Economics of a Workers State in Transition to Socialism

(Young Spartacus pages)

We are pleased to publish a class by Spartacist League Central Committee member Joseph Seymour given for our SYC members in Oakland, California, on 6 August 2005. It has been edited for publication and slightly expanded by Young Spartacus in collaboration with comrade Seymour.

The fundamental goal of the early, pre-Marx socialist movement was economic equality, considered to be both immediately achievable and ultimately desirable. That is, there was no conception of a higher level of economic development made possible by the revolutionary overthrow of capitalism. The Conspiracy of Equals was the first revolutionary communist organization, emerging in the latter phase of the French Revolution at the end of the 18th century. Its program was a communism of consumption and distribution. The revolutionary government would provide larger houses and proportionally more food, clothing and other necessities to families with more children.

One of Marx’s great theoretical contributions was to shift the axis of the socialist movement from equality in the sphere of consumption to entirely overcoming economic scarcity through progressively raising the level of productive forces. To be sure, in a classless, communist society, everyone will have equal access to consumable resources. But there will undoubtedly be a huge diversity of individual lifestyles corresponding to very different levels of individual utilization of those resources.

I’m beginning this educational with that point because, in some important ways, we have been thrown back into the intellectual universe of the early Marx. If you take a survey of 100 students and you ask them what socialism means, the overwhelming majority will say it’s about economic equality. They will tell you it means that everyone has more or less the same living standard. Very few of them would reply that the goal of socialism is to raise the level of production and labor productivity to such an advanced level that the division of consumable resources among individuals will no longer be a source of social conflict or even social concern. But that is our ultimate goal.

Unfortunately, getting there will require a relatively lengthy historical period after the proletarian socialist revolution has expropriated the capitalist class. In that society in transition to socialism, economic scarcity—and therefore certain kinds of economic inequality—will continue to exist. When you think about it, this is obviously true at the international level. It will take generations of an internationally planned socialist economy to raise the living standards of the populations of China, India, other Asian countries, Latin America and Africa to those of the so-called First World.

But even in a workers state in an advanced area like North America or Europe there would still be certain kinds of economic inequality. Marx spoke about this in his Critique of the Gotha Programme (1875). People would still have to expend a lot of time and a lot of energy doing what Marx called alienated labor, that is, working at jobs that they would not do unless they got paid for them. Some jobs are physically harder, dirtier, more boring, more unpleasant or, in some cases, more dangerous than others. So coal miners and construction workers would command higher wages than data processors who work in comfortable offices. Workers who have economically valuable skills acquired through lengthy training, such as airline pilots, would get higher wages than flight attendants and baggage handlers. That’s just the overhead cost of what Marx called the initial phase of communism in society.

There is another important source of economic inequality in the initial phase after the proletarian revolution. A fundamental goal and feature of a fully communist society is the replacement of the nuclear family by collective institutions for nurturing and socializing children. But this most fundamental of all social transformations is, again, going to be the work of generations. For a historically significant period the family will still be the basic social unit and therefore the basic economic spending unit.

So take two families, both of whom have the equivalent income of $70,000 a year. The first has one child, and the second has three children. The first family will have a somewhat higher standard of living. The difference will be nowhere near as great as under capitalism. There will be free medical care. There will be affordable housing. There will be free, quality education from day-care centers through university and beyond. But income will not be simply proportional to family size. Again, Marx mentioned this in his Critique of the Gotha Programme.

Economic Planning by Workers Democracy

Eliminating economic inequality in all its forms requires overcoming economic scarcity through progressively raising the level of production. This will be achieved by using a portion of society’s total output and investing it in the expansion of productive equipment that embodies the most developed technology.

But herein lies a contradiction. The more a workers government spends on building new factories, retooling existing factories, expanding and modernizing infrastructure (e.g., electric power grids, water supply systems, highways and railroads), the less it has available for direct personal and familial consumption. So, it will face the choice between a somewhat higher level of consumption in the short term versus a much higher level of consumption in the long term.

In the absence of international socialist revolution in the advanced capitalist countries, this choice obviously would be especially painful and conflict-ridden in a nationally isolated and economically backward workers state. But even in a future workers state in the U.S. or West Europe with much greater resources at its disposal, the division between consumption and investment would still be a politically divisive issue, in which there are likely to be strongly held differences within the working class. “I want as much as I can have now, man, not in ten or twenty years from now. For all I know, I may be dead by then.” You are going to get that argument.

In order for the democratic organs of a workers government to make rational decisions concerning the division of total output between consumption and investment, the trade-off between the two has to be quantified. If we increase investment in productive capacity from 13 to 15 percent of total output, how much greater will the output of consumable resources be in five years, in ten years, in fifteen years?

Fortunately for us, these types of questions were discussed and investigated in depth in the Soviet Union in the 1920s. A rich economic literature, written from a Marxist perspective, was generated in the course of the debate and factional struggle over the establishment of a centrally planned, collectivized economy. One Soviet economist, G.A. Feldman, developed a theoretical model for a long-term economic plan, that is, covering 20 to 40 years. In my opinion, Feldman’s work “On the Theory of Growth Rates of National Income” is an extremely important contribution to a Marxist understanding of the economics of the transition period. You can find the English translation in Nicolas Spulber, ed., Foundations of Soviet Strategy for Economic Growth (1964). Feldman adapted a model developed much earlier by Marx to a centrally planned, collectivized economy, while making certain important extensions and modifications of it.

In the second volume of Capital, Marx developed a theoretical model of expanded production under capitalism. Marx divided the economy into two basic sectors: consumer goods and producer (or capital) goods. Consumer goods and services are things that directly satisfy personal needs and desires. Producer goods are things that directly or indirectly generate consumer goods. A shirt is a consumer good. A sewing machine that makes the shirt is a producer good, as is a power loom that weaves the cotton cloth from which the shirt is made. A loaf of bread is a consumer good. The oven in which it is baked and the agricultural combine which harvests the wheat or oats from which it is made are producer goods.

Feldman extended Marx’s model to a workers state by dividing the producer goods sector into two basic subsectors. There are producer goods that make consumer goods and there are producer goods that make additional producer goods. A sewing machine is an example of the former. Machine tools such as lathes, which make machinery, including sewing machines, fall into the latter category. Many producer goods are not technologically specific, but can be used to expand either the capacity of the consumer goods sector or the capacity of the producer goods sector. A steel mill can make steel for automobiles or for construction equipment. Cement mixers and earthmovers can be used to construct apartment houses or factories. A hydroelectric plant can generate electricity to run household appliances as well as factory assembly lines.

Thus there are two basic factors that determine the growth rates of total output of productive capacity and consumable resources. One is the division of the total output between the consumer goods sector and producer goods sector. The second is the division of the producer goods sector between producer goods geared to the consumer goods sector and producer goods geared to expanding more producer goods.

Take two socialist economies, both of which expend 25 percent of total output in the producer goods sector. In the first economy, 75 percent of this investment in producer goods is geared to expanding the output of the consumer goods sector; in the second, 50 percent. In the first economy, consumption will increase faster in the initial period of the economic plan but more slowly later on. In the second it’s just the opposite. By adjusting the proportions it is possible to develop a range of alternative economic plans, ranging from those which maximize short-term consumption to those that maximize productive resources (and therefore consumption) in the long term.

So the planning authority would present to the highest body of a workers government, i.e., the central assembly of workers councils, a range of maybe six alternative long-term plans to be debated and decided upon. This is likely to be a contentious issue. Some delegates are going to argue: “Our workers and poor people have just made a revolution. They expect and demand a big, dramatic improvement in their living standards, not just promises of a big improvement 15 or 20 years from now. We want Plan A.” Other delegates will say: “Let’s not be shortsighted about this. Our goal is to expand productive capacity and labor productivity. Plan C does that the best. Granted, consumption will increase more slowly in the immediate period than it otherwise could, but we think that is the price we want to pay.”

Once the long-term growth rates of total output, the means of production and the consumable resources are all determined, it is then possible to work out a comprehensive economic plan for the various intervening periods—one year, two years, five years. Say a plan is adopted by the central assembly of workers councils. According to this plan, in five years the annual per capita income will be the equivalent of $60,000. On the basis of existing consumption patterns, consumer surveys and consultation with consumer cooperatives, one can more or less accurately project the basic pattern corresponding to that level of income. For example, $15,000 is estimated for housing, $10,000 for food, $10,000 for automotive and other modes of transportation, etc.

Another key element in the economic planning of a workers state, especially in the more advanced countries like the U.S., Germany and Japan, is to invest some of its total output in providing crucial resources, money and technological expertise to the underdeveloped countries to help them to qualitatively raise the level of production on the road to building socialism.

For Market Calculation, Not Market Competition

Once the basic pattern of final goods is projected, it then becomes possible to figure out the inputs of basic raw materials and intermediate products. How much steel, aluminum and other metals do you need? How much plastic, cotton and synthetic cloth, cement, rubber and the like?

The technology and information for this, incidentally, already exists. There are theoretical models and empirical studies which relate the output of raw materials and intermediate goods necessary to produce a given array of final goods. This is called input-output analysis. Significantly, the pioneer theorist and initial investigator of input-output analysis, Wassily Leontief, was a student at the University of Leningrad in the mid 1920s. So clearly his development of input-output analysis was conditioned by the rich discussion and debate among Soviet economists and other intellectuals about how a centrally planned, collectivized economy would work in practice.

In the early 1930s, Trotsky was extremely critical of the Stalin regime’s destructive economic adventurism and bureaucratic commandism. In the course of an article attacking this, Trotsky made a sort of statement of general principles: “Only through the inter-reaction of these three elements, state planning, the market, and Soviet democracy, can the correct direction of the economy of the transitional epoch be attained” (“The Soviet Economy in Danger,” October 1932). This is true for a future American workers state as well as for the Soviet Union at the time. The Soviet Union in 1932 was a degenerated workers state ruled by a conservative, parasitic Stalinist bureaucracy, which a workers state after a proletarian revolution in the U.S. would presumably not be.

Thus far, I have mainly discussed aspects of state planning. I’ve introduced the question of workers democracy mainly in terms of deciding the basic parameters of economic growth at the highest level. But I have not yet talked about the role of the market. It’s a complicated question. One area where the market is important, and in certain respects dominant, is in determining the specific output mix of consumer goods.

There are literally tens of thousands of types, styles and sizes of apparel. I became painfully aware of this a few weeks ago when I helped my daughter move into a new place with her boyfriend. I swear she has at least 80 pairs of shoes, all of them different styles. There are thousands of different kinds of household appliances, utensils and furniture. Even in a collectivized economy there will be dozens of types and models of automobiles. Not everyone is going to want to drive the same kind of car. So it makes no sense to subject the detailed output of consumer goods to even a short-term plan. Output should be constantly adjusted to the changing structure of demand.

However, rapidly and efficiently coordinating the supply and demand in a collectivized economy does not require atomized competition between state-owned enterprises. In Stalinist-ruled workers states, such as the former Soviet Union or China today, the terms “market socialism” and “market reforms” mean subjecting enterprises to competition with one another. Managers are given the authority to decide what to produce in what quantities, and they are instructed to sell their products at the highest available price in the market, either to consumers or to other enterprises. The stated goal is to maximize enterprise profitability, and usually the income of the managers and also the workers is tied to profitability (or negatively to losses). We are opposed to this system because it replicates many of the inequities and irrationalities of the capitalist market system.

In honor of my daughter, I will give the example of the shoe industry operated under the conditions of “market socialism” in a bureaucratically deformed workers state such as China. There are two shoe factories—we’ll call them A and B—and they both produce standard men’s dress shoes (which probably none of you in this room has ever worn nor intends to wear). Let’s say that Factory A is relatively new, so that its equipment is much more technologically advanced than Factory B. Therefore, Factory A can produce the same pair of shoes using 25 percent less labor time than Factory B can.

The market price for a pair of shoes is equal to the average cost of production for the industry as a whole. Factory A is producing below the average cost, so it is making a handsome profit. Its managers are getting a nice salary and bonuses, and its workers are also getting substantial wage increases because it’s making money. On the other hand, Factory B, which makes the same thing, is chronically losing money because its costs are above the average of the industry and the going market price. Unless the government then subsidizes this factory, some workers are going to be laid off or all workers will have to take cuts in wages and benefits just like under capitalism, through no fault of their own.

We are opposed to atomized competition between state enterprises. We are for using market calculation but not market competition. We advocate what can be called a centrally managed market system in the consumer goods sector. How would this operate? Again I will go back to my shoe industry example. There would be a central distribution agency that commands the output of several shoe factories. It supplies shoes to retail outlets and consumer cooperatives. You could even buy them on the Internet.

Let’s say that as a result of miscalculation or changing demand there is an oversupply of dress shoes and an undersupply of sporting goods shoes (running shoes, hiking boots, basketball shoes, especially those that are endorsed by Michael Jordan). So what happens with this system? The directors of the distributive agency call up some factories and say, “OK, cut back production of dress shoes, increase production of sporting goods shoes. If you need special equipment that you don’t have, if your workers need retraining, fine. We’ll provide it.” End of story. The basic point is that management remains centralized but utilizes market calculation in order to mesh supply and demand in this particular sector.

Syndicalism vs. Workers Government

I want to discuss the differences between our Marxist program and the syndicalist program for the post-revolutionary organization of the economy. Before the 1917 Bolshevik Revolution, revolutionary syndicalism was the main left-wing alternative to Marxism. A number of leading figures in the early communist movement, who later became supporters of the Trotskyist Left Opposition, started out not as Marxists but as revolutionary syndicalists: James P. Cannon in the U.S., Alfred Rosmer in France, Andrés Nin in Spain.

The crux of the syndicalist program for the post-capitalist reorganization of the economy is that the workers should exercise total managerial authority in autonomous enterprises or at least in some branches of the economy. There would be no higher governmental authority above the industrial syndicates. In a sense syndicalism is a proletarian or industrial version of anarchism. It was described as such by a British anarchist intellectual, George Woodcock, writing in the 1940s:

“The syndicate, on the other hand, is based on the organization of the workers by industry at the place of work. The workers of each factory or depot or farm are an autonomous unit, who govern their own affairs and who make all the decisions as to the work they will do. These units are joined federally in a syndicate which serves to coordinate the actions of the workers in each industry. The federal organization has no authority over the workers in any branch, and cannot impose a veto on action like a trade union executive.”

—George Woodcock, Railways and Society (1943), excerpted in Woodcock, ed., The Anarchist Reader (1977)

In other words, the classic Bakuninite anarchist program of a federation of autonomous communes is here replaced by a federation of autonomous industrial or other economic units.

At the present time, neither in the United States nor anywhere else that I know of do we encounter and compete with significant syndicalist tendencies. So why do I want to talk about syndicalism? I have two reasons. One is that, if there is a significant upsurge of labor struggle in this country, many of the left-radical youth who are currently in and around the anarchist milieu will become workerist. Trust me on this, I’ve been through it. They will therefore subscribe to some kind of syndicalist program, which is an amalgam of anarchism and workerism.

The other reason is China. When the political situation in China opens up, and it will, I think that syndicalist ideas and even tendencies may gain a sympathetic hearing among Chinese workers. Chinese workers have already experienced a large dose of capitalism, and by all available evidence they don’t like it. At the same time, many Chinese workers may well identify Marxism-Leninism and central planning with bureaucratic commandism, not to speak of corruption. So when things open up, some leftist-minded Chinese workers as well as intellectuals may say, “Let’s kick out the capitalists and the CCP bureaucrats and the workers will take over and run by themselves the factories, construction sites, coal mines and railroads.”

There has never been and will never be an economy organized on syndicalist principles, just as there has never been and will never be a society organized on anarchist principles. But if we encounter a serious-minded leftist who subscribes to a syndicalist program, it is insufficient to say that such a program can never be realized. We also want to convince him that even if it were possible, in practice it would operate in a way contrary to the interests of the workers and of society in general.

The problem with syndicalism is very similar to that of “market socialism.” A syndicalist program would necessarily replicate many of the inequities and irrationalities of capitalism. If economic units are genuinely autonomous of one another, they can only interact through market relations governed by changing conditions of supply and demand. Inevitably, this means that some workers will have to be unemployed or have to take cuts in income when the market turns against them.

At the risk of sounding like a shoe fetishist, let’s consider the shoe industry again. (You can see that carrying shoe boxes up and down the stairs for a couple of weeks addled my brain!) This time we will examine it under the model of a syndicalist economy. The shoe-producing industry is organized as a single autonomous syndicate. This syndicate gets revenue by selling shoes to individuals and stores. In turn, it purchases leather, rubber, plastic and other inputs from other autonomous syndicates.

Let’s say leather happens to be in oversupply. More leather is produced than is demanded by the shoe-producing syndicate for its current output and the consumer demand. The directors of the shoe-producing syndicate tell their counterparts in the leather processing syndicate, “We only need 80 percent of your leather, we’re not going to buy any more because we don’t need any more than that.” So what is going to happen? These are autonomous enterprises. Some of the workers in the leather-producing industry are going to have to be laid off or, alternatively, all or some of them are going to have to take cuts in income and benefits because it is suffering reduced revenue.

For Workers Democracy in the Control of Production

Even though people who advocate syndicalism think they are militantly anti-capitalist, their program would actually reproduce many of the inequities and irrationalities of capitalism, despite their good intentions. We are opposed to the syndicalist program of workers’ management of autonomous enterprises. But we are for the maximal democratic participation of the workers in economic decision-making at the level of the factory, the construction site, the warehouse, the supermarket and the airport. The section on the Soviet Union in the 1938 Transitional Program states: “Factory committees should be returned the right to control production.” This is our program, not only in the past but also in the future.

What does this mean concretely? How does it differ from the syndicalist program of workers management? What we mean by workers control of production in a socialized economy is that the democratically elected representatives of the workers would have an authoritative, consultative voice in all economic decisions at the enterprise as well as higher levels. Let’s say that the industrial ministry in charge of aircraft production proposes to spend a couple of hundred million dollars retooling an older aircraft factory, replacing its antiquated machines with more up-to-date equipment. The managers, engineers, technicians would get together with the elected factory committee and jointly work out a concrete plan for retooling the enterprise. This would then be presented to the industrial ministry. The plan will not just come down from on high, with the workers having no say.

Another important area where elected factory committees would play an important role, even replacing direct managerial intervention, is in maintaining labor discipline. How to deal with a worker who is a perpetual goof-off or who is so incompetent that he disrupts production and maybe even endangers other workers? How do you deal with a worker who abuses sick leaves, who calls in sick just because he wants a day off to go fishing? It is much better that this kind of problem is handled by direct representatives of fellow workers who are more politically advanced and more socially responsible.

The basic point is that a centrally planned, collectivized economy is in no way incompatible with the very active and full participation of the workers at the most basic levels of the economy, as well as in the election of delegates to the soviets.

But unlike “workers management” schemes, workers control in a socialist economy does not allow individual factory committees to have the final say on the scope and composition of investment, since particular groups of workers cannot have unlimited claims on the state budget, i.e., on the collective social surplus. Resources for the replacement and expansion of the means of production, provision for the elderly and disabled, expenditure on schools and hospitals, etc., must be deducted from the total social product before distribution to individual workers. As Marx pointed out, “What the producer is deprived of in his capacity as a private individual benefits him directly or indirectly in his capacity as a member of society.”

As Isaac Deutscher said in his speech “On Socialist Man” (1966):

“We do not maintain that socialism is going to solve all predicaments of the human race. We are struggling in the first instance with the predicaments that are of man’s making and that man can resolve. May I remind you that Trotsky, for instance, speaks of three basic tragedies—hunger, sex and death—besetting man. Hunger is the enemy that Marxism and the modern labour movement have taken on.... Yes, socialist man will still be pursued by sex and death; but we are convinced that he will be better equipped than we are to cope even with these.”