RESTORATION of CAPITALISM in the USSR - Finance

RESTORATION of CAPITALISM in the USSR

Martin Nicolaus

21 Finance 

Where are the commanding heights of the "new" Soviet economy? One thing should be plain from what has been said so far: To look for the top command post or even the key instrument of economic power in the Soviet central "planning" bureaus is to go on a wild goose chase. 

The Soviet "planners" do not know what happened, what is happening or what will happen in Soviet economic development, and there is not very much they could do about it in any case. 

To get a fuller picture of how the "new" Soviet economy is organized, it is necessary also to look more closely at the role played in it by the Soviet state bank. 

In external appearances, the Soviet state banking system has changed little since the socialist period. Now as then, there is a single state-monopoly bank combining within its various departments most of the different banking functions that are usually kept at least formally separated in the West. 

The nature of its operations, however -- particularly in relation to the industrial enterprises and combines -- has changed profoundly as a result of the 1965 "reform" measures. Kosygin explicitly touched on a key feature of this change when he called for restricting the system of making interest-free grants and expanding, in its place, the role of credit, i.e., of lending at interest. (See part 16 of this series.) Prior to the "reform" it was the general rule that industrial enterprises received what they required in the way of short-term funds ("working capital") and long-term funds for the expansion of production ("investment capital") from the respective departments of the state bank on an interest-free, nonrepayable basis. 

This did not mean that the utopia of capitalist dreams had come about: an economy where the bank gives away free money. On the contrary. There was also the other side to it that any idle funds in the enterprise's account instantly came under the control of the bank, not of the enterprise; and, as was pointed out earlier, virtually 100% of all enterprise profits, if any, were directly centralized in the state. Thus the system of interest-free nonrepayable funding did not "profit" the enterprise (in the capitalist sense) one bit. Nor did Gosbank (the state bank; also the name for its short-term funding department) or Stroibank (the long-term funding department) make a profit on their monetary operations. 

Another aspect of the Soviet socialist banking system also essentially distinguished it from capitalist banking. This was that the Soviet state bank with all its departments was both legally and in practice subordinate to the central plan, which expressed the political-economic policy of the proletarian dictatorship led by the Bolshevik Party. 

The bank served the central plan by allocating and transferring funds to, from and between enterprises as laid down in the plan, by keeping and balancing the national accounts and by running audits on how the enterprises were using the funds assigned to them. This is why the Soviet socialist state bank was frequently called a "post office" or "messenger service" for the plan. 

Such a banking system clearly could not survive unaltered under the economic conditions created and consolidated by the 1965 measures. 

In the first place, in the absence of a comprehensively worked out, directive central plan, the bank if unchanged would have floundered aimlessly. 

In the second place, it would have been quickly stripped of all its funds had it continued to issue them without charge. For now that enterprises were allowed to retain a large portion of "their" profits and their directors had a personal incentive in profit-maximization, nothing could have been more idyllic from the enterprise directors' viewpoint than to get "free money" from the bank. It would have meant "free" and unlimited profits for as long as the giveaway lasted. The old economic quackery of a capitalist system with "free credit" (zero interest), advanced by Proudhon in Marx's day already, and as persistent in petty-bourgeois thought as crabgrass, would have been realized for the first -- and last -- time in history. 

In short, once the funds left at the disposition of the enterprise acquired the social character of capital, the funds at the disposition of the bank likewise had to undergo this transformation. The conversion of socialist production units into capitalist enterprises was not possible without the transformation of the socialist state monopoly bank into a state capitalist monopoly bank. 

Beginning with a nominal 2 to 3%, the basic interest rate in the USSR was raised after 1967 to a more nearly commercial 6%. A Western bourgeois observer of this development, a correspondent for the Financial Times of London, commented in 1971 that this was still relatively cheap, but that it "represents a great advance compared to the devastating interest-free credits or state budget financing of a few years ago." (A. H. Hermann, "East-West Finance," in The Banker, August 1971, p. 872.) 

In harmony with these sentiments and to the applause of the Western capitalist banking world, the Soviet economic literature has devoted extensive space to arguments that the interest rate should be raised even further. (e.g., I. Mamonovax, "The Interest Rate and its Differentiation," Den'gi i kredit, No. 3, 1972, in Problems of Economics, Nov. 1972; Iu. Shur, "Some Problems in Building Models of Interest," same source.) This may well have occurred. 

The ideological acrobatics by which the Soviet revisionist economic "theorists" tried to reconcile the principle of a substantial interest charge with the principles of Marxism make a sometimes amusing but more often repulsive chapter in the Soviet economic debate, which would take too long to pursue in detail here. Apart from the rare strokes of brazenness, such as the ultrarevisionist Leontyev's out-front declaration that "a capital charge fixes the commodity nature of capital assets," -- and that this is "good" -- the discussion is marked by a general conspiracy of silence about the clear and thorough analysis of interest found in Marx's Capital (e.g.. Vol. III, Chs. XXI-XXIV), as well as about Marx's explicit statement that "in the case of socialized production, the money-capital is eliminated." (Vol. II, p. 358.) (Leontyev quoted by Feiwel, book cited earlier, p. 223.) 

Lacking this firm, materialistic foundation -- indeed, evading it like the plague -- the Soviet disputants only succeeded in entangling themselves in a Gordian knot of sophistries, which was cut, as in the related debate on profits, by the sword of a party decree. As the economist E. G. Efimova puts it: 

"The proclamation of the principles of the economic reform by the September (1965) Plenum of the Central Committee of the CPSU put an end to the discussion of the expediency of introducing charges for productive capital. . . . The question is no longer whether the actual principle of charges corresponds to the principles of socialist management, but rather pertains to the eliciting of the specific economic content of the category of capital charges and, on this basis, to the elaboration of the procedure for determining the size of the charges and the rules for collecting them." ("On the Economic Content of Capital Charges," Seriia obshchestvennykh nauk, 1971, No. 1, in Problems of Economics, April 1972, p. 49.) In other words, the question is not whether money is to be converted into capital, but by what terminology this conversion is to be disguised and how high the rates should be. Discussion of basic principles is forbidden. 

A knotty problem for Soviet ideologists has been how to define the economic relation between enterprises and the state. 

In addition to paying interest charges to the state bank, enterprises pay so-called "capital charges" to the state budget. Originally the two types of payments were treated as having the same content; the distinction between interest and "capital charges" was treated as broadly identical with the distinction between interest on short-term and on long-term loans. 

As the "reform" advanced, however, new long-term investments in expanding the capacity of existing enterprises virtually ceased to be financed out of the state budget. The material basis for the claim that "capital charges" were payments for borrowed capital evaporated away. Yet enterprises continue to be liable for the payment which is figured as the basic interest rate on their total "fixed" capital, adjusted for the rate of profit. 

Much fruitless experimentation among the "theorists" for substitute labels resulted. The more logically consistent revisionists in the last few years have been proposing that this payment, together with all the various other miscellaneous and sundry state deductions from enterprise profits, be lumped together and collected under the single heading of: income tax. (E. Manevich, "Ways of Improving the Utilization of Manpower," Voprosy ekonomiki, 1973, No. 12, in Problems of Economics, June 1974, p. 11.) By what devices of sophistry this category is to be reconciled with the doctrine that the state owns the enterprises (how can it tax its own property?) remains to be seen. 

The Soviet state bank, in sum, has been converted by the "reform" to operation on capitalist lines, particularly in its relations to the state industrial enterprises and combines. Since the bank now demands interest on its loans -- and this interest, of course, is nothing but a share of enterprise profit -- the bank's own profitability depends directly on the profitability of the enterprises. The bank becomes an auxiliary lever spurring on the enterprise director to greater efforts in extracting surplus value from the labor of the workers. 

The spirit of this relationship was expressed rather plainly by M. Sveshnikov, the chairman of the Soviet state bank, in an article contributed to the London banking review, The Banker. "The bank is actively to promote the stepped-up growth of labor productivity," Sveshnikov writes. "When crediting enterprises and organizations, it is essential to have them improve capital efficiency, cut production costs, raise the profitability of production and eliminate operation at a loss." ("USSR State Bank After 50 Years," The Banker, December 1971, p. 1479.) These principles of banking policy could have been uttered just as well, knife in hand, by a Rockefeller or a Morgan. 

It would be a serious misreading of the facts, however, to suppose that the Soviet state bank today, by virtue of its control of bank capital, exercises some sort of general dictatorship over the state industrial enterprises and combines. The image of the Soviet state capitalist bank as a giant octopus dominating the industrial scene, which is sometimes conjured up, is the product more of fantasy than of investigation. Altogether ludicrous is the view sometimes advanced that in this supposed dictatorship of the state bank over "industrial capital" lies one of the key parallels between the present-day organization of Soviet capitalism and the organization of capitalism during the Nazi period in Germany. These parallels are indeed striking, but they lie in the opposite of the relationship imagined. 

The power of capitalist banks over capitalist industry varies, it is generally agreed, with the degree to which industrial enterprises are dependent on the banks as a source of capital. How great is this dependence in the USSR? As was already indicated (in part 18 of this series) the established Soviet industrial enterprises and combines are very little dependent on bank credit, especially not bank credit for long-term capital investments, the sort which gives banks their greatest leverage. 

Only 3.3% of total long-term investments in Soviet industry in 1972 were financed with bank credits, a percentage which Soviet economists themselves rightly regard as "insignificant." As for short term loans for "working capital" -- generally 30-day to 90-day loans to cover shipments, payrolls, inventories and the like -- the bank supplied in 1970 around 44% of industrial requirements, a not very imposing proportion. (V. N. Kukikov, "Some Problems of Long-Term Crediting. . . ," Finansy SSR, 1974, No. 5, in Problems of Economics, Feb. 1975, p. 61; Iu. Shur, "Some Problems in Building Models of Interest," Den'gi i kredit, No. 3, id ditto, Nov. 1972, p. 73.) 

Thus the material basis for speaking of a "dictatorship of bank capital" over industrial enterprises in the USSR at the present time is hardly there, at least not in regard to enterprises extracting an average rate of profit from the workers. Even less are there grounds for speaking of any sort of state bank tyranny over the so-called production associations or combines. These are almost wholly self-financing. In addition to the writers already quoted earlier on this score, here is the economist Boris Gubin: 

"Whatever the structure of industrial associations, the income they derive from the marketing of their products is sufficient, in most cases, not only to meet current production costs but also to meet the costs of research, design and other operations connected with technological progress. It also covers to a considerable extent the capital investments needed for expanding production. . . . In the associations, fullest expression is given to the principle of financial self-reliance as the basic principle of cost-accounting." (Raising the Efficiency of Socialist Management, Moscow, 1973, p. 105.) 

Financial "self-reliance," of course, which sounds quite good in the abstract, means in this context that each combine makes such high profits from the exploitation of its workers that it is not dependent on the bank or the state budget for capital with which to expand the scope of its exploitation. 

In no other major capitalist country today are industrial enterprises, including the biggest monopolies, as a rule so nondependent on bank capital for investment funds as in the USSR. In the U.S., for example, in recent years corporations have obtained roughly a third of their investment capital from banks, and this dependence is increasing, while in the Western European states dependency on banks is generally over 50%, and in Japan more than 70% . One has to go back in history to find a case of such extreme self-financing by industrial combines as is the general rule in the USSR today. 

Precisely here, and not in some imaginary bank dictatorship, lies one of the parallels between the organization of capitalism in the USSR today and in Germany during the period of Nazi hegemony. Prior to the Nazi ascendancy, it is true, much of German industrial-monopoly capital had cause to complain of a crushing burden of debt to the banks; but the Nazi policy "solved" this problem. Through a series of political and economic measures the Nazi party engineered an increase in the rate of profits in monopolized industry to the point where the combines became emancipated from bank dependency. 

In consequence, as Franz Neumann noted in his 1944 study of Nazi economic policy, German industry "is no longer indebted to banks." There has been "a victory of internal financing over the borrowing from banks," thereby establishing "the primacy of self-financing over borrowing." Neumann astutely observes that self-financing "robs the tax offices of taxes and makes a comprehensive investment control impossible." (Behemoth, the Structure and Practice of National Socialism, New York 1944, pp. 319, 318.) In this way, as Neumann points out, the big German banks themselves were saved from the ruin that awaited them in the event that the industrial combines, due to lack of sufficient profits, had gone into bankruptcy. 

"Self-financing" under capitalism means that the big industrial combines are their own investment banks. Bank capital as such also flourishes; but banking plays the role of helper and partner of the established combines, not their master. The material foundation of this financing system is a very high rate of industrial monopoly profit. 

German industry in the pre-World War 2 period did not possess vast foreign investments from which to draw superprofits and avoid bank-dependency, or delay it. Neither, of course, did Soviet industry before 1965. The Nazi program, while aiming at war and the conquest of foreign wealth, had therefore initially to boost profits through mainly domestic measures. It granted, for example, huge tax concessions which allowed the big industrial combines to retain a larger proportion of their profits. It actively promoted the formation and consolidation of various forms of industrial monopoly associations (trusts, cartels, combines, holdings and the like), and assisted the bigger combines in swallowing up the smaller. 

Most basic of all the Nazi measures, of course, was the violent denial of elementary democratic rights to the working class. Strikes were outlawed, as were all unions not controlled by the fascist state labor front. Open terror was used in an effort to smash all workers' resistance, all protest from any source or class whatever, especially if it had a Marxist-Leninist character. By such methods the big capitalist combines were made "self-financing." 

One of the functions of the Soviet state bank, when it was a socialist bank serving a socialist economy, was to redistribute revenues from enterprises and branches running a profit to others engaged in socially necessity but unprofitable production. Under the "new economic system," the Soviet state bank helps to channel profits in just the opposite direction, from have-not enterprises to those that are well-endowed. 

"During operation under the new conditions," writes Drogichinsky, "some enterprises, and at times even ministries, quite often raise the question that the production development fund, set up in accordance with the operating normatives, cannot be rationally utilized because an enterprise does not need it on such a scale." ("The Economic Reform in Action, in Soviet Economic Reform . . . , p. 218.) In other words, it is not merely that profits are quite high. In some enterprises and branches they are so high that there is a lack of opportunities to invest them according to the profit-maximizing rationale. 

Of course there is no lack of opportunities in present-day Soviet society to expend funds on serving the people, for example by improving the miserable conditions in agriculture or reversing the decay of free public services, of which more later. But to place money in this way does not yield the enterprises any increase in their profits. By the logic of the system, such expenditures are " irrational." 

Thus the economic pressures stemming from a superabundance of capital (relative to existing opportunities to invest at the going rate of profit or better), and hence the pressure to export capital abroad, are very much present in the "new" Soviet system. (See Lenin's Imperialism, the Highest Stage of Capitalism, Peking ed., p. 73.) 

At the same time there are other enterprises, as Drogichinsky goes on to note, which do not realize enough profits even to keep going at an adequate standard. Does the Soviet state bank in this case come to their assistance? Hardly. The economist Kulikov, in an article quoted earlier, draws attention to the existence of "restrictions on granting credit to existing enterprises . . . that are relatively unprofitable." The bank specialist Shur says that relatively unprofitable enterprises are to be "reconstructed" so that they are able to pay interest to the bank; this usually means merging them with bigger enterprises. ("Financial Problems in Capital Construction," Finansy SSR, 1972, No. 2, in Problems of Economics, Oct. 1972, p. 75.) 

The economist Pessel has praise for the "special procedure for granting loans to poorly functioning enterprises and the granting of loans on a preferential basis to well-functioning enterprises," but is still not satisfied with the results. "Poorly functioning enterprises should be placed under still tighter loan restrictions so that they will eliminate shortcomings in their work more promptly." ("Credit and its Development . . ." Ekonomicheskie nauki, 1972, No. 9, in Problems of Economics, March 1973, p. 90.) 

These writers draw no distinction between enterprises that may be said to be functioning poorly due to managerial incompetence and those whose economic situation, no matter how well they are run, will not allow them to reach the standard of profitability. With the rare exception of enterprises that receive a state subsidy (fewer than 3% of total output is produced in this way, according to Maizenberg), the mere fact that an enterprise achieves substandard profit is sufficient to qualify it as "poorly functioning." 

Such enterprises have a tougher time getting loans and must pay a higher rate; while the bigger and most profitable enterprises, who need bank credit the least, obtain it on a preferential basis. Thus the Soviet state bank, like every other capitalist bank, serves to "intensify and accelerate the process of concentration of capital," as Lenin pointed out in his "Imperialism" (p. 39), and Marx before him in Capital (Vol. III, p. 439). Take from the small and give to the big -- this is also the philosophy of Soviet banking. 

22 Trustification 

Russian industry, even before the Bolshevik revolution, was the most highly concentrated in the world. "No other country," says Podkolzin, "had such a high percentage of workers employed at large industrial enterprises." (A Short Economic History of the USSR, Moscow 1968, p. 59.) This situation, created by and further contributing to the concentration of capital in Tsarist Russia, was undoubtedly one of the reasons why the Russian proletariat, despite the enormous backwardness in all other sectors of economic life, was able to play a vanguard revolutionary role not only in reference to Russia, but also for the whole world. The concentration of workers speeds the development of class consciousness, facilitates organization and enhances the workers' power to act in their economic and political interests. 

From the standpoint of the smaller capitalists, however, the concentration of capital is a constant threat. The complaints of little capital against big capital, of the petty bourgeoisie against the big bourgeoisie, of nonmonopoly against monopoly capital, are an enduring theme of this social order. With the all-round restoration of capitalism in the USSR in 1965, this theme has again emerged. 

When the "reform" converted the directors of Soviet enterprises into full-fledged capitalists, it handed out "licenses to practice capitalism" to all directors alike, at least in theory. But enterprises are of different sizes. 

So, for example, as Drogichinsky says, in Soviet industry as a whole more than 50% of the enterprises during the late 1960s were relatively small ones, each employing fewer than 200 workers. This means that more than half the enterprise directors became small capitalists. ("The Economic Reform in Action," in Soviet Economic Reform. . ., p. 219.) 

The ground rules of the "reform" have been stacked from the very beginning against these small fry in favor of the biggest. Already the way in which the conversion to the "new system" was handled disadvantaged the petty bourgeoisie, for the biggest enterprises and combines were allowed to enter the new pastures first. 

At the end of 1967, as Drogichinsky recounts, some 7200 of the USSR's biggest, most productive and most profitable enterprises were operating in the "new way." The next year a batch of 19,650 enterprises were "transferred to the new system," whose total output and profits as a group was somewhat smaller than the total output and profits of the first 7200 taken together. During the following year, 1969, came another batch of 9000 enterprises, whose output as a group totalled less than a third, and profits less than a fourth of the first group of 7200. The number transferred last, in 1970, was probably no less than 10,000 -- Drogichinsky, interestingly enough, does not give a precise figure -- but these, altogether, accounted for an insignificant share of total industrial output and profit. (Same source, pp. 197, 200, 202.) 

By the time they arrived at the new economic trough, in other words, the medium and smaller enterprises found the big hogs already there, gorging themselves, and had to make do with the leftovers. 

It is no wonder therefore that they have problems surviving, as Drogichinsky admits. (Same source, p. 217.) While he and other writers prefer to paint these difficulties in terms of physical production process -- larger production units work more efficiently, and similar arguments -- it is nevertheless amply clear that the real source of their problems is the small size of their capital. Thus Drogichinsky concedes, straightforwardly: 

"Small enterprises are faced with difficulties. Since their economic stimulation funds are not big, they are not always able to build cultural and service establishments and houses and also to undertake measures for the development of production because the size of the funds does not allow them to do this in one or two years; they have to accumulate resources over a number of years, with the result that at times the contemplated measures lose their meaning." (p. 217.) 

That is to say, the workers in small enterprises tend to get even worse housing, fewer services and less access to culture than the workers in the bigger plants. As for the capitalists, they are out of luck and all their dreams to scrimp and save their capital and become big fish someday "lose their meaning." What Drogichinsky describes in his guarded phrases is the substratum of sweatshops and other small businesses that exists alongside and beneath the monopolies in all present-day capitalist counties. 

According to the official Soviet ideology it is not possible for a "socialist state enterprise" to go bankrupt. In practice, however, it is otherwise. The new 1965 law on the enterprises, citied earlier, declares that enterprises which cannot pay their debts (to other enterprises or to the bank) may not look to the state to bail them out: 

"The state is not responsible for the obligations of the enterprise, and the enterprise is not responsible for the obligations of the state." (para. 9.) 

This sounds like a divorce decree, and is difficult to reconcile with the doctrine that the state is the owner of the enterprises. However that may be, enterprises that get into trouble are on their own. The law provides procedures for their merger into other enterprises, or that failing their liquidation. In the latter case, all creditors must be duly notified and "claims against the enterprise being liquidated will be met from its property on which, by law, execution may be levied." (Para. 110.) The official ideology notwithstanding, this procedure bears a striking resemblance to capitalist bankruptcy. 

The available Soviet sources do not volunteer any clear data on the total number of enterprises existing prior to the 1965 measures and in the years afterwards. It is thus not possible to determine how many of the smaller production units converted into capitalist enterprises by the "reform" have meanwhile been liquidated. The number is probably in the many thousands. 

In no other capitalist country today is there so much open promotion and protection of monopoly in all its forms as in the USSR since 1965. 

In all capitalist countries, to be sure, monopoly capital in one or another form dominates. The extent to which this is publicly and officially acknowledged varies from country to country, as does the particular form monopoly capitalism assumes. Everywhere in the West currently, however, there is at least the pretense that monopolization (or certain forms of it) is illegal and will be punished and there is the fiction that the state bureaucracy, for example through regulatory agencies, forms a countervailing power to monopoly capital. One has to go back a bit in history to locate a country where monopoly capitalism enjoys such direct, absolute and unbridled power as in the current USSR. 

The two key features of the 1965 "reforms" in this regard are the formation of "production associations" and, secondly, the reestablishment of the central industrial branch "ministries" -- but on a profit-maximizing basis. In addition to what has been said in passing about these developments earlier, the following must now be added. 

Formation of the "new"-style "production associations" in the USSR began on an experimental basis in the Ukraine (Khrushchev's base) in 1961. The speed with which they developed may be gauged from the fact that by 1970, there were some 1400 of these associations in operation, incorporating more than 14,000 industrial enterprises. 

A landmark decree of April 1973 made it compulsory for every enterprise to join. A total of around 5000 "production associations" of different types now exist. (Gubin, "Raising the Efficiency . . ." p. 86.) 

The Soviet economist Boris Gubin describes the main types of "associations" in these words: 

"Soviet associations of the 'trust' type incorporate, as a rule, enterprises manufacturing products of the same kind and having a managerial apparatus isolated from enterprises. . . . Within the framework of a 'trust' type association, a number of modifications are possible in the composition of enterprises, their territorial distribution and organization. Despite the differences in the level of centralization of production and management, the principle on which associations of the 'trust' type are based is the same. 

Associations of the 'combine' type incorporate enterprises connected by the sequence of operations in processing raw materials and manufacturing products. In contrast to them, an association of the 'firm' type incorporates, as a rule, enterprises of one industry connected by relations of cooperation in manufacturing products of the same kind. Within a firm, the managerial apparatus of the biggest central enterprise manages the operation of the association as a whole. . . . 

"In addition to several basic types of industrial associations, agrarian-industrial, scientific-industrial and industrial-commercial complexes are being set up in the Soviet national economy." (Gubin, p. 90.) 

The setting up of these amalgamations, it must be emphasized, in no way touched on the capitalist character of the production relations. As before, workers are hired and fired, means of production bought and sold and the exploitation of the workers' labor continues with the maximization of profits as aim. What the trusts, combines and firms achieve merely is the concentration and centralization of capital, the reproduction of capitalist relationships on a bigger scale. 

In almost every case, as the Soviet writers readily concede, an enterprise coming into one or another type of combine thereby sacrifices some of its real independence of action. The degree to which it does so may vary from case to case. The individual enterprise director may lose control over the marketing of output or supply of raw materials to the headquarters of the trust, but may retain leeway to a certain extent over investment decisions. In many cases, however, the individual enterprise director's 

post is abolished altogether, along with the managerial and office staff. In this case the formerly autonomous capitalist enterprise becomes a mere branch plant, and the director is reduced to mere hired manager or superintendent. The office workers are thrown on the street. Among several examples, Gubin cites as praiseworthy the following: 

"Great savings were effected by the organization of associations in the oil-refining industry. As a result of setting up the 'Kuibyshevneft' association, the managerial offices of seven oil-drilling enterprises, 11 oil-fields and 51 oil-producing and drilling sections were abolished. This enabled the release of over 1000 workers and a saving of 1.3 million rubles in the annual labor remuneration fund." (p. 108.) 

Even in cases where enterprises retain a certain measure of autonomy within their "association," however, the headquarters of the trust appropriates a portion of their profits and depreciation funds which otherwise would remain at the disposition of the enterprise director. In all cases the "association" heads dispose of central funds. (Gubin, p. 104.) "Association" membership by no means guarantees a given enterprise against liquidation. Just as the bank does, Kulikov points out, the trust headquarters frequently use their centralized funds to favor the most profitable enterprises. ("Some Problems of Long-Term Crediting. . ." p. 61.) 

All powers and resources lost by the directors of member enterprises are taken over, as Gubin points out, by the headquarters of the trust, combine or "firm." Typically this headquarters is the previously most powerful single firm in the industry or territory. Powers and resources of the smaller and medium capitalists -- even of some quite big ones -- become concentrated in the hands of the biggest in the given field. 

In itself this sort of thing is not exceptional in current capitalist practice. In the U.S., for example, virtually the whole of the steel industry has long been controlled by the biggest firm, U.S. Steel, which thus heads up the informal steel trust. (See e.g. Blari, Economic Concentration, pp. 500-505.) General Motors in a similar way heads up the de facto automobile trust, and Exxon the well-organized oil cartel. In most Western European countries and Japan there are similar, usually less hidden arrangements. 

In no other capitalist country, however, are all enterprises in a given industry compelled by law to join the trust or cartel; and nowhere else are they required by law to follow the orders of its dominant "leadership." The maverick steel enterprise in the U.S., for example, which dares to disobey U.S. Steel's "leadership" has every legal right to try it. 

Not so in the organization of Soviet capitalism. Once it enters a production association -- and since 1973, as already pointed out, all enterprises have been compelled to do so -- it becomes formally (legally) subordinate to the head enterprise and loses all legal autonomy. In practice, as Drogichinsky points out, individual enterprises frequently retain considerable de facto rights and functions, but being "formally deprived of legal autonomy" they exercise their freedom of action only on the tolerance of the trust or combine. ("On Wholesale Trade . . ." Voprosy ekonomiki, 1974, No. 4, in Problems of Economics, Oct. 1974, p. 107.) 

In the Soviet Union today monopoly cartels -- run on the basis of profits in command -- both directly dominate the state and legally force smaller enterprises into their combines. 

What is the precedent for this practice? While it is certainly part of the bourgeoisie's economic arsenal in all countries, it is not applied at all times and places. 

One has to go back more than 40 years in the history of capitalism to find cases where, in similar fashion, membership in cartels is made legally compulsory and where the biggest enterprises enjoy legal authority to buttress their economic power over the others in the "group." Japan in April 1931, Italy in June 1932 and Germany in July 1933 passed similar compulsory cartellization decrees. Franz Neumann comments on the purpose of the German measures: 

"The compulsory-cartellization decree is again primarily directed against the small and medium-scale businessmen, who are often reluctant voluntarily to join the cartel and thus are now completely subordinated to the demands of the powerful concerns." (Behemoth, p. 266.) Another antifascist writer adds that the compulsory decree, along with the network of controls necessary to enforce it, served "to enhance the power of the great combines by rounding out and supplementing the controls which they require for the full instrumentation of their monopolistic interests." (Brady, Business as a System of Power, New York 1943, p. 43.) 

Nazi Germany too, of course, had "price controls." They were based on the principle, however, as Neumann records, that "price agreements must secure sufficient profits to economically necessary plants." (p. 307.) Doesn't this sound familiar? Kosygin also said: "Prices must . . . secure a profit for each normally functioning enterprise." Moreover, there is the same recognition of the "differential profit inherent in every cartel structure, the so-called cartel rent," (Neumann, p. 307) or, in deputy Gosplan chief Kotov's words, "the need to construct prices on the basis of 'marginal' enterprises and to charge differential rent." ("Prices . . ." p. 58.) This system is a source of enormous superprofits for the biggest and most powerful firms. 

The formation of the Soviet "production associations" meant the organization of trusts and other capitalist amalgamations in different regions and parts of industrial branches. With the formation of the Kuibyshevneft oil combine, for example, the formerly separate oil enterprises in the Kuibyshev area were formed into a single profit-maximizing monopoly. But there is still the Grozneft association, which groups the oil enterprises in the Grozny region, the Tatneft combine, the Bashneft and others. With the amalgamation of all oil combines all over the country into a single USSR capitalist oil trust we arrive at the real economic content of the central industrial "ministries" which were "restored" by the measures of 1965. 

These ministries, it will be recalled (part 13), were abolished by Khrushchev; and this act was one of the mam issues which brought about the June 1957 showdown between his Politburo minority and the majority. (See part 11.) The 1965 decision to set up central ministries again, announced by Kosygin, thus appeared to superficial observers as a "concession to Stalinism" or even a partial return to socialist planning. Nothing could be further from the truth. 

Kosygin himself was fairly explicit, once his phrases are decoded. "It may seem at first glance," he said in his 1965 speech, "that a mere return to the former ministries is being suggested. To think so, however, means to disregard a number of new factors and to make a mistake. The new ministries will work in entirely different conditions, under which the functions of the administrative management of industry are combined with a considerably greater application of cost-accounting methods and economic incentives, and the economic rights and initiative of enterprises are substantially extended. Within industries a network of cost-accounting amalgamations is being set up and they will exercise direct management of their respective enterprises. . . . The ministries will rely in their work on the cost-accounting amalgamations, handing over many operative functions to them. Moreover, within ministries . . . many of their central administrations must also operate on the principle of cost-accounting. The ministries will concentrate on the main trends of the progressive development of their respective branches." 

The phrase "cost-accounting amalgamations" here means profit-maximizing trusts or combines; and the "entirely different conditions" under which the new "ministries" are to work are the conditions of capitalism. To these trusts and combines, the "ministries" are to hand over "many operative functions," and furthermore, ultimately the "ministries" themselves must operate on the profit-maximizing basis, i.e., become converted into capitalist trusts. 

What these phrases express, in other words is the principle of the direct takeover of the state of its political-administrative organs, by the biggest capitalist amalgamations. It is what Franz Neumann, in reference to the prevalent trend in Germany during the 1930s, called "the delivery of the political organs to the cartels." ("Behemoth," p. 270.) 

The Soviet economists themselves clearly express the capitalist character of these so-called ministries, though of course they do not use that term. L. M. Gatovsky, for example, in pointing to the importance of factors such as "the increase in the mass of profit, the level of profitability" in making investment decisions, observes that "it is natural that ministries, too, have to consider this circumstance in determining investments in new equipment. This factor becomes particularly important with the transfer of the central boards of ministries to cost accounting, their conversion into big-cost-accounting organizations." ("The Economic Reform and the Stimulation of Technological Progress," in Soviet Economic Reform. . . , p. 173.) 

Komin, the deputy price chief, declares that "in the practice of price formation, one of the most urgent problems is the problem of profitability. While in the past the profitability index was viewed only from the standpoint of the enterprise, . . . at the present time the profitability index interests associations and ministries . . . the extension of this principle to all ministries will require an increase in profitability norms and will lead to a rise in the level of wholesale prices in industry." ("Problems . . . ," p. 41.) 

Gubin gives a graphic example of illustrating the "effectiveness" of the new principles for the running of ministries in the case of the Ministry of Machine-Tool and Instrument-Making, one of the first to be reconstructed. "During the 1969-70 period alone, the ministry released more than 12,000 employees from the managerial apparatus and curtailed annual managerial expenditure by 24.5 million rubles." Profits rose. (Raising the Efficiency . . . , p. 107.) 

Here are two examples from light industry working directly for the consumer market. In this branch, the "ministries" are organized on a republic basis, i.e., each of the "federated republics" of the USSR has its own: 

"The Ministry of the Meat and Dairy Industry of theTadjik SSR [a national minority area], in the quest for high profits for its enterprises, in 1970 and 1971 reduced the production of inexpensive products that were in stable demand among the population and unjustifiably increased the production of more expensive products. As a result, the enterprises of this ministry obtained millions of rubles of profit in excess of the plan." (Starostin and Emdin, "The Five-Year Plan and the Soviet Way of Life," Planovoe khoziaistvo, 1972, No. 6, Problems of Economics, Feb. 1973.)

The behavior of the "Ministry" of Light Industry in the Russian SFSR (Soviet Socialist Federated Republic), the biggest, is guided by the same principles, as another writer testifies: 

"Another factor frequently underlying the nonfulfillment of orders submitted by trade is the low level of wholesale prices on ordered items, which does not provide industrial enterprises with the necessary profit. In such cases, industrial enterprises try to curtail the production of relatively unprofitable and especially totally unprofitable items despite the fact that they enjoy high consumer demand. For example, enterprises in RSFSR light industry satisfied only 70% of orders submitted by trade for jackets made from a certain fabric for the second half of 1971, whereas it offered a quantity 2.3-fold greater than demanded of men's raincoats of the same fabric, an item enjoying limited demand." ("Economic Incentives for Meeting Consumer Demand," Voprosy ekonomiki, 1972, No. 4, in Problems of Economics, Oct. 1972.) 

It would be possible to multiply such quotations and illustrations. These so-called ministries represent nothing more than the concentration of capital and consolidation of capitalist monopoly, on a higher and bigger scale. 

This development goes far beyond the gradual infiltration of state agencies by enterprises and combines, which the Soviet economist Maizenberg, quoted earlier, naively observed in 1969. (See part 21.) It is the outright, complete, direct and official seizure of the state management bodies by the capitalist monopolies, the reconstruction of the state bureaucracies on monopoly capitalist lines. The 1965 restoration of ministries, therefore, was anything but a step toward closer state "regulation" of capitalism, such as is dreamt of by "liberal" bourgeois thought. It was the realization, rather, of the most reactionary capitalist design, implemented by the bourgeoisie usually only in times of the most dire historical emergency, when its very survival is at stake: the direct and open regulation of the state by the most powerful monopoly capitalist combines.

In every capitalist country at the present moment, of course, the state as a whole, and all of its parts, is the instrument of the monopoly capitalist class. All of its economic-regulatory bodies ultimately serve the very "special interests" they are supposed to control. They are either infiltrated, corrupted and bribed, or else their powers are restricted and their budgets reduced. (See e.g., Blair, pp. 372-402.) 

In this way the monopolistic interests either bend them to their will or render them ornamental. It is ludicrous to expect any organs of the bourgeois state to act otherwise. In bourgeois-democratic states, however, the rule of the monopolies is exercised indirectly, and a facade of impartiality is kept up. The monopolies use the state, they use the law; in the fascist and current Soviet setups, they are the law, they are the state. 

Take the chairman of the US Steel Corp. and appoint him minister of ferrous metallurgy, with full power to run the iron and steel industry; take the chairmen of Con Edison, Pacific Gas & Electric and the two or three other biggest power monopolies and make them the governing board of the ministry of power; give the chairman of Exxon the title of minister of petroleum, petrochemicals, coal and atomic power with statutory authority to fix prices, set quotas, assign markets and the like -- and there you have the political-economic organization not only of fascism but also of the present-day Soviet economy. 

"The complete subjugation of the state by the industrial rulers," says Neumann, "could only be carried out in a political organization in which there was no control from below, which lacked autonomous mass organizations and freedom of criticism. It was one of the functions of National Socialism to suppress and eliminate political and economic liberty by means of the new auxiliary guarantees of property, by the command, by the administrative act, thus forcing the whole economic activity of Germany into the network of industrial combinations run by the industrial magnates." (p. 261.)