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Is There a Future for State Capitalism?
A Tory M.P., Mr. Hugh. Linstead, has tried to define the issues that will divide the parties in coming
elections and has concluded that the electors will be asked to decide the question: "Is it State
capitalism or private capitalism which can provide the largest amount of wealth for our community?"
(Times, 8/3/50). Looking still further ahead he sees the possibility of a new division arising, that of
Labourism versus Socialism. His second forecast is correct, but the first is over-simplified to the point
of unreality. The Labour Party would now not attempt to fight an election on a programme of allround Nationalisation, and the Tories are fully committed to retaining most of the existing
Nationalisation schemes and to accepting some form of State regulation over the operations of
private industry.
A better appreciation of the election is shown by the editor of the Observer (5/3/50) when he says
that the Labour Party's advocacy of further Nationalisation "was small and, in its character,
noticeably lukewarm"; and by an Italian journalist in London who wrote: "The welfare State is
accepted by all. Some parties want more and some less Nationalisation of industries, but this
difference does not constitute a real battle. It is more a question of confidence as to who can guide
the vessel of State better." (Il Mondo, Rome. Quoted in ManchesterGuardian, 22/2/50.)
Nationalisation is not very popular and the Labour Party is taking due note of the fact. One Labour
supporter, Mr. Hannen Swaffer, wrote: "The British people decided last week that, for the present at
least, it did not want any more Nationalisation." (People, 26/2/50.) A Labour Peer, Lord Strabolgi, said
in the House of Lords (7/3/50), "We did not get a mandate for further Nationalisation; we did not
even get a mandate to continue the Iron and Steel Act." The Minister of Agriculture, Mr. Tom
Williams, assured the House of Commons, "the simple fact is ... that land nationalisation forms no
part of our programme and policy to-day." ("Report," 8/3/50, Col. 396). And one Labour M.P., Mr. R.
Grossman, is reported by the Times (4/3/50) to have told the Oxford University Labour Club that he
"thanked Heaven that the motorcar industry was still under private enterprise. He would rather have
private enterprise with Government control and regulation than one of the gigantic public
corporations which had been taken out of politics and over which there was no public control."
The Ebb Tide of Nationalisation
As far as Western Europe and the British Dominions are concerned (except perhaps industrially very
backward countries like India and Pakistan) the history of the years after the first world war is being
repeated. After a brief period of widespread extension of Nationalisation a reaction has set in, at
least for a time. New governments in Australia and New Zealand are opposed to its extension and in
the ranks of the defeated Australian Labour Party a move is on foot to commit the party to the
maintenance of "private enterprise" as the rule, with the introduction of Nationalisation as the
exception. It is reported from France that Nationalisation is now so unpopular that for the next
election "no party .... has yet advocated any extension." (Daily Telegraph. 28/2/50.) All three of the
Scandinavian Labour Governments, Denmark, Norway and Sweden have expressly or tacitly
abandoned further Nationalisation. Sir Arthur Salter goes so far as to claim that the British Labour
Government's pre-election intention to extend Nationalisation to sugar, cement and insurance placed
it in the position of being "alone in Western Europe, in the Commonwealth, in the whole of the free
world." (ManchesterGuardian, 18/2/50.)
State Industries in Russia
Russia, too, has her problems of Nationalised industries, the interesting feature being the great
extent to which their operations conform to the British pattern. While British Communists may
criticise Nationalisation here for its capitalist" features - as if basically it could have any other - State
concerns in Russia show quite clearly that the Communists in power have found no means of running
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State industry to meet the needs of a capitalist world, except the traditional methods of Capitalism.
Some Labour Party theorists have argued in the past, and still do, that State capitalist enterprises
can be run without the need to show a profit, i.e., either at cost or even at a loss, the loss being met
out of State subsidies; and also that so-called "workers' control" can be grafted on to Capitalism. In
1918 the Labour Party was committed to "democracy in industry," "Nationalisation and workers'
control "; and the Communists in the early days took a similar line. None of them ever squarely faced
the meaning of what they demanded, for if the workers who form the great majority were allowed
"democratic" control of industry that would include control over its finances and power to take it over
and stop the payment of profits or interest to shareholders or bondholders. In practice no Labour
Government or Communist Government intend to concede such power - if it did the result would
simply be to bring Capitalism to chaos. So in Russia, as m Britain, management of State industry and
its finances belongs to directors appointed from above by and under the continuous control of the
Government. And if in Britain nationalised concerns produce commodities for sale and have to show
a profit, so they do in Russia.
In private industry if a firm cannot make a profit goes under. So every firm must strive to keep
production costs below selling price. And nobody has yet discovered any other way of achieving low
production costs in Nationalised industries than by requiring them to make a profit. In Russia, in
addition to paying to the Government a turnover tax which is a percentage of what the concern
receives from its customers, State enterprise has to pay profits to the Government. The procedure is
explained in The Soviet Financial System by M. L. Bogolepof, Director of the Financial Division of the
Russian State Planning Commission: —
"Each establishment, haying received from the State for its exclusive use both equipment and
capital, proceeds to operate on its own. with its own financial accounting, bank account, credit
facilities and, finally, with the right to make a profit," (p. 9.)
What he here oddly calls the "right to make a profit" is in fact an obligation, rigidly enforced by the
Government, and the profit does not belong to the undertaking—" his profit, as well as the proceeds
from the turnover tax belongs to the State . . . ." (Bogolepof, p. 9.)
How much of the profit is kept by the Government and how much is returned to the undertaking
depends on whether it can show that it requires additional capital for expansion. According to
another Russian writer, A. Antonov (Soviet Weekly, 25/9/47), in some cases the Government keeps
as much as 91 per cent, of the profits, while in other cases it may keep as little as 10 per cent.
Bogolepof explains (p. 34) how every State undertaking is compelled to go to the State bank for a
loan (on which of course interest is paid) if this is needed as additional capital for short periods; and
is likewise compelled to apply to the bank if it finds that it needs for an extended period more
working capital than was planned for it.
Then the State bank acts as an inspector into the way the undertaking is being operated.
"If the deviations from the production programme . . . are due to the fault of the enterprise, the bank
refuses to supply additional credit, and the financial difficulties of the enterprise become the object
of investigation by the competent authorities. As bank loans are provided on the basis of an analysis
of the borrower's financial and economic position, they have become one of the most valuable and
effective forms of control by the Government over the activities of State enterprises." (p. 34.)
It will be seen that if Mr. Bogolepof were to find himself transferred to one of the British nationalised
industries he would find the capitalist-financial atmosphere remarkably like the one he breathes at
home.
In one respect Russian State Capitalism does differ from British, because in Russia there is no burden
of compensation to the original owners. (In the East European Russian satellites, however, some
compensation is the general rule.) But while this was an important difference in the beginning it has
become of less importance as the new army of bondholders has come into existence who have lent
to the State the money used to provide new capital for State enterprises. The interest they receive is
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much higher than the rates received by Government bondholders in England.
Nationalisation of the Land
The Labour Party has disowned land nationalisation but they used to declare that it was an essential
part of their policy. As set out in their 1918 programme, Labour and the New Social Order, their
intention was to nationalise the land and organise agriculture on the combined basis of large
"national farms," small holdings, municipal farms, and farms run by cooperatives. In the meantime
the Russian Government has established a farming system very much like the Labour Party's
scheme. It consists of large State farms, small family-farms, and co-operative or "collective" farms in
which, however, the farmers also have their own private holdings. The whole idea of being
"collectivised" was detested by large numbers of farmers and force had to be used. Large numbers,
though they had to submit, have never become reconciled to it, and during the war while the
authorities had their hands tied with the German invasion they saw their chance and seized
collective farm land and added it to their own farms. According to a correspondent writing in the
Manchester Guardian (1/3/50) the public reproof administered late in February to the Minister in
charge of agriculture, A. A. Andreyev, rested on the allegation that his method of organising
collective farmers into small units working only on their own collective farm (as against large units
working on any farm) encouraged them in their attachment to the idea of private farming.
Late in 1946 a move was made to compel the farmers to give back the land they had illegally
appropriated, and according to an official statement quoted by the writer referred to above, the
authorities secured the return of some 11 million acres. But the illegal acts have continued and
further large-scale seizures have been reported as recently as November last. A new campaign is
now reported with the object of persuading the farmers not only to restore land taken illegally but
also to throw their own legal holdings into the pool. "In this way all private ownership of even the
smallest plot of land, it may be assumed, will be gradually eliminated." Whether that writer's
anticipation will be borne out remains to be seen. With all the main features of Capitalism in full
force, with the growing emphasis on inequality of income and ownership, the accumulation of
property will continue to be universally attractive and the peasants are not at all likely to give up
easily the private ownership of which every effort of the Government has so far failed wholly to
deprive them.
The Myth of Nationalisation
One thing the experience of Nationalisation has shown is that the conception of all-round State
Capitalism as a workable and stable alternative to private Capitalism is a myth. If Nationalisation is
only partial, as in Britain (about 20 per cent, of all industry is nationalised) it has to be run on normal
capitalist lines and brings no comfort to the workers; and if it is wholesale Nationalisation, as in
Russia, it likewise has to be run on strictly capitalist lines, and likewise fails to satisfy the needs and
desires of the population.
Events have played havoc with the theories of the nationalisers, here and in Russia, and the Labour
Party now finds its propaganda robbed of one of its main ingredients. The deep-seated discontent of
the working class has never been wholly satisfied with promises of immediate social reforms. There
was always, in addition, the vague but persistent desire for some more alluring ultimate objective.
Among the early Labourites Keir Hardie met this desire by the argument that Nationalisation, though
not much worthwhile for its own sake, was justified because it was a necessary step to the
achievement of Socialism (or "free Communism" as he sometimes called it). Later Labourites
dropped Keir Hardie's argument and put in its place the view that wholesale Nationalisation is the
ultimate aim, to be achieved gradually industry by industry. But to make this acceptable they had to
claim that Nationalisation is itself of great and immediate advantage. A generation of workers were
converted to this belief and are only just learning that it is false. Now Nationalisation propaganda has
turned sour on the Labour Party and they find that their responsibility for running Capitalism for five
years has turned them into a Party trying to live on past achievements, a Party of "conservers" of
what exists - the so-called Welfare State. Like the other Conservatives, the limit of what they can
hold out as a glittering future prize is almost comprised in the ever-receding prospect of overcoming
the crisis.
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The Communists in Russia are in a like dilemma. Copying the Labour leaders whom they affected to
despise so much, they have given to State Capitalism the name Socialism; but unlike the Labour
Party, they have adhered to Keir Hardie's line of holding out as a solace for present troubles an
ultimate but never materialising Communism.
It remains to be seen for how much longer the partial and the complete nationalisers will be able to
hold the allegiance of the working class in face of evils for which neither group of distorters of
Socialism can find a remedy.
Saturday, 1 April 1950
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