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Evaluating The Theory Of Socialist Economy Politics Essay

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Published: Mon, 5 Dec 2016

If one wants to examine the experience of socialist economies of the twentieth century, one need must examine the socio-economic meaning of the term socialism. This ought to be subject to a scientific analysis, primarily with respect to increasing problems in the socialist countries and to discussions and reform efforts that have been underway at various points in time over the last century in those countries. In this context, the analysis in the essay must restrict the notion of socialism to that of a social system whose characteristics have been molded both by specific theoretical works and by practical political, legal and economic institutions and measures in socialist countries. This has to be limited a little further and the essay will therefore primarily focus on the socialist economic system and its crucial connection with the political system. Proceeding from this framework, this essay shall first deal with the theoretical and practical evolution of the general basic characteristics that are typical of the socialist economic system. Subsequently, it will examine the economic results or rather the recurring deficiencies caused by the socialist system. This will then lead to a detailed analysis of how these deficiencies may have had their earliest roots in errors contained in the very theory that was the starting point of communist practice. The genesis of the socio-economic meaning of the term socialism has its roots in theoretical works of Marx, Engels and Lenin. How this concept has satisfied the fundamental criteria of the development of socialism in the course of its practical realization in Soviet Union, China, Yugoslavia, Cuba and other socialist countries must be examined, and whether it has resulted in the socio-economic development expected by the above-mentioned theorists.

After the shock and disillusionment from the collapse of the Eastern bloc, the disasters of neoliberal economic policies, East and West, have given new urgency to rethinking the socialist alternative to capitalism. Whatever one says about the feasibility of socialism, however, at some point the collapse of `actually existing’ socialism has to be explained. The centrally planned economy was certainly successful for a period, based on extensive growth with ample supplies of labour power and raw materials. The system collapsed when it attempted to shift toward a more intensive mode of growth. Permanent consumer goods shortages and the alienation of workers sealed its fate. In attempting to broaden the debate on the feasibility of socialism, the essay shall embark with the origin of the concept in Marx.

To begin with, it must be made amply clear that the term ‘socialism’ refers to the social system which Marx referred to as the ‘first and last phase of communism’ [i] . Marx inferred the characterization of this lower form from the historical necessity of the development of communism, and from the fact that communism would directly emerge from capitalism and would be therefore characterized by capitalism for a relatively long time- the ‘first phase’. Marx and Engels substantiated the historical necessity of the development of communist society by saying that capitalism would increasingly impede the further development of productive forces and only new economic and social conditions, that is, ‘socialist conditions’, would cause productive forces to evolve at a substantially faster rate than they could under capitalism. This historical materialist perspective gave rise to the fundamental criterion for the development of the socialist economy also held by Lenin. He was convinced that the expropriation of capitalists would result in an immense extension of social productive forces and in a higher degree of labour productivity. Following the nationalization and redistribution of land consequent upon the Bolshevik revolution of 1917, a brief period of workers’ control was realized in the Soviet Union. However, state ownership and control of industry and financial institutions were rapidly extended, along with a ban on private trade, and the whole economy moved towards an economy in kind, a moneyless economy. These eventualities could again be traced back to Marx’s conceptualization of socialism as an associated set of producers. In modern capitalist society, according to Marx’s analysis, the social relations of production, which establish the framework of a distinct mode of life, are constituted by the capitalist ownership of means of production and by wage labour; and the essence of the socialist alternative had always been the transformation of private ownership into social ownership which Marx expressed by referring to a future society of ‘associated producers’. This associated mode of production [ii] was not treated in the socialist literature of the nineteenth century as having only an economic significance, but as a vital element in the constitution of a new form of society in which individuals would no longer be dependent upon the dominant minorities, but would be able to develop freely in a social environment which they took a full and equal part in creating.

Socialism, therefore, was meant to obviate its fundamental opposite, capitalism, by substituting social ownership of the means of production for their private ownership. Market relations would have to be eliminated, and production as a whole would have to be oriented towards future developments of demand with the help of economic planning. Direct social labour on the part of the working population would result in a faster growth of labour productivity than under capitalism. This preoccupation with rapid increase in economic growth had its genesis in several factors. The advent of socialism in countries which were for the most part economically backward, agrarian and peasant societies, and the perceived need for extensive and rapid industrialization was the first of these. Next, the rapid post-war expansion of ‘organized capitalism’, characterized by large-scale state intervention, partial planning and very high rates of growth and the need for socialist countries to compete effectively with capitalism in the provision of high material levels of living ensured that an extraordinary stress was laid on rapid economic growth through industrialization.

Lenin also pointed out that the economy is something like a giant enterprise owned by the people, who are represented by the socialist state. The activity of all the parts, the overall production by all enterprises, as well as the distribution of the means of production and the labour force among them would have to be determined with the help of one single overall plan. Although Lenin’s shift towards the New Economic Policy (NEP) resulted in the reintroduction of market relations in the economy, it did not change the idea of substituting systematic planning for market relations in socialism. Lenin justified the reintroduction of market relations on the strength of the existence of private producers, chiefly farmers, during the transition to socialism. [iii] The old bourgeois producers had to be transformed in the new socialist economy. This could be done by socializing the populace, an act which needed active state-intervention. Stalin, however, understood economic retention of market relations only in terms of formal commodity- money relations, and eliminated market mechanisms. During Stalin’s rule, some characteristic features of the socialist economic system developed, whose theoretical reflections bordered on being dogmas. According to him, the means of production must not be in private ownership. Rather they must be in state ownership to a decisive extent. The development of production must not be determined by market mechanisms. Rather, it must be fixed with the help of central plans. Prices must only be retained for the exclusive purposes of formal planning and calculation. They must, however, be fixed by a central state authority and must not be changed by enterprises in accordance with market conditions. Such and further fundamental dogmas were meant to preclude the reappearance of capitalist ownership and the re-emergence of ‘economic anarchy’, while ensuring the fast, effective and proportionate development of socialist production determined by planning. The communist parties began to label such a system organized along such economic lines as ‘real’ socialist.

However, not one of the objectives ever aimed at by a socialist development process was reached. This was not chiefly a consequence of subjective mistakes made by party and state leadership with regard to economic policies, rather, it was the result of defects inherent in the conceptualization of the system, which had already been embodied in Marxist-Leninist theory. In comparison with capitalist production, socialist production in Soviet Union and Yugoslavia suffered from several deficiencies which caused them to lag behind. The production showed a lower degree of efficiency than a free-market system. The production grows in a predominantly extensive manner while its intensive growth (through technological progress and the qualitative development of the production factors) is absolutely inadequate. Here, there is an assumption at work which is evidently a capitalist construct- that of measuring productivity by taking recourse to such accepted yardsticks as GDP (Gross Domestic Product) rates. The GDP rates are a criteria adopted by intensively capitalist countries to measure productive economic growth, not the ideal parameter to judge the growth in a country with accepted socialist status. Nevertheless, if the material levels of living in the socialist and capitalist countries be taken as a uniform criterion, the socialist nations do demonstrate the relative inefficiency of the state to meet these needs on parity with capitalist countries.

Another set of deficiencies in the socialist economies of the twentieth century concerns the nature of production. Production was not sufficiently geared to demand; on the one hand it produced quantities of non-required goods, while on the other, it did not satisfy concrete demand to any large extent. Moreover, production supplied few high quality and fashionable consumer goods, and the technological standards of capital goods were far behind those of capitalist countries. The proportion of consumer goods in production was substantially smaller than Western free-market economies.

The official economic theory or more accurately, the ideological propaganda of the USSR and Yugoslavia, as well as of other socialist countries, ignored or concealed these economic defects for years. They only worked with the fast growth rates of production volumes in the initial years, overlooking the losses in efficiency which were increasing from the beginning. Ever since its inception, the planning system prevented a highly efficient investment development, not only because of slow technological progress, but also because it rendered impossible a selection of the most profitable investment projects which are numerous in a free-market economy. Central investment planning and the allocation of investment funds is affected by means of a primitive accounting of input and output without, crucially, an optimal profitability selection. [iv] Most important, however, is the fact that the planning system from the start prevented consumers from influencing the development of production through the market and from assessing the performance of individual enterprises with the help of market selection. Both in the free-market and in the planned economy systems, lack of balance between supply and demand is inevitable with regard to certain commodities. In a free-market system, however, producers are compelled to overcome these imbalances as soon as possible if they are to achieve profits rather than sustaining losses. In a planned economy system, the extent of the imbalance is substantially greater, and is overcome considerably slowly- if at all.

It is at this crucial juncture that one needs to realize that there is a great difference between those societies in which the greater part of productive resources are publicly owned and central planning has a major role, and on the other hand, the societies in which there is only limited public ownership and planning and the construction of a socialist economy involves some extension of planning in diverse forms, along with restrictions on market mechanisms. [v] It is the former group of countries that includes the Soviet and Yugoslavian experience that this paper posits as a contrast to the latter Chinese experience with socialism. Even within the group of socialist countries in Eastern Europe (Soviet Union and Yugoslavia) there are important differences arising from distinctive economic, social and cultural conditions, which are revealed in a very different course of post-war development. Two socialist countries in the last century undertook a fundamental and complete restructuring of the economy- Yugoslavia (where the phase of centralized management was very brief, and hence provides a contrast of sorts to the Soviet experience) and Hungary. The economic system that Yugoslavia adopted provided the model for several economies. The theoretical framework which the Yugoslav is based on is clearly formulated by Horvat who, after rejecting the eclecticism of a ‘mixed economy’, continues:

“We wish to preserve essential consumer sovereignty because socialism is based on the preferences of individuals who control the society. We also wish to preserve the autonomy of producers, since this is the pre-condition for self-management. When these are taken together, we need a market. But not a laissez-faire market. We need a market that will perform the two functions just stated, neither less or more. In other words, we need the market as a planning device in a strictly defined sphere of priorities and planning as a precondition for an efficient market in order to increase the economic welfare of the community.” [vi] 

Yugoslav society, thus, unlike Soviet socialism, was constantly caught in a dilemma between the plan and the market, which not only reflects the unclearly defined principles and aims of economic policy, but also is a manifestation of the actual balance of forces in society; that is to say of the clash between advocates of centralized planning and those who uphold the absolute validity of market laws. The dilemma is irreconcilable and the question which remains to be explored is whether the Yugoslav experience demonstrates that there are formidable difficulties in achieving the integration of planning and markets in any regime of public ownership, or more broadly, in a socialist society. In considering this crucial question, one should remember that for two decades the Yugoslav system functioned quite effectively, producing high rates of economic growth and an impressive development of social and cultural life. The turning point, as it were, came, theorists believe, with the rise in oil prices and the Western recession of the early 70s. It may also be argued that the subsequent economic decline was due in large measure to the failure of planning to deal effectively with the consequences of these events, and in particular with the massive growth of external indebtedness. It is certain, therefore, that the economic development of Yugoslavia and other socialist societies had been adversely affected by the their close links with the capitalist world, and by the failure of policy-makers to take a due account of the cycle of growth and recession in capitalist societies which is, after all, at the heart of Marxist economic analysis.

As Golubovic claims, ‘Socialism with markets is here to stay’ [vii] . The countries in Western Europe, which could be labeled ‘Socialistic’ or tending towards being socialist, faced problems which were very different from those faced by socialist ones. Nevertheless, some issues were of common concern, highlighting certain universal facets of a socialist economy as it took shape in the twentieth century. The common concerns were centered on the particular forms which public ownership of productive resources, and economic planning should take in the future. In these countries the movement towards socialism got retarded by the advent of conservative governments. And, going by the experience of Yugoslavia one would imagine that treading a middle path between plan and market was indeed the only way to go for countries claiming to be socialist. The Chinese experience with socialism, however, not only contrasts with the Yugoslav experience, but it seems to be hinged on lessons learnt from the experience of the Soviet Union under Lenin and Stalin’s rules.

The Chinese and the Cuban methods alert us to Marx’s central issue: the proletariat must not only change the relations of society but in the process change itself. Here, the present analysis calls for a contrast between the Soviet and Chinese experiences. The Cuban experience shall be scrutinized later. The October Revolution proved the validity, under conditions existing in Russia in 1917, of the first half of the Marxist-Leninist theory of transition to socialism. The industrial proletariat was able, under resolute revolutionary leadership, to overthrow the bourgeois regime which had come to power in the erstwhile February revolution. However, with regard to the second half of the theory- the capacity of the proletariat to lead the way in the construction of socialism- the Russian experience is at best inconclusive. One must remember that small to begin with; the Russian proletariat was decimated and dispersed by the four years of bloody civil war, hunger and chaos which followed the revolution. The Bolshevik government was forced to rely on the erstwhile antisocialist bureaucratic administration, overrun as it was with problem of survival and economic recovery. Under the circumstances, revolutionizing practice tending to produce socialist human nature almost totally disappeared. Instead the reconstituted and expanded proletariat which came with forced industrialization was repressed and atomized, deprived of all means of self-expression, and terrorized by an omnipresent secret police.

The notion that abolition of exploitative private property in the means of production ushers in an essentially classless society which, given a sufficient development of the forces of production, will evolve in a harmonious way towards communism is exploded once and for all through the Soviet experience. As Nicholas Poulantzas points out, in a society divided into classes, the relations of production consist of a double relation which encompasses men’s relations to nature in material production- economic ownership and possession. The first of these relations, that of economic ownership, is the real economic control of the means of production. In the socialist countries, formal, juridical ownership of the means of production belong to the state, which is held to be the ‘people’s state’, but real economic control rests in the hands of the directors of enterprises and the members of the party apparatus. [viii] Socialist ownership by the whole people has degenerated into ownership by a privileged stratum. It is a privileged stratum- what Charles Bettelheim has called a new “state bourgeoisie” [ix] – which controls the means of production and thereby decides how the fruits of production are to be utilized. This unholy collusion at the highest levels of governance killed the revolutionary urge of the proletarians who had effected the revolution a decade back (1917). While the Russian experience thus throws light on the positive side of constructing revolution (a real revolution of the proletariat), it does provide devastating proof of the impossibility of infusing seemingly socialist forms with genuine socialist content unless the process, as Marx delineated, goes hand-in-hand with the formation of socialist human beings. [x] It also alerts us to the undesirable effects of bureaucratization that took the wind out of the sails of the socialist regime. A different choice of means could have yielded drastically contradictory and possibly, favorable, results for the Soviet Union under Stalinist rule. More equality and fewer privileges to the bureaucracy, lesser incentives for the erstwhile bourgeois class, more trust and confidence in the masses, greater inner party democracy are some factors which could have been the steering principles of a course which could have ensured the survival of socialist Soviet Union.

It wasn’t just these negative lessons from the Soviet experience that impelled the Chinese to pioneer a different path to the construction of socialism. The situation and the proletarian background in China formed the basis of these differences. For one thing, the Chinese proletariat, though smaller than the Russian counterpart, was never plagued by economism. This is explained by Mao who wrote, “Since there is no economic basis for economic reformism in colonial and semi-colonial China as there is in Europe, the whole proletariat, with the exception of a few scabs, is most revolutionary.” [xi] Moreover, the prolonged civil war in China, combined with the war against Japanese invaders fostered a vast growth in both size and the maturity of the revolutionary forces, while a much shorter period of civil war and resistance to foreign invaders in the Soviet Union seriously weakened the revolutionary forces there. The result was China was much more ‘socialised’, in as much as the people were more imbued with the ideals of socialist revolutionary fervor than in Russia. When one has to evaluate the Chinese experience, it may well be stated at the outset that it’s most important contribution to the advance of Marxist thought was to suggest an alternative to the Soviet and east European experience with socialism.

In the first years after they came to power, the Chinese Communists set out to follow the Soviet model of collectivization of farms but soon discovered that it put demands on the agricultural sector which could not be met. In the 1920s the Russians decided to squeeze the needed surplus out of the peasants, with the fearful consequences of a decimated and atomized proletariat. This option did not even exist for the Chinese. With a reordering of priorities under Mao’s regime, industry was to be geared to the needs of agriculture and developed not only in the cities but especially in the countryside, beginning the process of introducing the peasantry to modern technology. This meant the ‘capital’ needed to develop the Chinese economy was to come from a general increase in the productivity of the Chinese labour force. This in turn, required a vast and historically unprecedented innovation in the form of the agricultural communes and the introduction of a Chinese version of the Green Revolution. The economy thereafter worked really well by world standards: China became essentially self-sufficient in agricultural production; and industry developed, in terms of both rapidity and geographical distribution. In recent decades China has opened its economy to foreign investment and to market-based trade, and has experienced strong economic growth. It has carefully managed the transition from a planned socialist economy to a market economy, officially referred to as the socialist market economy, which has been likened to capitalism by some outside observers. As a result, centralized economic planning has little relevance in China today. The current Chinese economic system is characterized by state ownership combined with a strong private sector of privately owned enterprises that generate about 70% of GDP. [xii] 

The Cuban experience with socialism was also illuminating as it highlighted the role of national integrity, nationalization of the populace and the cultivation of the spirit of patriotism in the masses as prime factors leading to a socialist revolution along the lines Marx postulated (1986). The revolutionary government under Fidel Castro found socialism to be the most viable means for freeing Cuba from domination by capitalist countries, guaranteeing in a way Cuba’s sovereignty. The mission also involved mobilizing and educating the populace even as anti-capitalist changes were vibrant in the party apparatus (again, as in Marx, the ideal ground for a socialist revolution and consolidation of the means of production after the revolution was the party apparatus). Socialism, through the Cuban alternative, has been demonstrably shown to be a process that is premised on unleashing the power of the people, who learn how to change themselves under circumstances and able leadership. [xiii] This consensus and subsequent legitimization of the Cuban state has been shaped by the revolutionary, patriotic and political behavior of the masses. The power of the state is, in the Cuban experience with socialism, shown to be the one with appropriate means to produce change. The way there are deficiencies as with any other socialist regime but these are being tackled in Cuba are paradigmatically different. The debates with respect to deficiencies in Cuba do not reflect the need to replace the regime, but the need to improve it by deepening its ideals and the socialist project. This desire to stand by the ideology of socialism is what sets the Cuban experience apart from all others.

It was thereby shown, through the Chinese experience, and the ideologically successful (not equally economically successful, however) Cuban experience that the Soviet and East European experience with socialism, far from being an embodiment of the laws of socialism, was merely one possible path to economic development and as history has demonstrated, one which is in irreconcilable contradiction with the requirements of a socialist transition to communism.

Nevertheless, it was only after the creation of the first socialist society in 1917 consequent upon the Bolshevik revolution that central planning (with the concomitant, unintended consequence of bureaucratisation) came to occupy a central place in the definition of the socialist economy. The importance of the Bolshevik revolution is thus paramount. The optimum mix of planning and markets, however, has not been demonstrated neatly by any socialist economy till date. Yugoslavia came close but the dilemma whether to opt for a centralized plan or market mode was irreconcilable to say the least, as demonstrated in the essay.

This general sense of disillusionment with the origin and evolution of socialist economies in East Europe has given rise in the countries burdened with it to search for new models of a ‘socialist economy’. The chief factors contributing to the disillusionment were probably three: the increasing recognition that a socialist organization of production would be not more but much less productive than private enterprise; an even clearer recognition that, instead of leading to what had been conceived as greater social justice, it would mean a new arbitrary and more inescapable order of rank than ever before; and the realization that, instead of the promised greater freedom, it would mean the appearance of a new despotism. A significant development, hence, was the presentation of the ‘decentralized model’ whereby the decisions regarding current economic operations would be largely decentralized while the government would retain control over new investment. [xiv] This model constituted a partial departure from Marxian socialism (For in Marx’s terms, ‘market socialism’ is a contradiction in terms), since it allowed some elements of the market to slip into the regulation of current production.

Nevertheless, the problems involved in restructuring the socialist economies are multiform and complex. What assumes pre-eminence in such a remedy is not the question of ownership or the excessive promotion of competition, but the decentralization of economic decision-making by giving enterprises greater independence in a controlled environment of market relations. Developing new, indirect modes of planning the economy as a whole have to be devised simultaneously. Economic changes in a socialist economy are thus closely bound up with political manouevres. Political reforms are necessary which require for their success the holistic socialization of the populace, a new spirit of individual enterprise, responsibility to production and administration. Public ownership of the major productive resources is essential for the construction of a socialist economy and then a socialist society. This is so because on one hand is the need to eliminate domination by a capitalist class or a privileged bureaucracy as a necessary precondition of classlessness; and on the other hand is the need to extend democratic participation as widely as possible, which is simply another aspect of classlessness or egalitarianism. The postulation of participation in decision-making, however, is accompanied by a controversy concerning the conflict between goals of participation and efficiency. This is primarily with regard to publicly owned enterprises concerning their efficiency and ability to innovate, which is related in most discussions to the question of incentives for both management and workers. This criticism is not totally fair for two reasons. Firstly, it should be amply clear that what is being dealt with is a relative inefficiency [xv] and that too not in all cases, as this essay has demonstrated. Moreover it is a fact universally acknowledged that socialist countries as a whole (with a few exceptions) were very successful in the earlier periods in achieving rapid industrialization and major technological innovation in some spheres.

The central message of the paper is that there is no single ideal model of socialism. Once capitalism is overturned and there is public ownership of the means of production, people will be free to choose democratically among a variety of models of socialist organisation of the economy- as has demonstrably happened in the countries chosen for analysis. Options could range from the completely centralised state rationing of all products (Stalinist Russia) to market socialism (Yugoslavia and later China) with an integral role for money. But a socialist society could also opt to let the full product of people’s labour accrue back to them (Early China after the revolution and Cuba), taxing workers appropriately in order to effect redistribution and investment. Or it could allow only part of the total product to accrue directly to workers, at th


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