Since the beginning of the long downturn in which the international capitalist economy finds itself, the Fourth International has pointed out two differences between the countries with planned and socialized economies and the capitalist countries.
The countries with planned and socialized economies have not been hit by the same phenomena that have, without exception, marked all the industrialized capitalist countries: a recurring absolute decline in industrial production during the phases of recession; massive unemployment; the shutdown of numerous enterprises and the collapse of whole branches of industry; the accumulation of huge quantities of unsalable commodities.
At the same time, these countries can no longer completely escape the effects of the capitalist economic downturn on their own economies.
They have suffered and continue to suffer numerous consequences from it, consequences that become more obvious as these countries become more integrated into the world market.
These two special features of the economic evolution of Eastern Europe correspond to two structural characteristics of these countries that are different from the bourgeois states. In these states, capitalism has been abolished, and the laws of development of the capitalist mode of production no longer apply (one of which is the inevitability of recurring crises of overproduction).
At the same time, however, the socialist mode of production does not exist in these states; socialism is far from having been established. Therefore, these states continue to partially suffer the effects of all the great upheavals of the international capitalist economy.
We could summarize this dual structural characteristic by saying that in these countries there no longer is generalized commodity production, and therefore there no longer is domination by the law of value. But there still is partial commodity production, and therefore the law of value still has influence, especially working through the intermediary of the pressure of the world market.
The superiority of our definition of the social character of these countries as bureaucratized workers states (transitional societies between capitalism and socialism, which are blocked in their advance toward socialism by the dictatorship of the bureaucracy) over any other definition is clearly seen in the fact that it is the only definition that can take into account this
Capitalist Recession on Eastern Europe dual contradictory relationship between the economic evolution in Eastern Europe and the capitalist economic crisis.
Partially Discredited Growth Model
Throughout the 1960s, the theoreticians, politicians, and "economic practitioners" in the "people's democracies" (with the possible exception of those in Bulgaria and Albania, who were more attached to Stalinist "orthodoxy") sincerely believed the neo-Keynesian myths of "full employment and guaranteed economic growth" in the imperialist countries through "regulation by the state and the monopolies." That is, they believed in the cogency of the theory of "state monopoly capitalism."
For that reason, their various plans for economic reform were based on a considerable expansion of East-West trade.
Contrary to the illusions that were widespread in various Western circles, this connection between "economie reforms" and greater integration into the world market did not involve any automatic "political liberalization." And it certainly does not involve fundamental questioning of the noncapitalist character of these economies (which the bourgeoisie saw as a "hope"-and dogmatists saw as a
"threat"-of restoration of capitalism).
Quite the contrary. The fundamental aim of the "economic reform" was to consolidate the bureaucracy's dictatorship, which is based on the collective ownership of the means of production. That dictatorship was threatened by the growth of working-class discontent in the previous period. They hoped that a rising standard of living and adjustment of the "consumption model" to that of the capitalist countries, in short the enticements of the "consumer society," would stop the politicalization of the masses.
In Czechoslovakia they put forward the formula: "normalization can only be based on well-filled stomachs." This, in short, was the philosophy of the bureaucracy's new growth model.
Through greater integration into the world market it would be possible to import advanced technology and consumer goods from the imperialist countries to satisfy needs of the masses that had gone unfulfilled in the previous period. The connections between this integration into the world market and the "economic reform" would allow the enterprises to better adapt themselves to the needs of consumers and to the need to find increased markets abroad.
But on both fronts, the bureaucracy kept the controls firmly in its own hands. No one ever raised the possibility of abolishing the state monopoly of foreign trade or giving the enterprises freedom to determine their own prices, much less allowing them to determine their own investment programs. In short, it was an attempt to rationalize bureaucratic management, not to replace it with management subordinated to the laws of the market (to the law of value).
Was this new developmental model an "objective" or even subjective attempt by the bureaucracies of the "people's democracies" to further disengage themselves from Soviet hegemony over their economies? Is the Kremlin opposed to this model, and to the growth of its satellites' trade with the imperialist countries? The answer to these questions is not so simple as it might seem at first glance.
Unquestionably from the point of view of the head of the Romanian bureaucracy-following the example of Yugoslavia in this regard—the growing diversification of foreign trade allows greater political independence from Moscow. In the case of the other "people's democracies," however, the situation is less clear. The main motivation for the economic reforms was to enlarge the basis for the population's "neutrality" toward the regime (one could hardly speak of support) along the lines of János Kádár's famous formula that in Hungary, "those who are not against us are with us." The rest is secondary, especially since a large majority of the bureaucracy sees the USSR (and the Soviet army) as the "guarantor of last resort" for its maintenance in power in the event of a political revolution.
Nonetheless we should not underestimate the importance of both the "economic reforms" and the greater integration into the world market in terms of increasing the bureaucracy's privileges. In Hungary, for example, towards 1970 the bonuses stemming from participation in the "profits" of enterprises reached a maximum of 25% of the wages of a worker, 50% of the pay of a middle manager, and 80% of the pay of a director. In 1968 in practice this resulted in cash bonuses of 1,300 forints, 5,500 forints, and 13,000 forints per active person in these three categories respectively. This means that a director received a bonus that was exactly ten times as large as a worker got (J. Wilezynski: "Differentiation of Income Under Modern Socialism," in Jahrbuch der Wirtschaft Osteuropas, Vol. 3, Munich, 1972, p. 478, citing Hungarian sources).
Moreover, the Soviet bureaucracy itself has two reasons for being interested in an expansion of trade between the "people's democracies" and the imperialist coun tries.
First, because that trade is an indirect way of increasing imports of advanced technology for the USSR as well (and in the event of international tension, this indirect source could become the principal source).
Second, especially since the explosion of oil prices, the Soviet bureaucracy is interested in reducing its shipments of raw materials to the "people's democracies," since it can obtain higher prices on the world market.
At the same time, the Soviet bureaucracy in no way wants to see the economic collapse of these countries. If they are to increase their purchases on the world market, these countries must also be able to increase their exports there. Therefore, the Kremlin maintains an attitude of benevolent neutrality regarding the new growth model, as long as the ties with the Council for Mutual Economic Assistance (COMECON _and acnecially the nartioi. (COMECON)-and especially the participation in cooperative projects that have greater and greater weight'—are not disturbed.
But this whole "new growth model" (which could involve a limited utilization of the private sector, especially in the services field, which has nothing to do with the restoration of capitalism) was based on the axiom that a growing wave of exported "socialist" commodities would make it possible to buy a growing wave of machine tools, capital goods, and "sophisticated" consumer goods from the imperialist countries. It was also based on the hypothesis that there would be continued relative stability in the international capitalist monetary system (meaning in a strict sense that the inflation rate would remain moderate, as had been the case in the evolution of prices in the 1950s and 1960s).
This axiom and hypothesis broke down in the early 1970s. What followed was a special kind of economic crisis in Eastern Europe, which was different from the crisis in the capitalist countries, but also related to it. This economic crisis was marked by a decline in the growth rate of industrial production, increased inflationary tensions, a serious deterioration in the balance of trade, and the impossibility of following the policy of increasing the standard of living of the masses and changing mass consumption patterns.
We will illustrate the character and specific features of this crisis by using the example of three countries in Eastern
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Downtown Budapest. Eastern European regimes hoped rising living standards would stave off unrest.
Europe: Poland, Czechoslovakia, and Hungary (the case of East Germany, which is the most industrialized workers state in the world, but has a special relationship with West Germany, is a separate case).
Declining Economic Growth Rates
The decline in the growth rate, which can also be seen in the Soviet Union,? is clearly seen in these three countries. According to the calculations and projections of the Wharton Econometric Forecasting Association, industrial production rose 5.6% in Hungary in 1978. That rate de clined to 2.2% growth in 1979, and the plan projects 3.5% growth in 1980 (a goal that will not be reached), followed by a new decline to 2.2% in 1981.
The tendency is the same in Poland and Czechoslovakia, although slightly less pronounced in terms of the goals contained in the plans (but it threatens to be stronger in real life than in the plans). For Poland, the respective growth rates for the same four years are 5.8% in 1978, 2.3% in 1979, 4% in 1980, and 4% for 1981. For the Czechoslovak Socialist Republic they are 5%, 3.6%, 4.2%, and 4% (Business Week, May 5, 1980).
It is amusing to note that these predictions made by a bourgeois institution are more optimistic regarding the countries with planned economies than the predictions made by the experts and functionaries of the bureaucratized workers states themselves. We know that these experts and functionaries participate in the activities of the United Nations Economic Commission for Europe, in Geneva, which published an Economic Survey for 1979. That survey stated that "net material production" in all of Eastern Europe grew 4.4% in 1978, 2.4% in 1979, and would grow even less in 1980. The growth rate for industrial production fell from 5% in 1978 to 3.7% in 1979 for Eastern Europe as a whole (Neue Zürcher Zeitung, April 1, 1980).
Official government communiqués note that in Hungary the growth rate for industrial production will decline from 5% in 1978 to 2.2% in 1979 (against the 4% projected in the plan).
For Czechoslovakia the growth rate of industrial production has fallen from the 6.8% average for 1971-1975 to 3.2% in 1979. It is supposed to rise slightly to 4% in 1980 (which is highly unlikely).
As for Poland, the industrial growth rate, which was still above 5% in 1978, fell to 2.6% in 1979 and is not expected to rise above 3% in 1980. Since there was an absolute decline in agricultural production in Poland, the growth rate of the Gross National Product was around zero (some sources even assert that there was an absolute decline in the Polish GNP in 1979). The plan for 1980 projects only 1.4% to 1.8% growth in the GNP, the lowest rate since 1945.
What are the immediate causes of this pronounced slowdown in the growth rate? Basically the causes are the reduction in the total volume of investments, as a result of the higher prices for raw-material and capital-goods imports; the need to avoid excessively curtailing the volume of the population's consumption, which, given the acceleration of inflation, has reduced the budgetary resources available for investments; and delays in completing important investment projects from previous years, which had been expected to begin adding to production in 1979.
In addition to these immediate causes, we must obviously add structural causes such as the lack of full and complete utilization of the productive capacity, bureaucratic wastage, the lack of excess manpower reserves that can be incorporated into new production, the gap between anticipated labor productivity and the level actually reached, etc. In this study we cannot expand upon these structural causes, since the study is basically conjunctural in character.
It is important, however, to stress the importance of these structural problems, since the bureaucracy has tried to make it seem that the higher cost of imports alone explains the crisis. This is not true. The workers are fully conscious of the enormous waste that continues to mark bureaucratic management, and they know that in this sense the "economie reform" has been a partial failure-like all the "reforms" introduced successively in the USSR
The argument about the "explosion of oil prices," while not being totally rejected, is received by the populace with a certain degree of skepticism.
Inflationary Pressure
While in previous years the bureaucratic authorities were able to control the inflationary pressures in the three countries in question through a prieing system that was more or less rigidly controlled from above, this control has clearly been shaken in recent years. For example, Poland had an 8% inflation rate in 1978, a rate that no "people's democracy" ever suffered in the course of previous decades. The situation was even worse in Hungary, where the cost of living rose 9%. In Czechoslovakia the price rise was lower.
There are three basic causes for this rise in prices. First the considerable rise in the price of imports, that is, the impact that the generalized inflationary tendency in the world market has on the countries with planned economies. Obviously this is especially the case with the rise in oil prices and prices of some other raw materials. But it also concerns the rise in prices of capital goods and consumer goods imported from the West.
In addition, there are the consequences of a rather pronounced agricultural crisis in these countries, which is expressed in shortages of some foodstuffs leading to price increases.
Terms of Trade of USSR
(1970=100)
(1970=100) 1973 1974 1975 1976
Hungary
97 106
Poland
98 115 117
Czechoslovakia
102 99
Source: Richard Portes, Revue Economique, November 1979.
Notes
1. One of the biggest weaknesses of COMECON is the absence of a convertible ruble, which means that the multilateral exchanges remain limited compared to bilateral exchanges. Nonetheless, multilateral cooperation projects have steadily grown, especially in regard to investments for the production and transportation of raw materials.
2. In this regard see Benjamin N. Bastida's "The 1979 Soviet Economic Reforms," IP/I, February 25, 1980, pp. 177-180.