Is Russia Becoming Capitalist?

Richard Fidler rfidler at cyberus.ca
Tue Jun 5 13:46:08 MDT 2001


The latest issue of Science & Society has an extremely interesting article
(extracted below) by David Kotz, "Is Russia Becoming Capitalist?"

The debate over the transition from feudalism to capitalism in western Europe,
which has again been extensively aired on this list in recent days, is relevant
not only for abstractly historical reasons, but because - as a number of
contributers have discussed - it addresses contemporary issues of modes of
production and social formations in the relatively underdeveloped
(imperialist-dominated) countries. It is also an important debate because of its
relevance to other transitions, including the transition from capitalism to
socialism. The Trotskyists, of course, debated this issue at length. Another
example, outside the Trotskyist tradition, was the discussion between Paul
Sweezy and Charles Bettelheim ("On the Transition to Socialism", MR Press,
1971).

Today we have an additional issue that most of us never anticipated until
recently: the transition from socialism (more accurately, from state socialism,
or a workers state) to capitalism.... or what? That is the subject Kotz
addresses. It is, if you wish, another way to approach the "origins of
capitalism".

Of particular interest to comrades on this list will be Kotz's comparison
between what he terms the "non-capitalist predatory/extractive system" that now
exists in the ex-Soviet Union and his counter-example of China (not developed to
the same degree as his analysis of Russian developments), which, he says, "has
demonstrated that it is possible to make a transition from state socialism to
capitalism".

Here is how Kotz begins:

Since the demise of the Soviet Union at the end of 1991, the political
leadership of post-Soviet Russia has been seeking to replace the former state
socialist system by a capitalist system. Russia's political and economic
elite --- drawn mainly from the former Soviet elite, with some infusion of
individuals from the former Soviet shadow economy and the intelligentsia --- has
over-whelmingly supported a transition to capitalism (Kotz and Weir, 1997).
Despite the unpopularity of capitalism among ordinary people in Russia, the
project of capitalist transition has faced little effective opposition from the
demoralized Russian population. The Communist Party of the Russian Federation,
which is by far the largest political party in Russia, and which has, at least
rhetorically, maintained an anti-capitalist stance, has been unable to
significantly hinder the regime's drive to build capitalism.

Capitalist transition in Russia has had strong support from abroad. The Western
capitalist powers, particularly the United States, have given aid and
encouragement for Russia' s capitalist transition. The International Monetary
Fund has provided advice and financial support.

Despite these favorable conditions for carrying out a capitalist transition, the
road to capitalism in Russia has been remarkably rocky. It is difficult not to
notice the severe distortions in Russia's socioeconomic system, including an
eight-year-long depression, rampant criminality, the rise of a bold and violent
financial oligar-chy, widespread corruption, and lengthy delays in the payment
of wages, pensions, and other obligations. Russia' s new system is some-times
called by such names as "nomenklatura capitalism," "criminal-ized capitalism,"
or "oligarchic capitalism." However, most observers believe that the new system
developing in Russia is, despite severe distortions, a form of capitalism
(Hanson, 1997; Menshikov, 1999).

This paper challenges the assumption that capitalism is developing in Russia.
More precisely, it will be argued that a capitalist mode of production is not
assuming the dominant position in the evolving Russian social formation. Such a
major social transition must take time, and one should not expect a fully formed
capitalist system to appear in Russia immediately after the demise of the Soviet
system. However, it does not appear that the direction of development in Russia
is toward a social formation in which a capitalist mode of production plays the
dominant role. Despite the development of some of the superficial features of a
capitalist system --- such as private own-ership of businesses and banks, the
opening of securities markets, and the replacement of central planning by a sort
of market system --- some of the key defining characteristics of capitalism have
not emerged and show no sign of doing so.

The issue being raised here is not just a matter of definitions and words. The
many negative features that have arisen in Russian society since 1992 are
commonly attributed to the inevitable difficulties of building capitalism on the
ashes of the former system. It is assumed that, as the transition progresses,
the negative features will gradually disappear, and Russia will emerge with a
"normal civilization" --- that is, an advanced capitalist "democracy" like that
found in Western Europe or North America. Of course, contrary to the bourgeois
ideo-logical picture of capitalism, this "normal civilization" would be based on
exploitation of labor and would have its share of poverty, unemployment, and
environmental destruction. However, it is expected that the retrograde features
of Russia's "oligarchic capitalism" would disappear once the transition is
completed. If Russia is not in transition to capitalism, its future may be
bleaker than would otherwise be supposed. It will be argued here that the most
retrograde features of contemporary Russian society are not results of a
transition to capitalism but rather outgrowths of a new, non-capitalist system
that has developed there.

The analysis has the following four parts. First, I will review what a
capitalist mode of production is. Second, I will present a case that the
developing social formation in Russia is not capitalist but rather a
non-capitalist "predatory/extractive system." Third, I will trace the cause of
Russia's non-capitalist path of development to the particular transition
strategy urged on Russia by Western advisers and enthusiastically adopted by the
Russian leadership, known as the neo-liberal transition strategy. While this
strategy was intended to rapidly build capitalism, even the best of intentions
do not guarantee success. Fourth, and last, I will consider the implications of
Russia' s predatory/extractive system for the development of Russian society.

The entire argument of this paper presupposes that the former Soviet system,
whatever its specific character, was a non-capitalist system. Most analysts,
both Marxist and mainstream, regard the former Soviet Union as having had some
kind of non-capitalist system. In my view, the former Soviet Union had a "state
socialist" system that was a mixed social system with important socialist
features which, however, coexisted with non-socialist institutions (Kotz and
Weir, 1997, 26-33). The non-socialist institutions were primarily semi-feudal
rather than capitalist.

However, some analysts, including some within the Marxist tradition, regard the
former Soviet Union as having had a variant of capitalism, usually called state
capitalism (Bettelheim, 1976; Resnick and Wolff, 1994). If the former Soviet
Union was capitalist, no issue of transition to capitalism in Russia even
arises. Based upon such an interpretation, the problems of contemporary Russia
tend to be seen as just temporary difficulties, as Russia adjusts its capitalist
system from state capitalism to the private-property- based variant.

There is not space here to enter into this debate. I have made the case
elsewhere that the Soviet Union was not capitalist (Kotz, 2000). Were Russia
simply shifting from one variant of capitalism to another, it would be difficult
to understand the depth of the crisis produced in Russian society by this
process. Major reformulations of capitalism have in the past been associated
with a serious economic crisis, as, it can be argued, was the case with the
Great Depression of the 1930s. However, no capitalist reformulation crisis has
ever reached the depth and destructiveness of the process that has gripped
Russia since 1991.

[snip]

And here is what he says about China, by way of comparison:

The recent history of China has demonstrated that it is possible to make a
transition from state socialism to capitalism. Following a strategy very
different from the neoliberal strategy, China since the late 1970s has been in
transition to a capitalist system. China today has all the key features of
capitalism, including a market economy and a large private sector with a
well-developed wage labor relation forming the basis of appropriation of surplus
value by a new capitalist class. The forms of private ownership are still
ill-defined, but this has not held back the development of the key outcomes
associated with capitalism, including rapid accumulation and innovation.

 The failure of capitalist development in Russia stems from the neoliberal
transition strategy. The appropriateness of this strategy for Russia has been
widely criticized (Goldman, 1994; Kotz and Weir, 1997; Millar, 1994; Murrell,
1993; Weisskopf, 1992). One can criticize each element of the neoliberal
strategy: the immediate lifting of price controls, the contractionary fiscal and
monetary policy, the hasty privatization of state enterprises, the immediate
opening to the world capitalist market. One can show how these policies,
individually and in concert, were bound to produce an unprecedented depression
in Russia. Most of the criticisms emphasize the huge social costs imposed by
this strategy, in the impoverishment of much of the population, the collapse of
public health, etc. What is being asserted here is that, not only does the
neoliberal strategy produce bad macroeconomic outcomes and entail huge social
costs, it is also preventing the capitalist development sought by its advocates.
It is ironic that those who most strongly wanted capitalism for Russia, both
Western advisers and the new Russian leadership, succeeded in imposing a
transition strategy that has blocked the attainment of their ardently desired
goal.

History shows that successful transitions to capitalism have been built upon a
functioning, pre-existing mode of production. In its original emergence,
capitalism depended upon the pre-existing peasant and artisan economy of Britain
and northwestern Europe, and also upon the slave-based production of key inputs
to capitalist development in the Americas. The peasant and artisan economy
produced the food and key primary inputs, supplied the new wage labor force, and
for some time constituted the main market for the new capitalist products.
Capitalist development in the United states in the early 19th century proceeded
with a similar dependence on its own small farmer and artisan economy, as well
as on the Southern slave system which supplied key inputs.

The contemporary Chinese transition to capitalism follows that same principle,
although in a historically new setting. The first step in China's capitalist
development was the recreation of a peasant agriculture. However, equally
important has been the role played by China's state-owned, state-controlled
non-agricultural sector. China's state socialist system supplied manufactured
inputs to the new non-state enterprises at low prices, served as a major market
for its products, provided cheap credit through its state banking system,
maintained a favorable macroeconomic environment through its central planning
mechanism (including the retention of price controls through the early 1990s),
controlled the international movements of goods and capital in ways that were
beneficial for domestic capitalist development, and undertook the large publicly
funded infrastructure investments that are a prerequisite for capitalist
development. Ignoring the advice of Western experts, China rejected every
element of the neoliberal strategy, instead keeping its state socialist system
largely intact while a capitalist sector rapidly developed alongside it. This
provided a basis for a capitalist development more rapid than any hitherto
recorded.

The ultimate reason that capitalism has failed to develop in Russia is that,
following the neoliberal program, Russia rapidly dismantled its previously
existing state socialist system.31 It was left with no platform upon which to
build a new capitalist system. The idea of trying to turn Russia' s giant state
socialist enterprises, created as parts of an integrated, monopolistic,
paternalistic, centrally planned economic mechanism, into capitalist firms by
simply privatizing them and eliminating central planning was absurd from the
start. The effort to do so has led to the present vulture-like devouring of what
had been built under state socialism. Following profit incentives as they are
supposed to do, Russia' s new propertied class realizes that it is simply not
profitable to try to operate the pre-existing productive institutions as normal
capitalist firms. The neoliberal strategy has created conditions that include a
depression without end, very tight money and credit conditions, criminal gangs
waiting to siphon off any profits that might arise, and domination of what
domestic market exists by powerful foreign producers--- conditions that make
most kinds of domestic productive activity unprofitable. What cannot be
profitably operated is scavenged for whatever of value might be found in it, and
a productive system that had sustained a moderate living standard for some 150
million people lies largely unused while the great majority are left to tend
their garden plots in the hope of avoiding starvation.

[snip]

The full article is available in the Summer 2001 issue of Science & Society
(vol. 65, no. 2), and can be accessed on-line by subscribers, at
www.guilford.com

Richard Fidler
rfidler at cyberus.ca




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