Re: GLOBAL KEYNESIANISM etc.

This turned unexpectedly into a long posting - I just kept on writing, but
please stay with me because - I think - it discusses a few interesting
things.

1.) Unlike what Paul Riesz thinks I said, I never said that Keynesianism is
only about war-production; I said it was originally devised in war-time and
in particular in World War I and that after World War I - since steering of
the economy by the state in World War I appeared to have been highly
effective - when states fell into economic trouble: in the Soviet Union
which had been devastated by the Civil War by 1928, elsewhere after the
depression of 1929 states began to fall back upon mechanisms of
state-control which had originally been devised in World War I.

This was done by fascist states like Germany and Japan to some extent more
effectively than in the democracy, since they had silenced the unions and
could therefore curtail wage-rises and therefore could invest money in
industry. And it would not be hard to show that most institutions in Nazi
Germany to steer the economy were originally devised in World War I. It was
also done in Capitalist democracies - in Britain e.g. not through direct
state-investment but through a comprehensive system of tariffs and by the
control of interest-rates. And it was finally done in Stalin's Russia in the
same way as in the Fascist states, but much more drastically: by squeezing
wages and first and foremost by collectivization of agriculture, thus
squeezing money out of agriculture to invest in industry. Since Stalinist
Russia both pushed real incomes down and curtailed agricultural prices for a
period it had large investments available thus allowing industry to grow
very rapidly.

Due to direct state intervention all the mentioned countries did relatively
well compared to countries which by and large abstained from state
intervention - e.g. `capitalist democratic' Holland as much as Fascist
Italy - for contrary to mythology the economic record of he Mussolini regime
was not very good - but in different ways. England achieved markedly rising
living-standards and a balanced budget with slow economic growth -
living-standards in Germany remained about equal with rapid economic growth
obtained by and large by deficit-financing (thus the need for Nazi Germany
for economic `Blitzkrieg' by 1938 - that's plundering other country's
resources) And Stalin's Russia, finally, had rapid industrial growth and a
balanced budget with falling living-standards.

Thus many countries were by 1937 following different forms of Keynesian
policy and the idea Keynes - above all a Treasury-economist - expounded in
his general  theory were simply a theoretical exposition of a course many
countries were following already; most notably simply Conservative England
(note: not Unionist Northern Ireland and not Labor Scotland). What all these
various policies had in common though is that armaments were very
significant to all of them and armament intertwined with social policy and
political objectives. Thus in Britain most
new navy-shipyards were established in depressed areas - that took votes
away from Labor - In Germany the big armaments manufacturer was the Herman
Goring-Werke which as the name indicates was linked to the party. It
needs no further elaboration that Stalinist industrialization was above all
intended to produce weapons and had political objectives too. And it was a
policy used in BOTH Socialist and Capitalist countries.

So, Keynesianism was when it was devised closely linked to arms-production
and remained linked with arms production in the ninety-fifties and to the
political process both in Capitalist democracies (for reasons I briefly
explained before) AND in Socialist countries. For the USSR too
had by the ninety-fifties an all-powerful military industrial complex as
both Chrusev and Beria found out when they tried to curtail expenses on
armaments and were both toppled by the military. You ignored the military
industrial complex at your peril as party-leader in the USSR. However, not
only the USSR had a military industrial complex - so had Czechoslovakia
(Skoda), so had the GDR (Zeiss-Werke). -

Moreover industrialization in Eastern Europe was armaments-led and the
armament-industry was above all established in politically important
`depressed parts' of the country where the Party often had an insufficient
following: e.g. in Slovakia and in the Ukraine.  .

2.) Now, arms-industry led Keynesianism was getting into trouble by the
1970's principally for two very simple reasons applying to BOTH capitalist
and socialist countries:

a.) Both the Socialist and the Capitalist countries in Europe
were running out of their labor-reservoir as both the most rapidly growing
western (like France and Italy) and the rapidly growing eastern countries
had so far disposed of a large labor-reservoir in agriculture which was
being pushed out of the primary sector because of the mechanization of
agriculture. (Thus in Russia and Poland, thus in France and Italy too.) And
also because population-growth was slackening: the 1970's were a period
between the baby-boom period in Eastern AND western Europe AND in Japan and
a children-poor period. This lack of skilled labor could have been
alleviated
by attracting labor from the periphery (e.g. Gastarbeiter in Western
Europe, labor from the Soviet periphery in Central Asia in the USSR) but
the migrants were not only too badly trained to be immediately useful but
there were also big political problems to attracting them in numbers.
(Germans resisted Turkish `scroungers' as much as Russian workers did).
Because of
this labor-shortages real wages began to sour BOTH in the USSR and in
Western Europe - leading BOTH in the USSR and in Western Europe to high
inflation.

But since the course of the rubble and wages were artificially
fixed inflation was in the USSR experienced through shortages. In Western
Europe you could buy less for your money in a shop while in the USSR (or in
the GDR) goods simply began to disappear from the shops and you could only
obtain
them by having `the right connections'. That's simply a form of inflation
rather than being an abuse intrinsic to Socialism (it happened in Capitalist
economies in World War I and II too when most countries used centrally fixed
wage and price-policies). Since salaries were fixed wage-inflation was
expressed in the amount of goods you could obtain for your wage rather than
in a `real wage' - if wages are officially fixed the space for wage-rises
for some groups has to be squeezed out of some space - some people can then
buy simply more than others on the `black market' . I'll return to that in a
moment.

b.) The second problem is obvious, so obvious that it is commonly ignored
for the `Capitalist economies' while being given pride of place for the
Socialist: since so much money had been invested in
particularly heavy industry in BOTH Western and Eastern Europe in the 1930's
and World War II  most of the industrial structure was beginning to get
seriously outdated by 1970 and could not longer compete with competition
from either East Asia

or the USA. Furthermore, since particularly the Soviet model was based on
extensive growth premised on more input of labor rather than of capital
intensive growth, the productivity-growth began to stagnate BOTH in Western
Europe and in the USSR by the late sixties. Thus, economic
growth began to falter around 1972, concomitant to the wage-rises. In
Western and Eastern Europe.
`Stagflation' was expressed in high unemployment-rates and inflation in
Western Europe, in
Eastern Europe it was above all expressed in shortages and
`underemployment'. For, as everybody who visited it in the 1970's can
testify, most factories or shops there were employing far more people than
they
really needed to employ to function effectively - much of the workforce was
just standing around without doing anything in particular the whole day,
thus the habitual complaints of westerners about bad services in Eastern
Europe.
.
Now, since productivity was stagnating or declining more money had ideally
to be
transferred into industry and agriculture by cuts on wages and social
security and by downsizing the inefficient industries. However,  both the
Eastern and the western European governments were not able to do so, since
this would have had severe social repercussions. They, therefore, both
resorted to deficit-financing to both prop up the social system and renew
the economy. In either case that was mainly achieved through loans - Britain
as much as Poland resorted to the IMF in 1976's to cover fiscal shortfalls
mainly since
both were unwilling to cut on social security and (particularly important in
the
Polish case) agricultural subsidies.

This deficit financing through loans could be sustained by Eastern European
economies in the 1970's through, first, selling more raw materials - oil,
coal, steel, meat - to the World market and (because of preferential tariffs
which some Eastern European countries enjoyed) also in the EU. That's
particularly the case for the GDR but it also applies to Hungary. And since
the price of raw material - particularly oil of course - was soaring in the
1970's  in that period the Eastern European economies were able to repay
their debts to export revenues. Russia with its oil more easily than the
others could.
Particularly Poland which needed to export coal to pay for its loans but had
a coal-industry mostly dating from the nineteenth century and paying high
wages in addition. Polish coal could not really be sold at its cost-price:
thus - much of the state's revenue had to be expended on subsidizing coal to
keep
up exports to the international markets. Small wonder Poland began to run
into severe economic problems by 1979. Albeit - rather than investing these
incomes in improving industrial and agricultural productivity they chose to
mainly invest them in propping up social security (with the sole exception
of Rumania).

That had good reasons: for the population to accept cuts on social security
they would have to step up repression and that works only well if there's an
excess of labor but not if there's a shortage of skilled labor. It's the:
"if you protest for you hundred others" - mechanism, and that mechanism
worked as much under Socialism as much as under Capitalism.

Second, the policy worked in the 1970's, since, because of petro-dollars,
there was a surfeit of money available for international lending. These
revenues were
then mainly spent by the Socialist countries in the normal way: namely
primarily in military Keynesianism. That is upgrading the armament industry
in the hope that the armament-industry would be the `locomotive' for the
rest of the economy.

This worked to some extent - overall growth of the USSR was still better
than in most western countries until the late 1970's but since productivity
was declining this was causing severe shortages of skilled labor, which
could only be alleviated by importing labor-saving technologies.

That was not - as the normal propaganda would have it - since `socialism
meant technological retardation'. - Eastern European countries could not
make
high-tech products at a competitive price because their market was simply
too restricted. Witness e.g. the (in-) famous case of the GDR's Computer
processor - Chip which cost 400 times more than the similar Intel-chips for
the very simple reason that the GDR had only 18 million inhabitants and it
couldn't be sold on the world market  because it was too expensive. Lest it
be thought that's
typical for GDR inefficiency: British Amstrad computers and French
Bull-Computers suffered from precisely the same problem in the same period.
Thus, it was - as the GDR with its computer-chip found out - much cheaper to
import technology or buy licenses to produce it.

This model got into trouble in the 1980's, though, for several reasons.
First, prices of oil began to drop from 1982 onward, thus causing a drastic
decline of export-revenues for the USSR and, hence, since the other
COMECON-countries were selling more than 80% of their products in the USSR
for the rest of Eastern Europe (and for Cuba) too. The drop of oil-prices
could have been compensated by selling more oil on the world-market but in
that case the USSR would also have to price the oil it sold to the COMECON
more realistically at world-market prices, rather than really exchange it
for COMECON-products which were generally too expensive and generally of
shoddy manufacture in addition. Hence, COMECON got into severe trouble by
1983 as the whole idea behind it was that the USSR was to exchange its
primary materials with industrial products from the other countries.

Second, the growth of the US-deficit: what basically happened in the 1980's
IMHO was that the huge US-budget - deficit which the Reagan government had
built up and the ensuing US lending on the international
capital-market on a vast scale caused international bankers to start
withdrawing outstanding loans to other countries, which were offering lower
interests than the USA and were smaller and less `secure' markets anyway
and invest this money in the USA instead. Thus - by 1982 there ensued a
general World debt crisis not only involving South America but Eastern
Europe as well.

Thus by 1982 most Eastern European countries
(including the USSR) had to begin rescheduling debts. Since international
credit-funds were drying up they could not obtain new loans to repay old
loans and had to apply for rescheduling with the IMF or with private banks.
Some countries (mainly the GDR) were then propped up by German loans but
that of course entailed that the IMF (in Poland and Rumania) and West German
banks in East Germany got a say over the budget.

Eastern European countries could presumably have tried to de-link from the

world market instead of getting under West German or IMF-curatele (as Cuba
and North Korea did and as Ceaucescu tried to do - a policy I think Erich
Honecker and the SED-top also advocated from around 1985 to 89). But that
would have meant cutting the entire social security-system - which as said
was  propped up by loans That was generally considered unacceptable for it
would presumably lead to severe social unrest as the troubles in Poland in
1979 already showed. For these - let us not forget - were caused by attempts
of the government to cut the labor-force in inefficient industries, cut
wages and curtail agricultural subsidies mainly to repay loans from the IMF
and the World
Bank.

But lest it be thought only Socialism was struggling with social unrest due
to the second world economic crises starting after 1980, let's not forget
Capitalist countries in Western Europe were also suffering from severe
social unrest in the same period: from the `Krakersrellen' in Amsterdam to
the uprising in Brixton. `Solidarnocz' was simply part of a pan-European
pattern of workers' uprisings due to the deteriorating economic situation.
As my favorite pop-singer, Linton Kwesi Johnson, put it in 1983 (well - he
is an academic sociologist apart from a Reggae-artist so I can quote him
with some confidence) :

"From England to Poland/every step across the ocean
the ruling class is enmeshed in a mess - oh yes
the capitalist system dem' regress
but the socialist system na progress
so which one you think of dem is best?"

Thus, with the possibility to seek more loans and sell more raw materials to
heighten productivity cut off - by 1985 Eastern European countries were
forced to drastically restructure both industry and agriculture and to start
`downsizing' inefficient industry, first and foremost in the
armament-sector. For without export-benefits and loans the only way to
heighten productivity and thus `restart the sputtering engine of the
economy' would have be to obtain the necessary funds from the national
economy - hence necessitating both wage-cuts and cuts on subsidies.

Perestroika sounds more exotic and more `Socialist' than `structural
readjustment' (which is typically Capitalist) but Perestroika was simply
structural readjustment. Like most countries which
heavily relied on selling raw materials on the World market and relied on
preferential tariffs to stimulate industry by 1985 the USSR had to start to
drastically restructure its industry and, hence, its political structure too
to raise productivity.

`Socialism' or `capitalism' has nothing to do with it: after 1985 the USSR
was forced to start a politics of structural readjustments, much like, say,
Brasil, Ghana or even Liberia in the same period, which was likely to cause
great social problems, hence, political reforms had to be introduced
simultaneously - thus glasnost and thus the restructuring of the political
organs.

And like in the last mentioned country `structural readjustment' indeed led
to severe social tensions and to a partial  disintegration of the machinery
of the central state

For the Perestroika-cuts, much like `structural readjustment', caused a
rapid overall deterioration of living standards. The Soviet-state began
to cut pensions and nominal wages - the result being as always more
shortages, and an increasing diverging of wages as the state began to cut on
its subsidies on housing, food etc. with which it had so far propped up
lower incomes.

These `structural readjustments' led to severe trouble in fact a gradual
falling apart of the central state - just like in, say, Liberia - since they
principally hit three mainstays of the whole Soviet - regime.

Point one: the state began to `downsize' the intricate system of agrarian
subsidies, with which it had propped up the agricultural sector ever since
the 1950's. For that was the principal change between Chrusev and Stalin -
basically, much like in the EU the state tried to smoothen the social
effects of the mechanization of agriculture on employment in the countryside
by a system of subsidies to keep up the incomes of farmers. That meant, like
in marginal regions in Western Europe - e.g. Galicia or the Alps - really
that
much of the Russian agricultural sector was by the 1970's a kind of
workhouse to give old people some employment, which, of course, did not
benefit the productivity of agriculture. For, unlike in Western Europe the
USSR's policy was to curtail the exodus from the countryside by keeping
people there since the USSR was rightly afraid an unchecked exodus would
lead to great social problems (slums, urban congestion what have you). Thus
16% of the USSR's workforce was still in agriculture in the 1980's but these
were mostly old and badly skilled people who were a burden rather than an
asset to the USSR.

Subsidizing farmer incomes had been paid among other things by buying grain
in the USA (with the oil-revenues). This foreign grain in turn allowed the
USSR to feed it to cattle and was thus an indirect subsidies in hard
currency to the cattle-production. Now, cutbacks on the purchases of grain
particularly hit regions which heavily relied on cattle-rearing, and
particularly (the connections with political developments are clear - are
n't they  ?) the Baltic region.

Also, agricultural subsidies had been used to keep up `under employment' in
marginal regions, with a severe surplus of labor relative to the amount of
fertile soil available, like (the links are clear again) Tajikistan,
Fergana or Nagorno Karabag. By 1987 these subsidies were not so much
scrapped as that they were simply not being received anymore which, of
course, caused severe `ethnic' tensions in these regions.

Point two: to cut on expenses the state also began to downsize

heavy industry, particularly the very outdated (most of it was really
laid out around 1900 and had not been upgraded since) heavy industry
focussing on armament. These industries, partly for political reasons again,
were mainly located in three regions: the Volga, the Urals and the Ukraine.
Now - since employment in the Ukraine almost entirely depended on the
armament industry local `party-bosses' began to do anything to sabotage
orders from the Center. As local party-boss you couldn't simply sell to your
local `constituency' that the entire town was going to die or half the
population would be unemployed if the plant on which the entire town
depended was going to downsize. So that what you had to do was to
acknowledge but subsequently sabotage orders: "I obey but do not carry out"
orders - as it would have been called in the Habsburg Empire. Albeit, no
central administration can function if the regions do not carry out or
systematically ignore orders from the Center.

Note - this is the critical difference between the USSR and China - most
plants in the USSR were huge complexes with literally hundreds of thousands
of employees. Entire regions therefore depended on a single plant - if you
started closing down `inefficient plants' in the USSR entire regions simply
died. (Thus e.g. the far North - Norilsk and its region, a `region' about as
big as half  the entire USA mind you - where all employment depended on a
single mine and plant and where everything - really everything - had to be
flown in from Moscow - now imagine what happens to this grim Arctic region
if this one plant is going to downsize !) Another region again which was
heavily hit by attempts to restructure industry by making industry less
dependent on two single products (missiles and tanks) was Sverdlovsk - And
as some of my readers may recall Boris Yeltsin was the party-boss of
Sverdlovsk. Therefore, his local constituency enthusiastically supported
Yeltsin's policy of systematically
sabotaging decisions from the Center. And by 1988 Yeltsin was becoming the
focus of protest of the local party bosses against what they perceived as an
irresponsible and a-social policy of the Center and, as said, with good
reasons.

Now the critical difference with China here is that Chinese industry was
much less centralized, so that readjustment of industry there did not hit
entire
regions as badly as in Russia. Economic changes there led to much less
resistance from the regions against the Center therefore. There are a few of
these huge plants in China too and for similar reasons as in the USSR
Beijing is extremely afraid of cutting subsidies to them - but because there
are fewer in China they can gradually switch to modern machinery. Albeit,
the sheer scale of the USSR's industry meant that funds for re-tooling
entire plants (with hundreds of thousands of employees and say producing as
much steel in a single complex as the whole of England but all  that with
badly worn machinery from the 1930's) were simply not available. To have
such gigantic plants work more `efficiently' they would simply have to close
down most of their operations..Thus causing mass-unemployment. It's logical
the regions simply did not want to cooperate, particularly the Ukraine,
which almost entirely depended on them - thus causing the Moscow-Kiev
fissure, which above all IMHO brought down the USSR.

Basically the USSR could well have gotten rid of regions like the Baltic
states, Georgia or Tajikistan. And some regions (notably Uzbekistan) more or
less already made or less their own policy, complying with but further
ignoring prescriptions from the Center as it suited them under Breznev. But
the Ukraine was a very different ballgame as it was critical to the entire
existence of the USSR. (For - my dear US-readers - the Ukraine is Europe's
largest country after Russia itself in size and third biggest in
population - it's larger than France or Italy).

Point three: to raise productivity drastic cuts on wages were necessary.
Albeit, that was entirely infeasible under the USSR's system - for, however
much the country was dominated by the army and the party the unions were
also a powerful force in the USSR. For - unlike the party - they
represented the bulk of the population. Thus attempts to cut wages would
lead and did lead to severe resistance from the unions.

It is commonly said (and there's something true to this dictum) that the
USSR's policy on wages and `state-employee relationships' are conveniently
summarized as: `They pretend they pay us and we pretend we work'. As said
that's not wrong but in reality much of the `social contract' central to
employee-state relationship in the USSR was that the state paid low wages -
thus effectively allowing for very labor intensive industrialization:
because wages were so low much capital was left to reinvest (In Marxist
terms: absolute surplus-value in
the USSR was simply higher than in most Capitalist country because of long
working-days and low wages thus allowing for higher investments). But in
return the state kept prices of basic commodities and services like
transport, basic food, medical care, housing, education etc. low by heavily
subsidizing these.

Now, what happened under Perestroika is that - in fact to cut subsidies -
but under the banner of more efficient pricing and the factories charging
realistic prices, by 1986 the state tried to introduce `realistic pricing'
for food
and services. What then happened was that these commodities became not so
much more expensive but that they simply began to disappear from the shops
or that services (like medical care) became not so much more expensive but
that the quality of the care began to drastically deteriorate. Thus
accounting for the catastrophic rise of mortality in Russia after 1985. By
1989 if you were dependent on, say, a state-pension in the USSR and you
didn't have somebody who could `fix' it for you you might have to wait for
years for even the most urgent surgery. Enterprises - including hospitals -
had to charge  `realistic cost-prices', Gorbachev urged them, and that's
exactly what they did.

To repeat, we are dealing with a system of fixed prices and wages here, so
that if a product is getting scarcer it's not available rather than that
it's getting more expensive. E.g. in the USSR prices of cars were fixed and
so were wages. Cars were scarce and thus in short supply though. So, if you
wanted to buy a car in the USSR you might have to wait for up to ten years
for delivery after you had paid your nominal price to get your car - or, of
course, you had to know somebody who could `fix' you a car within a couple
of months. As said - wage-differences were in the USSR not primarily
expressed in the wages but in what you could `fix' somewhere. E.g. a
minister received less pay in the USSR than a worker on the Baikal-Amur
Magistral railway but then  a minister could go to a special clinic rather
than to a general hospital (filthy, indifferent medical care and
waiting-lists again) or he could buy sausage at a special shop when no
sausages were available in the rest of Moscow at all.

If that situation already hurt people in Moscow it was a severe problem
indeed in the remote regions, where food, services etc. were never
cost-effective but - since the regions were that remote, Russia is obviously
a rather big country - always had to be heavily subsidized by the state.
Thus e.g. in the Siberian Kuzbass-region, where you had all the USSR's
problems in the 1980's rolled into one: this was a region where all
employment depended on mining, where the mines were uniformly old, dangerous
and inefficient (being mostly laid out in the 1930's and then built in great
haste and without caring very much for safety or for using any labor-saving
machinery) and where almost all services had to be heavily subsidized.
Thus - when Moscow began to cut subsidies what, basically, happened is that
first almost all the services and then even food began to disappear and then
by 1989 that Moscow began to close down the inefficient mines. It did that
not so much by formally sacking the miners (for under Socialism you couldn't
have unemployment
remember ?)  but by not paying them anymore. By 1991 (get this !) many
miners had not been receiving any pay for ten months and had more or less to
subsist by cultivating their own gardens since there was no food for sale
anywhere. So - in winter 1989 and summer 1990 the Kuzbass was the scene of
something totally new in the USSR  namely prolonged strikes and the
establishment of `wild' (rather than the officially recognized) unions.

Now, I think (this whole episode is extremely obscure and is likely to
remain so now that a former KGB-agent is president of Russia) the
Kuzbass-strikes were instrumental in the attempted coup of 1990 - what, I
think, happened is that the Army wanted to impose martial law in the Kuzbass
and that Gorbachev resisted this since it would have had unacceptable social
consequences. Gorbachev was just trying to strengthen the power of the
Parliament to build-up a power-base there, as counter-weight to the
increasingly inimical Party-apparatus, Party bosses, Unions and the
military - and
imposing martial law in Russia itself would likely have led to a conflict
with the Parliament.

So, what basically occurred was that by 1987 the unions, provinces, regions
and states of the USSR began to systematically resist Moscow's policy of
structural readjustments since it would have led to unacceptable
unemployment and was already leading to severe poverty.

Now, since in the USSR taxes were not levied on income or on indirect dues
(I believe an average citizen of the USSR paid only 5% of his income in
taxes) but directly on factories, farms, or other production-complexes taxes
were more or less based on a kind of deal between factories, other factories
and the regional states and so on to the Center. They would pay taxes if
receiving
other products from other combinates in time and if receiving subsidies from
the state on basic necessities allowing them to keep their wages down. What
then happened when the state began to cut subsidies, and basic necessities
therefore began to disappear was that factories got into financial problems.
Financial problems which they basically tried to overcome by cutting on the
taxes they paid to the centerrather than cutting on wages. Thus by 1989 the
central state was receiving its taxes late or not at all anymore, which by
1989 gave rise to a severe budget-deficit. The budget - deficit could have
been curtailed a bit by
cutting on the foreign commitments. (And that was indeed what the USSR did -
whether with much noise: as with the retreat of the forces from Germany; or
without any noise as in the sad case of Cuba where the USSR simply
unilaterally cancelled all contracts it had under signature with Cuba or
didn't cancel them but simply sent nothing to Cuba whatsoever anymore even
if Cuba had already paid for the goods.) That was only a temporary relief
before execution however - drastic measures were necessary and soon too
because the USSR was facing bankruptcy by 1990.

There were two ways by which the USSR by 1990 could curtail the
budget-deficit but the problem was that Gorbachev couldn't do either since
it would have amounted to having the entire country disintegrate.

Possibility one: selling industries and services making a loss away and thus
raise more money. Yet apart from any ideological objections to privatization
the problem was that the USSR's industry was organized through regionally
specialized combinates and those were linked in chains of production. Since
it was thought when the industry was laid out that the best way to profit
from regionally different factor-endowments was to organize industry by
economies of scale. Thus, e.g. the vast coal-mines of Karaganda in
Kazakhstan sold virtually all their coal to the steel-industry at
Magnitogorsk some 4000 km away - however, due to the massive transport-costs
involved this was not a cost-effective operation on the level of a single
mine or of that of the coal-industry as a whole. It would for the possibly
privatized coal industry be well advised to close
down the entire operation at Karaganda. But that would bring the industry at
Magnitogorsk to a stand-still too. If some branches of industry were to be
privatized these would start closing down plants and raise prices, bringing
production in other plants down with them - and so on and so forth. You
either had to privatize the whole industry, which would effectively ensue in
practically
the entire USSR's industry closing down, or you could privatize perhaps a
few consumer industries but the problem was that the big industry was making
the big losses too - so that this would do nothing to trim the budget
deficit in
the longer run of perhaps two or three years.
>
Second possibility: Stalin's solution to the nationality - problem had
undoubtedly been to kill or deport a few nationalities but the main solution
had been rather simpler. (It's somewhat comparable to Britain's attempted
solution to the North Irish problem, say.) Basically the USSR's solution
to the problem was that Russia would fund the same social security- system
throughout the union by subsidizing the other republics if the
republics kept quiet. That meant that virtually all republics (Kazakhstan
because of its natural gas perhaps excepted) were in the red and that
Moscow had to subsidize some very heavily (like Tajikistan and Kirgizia)
some less so (like Ukraine, Kazakhstan and Uzbekistan). Yet on balance
Moscow made a loss on all republics, so that to the long-standing anger of
the
Russian chauvinists in the government Moscow had, for example, to subsidize
Estonia from tax-revenues of Russia, effectively allowing Estonia to pay
almost no taxes to the Center. And that although Estonian GNP per capita was
twice that of the rest of the Union (by comparison that of Tajikistan was
only a fourth of that of Russia.) The sensible thing to do, therefore (and
that was
what the government of Russia under Yeltsin was urging for), was to drop
that deadweight of the nationality policy by making the republics
independent and have them look for their own incomes - the logical option
but there was a big problem. The problem with that `sensible thing' to do
being that there were something like 30 million Russians outside of Russia.
It was very likely the republics would start to vend their anger on the
Russians if Moscow suddenly cut all its subsidies  - yet
in some `ethnic' republics the Russians were actually in the majority (e.g.
in Kazakhstan where some 60% of the population was Russian). In other
republics there were oncentrations of Russians around major industrial
plants often far outnumbering the `locals' e.g. in the Dnjestr region of
Moldavia or in the eastern Ukraine. If Russia made the republics independent
it had no way to protect the Russians thus effectively stranding some 30
million of its people in foreign territory and effectively ensuing a
refugee-movement which might make the Indian partition pale by comparison.

Hence, solution two and solution one really were both infeasible, so that
the one way out for Gorbachev was again to ask for credit from western
states during the G-7 top in 1990 to cover the immediate budget deficit. As
we all know the western banks and leaders were unwilling to grant Gorbachev
such a credit as the USSR was not considered creditworthy anymore. On
Gorbachev returning empty-handed from the G-7 this caused the chain of
events with which we are all familiar - since Gorbachev had really only been
allowed a respite from being deposed from office by the military if he came
back with money.

Albeit - the problem with the subsequent entire attempted coup was that the
military was quite uncertain whether they had a solution to the budget
deficit. The leaders of the coup were quite uncertain what they
had to do after their initial success (they probably hoped
Gorbachev would with some protest support them as Gorbachev after all
supported the territorial integrity of the USSR but he didn't - thus
effectively robbing them of any legal base for the coup - ). They could,
therefore, easily be pushed aside by the Russian government which really
wanted to solve the Gordian knot by desolving the USSR and then the
wholesale
privatization of the state apparatus.

Now if we see Perestroika as what in my view it was: namely a failed attempt
at `structural readjustment' we can get rid of many of the ideological
ballast which in my view obscures the entire debate on `the end of history'
in 1989 and 1990.

For many - if not virtually all - of the problems the USSR was confronted
with in the 1980's it shared with many other countries. Thus if the USSR had
by 1985 heavy unemployment - if disguised as `under-employment' - so had
western Europe. Western Europe then had 35 million officially unemployed,
people probably about the same number as were `under-employed' in the USSR -
for the USSR was about equal not to individual European countries but to the
whole of the European continent.

And most social problems in the USSR - thus e.g. the outbreaks of
ethnic rioting in Fergana in 1988 were clearly caused by under-employment.
There were probably more resemblance's than differences between Fergana and,
say, Brixton. Again as we saw in the previous discussion on this list on
Gini-coefficients the USSR shared in the general trend towards increasing
inequalities of incomes in the 1980's. If in the USSR that was initially
expressed in rapidly increasing unequal opportunities to `fix' scarce goods
rather than in nominal wages. Finally - but I could go on with ever more
indicators - the USSR shared many of its industrial problems with the rest
of Europe - if the mines in the Kuzbass were out of date, so were those in
Yorkshire and, like in Yorkshire, the only solution was to shut them down,
causing miner-strikes in Yorkshire as much as in the Kuzbass.

General problems of industrialized countries seem mere more pronounced in
Russia because the country is so vast and because they are, of course,
described through an ideologically colored lens. That's not only the case in
Russia of course - thus e.g. shipbuilding throughout Europe was in deep
trouble in the 1970's because of cheaper competition from the Far East.
Therefore shipyards throughout Europe were being closed causing workers'
protest throughout Europe - including at the Lenin Warf in Gdansk. Who would
have noted it, however, if the Warf would have been located in, say, La
Rochelle or Glasgow rather than in Gdansk ?
>
Russia in brief and the socialist countries in general simply shared many of
the problem of normal other, Capitalist, countries which is still
insufficiently perceived on this list and elsewhere because it is assumed
that since these were Socialist countries exactly the same phenomena as in
Capitalist countries must, therefore, have had radically different causes.
Most of these things were simply caused by shifts in the Capitalist World
system, however, of which they were a part and in the global conjuncture.
This is - to repeat - NOT to argue that if they were part of the World
System, which is dominated by Capitalism, they therefore were `state
capitalist', `quasi-capitalist' or what have you.

But the problem of the debate on the USSR is not merely that because the
country was socialist it is therefore assumed it must have obeyed very
different laws of motion - Capitalist problems can not have occurred in
Socialist countries and "Socialist problems demand Socialist solutions" as
Wayne Austin puts it - which is a rather parochial statement really,
particularly, on a World-system list since it assumes "Socialist countries"
can
unilaterally withdraw from the World-system without severe problems. North
Korea did in the 1980's and it's certain North Korea's population is not to
be envied.

This is what I would call the `voluntarist fallacy . Although this is
supposed to be a `World System' list most contributors talk as if states are
totally at liberty to decide on their economic policy without having to
count with the global economic conditions and as if some common economic
failing is uniformly the result of an `error', of somebody of a person or at
least of some national government. Thus e.g. that much of the USSR giant -
plants by the 1990's seemed like stranded wails is not a result of some
`error' of
Stalin, of Stalinist planning, or of the Socialist system but is the result
of what
seemed perfectly rational economic planning in the 1930's context: namely
the common belief in economies of scale and what - in a Capitalist context -
would be called `fordism', yet the USSR was really the Fordist country par
excellence (rather than the USA) - as we saw already -. The simple problem
is that because these plants were built with the newest equipment of the
1930's on a gargantuan scale - to maximally utilize economies of scale - it
was virtually impossible to retool  their equipment by 1980.

Problem two - as already emerges from this example - is what may be called
the `anachronist fallacy: we now know that many decisions which were, say,
made in the 1930's proved wrong from our present perspective - but in the
1930' or 1970's there seemed to be perfectly good reasons to do so and
mostly people then made decisions which seemed best in the light of what
they then knew and expected to happen in the future. The elementary human
condition is that we don't know the future.

E.g. communists on this list may lament that Socialist states ever started
lending. They should perhaps have tried to de-link from the Capitalist World
System in the 1970's as some contributors to this list - Gunder among
others - were then arguing they should have done. But we have to remember
that around 1976 nobody expected the world-crisis to last for another decade
and a half. The general idea was that economic growth would soon revive to
1960's levels and that with increasing demand for their raw materials the
East European countries would easily be able to pay off their loans later.
Instead of course the global economy plunged into a second depression in
1979 but few economists then foresaw this - well, Gunder perhaps and
certainly Ernest Mandel but few established economists east or west then
believed them. For - in spite of putting it into Marxist jargon Russian
economists believed by and large most of the same things as Western
economists.

More to the point - if the USSR did anything `wrong' it shared these errors
with many other countries - Capitalist as much as Socialist. For the general
investment pattern of the USSR up to the 1960's - that is: keep wages down
to obtain high investments in the infrastructure, the primary sector, in
education and in health it shared with (of all places) South Korea and
Taiwan ...

For South Korean industrialization was also not led by the
private sector but by the state or by the South Korean Chaebol (e.g. Daewoo)
which are really vast "quasi-non-state" industrial enterprises, horizontally
integrating whole production processes -  really not so different at all
from the great Russian industrial combinates - For major Russian
combinates also had a very strong autonomy from the prescriptions of
GOSPLAN - much like the Chaebol in short. And contrary to mythology there
was nothing like having the `prices right' in the Southeast Asian dragons
either - because even Hongkong - the most free trading place of the whole
lot - heavily subsidizes the costs of housing.

And indeed the USSR's industrialization has a lot - perhaps of all
comparable countries most - in common with Japan ... And nobody ever claimed
Japan did things wrong ....

The essential difference of course here is that - unlike the `dragons' and
unlike Japan - the USSR did not have a preferential market and a
preferential access to the USA in particular to sell its products to.
Japanese or Korean growth was mainly financed through profits from selling
to the USA, while sheltering THEIR market from the USA-imports. That above
all allowed Japan, say, to entirely retool its - also partly obsolete -
industry in the late 1970's. But the USSR did obviously not have such a
market - in fact, it was constantly being faced with sanctions on imports
and exports instead. Theoretically the USSR (after all Russia is STILL the
only country with a manned or at least man-able space station in orbit)
would certainly have had some high tech to sell on the World market apart
from its raw materials. The USSR was far ahead of all other countries in
laser-technology.in the 1980's, for example.


But because the USSR was receiving world-market prices and facing
tariff-barriers, instead of Japan or China with their `most favored nation
clause' treatment in the USA, the USSR had to obtain virtually all of its
funds internally, by loans and by exchanging raw materials with finished
products. And - as all of my readers should be aware - the exchange rates
between the two have constantly become more unfavorable. Therefore the USSR
was an archetypal case of `unequal exchange' forcing it effectively to
embark on an extremely dangerous policy of `structural readjustment' in 1985
which wrecked the country - much like radical structural readjustment also
wrecked, say, Liberia.

So, in sum, let us be less beguiled by words - words are good guides but bad
masters. Let's try to study what's actually happening instead of trying to
first labeling it. For labeling something as `good' or `bad' doesn't help
understanding or explaining it a single bit and may in fact obscure it. And
that's particularly true for those easy and oh so convenient labels:
`Socialist' or `Capitalist'.

For although - as said - the Yeltsin government had by 1991 really no other
choice than wholesale privatization of the economy - effectively bringing
the entire economy to a standstill as could also have been predicted
beforehand - this entire thing was much obscured by the ideological blinkers
of both east and west through which this process was perceived. The idea was
of course that once Russia became `Capitalist' foreign capital would start
streaming in and that this would ensue in some economic miracle - reciting
the
magic words `Capitalist' and `Democratic' would surely work wonders. To that
extent `Capitalism', `Democracy' `the free market'  etc. are not so
different from the idea of some other - and perhaps wiser - cultures than
our own that it would start to rain if you only recite the right magic
incantations. It
was not entirely a ridiculous idea, however, since Russia was indeed a
country with a high-skilled, low paid labor-force. Russia has the largest
reserves of raw materials in the world and in addition it is close to the
European (or
Japanese) market.

Now, as we all know, changing the labels and reciting the magic words didn't
help the Russian economy a single bit. Free initiative instead rather
worsened the
situation rather than improve it as - of course - it mainly led to a wave of
some legal and a lot of illegal privatization (a nice word for organized
theft of state-property) the benefits of which were then rapidly sent out of
the country. By 1995
approximately ten times as much money was fleeing Russia than was coming in.
There was rather a tidal wave of de-investment from Russia than of
investments in Russia after `Capitalism' had been proclaimed, then.

One reason for these disastrous economic results was obviously national
chauvinism of particularly European politicians: the problem was that Russia
had exactly those products more cheaply for sale which European politicians
have to protect with tariffs under all circumstances: grain, aircraft, arms
and
steel as these are branches of manufacturing with powerful lobbies in
Brussels and with a lot of single-issue voters. Thus nobody was willing to
risk jobs in agriculture or heavy industry to help Russia. No most favored
nation - clause - instead Russia was being faced with a whole new set of
tariff-walls.

The other reason is much simpler and much more basic really - pronouncing
that your economy shall henceforward be called `Capitalist' is not going to
change anything in your industrial structure and privatizing something is
not going to make your industry suddenly profitable by a stroke of magic. No
matter what true believers in Capitalist enterprise on this list and
elsewhere believe.
(Of which there were sadly too many in Russia too - but, hey, Russians are
by
nature quite religious people). My standard example is that when British
Leyland was state-owned in the 1970's it had lousy management and was making
a heavy loss - in the 1980's after it was privatized it still had lousy
management, was making even heavier losses and finally went bankrupt.  So,
likewise, if you privatize say the Kuzbass-mines, these mines are not
magically going to get new equipment and are certainly suddenly not
magically going to show a profit.

For - and that's the basic problem - Russia's industrial and agricultural
structure are simply not fitted anymore to private sector-led growth. Maybe
in the good old age of Count Witte (1906-1912) Russia was well fitted for an
industrial transformation led by the private sector (as Karl Dassbach used
to
mourn during a previous discussion I had with him on the same list and on
the same topic) and I certainly would grant Dassbach that the Gulags were a
capitalist class in nuce. Alas, these agrarian entrepreneurs in nuce were of
course killed in the camps and they were replaced by the large agricultural
collective
enterprises which still dominate the Russian agriculture. There were
desultory attempts to sell-off Kolchoz lands to the individual peasants but
the peasants did n't want to buy it, because the
machinery to go with it, is not sold to them. And - anyway where to sell
your products?

For the problem in Russia is not that there is not enough infrastructure (as
Dassbach then complained) the problem is rather that there is TOO MUCH of
it. E.g. yesterday I read a message that up to 20% of Russia's oil
production is
simply lost by leaks in pipelines. That means that Russia probably spills
more oil into its soil than say the total oil-production of Mexico or
Venezuela. That message was spread by Greenpeace which in addition cheerily
observed that if only Russia could mend those leaks there would be no need
for Russia to operate its infamous Chernobyl-type nuclear reactors anymore.
Couldn't somebody, please, contribute something Greenpeace requested ? Yet
that's the big question for who could ? I don't think Greenpeace realized
for a moment that we're speaking about hundreds of thousands of miles of
pipelines here - most of it laid out in permafrost, tundra, taiga or in the
Arctic. It's simply beyond the means of any single oil-company to invest in
Russian oil - the Alaska pipeline was already beyond the means of individual
US-oil
companies and that was a picnic compared to the Russian oil-deposits.

The investments needed in Russia are simply beyond the means of foreign, let
alone Russian investors from the private sector - and, therefore, have to be
state-led. Whether Russia labels itself `Capitalist' or `Socialist' the
country's economy has simply under the present conditions to be dominated by
the state-sector. That was true under Lenin in the 1920's (for let us not
forget that the NEP-experiment was ended because insufficient investments
were forthcoming from the private sector to fund the rapid industrialization
the Bolsheviks wanted to achieve) and it's still true under Putin.

For example, in front of the Kola peninsula (Murmansk) near the North Pole
there's probably one of the world's largest (if not THE world largest) oil
deposit. The problem are the conditions: it would mean building off-shore
drilling-platforms in the stormy arctic Barents-Sea in permanent darkness
and then building a whole net of pipelines through mountains and wild
tundra's to fetch the oil to western Europe. What western oil-company is
going to venture on something as risky as that ?  And in addition to the
huge investments needed, which are already beyond oil companies' means,
there are uncertain returns in addition, and it will take at least two or
more decades
to pay back the initial investment. So in spite of all the oil - can you in
fact imagine any rational capitalist who is going to invest in something as
risky as that ?

So - if Russia wants to rebuild and restructure its economy this has to be
state-led and be based on big enterprises pretty much the old Stalinist
model in short. And after a decade of being dazzled with `free market' and
`Capitalism' paroles,I think this thing is now also dawning on the
Putin-government. After all, no less a person than Yeltsin himself admitted
his `privatisation' policy had failed and  he excused himself to the nation
on his resignation. Private initiative simply doesn't have the means to
restructure the Russian industry. Russia's further industrial growth is
going to be state-led and,
in particularly led by the heavy armament - industry again. - For Putin is
above all obviously very much a spokesman for Russia's military/industrial
complex.

But - to close off this long but I hope interesting posting (I should
perhaps revise it and publish it) I am certain the Russians will succeed in
rekindling economic growth . Maybe its a belief rather than a fact but if
history teaches us anything it's this: Russia has many times in its history
appeared to be down and out, only to triumphantly resurge again and stride
over the world as the colossus it really is

I'm confident this will happen again  - as I wrote on this list two years
ago: the Russians are in many ways the most remarkable people of the World.

Best wishes
R.J. Barendse