1 March 2009

Debates with Ernest Mandel

Debate with Ernest Mandel
Chris Harman
The Inconsistencies of Ernest Mandell

(This review of Ernest Mandel's pamphlet "The inconsistencies of state capitalism" appeared in International Socialism 1: 41, December 1969; it, in turn, was a reply to Mike Kidron "Maginot Marxism", a review of Mandel's Marxist economic Theory http://www.marxists.org/archive/kidron/works/1969/04/maginot.htm)

Any attempt to 'examine the economic basis of the theories of International Socialism' and to 'demonstrate ... in fact the Menshevik theories of International Socialism lead to a very bad political practice' would merit attention in this journal. When the author of such an attempt has been considered for many years the leading theoretician of the 'Fourth International' and has also acquired a reputation in certain circles as a 'Marxist economist', a serious assessment of his arguments can not only enable us to clarify our arguments, but also to see to what extent his reputation is deserved.

There are, however, two practical difficulties in an overall assessment of Mandel's pamphlet.1 The first is that the range of points covered is so great as to prevent us attempting to deal with other than the major ones. The second is that his critique is not of 'the theories of the International Socialism group as a whole'. It is a critique of one short presentation of these theories in a review by Mike Kidron; the books and articles by Cliff, Kidron and others where our arguments are put fully are only mentioned a couple of times in passing in Mandel's pamphlet. However, by looking at the major points on which Mandel takes dispute with us, the basic untenability of his position can be shown, together with the extent to which he is forced into inconsistencies, distortions and simple misunderstandings in order to defend it, and the overall shallowness of his critique.

The nature of capitalism

The first central point in Mandel's criticism concerns the nature of capitalism. He argues that 'Capitalism is a mode of production in which generalised commodity production unleashes a historic process of accumulation of capital, which is in turn a constant (if discontinuous) growth of commodity production, of production of exchange values and of reinvestment of surplus value'.2 'The rationale of capitalism can be understood only under conditions of constantly expanding commodity production, of a constantly expanding and insecure market, and of firms, of producing units, facing that anonymous market independently from each other and competing for larger and more profitable shares of the market. . . . But if we assume generalised and constantly expanding commodity production we assume also the absolute need to realise the surplus value of these commodities, in order to accumulate capital.'

The argument is developed at some length and the central idea is repeated, in different forms, several times. As far as it goes it is a fair summary of a part of Marx's conception of the nature of capitalism.3 But there is an odd omission. Nowhere in the whole section of the pamphlet dealing with this question is there a single mention of the working class or a single reference to the wage labour/capital relationship. Now this is curious. For it was not Michael Kidron but Karl Marx who wrote 'The relation between wage labour and capital determines tile entire character of the mode of production'. And this is not an accidental aside. Marx's original starting point was alienated labour, the situation in which the products of man's labour appear as independent forces, constraints on his activity. In its developed form this implies the separation of the worker from control of the means of production, expropriation of the actual producers, the creation of a proletariat.

The significance of this omission will become apparent later. For the moment, however, let us look at the conclusion Mandel thinks can be drawn from his definition. He sees it as meaning that commodities produced have to be transformed into money, and that therefore that 'capital accumulation', 'the final money form of capital' and 'the capitalists thirst for profits' are 'exactly identical expressions'. But this is plain unadulterated nonsense. Thirst for profits is not 'synonymous' with 'the basic economic compulsion determined by the structure of capitalist society'. Thirst for profits existed, for instance, among usurers in the slave society of Roman antiquity or in Chinese oriental despotism. So did the 'final money form of capital'. In neither case did they produce systematic 'capital accumulation'. What Mandel is trying to say is that in capitalism as Marx describes it they are different elements in an integrated ongoing system. But if that is the case, it is difficult to see the particular sin in describing them as social and psychological mechanisms that make the system function. Yet it is for this that Kidron is subjected to attack. What really matters, of course, is whether they are the only such mechanisms that produce the peculiar features of that system as opposed to other historically existing modes of production.

This ieads us to the central argument: whether the capitalist mode of production is to be defined by a system involving the 'thirst for profit' and 'commodity production' for a 'constantly expanding and insecure market', or by something else of which these are but manifestations. Kidron argues that this something else is the competition between rival owners of means of production that forces each to try and resist the inroads of the other by continually expanding the means of production. This establishes a relationship between the different accumulations of alienated labour making up the competing means of production that defines each as capital, and their owners as capitalists. It also determines the dynamic of interaction of capitalists with each other and with ; those who produce the means of production so as to continually reproduce on an enlarged scale, the competition. Mandel's argument is that this cannot be a definition of capitalism because:

1 — The primacy of growth 'is not only true for capitalism'. He instances the 'tremendous process of growth' of the fourth millenium BC and 'the tremendous economic growth' that would occur under socialism. Yet, in fact, neither of these actually refers to a situation in which there was a 'primacy of growth' in Kidron's terms, that is, a system in which growth is compulsive. Rather each refers, even according to Mandel, to growth that occurs as a result of historically contingent factors. In fact' even Mandel is unimpressed by his own argument here. For 12 pages later he writes: 'this urge (to accumulate capital) is typical only for the capitalist class under the concrete conditions of the capitalist mode of production'.4

2 — More importantly, he argues that competition alone cannot be the definition of capitalism, because in the past there have been societies competing with each other (eg Rome and Carthage, Venice and Byzantium) that have not been capitalist. Therefore, what counts is only competition on the basis of 'generalised commodity production'.

The trouble with this definition is that it leaves the concept of 'commodity' as unproblematic. This might not matter if one were dealing with small-scale capitalist production with many competing firms exchanging all their produce on the market. With modern capitalism of the Western sort, let alone with that which dominates in countries like Egypt or Syria, this raises immediate problems. For instance, what happens when the capitalist produces for the state? According to Lenin:

'When capitalists work for defence, ie for the government treasury, it is obviously no more "pure" capitalism, but a special form of national economy. Pure capitalism means commodity production. Commodity production means working for an unknown and free market. But the capitalist "working" for defence does not "work" for the market at all.'5 Or again, in a monopoly when the capitalist has a degree of control over his own prices? As Hilferding has put it: 'The realisation of the Marxian theory of concentration — the monopoly merger — seems to lead to the invalidation of the Marxian law of value'.6
The Commodity

Unfortunately Mandel does not even begin to discuss these points. He continually refers to 'generalised commodity production' as essential to capitalism, but does not begin to analyse what it means. He is so concerned to try to show Kidron as deviating from the picture of capitalism that Marx paints that he does not see any problems arising as capitalism itself begins to deviate from Marx's picture. But precisely in order to understand how the system we live under is the same as that analysed by Marx, one had to go beyond mere surface definitions, so as to see how the form of commodity production may undergo profound changes, become hardly recognisable, but the content remains the same. In other words, what is needed is a clear analysis of what commodity production is, the analysis that Mandel does not even refer to in his critique of Kidron.

Despite Mandel's claim that he is only repeating what Marx wrote — 'We only say: Marx truly said this'7 — he does not in fact take up a point central to Marx's whole analysis of commodity production: which is precisely that the commodity cannot be taken at face value, that 'its analysis shows that it is in reality a very queer thing, abounding in metaphysical subtleties and theological niceties'.8 One of the most important sections of Capital is after all called 'the fetishism of commodities'. The commodity is not just a good whose character is clearly visible from the fact that it exchanges with another good. It is a reflection of a more deep-rooted characteristic of social production. As society develops, what is manifested on the surface is the exchange of commodities. But through this one recognises what is beyond: the economic relations of production.' 9

Marx's conclusion is quite clear. 'The reason why the products of labour become commodities, social things whose qualities are at the same time perceptible and imperceptible by the senses' is 'because the relation of the producers to the sum total of their labour is presented to them as a social relation, existing not between themselves, but between the products of their labour'. 'As a general rule, articles of utility become commodities, only because they are products of the labour of private individuals or groups of individuals who carry on their work independently of each other. The sum total of the labour of these individuals forms the aggregate labour of society. Since the producers do not come into social contact with each other until they exchange their products, the specific social character of each producer's labour does not show itself except in the act of exchange. In other words, the labour of the individual asserts itself as a part of the labour of society, only by the relations which the act of exchange establishes directly between the products, and indirectly through them, between the producers.' 10

Marx argues that this process forces the labour of the individual labourer to have a two-fold character: on the one hand it is concrete, useful labour of a particular sort; on the other hand it represents a portion of the total labour of the whole of society. 'The different kinds of private labour, which are being carried on independently of each other . . . are continually being reduced to the quantitative proportions in which society requires them. . . .'

What is central for Marx's analysis of commodity production then is that through it the labour of individuals is related in a quantitative fashion to the labour of all other individuals with whom they enter into social relations, not consciously, but rather through the relations that come to exist between the products of their labour. This in turn means that the production process itself is determined by factors outside of it, that is, by the relation of its costs to that of production taking place elsewhere. There is 'regulation of mutual production by the costs of production . . . the product is related to itself as a realisation of a determined quantity of general labour, of social labour time'.11 For the particular commodity producer this means that his methods of production — his particular relationship with nature and other men in the production process — has continually to be changed as there are unplanned and anarchic changes in the methods of production of all other producers. This commodity production becomes capitalist production when labour power, the capacity for performing labour, as well as the products of labour, becomes a commodity, the price of which (ie wages) is determined by the unplanned social interaction between its exploiters that continually forces them to pay for it no more than an historically and culturally determined minimum.

We can sum up what we have been saying up to this point: yes, capitalism is, as Mandel argues, competition on the basis of commodity production. But to fully understand it one has to go further and see that what makes man-produced objects — and above all labour power — into a commodity is precisely competition between producing units that has advanced to the point where each is compelled to continually rationalise and rearrange its internal productive processes so as to relate them to the productive process of the others.

Now if one examines why, say, the competition between Rome and Carthage was not capitalist, the reason is not just the tautological one that it was not based upon 'commodity production', but rather that the labour processes which the citizens (and slaves) of Rome were engaged in were not being continually transformed and rationalised so as to keep pace with such changes in Carthage and vice-versa. The 'social relation' between the Roman and the Carthaginian citizen established by the competition did not continually intrude upon the actual act of production in this way.

On the other hand, one is now able to see why, and in what sense, production where commodities as defined by common-sense (and Mandel) do not exist can be 'com-
modity production'. In monopolies both the goods produced at each stage in the production process and the labour power employed are 'commodities' because in the long run the internal organisation of the labour process — ie, the number of goods produced, the exchange relations between different goods, the percentage of the total social labour time employed in producing them, the price paid for labour power — is determined by its relationship to production taking place in society outside the monopoly. Similarly, with arms production for the government; because there exist complex and unplanned relationships between the process of arms production (albeit not ones arising from competition between commodities on the free market) and the production processes for other goods in society, commodity production can be considered to take place.

In both cases, the 'law of value' — the complete determination of production by its unplanned market relation to production taking place elsewhere, is negated in a certain sense. But at the same time, it alone provides a necessary basis for understanding how the production process is in fact regulated. An object falling freely through the atmosphere certainly does not fall at 32 feet per second per second; but to understand how it falls one has to begin from the law of gravity. In an advanced capitalist society most production is not pure commodity production; but one can begin to understand its dynamic through the law of value. There is a partial negation of the law of value, but on the basis of the law of value itself.

The Stalinist States
The argument about the nature of capitalism in general is a necessary preparation for the discussion about Russia and the other Stalinist states. For Mandel it is settled in advance that these cannot be capitalist states of any sort because a producing unit is, as argued previously, only capitalist when its products 'have to be sold on the market'. 'It is absurd to assume that capitalist production was somehow reintroduced because of "competition on the world market" (ie, that the tail of 1 per cent of output imported from and exported to the advanced capitalist countries is wagging the dog of the Russian economy).' Mandel does not, however, stop at this point. He feels the need to go on and argue his case in more depth. Rather than take time to point to some of the limitations of his argument here — for instance, the crude empiricism implied in a mere quantitative estimation of the role of foreign trade, without any examination of whether at certain points the qualitative significance of commodities obtained by foreign trade might have been much greater than 1 per cent12 (after all, Magdoff has argued persuasively that the very low proportion of US trade with the third world is of central importance to the US economy) merits some of the absurd conclusions that must follow (which if Mandel does not accept, other 'Trotskyists' do), that Cuba, say, with the major portion of its productive resources devoted in the next five-year period, as in the last one, to attempting to produce 10 million tons of sugar a year to sell on the world market in competition with other sugar producers, is engaged in commodity production and is therefore capitalist, while Russia is not — we will analyse his arguments further.

Not only is it not true, argues Mandel, that there is commodity production in Russia, neither is there an urge to accumulate capital. 'As we have said above, it is simply not true that all ruling layers in history have had an urge to pump more and more surplus product out of their producers. And it is even less true that they all have an urge to "accumulate capital". This "urge" is typical only for the capitalist class under the concrete conditions of the capitalist mode of production i universal commodity production and private property of the means of production, le. the existence of several capitals, ic competition). Now the Soviet bureaucracy is not a capitalist class. It does not manage factories under conditions of universal commodity production. It is not in the process of competition .with other capitalists. So it is under no economic compulsion to maximise output and under even less economic compulsion to optimise resource allocation' (Mandel's emphasis).

One can only thank Mandel for putting the logic of his argument so clearly. There are two premises and an irrefutable conclusion: only under capitalism is there an 'urge', to accumulate capital, Russia is not by Mandel's definition capitalist, and therefore the Soviet bureaucracy is under 'no economic compulsion to maximise output . . . and to optimise resource allocation'. Clearly if we can disprove this conclusion, we can seriously question (to say the least) Mandel's whole position. It would seem that we should devote considerable effort to doing so. We do not, however, intend to. For Mandel himself saves us the effort. Only one sentence later he writes that 'the inner logic of a planned economy calls for maximising output and optimising deployment of resources' and a paragraph later that the 'Soviet economy needed urgently to grow from extensive to intensive industrialisation, with much more calculated use of resources than before'. But Mandel himself has just argued that there can be no such 'inner logic', no such need 'urgently to grow from extensive into intensive industrialisation', or as he put it earlier no 'urge to accumulate' in a non-capitalist society. In a non-capitalist society the consumption needs of the ruling class determine the dynamic of production. A 'plan' is' merely the organisation of production to fulfil these needs. A 'plan' has no 'inner logic' to accumulate. The ruling class (or bureaucracy) may want to accumulate and plan accordingly — or it may not and plan otherwise.

Reifying the Plan
In talking of the 'need' of the plan to accumulate, Mandel is making precisely the mistake that Marx castigates again and again of ascribing human properties to things, of accepting reified appearances, of worshipping the commodity fetish. The only 'need' plans in general have is that of ensuring a proportionate division of input; to produce the desired outputs , people — whether consciously or unconsciously through their unplanned interaction — not 'plans' determine whether this output should be large or small, and for that matter whether it be the result of an 'optimal utilisation of resources' or otherwise. Rosa Luxemburg, at least, was very clear that one sort of 'plan' would be subject to no such reified pressures: 'The aim of socialism is not accumulation but the satisfaction of humanity's wants by developing the productive resources of the entire globe' 13

But why does Mandel, who has certainly read Marx's strictures against reification and fetishism, so readily fall into this trap himself? The reason is not difficult to find. Clearly something other than the 'consumption needs of the bureaucracy'14 is behind the forced development of the economy. It was obviously not the privileges of the bureaucracy that determined the need for hundreds of millions of tons of iron and steel in. the thirties and forties. Nor was it these that produced the collectivisation of agriculture and the near stagnation of consumer good production after 1929. Nor, for that matter, could it have been the consumption needs of other sections of the population.

The bureaucracy itself implemented the plans (there were no long term plans before 1928-9) yet according to Mandel it was only motivated in its 'economic management', by its 'consumption desires'. Therefore, something else has to be responsible for all the rest. Given Mandel's premises it must have been the plan. (What an argument for 'planning', that its 'logic' entails subordination of consumption to accumulation!) In real life something other than the 'consumption desires of the bureaucracy' did determine the dynamic of economic development in Russia, something that makes possible the 'reification' of the plan. There can be a 'tug of war' between the plan and the desires of individual bureaucrats precisely because the plan is determined by something outside itself other than these desires (and not by some metaphysical 'logic of the planned economy'). There is only one thing this something else, in contradiction to the desires of individual bureaucrats, can be: the pressures of rival ruling classes outside Russia. It is these that continually determine the pace and direction of economic processes inside Russia.

If Mandel is not clear about this, he only reveals that he is more myopic even than Stalin was.
'The environment in which we are placed ... at home and abroad . . . compels us to adopt a rapid rate of growth of our industry' (Stalin, 19.11.29)." Or again:'To slacken the pace of industrialisation would mean to lag behind; those who lag behind are beaten. . . . We are fifty years behind the advanced countries. We must make good this lag in 10 years. Either we do it or they crush us.'16

It was this- continual pressure from world capitalism that was responsible for the development of the Russian economy from 1929 onwards. It was this, not the 'needs of the plan' or the 'desires of the bureaucracy' that produced an accumulation of means of production devoted to further accumulating means of production. Only on such a basis was it possible for the bureaucracy (once its interests had made it abandon a perspective of revolution abroad) to develop the material base to defend its control over Russian society from the intrusions of foreign ruling classes. And, it is worth adding, this is still what determines both the structure of the plan and the degree of fulfillment of its different sectors.

Again, the Russian bureaucrats are more aware of this than the 'Marxist' Mandel:

'Owing to the international situation it has not been possible to allocate as many resources as intended to agricultural investment and whilst the 1969 figure exceeds that for 1968 it is below that envisaged in Directives for 1966-70. . . .' "

It is worth adding that Mandel is quite prepared to concede the importance of 'continued expansion of arms production' due to competition with the non-capitalist economy in the Soviet Union' in determining economic development in the West. But apparently, this 'competition' does not play the same role in relation to Russia. If, on the other hand, this competition does determine the whole development of the Russian economy, then the anarchic and unplanned relations between the products of their labour with that of producers outside Russia (comparisons of levels of arms production and of the development of heavy industry generally) will determine the conditions under which Russian workers will produce and live. Because the price of labour power in the West is continually being forced down to a historically
determined minimum in the long run, so will the price they receive (ie, their real wages). Every change in production processes in the West will force changes in production processes in Russia, and vice-versa. Accumulation in the West will force accumulation in Russia (and again, vice-versa). In other words, a total system of reified relations is set up in which the anarchic and unplanned interaction of the products of labour determines the labour process, in which dead labour dominates living labour, in which every concrete act of labour is related to abstract labour on a world scale — in which although there may be many partial negations of the law of value these are on the basis of the law of value.

Encroachment and Transformation
Of course, it is 'methodologically wrong to assume a mechanical and automatic identity between the fact of a country being submitted to "encroachments" of foreign capital and the fact of the country becoming capitalist. Only when these encroachments change the internal mode of production do they lead to the introduction (or reintroduction) of capitalism'. In this at least we wholeheartedly agree with Mandel. That is why Russia in the 10 years after 1917, although continually threatened by foreign capitalism, was not itself capitalist. Until the inauguration of the first five-year plan it was certainly not the needs of competing against foreign capital that determined the inner structure of the production process in Russia. It is clear (both from old sources like Cliff's Russia and newer ones like the most recent volume of E H Carr) that the differing levels of real wages, the consumption level of the peasants, the relative sizes of heavy and light industry, were until 1928 the result of differing pressures of different social groups on the state. There was growth, but no 'urge to accumulate'.

Until 1924 not economic and military competition with the West, but spreading of the revolution was seen as the basis for establishing socialism in Russia. Even after the proclamation of 'socialism in one country' in 1925 the bureaucracy did not accept the programme of competing with the West. Rather, it tried to ignore the power of world capitalism in a quite Utopian fashion (as Mandel, incidentally, still does).

But it is also the case that in 1928 reality did overtake the bureaucracy and force it to industrialise. In doing so it did bring about changes that are on such a scale quantitatively and qualitatively as to bear description as a 'change in the mode of production'. Firstly, pressures of world capitalism led to a rapid change in the mode of production in agriculture on an unprecedented scale. Tens of millions of individual peasant farms were collectivised The Stalinist bureaucracy brought more oi the economy into state ownership than the great October revolution had. This was necessitated not by the arbitrary 'desires' of the bureaucracy, still less by the 'logic of the plan' but by the pressures to build up heavy industry on a scale that could not be sustained without a forcible pumping of surplus agricultural produce out of the countryside.18

Secondly, in industry there was also a change in the mode of production. In a matter of months changes were carried through that were to endure for decades: wages were cut, the rate of production speeded up, piecework introduced, the elementary rights of workers to defend themselves done away with, the independence of the trade unions abolished, the labour camps expanded on a massive scale. These measures were all symptomatic of a change in the whole mode of operation of the economy. Building up of heavy industry in competition with the West was on the basis of such measures.

It was that which brought them about. In other words, production and the conditions of production were no longer determined by the needs of people, ie, by the production of use values, but by the 'needs' of competition, the production of exchange values. In other words, through the mediation of arms production, the allocation of resources between consumption and accumulation, between living and dead labour, was determined by (and in turn determined) the allocation operating outside of the Russian economy, in the capitalist world. A leap from 'freedom to necessity' had been imposed.

There is no way of rationally understanding the dynamic of development of Russia either in the thirties or today if one denies that a change in the mode of production was forced through by the bureaucracy when it decided to defend itself against capitalism by imitating capitalism. Onlv this can make sense of Mandel's own talk of a 'logic' to the plan that is different from the desires of individual bureaucrats. But this does not mean that acceptance of this logic of competition with the West was either 'mechanical' or automatic — it was in fact resisted in 1928-9 both by a substantial section of the bureaucracy around Bukharin, and by a section of the left opposition who, despite ambiguities, wanted to defend Russia against capitalism by revolutionary means, not by an internal imitation of capitalist exploitation. But it is a matter of fact, unfortunately or otherwise, that these lost out in the struggle and that the Stalinist transformation of the economy took place.

It is worth adding here that with the development of the newer Stalinist-type regimes, it is no longer merely competition with private capitalist states that imposes its laws upon them. It is also the needs of competition with other state capitalist ones (eg with orientation of the Russian economy to defence against China and vice-versa). Nor is it only or necessarily military competition. The general crisis confronting the Czechoslovak regime from the mid-1960's on arose from an inability to sell the produce of its economy on the world market (including to other Stalinist regimes) — that is, from a classical inability for the state capitalist bureaucracy to realise its surplus value.

The analysis of modem capitalism
Mandel's criticism of Kidron's analysis of modern capitalism can be more quickly dealt with than the analysis of the Stalinist states, because the issues involved are less profound. Mandel begins by apparently quoting Kidron's view of Marx's model of capitalism and of why it should mean that there is a 'tendency for labour power to decline in absolute terms under capitalism; that "booms become progressively less profitable, and shorter; slumps more lasting and severe"'. Incidentally, Mandel claims that Kidron 'will have a hard time finding any evidence in Marx's Capital' for these assumptions. One can only suggest that Mandel refers to pp 630-635 of Capital (vol 1). Thus Mandel quotes Kidron:

'The model is a closed system, in which all output flows back as inputs in the form of investment goods or of wage goods. There are no leaks. Yet in principle a leak could insulate the compulsion to grow from its most important consequences. ... If "capital intensive" goods were drawn off, the rise would be slower and — depending on the volume and composition of the leak — could even stop or be reversed. In such a case there would be no decline in the average rate of profit, no reason to expect increasingly severe slumps, and so on. Capitalism has never formed a closed system in practice. Wars and slumps have destroyed vast quantities of output. Capital exports have diverted and frozen other quantities for long stretches of time. A lot since World War II, filtered out in the production of arms. Each of these leaks has acted to slow the rise in the overall organic composition of capital and the fall in the rate of profit.'

According to Mandel what is involved in this account is 'a vulgar theory of overproduction, according to which it is a glut of physical goods which is at the basis of all capitalism's evil', which depends for its plausibility on 'a truly remarkable confusion between use-values and exchange-values . . . worthy of inclusion in a textbook simply to show what a lack of understanding of the dual nature of the commodity necessarily leads to'.

What is amazing is that Mandel feels capable of writing this criticism down without mentioning what is central to Kidron's stress on leaks: their affect on the organic composition of capital and the rate of profit. Kidron never once refers to an 'overproduction' of either use values or exchange values in the passage referred to, unlike Mandel who earlier writes that 'unpredictable developments under capitalism arise from an overproduction of exchange-values . . . (which most of the time are caused by ... an increase in the production of use-values)'.19 The 'rise' Kidron is concerned with is a rise in the organic composition of capital (Mandel judiciously omits one sentence from Kidron making this clear in his long quotations, so the reader might well not be aware of this). Further, his 'closed model' is precisely a model of the circulation of exchange values: given that all value produced is transformed either into consumer goods or capital goods, and that the value of labour power does not rise, then there will be an overproduction of values than can only be disposed of either by an overproduction of consumer goods, leading to a crisis, or an increase in ratio of constant capital to variable capital in new investment (leading to a fall in the rate of profit, to less investment and therefore to crisis); the only alternative is for there to be a leak whereby values can be drawn from the system. At no point in this argument can there be, given its very form, the confusion of 'use-values' and 'exchange-values' invented by Mandel.

It is only because he ignores the actual model presented by Kidron, that Mandel is then able to pretend that 'leaks' from the system which occur through war, foreign investment, slumps, etc, involve the physical destruction of goods. For instance, Kidron's whole point is that wars cause possibilities of growth for the system by destroying value that would otherwise have to be transformed into constant capital. This certainly does not mean that wars have to destroy physical means of production in order to counteract the contradictions of the system: indeed, in arguing in this way it is actually Mandel, not Kidron, who confuses capital as accumulated value (the Marxian definition) with a given accumulation of particular use values, ('to destroy capital . . . they must destroy industrial equipment to a larger degree than is newly built').20 Similarly, Kidron's whole point is not that slumps destroy goods, but that they result in a devaluation of goods, ie, value is destroyed or 'leaks' from the closed system, so as to permit new capital investment at a lower organic composition than would otherwise be the case.

One can put Kidron's argument another way. It deals with the circulation of value in the system as a whole. For the individual entrepreneur if there are no leaks in this total system, there is an ever-growing abundance of capital available. This means that the possibilities of expanding and cheapening production always exist for the individual. Indeed, if he does not seize them by utilising a greater portion of constant capital, then his competitors will, his costs of production will be relatively too high, and he will be forced out of business. Enlarged constant capital means an overall (throughout the system) fall in the rate of profit. But if there are leaks whereby value is taken out of the total system, the opportunities for each individual capitalist obtaining value to transform into constant capital will be less, and therefore the constraints on each capitalist to expand his means of production will lessen. The immediate pressures to expand constant capital (and therefore of production) will diminish, the overall rate of profit will fall less, and therefore there will exist the basis for a longer term steady expansion based upon a lower average organic composition of capital. This will be true whatever the form the value that leaks from the system takes, providing its creation employs relatively more dead labour than living labour.

Mandel's analysis of modern capitalism
Mandel's own analysis of the nature of the 'key difficulty facing monopoly capital' is that this difficulty is not that of 'disposing of surplus goods' 'but the difficulty of disposing of surplus capital'. Here Mandel makes the mistake he accuses Kidron of, of distinguishing capital and goods' as different use-values, without seeing that as values they are equivalent (ie, if you can dispose of surplus goods profitably, then you can dispose of surplus capital). Mandel goes on to distinguish between the effect of 'the economic function of arms production' — 'to provide additional fields for investment for surplus capital' — and any reduction 'in the tendency of the increase in the organic composition of capital and/or the decline in the rate of profit'. But on the classical Marxist model precisely such a distinction is impossible, because only if the rate of profit is prevented from falling too drastically is any long term, steady growth of investment possible. To put it another way; there are always opportunities for capital investment, arms expenditure or no arms expenditure, but these are only seized if the rate of profit is high enough.

Even more fascinating, however, is Mandel's excuse for not treating 'in a systematic way the problem of the sharp rise in the rate of growth of the capitalist economy after World War Two', in his book Marxist Economic Theory. This is apparently because most of it 'was written in the late fifties, ie, more than 10 years ago, when most post-war trends were not yet clear'. This statement is nothing short of preposterous. One does not have to go back to the early post-war period, when already in 1946 and 1947 there was an argument by Marxists such as Tony Cliff 20 against Mandel's views then that 'there is no reason to believe that we are facing a new epoch of capitalist stabilisation and development'.21 Mistakes at that time were quite natural, given the short duration of peacetime conditions. But by 1950 the post-war expansion was already pronounced enough, despite many Marxist predictions, for writers such as Vance (in the New International) to be attempting theoretical explanations of it. Fully five years before Mandel began writing his book, Cliff and Kidron had substantially developed (in Socialist Review) explanations of 'post-war trends' that five years later, according to Mandel 'were not yet clear'.

Yet even stranger is Mandel's analysis, developed since, of the reasons for this post-war growth. Apparently, it is because capitalism is undergoing a third 'industrial revolution'. This has' been possible because 'during the "long period" of stagnation of the capitalist world economy (1913-1940) a great "reserve" of scientific and technological inventions had been built up, whose large-scale productive application was delayed as a result of unfavourable economic circumstances prevailing during that period'. The argument, however, is simply contradictory. One moment these innovations are responsible for the economic expansion: the next they were allowed to accumulate for 30 years because there was no economic expansion. In that case, something other than the innovations must be responsible for their present employment — otherwise why did they not cause expansion in the thirties? Mandel seems as incapable now as when he wrote his book 10 years ago of identifying what this other cause might be.

Permanent Revolution

At this point we have dealt with Mandel's arguments of substance. But there are a few others worth referring to. There is the claim that the 'working class has overthrown capitalism ... in Yugoslavia, China. Cuba, North Vietnam and is doing so now in South Vietnam'. One wonders when the 'working class' actually did 'overthrow capitalism' in, say, Yugoslavia. In 1944-45? If so one wonders not just how (through what institutions of mass self-activity and struggle) and led by what revolutionary party, but also why Marxists at the time did not notice this monumental fact. For three years afterwards Mandel certainly did not regard Tito's regime as any sort of workers' state. It was, he and his colleagues argued, an 'extreme form of Bonapartist dictatorship'. In particular relation to Yugoslavia and Albania he himself wrote that the Stalinists had constructed 'a new bourgeois state apparatus'.22 And when someone argued otherwise, they were not merely wrong, but carrying through 'a complete petty bourgeois revision of the Marxist-Leninist concept both of the state and of the proletarian revolution'. 23

Again, one wonders when the overthrow took place in North Vietnam. With the establishment of the first Vietminh government in 1945? But those who took power then were described without equivocation by Mandel's organisation as 'the Stalinists who themselves long ago abandoned the Communist banner of Lenin and Trotsky. . . .' 24Far from what was taking place in Hanoi being described as a socialist revolution, Ho Chi Minh, like Soek-harno. was said to have been 'logically brought to betray and sabotage the national emancipation'.25

Now. of course, Mandel can change his mind. But one would like to hear his reasons for doing so. to see what evidence there is of workers' power in Yugoslavia or Vietnam now that was not available previously. It would also be interesting to see Mandel justify his own claimed commitment to the theory of permanent revolution in the light of the avowed policy of the Chinese before taking power and of the NLF today being the 'bloc of the four classes'.

Instead of doing any of this, Mandel merely asserts that these countries have seen workers' revolutions, and that to deny this is to assert that 'capitalism today is stronger than it ever was' and 'has ushered in new and sensational phase of development of the productive forces, above all in backward countries' so that 'Trotsky was deadly wrong with his theory of permanent revolution". Such according to Mandel is what Kidron does, and such is 'Menshevism'.26

Perhaps Mandel reads different editions of Trotsky to the rest of us. The theory of permanent revolution according to Trotsky I know asserts quite unequivocally that the tasks of the bourgeois revolution in the underdeveloped countries can only be solved by the working class, led by a class-conscious revolutionary party. It is not 'Menshevism' to assert that as a matter of fact not only has no such party yet led the working class to the taking of power in Vietnam, or China or Cuba, but those that did take power executed (in Vietnam and China) or imprisoned (in Cuba) those trying to build such parties. Neither Mao's party nor Ho Chi Minh's party were workers' parties in anything other than name. Their membership and leadership were not workers, nor was their theory that of proletarian revolution (it was that of classical, unrepentent Stalinism).27

Nor for that matter have the regimes in China, Vietnam or Cuba carried through all the tasks of the national bourgeois revolution. It is mere apologetics to pretend that they have solved the problem of industrial development. The 'cultural revolution' in China occurred precisely because the Maoist regime cannot. (Here again Mandel shows his ignorance by asking what would our attitude be if 'tomorrow most of the decisions of the cultural revolution were reversed' — in reality most of these 'decisions' were reversed two years ago with the setting up of the 'three-in-one' revolutionary committees.) In .Cuba, despite desperate attempts to overcome the dependence on the world market by diversifying agriculture, the road to development is now seen as lying through the production of more and more sugar to sell in competition with other sellers on the world market. Finally, in Vietnam, the Stalinist leadership has twice already shown itself incapable or unwilling to solve the most elementary of bourgeois national tasks — that of national unity — when opportunities to do so were at hand (in 1945 and in 1954).

It is Mandel who is actually the modern Menshevik, tailing behind a petty bourgeoisie trying to transform itself into a state capitalist class with varying degrees of success in Yugoslavia, in Algeria, in Vietnam and in China. He does so, moreover, at a time when in the largest of these, the Shanghai general strike of January 1967 and the emergence of groups like the Sheng Wu Lien, has revealed new forces challenging completely the pretentions of the bureaucracy.

The theory of permanent revolution cannot be applied in our epoch without certain important modifications.28 But its most important conclusions — that the problems of the backward countries can only be solved by proletarian revolutions and even then not without the revolution spreading — become more and more apposite as the successes of the petty bourgeoisie in a few countries prove increasingly limited and transitory. But it is us who draw these conclusions, not Mandel.

Finally, it is worth noting that in order to try and justify himself Mandel pretends complete ignorance of the Marxist position on the national question. 'All the inconsistencies of the theory of "state capitalism" are revealed quite nakedly' because we are able to support 'North Vietnam and the National Liberation Front", even though we believe their present leaders are 'the nucleus of a "bureaucratic class" that is going to extract tomorrow the last drop of surplus-value from the South Vietnamese labourers'. One wonders at the inconsistencies both we and Mandel's organisation have fallen into in the past without him noticing — supporting say, the Kenyan struggle against colonialism, although its leaders 'were the nucleus' of an African capitalist class, or the Cypriot struggle led by the cleric Makarios and the fascist Grivas. In fact we found no contradiction whatsoever in giving wholehearted support to these struggles against imperialism, without believing their leaders to be socialists; we have no such problems in the case of Vietnam either. '

All the inconsistencies of the theory' we adhere to must lie in the fact that, unlike Mandel, we hold that the fundamental problems facing the populations of these countries cannot and will not be solved until these struggles are led by a real, not a mythical, working class with a revolutionary Marxist party committed to an explicit programme of socialist revolution on an international scale.

In his pamphlet Mandel has set out to 'reveal most of the contradictions into which adherents of the theory of "state capitalism" enmesh themselves'. Unfortunately, all that he has done is to show himself as ignorant, both about these theories and about quite fundamental questions in Marxism (such as the analysis of the commodity, the relationship between capitalist production and commodity production, and the relationship between use and exchange value); as self-contradictory (over the questions of the dynamic of the Russian economy and of the unprecedented expansion of capitalism in the post-war period); and as dishonest (in making omissions when quoting Kidron so as to distort his argument). I say 'unfortunately' because it is only through serious and scientific debate that Marxist analysis can develop. Mandel has made no contribution to this in his pamphlet.

1 E Mandel, The Inconsistencies of State Capitalism, IMG, .http://eprints.cddc.vt.edu/marxists//archive/mandel/1969/08/statecapitalism.htm
2 Ibid p 2.
3 Which is not to say that the details are beyond criticism.
4 Ibid p 13.
5 Lenin, 'Works' (Russian) vol XXV p 51, quoted in T Cliff, Russia: A Marxist Analysis, London, nd, p 153.
6 R Hilferding, Das Finanzkapital, Vienna 1910, p 286.
7 Mandel, op cit p 4.
8 Capital, vol 1 p 71.
9 K Marx, Fondements de la Critique de l'eeonomie politique (French translation of the Grundrisse). Paris 1967, p 169.
10 Capital, 1, p 78.
11 K Marx, Fondements de la Critique, op cit d 147.
12 In fact foreign trade has played a crucial role at certain points in the history of Stalinist Russia—particularly in the early thirties when Stalin expected to be able to buy foreign machinery for industrialisation. In order to pay for this he had to be able to sell agricultural produce. But 'the violent fall in the terms of trade associated with the world depression greatly increased the cost of imported machinery in terms of Soviet primary exports'. (M Kaser. Comecon, London 1967, p 19.) In order to pay for the machinery, more primary produce had to be obtained from the peasantry, hence increasing the pressures for collectivisation.
13 Rosa Luxemburg. The Accumulation of Capital, London 1963, p 467.
14 E Mandel, op cit p 14.
15 Quoted in E H Carr and R W Davies. Foundations of the Planned Economy 1926-29, London 1969, p 327.
16 Stalin, quoted in Deutscher, Stalin, p 328.
17 Finansy SSR 28/69.

18 For the direct relationship between threats to Russia from the West and the decision to build up heavy industry see, for instance, E H Carr and R W Davies, op cif p 295.
19 E Mandel, op cit p 2.
20 Ibid p 5.
20 See, for example, Tony Cliff, All that glitters is not gold, London 1947. Incidentally, at another point, Mandel finds it possible to blame Cliff for 'not foreseeing' the need for reforms in Russia in his writings of the 'fifties' such as 'The Nature of Stalinist Russia'. But that work was not written in the 1950's at all, but in the early months of 1948. And it certainly does point out the major contradiction that the bureaucracy has attempted to solve (unsuccessfully) since: 'The historic task of the bureaucracy is to raise the productivity of labour. In doing this the bureaucracy enters into deep contradictions. In order to raise the productivity of labour above a certain point, the standard of living of the masses must rise, as workers who are undernourished, badly housed and uneducated, are not capable of good production. . . . But workers, besides having hands, have heads. The raising of the standard of living of the masses means to raise their self-confidence, increase their appetite, their impatience at the lack of democratic rights and personal security and their impatience with the bureaucracy that preserves these burdens. On the other hand, not to raise the standard of living of the masses means to endanger the productivity of labour which is fatal for the bureaucracy in its present international relations, and sooner or later drive the masses to revolts of despair.'
For a full description of the reasons the reforms in Russia have not worked one has only to add this, not Mandel's 'tug of war' 'between the plan and the bureaucrats administering the units of production' between 'factory managers' and the 'plarners', but (1) the existence of certain groups in the bureaucracy with a vested interest in resisting changes that would be beneficial to the bureaucracy as a whole — not just 'planners' as a group or 'factory managers', but rather those associated with the police apparatus and with certain sorts of planning mechanisms together with 'factory managers' in heavy industry; (2) the continuing short-term pressure of world capitalism that prevents the allocation of resources to agriculture and light industry needed if labour productivity is to be raised to a level competitive in the long term.
21 Quoted in Hallas, 'Building the Leadership', IS 40.
22 Soviet Union After the War, September 1946.
2' Ibid.
24 Resolution of Fourth International, in IVeme Internationale, 1946.
2' Editorial in IVeme Internationale, December 1946. This same journal also published an interesting description of events in Saigon during 1945-6 in its issue of September/October 1947. Finally Mandel's organisation also published a pamphlet by Ahn-Van and Roussel, where they write that: The direction of the Vietminh profited by its influence to block the revolution and ... to fulfil its counter-revolutionary role. That is why it decreed in November 1945 the dissolution of the (P. . . . That is why it forbade the confiscation and division of the land, -atisfying itself with decreeing the tak-ne of "collaborators'" lands; that is
why it maintained and legalised the usury system, merely pleading for a lowering of interest rates. . . . The Stanlist direction sought a compromise with French imperialism and struck at the avant-guard: the Trotskyist leaders Ta Thu Thau, Tran Van Trac and numerous others were assassinated in February 1946 so as to prepare the way for the accords of March 6.'
26 It is not only Kidron who. according to Mandei's argument must thus be "Menshevik", but also such lifelong revolutionaries as the late Natalia Sedova Trotsky (see for instance her letter breaking off relations with the Fourth International in Socialist Review 1950) and the late Alfred Rosmer, Zimmerwaldist, founder member of the French CP and founder member of the Fourth International.
27 For e.xample. the programme of the Vietminh addressed itself to 'Rich people, soldiers, workers, intellectuals, employers, traders, youth, women. . . .' Today, the worker content of the Vietnamese Communist Party 'is only 18.5 per cf-nt and the higher 'the party echelon the lower the worker stock' (Le Due Tho, quoted in Sunday Times, 7.9.69).
28 For attempts at this, see T Cliff. 'Deflected Permanent Revolution' in IS 12 and N Harris, 'Perspectives for the third world' in IS Internal Bulletin, December 1969.

Mandel's 'Late Capitalism'

(This review appeared in is International Socialism 2:1, July 1978)

We are four and a half years into the worst world crisis since World War II and there seems to be no end to it in sight.

An understanding of this crisis is central to the strategy and tactics of revolutionary socialism. Are we faced with a temporary hiccough in the upward curve of capitalism? Or are we in for decades of decline for the world system?

Ernest Mandel claims this book provides some of the answers. He offers, he claims, 'A Marxist explanation of the causes of the long post war wave of rapid growth in the international capitalist economy . . . and at the same time to establish the inherent limitations of this period which ensured that it would be followed by another long wave of increasing social and economic crisis.'
Belief that Mandel has accomplished this task has led at least one of his acolytes to suggest, in the blurb to the Penguin edition of Marx's Capital that 'Late Capitalism is the only comprehensive attempt to develop the theoretical legacy of Capital.'

The book is certainly comprehensive—it deals in nearly 600 pages with the growing internationalisation of production, the relations between advanced and 'backward' countries, the increasing role of the state, the role of arms in the economy, the increased rate of technical innovation, the problems for markets and the rate of profit—to name but a few of the characteristics of 'late capitalism'.

And yet it fails to come to terms with the central problems we face—to grasp the dynamic interaction of these different features, in a way that enables us to see why the crisis is like it is, why the system is cracking more at certain points (Poland, Egypt, Ethiopia, South Africa, Italy, perhaps Britain) than at others (West Germany, US).

The failure expresses itself in a failure to take a clear, unequivocal stand on controversial questions that divide Marxists from would-be Marxists. Mandel wants to accept the theory of
'unequal exchange' and to reject its most prominent proponents; he wants to use chunks of the permanent arms economy, but reject its theoretical underpinning; he wants to reject Rosa Luxemburg's reproduction schema (proving that capitalism must break down through its inability to provide itself with markets) at one point only to bring them into play again through the back door at a later point; he wants to talk about the enhanced role of the state, but to ignore the extent to which it has shifted the anarchy of the system to the international level; he wants to say that imperialism has changed since Lenin's time but also insist that it hasn't; he wants to point out the bureaucratic inadequacies of the East European economies, but also to pay homage to the myth of a 'higher economic system' than capitalism. In short, he always wants to have his theoretical cake and eat it.

Lack of precision in Marxist politics leads to vacillation between the classes at crucial moments of struggle, what is usually called centrism. Lack of precision in Marxist theory leads to confusion as to what the practical tasks of the moment are. Mandel's book encourages precisely this confusion.

In the last few years a whole array of would-be Marxists have emerged who tailor their alleged theoretical insights to the fashions in political practice—the theorists of 'Third Worldism', of 'The new working class', of 'neo-capitalism', of 'socialism with a human face' or 'internal colonialism'. Mandel always seems to end up in a pose of loving up to these would be theorists (and some of their practical conclusions), but 'critically'.

Mandel's very method of work is misplaced.
He aims to show how modern capitalism can be fitted into the categories deployed by Marx in Capital. 'To demonstrate that the "abstract" laws of motion of . . . capitalism discovered by Marx in Capital . . . remain operative and verifiable in and through the unfolding "concrete" history of contemporary capitalism.'

According to Mandel, capitalist crises are the result of the coming together of the various different factors pointed to by Marx. Analysis, according to him, consists in merely identifying these factors, and then having a chapter or two in which their various expressions are piled one on top of the other.

But Marx's own approach was in reality very different. It was to identify the individual elements of the system through analysis, and then to show how they interacted dynamically, changing one another in the process. That is why he insisted his method was dialectical, concerned with interaction and mutual transformation.

Once you miss these interconnections, you miss the dynamic ol the system; you can see the system in the manner of the bourgeois economist as made up of the different components of a smooth running machine, even a machine that is subject to accidental breakdowns (in Mandelese 'conjunctural' crises). But you cannot grasp the intrinsic contradictions of the system, contradictions based upon the way in which the total system accumulates, with accumulation producing an aging of the system, and the aging destroying the mainspring of the system's own dynamic.

For Marx, the categories he developed were significant because they enabled you to see the system as a self-contradicting totality, which is in a permanent process of transformation—a transformation that must affect the very categories of analysis themselves.

For Mandel, the categories are a list to be measured up against the system, to prove that 'Marxism' is still valid. The method is the opposite of Marx's own—and, for that matter, of those who really developed Marxism after Marx. Thinkers like Lenin or Bukharin or Luxemburg were often wrong. But they did use theory to illuminate the development of the system. They could do so because they were prepared to modify Marx's categories in the process of applying them. They never indulged themselves in pedantically listing categories off one by one against the system.

The man who did do such listing was the 'Pope of Marxism', Karl Kautsky. But Kautsky's obsession with the letter of Marxism made him lose its spirit. He was unable to refute the shallow criticisms of the revisionists because the method of 'listing' does not explain how the dynamic of capitalism has produced new features. The revisionists could point to the novelty and claim it contradicted Marxism. The 'Pope of Marxism' could only point to the letter of Marxism and claim that it contradicted the novelty.

The fashionable Marxists of today are very like the revisionists of Kautsky's time (except that to protect their left flank they usually claim that their 'improvement' of Marxism is a version of the real thing). Mandel has not the method to refute them. Yet he cannot deny the existence of some of the superficial phenomena to which they point. And so he ends up half agreeing and half disagreeing with them. It is this that leads to repeated self contradictions, to an underhand revision of Marxism (as when in order to make concessions to the 'unequal-exchangists' Mandel talks of value based upon 'labour' rather than socially necessary labour time (p 345 & 351)) to absurd claims, and to random predictions.

In the space of a relatively short review, I cannot point to all these examples here. I will instead concentrate on a couple of section—the sections where Mandel tries to analyse the post-war boom and its breakdown and where he criticises the analysis of this put forward by this journal over the years.

The Long Boom and After

Mandel's attempt to explain the long boom of the 1950s and 1960s begins by referring back to a Russian (Menshevik) economist of the 1920s, Kondratieff.

Kondratieff argued that just as there were short term boom-slump cycles, there were also long-term cycles of several decades. For a number of decades the system would show an upward movement, with relatively long and high booms and relatively short and shallow slumps. Then a turning point would be reached, followed by shallower booms and more intense slumps. But eventually another turning point would be reached, and the system would start moving upwards again.

Kondratieff was a Menshevik precisely because he saw the ups and downs as 'major cycles'—a cycle is something that by definition repeats itself, with the down-turn giving rise to the upturn, giving rise to the down turn etc. For the system, Kondratieff s notion of'cycles' was very optimistic: however bad things were, they would eventually get better! That was why Trostsky denounced Kondratieff, even though he himself at the Third Congress of the Communist International had insisted on distinguishing between periods when the 'curve of capitalist development' was upward and when it was downward.

'It is already possible,' Trotsky wrote, 'To refute in advance Professor Kondratieff s attempt to invest epochs labelled by him 'major cycles' with the selfsame rigid lawful rhythm that is observable in minor (ie slump-boom-CH) cycles. The character and duration (of large sections of the capitalist curve of development) is determined not by the cyclical interplay of capitalist forces, but by those external conditions through whose channel capitalist development flows.' (L. Trotsky 'The Curve of Capitalist Development' translated in Fourth International May 1941).
Mandel, in a style that is typical of his intellectual slipshodness, quotes Trotsky on Kondratieff—and then goes on to pretend that the difference between the two does not matter. Perhaps that is because he covertly lines up with Kondratieff against Trotsky: he sets out to discover the 'cyclical interplay of capitalist forces' that produce what he calls long term 'waves'. A wave, like a 'cycle' is something that moves up and down with a mechanical regularity.

'Long Waves'
The mechanism internal to capitalism that produces long waves works, according to Mandel, like this:

(1) For a period capitalism develops as Marx predicted it would in Capital. There is a growing tendency towards slower growth and greater slumps. During this period, the falling rate of profit deters capitalists from completely reorganising production so as to utilise advances that have taken place in science and technology. "Under normal conditions of capitalist production the value set free at the end of one 7- or 10-year cycle are certainly sufficient for the acquisition of more and more expensive machines than were in sue at the beginning of the cycle. But they do not suffice for the acquisition of a fundamentally renewed productive technology, particularly in Department 1 (production of the means of production—CH), where such renewal is generally linked to the creation of completely new productive installations." (p. 111).
So potential innovations accumulate unused; there is growing unemployment; the crisis of the system means that a growing proporition of capital cannot find a profitable outlet for investment and remains idle.

(2) But, Mandel goes on to argue, after four or five cycles like this there is the potential for a new wave of investment, using up all the 'excess capital' and all the unemployed labour, because "The values set free from the purchase of additional fixed capital in several successive cycles enables the accumulation process to make a qualitative leap forward . . . The cyclical recurrence of periods of underinvestment fulfills the objective function of setting free the necessary capital for.this kind of technological revolution." When that point is reached all the stored-up innovations can be brought into effect at once; the whole capital of society is reorganised; doing this provides work for the unemployed capital resources.

(3) But the new surge of investment will not occur of its own accord. It first requires a countering of the long term tendency of the rate of profit to fall. According to Mandel the necessary rise in the rate of profit will take place if there is a 'sudden fall in the organic composition of capital', a 'sudden increase in the rate of surplus value' through for instance, 'a radical defeat and atomisation of the working class'; a 'sudden fall in the price elements of constant capital, especially of raw materials'; 'a sudden abbreviation of the turnover time of circulating capital' through improved transport and communication.

If all, or most of these things take place, then it will suddenly be profitable to invest as it did not used to be. The system will move from a phase of stagnation and decline to one of expansion.
It only needs to be added that the increase in the rate of exploitation of the workers that is needed for this is prepared by the long periods of capitalist decline. A low level of investment leads to an increasing reserve army of unemployed labour. This begins to create the pressure for reduced wages and increased exploitation, although this pressure .may only become fully effective when the political and social obstacles to reduced wages and speedup have been eliminated with a massive defeat for the working class movement.

Mandel claims this combination of factors turned the great slump of the interwar years into a new period of long term expansion.

"Two decisive factors in our view explains the long wave with an undertone of expansion which lasted from 1940 (45) to 1966. In the first place the historical defeats of the working class enabled fascism and war to raise the rate of surplus value. In the second place the resultant increase in the accumulation of capital (investment activity), together with an accelerated rhythm of technological innovation, and a reduced turnover time of fixed capital led in the third technological revolution to a long-term expansion of the market for the extended reproduction of capital on an international scale, despite its geographic limitations." (p 442).

For a short time, then, the increased rate of innovation leads to a mitigation of short term cyclical crises and to a rapid rate of growth for the system.

(4) But eventually, the 'wave' of innovations begins to falter. At the same time, full employment leads to workers gaining new confidence. The classic pressure on profit rates begins to be felt. The well spring of expansion begins to dry up, and a new period of crises and stagnation begins.

There is a certain beauty in Mandel's model of the long term 'waves'. If you are a capitalist or a reformist you can look at it and feel assured that there is light at the end of the tunnel. Damn it all, things may be uncomfortable, but the 'hidden hand' is still there to bring things right. In the long term at least, Keynes may be dead but demand and supply, resources and expectations, production and consumption, profit rates and productive potential, will accord with one another again.

But the beauty is the beauty of a machine that will never move. For the cogs of the different parts of the argument just do not fit together.

Factual Objections
The objections to Mandel's account of the 'long waves' are both factual and theoretical.1

First, the factual criticisms. These centre around the claim that there was an 'upturn' after 1945 because of'historic defeats' for the working class and an increased rate of exploitation; followed by a downturn in the late 1960s because of a decline in the reserve army of labour, increased working class strength: and a decline in the rate of exploitation.

The western economy in 1945 was dominated by one major economy, the US and one lesser one, Britain. The other European economies were in a state of devastation. Yet where was the 'historic defeat' in the US and Britain? The previous 10 years had seen a growth of the strength of the working class organisations in both countries, in the US a vast growth with the development of the CIO (which Mandel hardly bothers to mention). There had been a more or less voluntary surrender of some of their power by the unions during the war. But this was not at all the same as a 'historic defeat'. So why should the 'long upward wave' have begun then?

Again, where there had been defeats, in Germany, in Italy, in Japan, even in Britain in 1926, these had been many years before. So if defeats followed by a sudden shift in the balance of class forces cause the shift from a downward wave to an upward one, why hadn't that taken place 10 or 15 years before? Certainly, as Mandel himself pointed out, the technological innovations exploited after 1945 existed 10 years before.

Furthermore, none of Mandel's figures purporting to show a shift in the rate of exploitation to the advantage of capital justify the claim that they made rapid capital accumulation possible in the 1950s but not in say the early 1930s. After all Mandel himself shows the share of labour in the German national income as only 2.8 per cent less before the prolonged boom of the 1950s than before the prolonged slump of the 1930s.

Similar objections can be made to the claims that it was increased working class pressure that upset the capitalist applecart in the late 1960s.
Mandel claims that the system entered a period of renewed crisis when 'the very dynamic of the expansionary long wave started to reach the limits of the reserve army of labour . .. and a pronounced increase in real wages started to roll back the rate of surplus value.'

This part of Mandel's argument is very similar to that put by a number of right wing economists, by two would-be Marxists (Glyn and Sutcliffe) and by a whole number of revisionist economists (Rowthorne and Purdy, for example). 2

The same objections have to be made to the argument in each case. Firstly the tendency for the rate of profit to fall has been displayed in all capitalist and state-capitalist countries.3

This has been regardless of the strength or otherwise of the working class movement—so for example, it has been possible for a number of commentators to point to lower profits in key West German industries than in Britain, despite the stronger organisation of the working class in Britain and lower productivity.

It has also been regardless of the relative size of the reserve army of labour. Profit rates have, for example, been falling in the United States for nine years despite the tendency for the level of unemployment to move upwards, so that it is as high now in booms as it used to be in slumps.
Mandel's own figures show that in the period 1951-1969 when unemployment was considerably smaller than it is now, the level of profitability never moved more than about 1.1 per cent above or below an average figure of 13.2 percent.

1951 1956-60 1961-65 1966-70
14.3% 12.2%. 14.1% 12.9%

It was only in the early 1970s that they fell dramatically to 9.8 per cent.

Yet the early 1970s were a period of higher unemployment than in the 1950s and 1960s and a period of stagnating, or even falling real wages in the US.

What has been true of the biggest capitalist economy has also been true in at least some other important cases. Unemployment in Britain has been much higher in the 1970s than say in the 1950s. The rate of growth of real wages has been less—indeed in the last three or four years real wages have tended to fall. Yet the rate of profit has plummetted, while it remained more or less stable frotn 1955-1965.

Even in West Germany, the crisis of profitability and reduced investment has occurred at precisely the time when the 'reserve army of labour' has grown to a figure of about 1 million (plus 1 million repatriated immigrant workers)—and persists despite the low level of working class struggle for a number of years.

From the empirical evidence it does not seem that it has been an increase in the power and combativeness of workers that has
aused the crisis. Rather, it is because the system has entered a new period of crisis that it cannot maintain its profitability, even where workers accept lower wage increases than they used to (or even a fall in their real wages).

By starting with the size of the reserve army of labour, the level of wages and the rate of exploitation as the cause of the crisis, Mandel, Glyn & Sutcliffe, Purdy and the rest put the cart before the horse. They fail to see that the cause of the crisis must lie outside the simple struggle between workers and capitalists over the distribution of the national cake. It is the crisis that determines the conditions of that struggle, not vice-versa.

Mandel's failure to see this plants an element of extreme arbitrariness bang in the middle of his analysis. After all, if a fall in the reserve army of labour alters the balance of class forces in the interests of workers and leads the system, after a time into prolonged crisis, can't we expect that the growth of the reserve army over the last few years will alter the balance back once more in the capitalists' favour and lead the system out of the crisis? This is what Mandel claimed happened in the 1940s. Why can't it happen again now—as revisionists and reformists of all hues pretend?

Mandel can only escape such a conclusion by reaching desperately for other explanations of the crisis to prop up his more than rickety structure.

At points the propping up comes from the idea that there are 'waves' of innovations—as if there is some magical device in operation that means that after the lapse of a certain number of years human ingenuity must begin to dry up and technological progress grind to a halt. Once again the cart is put before the horse. If the system were confident of endless expansion, then it would provide the input of resources to ensure an endless output of new techniques to be applied in production. It is not some autonomous realm of 'innovation' that produces long boom or long crisis. It is long boom or long crisis that determines the incentives for technological innovation.

Mandel cannot be too sure of this explanation, because he turns to others. Out of the blue we are presented with 'reproduction schema' very much like those drawn up by Rosa Luxembourg in 1912. These purport to show that the system will inevitably break down. Maybe it will. But that is not a conclusion you can draw from the equations alone. For why then should the breakdown occur now rather than a hundred or seventy or twenty years ago?

The equations were true in Marx's time yet there have been long periods of expansion of the system since then. The fact is that the equations by themselves prove nothing. What matters are the values given to the different variables in them. By assigning certain values to these, in a quite arbitrary manner, Mandel is able to show a system about to break down irretrievably. But he has no explanation as to why there should be in the equations his set of values and not another set that might for example, show the system continuing to expand for another 30 years. And because of this he leaves himself open to every reformist counter-argument.(4)

In desperation, Mandel moves to a third, and even more mystical argument. He suggests the system must break down with the introduction of automation because if all labour became skilled, technological labour, that 'would imply a radical suppression of the social division between manual and intellectual labour . . . (which) would undermine the entire hierarchical structure of the factory and eceonomy, without which the extortion of surplus value from productive labour would become impossible. Capitalist relations of production would collapse.'

But capitalist relations of productions do not rest on the 'social division of labour between manual and intellectual labour'— that is part of the social democratic myth that identifies the middle class with the ruling class.

Capitalism rests upon the fact that one class owns (or controls) the means of production and another class (of both 'intellectual and manual' labourers) has to sell its labour power to them. Such a system does not live in fear of collapse because of a change in 'the hierarchy' inside the factory. Indeed, it can survive if 'the hierarchy' inside the factories is temporarily destroyed— providing the market relations between factories persists. For Mandel to pretend otherwise is to abandon Marxism for the wilder dreams of the once fashionable theorists of the 'new working class' and 'self management'.

Theoretical Objections
The fact that Mandel has to try to hold this shaky theoretical structure together with mystical glue is not an accident. For the basic elements of the theoretical structure itself are faulty.
First, the notion that there is a 'saving' of capital over several boom-slump cycles. It is difficult to make any sense of this notion at all. When capitalists refuse to invest all their capital," the surplus does not accumulate indefinitely in some huge surplus hoard, waiting 30 or 40 years to be invested.

Instead what happens is that lack of investment leads to a low level of production; resources that would otherwise be used to expand wealth (labour, raw materials, factories) lie idle, indeed, they are often gradually destroyed (workers lose their physical strength and their skills, even starve to death; raw materials rot; mines fall in; factories rust). Additional surplus value that would flow to the capitalist does not flow; there are repeated crises that destroy the accumulated profits of whole sections of the capitalist class; in a desperate attempt to ward off further crises one national capitalist class wastes still more surplus going to war with another; the crisis is a crisis for the capitalists as well as for the workers.

The 'hoard', like so much else is subject to the ravages of the system. There is no automatic mechanism by which seven (or five) lean cycles lay the ground for seven fat cycles. There is no automatic regenerative mechanism, no 'hidden hand'.

Nor is Mandel right when he claims that a new wave of innovations brought on steam by this accumulated surplus, makes it possible to evade the inner contradictions of the system as outlined by Marx. The notion of innovation, of the 'third technological revolution' as being able to prevent the drive of the system towards crisis, even for a limited period (25 years) is a notion introduced into Marxism for the first time by Mandel. And it is nonsense. The classical Marxists had no doubt that the effects of accelerated technological progress would be to increase not diminish the contradictions of the system.

As Lenin insisted, 'The extremely rapid rate of technological progress gives rise more and more to elements of contradiction between the various aspects of national economy, to a state of chaos and crises.' {Imperialism, The Highest Stage of Capitalism, London 1933 p. 28)

Mandel claims at one point that 'a technological transformation of department 1' (i.e. production of means of production) could create 'a constantly expanding market and the condition in which expansion did not itself rapidly lower the rate of surplus value and did not cause a decline in the rate of profit.' But at best an improvement in technology can counteract the tendency for the rate of profit to fall in the short term only.

It is true that new methods of production can mean increased output of surplus value compared with real wages. Increased productivity means that it takes less labour time to produce the goods consumed by workers, and that therefore more surplus value can be produced for the capitalists without living standards falling or the working day being lengthened.
But this can save the rate of profit for a brief period only. For increased surplus value means more funds are available for investment. If these funds are used, then there will be a rise in the organic composition of capital. And, as Marx showed, there is no possibility of the increased surplus value obtained through rising productivity keeping up with the increase in the organic composition of capital.

The reason is simple enough. There is a limit to the amount of surplus value that can be produced by a given worker—the labour time for which he works. If he works eight hours a day he cannot produce nine hours worth of surplus value. But there is no limit to the growth of the organic composition of capital as successive outputs of surplus value are accumulated one on top of the other.

But there is no need for me to argue the point at any greater length here. For astoundingly, whilst Mandel bases much of his theory on the alleged ability of innovation to counter the trend for the rate of profit to fall, he lets slip in passing that "An increase in the social average rate of surplus value has two contradictory consequences, which must ultimately generate a reduction of the social rate of profit ... It leads on the one hand to a growth in the accumulation of capital; on the other to a fall in the share of living labour in the total expenditure of labour. Since only living labour produces surplus value, it is only a matter of time before the increase in the organic composition of capital caused by accelerated accumulation surpasses the increase in the rate of surplus value. At that point the rate of profit begins to fall once more." (p531)

In other words, an increase in the rate of surplus value due to increased productivity flowing from a 'wave' of innovations cannot stop the decline in the rate of profit for more than a short time. But if that is true, then much of Mandel's theory is pronounced nonsense by . . . Mandel.

The Arms Economy
The first series of this journal was associated with a view of why capitalism expanded for 30 odd years up to the late 1960s and why it is now in a new period of crisis—a theory usually referred to as 'the Permanent Arms Economy'.

Mandel has a chapter on the Arms Economy. But he disagrees sharply with us about how it functions. The disagreement begins with Mandel's explanation for the tendency for the organic composition of capital to rise and for the rate of profit to decline.

Mandel, like most writers, talks as if any improvement in technology involves coupling more machines with fewer workers. He says that is what causes the organic composition of capital to rise. But it just isn't so, as numerous non-Marxists have had fun in demonstrating. Many innovations cut down the cost of machinery even more than the size of the labour force.

It is not technology as such that causes the rising organic composition of capital. It is the dynamic of the capitalist system as a whole and the way this effects the introduction of the new technology. Capitalism is the systematic pumping of surplus value out of the workforce. Competition between the capitalists means that every capitalist is under pressure to use the surplus value at his disposal (which he owns or can borrow) to gain a competitive advantage over his rivals.

A certain level of innovation may be possible on a low level of investment. But even more innovation, even more efficient technology, will be available with a higher level of investment. The most successful capitalist will be the one who makes this higher investment. A capitalist who does not use as much as possible of the surplus value in his possession to invest will fall behind in the competitive scramble. The greater the amounts of surplus value squeezed out of workers throughout the system, the greater the possibilities of capital intensive investments to increase competitiveness.

So the pressure is on for the average capitalist to increase the amount of investment compared with the size of the workforce—or, in other words, to increase the organic composition of capital.
But to see this, you have to explain the pressure to introduce new technology in terms of the dynamic of the system as a whole. You cannot begin, as do both Mandel and the revisionists, from the dynamic of technology in itself.

It is because Mandel is not clear on this that he disagrees with us over the functioning of the Permanent Arms Economy. For, for us, (as opposed, for instance, to writers like Sweezy) it is the effect of arms expenditure on the organic composition of capital in the system as a whole that explains how capitalism could avoid major slumps for 30 odd years.

How is this? The explanation we offer is quite simple. Arms are paid for out of the surplus value left in the hands of the capitalists (or their state) after they have provided for the consumption of workers, for raw materials and for the cost of renewing the productive apparatus. The greater the expenditure of surplus value on arms, the less the surplus value available for capitalists to invest in expanding the means of production.

The arms do not destroy surplus value—like the luxuries consumed by the ruling class they belong to the ruling class (through its state). They represent a change in the physical form of the surplus value, not the handing over of it to some other class (which would be what would have happened if instead of arms expenditure there was an increase in spending on hospitals, schools or some other component of the 'social wage').

Therefore increased spending on arms cannot change the ratio between social surplus value and social investment (the rate of profit).

The real effect of arms spending is to reduce the pressure on individual capitalists to use the surplus value to expand the means of production and to jack up the organic composition of capital. Therefore they reduce the long term pressure on the rate of profit. What is more, unlike the private consumption of the capitalist class, they exert a pressure on the capitalists in other countries to build arms also, thereby restraining their ability to expand their means of production.

However, there have been built-in limitations on the arms economy from the beginning. If a super-economy like that of the US spent vast sums on arms, an initially relatively small economy, like that of Japan, could live off exporting to the rest of the world without having to spend much on arms itself. The Japanese economy would grow faster than that of the US—increasing the relative importance of itself, a non-arms spender, in the world economy and pressurising other countries to spend less on arrns So as to be able to compete with it in 'pure' market competition.

The result over 25 years was a decline in the proportion of world resources going into arms, a decline in the stabilising effect of this spending, and an increased tendency for the international system to re-enter a period of crisis.

On the basis of the Permanent Arms Economy you can easily arrive at an understanding of our present situation that does not depend on the mystique of 'long waves'. But Mandel rejects this interpretation, although he does Want to say the arms economy has played a partial role in stabilising the system. (He is no more prepared to take a hard line when he disagrees with us that when he disagrees with the fashionable would-be Marxists).

Mandel's own argument 0ver the arms economy is extremely curious. He says the arms economy cannot solve the realisation problem'—the problem of how capitalism is to find markets. He then argues it cannot solve the problem of the rate of profit either. Indeed, he goes so far as to say it makes this problem worse (although he does not dare ask himself how the period of the highest spending by the US and Britain on arms was the period when they were least bothered by the rate of profit).

But then he insists arms spending does something else—it solves the problem of what he (or his translator) calls the 'valorisation'5 of capital. By this he seems to mean the problem of finding a use for capital. This seems to be pure mysticism. Within capitalism there can be no 'valorisation' of capital, no use for capital, unless the problem of the rate of profit can be solved. For the only use for capital in the terms of the system is to expand itself, through making an adequate profit. Unless the arms economy provides an answer to the problem of the rate of profit, it cannot provide an answer to the problem of so-called 'valorisation'.6

Mandel rejects the central role of arms spending in maintaining the rate of profit, because he has a hopelessly confused notion of how arms spending takes place. He argues that the more there is investment in arms industries, the more there will be a tendency for the rate of profit to fall, since these industries tend to have a high organic composition of capital. 'Investment of capital in Department III (the arms section—CH) raises the organic composition of capital there.'

The capitalists in Department III expect the same rate of return as capitalists in other sectors. But production of surplus value per unit of investment will be less in this sector (because it has a higher organic composition of capital: fewer workers operate more machinery, etc). Therefore, they can only get the rate of profit they expect if the average throughout the rest of industry is lowered to pay them.

The argument looks convincing—on the surface. But how then can you explain the fact that in peacetime periods of highest spending on arms the rate of profit has not fallen at massive speed? There is only one explanation. It is to recognise that not only the profit of the capitalists in Department III, but also the wages and the cost of raw materials and machinery has to be paid for by the capitalists in other industries. For resources are provided from the rest of the economy for these things, as well as for the arms capitalists' profits without anything being given to the rest of the economy in return.

The arms workers produce nothing of benefit to the rest of the economy. Their pay is a deduction from the total social surplus value. The machines in the arms factories pass their value into goods that are then destroyed: they have to be paid for out of the total social surplus value. In this respect the profits of the arms capitalist are no different from the wages of the arms worker or the expenditure on machinery and raw materials for arms.

This is shown empirically by the way profits are fixed in arms manufacturing. They are not determined by the market, by the supply and demand of arms, the flow of capital into and out of arms manufacturing. They are fixed by a decision of the state to pay the arms companies a rate of profit equal (or a little above) that which has already been determined for the rest of the economy by the laws of the system. If the organic composition in the rest of the economy is low, the rate of profit there will be high, and therefore the rate of profit given by the state to the arms manufacturers will be high.

So the real question is not, as Mandel puts it as to whether profit rates in arms production cut the average rate of profit. It is whether any arms spending cuts the profits at the disposal of the capitalists, and therefore the rate of profit. After all, arms spending means that instead of being able to pocket all of their profits, the capitalists are forced to pay a fair amount in tax to the state.

But we must not forget that the state is the 'executive committee of the bourgeoisie'. The taxes the capitalists pay to the state are paid to themselves as a collectivity (although an individual capitalist might not always recognise this). That is why arms spending is in some ways like luxury consumption by the capitalist class: it is what the ruling class chose to spend their profits on once they have made them.

If 1 have a hundred pounds in my pocket and spend £50, that does not mean that I didn't have the £100 in the first place. If the total social surplus value equals, say, 200 billion dollars, the fact that the capitalist class chooses to spend half that on arms does not mean that the initial 200 billion really was 100 billion.

Arms expenditure no more reduces the rate of profit than does expenditure on investment or on the luxuries of the rich. To claim otherwise is to confuse the production of surplus value with its utilisation by the capitalist class.

Mandel just doesn't grasp the contradictions in the arms economy. He accuses Mike Kidron of the 'truly astounding discovery that the arms economy is a factor that slows down late capitalist growth.' But you only have to take a cursory glance at the statistics for arms spending and economic growth to see that the economies that have borne the greatest share of the arms burden have been those with the worst growth records:

Arms Expenditure as % of GNP Economic Growth 1953-70
1955 1970
US 13.4 9.9 93%
UK 7.7 4.9 54.7%
France 4.9 3.3 176%
Germany 3.2 3.2 224%,
Japan - about '/2% 265%

Japan, West Germany etc have been able to depend upon the US arms budget to stabilise the international capitalist system, while bearing relatively little of that burden themselves. The result is that Japan in particular has been able to devote nearly twice as much of its national product to productive accumulation than the arms-spending states. If all the advanced western states had behaved like Japan, there would have been an initial burst of growth at Japanese type rates—only to be followed by a catastrophic increase in the organic composition of capital, catastrophic falls in profit rates and catastrophic slumps.

The point can be illustrated another way, by comparing the behaviour of the US economy in two periods: (1) in the pre-war years when there was hardly any arms spending; and (2) in the post-war years when there was a very high level of arms spending.

(Source: R. A. Gordon: Business Fluctuations, New York 1961, p272)
It can be seen that the rate of growth in the pre-war booms was greater than since the war—there was no arms spending to dampen the rate of accumulation. But precisely because of this, they were followed by much sharper slumps than in the 1940s, 1950s and 1960s.

Mandel fails to understand any of this. As a result, he is forced like any bourgeois economist to look for some mystical explanation of the expansion of the system in the 1950s and its stagnation and crises today. That is why he ends up going back to the magic cycles of Kondratieff. But having taken that step he cannot deal with the revisionists and reformists who are trying to destroy the revolutionary kernel of Marxist economic analysis. Instead he is forced, as we have argued above, to try to compromise with them, to replace explanation by eclecticism.

The result is not a book that is a guide to practice but a somewhat tedious work that leaves unexplained the major features of modern capital. Mike Kidron described a previous book of Mandel as 'a Marxist failure'. Unfortunately, the same verdict has to be recorded here.

(Page references, unless otherwise specified, are to the NLB edition of Ernest Mandel's Late Capitalism).
(1) Interestingly a number of the objections I found myself maKing in writing the first draft of ihis review I found were made independently by Bob Rowthorne in his review in New Left Review. Rowihorne. however, draws diametrically opposed conclusions from his objections to those drawn by me. He replaces Mandel's account of the crisis by one which permits of reformist answers to the crisis, whereas I will argue the crisis is more, not less deep rooted than Mandel claims.
(2) 'Revisionist' not as an insult, but in the strict sense of abandoning fundamental tenets of Marxism, like the labour theory of value and the tendency towards a falling rate of profit.
(3) For the latter see C. Harman, 'Poland and The crisis of State Capitalism' IS 93 and 94.
(4) Which people like Rowthorne are only too happy to provide.
(5) 'Valorisation' is the trendy new translation of Marx's term Verwertung. My German dictionary gives the meaning of this term as 'utilisation', including the utilisation of machinery.
(6) I note that Bob Rowthorne is as bemused as me by Mandel's contradictions over this point—although his conclusions are of course quite

From Trotsky to state capitalism
A review of Beyond Perestroika by Ernest Mandel (London, 1989) £10.95

(from International Socialism 2: 47, summer 1990)

The USSR today displays all the symptoms of a society entering a prolonged period of social and political turmoil. Such periods always represent a great challenge but also offer great opportunities to the revolutionary left internationally. But to meet them the left has to have a clear understanding of what is happening and why. It has to have a revolutionary theory to guide its revolutionary practice.

There are a number of different theoretical analyses of the USSR on the revolutionary left. Ernest Mandel is one of the best known proponents of the theory that sees it as a degenerated workers' state, Tony Cliff of the theory that sees it as bureaucratic state capitalist. The appearance in the last few months of Mandel's book Beyond Perestroika in an English translation and of Tony Cliffs State Capitalism in Russia in French translation offers the opportunity to contrast the two analyses and to see which best comes to terms with current realities.
Both Mandel and Cliff come from the Trotskyist tradition. Cliff was a member of the Fourth International in Palestine and Britain during the 1930s and 1940s before playing a leading role in the Socialist Workers Party of Britain (previously the International Socialists), of which he is still a leading activist. Mandel has been a leading figure in the Fourth International since the mid 1940s.

Both started off by accepting the same analysis of Russia, that elaborated by Trotsky in the 1930s. But in the late 1940s developments in Eastern Europe led to a period of intense discussion in the international Trotskyist movement which drew Cliff and Mandel in different theoretical directions.

Trotsky had argued in the 1930s that the bureaucracy in the USSR was a 'caste'. It was a stratum of society which had been able to take advantage of the isolation of the Russian Revolution (to which it then contributed!), the poverty of the country and the weariness of the masses to concentrate power and privilege in its own hands. But it was only
able to do so by balancing between the working class and bourgeois and petty bourgeois forces at home and internationally:

The Soviet (it would be more accurate to say, the anti-Soviet) bureaucratism is the product of the social contradiction between the city and the village; between the proletariat and the peasantry; between the national republics and districts; between the different groups of peasantry; between the different layers of the working class; between the different groups of consumers; and finally between the Soviet state and its capitalist environment. .. Rising above the toiling masses, the bureaucracy regulates all these contradictions. . .' 1

It was 'not an independent class but an excrescence upon the proletariat'.2 To this extent it could be compared with the trade union bureaucracy in the West: it betrayed the working class, it used the working class for its own ends, but was still to some degree dependent on the working class. It did not have its own independent roots in the ownership of property or in production, but was a parasitic outgrowth based on contradictions in the realm of consumption. As such it impeded the development of society, without substituting any new development based on its own class interests. 'A tumour can grow to a tremendous size and even strangle the living organism, but a tumour can never become an independent organism.'3

Because of this, it served to retard the development of the country. 'The further unhindered development of bureaucratism must lead inevitably to the cessation of economic and cultural growth, to a terrible social crisis, and to the downward plunge of the entire society."4

In his early formulations of the analysis Trotsky drew the conclusion that the bureaucracy could still be brought to order peacefully by a resurgent working class:

"The recognition of the present Soviet state as a workers' state not only signifies that the bourgeoisie can conquer power only by means of an armed uprising, but also that the proletariat of the USSR has not forfeited the possibility of subordinating the bourgeoisie to it, of reviving the party again, and of regenerating the regime of the dictatorship—without a new revolution, with the methods and on the road to reform"5

But he was not afraid to change his account in the light of the harsh experience of what Stalinism in power meant. In October 1933 he wrote, 'The bureaucracy can be compelled to yield power into the hands of the proletarian vanguard only by force."6

The Revolution Betrayed, written three years later, was absolutely adamant that it was not possible to reform either the party or the state:

"All indications agree that the further course of development must inevitably
lead to a clash between the culturally developed forces of the people and the bureaucratic oligarchy. There is no peaceful outcome to this crisis. No devil has ever cut off his own claw. The Soviet bureaucracy will not give up its positions without a fight. The development obviously leads to the road of revolution."7

This revolution, he argued, was a 'political' not a social revolution, although it would be a political revolution with 'deep social consequences'.8

Trotsky's attitude to the bureaucracy hardened even more in the last four years before he was murdered. He insisted that it was a counterrevolutionary force, a product of the pressure of the bourgeoisie on the working class. But he still insisted it was a not a class. Powerful sections of the bureaucracy wanted to turn themselves into a class, but they could only do so by establishing private property of industry—and fear of the working class stopped them doing so. 'It [the bureaucracy] only preserves state property to the extent that it fears the proletariat..."9

Just as the working class could not establish a healthy workers' state without revolution, the bureaucracy could not establish itself as a ruling class without a full blooded counter-revolution. The bureaucracy seemed very powerful, Trotsky argued. But in reality its power could not last for long, 'Bonapartism by its very essence cannot long sustain itself: a sphere balanced on the point of a pyramid must invariably roll down on one side or the other'10

One of his arguments against the 'new class theory' developed by Schachtman and others in 1939 was that as revolutionary socialists we would 'place ourselves in a ludicrous position if we fixed to the Bonapartist oligarchy the nomenclature of a new ruling class just a few years or even a few months before its inglorious downfall.'11

In 1940 he spelt out the argument even more forcefully. The outbreak of war would constitute an increase in all the contradictory pressures within the USSR and there would be no chance of the bureaucracy being able to continue its balancing act. 'In case of a protracted war accompanied by the passivity of the world proletariat the internal contradictions in the USSR not only might but would have to lead to a bourgeois-Bonapartist counter-revolution.'12

The problem Trotsky's followers had to face after the war was that, far from falling apart or even weakening, the Stalinist bureaucracy was stronger than ever. Its armies had extended the boundaries of the USSR and had established regimes virtually identical to the USSR in Eastern Europe—a feat soon to be copied by Mao Zedong's army in China. If the USSR was a degenerated workers' state, then logically these regimes must be some form of workers' state as well. But what then happened to Trotsky's contentions that the Stalinist bureaucracy was 'counterrevolutionary'—or to the general Marxist contention that revolution from
below was needed to destroy capitalism?

The revolutionaries of the Fourth International wrestled with these contradictions in Trotsky's analysis through 1947-9. Some (including both Cliff and Mandel briefly) attempted to fit the facts into the old analysis: Russia was a degenerated workers' state, but the Eastern European states bourgeois dictatorships (a position still ostensibly held by Lutte Ouvriere in France). But soon two positions crystallised, both in their own way different to Trotsky's.

The first was to use much of the phraseology of Trotsky's formulations, but to accept that Stalinism could be a revolutionary force despite itself, and to proclaim the East European states 'deformed workers' states'. This was the position taken by Mandel, Pierre Frank, Michel Pablo and others.

It was this path which led some people very easily away from the spirit of Trotsky's theory. Pablo, for instance, concluded that if the Stalinist parties could be revolutionary, then humanity faced 'hundreds of years of deformed workers' states' and the job of revolutionaries was to help in their creation by entering the Stalinist parties.13 Meanwhile, Isaac Deutscher, a pre-war Trotskyist who had opposed the formation of the Fourth International, argued that the growth of industry inside the USSR would automatically lead Stalinism to reform itself. Again, the logic was to abandon independent revolutionary politics. Deutscher wrote in 1953 that 'the effect of the Berlin revolt was objectively counter-revolutionary and not revolutionary' because it had contributed to 'Beria's downfall' at a time when 'Beria was one of those who stood for democratic reform'.14 He later transferred his trust to Khrushchev, writing of the uprisings of the 1950s that:

"Eastern Europe (Hungary, Poland, and East Germany). . . found itself on the brink of bourgeois restoration at the end of the Stalin era; and only Soviet armed power (or its threat) stopped it there."15

Meanwhile, a section of Pablo's supporters backed the crushing of the Hungarian revolution by Russian troops. Of course, such people weren't necessarily uncritical of Stalinism or of Khrushchev. Right to the end of his life in 1968 Deutscher continued to argue for a democratic version of socialism. But the important point was that he saw the Russian bureaucracy, acting from above, as an agent that could take us part of the way there.

The mainstream of the Fourth International managed to avoid such extreme conclusions. But they did tend to see the Russian bloc as a progressive historical force. Mandel, for example, would argue that the growth rate of the Russian economy alone was enough to demonstrate the superiority of its economy over any of capitalism (forgetting Trotsky's prognosis nearly 20 years before of the imminent collapse of that economy!):

"The Soviet Union maintains a more or less even rhythm of economic growth, plan after plan, decade after decade, without the progress of the past weighing on the possibilities of the future... All the laws of development of the capitalist economy which provoke a slow down in the speed of economic growth are eliminated." 16

And if Mandel never made Deutscher's mistake of opposing the risings of 1953 in East Germany and 1956 in Hungary, he did tend to identify reform from above in Eastern Europe with the 'political revolution'. So he expressed a clear preference in 1956 for the methods of Gomulka in Warsaw to those of the revolutionaries in Budapest. He could write that, although 'socialist democracy will still have many battles to win in Poland, the principal battle, that which has permitted millions of workers to identify themselves again with the workers' state, is already won."17

This trend is continued today by many people who claim to base themselves on Trotsky's analysis. Thus, for instance, Tariq Ali—who says his 'political formation' was 'greatly influenced by Isaac Deutscher, Leon Trotsky and Ernest Mandel (in that order)'—puts enormous faith in Gorbachev in his aptly titled book Revolution from Above. 'In order to preserve the Soviet Union', he writes, 'Gorbachev needs to complete the political revolution which is already underway.'

Fortunately, the tone of Mandel's book on perestroika is different. He tells us:

"Gorbachev represents the response of the modernist wing of the bureaucracy to the threat to the stability of its rule represented by this crisis [of the Soviet system] and by the rise of public awareness. To channel these changes and to try to keep them under the bureaucracy's control—this is the historic project of the Gorbachev wing of the Soviet bureaucracy." 18

"Underlying the apparent realism of Gorbachev is a profoundly conservative vision of reality, which corresponds perfectly to the social and ideological conservatism of the Soviet bureaucracy..." 19

Mandel argues strongly against those who say what is taking place today is 'a revolution from above':

"The point of the exercise is to prevent a revolutionary explosion, in other words, a 'revolution from below'. But, for this very reason, these measures are radical reforms and not revolution in the proper sense of the word..."20

Yet the tone is not always so sure, as when he writes that 'the only
valid verdict' on measures taken by Gorbachev 'is a nuanced one, case by case, problem by problem.. . Too bad for the over simplifiers."21 It is as if Mandel, having taken a sharp turn against those like Tariq Ali, who would have us put our trust in Gorbachev, is still not fully convinced that they are wrong.

But if Mandel's conclusions are not fully coherent, the analysis on which he bases them is even less so. It is not just that the book contains an infuriating number of elementary factual errors." More importantly, the theoretical underpinning of the argument is fundamentally flawed.
The most basic problem with the analysis concerns Mandel's understanding of the bureaucracy. He insists that the bureaucracy is not a class: 'The nomenklatura is not a ruling class but a fraction of a class which has usurped power from the working class...'"23

This leads him into all sorts of contradictions. He writes that 'the bureaucratic layer monopolises political power just as it does economic power"24 and that 'The interests of the mass of producers, the workers and peasants.. . are opposed to those of the directors/managers..."25

He applies to it what he calls 'the essential law which emerges from the history of different societies', that 'the social group (social class or major section of a social class) which controls the social surplus because of its place in the production process, controls to a large extent all other activities too.'26 It follows from 'the materialist interpretation of history' that:

"Relations of domination flow from relations of production. These relations of domination cannot, except during brief periods of dual power, be in fundamental opposition to the relations of production."

But if the bureaucracy 'controls the social surplus' because of 'its role in the production process', then 'its role' involves it exploiting the direct producers. And a 'group' which exploits the direct producers is, by definition, an exploiting class.

Of course, there have been many cases historically when a section of an exploiting class has concentrated power into its own hands and, thereby, creamed off much of the surplus previously disposed of by other sections of the ruling class. This was true, for instance, of the late feudal monarchy and, according to Marx, of the regimes of both Louis Phillipe and Louis Bonaparte. But in these cases the surplus came, in the first place, from the class exploitation of the direct producers. The 'section of the class' was a section of an exploiting class.

It is a complete travesty of Marxism to claim that a section of the working class, ie of an exploited class, can control the surplus from exploitation. But Mandel does not pursue this line of argument. Three pages after putting it, he denies his own argument:

"Unlike a real ruling class, the bureaucracy is unable lo base its material privileges on the coherent functioning (ie the reproduction) of the economic system, of its role in the production process. . ."27

So on one page the bureaucracy 'controls the social surplus' because of 'its role in production'. Three pages later 'its material privileges', which presumably are part of the surplus, do not come from 'its role in the production process'. The confusion of the whole argument is increased still further when we are told later, 'In reality, a socialist society, a society without classes, does not exist in the USSR.'-28

This confusion over whether the bureaucracy is a ruling class is part of a wider confusion. In Mandel's account there is no explanation of the dynamic of the Russian economy. Mandel, as we have seen, used to hold the view that planning made the Russian economy able to expand indefinitely. Now empirical reality has made him change his mind. He talks of economic 'crisis', and says, 'The most striking manifestation of this crisis is the slowdown in the rate of economic growth.'29

He explains this in three ways.

i) Mandel argues:

"The contradictory development of Soviet society is precisely a product of the combination of dynamism and immobility. The dynamism results from economic and social growth (a product of what remains of the October revolution) which is impressive in the long term, even if it is slowing down year by year. The immobility results from the bureaucratic stranglehold on the state and society as a whole. This is an obstacle to further growth.'30

Elsewhere he makes the same point in a slightly different way:

"The dominant layer in society seems incapable of developing the system."31

". . . the material interests of the bureaucracy [are] the principal, if not the only, motor force ofplan fulfilment, of the daily functioning of the system. This robs the entire economy of any form of economic rationality. The material interests of the bureaucracy push in the direction of increasing access of goods and services to the bureaucracy itself and not in the direction of optimising the output of enterprises—and certainly not in the direction of maximising the rate of accumulation.''32

ii) He goes on to argue:

Technically the fall in the growth rate expresses the regular increase in what, in the capitalist economy, we would call the 'capital coefficient' . The investment mass necessary to increase the national income by 1 percent increases from one five year plan to the next."33

iii) Finally, Mandel claims:

"The plan /market relations, or what amounts to the same thing, the bureaucratic despotism/law of value relation. . . [is] the fundamental contradiction of the economy..."
Let's look at each in turn."

In his first point Mandel's talk of a 'combination of dynamism and immobility' only makes sense if what is meant is that the economy used to seem very dynamic, with growth rates higher than most advanced Western countries (although not all: Japan has probably done better on average), but that it is increasingly prone to stagnation. But it is completely misconceived to try to explain the dynamism by 'what remains of the October revolution' and the stagnation by the 'bureaucratic stranglehold'. Such an explanation implies that the 'bureaucratic stranglehold' was less and the 'remains of the October revolution' greater at the time of the Moscow trials and the five to ten million slave labourers than today.

In fact, as every serious study of the five year plans and industrialisation has shown, the drive to industrialisation and collective agriculture was carried through by the Stalin wing of the bureaucracy (assisted, it is true, by ex-Zinovievites, capitulationist left oppositionists like Preobrazhensky and Radek and the great mass of repentant Bukharinites). It came after what has sometimes been called 'the Stalin revolution'—the final and complete bureaucratisation of the party, the state machine and the trade unions, and the use of the GPU to obliterate every expression of opposition."35

This bureaucratisation did not simply, or even mainly, lead 'in the direction of increasing access to goods and services for the bureaucracy itself. Above all it led, despite Mandel's claim to the contrary, to a massive rate of accumulation. And this accumulation was not of the 'goods and services' consumed by the bureaucrats, but, above all, of heavy industry—of iron, steel, cement, electricity generation, coal, oil.
The Russian economist, Vasily Selyunin, has recently provided figures on accumulation in the USSR since the late 1920s. He begins with figures from Agabegyan showing 25 percent of present national income going to 'saving' and 75 percent to consumption. He then recomputes them to take account of price distortion and concludes, 'the consumption fund accounts for 60 percent of income and the savings fund for 40 percent. Such a high composition of savings is, essentially, a wartime standard.'"36 It compares with an average level of gross accumulation in Western states of 15-20 percent.

Selyunin goes on to show how the real level of accumulation in the
USSR has grown continually since the 1920s, giving the following figures: in 1928 consumer goods were 60.5 percent of output, in 1940 39 percent, in 1960 27.5 percent, in 1985 25.2 percent. He concludes that the officially given figures for the rate of accumulation must be a gross underestimate:

"Is it really conceivable that, according to official figures three quarters of net income goes to consumption while consumer goods are only one quarter of industrial output? You can't help wondering what goods are being bought with the consumption fund.

"Shifts towards the manufacture of producer goods have put us in the paradoxical situation where accelerated rates of development and more rapid growth in national income have very little effect on the standard of living. The economy is working more and more for itself, rather than for man."37

This might be irrational from the point of view of the mass of Russian workers, whose labour is accumulated without them gaining. But it is certainly not a policy based on producing goods for the consumption of the bureaucracy alone—unless you believe that 'steel hard cadres' actually eat the stuff!

The bureaucracy has, in fact, overseen a policy of massive accumulation and industrialisation, and it is completely wrong to claim that it has prevented this occurring.

Secondly, Mandel claims that growth in the 'capital coefficient' is a product of 'the growing non-utilisation of resources, resulting from the general malfunctioning of the economy, as well as by the low productivity of human labour'.

But this is to beg the question. If the non utilisation of resources is 'growing', why? There is 'general malfunctioning of the economy' and 'low productivity of labour'. But is there any reason for these things to be worse today than in Stalin and Khrushchev's time?

One might expect a Marxist to look more closely at a growth in the 'capital coefficient' than Mandel does. For the coefficient is closely related to the Marxist concept of the organic composition of capital. The coefficient is the ratio of means of production to output, the organic composition the ratio of means of production to labour power (all measured in value terms). If one increases, then the other is likely to do so.

The rising organic composition of capital was, of course, for Marx the basis of the fundamental contradiction of the capitalist economy, the tendency of the rate of profit to decline and of the economy increasingly to stagnate. If it also underlies the crisis of the USSR, then the finding is very significant indeed, and not to be explained away simply by a claim that inefficiency and irrationality are greater now than at the height of Stalin's terror in the 1930s.

Finally, what of the attempt to see the 'fundamental contradiction' as between 'the plan' and 'the market', or between 'bureaucratic despotism' and the 'law of value'?

Mandel's formulation here is both theoretically flawed and politically dangerous.
The law of value operates in societies where there is commodity production—and, in particular, the most developed form of commodity production, capitalist production. The function, necessary to any society, of allocating labour between different productive tasks, is not carried out consciously in such societies, but rather through the blind interaction of the products of different acts of labour which are organised independently of each other. The organisers of these different acts of labour are in competition with each other, and this competition forces them to try to keep ahead of each other in forcing up the productivity of the labour—both through imposing harder work and investing in ever more advanced means of production. By behaving in this way, they are continually relating each act of concrete labour to every other act of concrete labour carried out in the system, or, as Marx put it, transforming concrete individual labour into abstract social labour.

The law of value is the pressure that exists in such a system forcing each individual unit of the system to relate to productivity in every other unit. It is the coercive economic force which overrides the desires and intentions of those who run individual parts of the system. Under capitalism, it is certainly not something which is necessarily opposed to 'bureaucratic despotism' or, for that matter, to planning within individual firms. Quite the opposite—it compels managers to be despotic, to tighten the screw on workers. It also compels them to 'plan' the internal arrangements inside the firm so as to meet the requirement of competition outside it. As Marx put it, 'the anarchy of the market determines the tyranny of the factory'.

What is true is that capitalism is a continually developing system, with innovations and technical progress taking place in some parts of the system before others. Elsewhere in the system the old forms of 'tyranny inside the firm'—the old methods of capitalist planning—then no longer correspond with what is needed to keep abreast in the struggle for increased productivity. The law of value then comes into contradiction with the existing forms of organisation of production.
The contradiction between 'bureaucratic despotism' and the 'law of value' occurs because society is subject to the law of value. Can this be true in the USSR? Only if you accept that the USSR is a commodity producing society, a variant of capitalism.

This was no problem for Trotsky and Preobrazhensky writing in the mid-1920s. Although the state controlled big industry in the USSR, virtually the whole of the agricultural sector, a sizeable portion of trade and much handicraft production were in private hands. The state traded
with the private sector and with capitalist countries abroad, and therefore was subject to the pressures of commodity production itself. In this situation Trotsky and Preobrazhensky could write about conflicts between the pressures on the one hand from the requirements of commodity production ('the law of value') and on the other from the attempts of the state to plan the economy in the interests of one or other social group.

But where do the pressures to satisfy the requirements of commodity production come from today? Stalin virtually eliminated the rural and urban petty bourgeoisie. The state sector completely dominates the economy. If, as Mandel argues, the USSR is a 'post capitalist society', one no longer dominated by commodity production, then it is difficult to see why the law of value should conflict with the bureaucracy's ways of running the economy. It is rather like expecting the laws of aerodynamics to operate in empty space—unless he is inadvertently admitting what he denies throughout the rest of his book, that the bureaucracy is forced to behave like a capitalist class.

There is one dangerous interpretation which can be put on his formulation: that the bureaucratically administered economy 'contradicts the law of value' through being innately less efficient than a market based capitalist economy. This, of course, is the contention of a whole host of ideologists of Western capitalism. It is also the contention of many of those who consider the USSR to be a new form of class society, neither capitalist nor socialist: they see it as an 'oriental despotism' or a 'bureaucratic collectivism' with a completely different dynamic to capitalism—indeed, usually with no dynamic at all, and therefore to be regarded as inferior to capitalism. This today, for instance, is essentially the attitude of the group of intellectuals around the magazine Critique in Britain. It was also the analysis which led the former American Trotskyist Max Schachtman to support the Bay of Pigs invasion of Cuba.

Mandel is not, of course, moving to such horrendous practical conclusions. But he does resort to formulations which might lead others to, as when he argues, 'Clarity and unimpeded dissemination of information... is guaranteed within capitalist enterprises by private property."38

In fact, precisely because the anarchy of the market does lead to the tyranny of the factory, it also leads to bureaucratic inefficiency within the firm, attempts to stifle innovation, a lack of control of top management over shopfloor management. The functioning of any capitalist firm is characterised by a whole range of practices which are not wiped out by some smooth running automatic mechanism, but only periodic readjustment of internal production to the external law of value through crisis and 'restructuring'. What is more, the increasing concentration and centralisation of capital means that firms get ever larger, the bureaucratic despotism within the firm ever stronger, and the degree of restructuring and crisis required to satisfy the law of value ever greater and more traumatic.

The point is important. All the time we are faced with propaganda from the media telling us that the 'crisis of communism' shows the efficiency of Western capitalism. We should not give an inch on this argument.

Unfortunately, this is not the only point at which Mandel gives ground. At another point he says the reason the USSR's health service is worse than that of the US is that 'doctors in the USSR spend a lot of their time form filling,' 39 Yet American health provision is notoriously inefficient (consuming three times the proportion of the national product compared with the USSR's, or six times the total funds) precisely because American doctors spend a lot of time checking the bank balances of their patients!

The lack of theoretical coherence in Mandel's analysis is revealed most starkly when he writes that the approach of 'Stephen Cohen and Moshe Lewin' is 'similar to that of the present author'.40 Both Cohen and Lewin have produced useful historical works. But both are also unreconstructed Bukharinites, who believe that reliance on the market would have solved all the USSR's economic problems in the 1930s and who see their task as to advise the USSR's leaders to follow a policy of such reliance today.

A final, practical point on Mandel's analysis. Trotsky viewed the bureaucracy as an unstable, parasitic growth. This led him to conclude that the great crisis he expected in 'a few years, if not a few months' would result in the main sections of the bureaucracy opting to transform themselves into a bourgeois class based on private property, 'not organically through degeneration, but through counter-revolution'.41

Those who base themselves on the letter of Trotsky's analysis today are split into three camps. There are those who see the present crisis in the USSR as the one he warned of (ignoring the 55 year time lag, during which the bureaucracy has presided over a massive advance in the forces of production). They draw the conclusion that the reformers inside the USSR and Eastern Europe who talk today about the market represent the forces of 'bourgeois restorationism' and that the task of revolutionaries is to oppose them. The logic of that position is to give critical support to the Ligachevites—the most reactionary forces in the USSR.

The second interpretation is to say that Gorbachev's reforms constitute the 'political revolution', and to offer him critical support.

The third view, the one which Mandel mostly holds to in his book (although, as we have seen, not consistently), is to seek to exploit the openings provided by glasnost to organise the working class independently of Gorbachev and his conservative opponents.

But Mandel can only do so by downplaying those of Trotsky's arguments which insist on the strength of the 'restorationist' forces. Mandel insists, 'It is not capitalism that Gorbachev wants to introduce in the Soviet Union'42—although with typical inconsistency he writes elsewhere that 'there has emerged within the bureaucracy a fraction which is clearly "restorationist" "' and that 'Gorbachev's real economic dilemma... is... the maintenance of a socialised and planned economy or the restoration of capitalism in large scale industry'.

The fact that such completely different perspectives can emerge from the same 'orthodox Trotskyist' analysis of the USSR must raise questions about the correctness of the analysis itself—just as the crisis of the Trotskyist movement did back in 1947-8.

Cliff reacted to that crisis very differently from Mandel. He argued, in the first, cyclostyled, edition of his book, which appeared early in 1948, that the revolutionary movement faced an enormous danger. Standing by the letter of an old analysis of reality could lead to abandoning the revolutionary spirit which originally motivated that analysis. The only way to avoid the danger was to carry through a fundamental re-analysis of Russian society 'rooted in the teachings of the great Marxist teachers'.

Cliff's own analysis began by examining the material realities of the USSR. Sifting through vast masses of empirical material, he drew out the contrasts between conditions in the post-revolutionary period and those after 1928, when Stalin finally consolidated his power.
Trotsky had come to the conclusion in 1935 that Thermidor, the decisive bureaucratisation of the regime, had occurred ten years earlier with the defeat of the left opposition. But he had then gone on to point out that Thermidor represented, in the French Revolution, the establishment of a non-revolutionary regime which still preserved essential advances of the revolution, and was different from counterrevolution.

Cliff argued that an examination of material realities showed that further qualitative change had taken place after the Russian Thermidor of 1924. In the winter of 1928-9 the bureaucracy, which had previously balanced between the working class and the peasantry, hit out viciously against both.

The last elements of workers' control were destroyed in the factories; trade union independence was completely abolished; real wages fell 30 or 40 percent; the GPU was given a free hand to obliterate the last remnants of discussion inside the party; the fight against 'egalitarianism' became state policy as differentials between bureaucrats and workers increased massively; the peasants were driven from the land through so-called 'collectivisation'; the number of prisoners in labour camps rose 20 fold in two years (rising tenfold again in the next decade); Russification was used to destroy the autonomy of the non-Russian Soviet republics.

The fact that all these changes occurred at once was no accident. They were all by-products of the response of the Stalinist wing of the bureaucracy to the economic crisis which hit the country with the threat of war in 1927 and the 'scissors crisis' of 1928. As its old policy—the
Bukharin-Stalin policy of 1924-7, of ignoring the rest of the world and hoping for the best—fell apart, the bureaucracy used all the forces at its disposal to impose a new policy. It sought to respond to threats from the West by copying the very means used by Western capitalists to build up industry and, with it, military potential. It destroyed the independence of the working class and the peasantry and attacked their living standards so as to gain a surplus for industrialisation. If its methods were even more vicious than those used in the industrial revolution in, say, England it was because the Stalinist bureaucracy sought to do in a couple of decades what had taken 300 years to accomplish in England.

The most impressive part of Cliffs book was where he showed, by meticulous examination of the USSR's official statistics, how the official talk of 'planning' (accepted at the time by Mandel and other 'orthodox Trotskyists') concealed the reality of the continual subordination after 1928 of the production of consumer goods to means of production. While before 1928 consumer and producer goods production both rose together, after 1928 their paths diverged completely. While 'plan' targets for producers goods were over-fulfilled, those for consumer goods were simply ignored.

This, incidentally, shows the sharp contrast between the notion of planning and industrial development which Trotsky had fought for in the years before 1928 and that which Stalin had implemented. Trotsky had based himself on the need to speed up the rate of industrial growth so as to improve the living standards, the confidence and the social weight of the working class. Stalin based himself on cutting living standards, using the GPU to terrorise the working class into submission, and swamping old, class conscious layers of workers in a sea of raw, inexperienced and terrified ex-peasants.

There were formal similarities between Stalin's policies and Trotsky's. These confused Trotsky himself for a time and led people like Radek and Preobrazhensky to capitulate to Stalinism. But, as Trotsky himself came to realise, from a working class standpoint they were opposites.

Under Stalin the overall picture was of an economy in which the drive to accumulate means of production dominated everything else. This drive to accumulate pitted the bureaucracy against the workers and peasants. It gave the different members of the bureaucracy interests, rooted in the production process itself, which forged them into a class in unrelenting historical opposition to other classes. It meant they were no longer a stratum of the working class, or a group simply balancing between other classes, but the protagonists of developing a mode of production at the expense of other classes. As Cliff put it:

"Why was the first five year plan such a turning point?

"It was now, for the first time, that the bureaucracy sought to create a proletariat and to accumulate capital rapidly. In other words, it was now that the bureaucracy sought to accomplish the historical mission of the bourgeoisie as quickly as possible. A quick accumulation of capital on the basis of a low level of production, of a small national income per capita, must put a burdensome pressure on the consumption of the masses, on their living standards. Under such circumstances the bureaucracy, transformed into a personification of capital, for whom the accumulation of capital is the be-all and end-all, must get rid of all remnants of workers' control, must substitute conviction in the labour process by coercion, must atomise the working class, must force all socio-political life into a totalitarian mould. It is obvious that the bureaucracy, which became necessary in the process of capital accumulation, and which became the oppressor of the workers, would not be tardy in making use of its social supremacy in the relations of production in order to gain advantages for itself in the relations of distribution. Thus industrialisation and technical revolution in agriculture ('collectivisation') in a backward country under conditions of siege transforms the bureaucracy from a layer which is under the direct and indirect pressure and control of the proletariat into a ruling class, into a manager of the 'general business of society: the direction of labour, affairs of state, justice, science, art and so forth. "44

Cliff refers to the bureaucracy as 'state capitalist'. This has caused his theory to be attacked by a host of commentators—of which Mandel is just one—who claim there cannot be capitalism without private owners of the means of production competing with each other to sell goods.
Cliff deals with this argument at length in his book. He bases himself on the analyses of the imperialist stage of capitalism developed during the First World War by Lenin and by the young Bukharin. These showed how the concentration and centralisation of capital leads to the replacement of 'free market' capitalism by 'state monopoly capitalism'. Horizontal and vertical mergers lead to huge firms which dominate whole industries, planning their operations with meticulous care and not just leaving them to the accidents of the market. The heads of these industries work increasingly closely with the state bureaucracies. There is, so to speak, a 'merging together' of industry and the state. This merging finds its fullest development in all-out imperialist wars, in which the state and capital work together to plan the war economy internally, while seeking to destroy rival capitalisms physically.

So much is the war economy planned, that those who base themselves on a simple, ahistorical view of capitalism do not see it any longer as capitalist. This was, for instance, the conclusion which the famous Austro-Marxist economist, Hilferding, came to about the Nazi German economy. For inside the war economy production is planned from above and does not depend upon the ups and downs of the market, upon the interplay of commodities. And its external trade is necessarily limited.

Cliff insists, however, that the war economy remains a species of capitalism. For if old-style 'free market' competition plays a very little role, a new form of competition dominates it completely. This is military competition between the rival state capitalist ruling classes of different countries. This competition has similar effects on the organisation of production inside each country to those economic competition has on the organisation of production inside each firm.
To compete militarily with each other the rulers of each country have to make sure that the productivity of the labour under their command does not fall below that of their rivals. Every time their rivals invest in new equipment and more advanced technology they have to try to do the same. Every time their rivals succeed in getting a bigger surplus for investment by increasing the rate of exploitation of their workers, they have to try to match their efforts.
In this way, the different acts of concrete labour carried out in different factories in different parts of the world are related to each other, are measured against each other, are transmuted into expressions of a common abstract labour. The threat of military defeat compels the giant state capitalist ruling class to impose the law of value on its enterprises just as the smallest individual entrepreneur is forced to by the threat of bankruptcy.

It is this analysis which Cliff uses to decipher the puzzle of Stalinist Russia. Stalin's policies after 1928 involved transforming Russia into a massive arms economy, dominated by the drive to accumulate the economic basis of military power, above all heavy industry. Stalin was subordinating the USSR's economy as a whole to the pressures of a particular form of international capitalist competition (to the law of value on a world scale), even while preventing competition between different sections of the economy inside the USSR.

It is this domination by competition which explains the most remarkable feature of the USSR's economic development: the way in which it has displayed the very dynamic which Marx argued was unique to capitalism—the endless pursuit of accumulation. In the Communist Manifesto Marx makes a sharp distinction between 'bourgeois society' in which 'living labour is but a means to increase accumulated labour' and 'communist society' where 'accumulated labour is but a means to widen, to enrich, to promote the existence of the labourer.' The USSR lies on the side of 'bourgeois society' in this respect and not on the side of socialism. Cliff shows why.

But that is not all he seeks to do. His aim in exposing the dynamic of the USSR's economy as one of endless competitive accumulation is to draw conclusions for the struggle for socialism.

Those who do not identify such a dynamic can come to one of two equally disastrous conclusions.

The first is to see the bureaucratic ruling stratum as more progressive than the capitalist classes of the West. The logic is then to subordinate the struggle for socialism to giving assistance,
or at least advice, to these rulers. It is a logic that leads to horror at the thought that social upheavals might threaten their rule, and to paralysis in the face of the present crisis in the USSR through fear of it leading to a 'restoration of capitalism'.

The second conclusion is to see the bureaucracy as less progressive than Western capitalist classes, as a totalitarian force preventing human development for the indefinite future. Such was the path of Schachtman in the 1940s and 1950s. Such is the path that many 'new class theorists' are tempted towards today.

Cliff's theory, by identifying such a dynamic, comes to a radically distinct conclusion. It is that the Stalinist bureaucracy, like the Western capitalist classes, creates its own gravedigger. The more successful it is in accumulating capital, the more it builds up the size and strength of a working class that has the potential to overthrow it:

"The bureaucracy increases the working class on the basis of the highest concentration history has yet known. And, try as it might to abridge the abyss between concentrated wage labour and concentrated capital, the bureaucracy is bringing into being a force that will sooner or later clash violently with it."45

When these words were written in the late 1940s, they seemed nuich less impressive than those who talked of 'hundreds of years ol degenerated workers' states' or those who claimed the Russian bureaucracy ruled over some new variant of slave society which was not subject to the contradictions of capitalism. They are vindicated today by the scale of unrest which is sweeping the USSR.

One last point. Only Cliff's analysis enables us to account for the character of the present economic crisis in the USSR. It is because (he USSR is part of a world system based on military and economic competition that the bureaucracy finds its old methods of running the economy no longer fit.

The USSR's rulers try to maintain military parity with a state which has twice their GNP—and so have to spend twice the proportion ol their own GNP on arms. They are obsessed with modernising their engineering industries so that they match technical advance elsewhere in the world They see the relative fall in the price of their major export, oil, in recent years as a threat to their whole economic strategy by making it more difficult to import the most advanced machines. Above all, they an-deeply afraid that they cannot raise the productivity of labour inside the USSR closer to the US level.

Mandel used to deny that external circumstances could exercise such pressures on the Russian economy, writing that this was to claim 'thai the tail of one percent of output imported from and exported to advanced capitalist countries is wagging the dog of the Russian economy ''46

Now he admits they exist, but cannot integrate them into a total analysis. And so, as we have seen, he sees a contradiction between 'the law of value' and 'bureaucratic despotism' without explaining how that law operates and why the contradiction should come to the fore now.

Yet once you recognise the USSR as a bureaucratic state capitalist country, it is very easy to complete the analysis. The Stalinist bureaucracy responded to the world crisis of the 1930s and the growing threat of war by seeking to accumulate capital inside the country while cutting to a minimum its external trade links. In this respect, it was not behaving very differently from ruling classes in many Western and Third World capitalist countries. The whole period was one of relatively self contained economies in which the state intervened in order to prevent the onset of violent crises within the internal economy—the period of Keynesianism in the West, of import substitutionist growth in countries like Argentina and Brazil, and of attempts to copy Stalinist 'planning' in China and even India.

But in the 1960s and 1970s such approaches everywhere ran increasingly into contradiction with the internationalisation of the world economy. The concentration of capital meant that the resources required to keep ahead in the most advanced industries began to exceed the internal resources of nearly all states; keeping up with advances in technology increasingly meant forging links with the largest multinational corporations. The industries which had developed within the confines of national boundaries could now only survive if they were restructured as part of a new international division of labour.

The restructuring could be painful even for relatively open and limited state capitalisms like that of Britain. In the more autarchic and complete state capitalisms of the East it can be devastating. It threatens not only the conditions and livelihoods of many workers, but whole sections of the bureaucratic-managerial apparatus itself. And there can be no guarantee that even if it is successfully completed conditions in the outside world won't have shifted in the interim, leaving the USSR's economy still uncompetitive.

The Russian ruling class faces the problem that periodically besets every capitalist ruling class. The very methods that allowed successful accumulation in the past no longer do so. Because it is part of a world system it has to try to change its ways. But its attempts to do so are unleashing social forces which it cannot control. As Marx wrote in the Communist Manifesto:

"The bourgeoisie cannot exist without constantly revolutionising the instruments of production, and thereby the relations of productions and with them the whole relations of society. . . Constant revolutionising of production, uninterrupted disturbances of all social conditions, everlasting uncertainty and agitation distinguishes the bourgeois epoch from all earlier ones. All fixed ast frozen relationships, with their train oj ancient and venerable prejudices and opinions are swept away, all newly formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his conditions of life and his relations with his kind."47

The Stalinist state bourgeoisies of the East can no more escape from this violent, capitalist dynamic than can the 'private' (more accurately, the state monopoly capitalist) bourgeoisies of the West and Third World. That is what is so exciting about what is happening in the USSR today. But to understand why, you have to move beyond the vague, inconsistent, self contradictory formulations of Mandel, and the best way to do so is to base yourself on Cliff's book.

1 The Workers' State and the Question of Thermidor and Bonapartism (London, nd), p8.
2 The Class Nature of the Soviet State (London, 1962), pl3.
3 Ibid, pl3.
4 Ibid, pl2.
5 'Problems of the development of the USSR', Writings of Leon Trotsky, 1930-31 (New York, 1973), p215.
6 L Trotsky, 'The Class Nature of the USSR', Writings, 1933-4 (New York, 1972), ppl 17-118.
7 77ie Revolution Betrayed (London, 1957), p286.
8 Ibid, p288.
9 In Defence of Marxism (New York, 1942), pp63-70.
10 L Trotsky, The Workers' State and the Question of Thermidor and Bonapartism (London), pi9.
11 L Trotsky, In Defence of Marxism, op cit, pl4.
12 'The War and the Fourth International', in Writings, 1939-40 (New York, 1973).
13 Pablo's articles from these years are to be found in, International Secretariat Documents, vol 1 (New York, 1974).
14 Letter from Deutscher to Brandler, 15 July 1953, in 'Correspondence between Brandler and Deutscher', New Left Review, 105, September-October 1977.
15 I Deutscher, The Prophet Unarmed (Oxford 1959), p462. See also Universities and Left Review, vol 1, no 1, plO.
16 Quatrieme International, annee 14 (1956)nos 1-3.
17 E Germaine (ie Mandel), Quatrieme Internationale, December 1956.
18 E Mandel, Beyond Perestroika (London, 1989), pxii.
19 Ibid, pi 16.
20 Ibid, pi87.
21 Ibid, pl34.
22 For instance: when he twice locates the 'Kosygin reforms' as beginning in the mid 1970s, whereas in fact they started ten years before that (see,
for instance, Michael Ellman, Socialist Planning, Cambridge, 1989, pp73, 80, and Marshall Goldman, Gorbachev's Challenge, New York, 1987, pp53-54); when he refers to Grigoriants as a 'left oppositionist', whereas he is a right wing liberal; when he says that 'the Congress of the Writers Union threw out the conservative apparatchiks in 1987', whereas in fact the Writers Union remained for a long time the most conservative of all the cultural unions.
23 Mandel, 1989, op cit, pxii.
24 Ibid, p33.
25 Ibid, p33.
26 Ibid, p31.
27 Ibid, p34.
28 Ibid, pl09.
29 Ibid, p3.
30 Ibid, p3.
31 Ibid, p32.
32 Ibid, p35.
33 Ibid, p8.
34 Ibid, p21.
35 For an account of this based on research in previously inaccessible archives, see M Reiman, The Birth of Stalinism (London 1987).
36 Vasily Selyunin, Sotsialistischeksava industria, 5 January 1988.
37 Ibid.
38 Mandel, op cit, pll.
39 Ibid, pl5.
40 Ibid, p44.
41 Trotsky, 1962, op cit, pl3.
42 Mandel, op cit, p62.
43 Ibid, p42.
44 Cliff, op cit, pl54.
45 Ibid.
46 The Inconsistencies of 'State Capitalism' (London, 1969), pi3,
47 The Communist Manifesto.

Ernest Mandel's Reply

(from International Socialism , 49Winter 1990)

A theory which has not withstood the test of facts
Tony Cliff based his theory that the USSR and countries with analogous
socio-economic structures are 'state-capitalist' on a set of hypotheses
which are taken as axiomatic. We shall outline six of them:
i) Soviet society and the societies of Western Europe, of the United States
and of Japan are all qualitatively the same since they are all capitalist.
ii) In the USSR a new ruling class exists which is not based on private
property but which can nevertheless be characterised as capitalist.
iii) The Soviet economy is fundamentally ruled by the law of value,
'operating via the world market', even though internal competition has
been eliminated.
iv) Just like Western and Japanese capitalists, the Russian ruling class
is basically driven by the need to accumulate: 'production for the sake
of production'.
v) Crises of overproduction are absent because 'organised capitalism'
allows them to be avoided in the USSR.'
vi) Furthermore, general crises of overproduction do not exist in the
imperialist countries either, in view of the tendency towards 'organised
capitalism' and the importance of the armaments sector in their
Events over the last 15 years have inflicted one cruel blow after the other on these dogmatic assertions.2 The generalised recessions of the world capitalist economy in 1974-5 and 1980-2 were truly classic crises of overproduction, the mitigating effects of inflation notwithstanding. In scale they exceeded, rather than being below, the average capitalist crisis of overproduction of the last century and a half. What then remains of the myth of 'organised capitalism' and Hilferding's Generalkartelll
Nothing similar has taken place in the USSR. If there is a crisis in that country it is one of underproduction of use values (of scarcity) and not one of overproduction of exchange values (of commodities). To claim that the first is only a variant of the second is a gross fallacy. An empty
shop is not 'a variant' of a shop stuffed full of unsellable goods.
A process of restoration of capitalism is under way in several East European countries.3 In at least one country, the GDR, that process is almost complete. Literally no one in these countries, or in the world, denies the evidence. This presents the followers of the theory of state capitalism with an insoluble problem: how is it possible under capitalism to restore capitalism?
They try to get out of this difficulty by claiming that 'private capitalism' is different from 'state capitalism'. But that only pushes the problem one stage further back: either the difference between 'state' and 'private' capitalism is a qualitative one—in which case, why use the same concept to cover both? Or the difference is purely quantitative. In which case, the whole initial problem re-emerges more strongly. Can one seriously argue that there was only a quantitative difference between the GDR and the Federal Republic? Does the Federal Republic's Anschluss change nothing basic in the GDR's actual socio-economic system? Are the societies of North and South Korea qualitatively the same?
To reduce the nature of capitalism simply to the wish to accumulate ('production for the sake of production') is to dismiss much of Volumes 1 and 3 of Capital, and the whole of Volume 2. Capitalist production is generalised commodity production. Every commodity contains within itself a contradiction between use value and exchange value, as well as a contradiction between commodity and money. An 'organised capitalism' that overcame these contradictions would no longer be capitalism, at least not in the sense analysed and defined by Marx.
Capital exists and can only exist with money-capital as its starting point. Capital is value looking to increase in value, to surplus value. Of necessity it must eventually recover its initial money form, despite the fact that while engaged in the production process it no longer has that form. Without money there can be no capital accumulation.
These are not esoteric abstractions. We are at the heart of the matter. It is of no use for a capitalist just to make the workers he exploits produce the maximum of surplus value. He cannot transform a car pound or warehouses full of colour televisions into additional machines or steel, or into wages for extra workers, or into private jets for his own consumption. He cannot accumulate capital simply by producing surplus value. He must realise that surplus value through the sale of the commodities that have been produced in order to accumulate capital. As Marx says, the process of (expanded) reproduction, that is to say, the process of accumulation, is the unity of both the process of production and the process of realisation of surplus value. These two never coincide automatically. Without the process of realisation no accumulation is possible. What makes periodic crises of overproduction inevitable is the inevitable contradiction between the two poles of this unity. Moreover, the same contradiction activates a series of mechanisms
typical of the capitalist economy. These were carefully analysed by Marx and can be called 'the laws of motion' of the capitalist economy.
To know whether a society is basically capitalist or not we have therefore to ask the question (and back it up factually): are the laws of capitalist motion in evidence?
Just to point to the extraction of surplus labour from the direct producers is insufficient. At night all cats are grey. For thousands of years since primitive communism surplus labour has always been extracted from the direct producers, and this will continue until we reach the future classless socialist society. But that does not make all these societies capitalist. Marx says that in the last analysis the nature of each society (except classless society) is determined by the specific form in which surplus labour is extracted (Marx Engels Works, Vol 27, p799). And under capitalism that takes the specific form of the transformation of labour power into a commodity, of its sale to capitalists for money, of capitalists buying the means of production for money, of the appropriation by these same capitalists of the products of wage labour, and of the sale of these commodities in order to make roughly the average profit. Without all these specific mechanisms, capitalism does not exist for Marx, at least not as a dominant mode of production.
Our interpretation of the present day capitalist economy and of present day Soviet economy allows the inner coherence of Marxist theory to be preserved. Cliff's theory destroys any type of coherence unless essential elements of Marxist theory are jettisoned. So whatever advantage it claims in explaining the USSR is lost when it comes to explaining present day capitalism.
The idea of the bureaucracy as a ruling class really has to be taken with a smile after what has happened in Hungary, Poland and the GDR (to quote only those examples). Has any ruling class in history ever been seen to literally tiptoe away from the stage of society, as a significant section of the nomenklatura in those countries is now doing?
According to chapter one of Volume 1 of Capital, a commodity is only a commodity because it is the product of private acts of labour performed independently one from the other. To present the Soviet economy in terms of a capitalist economy therefore implies that industrial labour there consists of 'private acts of labour performed independently one from the other': an absurd description if ever there was one.
To say that an act of labour is private means that no capitalist (firm) knows whether the labour costs expended (both living and dead) will be recognised as socially necessary costs, that is to say, whether they will be paid for by society. It is only after the sale of the commodities that the capitalist learns whether he has gained or lost. If the labour expended has been socially necessary, he obtains an average profit. If social labour has been wasted, he gets less than the average profit or goes bankrupt.

At the first sign of sale at a loss or of below average profits, he attempts to change the way in which production is organised. He will try to improve the technology, to use better machines, to save on raw materials and energy, to extract more surplus labour from his workforce, to spread his investments, to get access to cheaper credit, and so on.
The organisation of labour depends in the first place on the private decisions of the factory owner, which is then corrected by competition, by the market. He has to submit to these corrections or face extinction. Under capitalism there is only one overall measure of performance-realised profit. The more productivity is raised, and the lower the costs of production, the greater the likelihood that his profit will outstrip that of his competitors. But there is nothing automatic about this. It is the post-sale profits that determine everything. The capitalist economy is an economy based on profit, and profit can only be realised and measured in the form of money.
This is where the famous iaw of value' enters into play. It determines the social nature of labour through commodities exchanging at equivalent values and so operates under capitalism as the tendency to create an average rate of profit. Capitals move out of enterprises and sectors of below average profit into those of above average profit. Thus, as Harman himself emphasises, the essential function of the law of value under capitalism is to ensure that productive resources are allocated through objective mechanisms, these being imposed on enterprises and capitalists, as well as on workers, behind their backs and independently of their will and decisions.
However, the law of value only rules any economy in so far as it is one of generalised commodity production, that is, one in which labour is basically private labour. In pre-capitalist societies this is not the case. Here the law of value is not determinant, even if it has already begun to influence economic decisions. A French peasant of the 11th century, a Russian peasant of the 18th century, or a Peruvian peasant of the first half of the 20th century, does not alter his decisions to sow or reap in line with the price of wheat rising or falling, for the simple reason that 95 percent of his production is not for the market. In these societies the bulk of productive resources are directly allocated to different sectors by those who control the means of production. Direct, a priori allocation is the opposite of a posteriori allocation brought about through the law of value. This difference between two methods of resource allocation marks the opposition between planning and the market.
In the USSR the essential investments are not decided via the law of value. They are decided by the bureaucracy, mostly at state level. It is a planned economy (that implies no value judgement: an economy can be planned in an irrational, even senseless manner) as far as direct allocation of resources is concerned. For 70 years, 'loss' making enterprises requiring large subsidies have received a preferential
allocation of productive resources. These have been systematically diverted from 'more profitable' enterprises or sectors. Such phenomena are unthinkable under capitalism and the rule of the law of value. But if the law of value does not rule 'directly' in the USSR, does it do so 'indirectly' through the intermediary of the world market?
Dogmatically, as if it were a revealed truth, Cliff and Harman claim this to be the case. They cannot prove it. Any rule of the law of value 'through the intermediary of the world market' has to operate via trade, like anything to do with capitalism. Enterprises that fail to compete with imported goods are doomed to go under. At least two thirds, if not more, of Soviet enterprises do not compete with imperialist enterprises. If they were subject to the law of value operating 'through the intermediary of the world market', they would be forced to close (like Mexican steelworks or British coal mines). There is therefore no 'rule of the law of value' in the USSR 'through the intermediary of the world market'.
A hybrid economy
However, even though the functioning of the Soviet economy is not dominated by the law of value, it cannot abstract itself from its influence. While it is not a capitalist economy, that is, an economy based on generalised commodity production, neither is it a socialist economy geared to the direct satisfaction of human need, an economy in which labour possesses an immediately social character. It is a post-capitalist
conomy with elements of the market. Partial survival of commodity production is combined with the partial rule of the direct allocation of productive resources.
This combination is hybrid and contradictory. It implies that the fate of the USSR as a transitional society between capitalism and socialism, 'frozen' at its present stage by the bureaucratic dictatorship, has not yet been settled historically. A social counter-revolution can pull the USSR back towards capitalism. A victorious anti-bureaucratic political revolution can push it in the direction of socialism (no more than that: socialism in one country is impossible no matter how pure, democratic, revolutionary or internationalist a government based on workers' power may be).
Comrades from the Socialist Workers Party in Britain (SWP) find this notion of hybrid combination, the perpetuation of which lacks all certainty, this 'transition between two progressive modes of production' (to quote Marx's celebrated formula), difficult to accept and understand. They are quite wrong. We are talking here of a phenomenon that has occurred in practically every epoch when a given mode of production has entered its historical period of decline and decay.
To give just one example—between the decline of the feudal mode
of production and the triumph of capitalism a transitional epoch intervened in which petty commodity production dominated, stretching over several centuries. Petty commodity production has its own characteristics which are neither those of feudalism (serfdom) or of capitalism (wage labour). The predominant form of labour is the free labour of small proprietors or semi-proprietors, owning their own means of production.
We are not talking here of a new mode of production able to perpetuate itself automatically. Petty commodity production is capable of regression towards feudalism, which is what happened in a large area of central and eastern Europe from the 16th century onwards, the period of the 'second serfdom'. It is also capable of moving towards capitalism, that is towards the predominance of wage labour, which is what happened in the Netherlands and in England from the 17th and 18th centuries onwards. But in both cases the small independent producers disappeared only little by little.
The same rule can be applied more or less to the period of transition between capitalism and socialism. Either what remains of commodity production will finally eliminate most of the direct appropriation and allocation of the social surplus product—in which case, capitalism will be restored. Or society will throw off the deadweight of the bureaucracy and ensure that the direct appropriation and allocation of major resources for the satisfaction of needs as democratically decided by the masses will predominate—in which case, the unavoidable survival of some market mechanisms will no longer be able to put a brake on genuine progress towards socialism. But in both cases, what is specific about today's hybrid Soviet situation will have largely disappeared.
Once again, it is not a question of some abstract theoretical schema. Our understanding of the principal causes of the specific economic crisis characteristic of the USSR is rooted in reality. Current mystification notwithstanding, what the Soviet economy suffers from is at one and the same time too little central planning (democratic planning, let it be understood, not bureaucratic planning) and too little of the market (in all those areas where as a result of the inadequate objective socialisation of labour direct allocation of resources does not operate and the market is required to break up monopolies).4
The despotic nature of planning from the First Five Year Plan onwards meant that it was marked by colossal disproportions, the cumulative effect of which in the end undermined even the very targets set by the bureaucracy. The market or pseudo-market mechanisms used have always lacked a proper foundation largely because there is no unified pricing system and no stable currency. The double pricing system is an accurate reflection of the hybrid dualism of the Soviet economy.'
Comrade Cliff's analysis makes much of the importance of the world market for the Soviet economy. But the world market is not some disembodied Holy Ghost hovering above the clouds in order to create
the world, as the Bible boldly tells us. One of the essential contributions that Marx and Marxism have brought to the social sciences is the categorical rejection of any kind of reification of economic categories. One of the essential gains of historical materialism is to discover behind these categories relations between social groups (social classes and major class fractions). The connections between them and the way they struggle for their interests strips bare the secret of economic categories, including that of the world market.
In this respect, the theory put forward by Trotsky and the Fourth International, that the fate of the USSR and so of its economy has not yet been definitely settled, is based on a precise understanding of international class struggle in the 20th century. Cliffs theory largely empties the interconnection between international class struggle and what has happened in the USSR of its significance.
Trotsky predicted in 1905-6 that the imperialist chain would first break in Russia because its proletariat was subjectively stronger than the proletariat in Germany and other countries. Objectively, however, the conditions for an advance towards socialism were infinitely worse in Russia than in any of the major industrialised countries in the world. Therefore either the victorious Russian revolution would join up with a victorious revolution in some of these countries, in which case the proletariat would retain political power. Or it would not, in which case the Russian proletariat would lose political power.
But what would be the precise form of the counter-revolution in Russia? Again, that did not depend first and foremost on the forces present in that country alone, but on the relationship of social and political forces at a world level. The imperialist bourgeoisie was strong enough to prevent (or, what amounts to the same thing, the leadership of the proletariat was too weak to ensure) the victory of the revolution in Germany, Austria, Italy, Britain, France and Spain. It was not, however, in a position to crush the world working class movement. Overall, it was only strong enough to crush the workers' movement in Germany and Spain with the victory of fascism, but even that was only temporary.
Furthermore, the Russian bourgeoisie had been too weakened, and the international bourgeoisie was too divided, to make a success of restoring capitalism by civil war, foreign intervention or the direct pressure of the world market. In part, this effort was neutralised by the intervention and pressure of the world proletariat.' What followed as a result was a relative world equilibrium of class forces. These conditions meant that a political counter-revolution (Thermidor) took place in Russia, but not a social one. The proletariat lost political power but it was not an old or new capitalist class which benefitted but, to use Marx's formula, functionaries who rose from the ranks of the working class itself.
In the long term, this relative equilibrium of class forces cannot last. Either the international working class will make decisive moves foward
to socialist revolution in key countries of the world, in which case any restoration of capitalism will become impossible in the USSR. Or the world proletariat will experience crushing defeats, not necessarily in the precise form of the Nazi victory in Germany but with similar consequences, namely the elimination for a long period of its capacity lor resistance and collective and organised action. If that happens the restoration of capitalism in the USSR is inevitable. Given this perspective, the role of the Soviet working class itself, its capacity to react, to resist and move onto the counter-offensive, will become more and more important.
('hris Harman criticises us by quoting an extract from an article written in lu56, in which we stated that the Soviet economy grows in a regular rhythm and that this shows its superiority to the capitalist economy. Extracting a single quotation on a topic which an author has written about lor more than 40 years is not a serious way to debate. We could quite easily refer to ten or so passages in which we predicted that the rate ol growth in the Soviet economy would fall. One quotation will do:
Vic disproportion between the development of light industry and that of heavy industry, which underlies the bureaucratic form of management, has become a deep-going weakness in the economic system. Its repercussions on the development of heavy industry itself.. .are becoming bigger and bigger.1
So have we changed our mind on this matter? Is there a contradiction in our analysis? Not at all. The quotation and the method used by Harman can be turned against him.
II one examines the real growth curve of the Soviet economy from 1l)28 onwards (excepting the years of Nazi aggression against the USSR 1041-44), it will be seen: a) that growth really was regular and uninterrupted; b) that unlike the capitalist economy the USSR has experienced no recession, no crisis of overproduction leading to an absolute fall in production, for more than 60 years," c) that the rate of growth began to fall 20 years ago; d) that this fall may become 'zero growth', but that there is no 'law' making this inevitable. It so happens, then, that we did predict this fall in the rate of growth and our analysis of the Soviet economy (and of Soviet society) accounts perfectly for both aspects of the tendency.
Cliff's explanation, on the other hand, starts from a confusion in analysis and terminology and relies on false statistical data. Under capitalism, the lash of competition and of class struggle leads capitalists to increase the organic composition of capital. In the first instance they replace living by dead labour, ie by machines, in order to sell more cheaply on the market. In the second they can raise the rate of surplus value by subjecting workers to the pressure of unemployment. The rise in the organic composition of capital, and the resultant tendency of the
rate of profit to fall, are the consequence and not the cause of this behaviour. The cause lies in the nature of the system itself: production for the sake of profit. This takes us back again to money-capital, which is the starting point for the reproduction cycle of capital and its end point.
In other words, without competition between capitalist firms, none of this dynamic would exist, or would only exist on an extremely limited scale.' Marx was explicit on the subject. He writes in Volume 3 of Capital that without competition 'the fire that keeps production alive' (and a fortiori accumulation) would be extinguished. Let us add that Marx believed that capitalism can only exist in the form of 'many capitals', which in turn inevitably implies competition. Marx was also quite unambiguous about the point that competition involves exchange, that competition is only possible through exchange. So where is the 'exchange' between Soviet arms and imperialist goods?
The use of the term 'military competition' as equivalent to competition for the realisation of profit arises from a characteristic semantic confusion. In reality, for 'military competition' to be capitalist competition, it must operate via the world market. That would mean the USSR being forced to buy arms or the machines necessary for the production of arms from abroad, which would mean that Soviet factories producing these arms or machines would have to close if they worked at too high a cost price. This has clearly not been the case in the USSR for 70 years. Quite the contrary. No arms factory or factory making machines for arms has closed, irrespective of whether costs were known to be higher than those in the USA, Germany or Japan.
All this proves once again that the Soviet economy is not governed by the law of value. And so one cannot speak of 'competition' with capitalist countries in the economic Marxist sense of the word when dealing with the arms race.
Do the figures quoted by Harman agree with reality? Not at all. What they reflect is the systematic attempt to camouflage the reality of the Soviet economy which the bureaucracy has carried out since the Stalin era. This has misled both apologists like Maurice Dobb and critics like Bordiga and Cliff. The aim of this mystification is to disguise the essentially parasitic and wasteful role of bureaucratic management.
The theoretical error which allows this statistical falsification is the reduction of the Soviet economy to a system having two instead of three sectors (Department III includes unproductive consumption and 'accumulation', while Department I consists of means of production and Department II of the means of consumption consumed by the producers, that is to say productive consumption). With a two sector scheme, productive and unproductive consumption, investment which leads to expanded reproduction and investment which serves no economic purpose in reproduction are carelessly added together and jumbled up.
Here is an example, deliberately chosen from outside armaments
production. When a steelmill produces bars of steel which 'accumulate' in warehouses (or, better still, in the open air) and remain there, one cannot speak of 'accumulation' in any economic sense of the word. Using the term 'capital accumulation' in this connection would make any real capitalist laugh. It is clearly waste production from a social point of view. It is also waste production from the point of view of those who control the economy.
Sheer wastage of products and resources occupies an enormous space in the Soviet economy. Calculation of its size is not easy, but the most critical economists have put forward the figure of between 30 and 40 percent of available productive resources (including human resources: a third of all paid hours of work result in no real production). Here we have the 'secret' of the command economy, of pseudo- or semi-planning in the USSR: it is Department III which is overexpanded, not Department I.
Let us take one concrete example among many. The USSR is the biggest producer of chemical fertiliser in the world. It produces nearly as much as the USA and Western Europe put together. Does this imply overexpansion of Department I (chemical fertiliser, being a raw material, is part of Department I)? Not at all. More than half this production is lost 'in transit'. It never reaches the user and so is never incorporated into any force of production or reproduction. A product of labour whose use value is not realised has no exchange value. So asserts Marx for commodity production. To extend this analysis to any society not governed by the law of value, to say it is simply a sheer waste of social resources, is to echo the spirit of his thought still more strongly. Such wastage has nothing to do with any supposed 'allocation of productive resources by the law of value' or with any drive to 'accumulate capital'.
Back will come the retort, but what about armaments production under capitalism? Isn't that also waste production of productive resources? Wouldn't capitalism which incorporates the arms race as a more or less permanent feature be a capitalism which develops the forces of destruction rather than the forces of production?10 Our answer to this objection is at several levels.
From the point of view of the individual capitalist firm involved in arms production this is not waste. Such commodities find buyers in so far as these buyers (the state or arms dealers) wish to realise their use value. So they possess an exhange value which creates real profit. Otherwise they wouldn't be produced under capitalism anyway.
Isn't what the firm producing arms finds 'useful' irrational, even inhuman, from the social point of view? Undoubtedly. But this is absolutely characteristic of capitalism. The contradiction between the partial rationality and the global irrationality of economic activity is developed to the extreme." The same point can be made about drugs, cigarettes, polluting automobiles, chemical fertilisers, nuclear power
tations, and so on.
Is arms production 'unproductive' from the point of view of the capitalist economy as a whole? That is, doesn't it fail to increase the mass of surplus value, of profit-source and of capital, which is the only definition of 'productive' from the point of view of capital as a whole? Not necessarily. When a mass of productive resources lies idle the effect of expanding Department III can be to mobilise these resources and so increase the total mass of surplus value and of profits.'2 That is clearly what happened in the United States from 1940 onwards. It would be absurd to deny that capitalism, and indeed bourgeois American society, was more prosperous in 1944 (not to say in 1950) than in 1933.
Does that mean that capitalism has been transformed into a 'waste economy'? Only partially. Besides there is nothing new about this. Marx already stated in the Grundrisse and in Capital that capitalism can only develop the production of material wealth by simultaneously undermining the two sources of all wealth: human productive force and nature.
During the rise of capitalism the 'positive' effects of growth outweighed the destructive ones. In its period of decline, from 1914 at least, the opposite has been the case. Yet growth since 1949 (in the USA since 1940) has not been any the less real. The extra amount of foodstuff, textiles, medicines, housing and domestic appliances produced in the last 40 years is genuine and colossal. To label this as 'forces of destruction' is absurd, non-materialist and non-Marxist.
Should one conclude from this that it is a matter of indifference, economically speaking, whether society produces means of destruction or means of production? Such a conclusion is not justified either. The iron laws of reproduction continue to operate in a commodity production system of whatever type (including the partial commodity production system of the USSR, as in any country in a period of transition between capitalism and socialism).
One cannot produce wheat with teargas, dresses with tanks, or television sets with rockets. The dimensions of Department III are bound to have repercussions on the dimensions of Departments I and II. The utilisation of any productive resource for the manufacture of armaments entails its removal from production of the means of production and of consumption. Production in Department III therefore cannot be developed beyond a certain point without in the end reducing production in the other two Departments, thereby strangling expanded reproduction and so the accumulation of capital.
What is true of capitalist society is also true of pre-capitalist society. And in as much as armaments production persists (or other forms of wastage appear on a grand scale) it applies to post-capitalist society as well.
For thousands of years in pre-capitalist societies, wars led to famine and to an absolute decline in production which was temporary or long
lasting depending on the period and the circumstances. In the USSR the over-expansion in Department III of armaments production and unproductive expenses in general (above all administrative expenses, ie the cost of the bureaucracy) puts a brake on the overall development of material production.
In the end it even chokes off growth, including growth in the arms sector. This is for two reasons: it takes away vital resources for the development of Departments I and II; and it increases the producers' dissatisfaction with their given level of consumption (even if this rises in a modest way), such that their lack of concern about overall production results becomes ever greater. Under capitalism, this lack of concern is partly neutralised by fear of redundancy and unemployment, something which has played no role in the USSR for more than half a century. Instead, therefore, alongside each producer had to be placed a supervisor, a foreman, a cop. Hence the enormously swollen size of the 'petty' bureaucracy, amounting to about 20 million people, it can be reckoned, since Trotsky's time. Hence also the colossal and permanent growth of unproductive expense: Department III is biting its own tail like the legendary serpent.
This mechanism cannot be 'reformed', as Gorbachev has discovered to his cost. The serpent can only be slain by the spread of strictly public, popular working class control, and by the spread of genuine working class management in a multiparty socialist democracy.
A schematic system of thought which only operates in black and red and which is the prisoner of outrageously simplistic abstractions is incapable of handling the categories of 'transition', of 'combined and uneven development' and of 'contradictory reality'. In other words, such thought is undialectical. This unfortunately is the way in which Tony Cliff and Chris Harman think, at least when dealing with general problems.
Moreover there is something irrational, even positively irresponsible, in the SWP comrades' vituperative attacks on accelerated industrialisation in the USSR from 1927 onwards. This is clear to the naked eye for every worker, peasant and Marxist from Third World countries, and for every true internationalist.
Each one of us is against 'overinvestment', against 'gigantism', against Stalinist and post-Stalinist 'superindustrialisation', most of which represent a total loss of expenditure in material resources. But we are not against accelerated industrialisation as such in these countries or in Russia, which was the first to opt for it, after the October revolution.
To turn one's back on this industrialisation would mean not just rejecting the whole short and medium term trend in economic policy elaborated by Lenin, Trotsky and the Left Opposition after 1923. Above all it would mean condemning those countries to flounder in barbarism while they wait for the victory of the world revolution. But when would
that come about? After five years? After ten years? After 20 years? After 30 years? Who knows? Must we in the meantime fold our arms and tolerate the intolerable?
When we speak of intolerable barbarism we are not speaking loosely. Underdevelopment kills 16 million children in the Third World each year. How many children would die each year if development took place in these countries on the basis of a democratically run socialised economy? The Generalplan Ost of Nazi-led German imperialism envisaged the extermination of 100 million people in central and Eastern Europe. Was it wrong not to have laid down conditions for successful resistance against this projected monstrous crime, notably by developing a powerful industry in the Urals and beyond? By rejecting a sense of proportion (the difference between necessary accelerated industrialisation and disproportionate, wasteful and destructive superindustrialisation), which breaks with dialectical thinking, the SWP comrades put themselves in an impossible situation with respect to their own objectives.
Let us suppose that one day they succeed in leading the British working class to a seizure of power. What type of society would emerge from this victorious revolution? A socialist society? Have the SWP comrades been suddenly converted to the reactionary Utopia of socialism in one country? A state capitalist society because of 'the pressure of competition from the world market'? Workers' power would scarcely be in a position to counter this pressure in Great Britain alone. Would their efforts then have been in vain? A socialist society by virtue of the fact that the British revolution would immediately spread to the rest of the world? But if that does not happen, or at least not for some time, wouldn't Britain then be a transitional society between capitalism and socialism which all advanced workers and communists/socialists would unite in an effort to protect from the dangers of bureaucratisation, even if they couldn't eliminate them entirely? What is the point of rejecting today the very concept which one would be forced to apply tomorrow? And wouldn't the funds for accumulation, productive as well as unproductive, have to be sufficient to meet (at least partially) the requirements to invest in order to satisfy the needs of the masses and to defend them against imperialism?
Wouldn't reducing this whole complex problematic simply to the question of the 'pressure of the world market' result in paralysis, even suicide, for the SWP and for any victorious British revolution? In the imperfect world in which we live it is impossible to find one's bearings or to act in a revolutionary manner without resorting to such categories as 'transition', 'transitional programme', 'transitional demands' and 'transitional society'. The all or nothing approach acts as a blindfold. It also inhibits revolutionary action, no matter how limited in effect.

The specific character of the Soviet bureaucracy
According to Cliff and Harman, the Soviet bureaucracy is characterised by the tendency to excess production of the means of production, the tendency to 'production for the sake of production'. The idea which they object to (and attribute to us) is the claim that the economic development of the USSR is dominated by the production of consumption goods (luxury goods) for the bureaucracy. We have never defended such an extreme thesis. In no society (including slave or feudal society) does what motivates the ruling class or group—the desire to increase its own consumption—explain or exhaust the dynamic of the economy as a whole.
In order to preserve and extend its privileges, the Soviet bureaucracy, just like any ruling class or group in history, has to develop the economy up to a certain point. Without car factories 3 million middle and top bureaucrats cannot acquire cars. Without enough steel, electricity or iron ore, the car industry cannot be developed satisfactorily.
True, one could try and import these goods. But that would mean having to export in order to obtain resources, which would mean submitting to the law of value and to the world market. In that situation an underdeveloped country remains basically an underdeveloped country, unable either to industrialise beyond a certain limit or buy a sufficient number of cars.
In order to avoid just this kind of constraint (to escape the constraints of the world market), the Soviet bureaucracy unleashed a process of 'superindustrialisation' in the USSR. Without this, it could not have defended, consolidated or extended its powers and privileges as spectacularly as it did after 1928.
This is the framework necessary to understand the socio-political struggles that have taken place in the USSR over the last 60 years. The struggle has been three way, not two way ('between capital and labour'). When the profound crises of 1928-33, 1941-44 and 1945-48 shook Soviet society and the power of the bureaucracy, on every occasion the bureaucracy struck simultaneously at both the bourgeoisie and the working class. It did the same in Eastern Europe. It did not simply 'overexploit the working class', it also expropriated the bourgeoisie. Historically it has played an autonomous role.
The real theoretical debate turns on the extent of this relative autonomy and how long it can last. For believers in the theory of 'bureaucratic collectivism', this autonomy is identical with that of a ruling class in history. For Trotsky, as for us, it is much more limited, both in time and scope. But that does not make it any the less genuine, much more genuine than the majority of Marxists thought possible before 1927. To persist in ignoring this today is to deprive oneself of an explanation of what has actually happened in the USSR since then.

The fourth great crisis in the history of the bureaucratised USSR is now unfolding. It remains to be seen whether the three way struggle continues (we think it will), or whether, as many commentators and tendencies believe, the nomenklatura will go over into the camp of the international bourgeoisie lock, stock and barrel and become its resident junior partner (very junior: look at the GDR!).
Be that as it may, ends and means have to be clearly distinguished in this complex social struggle: what the fundamental driving force is, what means are used to fulfil the ends chosen, and what the objective results are of the interaction between ends and means. And here we are forced to return to the conclusion—a conclusion moreover which corresponds to Marx's definition—that only under the lash of competition has the bourgeoisie a permanent and lasting stake in the continuous expansion of production. Without this constant pressure, no pre-capitalist ruling class showed any such tendency (nor, we would add, does the bureaucratic caste in the USSR).
As long as the shortage of consumption goods kept them thirsty for more, the bureaucrats were fanatical about accumulation, about 'production for the sake of production' and about 'technological progress' (as sections of the middle bureaucracy, in their greed for an American yuppie lifestyle, still are today). But as soon as the nomenklatura as a whole had reached a satisfactory level of consumption ('when socialism had been achieved for its benefit') this thirst began to disappear. 'Productivist fanaticism' dwindled. A stage of what the Hungarian Stalinist ex-prime minister, Hegedus, correctly called 'generalised irresponsibility' set in.
This also explains why Soviet managers, unlike their capitalist counterparts, nearly always and almost automatically give in to wage demands in the workplace: no pressure of competition forces them to 'extract the maximum surplus value' from the workers. The only pressure they are under is to 'avoid problems' when it comes to fulfilling the plan. It is in order to bring about a thorough change in their attitude that Gorbachev and his ilk have been trying to introduce all the technocratic changes of perestroika. However, as the most consistent supporters of perestroika and of out and out 'economic liberalisation', both East and West, have clearly understood, radical 'structural reform' cannot be fulfilled without a massive return to private property.
Without competition and the drive to private accumulation which it sets in motion the behaviour of the bureaucrats in the East will in essence never be like that of capitalist bosses. At best they will act like gangsters trying to legalise theft and extortion ('trying to go legit'). And if they embark on all out privatisation, which would mean making tens of millions of people unemployed in the USSR, they will have to break the resistance of the working class.
This proves that a genuine 'three way struggle' is still taking place
in the USSR. It proves that, despite everything, workers still have at least two 'gains' from the October revolution to defend: more than half a century of uninterrupted full employment (which has never existed in capitalist society and never will exist); and the abolition of private property in large scale production, without which this full employment cannot be achieved.
By dogmatically and unrealistically defining the bureaucracy as a 'capitalist class' the SWP comrades are unable to grasp what is specific about the Soviet bureaucracy. The bureaucracy differs from the bourgeois class, indeed from all ruling classes in history, by virtue of the fact that the income of those classes (its portion of the social product) is variable, while that of the bureaucrats is fixed. The annual profits of the bourgeoisie depend on the annual fluctuations in profit and production. The annual feudal rent depended on annual fluctuations in the harvests. The annual income of the bureaucrat depends on his (or her) position in the hierarchy. If that position does not change, the income does not change either, except marginally.
Hence the conservatism, inertia and 'irresponsibility' of the bureaucracy in stark contrast to the behaviour of the capitalist entrepreneur. The latter behaves differently not because he is 'more aggressive' or 'more rational', 'better' or 'worse' than the bureaucrat, or more of an 'individualist'. He does so because capitalist competition means that the struggle over the distribution of the mass of surplus value and profit is never eliminated, which means his share of it can never be guaranteed. If he slips up on the path of 'technological progress' or of 'labour organisation' the inevitable consequence will be a fall in his share, if not bankruptcy.
Nothing of what glasnost has come to reveal about the reality of the Soviet economy has had any light shed on it by the myths of 'state capitalism', myths which are only the reverse side of the Stalinist coin about the 'achievements of socialist industrialisation'. All can be explained in the light of the analysis made by Trotsky and the Fourth International of Soviet society and the Soviet economy, and of the analysis underpinning it of the specific nature of the Soviet bureaucracy.
Harman claims that nowhere in history has a section of the producing class been involved in the 'maximum extraction of surplus labour' from the producers themselves. Without doubt, the Soviet bureaucracy is an unprecedented phenomenon historically. But the October revolution and the creation of the isolated Russian workers' state were also new phenomena lacking historical precedent (the Paris Commune lasted only a few months). People with a scientific and undogmatic outlook should not be surprised if a new historical development throws up new and unexpected by-products.
Let us turn to the question of 'maximum extraction of surplus labour'. The proportion of working class consumption in the USSR is much bigger
than in Brazil, to take just one example of a country engaged in accelerated industrialisation (not that of working class and middle class consumption put together: the middle classes consume ten times more than workers and account for 20 percent of the population).
Let us call to mind a simple analogy (which is not to say it is identical, just analagous). For any socialist or trade unionist in 1848 or 1890 the idea of socialist party leaders or reactionary trade union leaders acting so as to objectively increase the 'extraction of surplus labour from the producers' would have appeared literally unthinkable. Yet that is what social democratic leaders have done since 1914, and a good number of trade union leaders since even before that date. Should one therefore refuse to call social democratic parties workers' parties? Have they become bourgeois parties, identical with the Conservatives and the Liberals? Is it possible to engage in class politics in Europe or Japan without having to defend these parties against the bourgeoisie's attempts to weaken or even periodically crush them?
Must the mass trade unions under the leadership of reformist traitors be considered as yellow bosses' unions? The ultra left have long defended this absurd idea, which the SWP comrades reject as far as Great Britain is concerned. But why, if it is conceivable to defend the SPD against fascism, despite its being led by the Noskes, the assassins of Karl Liebknecht and Rosa Luxemburg, is it 'inconceivable' to defend the USSR against imperialism?
Chris Harman claims that two arguments we successively put forward about the bureaucracy are mutually incompatible. The first is that the bureaucracy is not a ruling class; the second is that it controls and distributes the bulk of the social surplus in the USSR. But this incompatibility yet again reflects a formalist, schematic and simplistically dogmatic manner of thinking.
There have been many cases in history where powerful social layers controlled and distributed the bulk of the surplus despite not being the ruling class. For to be a ruling class involves appropriating the surplus, which is not necessarily the same as controlling or distributing it. The mandarins at the height of the Chinese Empire and the imperial bureaucracy in the late Roman Empire were by and large in control of the centralisation and distribution of the social surplus. But for all that they were not the ruling classes in these two societies, because they did not appropriate the major share of the surplus. At the end of the Third Reich, the Nazi military bureaucracy certainly controlled the distribution of what was produced socially. But it was in no sense the ruling class, since the bulk of the social surplus continued to be appropriated by the capitalist class. The events which followed showed who was master and who, despite the appearance of omnipotence, only carried out orders.
Future events will similarly demonstrate that the Soviet bureaucracy will only be able to become a ruling class by appropriating to itself the
social surplus and the means of production, that is to say, by turning into 'old fashioned' capitalists who own a good chunk of the large scale means of production.
A fear that has proved groundless
When he decided to break with the interpretation of Soviet society formulated by Trotsky and defended by the Fourth International, Tony Cliff predicted that those who continued to call the USSR a bureaucratically degenerated workers' state would be led to capitulate to Stalinism, in particular to side with the bureaucracy against workers in revolt. (Incidentally, let us recall that as early as Stalin's death, if not from 1948 onwards, we predicted such revolts.)
Subsequent events have proved this prediction to be groundless. Neither the Fourth International, nor any of its sections, nor any of its leading representatives, has even once lined up 'on the side of the bureaucracy against the masses in revolt'. We all gave 100 percent support to the workers' uprising in the GDR in 1953, to the 1956 Hungarian revolution, to the Polish workers' struggles in the same year, to the Prague Spring's resistance in 1968-69 to the Soviet invasion, to the rise of Solidarnosc in 1980-81 and to its subsequent struggle against Jaruzelski's military coup in Poland, and to the uprisings in China and Eastern Europe in 1989.
Chris Harman recognises this, moreover. In embarrassment he falls back on the assertion that we nevertheless might have expressed a 'preference' for the Gomulka style method of reform in 1956 to that of the Hungarian revolution. This is slander. Harman will not be able to find a single quotation to back up his accusation. We have been supporters of a political revolution—a revolution involving large scale independent mass action and self-organisation—ever since we began to take part in debates on the 'nature of the USSR' (ie since 1945-6), and remain so. We have never budged an inch from this position. But the reality of the political mass struggles in the USSR, Eastern Europe and like societies cannot be reduced to struggles between the masses and the bureaucracy.
In the USSR, Eastern Europe, China, Cuba and Nicaragua, the struggles of the last 50 years have also taken place between, on the one hand, these states and the masses in these countries and, on the other, the imperialist powers. The theory of state capitalism has been no kind of guide in these conflicts, to say the least. Its internal logic would necessarily lead one to view most of these conflicts as interimperialist and take an absentionist, 'third camp' position (which is what Cliff adopted in the Korean War and which at least some of his followers were tempted to do in the Bay of Pigs conflict). It is true that during the Vietnamese War he took a more correct position, but one in flagrant contradiction to the logic of the theory of 'state capitalism'.
In these conflicts the popular masses of those countries, starting with the workers, did not remain neutral. They lined up against imperialism, despite their hatred of Stalin and his heirs. In practice they applied Trotsky's line of military defence of the USSR (and the other bureaucratised workers' states) against imperialism. They did so in the USSR, in Yugoslavia, in China, in Vietnam, in Cuba and in Nicaragua. In these confrontations, which involved tens of millions of workers, the attitude adopted by the few followers of the theory of 'state capitalism' was at best confused and contradictory, at worst plainly counterrevolutionary. If Soviet workers had had the misfortune to follow these false guides, none of us would be alive today and no independent workers' organisation would exist in Europe, if not in other continents. The triumph of Nazi barbarism would have destroyed them.
The vicious circle of sectarianism
The tendency led by Tony Cliff (from which the SWP came) has seen its main task ever since its birth as spreading the theory of 'state capitalism'. This is the characteristic mark of a sect as defined by Marx: in order to justify its existence it constructs a shibboleth out of a particular doctrine and subordinates its activity to the defence of that shibboleth.
This sectarian deviation has its own logic from which it is almost impossible to escape. In Britain itself the SWP comrades have been partially protected from the worst sins of sectarianism because of their real roots in the working class and because of the size of their organisation: any type of irresponsible behaviour is impossible when acting under the critical gaze of thousands. But even in Britain the sectarian frame of mind has damaged and continues to damage the SWP, particularly in its approach to those mass movements which it considers 'non-proletarian' and carelessly dubs 'petty bourgeois'. This derives from the same inability to grasp the notion of combined development which arises as a transitional phenomenon, particularly in the sphere of class consciousness. It is the same 'all or nothing' attitude which lies at the heart of the theory of 'state capitalism'.
Sectarianism has especially damaged the SWP's international work in another way. The theory of state capitalism means that it is powerless to grasp the full progressive dynamic of the mass anti-imperialist movements in the Third World. According to that theory, these movements can only lead in the end to the creation of new state capitalist states. Their dynamic is a purely 'nationalistic' one. The entire strategy of permanent revolution—total support for the anti-imperialist struggle while fighting for the political class independence of the proletariat; a struggle for proletarian hegemony inside the movement; striving to ensure that in solving its national-democratic tasks the revolution grows over
into making a start on solving its socialist-proletarian ones—is in fact rejected or minimalised by the leadership of the SWP.
In other imperialist countries besides Britain, the followers of the SWP mostly content themselves with forming grouplets to propagate the theory of state capitalism, which are incapable, if only because of their tiny size, of intervening in genuine class struggle. Sectarian interests take precedence over class interests. The same applies in the states of Eastern Europe, which are in complete social and political turmoil. In the Communist Manifesto Marx and Engels provided the classic definition of what communists have to do:
They have no interests separate and apart from those of the proletariat as a whole.
They do not set up any special principles [in the 1888 English edition Engels preferred to insert 'sectarian principles'] of their own, by which to shape and mould the proletarian movement.
The communists are distinguished from the other working class parties by this only: 1 In the national struggles of the proletarians of the different countries, they point out and bring to the front the common interests of the entire proletariat, independently of all nationality. 2 In the various stages of development which the struggle of the working class against the bourgeoisie has to pass through, they always and everywhere represent the interests of the movement as a whole.
The Communists, therefore, are on the one hand, practically, the most advanced and resolute section of the working class parties of every country, that section which pushes forward all others; on the other hand, theoretically, they have over the great mass of the proletariat the advantage of clearly understanding the tine of march, the conditions, and the ultimate general results of the proletarian movement.
The SWP is no different from the Fourth International when it comes to 'understanding the line of march, the conditions, and the ultimate general results of the proletarian movement' in Eastern Europe and the USSR: the proletariat organises itself to conquer power through multiparty, democratically elected Soviets, with the perspective of constructing a classless society internationally.
But the followers of the SWP do not draw the obvious conclusion that a separate organisation of state caps is unjustified in these Eastern European countries. They do not see that the task of any revolutionary there is to help advanced workers and intellectuals battle on two fronts, against the bureaucracy and against restorationist forces. Instead of defending the interests of the proletariat as a whole, which above all demands the (re)creation of class independence (no easy matter), the followers of the SWP concentrate on stirring up an artificial distinction from every other revolutionary current—a distinction exclusively based
on acceptance of the dogma of 'state capitalism', their sectarian shibboleth.
That can only reinforce the image of revolutionary Marxists as scholastic dogmatists, as hopeless 'splitters', which first Stalinists and then neo-Stalinists and neo-social democrats have systematically spread in these countries in order to discredit revolutionary Marxists (and increasingly these days Marxism itself). This image is counterproductive. It weakens the real possibilities that Marxists have in these countries, not to found sects, but to become the major pole of attraction for the militant left inside the workers' movement as it reconstructs itself.
Fortunately the negative effect of this will remain limited, both because of the theoretical, political and organisational strength which the Fourth International has already gained (its influence is real there in a way that the SWP's is not), and because of the understanding and experience that the best indigenous forces springing up in those countries have progressively accumulated that the role played there by the SWP clearly illustrates the negative repercussions of sectarianism.
This sectarianism has made the SWP incapable of making any progress towards the construction of an international organisation. Sects can only link up with mini-sects which they closely control. Organisationally, their sectarianism prevents them linking up with substantial, autonomous revolutionary bodies in an important number of countries. Politically, this is because they fail to understand the real process of mass struggle in most countries in the world. The SWP is essentially, then, a national-communist organisation, which is forced to fob its members off by trying to create grouplets in a few countries.
After 40 years experience our record in this respect cannot be faulted. The Fourth International exists for real as the one and only world organisation. It is, of course, still small, too small, and is far from being the mass revolutionary international for which it is working and of which it will constitute just one element. However, it is much stronger than in 1938 or than in 1948, both in numbers, in rootedness in the workplace and unions, and in geographical terms. It exists in 50 countries or so. Some of its sections and sympathising organisations play a genuine part in the workers' movement and the mass movement in their respective countries, which is recognised by all. It acts and will continue to act in a non-sectarian fashion, on the basis laid down above in the Communist Manifesto.
It can do so because it represents the one current in the international workers' movement which takes on the unconditional and uncompromising defence of the interests of the workers and the oppressed in the three sectors of the world revolution—the imperialist countries, the countries under bureaucratic dictatorship and the so called Third World countries—without anywhere subordinating this defence to any supposed 'priorities'. This is what allows the building at one and the
same time of national revolutionary organisations and of an international revolutionary organisation. In this respect, an understanding, based on the theory of permanent revolution, on the Trotsky ist analysis of Stalinism, on The Transitional Programme and on the 'dialectic of the three sectors of the world revolution', of what has happened, and is happening in the USSR, in the Third World and in the organised workers' movement in the imperialist countries, has proved both operational and effective.

1 Bordiga, who advanced a different variant from Cliff's about 'state capitalism' in the USSR, predicted that a general crisis of overproduction was going to occur in that country. He even announced the precise year in which it would break out. The year came and has long since gone. The general crisis of overproduction in the USSR is still awaited. ..
2 The SWP comrades did not at all predict the overproduction crises of 1974-75 and 1980-82. We did so almost to the year in which they broke out.
3 It is another matter to know what period of time is needed for the process to have some chance of completion.
4 See the perfectly clear statement by Trotsky in The Soviet Economy in Danger (1932).
5 It would be better to add, the triple or quadruple pricing system, for account must be taken of black market prices and of the 'prices' (comparative advantages) of the 'grey market' (exchange of services).
6 In addition the growing importance of the mass liberation movements in the colonial and semi-colonial countries from 1925-28 onwards should be included.
7 Written in 1960, Marxist Economic Theory (first edition, Merlin Press), p598: 'At the same time the rates of industrial expansion had to be reduced', ibid (second edition, 1969).
8 Aganbegyan claims that there was one year of absolute decline in production under Brezhnev. This is contradicted by every other source.
9 Complete and permanent monopolies are impossible under capitalism. The very divergence between their rates of profit and those in other branches inevitably attracts capital towards the sector that has been monopolised.
10 The Lambertists believe this.
11 We devoted one entire chapter in Late Capitalism to developing this idea.
12 This is the 'rational kernel' of Keynesian and neo-Keynesian theories, which in every other respect are wrong
Translated by Gareth Jenkins

Criticism which does not withstand the test of logic: A Reply to Ernest Mandel

(International Socialism 2: 49 Winter 1990)

The coincidence of economic crises East and West present revolutionary Marxists with a great challenge. The old Stalinist ideology which dominated so much of the workers' movement in the West and the Third World has collapsed. Its collapse has left a vacuum which the opponents of Marxism and of class politics are trying to fill with claims that 'the market' offers the only way forward for humanity. Such claims receive encouragement from the reaction of very large numbers of workers in the countries of the former Eastern bloc to the economic crisis that besets them: believing the old order to be some variant of socialism they themselves reject talk of socialism and turn towards people like Walesa or Yeltsin who preach the wonders of Western capitalism.

There is only one way for revolutionary socialists to meet this challenge. It is to provide an analysis of the world system which shows the interaction between crisis in the East and crisis in the West. Unfortunately, Ernest Mandel fails to do this.

His account of modern Western capitalism is simplistic in the extreme. He presents us with a precis of what he claims was Marx's account 120 years ago in Capital. He tells us that under modern capitalism:

"The organisation of labour depends in the first place on the private decisions of the factory owner, which are then corrected by competition, by the market. He has to submit to these corrections or face extinction. Under capitalism there is only one measure of performance—profit. .. It is post-sales profits that determine everything. The capitalist economy is based on profits, and profit can only be realised and measured in the form of money. Capitals move out of enterprises and sectors below average profit into those of above average profit...
At the first sign of a loss or of below average profits he (the capitalist) attempts to change the way production is organised.. . The law of value only rules any economy insofar as it is one of generalised commodity production, that is, one in which labour is basically private labour."

This account is not, of course, completely wrong. But it is hopelessly inadequate when it comes to dealing with the empirical reality of the system since Marx's time. To deal with that you cannot simply talk in terms of 'private decisions' made by the 'factory owner'. You have to analyse what happens as monopolies come to dominate the national economy, when there is the nationalisation of productive sectors of the economy, when 'peaceful' competition for markets gives way to military conflict between capitalist states, when states override the workings of the law of value inside their economies so as to ensure expansion of the sectors vital for military success.

It was precisely these issues which Lenin and Bukharin began to confront with their writings on imperialism.' Their writings took for granted Marx's account in Capital, but saw the need to build on it. Far from simply talking about 'competition for markets' they recognised that capitalism was beginning to go beyond this stage of its history (already, in 1915 and 1916!). Mandel, by contrast, is content to stick with his summary of Marx, without even referring to what Lenin and Bukharin wrote 75 years ago!

If that is not enough, he dismisses out of hand those of us who have attempted to build on their insights for accepting 'the myth of "organised capitalism" and Hilferding's "Generalkartel".' Yet Engels could write, more than a century ago:

"When we move on to the trusts which control and monopolise whole branches [of industry] then that means an end not only to private production but also to planlessness."2

Presumably, he too accepted 'the myth of organised capitalism'. Presumably Lenin did also, when he wrote a very favourable introduction to Bukharin's Imperialism and the World Economy, with its insistence (already in 1915) that, 'Competition is reduced to a minimum within the boundaries of "national economies" ' but 'flares up in colossal proportion' as 'the struggle between state capitalist trusts', a struggle which 'is decided in the first place by the relation between their military forces'.3 Finally, presumably Trotsky made the same mistake when he wrote, in The Manifesto of the Communist International to the Workers of the World:

The statisation of economic life, against which the capitalist liberalism used to protest so much, has become an accomplished fact... It is impossible to return not only to free competition but even to the domination of trusts, syndicates and other economic octopuses. Today the one and only issue is: Who shall hereforth be the bearer of statised production—the imperialist state
or the victorious proletariat " 4

Lenin, Bukharin and Trotsky all recognised that once capitalism enters its monopoly, imperialist, phase it is dominated by gigantic concerns which certainly do not organise the processes of production inside them on the basis of exchange of commodities at market prices, but by a planned interaction of inputs and outputs. It is something of which those who today run the giant corporations are only too aware. So a recent account of the workings of South Korea's giant chaebol conglomerates can tell:

"The performance of Korea's big businesses cannot be measured by profitability, because profit data are manipulated, nor can it be measured by volume of exports, which may merely reflect subsidisation. Good performance must be measured by physical indicators of production and operations management—say , productivity, quality and inventories, as well as changes in export values."

Inside the firm there is a form of 'planning', often running counter to the relations between commodities which would follow from the law of value.

What is true inside the giant firm is just as true inside the enormous military sectors of modern states—which during the two world wars came to dominate virtually the whole of each national economy. Even when the state does not produce arms directly, it ensures that private contractors are paid on a 'cost plus' basis, thus keeping them in business regardless of whether this involves subsidising unprofitable sectors of the economy at the expense of more profitable ones. No modern state allows the internal workings of the market—of the law of value—to destroy its ability to wage war.

But this is not the end of the matter. The law of value which is banished from the internal operation of the giant corporation or the military preparations of the state, nevertheless exercises a vital determining force on them from the outside. The direction which this 'planning' takes is not an arbitrary one. It has to enable each giant concern to compete with others—in military or economic terms—in the long run.

A giant corporation which cannot make an overall profit on the sum total of its transactions, profitable and unprofitable combined, will eventually go out of business. A national state which does not use its resources in such a way as to enable it to outshoot its rivals will eventually risk military defeat.

External competition determines the parameters according to which the 'planners' inside each concern operate. It is this external competition which forces managements to worry continually about their internal production costs, that is, to try to impose the law of value on the various
production processes under their control.

But, of course, the vagaries of external competition continually make nonsense of the attempt at internal planning, upsetting old cost calculations, compelling managements to enlarge certain production facilities much more than was 'planned' and to leave others half finished. Attempts at 'organisation' within the national economy are continually disrupted by competition at the international level. And that does not just mean economic competition for markets. It also means the form of competition typical of the epoch of imperialism, military competition.

Mandel's myths about the East
Mandel's mythical account of the functioning of modern Western capitalism is followed by a mythical account of what has happened inside the Eastern states. He argues that:
In the USSR the key essential investments are not distributed by the law of value. They are decided by the bureaucracy, mostly at state level. It is a planned economy, planned as far as direct allocation of resources is concerned. For 70 years, loss making enterprises required large subsidies and have received preferential allocation of productive resources. These have been systematically diverted from 'more profitable' enterprises or sectors. Such phenomena are unthinkable under capitalism and the law of value.

So it was that 'from 1928 onwards.. .growth really was regular and uninterrupted.. .unlike the capitalist economy, the USSR has experienced no recession, no crisis of overproduction leading to an absolute fall in production from more than half a century.' Finally, although 'the rate of growth began to fall about 20 years ago' and 'this fall may become "zero growth". . .there is no law making it inevitable'.

If there is a dynamic in the economy of the USSR, he argues, it is certainly not the one to which the theory of state capitalism points, of accumulation of means of production, since much of this accumulation turns out to be waste goods. 'Here we have the secret of the command economy: it is Department HI which is over expanded, not Department I.'

This is proved, he claims, by the way the USSR's agriculture is so unsuccessful, although 'the USSR is the biggest producer of chemical fertiliser in the world', producing 'nearly as much as the USA and Western Europe put together'. Apparently 'more than half the fertiliser is lost in transit'. 'Such wastage has nothing to do.. .with any drive to accumulate capital.'
Let's look at each of his claims in turn. First, the claim that growth has been 'regular and uninterrupted' is refuted by the most perceptive East European economists. They long ago recognised that the development of the Stalinist command economies has been cyclical in
haracter, repeatedly creating crisis situations. And the fluctuations in the course of the cycles have often been greater than those which the Western economies experienced during the long boom of the 1950s and 1960s. As the Czechoslovak economists Goldman and Korba told in 1969:
Analysis of the dynamics of industrial production in Czechoslovakia, the German Democratic Republic and Hungary supplies an interesting picture. The rate of growth shows relatively regular fluctuations... These fluctuations are even more pronounced if analysis is confined to producer goods.''

These fluctuations were substantially greater for Czechoslovakia in the 1950s and 1960s than for France. In the period 1966-74, the difference between growth rates in minimum growth years and maximum growth years averaged 50 percent for East Germany, 100 percent for Bulgaria, 130 percent for the USSR and 228 percent for Poland.

A Western academic study 20 years ago, showed that such unevenness was already visible in the Soviet Union at the time of the First Five Year plan.' We now know, from post-perestroika Soviet accounts, that the massive expansion of industrial output in the early plan years led in 1932-33 to an exhaustion of food supplies and a famine which killed more than 5 million people, mostly in the Ukraine and Kazakhstan.

What is more recession—negative growth— was not completely ruled out in the way that Mandel claims: it occurred in Yugoslavia in 1951-52 and 1967, and in Czechoslovakia in the early 1960s. And it is occurring in the USSR today (October 1990), before reforms intended to introduce Western style market mechanisms.

In the early 1970s the Yugoslav economist Branko Horvat was able to publish a book called Business Cycles in Yugoslavia" which pointed out that even before the market reforms of 1968, the Yugoslav economy was 'significantly more unstable' than ten other economies that were cited, 'including the United States'.9The very title of the book should have been an impossibility according to Mandel.

Today, of course, Mandel no longer repeats his old claim that crises cannot occur in the Eastern states: he can hardly assert that the whole Russian leadership are wrong when they point to such a thing. But he does still insist:

"If there is a crisis... it is one of underproduction of use values (of scarcity) and not of overproduction of exchange values (ojcommodities). To claim that the first is only a variant of the second is a gross fallacy. An empty shop is not 'a variant' of a shop stuffed with unsellable goods."

It simply is not good enough to assert that because two things are opposites they can have no connection with each other. As a Marxist, Mandel should understand that much. In fact, 'overproduction' is, according to Marx's analysis, only one moment in the development of the internal contradictions of capitalism. That is why Marxists could continue to insist on the reality of these contradictions throughout the long boom when generalised crises of overproduction did not materialise in many Western countries.'10

As Marx points out in volume III of Capital, overproduction of commodities is a by-product of something else—overproduction of capital. But this is not some absolute overproduction in relation to the needs of society—which can always be expanded and, in fact, are never fully satisfied when 'overproduction' arises. It is overproduction of capital—overaccumulation—in relation to the surplus value being pumped from the workforce.

Marx spells out how overproduction comes about. At a certain point in any boom the competitive drive of capitalists to invest leads to a drying up of existing supplies of raw materials, labour and loanable capital (ie non-invested surplus value). The prices of all these things—commodity prices, money wages and interest rates—begin to rise until the least profitable firms suddenly find they are operating at a loss. Some go out of business. Others survive, but only by abandoning planned investments and closing down factories. Their actions in turn destroy markets for other capitals, forcing them to abandon investments and close down factories. The 'excess demand' (Mandel's 'underproduction') of the boom gives rise to the overproduction of the slump. But the slump, in turn, prepares the way for a new boom by raising the proportion of surplus value to capital: on the one hand, some capitals are driven out of business reducing the total stock of capital; on the other, slump conditions allow capitalists to increase the rate of exploitation and to enter a new cycle of accumulation with a greater amount of surplus value.

The secret of the Western long boom of the 1940s, 1950s and 1960s lay in the way the national state could reduce the pressures leading to over-accumulation (by diverting a portion of capital into non-productive, military channels), take direct action to try to maintain a high rate of exploitation (through wage controls etc), intervene to slow down the boom before it led key firms to become unprofitable and maintain a minimum guaranteed level of demand through military orders. The state monopoly capitalist arms economy was not able to do away with the cyclical pattern of capitalist accumulation. But it was able to prevent it leading to slumps of the pre-Second World War sort.

The situation was very similar with the Stalinist command economies of the Eastern states. As in Marx's picture of capitalism there was over-accumulation. The attempt to compete with bigger and more advanced foreign capitalisms led to a scale of investment in excess of the surplus available within the national economy. And the overaccumulation led to a cyclical pattern of development, involving crisis. Attempting an excessive level of investment inevitably led to growing shortages of raw materials, intermediate components and labour.

Bottlenecks arose throughout the economy, threatening the closure of vast sectors of production through shortages of inputs. Output never rose nearly as rapidly as planned. The monetary funds paid out by enterprises for materials and labour exceeded the output of the economy, giving rise to inflationary pressures which found direct expression as price rises or 'hidden' expression as acute shortages of goods in the shops.

Left to itself, the crisis of excess demand—the product of excess accumulation—would eventually have spilled over into the wholesale closure of enterprises and the destruction of the markets for the output of other enterprises. It would have become a crisis of overproduction of commodities. But as in the West in the long boom, the state stepped in to try and pre-empt this by 'cooling down' the economy. It ordered enterprises to 'freeze' certain investments and to divert resources to others. This involved factories suddenly switching from one sort of output to another. The myth of the pre-planning of production—a myth which Mandel still accepts when he speaks of 'a priori allocation'—gave way to the reality of after the event, 'a posteriori', allocation, with a repeated shifting of inputs and outputs.

One plan target which always suffered in the process was that for consumer goods production. Directly cutting into 'wage fund goods' released resources for completing other investments. The balance between investment and surplus value was restored, in part, by physically limiting consumption levels so as to raise the rate of exploitation. The result, of course, was to increase still further the discrepancy between the funds laid out by enterprises on wages and the goods available for these wages to buy—to increase open or hidden inflation.

Overall, the economy was subject to periodic crises, even if these did not express themselves exactly in accordance with Marx's model.

But that is not the end of the matter. Mandel is wrong in his second contention, that there was even growth until '20 years ago'. In fact, all the Eastern economies suffered for decades from a long term trend for average growth rates to decline. And this was not, as Mandel claims, something which only became visible in the course of the 1960s. Official USSR figures give the following growth rates:

1951-55 11.3 percent
1956-60 9.2 percent
1961-65 6.5 percent
1966-70 7.8 percent
1971-75 5.7percent

Other authoritative estimates show lower average growth rates, but
the same trend 11

The difficulty in attaining the old rates of growth were certainly clear to the Soviet leaders as early as December 1956 when, for the first time, they abandoned a peace time 'plan' for being 'too taut', that is, for setting impossible investment targets. As one of the standard Western academic works on the Soviet economy notes, 'a slowdown in growth became quite noticeable after 1958'.12

Khrushchev's repeated and unsuccessful attempts to reorganise the economy in the mid-1950s and early 1960s (his 'hare brained schemes', as they were called in the Brezhnev years) arose precisely because of these economic failings. Yet Mandel's theory led him to deny the reality of such failings at the time, and leads him now to claim that it was not until '20 years ago' (ie in 1970, not the mid-1950s) did 'the rate of growth began to fall'!

By contrast, whether Mandel was aware of it or not, Tony Cliffs theory did enable him in the mid-1950s to locate the economic problems behind Khrushchev's failures13

When it comes to the present, Mandel's claims are even more amazing. He tells us that although the decline in Soviet growth rates 'may become zero growth.. .there is no law making it inevitable'. In fact, while he was writing these words in the early summer of 1989, there was already not just 'zero growth' in the USSR, but the beginning of a sharp decline in total output. By October 1990 Tolkushin, the deputy chairman of the USSR state committee for statistics, was announcing, 'During September, by comparison with September of last year, industrial output was down by 3.1 percent."14

The question Marxists have to be able to answer is how this economic contraction came about. And it is not good enough to try to duck that question by saying it was 'not inevitable'. That is to put yourself in a no better position than apologists for Western capitalism who claim that recessions are 'not inevitable' but just a result of mistakes in economic policy, without saying from where those mistakes come.

Mandel's claim that there cannot be accumulation because there is waste, is amazing. He would have us think there is not great waste in the West! In fact, calculations of waste in the West, whether by muck rakers of the Vance Packard school, by Baran and Sweezy15 or by Mike Kidron" 16 suggest that it exceeds the '30 or 40 percent of available productive resources' of which Mandel talks in the case of the USSR.
The claim that the USSR is a uniquely wasteful economy has long come from a group of theorists around the magazine Critique. They hold that the USSR is neither socialist nor capitalist. More recently, it has been taken up by many East European economists and political leaders who see it as justifying a turn towards an untrammelled market model which, they believe, exists in the West.

But, as Mandel himself used to recognise (in debate with Critique editor Hillel Ticktin), it is not a contention that can stand up to even the most cursory historical examination of the Soviet economy. For between the late 1920s and the 1960s the USSR did 'catch up' with the Western economies sufficiently to become the world's second economic power. It could not have done so if it was only the waste sector of the economy, Department III, which grew.

In fact, as every serious study of the USSR has concluded, there was massive growth of the means of production, of Department I. The ability of the USSR to defeat Nazi Germany and then to match the US in the arms race (at least until recently) was testimony to this: although things like tanks, atomic submarines and nuclear missiles are part of Department ID, they cannot be produced unless there exists a huge, productive, heavy industrial sector. And that requires a massive accumulation of means of production, a massive growth of Department I.

What is more, Mandel is completely wrong to say such accumulation could not be the cause of waste. The forced growth of heavy industry in the Stalin years could only take place because other sectors of the economy, especially those providing for the living standards of workers, were systematically robbed of resources. So under Stalinist 'collectivisation' there was a very low level of investment in agriculture, and those who worked the land did so for minimal wages. They survived mainly on the potatoes they grew on their own dwarf private plots, while the state took from them virtually all the grain to feed a burgeoning industrial workforce in the cities—and in the worst famine years of the 1930s, to export to pay for machinery imports.

In the first two decades after Stalin's death there were repeated attempts to improve the situation in agriculture, but every increase in military tension with the US led to a diversion of resources to heavy industry and armaments and away from rural investment.
Khrushchev's failure to improve agricultural output substantially was an important factor in bringing about his fall in 1964. Yet those who overthrew him were unable to pour the resources into agriculture which they at first promised: tractor and truck output in 1970 was only about half that laid down in the 1966-70 'plan', while fertiliser output was about 30 percent under target.17 As Brezhnev's statisticians explained:

Owing to the international situation it has not been possible to allocate as many resources as intended to agricultural investment and whilst the 1969 figure exceeds that for 1968, it is below that envisaged in the directives for 1966-70."18

The cumulative result of the low level of agricultural investment was a continual haemorrhage of young workers from the countryside until it was populated mainly by old people, and a failure to build an nfrastructure of roads, storage equipment and so forth. So even when the regime did, out of desperation, boost agriculture after the grain crisis of 1972, it lacked both the skilled, motivated workforce needed to take advantage of the most modern methods and the facilities for shifting the crop in the years when there was a good harvest."19

And once 'detente' gave way in 1979-80 to the second Cold War, agricultural investment was again sacrificed for industry and the arms budget: the capital stock in agriculture grew faster than that in industry between 1971-80, only to fall behind again in 1981-86.20

Mandel's example of fertiliser illustrates the point very well. The diversion of resources from investment in fertiliser plants to heavy industry meant that in 1968 Soviet agriculture was using only 62 kilogramme of fertiliser per hectare, as against 227 kilogramme per hectare in the US and 766 per hectare in Britain.
Of course, waste contributed to the low Soviet level, but it was not the main cause. And what is more, the waste itself could be a by-product of the forced accumulation—as when the pressure to switch resources to 'priority' heavy industrial projects prevented the completion of a factory which was due to produce bags to carry increased fertiliser output, leading to much of it going to waste.21

Today, 20 years on, total mineral fertiliser consumption has indeed overtaken the US figure, as Mandel states. But he is grossly ill informed if he believes it is 'nearly as much' as that of 'the USA and West Europe put together'. Soviet consumption in 1986 was 23.08 million tonnes, combined US and Western European consumption 41.07 million tonnes.22 The amount of fertiliser per hectare of arable land is only slightly higher than the US figure, although the innate average fertility of US land is considerably higher than that of Soviet land (although there is about the same amount of arable land in the USSR as the US, most of it lies in more northerly latitudes) and much Soviet fertiliser is low grade.2' But, most significantly, low levels of agricultural investment mean there are 40 percent fewer tractors in the USSR than the US, making it much more difficult to transport and spread fertiliser without wastage.24

So inferior fertiliser is used on less fertile land by a workforce which has lost most of its younger, skilled members to the towns and heavy industry. And that fertiliser has to be distributed by an inadequate tractor fleet across a vast area of countryside lacking even the most minimal investment in roads and storage facilities. It is not surprising that Soviet agriculture remains much less productive and much more wasteful than that in the US. But you cannot see why unless you recognise the way in which the economy as a whole is dominated by the drive to accumulate.

But Mandel does not just accept fashionable 'new class theorist' arguments about waste. He also repeats arguments which used to be the basis of Stalinist apologetic for the Eastern states.

So he claims that 'unemployment has played no role in the USSR for more than half a century'.

This 'gain from the October revolution' is something 'which has never existed in capitalist society and never will'. Yet the Soviet press has admitted in the last year to high levels of structural unemployment in whole regions of the USSR. Pravda has told that in 1986 there was 27.6 percent unemployment in Azerbaijan and 18 percent in Armenia25 and Moscow News has spoken of 6 million unemployed in the Asiatic republics.26 Even in its early, centrally directed version, perestroika included the sacking of workers by technologically backward factories. So a spring 1990 estimate by Izvestia of total Soviet unemployment of 8 million could be correct"—even though it would mean an unemployment rate in the USSR similar to that in a Western capitalist country like the US,28 and considerably greater than that of Japan!

More incredibly, Mandel claims that 'the proportion of working class consumption in the USSR' is 'much bigger' than in other countries with a similar level of economic development. In fact, it was possible last year for one of the heads of the official, state run unions to declare that 'the proportion of the wages' fund of workers and office workers in the country's national income, at 35 percent, is considered one of the world's lowest'.2'9 He may have been exaggerating. But if Mandel is going to claim the proportion of workers consumption is 'much bigger' than in comparable countries elsewhere in the world, he had better provide some evidence.

Even more astonishing, however, than Mandel's propensity to indulge in apologetics that even the Stalinists themselves have abandoned, is his ability to contradict himself over something which is central to his whole understanding of how the Soviet economy has functioned. 'We have never defended the thesis', he writes, 'that the economic development of the USSR is dominated by the production of consumption goods for the bureaucracy.' Yet only two paragraphs later he argues:

"In order to preserve and extend its privileges the Soviet bureaucracy... has to develop the economy up to a certain point... Without car factories 3 million middle and top bureaucrats cannot acquire cars. Without enough steel, electricity or iron ore, the car industry cannot be developed satisfactorily."

If this is not saying that the bureaucracy's need for consumption goods is the driving force of the economy, what is it saying?

He then goes on to see this drive for bureaucratic consumption as responsible for both the fast rate of economic growth under Stalin and its slower growth more recently:

"For as long as the shortage of consumption goods kept them thirsty far more, the bureaucrats were fanatical about accumulation, about 'production for the sake of production' and about 'technological progress'. But as soon as the nomenklatura as a whole had reached a satisfactory level of consumption, this thirst began to disappear."

I can only explain such contradictory utterances in one way. Mandel momentarily grasped the stupidity of trying to explain in terms of the consumption needs of the bureaucracy an economy, like the Soviet one, characterised by a massive tendency for heavy industry to expand. But then he slipped back into his old explanations, for the only rational alternative would have been to locate the drive to accumulate in terms of competition with the West. That would have driven him to accept the contentions of the theory of state capitalism. He preferred to contradict himself than to travel that path!

There is a close connection between Mandel's theoretical starting point and his factual errors. Because he refuses to recognise the fundamental forces behind economic development in the past, Mandel cannot grasp the scale of exploitation of the Soviet workers, the crisis ridden cycle of economic development, the coexistence of labour shortages in parts of the USSR alongside vast pools of unemployment in other parts, the long term decline in the growth rate, and the sudden outbreak in recent years of generalised crises which have made 'inevitable' a fall in output and a catastrophic contraction of the economy.

By contrast, those of us who see the USSR as state capitalist have long recognised the way things are going. Tony Cliff did in 1948 locate the main factors leading the Soviet economy inexorably from the dynamism of the Stalin years to eventual economic crisis and he did, in the mid-1950s, spell out how this damned the Khruschevite dream of reform. I myself pointed out 15 years ago how the long term decline in growth rates made it increasingly difficult for state planners to resolve the cyclical crises caused by overaccumulation. 30

It became more and more difficult for the state planners to find the resources needed to overcome bottlenecks in the economy. Growing sectors of the economy simply could not get the inputs they needed to turn out goods for which there was demand; other sectors produced goods which were stockpiled on a massive scale, since they were intended as inputs for investments that had been abandoned. 'Underproduction' in certain sectors of the economy (particularly 'wage goods' sectors) was accompanied by 'overproduction' in other sectors (particularly certain 'capital goods' sectors). The central planners could no longer prevent a physical decline in output and open inflation on a massive scale. This point was already reached in Poland in 1979-80 and has now been passed in the USSR, Bulgaria and Romania as well.

Those who ran the economy were driven to try to deal with bottlenecks by turning to the international economy. Cyclical crises in East Europe always led to foreign trade deficits as well as to inflationary trends. And in the 1970s Poland and Hungary turned to the world economy on a massive scale, seeking funds from the West for accumulation and expecting to repay them by sales on Western markets. In the 1980s the USSR and Bulgaria responded to internal crisis by beginning to move in the same direction, on a scale that has only become clear with official revelations over the last year.

But even if the turn to the international market provides temporary relief from the internal crisis (as it did in Poland in the early Gierek years, 1971-75), this soon gives way to aggravation of the crisis. The bureaucracy has to cope with the ups and downs of the world economy as well as the ups and downs of the internal economy. And the need to repay foreign debts forces the bureaucracy to worry lest the internal ratio of surplus value to investment (the rate of profit) falls below the international average.

The internal dynamic of bureaucratic state capitalism leads it into a crisis from which it tries to escape by opening itself up to the world market. But that opening reduces still further its ability to employ old mechanisms for coping with the effects of the internal crisis. Economic contractions do, indeed, become 'inevitable'.

State capitalism in the West
There is a final, very important, theoretical point that escapes Mandel's understanding. The loss of the state's ability to suppress certain symptoms of economic crisis in the last two decades is not something unique to the Eastern states. There has been similar change throughout the West and the Third World.

The merger of the state and capital had been a trend throughout the world capitalist system between the 1930s and the 1970s, of which what happened in the Eastern states was the most extreme expression. In country after country there had been, for a longer or shorter period, the direct domination by the state of whole sectors of productive industry, the growth of an enormous military sector, the subordination of much of the economy to the dictates of military competition, and the overriding of the play of market forces by state direction.
The role of the state, and of military expenditure in particular, had influenced the way in which the crisis of the system expressed itself. In looking at capitalism during the 'long boom' of the 1940s, 1950s and 1960s it had not been good enough simply to talk in terms of a 'crisis of overproduction' (as Mandel does). This was not the characteristic form of economic crisis in the West. In Britain, for instance, there was no generalised recession, no fall in economic output due to lack of markets, between 1940 and 1971. What occurred was 'stop-go'—repeated intervention by the state to reduce 'excess demand' ('underproduction') and to head off inflation and balance of payments deficits.

There was in those years, as Tony Cliff pointed out at the time, a great similarity between the sort of economic crisis experienced in the advanced Western states and that experienced under Stalinism:

"It can be shown that the process that leads to contradictions in the permanent war economy—subordination of means of consumption to means of destruction, the appearance of crises of underproduction, of disproportions between branches of the economy, lack of raw materials, etc, etc—are equally applicable to Western capitalist countries and to the 'socialist' third of the world."31

But all this had begun to change by the early 1970s. The state capitalist arms economy began, inevitably, to be undermined by the very economic expansion it had brought about. The forces of production began to grow beyond the bounds of national states as never before. World trade grew faster than world output, and production itself was increasingly organised internationally. Capitalists were forced to operate internationally or, at least, to link up with other capitalists internationally, if they were not to lose out in terms of technological advance and competitiveness. And states which did not recognise this found the economies over which they presided in relative decline.

There was an 'opening up' to international investment and the world market of partial state capitalisms as varied as Argentina and Brazil, Spain and Ireland, South Korea and Egypt. And the internal economies of the established Western capitalisms were increasingly 'restructured' in accordance with a changing world division of labour.

These changes meant that the state began to lose its ability to suppress symptoms of crisis, to stop overaccumulation of capital (the 'crisis of underproduction') giving rise to a crisis of overproduction. Hence the generalised recessions of the mid-1970s and early 1980s.32 Hence the sudden discovery by numerous Western and Third World states that the old 'Keynesian' methods or 'import substitutionist development strategies' could no longer work.

The same considerations were increasingly affecting the Eastern states as well. The old response to the bottlenecks and inflationary pressures arising from 'overinvestment' had been to shift resources from 'non-priority' to 'priority' sectors of the economy. But declining growth rates, on the one hand, and the increasing proportion of output dependent on international trade on the other, reduced enormously the resources that could be moved in this way. The strain on resources prevented many enterprises in 'priority' and 'non-priority' sectors attaining old output levels, let alone the new ones specified in the 'plans'. The economy as a whole stagnated, or even began to decline, while shortages of consumer goods and even some producer goods proliferated. The state capitalist command economy had entered a period of generalised crisis.

For a time those who ran the state tried to ward off the growing crisis through 'reforms' ('acceleration', then 'perestroika', then a gradual introduction of market mechanisms). But reforms simply could not work and the whole of society drifted to social and political as well as economic crisis. At this point a section of the ruling class came to believe they had no choice but to allow the crisis to run its course, to allow enterprises to compete directly with each other for resources which were in short supply, even though this could only lead to the internal economy going into recession on a scale not experienced by the advanced Western countries since the 1930s.

Such a recession represents the transformation of an economy of shortages, of 'underproduction', into an economy of overproduction. That is why factories in Poland are shutting down because they cannot sell their output, and why foodstuffs are piling up in the countryside while growing numbers of people go hungry. Whether Mandel understands it or not, the dialectic of state capitalist development transformed the nearly empty Warsaw shops of 1989 into the Warsaw shops of 1990, overfull of goods that working people could not afford to buy.

It is similar shock treatment that Gorbachev says he intends to apply, under the Shatalin programme, to the USSR. I have argued at length in previous articles that the road of the market and recession will not solve the problems of the bureaucracy, and that, as in the West, the attempt to follow this path will be accompanied by continuing splits inside the ruling class.33The point here, however, is that significant sections of the ruling bureaucracies have felt driven in this direction by the dynamic of the command economy itself. It is a pity that people like Mandel are so blinded by inadequate theoretical formulations that they refuse to recognise this.

Two traditions on theory and practice
Towards the end of his attack on me Mandel suggests that the only reason the British SWP is interested in such arguments is because we are 'scholastic', 'hopeless splitters', only interested in 'stirringup artificial distinctions with every other revolutionary current'. But, as Lenin used to put it, 'without a revolutionary theory there can be no revolutionary practice'. And a theory which is based on contradictions and falsities cannot lead to consistent—and therefore revolutionary—practice, however subjectively revolutionary its adherents.

Theory is not some abstraction, divorced from practice. It determines how you understand a rapidly changing reality and your tasks in relation to it. At key points in history your theoretical understanding determines on which side of the barricades you find yourself. So it was that those who had a correct understanding of imperialism in the years 1914-18 had no difficulty coming out against the war, while those who simply stuck to old formulae from Marx and Engels often succumbed to the pressures to back their own ruling classes. So it was that in 1917 those old Bolsheviks who stuck to the formula of 'the democratic dictatorship of the proletariat and the peasantry' were often led to support the provisional government.

We are witnessing enormous changes in the USSR and Eastern Europe today. We cannot come to terms with such changes simply by relying on common sense formulations. As Gramsci used to insist, to base yourself on common sense is simply to accept in an uncritical manner the prevailing ideas, the ideas of the ruling class.

For 60 years rulers East and West had a common interest in claiming that Stalinism was a version of socialism, indeed, as 'actually existing socialism' the only non-utopian version. This enabled the state capitalist rulers of the East to conceal their real purposes from their own peoples and from the most militant opponents of capitalism in the West. And it enabled the rulers of the West to weaken opposition to themselves by pointing to the East and claiming that socialism entailed loss of freedom for the mass of workers. Pushed alike by both sets of rulers, it is hardly surprising that the notion entered in the 'common sense' of the great majority of the world's people.

The task of Marxist theory is to challenge such common sense. Unfortunately, instead of doing so, Mandel resorts to it in order to back up his own assertions, as when he argues that 'literally no one in these countries, or in the world, denies the evidence.. .[of] a restoration of capitalism in several East European countries.'

If we are to accept ideas because of their popularity, we might as well also concede that nationalisation under capitalism is a form of socialism, that Labour parties always form 'socialist' governments, and, today, that the crisis of the East European economies proves the 'failure of socialism'. All those ideas have been held as widely as the view that Eastern Europe is moving from 'socialism' to 'capitalism'.

We have to reject all these ideas because a scientific understanding of society means starting from the relations of production and exploitation—and these are not changed simply by a change in the party which runs the government, by the state taking over the means of production.. .or by the state giving up some of that ownership.

If you do not challenge such 'common sense' you cannot put forward a clear, independent working class politics. For a workers' state, however deformed or degenerate, to become a capitalist state must be a step back historically, a stage in a counter-revolutionary process which Marxists should oppose. But if this is so, should Marxists not be supporting those sections of the nomenklatura most resistant to such a change—supporting Ligachev when he argues against privatisation, supporting the Stalin-lover Nina Andreyeva when she denounces Gorbachev's 'restorationist' tendencies, supporting Iliescu when he crushes the Bucharest students?

Should Marxists perhaps have supported Honecker's efforts to use force against a movement which so easily fell under West German hegemony? Mandel argues that no section of the Fourth International has ever fallen into such a trap. But it has in the past created illusions in those who ran the East European states. Whatever his claims today, in 1956 Mandel did encourage the belief, widespread on the reformist left East and West, that the accession of Gomulka to power guaranteed 'socialist democracy'. He did write:

"The power of the movement has become irresistible. Socialist democracy will still have many battles to win in Poland. But the principle battle, that which has permitted millions of workers to identify themselves again with the workers' states, is already won."34

He did praise the 'new leadership' of Polish Stalinism for keeping at the head of the movement, while complaining that the reformers inside the Hungarian party leadership had not been able to do so:

"The subtle interaction between the objective and subjective factors, between pressure from below and the crystallisation of an opposition at the top of the Communist Party, an interaction which made possible the Polish victory, was missing in Hungary."

He did go beyond mourning the Hungarian premier Imre Nagy as a victim of Khrushchev to praising him for his 'attempt to conquer the leadership of.. .the revolution'35

The theory of the Eastern states which Mandel adheres to has allowed many people—including some with years of activity within the Fourth International—to go much further. Isaac Deutscher did support the crushing of the East German and Hungarian risings, and so did splinter groups from the Fourth International like those led by Cochrane in the US and Lawrence in Britain. The Militant group in Britain (for a number of years the official section of Mandel's International) did argue that Marxists should be prepared for 'tactical' alliances with Honecker in Germany and 'sections of the securitate' in Romania, and did support the crushing of the Bucharest students. And the American Socialist Workers Party did not change its politics of Castro worship when, a couple of years back, it ended its 25 year old term as one of the biggest sections of Mandel's International and insisted it was no longer 'Trotskyist'.

Slipshod theoretical formulations do not inevitably lead to reactionary practical conclusions. But they make it easier to draw them. And Mandel's formulations are slipshod. He claims that in Hungary, Poland and the German Democratic Republic... a significant section of the nomenklatura' has 'been seen to tiptoe away from the stage of society'.

But, any objective analysis of what has happened in these countries points to something else.
There has been a change of the ruling party. But it has left virtually untouched those who organise and benefit from exploitation in the enterprises, the ruling class. Not only does at least 80 percent of industry remain in the hands of state appointees in Hungary and Poland at the time of writing, but most of the 20 percent or so which has been privatised has passed into the ownership of those with nomenklatura backgrounds. The hierarchies of control in the armed forces, the police and much of the media remain in very much the same hands as before. The individuals who hold ministerial portfolios might have changed, but the key structures of the state have not.

Things are more complicated in the case of what used to be East Germany. But it is former nomenklatura managers who are negotiating the joint agreements between East German and Western capital. Even when there are complete takeovers from the West, many senior managers from the nomenklatura remain at their posts as subordinate members of the newly unified ruling class. The East German section of the main German capitalist party, the Christian Democrats, is a former front party for the nomenklatura, full of figures who prospered in the old East German state. And West German capitalism has found a role for sections of the old East German officer corps and even many formers members of the Stasi.36

If, as Mandel claims, a 'restoration of capitalism' is occurring in Eastern Europe, he ought to be able to say when the decisive change, the counter-revolution, from a state representing one mode of production to one representing another, occurred. Was it with the changes of the autumn and winter of 1989? Was it with the formation of non-Stalinist governments? Was it with the privatisation of less than 20 percent of industry? Or is it still to happen?
He hints that privatisation is the key question for instance, when he says that privatisation could lead to recession in the USSR. But in that case with only 20 percent of the economy privately owned Poland must still have the economy of a workers' state (a workers' state with a bourgeois government?). But that economy is already experiencing a recession worse than any experienced in the West since the 1930s.

The logic of Mandel's argument is to say that the key struggle for workers is to defend what remains of the 'workers' state'—the nationalised form of property and the old mechanisms of the command economy. It is a logic which can be very dangerous for the genuine left in the Eastern countries.

Workers are only too aware that it is the old command economy that has led to the queues, the shortages, the ecological disasters, the rising unemployment and now the recession. They hate that section of the nomenklatura which identifies with the old methods. That is why in the
USSR the new workers' organisations have been bitterly opposed to Ryzhkov and have easily succumbed to illusions in Yeltsin with his calls for rapid privatisation. That is why in Poland Walesa can build a populist campaign for the presidency based on demagogy against the nomenklatura and, again, the demand for more rapid privatisation. That is why workers in East Germany fell into the trap of believing their future would best be protected by rapid incorporation into West Germany.

Genuine socialists have to warn workers that the market and privatisation offer no solution to the crisis. But we cannot do so if we give the impression that the alternative is to stick with the old ways, that somehow if the old ways had been left intact everything would be all right. Even worse is for socialists to call upon workers to make 'sacrifices' to protect the old ways.
Yet this is exactly what happened with the majority of the United Left in East Germany in the late spring of 1989. The Christian Democrats had won the general election through West Germanr Chancellor Kohl's promise of a one to one exchange rate between East and West German marks. He then tried to renege on this promise, and a huge protest demonstration of workers took place. The majority of the United Left opposed this demonstration, claiming that the most important thing was to protect the nationalised East German enterprises against international competition, and that this would be more difficult with an exchange rate that gave East German workers higher rather than lower wages.

Fortunately, a minority of United Left members rejected this position, arguing that the central question was of independent organisation of workers in defence of their own interests, both against their old bosses and against those West German interests who wanted to join with the old bosses in exploiting them37

Such issues will arise again and again in the Eastern states. Some sections of the bureaucracy will try to mobilise workers behind their own programme of 'reforms' and the market. Other sections will claim their defence of the old system is a defence of workers' interests. Genuine socialists have to stand firm against both sections, insisting that both want workers to pay for their crisis. But we can only do so if we are clear that the move from the command economy to the market is neither a step forward nor a step backwards, but a step sidewards, from one way of organising capitalist exploitation to another.

The importance of these arguments can be seen if you look at the history of restructuring and privatisation in countries like Britain. The biggest attacks on working class conditions and jobs usually occurred while firms remained in state ownership. Managements urged workers to accept these measures as the price of maintaining nationalisation, and, in key cases like British Leyland (now renamed Rover) and British shipbuilding, won support of union leaders and senior shop stewards to this position. Then after five or ten years of repeated closures, redundancies and speed up, those same managements endorsed privatisation and increased their own salaries enormously. Privatisation came after the biggest attacks on workers, not before it. And union officials and stewards who saw privatisation as the issue, as more important than the attacks, made it more difficult for workers to fight back. We can only hope that Mandel's arguments do not lead some his followers in the East to play a similar role today.

But it is not only in the Eastern states that an understanding of state capitalism is important. The crisis of the Eastern states has led, inevitably, to a world wide crisis among those sections of the left who used to be influenced by Stalinism. Vast numbers of people who used to believe that the Stalinist model was the alternative to the ruling classes of the West and the Third World are now wondering whether there is an alternative at all.

It has been this, for instance, which has allowed the leadership of the South African Communist Party—probably the only one in the world still to be growing—to justify its embrace of the mixed economy and foreign investment.38 It is this which provided the leadership of the Greek Communist Party with its rationale for moving in two short years from Stalinism via an accommodation of Eurocommunism to the formation of a coalition government with the right wing New Democracy party.

It is certainly not sectarian for South African or Greek revolutionaries to try to provide a clear explanation of what is happening in the Eastern states. But they cannot provide such explanations unless they argue out the issue among themselves, without any fudging. Yet Mandel is calling for such fudging when he implies it makes no difference to revolutionaries in Eastern Europe whether they accept our views or his, and calls for them all to affiliate to his International. If he were really confident in his assertion that a counter-revolution is taking place, then he would surely be insistent that those of us who do not agree should be in a different organisation.

The argument over state capitalism has implications that go beyond the question of the Eastern states. In the Third World there are many regimes which have copied totalitarian features from the old Stalinist states. A state capitalist analysis enables socialists to understand where such features come from—and also to understand that they will eventually be blasted apart by the combined impact of economic crisis and a growing working class.

By contrast, without such an analysis, it is all too easy to fall into the trap of seeing these regimes as uniquely horrific, as worse than any conceivable alternative. There was such confusion in relation to Iran in the late 1980s—at the very time that the US was engaged in a massive military effort aimed at ensuring the defeat of Iran in the first Gulf War. Typical was an article by Val Moghadam which appeared in New Left Review.

"How could it be seriously argued that the Islamic regime's economic policies-some populist, some statist, some anachronistic (eg on the ban on loan interest)—reflected 'capitalist laws of accumulation'?... It was quite simply not a capitalist, still less a bourgeois government... The fundamental problem was not that the regime was capitalist, but that it was incapable of organising a viable and just political economy based upon democratic rights and the socio-economic needs of the population.. . This was despite the fact that in the summer of 1979, the government began nationalising all major industries, banks, insurance companies and foreign trade.'"39

So the lack of an understanding of the forms capitalism has taken in the 20th century led to the view that a Third World regime like Khomeini's was qualitatively worse than a 'normal' bourgeois regime. This was the conclusion which Fred Halliday drew in the same issue of New Left Review, contrasting the 'progressive position' of the 'liberal bourgeoisie' to 'the reactionary ideas and policies of Khomeini'.40 Such analyses led to a refusal to oppose the US offensive against Iran.

Halliday had argued for years that the Eastern states were different from and superior to the West. In an article that appeared early in 1990 he still spoke of 'the degree to which there did exist in the "communist" states a system based on different social and economic criteria' to capitalism and of 'the internationalist commitments that were one of the brighter sides of the Brezhnevite era'41 He went on to describe what was happening in the Eastern states as involving 'recidivism of epochal proportions'.42 Yet without any analysis to explain these changes, he could only conclude that they undermined much of the classical Marxist analysis:

"The greatest mistake of Marxist and socialist thinking... was the underestimation of capitalism itself, both in terms of its potential for continued expansion and in terms of its not having within it a catastrophist teleology...What this necessitates, and provides the opportunity for, is a reassessment and realignment not only of Marxism and the socialist movement but the whole radical and revolutionary traditions within Western society as a whole.
Central to this he argued was a return to the liberal values of the Enlightenment, a 'recognition of how relevant pre-Marxist radical currents may be, especially in the face of the resurgent challenges of the time, clericalism, nationalism and irrationalism."45What this meant in practice for Halliday was shown in the late summer of 1990 when, in radio interviews, he urged Western military intervention against Iraq, he maintained, 'I would not think that at a future juncture, if sanctions fail, that military action to oust Iraq from Kuwait would by unjustified.'

The only way the genuine left internationally can deal with such disorientation is by subjecting all the old, commonsense accounts of the Eastern states to the most stringent scientific scrutiny. For this reason we make no apology for trying to build an international tendency based on our analysis of the world system, an analysis in which the notion of state capitalism is central.
But the national organisations that make up the tendency certainly do not simply talk about state capitalism, in the way that Mandel claims. If that were true, we in Britain would never have gained the 'roots in the working class' to which Mandel refers, OSE would never have become the biggest group on the Greek far left and been able to intervene in the recent general strike and the German Sozialistische Abeitergruppe would never have been able to win members within the United Left in the former DDR.

Even where the organisations in our tendency are small, their work is not characterised by any abstract and sectarian fixation around the question of state capitalism. The French group, Socialisme Internationale, has centred most of its activity in recent years around the demand that the left moves seriously to confront the Nazis of the Front National—a task which the biggest revolutionary organisation in France, Lutte Ouvriere, refuses to consider and which the second biggest organisation, the Ligue Communiste Revolutionaire, only began to take seriously in the early summer of 1990. Socialisme Internationale's most 'notorious' intervention on the political scene so far was in 1989 when it alone of the revolutionary organisations took an uncompromising stand on the right of girls from immigrant families to wear the Islamic veil to school in the face of a campaign against them orchestrated by the racist right.

Groups like those in the United States, Ireland, Australia, Canada, Denmark, Holland, Norway, are active in all sorts of struggles—from the defence of abortion rights to picket lines against union busting and opposition to racism and imperialism—while attempting to make revolutionary politics relevant to a new generation of activists through papers which combine theory and practice, propaganda and agitation. And all of our groups can boast an exemplary record in opposing Western war drives in the Middle East, both against Iran in the 1986 and 1987 and against Iraq more recently.

Mandel complains that our tendency is small. So is his International: we have about 6,000 supporters internationally, and his International claimed 10,000 members in 1985" and since then it has lost its once powerful American section, the US Socialist Workers Party. So we both count our supporters in thousands, while the world working class is about a 1,000 million strong. Neither of us should be ashamed of the fact. For two generations Stalinism dominated and disillusioned the left internationally, marginalising its opponents when it did not murder them. The question is how to build now that Stalinism itself has collapsed.

Mandel believes a small organisation can become a bigger one if it fudges its analysis and avoids coming to terms with what is really happening in the world. We do not. Those of us with clear answers to the crisis of Stalinism can grow and play a positive role in the class struggle East and West. Those without such clarity may attract confused people around them for a period, but will just as surely lose them.

1 See V I Lenin, Imperialism, the Highest Stage of Capitalism; N Bukharin, Imperialism and the World Economy (London, 1972); N Bukharin, The Economics of the Transformation Period (New York, 1971); V I Lenin, Marginal notes to Bukharin's economics of the transformation period in ibid.
2 F Engels, Critique of the Erfurt Programme (Cyclostyled Translation, London nd).
3 N Bukharin, Imperialism, ppl 19-125.
4 L Trotsky, The First Five Years of the Communist International, Vol 1 (New York, 1945), p23.
5 A Amsden, 'Third World Industrialisation: "Global Fordism" or a new model?', New Left Review 182, London, July/August 1990, p21.
6 Goldman and Korba, Economic Growth in Czechoslovakia (Prague, 1969), p41.
7 R Hutchinson, 'Periodic fluctuations in Soviet historical growth rates', Soviet Studies, January 1969.
8 Translated in Eastern European Economics, Vol X no 3-4.
9 B Horvat, 'Business cycles in Yugoslavia', translated in Eastern European Economics, Vol IX, No 3-4.
10 If Mandel had actually read the material produced by our organisation at the time he would know that, far from supporting the idea that something called 'organised capitalism' which had dispensed with these contradictions, much of our effort went into arguing with the proponents of that idea. See, for example, M Kidron's 1956 critiques of R Crosland and J Strachey reprinted in A Socialist Review, (London, 1965) and his 'Rejoinder to left reformism' in International Socialism (first series), Winter 1961-2.
11 See, for example, B Kostinsky and M Belkindas, 'Official Soviet Gross National Product Accounting', in CIA Directorate of Intelligence, Measuring Soviet GNP, Problems and Solutions (Washington, 1990).
12 A Nove, An Economic History of the USSR (London, 1969), p361.
13 See, for example, 'The future of the Russian Empire, reform or revolution', Socialist Review (December 1956), reprinted inNeither Washington Nor Moscow, (London, 1982), Russia from Stalin to Kruschev, (London, 1958); part two of the 1964 edition of State Capitalism in Russia, published as Russia: a Marxist analysis.
14 Speech translated in BBC monitoring service, 12 October 1990.
15 In P Baran and P Sweezy, Monopoly Capital (Harmondsworth, 1973).
16 M Kidron and E Dallas, 'Waste US: 1970', in M Kidron, Capital and Theory (London, 1974).
17 Figures given in W G Harm, The Politics of Soviet Agriculture, 1960-1970 (Baltimore, 1972), ppl97-98 and pp224-25.
18 Finansy SSR 28/69.
19 For a complaint about these questions in the early Brezhnev years, see Ladenkov, Voprosy Ekonomiki, 1967 no 20, translated in Soviet Review, IX no 3.
20 Estimates for growth rates given in CIA Directorate of Intelligence, opcit, ppl 10-13.
21 For one account of this example, see D W Conklin, Barriers to technological change

in the USSR: the case of chemical fertilisers', Soviet Studies 1969, p359.
22 Food and Agricultural Organisation, World Agricultural Statistics, 1986, ppl78, 176 and 11.
23 For an earlier discussion on the shortcomings of Soviet fertilisers, see D W Conklin, op cit, p353.
24 FAO, op cit.
25 Pravda, 31 October 1989.
26 Moscow News, 3 September 1989.
27 I Advion suggests a 'probable' unemployment total of 8.4 million, or 6.2 percent of the employed workforce in 'A note on the current level, pattern and trends of unemployment in the USSR', Soviet Studies, July 1989, p460.
28 The US unemployment rate in August 1990 was 5.6 percent. International comparisons of unemployment rates are difficult to make. Nevertheless it is clear that the USSR is not qualitatively different in this respect to the West.
29 Minayeva, deputy head of All Union Central Council of Trade Unions, reported on 12 January 1989 in Trud.
30 See my articles, 'Poland and the Crisis of State Capitalism', in International Socialism, first series, 93 and 94, (1976). There is a summary of my argument in the concluding chapter of my Class Struggles in Eastern Europe (London, 1983).
31 T Cliff, 'The nature of state capitalism', Socialist Review, March 1957, reprinted in A Socialist Review (London, 1965).
32 The state did continue to play a role. The recessions of 1974-76 and 1980-82 were not nearly as deep as that of the 1930s. Unemployment in the early 1930s rose to one third of the workforce in the two countries where the recessions hit worst, the US and Germany. By contrast, it only rose to about 14 percent in the worst hit Western country of the early 1980s, Britain. It is stupid of Mandel to try to ignore this by naively comparing the last two recessions not with that of interwar years, but with the average over the past 150 years—an average that reflects the vitality of capitalism's youth, not the decay of its old age.
33 See C Harman, 'The Myth of the Market', International Socialism 42, and 'The Storm Breaks', International Socialism 46.
34 E Germaine (pseudonym of Ernest Mandel) Quatrieme Internationale, December 1956, p21-22.
35 Ibid, p23.
36 For the efforts of the CDU Interior Minister in East Germany to keep sections of Stasi functioning, see the reports in Klassenkampf, June 1990, p4, and October 1990, p4.
37 For a full report of these events see Klassenkampf, May 1990, pp9-ll.
38 See J Slovo, Has Socialism Failed? (London, 1990).
39 V Moghadam, 'Socialism or anti-imperialism? The left and revolution in Iran', New Left Review 166, November-December 1987, p20.
40 'The Iranian revolution and its implications', an interview with Fred Halliday, ibid, p37.
41 F Halliday, 'The ends of the Cold War', New Left Review 180, March-April 1990, ppl2-13.
42 New Left Review 180, p22.
43 New Left Review 180, pl8.
44 New Left Review 180, p23.
45 Interview in Marxism Today, October 1990.
46 When its Australian section left it.