Where are the commanding heights of the "new" Soviet economy? One thing
should be plain from what has been said so far: To look for the top command post
or even the key instrument of economic power in the Soviet central "planning"
bureaus is to go on a wild goose chase.
The Soviet "planners" do not know what happened, what is happening or
what will happen in Soviet economic development, and there is not very much they
could do about it in any case.
To get a fuller picture of how the "new" Soviet economy is organized, it
is necessary also to look more closely at the role played in it by the Soviet
In external appearances, the Soviet state banking system has changed
little since the socialist period. Now as then, there is a single state-monopoly
bank combining within its various departments most of the different banking
functions that are usually kept at least formally separated in the West.
The nature of its operations, however -- particularly in relation to the
industrial enterprises and combines -- has changed profoundly as a result of the
1965 "reform" measures. Kosygin explicitly touched on a key feature of this
change when he called for restricting the system of making interest-free grants
and expanding, in its place,
the role of credit, i.e., of lending at interest. (See
part 16 of this series.) Prior to the "reform" it was the general rule that
industrial enterprises received what they required in the way of short-term
funds ("working capital") and long-term funds for the expansion of production
("investment capital") from the respective departments of the state bank on an
interest-free, nonrepayable basis.
This did not mean that the utopia of capitalist dreams had come about: an
economy where the bank gives away free money. On the contrary. There was also
the other side to it that any idle funds in the enterprise's account instantly
came under the control of the bank, not of the enterprise; and, as was pointed
out earlier, virtually 100% of all enterprise profits, if any, were directly
centralized in the state. Thus the system of interest-free nonrepayable funding
did not "profit" the enterprise (in the capitalist sense) one bit. Nor did
Gosbank (the state bank; also the name for its short-term funding department) or
Stroibank (the long-term funding department) make a profit on their monetary
Another aspect of the Soviet socialist banking system also essentially
distinguished it from capitalist banking. This was that the Soviet state bank
with all its departments was both legally and in practice subordinate to the
central plan, which expressed the political-economic policy of the proletarian
dictatorship led by the Bolshevik Party.
The bank served the central plan by allocating and transferring funds to,
from and between enterprises as laid down in the plan, by keeping and balancing
the national accounts and by running audits on how the enterprises were using
the funds assigned to them. This is why the Soviet socialist state bank was
frequently called a "post office" or "messenger service" for the plan.
Such a banking system clearly could not survive unaltered under the
economic conditions created and consolidated by the 1965 measures.
In the first place, in the absence of a comprehensively worked out,
directive central plan, the bank if unchanged would have floundered aimlessly.
In the second place, it would have been quickly stripped of all its funds
had it continued to issue them without charge. For now that enterprises were
allowed to retain a
large portion of "their" profits and their directors had a personal incentive
in profit-maximization, nothing could have been more idyllic from the enterprise
directors' viewpoint than to get "free money" from the bank. It would have meant
"free" and unlimited profits for as long as the giveaway lasted. The old
economic quackery of a capitalist system with "free credit" (zero interest),
advanced by Proudhon in Marx's day already, and as persistent in petty-bourgeois
thought as crabgrass, would have been realized for the first -- and last -- time
In short, once the funds left at the disposition of the enterprise
acquired the social character of capital, the funds at the disposition of the
bank likewise had to undergo this transformation. The conversion of socialist
production units into capitalist enterprises was not possible without the
transformation of the socialist state monopoly bank into a state capitalist
Beginning with a nominal 2 to 3%, the basic interest rate in the USSR was
raised after 1967 to a more nearly commercial 6%. A Western bourgeois observer
of this development, a correspondent for the Financial Times of London,
commented in 1971 that this was still relatively cheap, but that it "represents
a great advance compared to the devastating interest-free credits or state
budget financing of a few years ago." (A. H. Hermann, "East-West Finance," in
The Banker, August 1971, p. 872.)
In harmony with these sentiments and to the applause of the Western
capitalist banking world, the Soviet economic literature has devoted extensive
space to arguments that the interest rate should be raised even further. (e.g.,
I. Mamonovax, "The Interest Rate and its Differentiation," Den'gi i kredit, No.
3, 1972, in Problems of Economics, Nov. 1972; Iu. Shur, "Some Problems in
Building Models of Interest," same source.) This may well have occurred.
The ideological acrobatics by which the Soviet revisionist economic
"theorists" tried to reconcile the principle of a substantial interest charge
with the principles of Marxism make a sometimes amusing but more often repulsive
chapter in the Soviet economic debate, which would take too long to pursue in
detail here. Apart from the rare strokes of brazenness, such as the
ultrarevisionist Leontyev's out-front declaration that "a capital charge
fixes the commodity nature of capital assets," -- and that this is "good" -- the
discussion is marked by a general conspiracy of silence about the clear and
thorough analysis of interest found in Marx's Capital (e.g.. Vol. III, Chs.
XXI-XXIV), as well as about Marx's explicit statement that "in the case of
socialized production, the money-capital is eliminated." (Vol. II, p. 358.)
(Leontyev quoted by Feiwel, book cited earlier, p. 223.)
Lacking this firm, materialistic foundation -- indeed, evading it like
the plague -- the Soviet disputants only succeeded in entangling themselves in a
Gordian knot of sophistries, which was cut, as in the related debate on profits,
by the sword of a party decree. As the economist E. G. Efimova puts it:
"The proclamation of the principles of the economic reform by the
September (1965) Plenum of the Central Committee of the CPSU put an end to the
discussion of the expediency of introducing charges for productive capital. . .
. The question is no longer whether the actual principle of charges corresponds
to the principles of socialist management, but rather pertains to the eliciting
of the specific economic content of the category of capital charges and, on this
basis, to the elaboration of the procedure for determining the size of the
charges and the rules for collecting them." ("On the Economic Content of Capital
Charges," Seriia obshchestvennykh nauk, 1971, No. 1, in Problems of Economics,
April 1972, p. 49.) In other words, the question is not whether money is to be
converted into capital, but by what terminology this conversion is to be
disguised and how high the rates should be. Discussion of basic principles is
A knotty problem for Soviet ideologists has been how to define the
economic relation between enterprises and the state.
In addition to paying interest charges to the state bank, enterprises pay
so-called "capital charges" to the state budget. Originally the two types of
payments were treated as having the same content; the distinction between
interest and "capital charges" was treated as broadly identical with the
distinction between interest on short-term and on long-term loans.
As the "reform" advanced, however, new long-term investments in expanding
the capacity of existing enterprises virtually ceased to be financed out of the
state budget. The material basis for the claim that "capital charges" were
payments for borrowed capital evaporated away. Yet enterprises continue to be
liable for the payment which is figured as the basic interest rate on their
total "fixed" capital, adjusted for the rate of profit.
Much fruitless experimentation among the "theorists" for substitute
labels resulted. The more logically consistent revisionists in the last few
years have been proposing that this payment, together with all the various other
miscellaneous and sundry state deductions from enterprise profits, be lumped
together and collected under the single heading of: income tax. (E. Manevich,
"Ways of Improving the Utilization of Manpower," Voprosy ekonomiki, 1973, No.
12, in Problems of Economics, June 1974, p. 11.) By what devices of sophistry
this category is to be reconciled with the doctrine that the state owns the
enterprises (how can it tax its own property?) remains to be seen.
The Soviet state bank, in sum, has been converted by the "reform" to
operation on capitalist lines, particularly in its relations to the state
industrial enterprises and combines. Since the bank now demands interest on its
loans -- and this interest, of course, is nothing but a share of enterprise
profit -- the bank's own profitability depends directly on the profitability of
the enterprises. The bank becomes an auxiliary lever spurring on the enterprise
director to greater efforts in extracting surplus value from the labor of the
The spirit of this relationship was expressed rather plainly by M.
Sveshnikov, the chairman of the Soviet state bank, in an article contributed to
the London banking review, The Banker. "The bank is actively to promote the
stepped-up growth of labor productivity," Sveshnikov
writes. "When crediting enterprises and organizations, it is essential to
have them improve capital efficiency, cut production costs, raise the
profitability of production and eliminate operation at a loss." ("USSR State
Bank After 50 Years," The Banker, December 1971, p. 1479.) These principles of
banking policy could have been uttered just as well, knife in hand, by a
Rockefeller or a Morgan.
It would be a serious misreading of the facts, however, to suppose that
the Soviet state bank today, by virtue of its control of bank capital, exercises
some sort of general dictatorship over the state industrial enterprises and
combines. The image of the Soviet state capitalist bank as a giant octopus
dominating the industrial scene, which is sometimes conjured up, is the product
more of fantasy than of investigation. Altogether ludicrous is the view
sometimes advanced that in this supposed dictatorship of the state bank over
"industrial capital" lies one of the key parallels between the present-day
organization of Soviet capitalism and the organization of capitalism during the
Nazi period in Germany. These parallels are indeed striking, but they lie in the
opposite of the relationship imagined.
The power of capitalist banks over capitalist industry varies, it is
generally agreed, with the degree to which industrial enterprises are dependent
on the banks as a source of capital. How great is this dependence in the USSR?
As was already indicated (in part 18 of this series) the
established Soviet industrial enterprises and combines are very little dependent
on bank credit, especially not bank credit for long-term capital investments,
the sort which gives banks their greatest leverage.
Only 3.3% of total long-term investments in Soviet industry in 1972 were
financed with bank credits, a percentage which Soviet economists themselves
rightly regard as "insignificant." As for short term loans for "working capital"
-- generally 30-day to 90-day loans to cover shipments, payrolls, inventories
and the like -- the bank supplied in 1970 around 44% of industrial requirements,
a not very imposing proportion. (V. N.
Kukikov, "Some Problems of Long-Term Crediting. . . ," Finansy SSR, 1974, No.
5, in Problems of Economics, Feb. 1975, p. 61; Iu. Shur, "Some Problems in
Building Models of Interest," Den'gi i kredit, No. 3, id ditto, Nov. 1972, p.
Thus the material basis for speaking of a "dictatorship of bank capital"
over industrial enterprises in the USSR at the present time is hardly there, at
least not in regard to enterprises extracting an average rate of profit from the
workers. Even less are there grounds for speaking of any sort of state bank
tyranny over the so-called production associations or combines. These are almost
wholly self-financing. In addition to the writers already quoted earlier on this
score, here is the economist Boris Gubin:
"Whatever the structure of industrial associations, the income they
derive from the marketing of their products is sufficient, in most cases, not
only to meet current production costs but also to meet the costs of research,
design and other operations connected with technological progress. It also
covers to a considerable extent the capital investments needed for expanding
production. . . . In the associations, fullest expression is given to the
principle of financial self-reliance as the basic principle of cost-accounting."
(Raising the Efficiency of Socialist Management, Moscow, 1973, p. 105.)
Financial "self-reliance," of course, which sounds quite good in the
abstract, means in this context that each combine makes such high profits from
the exploitation of its workers that it is not dependent on the bank or the
state budget for capital with which to expand the scope of its exploitation.
In no other major capitalist country today are industrial enterprises,
including the biggest monopolies, as a rule so nondependent on bank capital for
investment funds as in the USSR. In the U.S., for example, in recent years
corporations have obtained roughly a third of their investment capital from
banks, and this dependence is increasing, while in the Western European states
dependency on banks is generally over 50%, and in Japan more than 70% . One has
to go back in history to find a case
of such extreme self-financing by industrial combines as is the general rule
in the USSR today.
Precisely here, and not in some imaginary bank dictatorship, lies one of
the parallels between the organization of capitalism in the USSR today and in
Germany during the period of Nazi hegemony. Prior to the Nazi ascendancy, it is
true, much of German industrial-monopoly capital had cause to complain of a
crushing burden of debt to the banks; but the Nazi policy "solved" this problem.
Through a series of political and economic measures the Nazi party engineered an
increase in the rate of profits in monopolized industry to the point where the
combines became emancipated from bank dependency.
In consequence, as Franz Neumann noted in his 1944 study of Nazi economic
policy, German industry "is no longer indebted to banks." There has been "a
victory of internal financing over the borrowing from banks," thereby
establishing "the primacy of self-financing over borrowing." Neumann astutely
observes that self-financing "robs the tax offices of taxes and makes a
comprehensive investment control impossible." (Behemoth, the Structure and
Practice of National Socialism, New York 1944, pp. 319, 318.) In this way, as
Neumann points out, the big German banks themselves were saved from the ruin
that awaited them in the event that the industrial combines, due to lack of
sufficient profits, had gone into bankruptcy.
"Self-financing" under capitalism means that the big industrial combines
are their own investment banks. Bank capital as such also flourishes; but
banking plays the role of helper and partner of the established combines, not
their master. The material foundation of this financing system is a very high
rate of industrial monopoly profit.
German industry in the pre-World War 2 period did not possess vast
foreign investments from which to draw superprofits and avoid bank-dependency,
or delay it. Neither, of course, did Soviet industry before 1965. The
Nazi program, while aiming at war and the conquest of foreign wealth, had
therefore initially to boost profits through mainly domestic measures. It
granted, for example, huge tax concessions which allowed the big industrial
combines to retain a larger proportion of their profits. It actively promoted
the formation and consolidation of various forms of industrial monopoly
associations (trusts, cartels, combines, holdings and the like), and assisted
the bigger combines in swallowing up the smaller.
Most basic of all the Nazi measures, of course, was the violent denial of
elementary democratic rights to the working class. Strikes were outlawed, as
were all unions not controlled by the fascist state labor front. Open terror was
used in an effort to smash all workers' resistance, all protest from any source
or class whatever, especially if it had a Marxist-Leninist character. By such
methods the big capitalist combines were made "self-financing."
One of the functions of the Soviet state bank, when it was a socialist
bank serving a socialist economy, was to redistribute revenues from enterprises
and branches running a profit to others engaged in socially necessity but
unprofitable production. Under the "new economic system," the Soviet state bank
helps to channel profits in just the opposite direction, from have-not
enterprises to those that are well-endowed.
"During operation under the new conditions," writes Drogichinsky, "some
enterprises, and at times even ministries, quite often raise the question that
the production development fund, set up in accordance with the operating
normatives, cannot be rationally utilized because an enterprise does not need it
on such a scale." ("The Economic Reform in Action, in Soviet Economic Reform . .
. , p. 218.) In other words, it is not merely that profits are quite high. In
some enterprises and branches they are so high that there is a lack of
opportunities to invest them according to the profit-maximizing rationale.
Of course there is no lack of opportunities in present-day Soviet society
to expend funds on serving the people, for example by improving the miserable
conditions in agriculture or reversing the decay of free public services,
of which more later. But to place money in this way does not yield the
enterprises any increase in their profits. By the logic of the system, such
expenditures are " irrational."
Thus the economic pressures stemming from a superabundance of capital
(relative to existing opportunities to invest at the going rate of profit or
better), and hence the pressure to export capital abroad, are very much present
in the "new" Soviet system. (See Lenin's
Imperialism, the Highest
Stage of Capitalism, Peking ed., p. 73.)
At the same time there are other enterprises, as Drogichinsky goes on to
note, which do not realize enough profits even to keep going at an adequate
standard. Does the Soviet state bank in this case come to their assistance?
Hardly. The economist Kulikov, in an article quoted earlier, draws attention to
the existence of "restrictions on granting credit to existing enterprises . . .
that are relatively unprofitable." The bank specialist Shur says that relatively
unprofitable enterprises are to be "reconstructed" so that they are able to pay
interest to the bank; this usually means merging them with bigger enterprises.
("Financial Problems in Capital Construction," Finansy SSR, 1972, No. 2, in
Problems of Economics, Oct. 1972, p. 75.)
The economist Pessel has praise for the "special procedure for granting
loans to poorly functioning enterprises and the granting of loans on a
preferential basis to well-functioning enterprises," but is still not satisfied
with the results. "Poorly functioning enterprises should be placed under still
tighter loan restrictions so that they will eliminate shortcomings in their work
more promptly." ("Credit and its Development . . ." Ekonomicheskie nauki, 1972,
No. 9, in Problems of Economics, March 1973, p. 90.)
These writers draw no distinction between enterprises that may be said to
be functioning poorly due to managerial incompetence and those whose economic
situation, no matter how well they are run, will not allow them to reach the
standard of profitability. With the rare exception of enterprises that receive a
state subsidy (fewer
than 3% of total output is produced in this way, according to Maizenberg),
the mere fact that an enterprise achieves substandard profit is sufficient to
qualify it as "poorly functioning."
Such enterprises have a tougher time getting loans and must pay a higher
rate; while the bigger and most profitable enterprises, who need bank credit the
least, obtain it on a preferential basis. Thus the Soviet state bank, like every
other capitalist bank, serves to "intensify and accelerate the process of
concentration of capital," as Lenin pointed out in his "Imperialism" (p. 39),
and Marx before him in Capital (Vol. III, p. 439). Take from the small and give
to the big -- this is also the philosophy of Soviet banking.