MARXIST INTERNET ARCHIVE | Martin Nicolaus

21  Finance

 

    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 state bank.

    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,

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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 operations.

    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

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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 history.

    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 monopoly bank.

    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

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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 forbidden.

    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

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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 workers.

    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

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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.

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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. 73.)

    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

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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

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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,

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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

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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.