were not merely a formal existence as had once been declared.

Of course, the apologists insist that the essence of Soviet “socialism” has not changed, and that the new policies only serve the functional purpose of increasing “economic efficiency”. It is certain that the efficiency of the “funds” will be increased by the new system. Sectors of production unable to pay the use-fee for funds and other interest will likely not receive investment, while the most highly “efficient” sectors will absorb more funds. This will allow the most efficient distribution of funds. But this is nothing but the general law of capitalist society (the principle of average profit=production price). This process cannot be justified as “consideration for past labor”, because this occurs under the bourgeois form of value and capital. It is no accident or theoretical mistake that recent Soviet scholars are claiming that the prices in the USSR should be production prices (i.e. price in payment for average profit). This is a decisive indication of the “maturity” of Soviet capitalistic society.

“Liberalization” (economic reform) signifies a developmental stage in Soviet state capitalism, its maturity, and its turning point. The essence and inevitability of “liberalization” is the shift from the formation of national capital through “primitive accumulation” to the existence of national capital as “capital”. Therefore, it is not completely unwarranted for the Chinese Communist Party to howl about the “revival” of capitalism (but they one-sidedly reduce Soviet capitalism to “speculation”, etc.) The Stalinist system started out with the backwardness of its national economy and the overwhelming predominance of agriculture, and achieved the historical task of the “primitive accumulation” of national capital by means of exploiting the peasantry and working class through forced labor. The task of “liberalization”, contrarily, is to render national capital more “efficient”. The former emphasized increases in the production of use-value, while the latter places the emphasis on increasing the production of value=surplus-value. The former aimed for the direct strengthening of labor (the production of absolute surplus-value), while the goal of the latter was to increase productive power (the production of relative surplus-value). Labor-power thus had to be not only consumed, but exploited efficiently (i.e. maintained and reproduced in good condition). Therefore, consumer goods, and food, etc. had to be improved to a certain extent and increased in quantity. The prior policy of simply exploiting agriculture thus had to be abolished, the prices of agricultural goods raised considerably, and the autonomy of the kolhozy expanded. This revealed the bourgeois nature of the state “enterprises”. At this stage the ruling layers, in addition to being Stalinist bureaucrats, were managers (enterprise directors), technicians and economists (i.e. so-called technocrats). In a state capitalist country that has yet to reach this historical stage, “liberalization” is held back, and the advocates of liberalism are suppressed as revisionists (e.g. the USSR under Stalin or China during the Great Cultural Revolution).

Another point that merits attention is the fact that “liberalization” (economic reform) has led to the emergence, in a clear form, of the capital=wage-labor relationship. In the Stalinist system, the character of state enterprises as businesses was suppressed, and the enterprise directors existed more as state bureaucrats than managers, and so the capital=wage-labor class relationship did not appear in its typical form. However, under economic reform, the emerging relationship between directors and workers is not a comradely relationship within a “community” (of course this never actually existed), but a class relationship. Next we will look at the changes in the wage system.

The Outcome of Economic Reform:
The Appearance of Bourgeois Class Relations

Already in the late fifties, reforms of the wage system were devised to greatly reduce the wage ratio line and reduce the wage gaps. The shift to a system of wage incentives was also introduced, and the progressive piece-work system, which had accounted for 35 percent of the entire wage system until 1956, decreased to only 0.4 percent by 1962. On the other hand, the system of wage incentives rapidly increased from 65 to 80 percent. The proportion of piece-work to time-scale wages also decreased from 77-23 percent in 1956 to 60-40 percent in 1962. The series of economic reforms, initiated in 1965, led to a qualitative leap in this tendency. The new reforms calculated the efficiency of “production funds” according to profit, and attempted to provide material incentives for the activities of the enterprises. This measured achievement of the enterprises was linked to the size of “wages”. Systems of incentives had existed before, but enterprises now actively strive for profit and receive compensation according to profit. The amount of incentives has also increased greatly compared to before, and represents something new (of course this is quite common in bourgeois societies).

As is clear from chart #3, with the economic reforms, the incentives paid according to the performance of enterprises (evaluated according to profit) in fact had class content. Through the reforms the wage gap was expanded within each enterprise. Another crucial point is that the salaries of managers were strongly tied to the “performance” of their enterprises. Under the new system, there was no great change in remuneration for workers, but there was a decisive change in incentives for managers and technical staff. In other words, whereas most of their remuneration came from the wage fund before the implementation of the new system, this now mainly comes from the “material incentive fund” formed from an enterprise’s profit. The ratio of incentives compared to salary also nearly doubled. The meaning of this should be perfectly clear. The managers naturally have a great interest in raising the rate of profit. This means that they must exploit the workers and appear as the personification of capital. Their personal income increases in proportion to their ability to “efficiently” exploit the workers and increase profits. As the personification of the functions of capital (i.e. as functional capitalists) they must develop this nature. The fact that they do not personally own the state enterprise funds (means of production) does not mean that they are not capitalists, but only that they are functional capitalists. In this sense, they now have a vital interest in increasing profit and exploiting workers. The interests of the upper management are perfectly clear from the table above, and here is the true class character of “liberalization” (economic reform).

In the Soviet Union, this once concealed or undeveloped capital= wage-labor relationship is now clearly emerging. The commodity economy is “evolving”, and has turned into a capital=wage-labor class relationship. This represents the class differentiation of the direct producers. The peoples’ or workers’ and peasants’ state has lost all substantial content, and now appears as a bourgeois state. This indicates the level of maturity of the Stalinist system (state capitalism), and reveals every day that this system is antagonistic to proletariat and they must overthrown it.