Louis Proyect: The Unrepentant Marxist

January 30, 2007

State capitalism: theory and reality

Filed under: economics,socialism,ussr — louisproyect @ 7:57 pm

(This is part of a continuing series on “Does Socialism Have a Future”. My next post will examine the state capitalist attitude toward Cuba, particularly in light of some useful research found in Julia Sweig’s “Inside the Cuban Revolution: Fidel Castro and the urban underground”.)

In 1948, Tony Cliff defended the idea that the Soviet Union was “state capitalist” in the internal bulletin of the British Trotskyist movement. His analysis was couched in terms of Marxist fundamentals:

There is no aspect of the problem of Russia about which so much confusion has been spread as whether the economy is moved by the law of value or not. The main reason for this confusion lies in the lack of clarity as regards the definition of the law of value which leads to mistakes in the effort to locate it in the body-economy. Many of the Marxists who have dealt with Russia have ‘found’ the source of activity of the law of value even where it does not exist, while others have not found it even where it does exist. Even though we shall repeat some of the ABC of Marxism, it is necessary to sketch the essence of the law of value as a prelude to determining whether it acts in the Russian economy and, if so, how.

Tony Cliff

The “law of value” is a reference to Marx’s discussion of the circulation of commodities in Volume One of Capital. There was of course a bit of a problem in applying this law to the Soviet Union considering Marx’s emphasis on profit-making:

The restless never-ending process of profit-making alone is what he aims at. This boundless greed after riches, this passionate chase after exchange-value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The never-ending augmentation of exchange-value, which the miser strives after, by seeking to save his money from circulation, is attained by the more acute capitalist, by constantly throwing it afresh into circulation.

But this hardly describes the Soviet bureaucrats, does it? From the late 1920s until the arrival of Perestroika, the “restless never-ending process of profit-making” was alien to Soviet society, whatever else its faults. The Soviet “liberal” intellectuals of the 1980s who were so enamored of Milton Friedman bitterly complained that the state interfered with rational economic processes. As Marshall Goldman once pointed out, profit-making was considered criminal in the USSR:

In all fairness to Gorbachev, no one has yet been able to figure out how to make a successful transition from a Stalinist, centrally planned economy to a market-oriented system in a relatively short time. The Soviet-type system developed in very different ways: the market atrophied, prices became distorted, individuals hesitated to assume initiatives, and profit making became associated with criminality and antisocial acts.

According to Cliff, the capitalism that existed in the USSR was a horse of another color. Investment decisions were not made by individual capitalists on the basis of what would generate profit but by the state which owned everything and operated on the basis of ‘diktat’. This “state capitalism” was supposedly no different from the state-owned enterprises found in Nazi Germany or Great Britain’s coal, steel and railroad sector after WWII. Lenin made reference to “state capitalism” during the NEP but he was as fixated on the need for profit-making:

In view of the urgent need to increase the productivity of labour and make every state enterprise pay its way and show a profit, and in view of the inevitable rise of narrow departmental interests and excessive departmental zeal, this circumstance is bound; to create a certain conflict of interests in matters concerning labour conditions between the masses of workers and the directors and managers of the state enterprises, or the government departments in charge of them.

Trotsky was even blunter about what this meant:

Under those [War Communism] conditions we could build only though the unions … But now, when we are venturing out into the market, we cannot ‘allow’ the unions into management of production … Now we have to learn from him, from Rockefeller….


John D. Rockefeller: Trotsky advocated learning from him during the NEP

Whatever one might say about the former Soviet Union, it was certainly not about learning from Rockefeller. The USSR was characterized by an absolute indifference if not hostility to market mechanisms.

Rather than dwelling on picayune matters such as profitability, Cliff sees “state capitalism” as a kind of monopoly capitalism raised to the highest level. If the latest stage of capitalism was marked by monopolies, he reasoned that the USSR represented that tendency at its most extreme. Instead of having an economy dominated by trusts owned by private individuals, all of the trusts are combined into a single trust run by the state. As is the case with Standard Oil or any other trust, the “law of value”, which entails the drive for profits above all, is altered somewhat. As Cliff puts it:

Monopoly, by altering the exchange relations between different commodities, also alters the exchange relation between the commodity labour power arid other commodities, i.e. it changes the relation between wages and profits. Monopoly restricts the production of certain commodities in order to raise their price, so that the relation between the quantity of commodities produced by different industries is not exactly the same as that which would have existed under conditions of free competition.

If monopoly capital represents a departure from “free competition” on a national scale, it is just the opposite on a world scale. Surprisingly, Cliff cites Hilferding in order to establish that the “monopolist associations abolish competition”, but fails to include a much more relevant passage from Hilferding that found its way into Lenin:

“Combination,” writes Hilferding, “levels out the fluctuations of trade and therefore assures to the combined enterprises a more stable rate of profit. Secondly, combination has the effect of eliminating trade. Thirdly, it has the effect of rendering possible technical improvements, and, consequently, the acquisition of superprofits over and above those obtained by the ‘pure’ (i.e,, non-combined) enterprises. Fourthly, it strengthens the position of the combined enterprises relative to the ‘pure’ enterprises, strengthens them in the competitive struggle in periods of serious depression, when the fall in prices of raw materials does not keep pace with the fall in prices of manufactured goods.”

If monopoly capital eliminates competition on a national level, it only reintroduces it on an international level, with the added danger of wars being fought to protect super-profits. Once again, it is necessary to point out the obvious. The Soviet economy was flawed in many ways, but it never exhibited the kind of expansionist tendencies that Lenin described in “Imperialism, the highest stage of Capitalism”. We shall return to the question of Soviet “imperialism” momentarily but for now let’s continue with Cliff’s argumentation.

After openly admitting that “supply and demand” did not operate in the USSR, Cliff is forced to accept the conclusion that flows logically from that, “namely that in the economic relations within Russia itself, one cannot find the autonomy of economic activity, the source of the law of value, acting.” He adds, “Hence if one examines the relations within Russian economy, abstracting them from their relations with the world economy, one comes to the conclusion that the source of the law of value as motor and regulator of production is not to be found.” So if the “law of value” does not operate within the borders of the USSR, where does it exactly come into play?

The answer can be found in the Soviet arms industry that produces use values in the form of tanks, planes and battleships that serve to protect the economy from being flooded by outside competitors. Cliff writes:

If there were extensive trade between Russia and other countries, the Stalinist bureaucracy would aim at the production of such commodities as would fetch a high price on the world market, and the purchase of the cheapest commodities possible. It would then strive, as individual capitalists do, to increase the sum of values at its disposal by producing one or another use value, indifferent to which is produced, as long as it serves its end. But if the competition with other countries is mainly military, the state as a consumer is interested not in values for their own sake, but in certain definite use values, such as tanks, aeroplanes, etc. Value expresses the existence of competitive relations between independent producers. The results of Russia’s standing in competition are expressed by the elevation of use values to an end, the end being victory in this competition. Use values, therefore, while being an end, still remain a means.

This is a rather long-winded way of saying that the USSR competed with the capitalist world to have bigger guns rather than bigger profits. It is an argument that oddly enough evokes Seymour Melman or Paul Mattick’s writings on the “permanent arms economy” but neglects the Keynesian dimension found there. In Melman and Mattick, it was understood that the Western economies and particularly the US’s relied on arms manufacturing in order to stave off crisis. In Cliff’s article, arms production does not serve conventional prime-pumping needs, but only as “use values” to defend the Soviet state.

Military parades: the highest stage of State Capitalism?

I don’t want to dwell on this at any great length, but two things seem fairly obvious. Even if Stalin had never gained control over the Soviet party and state, there still would have been an overwhelming need to stay armed to the teeth. The USSR was invaded by 21 countries in 1918. Despite frequent attempts to conclude treaties with the Western powers, Marxists inside and outside of Russia always understood that they were temporary in nature. For that matter, the one person who seems to have unfounded trust in such treaties was Stalin himself who interpreted the Soviet-Nazi Nonaggression Pact as an excuse to relax the nation’s guard on the Western borders. The net result was a catastrophic loss of life and treasure.

It is not easy to gauge how deep this hostility toward Soviet arms production has been internalized by state capitalist proponents, but I have been startled more than once by outbursts from Kevin Murphy, a recipient of the Isaac Deutscher Prize last year and a darling of the American ISO and British SWP press. On the subject of North Korea having nuclear weapons, Murphy advised (I am the Stalinist idiot, btw):

Marxists are against nuclear weapons you Stalinist idiot. You worship Stalinist rulers as if they actually represent the interests of “the people”, this is just third-worldist crap that has absolutely nothing to do with Marxism. The “North Korean people” had absolutely no say on the issue of food versus famine plus “workers’ bomb”. I suspect that if that if given a choice they might have voted against starvation, but that’s just a wild assertion, not a profound apologia by a “Concerned Asian Scholar”. Good thing that the North Koreans have brain-damaged “postcapitalist” thug rulers to decide for them.

Not one of Kevin Murphy’s favorite people

I honestly wasn’t aware that “Marxists are against nuclear weapons.” My guess is that this is largely a matter of tactics. In light of the rather gingerly approach taken by American imperialism vis-à-vis North Korea, I would advise any country included in the “axis of evil” to get some nuclear weapons lickety-split. I might even look into getting one myself if there’s room in my bedroom closet. It is probably the one way to avoid the fate that befell Iraq. If Iraq had detonated a nuclear weapon about 10 years ago, I imagine that Saddam would still be in power and the Iraqi people would have been spared 4 years of hell.

Let me conclude with a few remarks on the chapter of Cliff’s treatise that is titled “The imperialist expansion of Russia” and which suffers from its almost exclusive focus on the relationship between Japan and Manchuria before WWII. As interesting as it is, it really doesn’t shed much light on the USSR and its ostensible colonies in Eastern Europe.

Anticipating criticisms from those still wedded to Marxist orthodoxy, Cliff reminds his readers that “The imperialism of every period, however, is different in its motives and results, and the use of the one word, imperialism, to describe the different phenomena is therefore liable to bring about more confusion than clarity.”

Once that disclaimer is out of the way, he launches into an extended discussion of the Japanese colonization of Manchuria. We are informed at the outset that “of all the countries in the world except Stalinist Russia, that which reached the highest centralisation of capital was Japan.” Even though Japan did not suffer from “superfluous” capital as was the case with the European powers before WWI, it still poured a huge amount of money into Manchuria and even more tellingly used a five-year plan just like Stalin. This led to rapid industrialization and the appearance that the Japanese imperialists viewed Manchuria as “an extension of the homeland”.

Russia, like Japan, was also not driven by the need to export “superfluous” capital. Its investments in Eastern Europe were like Japan’s in Manchuria, a means to expanding its economic base beyond its borders. But the Soviet Union was worse than Japan in some respects (as well as the Conquistadores) since it was not above stripping assets from its colonies:

Stalinist Russia looted all the countries of Eastern Europe and Manchuria. It did so not only by transferring factories to Russia, but also, as Nazi Germany did, by concluding barter agreements with its own vassals which were ruinous to them. The concentrated monopoly capitalism of Japan and Germany and the state capitalism of Russia thus reveal another feature characteristic of the period of the primitive accumulation of capital – that trade and plunder were indistinguishable. If Alfred Marshall could say of that time that “silver and sugar seldom came to Europe without a stain of blood”, today the looted property is much bloodier; and it is not silver or sugar that is plundered, but means of production.

I don’t want to sound like the “Stalinist idiot” that Murphy calls me, but for some reason I find comparisons between the USSR in 1945 and Pizarro and company to be invidious in the extreme. The Soviet Union suffered 27 million military casualties in WWII and another 19 million civilian deaths. This is not to speak of the “scorched earth” policy followed by German invaders that leveled farms and factories across an area larger than the entire European continent. If anything, the USSR had more in common with the indigenous peoples who suffered at the hands of the Spanish invaders. If the USSR transferred some factories from Manchuria, that seems about as grave an injustice as the Incas getting their hands on a tiny portion of the gold that was ripped from their dead bodies.

More to the point, the USSR never prowled the Earth looking for lands to conquer and factories to strip. If it hadn’t been for the disruptions of WWII, Stalin would have been content to stay within his borders “building socialism in one country”. Despite cold war rhetoric, the Soviet bureaucracy was hardly interested in projecting power beyond its borders. When Japan invaded Manchuria, it was clearly a bid to displace British rule in East Asia. When the Red Army invaded Eastern Europe, it was part of a general effort to create a buffer zone around a bleeding and devastated nation. One form of behavior was aggressive and the other was defensive. It is singularly unfortunate that Tony Cliff could not make such elementary distinctions.

Finally, Cliff’s comparison of Imperial Japan and Stalin’s Russia was based on a snapshot of historical reality in the immediate postwar period. In a few short years, the relationship between the Soviet Union and its “colonies” was unlike any that existed in the real capitalist world, as opposed to the ideological construct of state capitalist theory. Instead of “plundering” the nations of Eastern Europe, the Soviet Union was subsidizing their economies through the export of oil at below market prices. Independent scholars, without any particular axe to grind on the question of “state capitalism” have provided an abundance of data to support this analysis.

To take one example, Marie Lavignie’s article titled “The Soviet Union inside Comecon” that appeared in the April 1983 edition of Soviet Studies contains a table that displays year-by-year comparisons between the price of oil that the Soviets exported to Eastern Europe and the world market price. In 1975, Soviet oil cost 37 percent of what the average barrel of oil cost in capitalist world markets. If it simply sold its oil at market prices, it would have profited in the same manner as it does today.

The need to put those unprofitable practices in the past was part of the Perestroika agenda. The Financial Times reported on December 8, 1989:

President Mikhail Gorbachev has told the countries of the East Bloc that they can travel their own roads to socialism. Will he now tell them to buy their own oil for the journey?

In recent months, the Soviet leadership has dramatically reduced its political ties with Eastern Europe’s states. At the same time, the USSR is suffering a serious shortfall in oil production, which is currently running 12m tonnes below target. So, it is no surprise to hear some members of the country’s Supreme Soviet demanding that in 1990 the USSR should cut its sales of oil and natural gas to the East Bloc, which are traditionally exchanged for Eastern Europe’s relatively low-quality goods.

If Perestroika was offered up in the name of socialism, the current regime makes no excuses. They are much more in the mold of the capitalist described by Marx in Volume One of Capital: “The restless never-ending process of profit-making alone is what he aims at. This boundless greed after riches, this passionate chase after exchange-value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser.”


Genuine state capitalism

Using state-owned energy companies like Gazprom and Lukoil, the Russian bourgeoisie prowls the earth looking for new investment opportunities. Cliff wasn’t wrong to use the term “state capitalism”. He was just 60 years too early.


  1. This is a lame and cowardly little piece… passing over in silence the political context of Cliff’s ‘discovery’ completely eliminates the significance of his pseudo ‘theory’ i.e. that it was an outright capitulation to Labourite anti-communism at the height of the Cold War.

    Comment by Red Cloud — January 30, 2007 @ 9:50 pm

  2. The above is a Spartacist troll who haunts Lenin’s Tomb. Nice piece.

    Comment by Poulod — January 31, 2007 @ 4:32 am

  3. Really good exposition. Do you see any difference between Cliff’s state capitalism theories and those of Bettelheim, etc?

    Comment by Doug — January 31, 2007 @ 8:49 pm

  4. I am not familiar with Bettleheim. I did a bit of background reading before writing this, however. It seems that state capitalism was first put forward as a theory of the USSR by “council communists”. Here’s some useful background:


    Comment by louisproyect — January 31, 2007 @ 8:56 pm

  5. Cliff’s is the weakest of the state-capitalist theories. Dunayevskaya and James were on stronger ground, though they were also wrong. You might want to read and assess their writings on the topic. At least some of them should be available at the MIA. NEWS & LETTERS also put out a book on “The Marxist-Humanist Theory of State Capitalism.”

    Comment by Oliver Queen — January 31, 2007 @ 9:18 pm

  6. Speaking of James, he never abandoned this theory as far as I know but he clearly was on the right side with respect to Cuba:

    CLR James:

    “I believe that the revolution in San Domingo [of 1801] was a total revolution. It cleared out what stood in the way completely. And the Haitian revolution weakened because there was no international assistance, they were by themselves. But after 150 years the same thing happened in Cuba. The revolution was complete, the whole system was thrown aside.”

    full: http://www.candw.ag/~jardinea/ffhtm/ff991231.htm

    Comment by louisproyect — January 31, 2007 @ 9:25 pm

  7. Will be looking forward to your comments about Cuba. Was curious as to whether you are familiar with Ted Grant’s rejoinder to Tony Cliff on the theory of state capitalism. Grant is starchy in many respects, but dogged in ways I’ve always appreciated.

    Also, thanks for the headsup, Nello’s comments about Cuba.

    Comment by eshu — February 1, 2007 @ 1:26 am

  8. Michael Lebowitz sent me Grant’s rejoinder but I doubt that it is any different than what I was taught in the American SWP. It is here, btw:


    I guess that I will get around to reading it when I have a chance. That being said, I am bothered by both Cliff and Grant’s tendency to turn this into some kind of acid test. For my money, CLR James was one of the great Marxist thinkers after Trotsky’s death but he was a state capitalist. For that matter, I admire much of what Callinicos and company do and say. It is really too bad that they are wedded to such an obviously flawed theory. If only they would not make it a litmus test, but I know that it is a forgone conclusion given their methodology.

    Comment by louisproyect — February 1, 2007 @ 2:02 am

  9. Cliff was always terrible on national liberation movements, beginning, funnily enough, with Korea itself. If you read the writings of the Rock in the Marxist Internet Archive, you can see the seeds of this: Cliff came out of the left wing of the Zionist movement in Palestine. These guys were hostile to Palestinian self-determination, believing that unrestricted Jewish immigration served the cause of capitalist progress.

    Comment by Tony — February 1, 2007 @ 2:15 am

  10. Well, if Cliff was terrible, that doesn’t seem to have affected the British SWP which actually has stood up to all sorts of pressure around Palestinian and Arab nationalism.

    Comment by louisproyect — February 1, 2007 @ 2:29 am

  11. Considering the opinion of most Trotskyist groups (FI excepted) in the West, I think the SWP’s evolution has been pretty good, particularly since Ygael Gluckstein’s death. But the SWP has always been terrible on Ireland — the real acid test for any British group. Their advice — Catholic and Protestant workers unite — can be discovered in the left wing of the Zionist movemment in Palestine too.

    Comment by Tony — February 1, 2007 @ 7:04 am

  12. I agree with Tony that the Cliff movement has a pretty bad record on Ireland – and in Ireland too, where I was a member many moons ago.

    I liked this article, though I’m not sure state capitalism was really so much of an acid test. I was never really convinced by the theory – though I was impressed by a lot of Kidron’s stuff on economics – but nobody ever made an issue of it until the camarilla were had turned against me on quite different grounds.

    Comment by SplinteredSunrise — February 1, 2007 @ 12:47 pm

  13. And for your aural edification on this topic, don’t miss a debate which took place in Hull in 1969 between Mike Kidron for the IS and Ernest Mandel:

    Comment by Simon Kennedy — February 2, 2007 @ 9:10 pm

  14. The comments made by Tony7 make no sense at all an bear little relation to the actual positions subscribed to by Tony Cliff. Tony writes that Cliff came out of left Zionism and that is true but in the process of breaking with that current he also broke with the idea of support for Jewish migration into Palestine. Indeed a debate from on just this topic can be found on the Cliff archive, at the MIA, between him and Leo Lyons of the SWP (USA) in which he demolishes this pro-Zionist argument raised by Lyons.

    Put plain from the moment Cliff entered the Trotskyist movement he adopted a position of critical support for Palestinian self determination and total opposition to Zionism. Whatever his mistakes in later years it is to his credit that he never wavered on this question to the day of his death.

    Comment by neprimerimye — February 4, 2007 @ 2:02 pm

  15. Yes, Tony’s comments make no sense. In many articles, including a piecein “The New Revolutionaries” from 1969, edited by Tariq Ali, Cliff puts forth clear anti-Zionist politics. You can read about Cliff’s experience in Palestine in Chapter One of his autobiography: http://marxists.org/archive/cliff/works/2000/wtw/ch01.htm

    Comment by Doug — February 5, 2007 @ 12:21 am

  16. Hee hee!

    Who can deny Proyect’s keen sense of humor! “I honestly wasn’t aware that ‘Marxists are against nuclear weapons’ ….In light of… American imperialism vis-à-vis North Korea, I would advise any country included in the “axis of evil” to get some nuclear weapons lickety-split. I might even look into getting one myself if there’s room in my bedroom closet.”

    It points out another consistent & illustrative historic difference between Trotskyists & CPers — the Trotskyist’s disdain of gun control laws.

    Louis also hits the nail on the head with the most glaring deficiency in StateCap’s logic — the lack of predatory social relations with the USSR’s satellite states & the purely defensive and therefore justifiable (in the aftermath of Nazi devastation) aquisition of those regions.

    Just before Perestroika the GDP per capita living standards in a city like Warsaw was double that of a city like Moscow. That’s the strangest form of Imperialism I’ve ever heard of? Try doing the same comparison at the same time with a big city in the US versus a big city in Mexico and you’ll see the ratio integral to genuine Imperialism. It’s like 10 to 1 the other way if not greater.

    And that’s precisely why the world’s a much shittier place without the Soviet Union to kick around anymore.

    Comment by Karl Friedrich — March 22, 2009 @ 2:17 am

  17. […] refer you to Barry Finger’s article “Bureaucratic Collectivism” as well as my own dissection of state capitalism. It is the sort of thing that I used to find interesting, when disco was […]

    Pingback by Inside the International Socialist Organization » CounterPunch: Tells the Facts, Names the Names — June 16, 2013 @ 12:40 am

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