The debate about the Russian economy and the nature of the Eastern bloc, even on the left, is dominated by the argument for the market economy against the virtues of central planning. The consensus, left and right, is that central planning has failed dismally and that the only hope of rescuing the Russian people from its dire consequences is introduction of a market economy. Both sides of this debate, I hope to show, are wrong. That Russia’s economy was centrally planned, in any common-sense understanding of the word, is a myth. That market forces (or the forces of capitalist competition) had no impact inside Russia since the Five Year Plans were introduced is equally a myth. Nor is it the case that opening up the Eastern bloc countries to direct competition in the world market (what is actually meant by introduction of the market economy) will in any sense improve the lot of ordinary people from Berlin to Vladivostok.
To establish the mythical nature of central planning I want to look at the introduction of the first Five Year Plan in 1928 and see what its impact was. The analysis which will be put forward here is the state capitalist analysis of Russia which has been argued by the International Socialist tendency since Tony Cliff’s path-breaking account of the Russian economy, State Capitalism in Russia. appeared in 1948. We argue that Russia, since the Stalinist counter-revolution, has been a capitalist, class society in which the means of production are controlled by the state bureaucracy, the upper echelons of which form the ruling class. Introduction of the first Five Year Plan signalled the beginning of the counter-revolution which crushed every remaining vestige of the gains of the 1917 revolution.
1928 found Russia in profound economic and political crisis. The precipitating factor was the drastic shortfall in grain requisition in 1927-28. This sent shock waves through the extremely weak Russian economy. Unemployment was already rising in the industrial centres as the period of reconstruction begun in 1925 drew to a close at the end of 1927. Imports were cut because the fall in grain exports threatened foreign currency reserves. This rebounded on industry dependent on imported raw materials or components, exacerbating unemployment and the existing shortage of consumer goods. The grain shortage itself hit food supplies to such an extent that some centres had only a few days’ supply on hand. Internationally the Russian state was isolated following the defeat of the Chinese revolution, which ended any hope of rescue by international revolution. Trading relations with Britain were broken off after the Russian intervention in the Chinese revolution, and as news of the impending collapse of the Russian economy spread, other foreign governments were reluctant to extend credit or sign new trading agreements.
The economic crisis was preceded by the escalation of political conflict within the factions in the Bolshevik party bureaucracy. This bureaucracy formed the administrative core of the state and dominated the working class which had been critically weakened by the impact of the civil war on the economy and the whole social fabric. Stalin’s faction represented the interests of the party bureaucracy as opposed to those of both the working class and those of the peasants and the capitalist layer thrown up by the New Economic Policy. The onset of the grain crisis, combined with Russia’s international isolation, convinced Stalin that there was no future for the regime in seeking support from foreign governments and that the country had to develop its industrial base from its own resources. Stalin’s manoeuvres from the end of 1927 turned the bureaucracy decisively away from a revolutionary international perspective and set the regime on a course which would bring it into sharp conflict with the working class and the peasants.
First Stalin moved to defeat the United Opposition, whose support in the working class was growing as the economic crisis hit. He expelled its leadership (Trotsky and Zinoviev) at the end of 1927. Then he used the excuse of the grain crisis to attack the peasant base of what remained of the Right Opposition and deal decisively with the crisis. The party bureaucracy at the local level, combined with the GPU, were sent into the countryside to seize the grain by force. Resistance was punished by arrest, and imprisonment. Taxes were increased to force the peasants to sell any hidden grain reserves, but were also an excuse to seize property as well as grain. This was done in the name of attacking the rich peasants (the kulaks) but in fact affected all peasants. To escape the further loss of property and the threat of starvation the peasants took refuge on the collective farms or fled to the towns to join the ranks of the unemployed. The process, called by the party “extraordinary measures”, but better known as forced collectivisation, began the destruction of the kulaks as a class, ending with the catastrophic famine of 1932 and the deaths of more than four million people.
At the same time Stalin completed the rout of the right by seizing the form (but not the democratic content) of the Left Opposition’s program – the Five Year Plan to expand industry. The plan had been drafted some years earlier, essentially as an analysis of the weaknesses and gaps in the economy, and its dependence on imported input (technology, raw materials or components). These gaps were transformed into targets and then arbitrarily increased, regardless of whether the resources, labour or capital existed to warrant the increases. On the contrary, the increases were justified with the argument that as new factories, new power plants, steel plants, and chemical plants came on stream, they would generate savings in the form of reduced production costs, increased labour productivity and increased capacity. The projected cost savings and productivity increase were figured into the costing of the capital outlay for implementing the massive increase in industrialisation from the beginning, so the Five Year Plan from the outset was an exercise in creative accounting worthy of the balance sheets of Australian entrepreneurs.
Fictional or not, the new targets were translated into new workplace norms which constituted an actual attack on the working class of unparalleled ferocity. This was the deliberate strategy of the Stalinist bureaucracy, since the Plan’s central principle was the diversion of capital, raw materials and labour away from light industry (which produced consumer goods) to heavy industry. What the consequence of that change in priorities would be, given the existing shortage of consumer goods, was well understood by the bureaucrats-a drastic fall in living standards. This was one reason that Tomsky, head of the trade union organisation and member of the Right Opposition, opposed the increased rate of industrialisation. He feared the increased pressure which workers’ resistance to the attack on their living standards would place on the trade unions.
The immediate impact of the new targets was wage cuts. This came about because wages had been tied to quotas or norms – piece rates – in virtually all workplaces since the mid-twenties. Failure to reach the new norms, even if output exceeded the old levels, meant a cut in pay. To reach the new norms workers were subjected to speed-ups, to compulsory overtime and to double shifts. The irony of the announcement of the cut in standard hours to a seven-hour day was that this disguised the move to the three shift system in production, without compensatory wage increases. On top of this, managers commonly delayed paying wages to use the cash for buying up scarce supplies. With shortages, particularly food shortages, driving up prices, the delay in getting their wages exacerbated the impact of inflation on the real value of workers’ pay. The working class also bore the brunt of the compulsory state loan deducted directly from their wages – workers paid 70 percent of the loan although they constituted a mere 10 percent of the population. Thus the regime funded its massive industrialisation program – by a dramatic lift in the rate of exploitation in both absolute and relative terms. The other source of capital was grain, which was exported to pay for imported technology, raw materials and machinery at the cost of starvation for a percentage of the population. That this cost was recognised and accepted by the bureaucracy is made clear by the fact that Stalin was able to persuade the leadership not to import grain in the 1929 crisis to feed the people because this would cut into funds earmarked for the industrialisation program.
The new norms, and from 1929 actual wage cuts, were reinforced by campaigns of “socialist” competition and shock work. Both campaigns urged individual workers and workplaces to exceed the new norms. “Socialist” competition between workplaces set higher targets which could only be reached if workers did double shifts and worked on their days off. Its impact was graphically reported in an extract from the Menshevik exiles’ paper, Socialist Herald:
The situation in which we are now living doesn’t for a moment allow us to forget we’re building the five-year plan. This means that today we “willingly” have to subscribe to the regular loan, that tomorrow we equally “willingly” have to go on a Communist Saturday to unload firewood, bricks etc., and then in the course of socialist competition, we have to spend our rest days working on a neighbouring collective farm. When you discharge this obligation the regular campaign comes and it starts all over again.
Shock work served a dual purpose. The first was to increase the new norms by getting individual workers to compete to exceed them (and then setting those levels to be the new norms). The second was to divide workers by creating a more privileged layer, as shock workers were rewarded with conspicuous material benefits. The benefits consisted of such things as better food for shock workers in the workplace canteens, preference for housing, for childcare, even clothing and footwear. These were substantial benefits in a period of rationing (introduced across the country in 1929) and they were also conspicuous, to encourage workers to compete for shock worker status. The relatively privileged layer then formed a material base of support for the bureaucracy within the working class, from which lower level management and party officials were drawn.
However, in its mania to raise output and to divert working class resentment into vicious individual competition, the regime generated chaos in industry and made nonsense of any notion of planning. The Plan never did co-ordinate production so that increased production in one sector was balanced by increases in the related sectors. On the contrary, the goals were set – the new hydro-electric scheme, the new oil refinery, so many trucks, so much rolling stock, etc. – and then the components, materials and capital goods needed to fulfill the goals were calculated from there to become the new production targets. The rush to reach the targets, combined with the existing shortages and bottlenecks, ensured that industrial sectors got out of kilter, which in turn exacerbated the hold-ups in production. The competition to get the scarce machinery, raw materials and labour increased the shortages so production became more chaotic after the implementation of the Plan than before.
The rush to increase output had a second, unforeseen, effect: deterioration in quality. Speed and quantity were the key factors and support tasks like machinery maintenance, supply control, even storage of the finished products, were neglected. The result was high levels of waste and defective products, and more supply bottlenecks and hold-ups in production as machinery broke down. Continuous production put machinery never designed for it under enormous pressure, made worse by the neglect of maintenance. Filtzer quotes Rakovsky, a member of the Left Opposition, as predicting that the mania to fulfil the Plan would result in the systematic production of defective products, as poor quality raw materials, components, tools and machinery spread defects throughout production. This would greatly increase the level of waste and breakdowns to the point of actual decline in output. According to one account, the first half of 1931 saw an actual fall in output in such critical supply industries as iron ore, crude steel, bricks and glass production. Output fell precisely because the response of the regime to failure to reach the Plan’s targets was to increase them.
The example of the Dneprostroi hydro-electric scheme explains why. The labour and material needs of the project were calculated on the assumption of availability of labour-saving equipment. The equipment never arrived and the management had to substitute labour-intensive construction methods which sent costs up. To hide the over-runs management redrafted the original scheme to increase its size and so account for the greatly increased labour force and material needs. Magnify that phenomenon across the economy and the pressure on material and labour supplies is explained. The bureaucracy reacted by incorporating such projected increases into new, higher targets. After all, they were arbitrary to begin with, and completion of the Plan was predicated on projects like Dneprostroi coming on stream to supply the new industrial centres’ production. So by 1931 most areas of “heavy industry had targets ranging from 25 to 80 per cent higher than the original plan’s specification for that year”. This is not planning. This is a system of centrally imposed targets, imposed with callous disregard for its effects on the lives of the mass of the population. Implementation of the first Five Year Plan was the act of a ruling class whose interests were hostile to those of the Russian masses in whose name they purported to rule.
Working class resistance
This is made clear by the resistance to the Plan’s ever increasing targets by the working class. 1929-1934 was a period of intense class struggle as the Plan put workers under enormous pressure in the workplace and simultaneously cut real wages and the supply of consumer goods. Workers responded with protest meetings, go-slows, demonstrations and strikes. Women workers led demonstrations about the lack of food and the rotten quality of what was available, demonstrations which became riots when the militia was sent in to disperse the protesters. Workers struck in protest against the new norms, the wage cuts, the delay in paying wages, and the size of the compulsory state loan deductions, as well as the food supplies and their appalling living conditions. A contradiction which the regime could never comprehend was that the protests were often led by shock workers and Communist Party members. A certain percentage of workers, especially the young, took the rhetoric of the regime seriously and were committed to the supposed ideal of building socialism. They responded with real anger to the attacks on workers. At a meeting of shock workers one worker said:
You drag the peasants forcibly into the collective farms under threat of being shot and us into the [shock work] brigades. You, the trade union officials, only oppress the workers.
(By 1930 the trade union organisation had been purged of opposition to Stalin – Tomsky was removed in 1 929 – and had been incorporated into the machinery to control the workforce.) The regime was increasingly concerned about the level of resistance as well as the failure to reach the Plan’s targets. It responded selectively, making concessions in the more important factories like the Putilov works in Leningrad, and rounding up the leadership of strike committees in the provincial centres to behead the resistance. The campaigns for socialist competition and shock work were stepped up, combined with propaganda campaigns against the militants leading the resistance (who were called wreckers and truants) to divide the workers. Brutal repression by the GPU was used where industrial action still broke out. By 1934 collective action against the regime was becoming rare as the GPU’s measures combined with the desperate struggle to survive broke workers’ resistance.
However from 1929 onwards the most common response to intolerable living and working conditions was to change jobs. High labour turnover became characteristic of the workforce, made possible by the rising demand for labour. Substitution of labour for scarce equipment plus new projects starting everywhere created an insatiable demand for labour which rapidly soaked up the 1.2 million who had been unemployed at the end of 1927 and absorbed the dispossessed peasants crowding into the urban centres. A labour shortage emerged which forced up money wages (as managers outbid each other to hold onto scarce labour) at the same time as real wages fell by as much as 50 percent, The emergence of a sellers’ market for labour proved an objective shift in the balance of class forces which enabled workers to take collective action in their defence, but as the regime cracked down, workers increasingly could only respond individually and move on. The turnover figures through the decade are almost incredible. Filtzer’s calculations run thus:
The average Soviet industrial worker changed jobs once every 8 months in 1930, every 9 months in 1932, every 14 months in 1936 and 1937, every 17 months in 1938 and every 13 months in 1939.
In the coal industry in the first years of industrialisation the annual turnover was more than 200 percent. This was the reason for the punitive labour laws prohibiting job-changing. When first introduced, the laws had an impact in reducing truancy (absenteeism) and lowering turnover, but as managers discovered that the result of punishing workers for discipline violations was losing them, they tended to ignore the violations and the laws. The high turnover clearly had an impact on productivity – hence the regime’s harsh response. However, as collective action became impossible and the ideology of “socialist competition” meshed with the reality of the daily struggle to survive, the individual response of changing jobs became the main pressure valve for workers’ resentment towards the regime.
Using socialist competition and repression to break collective resistance had an adverse effect on productivity which the bureaucracy may not have anticipated. Setting worker against worker breaks down not only the collective ability to resist but also the co-operation between workers necessary for modern industry. Shock workers (and later the Stakhanovites) grabbed the best machines and tools and the lion’s share of the materials to set their records at the expense of the rest of the workers. If their productivity went up, that of the other workers went down, along with their earnings, adding to the resentment felt towards shock workers. It also meant that output became impossible to predict and production impossible to co-ordinate, as individual record levels of output were achieved without any regard for overall production. Whole sectors of industry, even workshops within individual factories, got out of kilter. Without a certain level of stability and predictability in production, planning becomes meaningless, so the atomisation of the Russian working class made central planning a fiction. Added to this was the hostility of the workers, bitterly resentful at bearing the brunt of the industrialisation program but only able to express that resentment individually. The alienation of the workforce found expression instead in high rates of absenteeism, alcoholism, individual acts of sabotage and violence (towards shock workers as well as management) and high turnover.
Recognising that hostility is critical to the argument that the Russian economy was not planned. Filtzer’s account presents a substantial body of empirical evidence which makes any notion that the Stalinist economy was planned ridiculous. In fact without the commitment and input of the direct producers, any idea that something as complex as a modern industrial economy can be centrally planned is absurd, something Trotsky pointed out in 1936:
For the regulation and application of plans two levers are needed: the political lever, in the form of a real participation in leadership of the interested masses themselves, a thing unthinkable without Soviet democracy.
Without the participation of the direct producers in setting the goals, based on their knowledge and commitment, planning becomes mere target-setting and enforcement of the targets a hostile act. Real workers’ democracy based on workers’ councils, and genuine workers’ control in the workplace, are necessary for planning of production to work. Otherwise imposition of planning founders on the indifference or even the active resistance of the workers, which makes output impossible to predict and planning a myth. That Russian workers resisted collectively while they could, and reacted individually thereafter is evidence that implementation of the first Five Year Plan was not socialist planning but counter-revolution promulgated by the new, bureaucratic ruling class. The greater the resistance of the masses, the greater the repression the bureaucracy needed to carry through their program of primitive accumulation, and the more sharply they defined their interests in opposition to those of the masses.
By 1934 the worst of the economic crisis was over, rationing of basic goods had been lifted, many projects had come into production and output increased, dramatically in some sectors. The round of struggle had been settled decisively in favour of the new ruling class, in terms which set the framework for exploitation in Russia for decades. And what had it all been for? Essentially to lift the state’s military capacity. In the isolation of 1927-28, the bureaucracy feared invasion and saw their only chance of surviving in building up the country’s defence capabilities:
It is impossible to defend the independence of our country without a sufficient industrial base for defence. It is impossible to create such an industrial base without technology in industry… Either we acquire it or we will be wiped out.
The competitive accumulation characteristic of capitalism in which the bureaucracy was engaged was primarily military competition. The bureaucracy could close the borders to foreign goods and monopolise foreign trade to develop industry protected from the pressure of direct competition in the world market place, but their arms and military technology had to match their rivals’ in quantity and quality. This was the goad behind the acceleration of industrialisation and the strategy of diverting investment away from consumer goods production to heavy industry. What had begun under the NEP as a holding operation, pending rescue by international revolution, transformed one section of the Bolshevik party bureaucracy into a new capitalist ruling class which competed with rival capitalist ruling classes on a military basis. This was how the impact of the law of value in the global capitalist system was transmitted to the Russian economy. Stalinist Russia competed with the rest of the world in military capacity, not in market-based price competition. This limited the effects of competition to the heavy industry and arms sector, which were relatively efficient and technically advanced compared to the capital-starved light industry of the consumer goods sector, especially after 1938 as the state geared up for war.
But does this mean that the law of value did not operate inside the Stalinist state? That is, did the absence of direct market competition mean that inside Russia goods were not exchanged at their real value, that money was not real, that labour power was not a commodity and workers were not exploited through a wages system? What the bourgeois economists mean by market forces is the discipline of competition which, in theory, acts to prevent prices of goods from rising artificially higher than the cost of their production. Of course monopoly production eliminates that discipline and allows prices (and profits) to be maintained regardless of the efficiency or otherwise of the producer. Indirectly, the effects of military competition were transmitted through the Russian economy, distorted by the effective monopoly of state production. Nonetheless costs continued to be counted in roubles, however inflated by shortages and the state printing presses. Capital diverted from consumer goods production to heavy industry represented real value, just as cross subsidies to keep the price of necessities like bread low were real costs to the economy. The existence of the rationing system in the early 1930s was a distortion of capitalist production, not the elimination of it.
As for labour power, as the consequences of the shortage of labour made clear, there was a labour market in which supply and demand operated. When the price of labour fell below its value – that is, the cost of feeding, clothing and housing the worker and his/her family – there was no choice but to move on. Management competed by bidding money wages up to hold on to labour – in other words, labour power was, and is, a commodity. Private markets, especially in food, continued through the 1930s and unofficial markets in raw materials, tools, machinery and components operated for some time. Despite the distortions of inflation from shortages and the state’s arbitrary intervention, a money economy continued to exist and workers continued to be exploited through the mechanism of the wages system. The struggle about wage rates (norms), about unpaid wages, the size of state loans, are evidence of the reality of the wages system, even though the state was the monopoly supplier of most goods which workers could buy. Russian workers’ situation in the 1930s is comparable to that of workers in company towns in Western capitalist states, where the company owns the store selling workers their supplies. The law of value continues to operate, although greatly insulated from world market competition. So today in Russia we see the explosive contradiction of an extremely sophisticated arms sector alongside very backward consumer goods sectors and a low wage economy overall.
It has been the strains of that contradiction – between arms production and the greater part of Russian capital investment it has absorbed at the expense of the rest of the economy – which has precipitated the present crisis. The proposed solution (perestroika and opening up the economy to the cleansing forces of competition) may well include removal of some of the distortions in the internal economy, but at what cost? Removal of the subsidies needed to keep the price of basic necessities within workers’ reach ensures that workers bear the brunt of the solution. A shake-out of inefficient enterprises and restructuring of those remaining will see unemployment skyrocket. Consumer goods may well become more plentiful in the process, but who will be able to buy them, a question the Poles are asking now. The magic of the market is simply the current fashionable cant for making the working class pay, a solution Russian workers have been familiar with for more than 60 years.
Could a planned economy be any worse? The Eastern bloc countries and Russia are no evidence that it would be worse, since their economies were not and are not planned. The point is that under capitalism, where the direct producers do not control the production process, the question cannot be tested. The real argument is that of capitalist production versus socialist production. To make that argument it is necessary to establish, once and for all, that the Stalinist state has nothing to do with socialism, but is merely another for of capitalism, a particularly brutal form. That, I hope, has been demonstrated by this account of the first Five Year Plan.
 m Tony Cliff, State Capitalism in Russia, Bookmarks, London, 1988. First appeared under the title The Nature of Stalinist Russia in June 1948.
 Michael Reiman, The Birth of Stalinism, London, 1987, pp53-57.
 The New Economic Policy was introduced in 1921, restoring a private market in grain to ease pressure on the peasants who were increasingly hostile to the Bolshevik regime of War Communism. It was recognised as a retreat by the Bolsheviks and was intended to provide a breathing space until the revival of revolutionary struggle internationally.
 Reiman, The Birth of Stalinism, p89.
 Donald Filtzer, Soviet Workers and Stalinist Industrialisation, London, 1986, pp82-83, where these things are recorded as reasons for strikes. The account in this article draws heavily on Donald Filtzer’s book which is a devastating indictment of the Stalinist version of the Five Year Plans, marred by his analysis of Stalinist Russia as a class society, but not capitalist.
 Reiman, The Birth of Stalinism, p109.
 Filtzer, Soviet Workers and Stalinist Industrialisation, p72.
 ibid., pp43-44. Rakovsky’s article was written in July-August, 1930.
 ibid., p36.
 ibid., pp81-87. 1932-33, the period of the Ukraine famine, saw strikes in a wide range of centres which could only be calmed down by the delivery of special food supplies. See also Reiman, The Birth of Stalinism, p109.
 Filtzer, Soviet Workers and Stalinist Industrialisation, p79, quoted from Northern Worker (title translated), April 1930.
 ibid., p91.
 ibid., p135.
 ibid., pp52-53.
 Leon Trotsky, The Revolution Betrayed, New York, 1972, p67. The other lever was a stable currency for cost accounting.
 See Tony Cliff’s comments, State Capitalism in Russia, pp66-67.
 Filtzer, Soviet Workers and Stalinist Industrialisation, p126.
 Quoted by Reiman, The Birth of Stalinism, p86.
 The law of value refers to the theory that the value of goods is determined by the amount of socially necessary labour time which goes into making them.