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Research Foundation of SUNY

Long Live Transideological Enterprise! The Socialist Economies in the Capitalist International
Division of Labor
Author(s): Andr Gunder Frank
Source: Review (Fernand Braudel Center), Vol. 1, No. 1 (Summer, 1977), pp. 91-140
Published by: Research Foundation of SUNY for and on behalf of the Fernand Braudel Center
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Review,I, 1, Summer1977, 91-140.

Long Live
!
TransideologicalEnterprise
The Socialist Economies
in the CapitalistInternational
Divisionof Labor
Andr
Gunder
Frank
Relationsand. . .
Some Prefatory
Statementson SocialistInternational
. . . On Orthodoxy
Russian raw materialsare necessaryfor the reconstruction
of the
worldeconomy. Withoutthemit is impossible;thatis economically
obvious.Even Keynes. . . admitsthat.
V. I. Lenin
We [The Soviet Unionjare in the process of becominga part,a
veryparticularpart, but nonethelessan integralpart of the world
market.. . . Foreigncapital mustbe mobilizedfor thosesectorsof
industrythatare themostbackward.
L. Trotsky
Wecan admit withoutshame. . . thatso farsocialismhasfoundno
acceptableconceptof its own coveringthequestionofforeigntrade
and international
economicrelations.
Imre Vajda
FormerPresidentof theHungarianEconomic
Association

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92

AndrGunderFrank
. . . On Policy
The new economicmechanismshould establisha close relationship
between internaland externalmarkets.It should increasethe iminforeignmarketson domestic.. . .
pact of influencesoriginating
CentralCommitteeof the CommunistPartyof Hungary
The representatives
of industryoftenregardforeigntradeas somethingsecondary.This absolutelyfalse point of view mustchange,
and the contacts between industryand foreign trade must be
strengthened.
The importanceof a stable divisionof labor betweensocialistand
developingcountriesmustbe stressed.
A. Kosygin
. . . On Practice
Because of thebroadeconomiclinksbetweencapitalistand socialist
countries,the ill effectsof the currentcrisisin the Westhave also
had an impacton thesocialistworld.
L. Brezhnev
It may be hoped that the crisiswhich is ragingin the Westmay
come to a rapidend,sinceit affectsand createuncertainties
for the
on
is
extent
a
certain
to
which
dependent trade
Bulgarianeconomy,
withthecountriesof the West.
T Zhivkov
FirstSecretaryof the CommunistPartyand
Presidentof the Councilof State of Bulgaria
... On Strategy
will
The more variedour international
relations,the moredifficult
it be. . . for ourpossibleopponentsto breakthem.And evenif[war
or blockadejwere to come, we would thenbe decidedlystronger
than we would be under conditionsof 'autarky'and the thereby
consequentslowerdevelopment.
L. Trotsky
The key to U.S. strategytowards the USSR has been to create
mutual vested interestsin the preservationof the international
order.. . . Relations[between the U.S. and the U.S.S.R.] have become so stable that dramaticnew departurescould no longerbe
expected.
HenryKissinger
relations
We will be happy if our effortsto betterSoviet-American
help draw more and more nationsinto theprocessof detente be
it in Europe or Asia, in Africaor LatinAmerica,in theMiddleEast
or theFar East.
L. Brezhnev

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Long Live Transideological


Enterprise!

93

. . . On Ideology
Our foreignpolicy, today and in thefuture,is markedby the decisivenesswithwhichit defendstheinterests
of theSovietpeople the protectionof the invulnerability
our
borders,coastlineand
of
the
the
the
Soviet
airspace,
defenseof
dignityof
flag and of the
the
citizens.
and
Soviet
rights securityof
A. Gromyko
It is thefirsttime thatan arm of the USSR government
[the Black
Sea and Baltic InsuranceCo., a subsidiaryof theSovietstateinsurance agency,Ingosstakh]has supportedthe UnitedStatesgovernment in insuringU.S. private investment[againstexpropriation]
overseas. Wehope thisis the beginningof a similarmutuallysatisbetweenthe twogovernments.
factoryarrangements
President
of
BradfordMills,
U.S. GovernmentOverseas Private InvestmentCorporation,
OPIC, which insures U.S. private foreign investmentagainst
nationalization/
expropriationin underdevelopedcountries.
Two WorldMarketsor One
The implicationof the epigraphsabove is thatthe leadershipof the socialist
world has a deeply rooted traditionof long standingand greatactualityto
economicrelationswiththecapimaintainforeigntradeand otherinternational
talist world, whose survival- at least since the early 1920's - is taken for
grantedand evenconsideredessentialforthe developmentof thekindof society
envisagedby this leadership.The word "socialist" is used throughouthere to
referto the countriesof Eastern Europe and the Soviet Union withoutthe
cumbersomequotation marksthat would perhapsappropriatelyreflectlegitiof the "socialmate doubt about theirreal status.Indeed, economicintegration
ist" economiesinto the world capitalisteconomy (divisionof labor) and the
relatedpoliticalcompromiseshavebeen considerednot onlya necessaryevilbut
apparentlyevena positivegood, so muchso as to call intoquestiontheextentto
whichthe socialistworld is any way separateor differentfromthe capitalist
world.Of course,the international
relationsbetweenthe socialistand capitalist
worlds are by no means the only or even the most importantfactorin this
relations,realand desired,are only
question.On the contrary,the international
relationsof productionand otherfactorsin the socialthe reflectionof interned
ist world, which themselvesraise questions about qualitativeor quantitative
degreeof shiftover time toward or away from"socialism" in the part of the
worldthatgoesby thatname.Opinionson thatscorevarywidely.
There are fourpointsof view. (1) These countriesare indeedsocialist,which
is theopinionthatprevailsin the so-calledsocialistcountriesthemselves(except,
of course,thatthe Europeanones and the Chineseeach deny thatlabel to the
other),but is also widespreadin much of the restof theworld.(2) The "socialist" countriesare ruled by an ill-defined"elite" thatdominatestheirpeoples,
whichis a viewpopularin somepartsof thecapitalistworld'sbourgeoisieand its
intellectualelite (3) The "socialist"countries,or at leastthe East Europeanones

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AndrGunderFrank

94

among them,are reallycapitalist,eitherbecause theyneverceased to be so or


because they have already returnedto being so. This view is popularin some
circlesof the intellectualleft in the capitalistworld (and withrespectto each
otheramongthe opinion-makers
and followersin the East Europeanand Chinese
centersand those influencedby themat home and abroad) and (4) The "socialist" countriesare neithersocialistnorcapitalistor evena hybrid,but ratherthey
representsome distinctotherkindof societythatmayor maynot be transitionistthesisof the
al betweenthe othertwo. This last "group" includestheTrotsky
"deformedworkerstates" and some other"new left"viewsthatare less easy to
defineor label.
It is not the purpose of the followingpages to presentan analysisof the
essence of the "socialist" countriesin termsof one of thesefourviewsand even
less to offera clear choice betweenthem.If the presentauthorhad to chose and it may be importantforthe readerto know the author'spersonalinclinations in this regard- he would inclineto a varietyof the fourthcategory,
"other," withthe provisothat it is likelyto be transitionalto the second category,"capitalist,"and withtheemphasisthatwhateverthecategory,thispartof
the world is an increasingly
integralpart of the capitalistworldeconomy.The
main purpose of the followingpages is to documentthis integrationand its
cumulativeand even acceleratingtendency,to offersome tentativeexplanations
for this tendency,and to examine the possible consequencesthereofforeconomic and political process in the capitalistdeveloped and underdeveloped
countriesand theirinternational
relationswiththe "socialist"world.
It mightperhapsbe said thatthe Stalinistperiodof building"socialismin one
country"was characterizedby a greaterdegreeof "autarky."Foreigntradedeclinedafter1928, reachedits previouslevelin 1946 and doubledby 1950.1 But
even that statementwould have to be doubly qualified.In the firstplace, Stalin
didnotdisdainforeign
tradeordomesticsacrifices
trade.Thus,
on behalfofforeign
while the world marketprice of wheat declined drasticallyduringthe world
depression,and Soviet productiondeclined duringcollectivization,leadingto
hungerand death by the millions,Stalin not only used collectivizationto increase the share of the harvestthat went to urban centersfrom12% of the
harvestin 1928 to 27% in 1931, but also increasedthe sharedestinedforexports
vastlymore,from0.14% in 1928 to 7.33% in 1931, beforeboth sharesdeclined
somewhatagain in 1932.2 This significantsacrificeof domesticconsumption
was undertakento financeimportsof industrialplants,machinery,and technologyfromthe capitalistWest.This Soviet foreigntradepolicywas pursuedas
long and as faras possible;and HenryFord,amongothers,actively,collaborated
withit. Secondly,Stalinistautarky,both beforeand aftertheWarwas morethe
resultof Westernboycott than it was of Sovietand laterEast Europeansocialist
policy. The Americanboycottcontinuedforovertwo decades aftertheWarand
treatment
stillcontinuesin partthroughtherefusalto grantmost-favored-nation
Antonio Carlo, "Die strukturellenUrsachen der sowjetischenKoexistenzpolitik,"in EgbertJahn,
SociookonomischeBedingungender sowjetischenAussenpolitik(Frankfurt:Campus Vcrlag,1975), 84.
9

This was calculated fromMichael EUman,"Did the AgriculturalSurplusProvidethe Resourcesforthe


Increase in Investmentin the U.S.S.R. duringthe First Five Year Plan?" The Economic Journal,LXXXV,
No. 336, Dec 1975, 847.

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Long Live Transideological


Enterprise!

95

or to extend Export-ImportBank loans on certainpoliticalpretexts("human


of theAmericanboycott
rights"and Jewishemigration).However,enforcement
on the European capitalistswas neververy successful;and European competition,as wellas otherfactorsto be examinedbelow,has increasingly
obligedthe
Americansto make the economicpilgrimageto the East as well.3 In any case,
worldmarketdisintegrated,
so
Stalin'slaterclaim that "the singleall-embracing
each other,"one
that now we have two parallelworldmarkets.. . confronting
capitalistand one socialist,was nevertrue,even in his own time,and would be
all the moreuntenableafterhisdeathin 1953.4
Growthand Composition of East-West/SouthTrade
Since 1953, East-West trade and East-South trade (i.e., with the capitalist
underdeveloped countries) has grown appreciably. In the late 1960's and 1970's
the following tendencies have been particularlymarked: East-West/Southtrade
has grown at a fast and generally accelerating rate. Socialist foreigntrade has
grown fasterthan socialist production. The growth rate of East-South trade has
been fasterthan that of East-West trade, and both have grown significantlyfaster
than East-East (intra-socialist) foreigntrade. The growthof socialist importshas
been faster than that of its exports, particularly with the industrialized West.
This imbalance in the growth of imports over exports has led to an increasing
balance of payments deficit of the socialist countries with the West (but a
surplus with the underdeveloped countries), which is financed by a growingdebt
by the socialist to the developed capitalist countries. These tendencies emerge
fromthe followingdata:
Between 1953 and 1967, while intra-socialisttrade grew at an average annual
rate of 6%, East-West trade grew at 13% and East-South trade at 16% a year.5
The C.M.E.A. (Council of Mutual Economic Assistance or "Comecon") Statistical yearbook offerssomewhat differentdata but displays similartrends:
Table 1. EAST-WESTAND EAST-SOUTHTRADE GROWTHRATES
(inpercentperannum)
Trade East-West
Trade East-South
Trade
Period CMEAProduction Intra-CMEA
USSR
Average
13.5
10.9
17.6
1956-60
6.5
9.0
10.1
17.4
1961-65 5.4
8.8
7.7
11.3
1966-70 6.8
11.2
Source: U.N.E.C.E.,Long TermEconomicGrowthof East EuropeanCountries:Objectives,Major Factors,and Patternsbetween1960 and 1990 (Geneva:UNECE, EC.
AD. II/AC.l/R.I./Add.3,
July14, 1975),Tables14, 16.
For an account of the boycott,see GunnarAdler-Karlsson,
Der Fehlschlag:
Zwanzig Jahre Wirtsc
haftskreigzwischen st und West(Wein: Europa Verlag, 1971).
See Joseph Stalin,Economic Problemsof Socialism in the U.S.S,R. (Moscow: ForeignLanguagesPubl.
House, 1953).
See J. Wilczynski,The Economics and Politics of East-West Trade: A Study of Trade Between
Developed MarketEconomies and CentrallyPlanned Economies in a ChangingWorld(London: Macmillan,

1969),55-56.

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96

AndrGunderFrank

Accordingto the U. N. Economie CommissionforEurope,between 1966 and


1972, the evolutionof tradebetweentheComeconcountriesof EasternEurope
withotherpartsof theworld(and witheach other)was as follows:
Table 2.
COMECON FOREIGN TRADE WITH MAJOR CATEGORIES OF COUNTRIES, 1966-1972
(in annual percentageratesof growth)
Imports
Exports
1971
1966-70
1972
1971
1972
Soviet Union and Six East European Countries

1966-70

Trade Partners
Soviet Union
OtherEast Europe
Asian Socialist
WesternEurope
OtherDeveloped
Underdeveloped

7.2
8.6
7.4
10.9
13.3
11.0

10.2
8.2
20.0
11.6
8.4
3.5

18.0
7.5
-4.6
7.6
11.1
3.4

9.0
8.2
3.0
13.1
3.8
7.9

7.2
10.5
24.2
6.0
28.0
-0.9

4.1
15.3
13.8
16.1
51.6
2.0

7.2
12.0
14.9
9.1
46.1
3.2

4.1
12.2
7.7
16.8
17.1
5.8

Six East European CountriesOnly

Soviet Union
OtherEast Europe
Asian Socialist
WesternEurope
OtherDeveloped
Underdeveloped

7.2
9.2
14.1
11.2
12.3
9.0

18.0
13.2
-0.7
12.8
16.5
-2.0

10.2
9.6
15.9
10.1
7.3
9.7

8.9
9.5
8.6
12.5
7.8
5.9

Source: U.N.E.C.E., Bulletin conomique pour l'Europe (Geneva: UNECE, Vol. 25,
1974), 34

The growthof foreigntrade of theSoviet Union and EasternEurope withthe


capitalistdevelopedand underdevelopedcountries,as well as amongthesocialist
countriesthemselves,is detailedin Table 3; but the data havenot been adjusted
forinflationTherefore,especiallyduringthe last years,thesedata substantially
overstatethe real growthrate and also exaggeratethe difference
betweenEastWest/Southincreasesand those withinthe socialist countries,among which
prices were still substantially,maintainedbefore 1975. But even afteradjustmentforinflationgrowthratesof East-Westtradewerestillhigherthanthosein
intra-socialist
trade.
Table 3. GROWTH IN EAST-WEST AND EAST-SOUTH TRADE, 1970-1974
(in percentof growthoverpreviousyear)
Trade Partners

Exports
1971 1972 1973 1974

World
17
20
Developed
Underdeveloped 13
EasternEurope
17

10
10
4
13

32
51
43
23

Turnover

Imports
26
49
38
14

1971 1972 1973 1974


16
15
12
17

15
24
4
13

32
52
43
22

29
47
57
13

1971 1972 1973 1974


17
17
12
17

12
12
4
13

32
50
43
23

Source: U.N.C.T.A.D., "Trade Relations AmongCountriesHavingDifferentEconomic


and Social Systems," (Nairobi: UNCTAD, TD/193, May, 1976), 4.

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27
48
46
13

Long Live Transideological


Enterprise!

97

We may observefromTables 2 and 3 that in recentyearsEast-West/South


tradebut thatthe
tradehas continuedto growmore rapidlythan intra-socialist
relative
to
East-West
trade
has
fallen
of
East-South
since
off,
particularly
growth
1970. East-Westtrade has grownveryrapidlyin recentyears (apparentlyat
annualratesof 20%, 30%, and more),thoughbecause of inflationitsrealvalue is
less than the figuressuggest.Nonetheless,forthe years 1972-74, the growthin
trademeasuredin realvalue is stillestimatedat nearly75%.6 Afterthe
East-West
relaxationof the Americanembargowhich was reflectedin the 3.8% "low"
growthrate of importsin 1966-70 withthe U.S.S.R. included,tradewiththe
U.S.A. began to pick up, as is reflectedin the highergrowthrates,especiallyof
Soviet imports,from"otherdeveloped"countriescomparedto thoseof Western
Europe. The 51% jump in 1972 importswiththe U.S.S.R. included(compared
to 17% whichit excluded) reflectsthe latter'smajor wheat import- fromthe
U.S.A. that year - sometimesdubbed the "Great Grain Robbery." The important motor force of recent East-Westtrade expansion, however,is the
Westernexport/Eastern
equipment,and wholeplants(e.g.,
importof machinery,
the Fiat plant named afterTogliattiin the Soviet Union) embodyingadvanced
technologyand the Easternpaymentfor these,insofaras they can, withraw
materials,fuels,and food exports (but wheat imports),and with the return
in partproducedwiththeimportedequipment.
deliveryof manufactures,
Since 1971 East-West trade has increasedparticularlyfast,but socialistimin increasing
balance of
portshave riseneven fasterthan theirexports,resulting
the
This
West.
debt
with
and
deficits
tendencyhas been
growing
payments
countries
of
Eastern
for
Socialist
the
marked
Europe;but exceptin
particularly
favored
its
raw
materials
when
1973-74
exports,the Soviet Union's
high
prices
The data are contradictory
also
been
in
deficit.
West
has
with
the
trade
foreign
a
trend
in
recent
but
not
and
yearsemergesnonetheless.
general
always clear,
East-Westtrade was $2.5 billion in deficitin 1973 for the Soviet Union and
EasternEuropeas a whole,of whichabout $0.5 billionforthe U.S.S.R.7 Thanks
to the risein the pricesof rawmaterials,the SovietUnionreverseditsdeficitto
a surplusof $1 billion in 1974; but the deficitof the socialistcountriesof
EasternEurope still continuedto increaseabsolutelyand of course relativeto
the position of the U.S.S.R., so thatthe global deficitfor 1974 stillwas $2.2
billion.8 The cumulatedbalance of paymentsdeficitof the Soviet Union and
West (excludingJapan) was U.S. $7.6
Eastern Europe with the industrialized
billion in 1972, of which $2.5 billionwas thatof the U.S.S.R., $10 billionin
1974, and $12 billion in 1975.9 Accordingto more recentreports,the East
European socialistcountries'deficit,which was on the orderof $1 billionfor
1972, is reportedto have risenstillmore,to $8 billionfor1975 and possibly$9
See U.N.C.T.A.D., "Trade Relations Among CountriesHaving DifferentEconomic and Social Systems. Review of Trends and Policies in Trade Between CountriesHaving DifferentEconomic and Social
Systems,"(Geneva: UNCTAD, TD/B/560,June 30, 1975), 114.
7

See U.N.E.C.E., The European Economy in 1974 (Geneva: UNECE, XXX /I. Add. 1), pre-publication
text,78.
8

See U.N.E.C.E., "Recent Changesin Europe's Trade" in Economic Bulletinfor Europe, XXVII, 1975.

See U.N.E.C.E., European Economy in 1974, op. cit., Table 3, 14, and pp. 43, 70.

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98

AndrGunderFrank

billion for 1976, concentratedin tradewiththe UnitedStates,France,Japan,


and especiallyWest Germany.10About half of these socialistbalance of paymentsdeficitswiththe Westare coveredby officialand suppliercredits,and the
rest by Soviet sales of gold and increasingly
(thoughin unknownamounts)by
the
market.Though the size and particularly
borrowingon the Euro-currency
rapidincreaseof the socialistcountries'foreigndebt is causingsuddenalarmin
theWest,nobodyseemsto knowforsurejust how highthatdebt reallyis:
The Eastern managersjealously avoid all documentationof the credit balance. EastWest money business are state secrets.A leadingfunctionaryof the Soviet State Bank
jokes. . . "We don't want to take a thankfulresearch field away from the Western
Kremlin astrologers." So the highest (estimated) figurethat is mentioned is nearly
double the lowest. The Polish Press AgencyPap estimatesthe total Easterndebt at 19
billion dollars. . . . [The German] Dresdener Bank estimates the debt at "a good 30
billion dollars." . . . The experts on the East of the Chase Manhattan Bank in New
York [estimateit at] around 35 billion. . . .* 1

AnotherGerman source estimates$22 billion for 1975 and $32 billion for
mid-1976,of which$11 billionis owed by the Soviet Union.12 For theend of
1976, thereis an estimatedprojectionof U.S. $38 billion East Europeandebts
to the West.In mid-1976,20 billionD-marks($8 billion),halfof themthrough
suppliercredits,were owed by the socialistcountriesto WestGermanyalone.13
An increasingshareof thissocialistdeficitand debt withthe Westis settled
and a perhapsnot insignificant
multilaterally,
part of that, throughthe EastSouth and West-Southtrade with the underdevelopedcountries.East-South
trade between the socialist and capitalistunderdevelopedcountrieshas until
recentlybeen growingfasterthanothertrade,doublingeveryfouryearsbetween
1953 and 1968, and growingat a compoundannual rate of 21% between1971
and 1974.14 It has typicallyresultedin a chronicand growingbalance of paymentssurplusfor the socialistcountriesand a corresponding
balance of payments deficit for the underdevelopedones. Althoughmuch of this trade has
been on a bilateralbasis withnon-convertible
currencies,an increasingpartof
East-Southtrade is carriedon throughthe convertiblecurrenciesof developed
the surplus/deficit
in East-Southtrade that
capitalistcountries.Significantly,
is settledin convertiremains,afterotherattemptsat eliminationor settlement,
ble currenciesof the developedcapitalistcountries.15
The socialistcountriesthuspartiallyredresstheirdeficitwiththe industrialized West throughtheirsurpluswiththe underdevelopedSouth, whose overall
See InternationalHerald-TribuneOct. 18, 1976.
11

Oct. 1, 1976, p. 16.


See Weltwirtschaftswoche,

12 See International
Herald-Tribune,
July 17-18, 1976.
13

See Ibid., Oct. 18, 1976; see also Frankfurter


Rundschau,July 15, 1976.

See Deepak Nayyar,"Socialist Countriesand the Third World.Towards a PoliticalEconomy of the


Relationship," Conference on New Approaches to Trade (Sussex: England, Institute of Development
Studies, Sept. 1975), 3; and U.N.C.T.A.D., "Trade RelationsAmongCountriesHavingDifferentEconomic
and Social Systems"(Nairobi: UNCTAD, TD/193, May, 1976), 7.
See P. G. Salvi, Comecon and the EmergingNations (New Delhi: Writersand PublishersCorp.,
1971), 72.

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Enterprise!
Long Live Transideological

99

deficitis, of course, therebyincreasedstill further.Moreover,part of the bilateralcommoditypaymentreceivedby the East fromthe South is also "multilateralized" and often sold to the West throughso-called "switch" transat least fromthe point of view of the now
actions.16 Even more significant,
countries
in East-Westtrade,are the "linkedexsocialist
chronicallydeficitary
and
compensationdeals and othertypesof parallel
importarrangements,
port
contribute
substantiallyto East-Westtrade financeby transtrading[which]
claims
eastern
towarddevelopingcountrieswithnon-convertible
fering
Europe's
currenciesinto a means of financingthe westernimportsurplus."17 Thus,
withinthegeneralinternational
divisionof labor,therapidlygrowingEast-South
traderepresentsa positive,ifmodest,aid to thesocialistcountriesin theireffort
to reduce the deficitthattheirgrowingimportsurplus/export
deficitwiththe
industrializedcountriesgeneratesin East-Westtrade. For the underdeveloped
countries,thoughbilateralismwith the socialistworldsignifiesan absolute increase in tradingpossibilitiesand a relativedecreasein economicand political
of East-Southtrendand its
dependenceon the West,the growingmultilaterality
insertionin the international
divisionof labor increasetheiroveralldeficit,debt,
and dependence.
The commoditycompositionof East-Westand East-Southtrademaybe summarizedby notingthat in theirtradewiththe Westroughlytwo-thirds
of the
importsof the socialistcountriesare industrialproductsand that the exports
withwhichtheypay fortheseconsisttwo-thirds
of rawmaterials.In East-South
trade the proportionsare reversed:two-thirdsof socialist importsfromthe
of socialistexports
underdevelopedcountriesare raw materials,and two-thirds
to the underdevelopedcountriesconsistof industrialcommodities.That is, as
thesocialistcountriesare to the developedcapitalistones as the
tradingpartners,
ones are to them- or viceversa!
capitalistunderdeveloped
TRADE
OF EAST-WEST
ANDEAST-SOUTH
Table4. COMMODITY
COMPOSITION
ofsocialist
exports)
(inpercent
1957-59
1965-66
Manufactures
East-West
East-South
East-East

33
60
57

Raw Materials

Manufactures

67
40
43

40
68
68

Raw Materials
60
32
32

Percentof Westernexports/Socialistimports
East-West

68

32

67

33

Source: Wilczynski,op. cit. 37, 40.


*6 Ibid., 71, 73.
artof switchtradinghas been describedin a nutshellby one writer
Salvi explains: "The mysterious
as: "When the Russians don't wish to take up a consignmentof Moroccan oranges to which they are
committedunder a bilateral trade agreement,they go to a specialistknown as a switchdealer in one of
Europe's financialcentersand he arrangestheirresale to someone else at a discount." . . . Export income
[of one or more developingcountries]can sufferwhena bilateraltradingpartnerdumpsa part of thatcrop
and so helps bringthe worldprice for it."
U.N.E.C.E., "Recent Changesin Europe's Trade," op. cit., 27.

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AndrGunderFrank

100

In this regard,however,thereis a differencebetweenthe U.S.S.R. and the


other socialistcountries.This difference
reflectsthe predominanceof raw materialsin the exportsof the Soviet Union to othersocialistcountriesand to the
world as a whole,and to the much greaterpreponderanceof exportsof manufacturesand importsof raw materialsby the socialist countriesof Eastern
Europe in theirtradewiththe Soviet Union and othercountries.Table 5 indicates the shareof machineryand equipmentin the totalexportsand importsof
the SovietUnionand the socialistcountriesof EasternEurope:
Table 5. MACHINERY AND EQUIPMENT IN SOCIALIST FOREIGN TRADE
(in percentages)
1960

Imports
1965

USSR &: EasternEurope


EasternEurope only
USSR only

29
28

33
33

USSR & EasternEurope


EasternEurope only
USSR only

26
33

Exports
28
35

1970
35
36
35
29
37
22

Source: U.N.E.C.E., Economic BulletinforEurope, XXIII, 2, 16-17; Carlo, op. cit., 94.

Thus, whilemachineryand equipmentaccount fora similar,but in both cases,


risingshareof total importsof the U.S.S.R. and EasternEurope,theyrepresent
a significantly
greatershareof East Europeanthan of Sovietexports,thoughin
both cases the shareis also rising.EasternEuropeexportssubstantialquantities
of manufactures
to the SovietUnionin returnforrawmaterialsand fuels,but it
is even more dependenton highertechnologymanufacturing
importsfromthe
West.Similarly,theproportionof manufactures
in East Europeanexportsto the
underdevelopedcountriesis also higherthan it is in Sovietexportsto thesame.
Withrespectto equipment,both in its total and in its intra-socialist
trade,the
Soviet Union consistentlyimportsabout 50% more than it exports.Thus, in
1960, Soviet equipmentimportswere31% of itstotalimports,whiletheyrepresentedonly 21% of total exports.In 1970 the relationwas still34% of imports
and 22% of exports.Of its exportsof machineryin 1970, the SovietUnionsent
72% to othersocialistcountries,25% to theunderdeveloped
countries,and only
8
3% to thedevelopedcapitalistcountries.1
The same (insertionin the) capitalistinternationaldivisionof labor thatis
reflectedin this patternof the commoditycompositionof East-West/South
trade also appears if we look at the factorproportionsinvolvedin the production of the traded commodities:between the U.S.S.R. and the Westinbiased; between the U.S.S.R. and the underdeveloped
tensivelycapital-import
countries intensivelycapital-exportbiased; between the U.S.S.R. and the
18

Carlo, op. cit., 95-96.

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Enterprise!
Long Live Transideological

10 1

9 In 1970, 75% of East


Comeconfactorneutral.1
Europeanexportsto theundercountries
were
manufactures
and
70% of the exportsof thelatterto
developed
The
raw
materials.
shareof lightmanufactures
in the
the socialistcountrieswere
the
no
than
of
the
countries
to
socialist
countries
less
exports
underdeveloped
to the developedcapitalistones - increasedfrom5% in 1962 to 15% in 1970 to
20% in 1972 (but withthe 1973 rawmaterialspriceboom wentdown to 17% in
thatyear).20 Thus, the underdevelopedcountriesare also to the socialistones
as these are to the developed capitalistones with regardto both the factor
proportionsand thecommoditycompositionof East-Westand East-Southtrade.
In other words,the socialistcountriesoccupy an intermediate
positionin the
most
the
internationaldivisionof labor, in this regardnot unlike
developed
underdevelopedcountrieslike Brazil. They importadvanced
"sub-imperialist"
technologymanufacturesfromthe industriallydeveloped capitalistcountries,
a growingtradedeficit.And
payingfor them withraw materialsand incurring
they export less sophisticatedmanufacturesto the underdevelopedcountries,
withwhom the socialistcountriesrunup a tradesurplus,partof whichtheyuse
to reduce theirtrade deficitwiththe imperialistcountries,also not unlikethe
capitalistcountries.
sub-imperialist
and Tripartite
Cooperationin IndustrialProduction
East-West/South
internationaldivisionof labor is
Beyond simple trade,the East-West/South
for
extended
cooperativeproduction,distriby long-termagreements
being
most
the
finance.
and
bution,
symbolic but also realand functionalPerhaps
expressionof thisrecentlyacceleratingtrendis the openingof a branchofficeof
Rockefeller'sChase ManhattanBank at Number 1, Karl Marx Square, in
Moscow.The U.N. EconomicCommissionforEuropewrote:
Certain long-termfactorswere in principle favorable to east-westtrade as a whole
.... There are, first,long-term(10-year)economic, tradeand co-operationagreements
among east-westEuropean governments.The numberof these increasedfrom93 (out
of 119) in the firsthalf of 1973 to 102 at the end of 1974. Also, theirnaturehas been
changing.Previously,they had aimed primarilyat the liberalizationof tradeand payments,but now they are increasinglyconcerned with industrialco-operation,trade in
licenses,joint constructionof enterprises,
joint venturesin thirdcountries,technological transfer,credits, and marketing.They provide also for establishmentof joint
commissionswhose purpose is to stimulatecontacts,co-operation,and the establishment of foreignrepresentation.Their impacts on industrialco-operationare encouraging. Following these agreements, in Poland (1972), the German Democratic
Republic, and Czechoslavakia (1973), Rumania, Hungary, and Bulgaria (1974) to
encourage domestic enterpriseto seek internationalco-operation: they enjoy special
facilitiesfor the supply of capital goods, raw materialsand finance,and they benefit
from tariffpreferencesand help in management.. . . Particularlyfor East European
countries other than the Soviet Union, industrialco-operation is a most promising
factorfor the expansion of theireast-westtrade. There are a numberof otherfactors
mixed
which help co-operation.Hungaryand Rumania now admit on theirterritories
were
Four
such
with
corporations
capital
minority
foreign
participation.
corporations
set up in 1974 in Rumania and two in Hungary.. . . The gradual application of the
GATT rules to Poland, Hungary and Rumania has often been extended to other
1Q

See Steven Rosefielde,"Factor Proportionsand Economic Rationalityin Soviet InternationalTrade,


1955-1963," AmericanEconomic Review, LXIV, 4, Sept 1974, 670-681.
90
*u

See Deepak Nayyar,op. cit.. 17-19.

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102

AndrGunderFrank

countries.... In the Soviet Union, there were, in mid-1972, 36 offices of foreign


companies and in mid-1974 over 70 (including 17 offices of Westernbanks). In
Rumania there are now 126 such offices.... Up to mid-1973 about 600 (industrial)
cooperation agreementswere signed in this field. In Hungary alone, by the end of
1973 some 300 agreementsexisted (68 percent of which were in metal-makingand
metal-using,11 percent in other heavy industry,11 percent in food industry,and 9
percent in light industry). In 1974 there was an acceleration in their growth.At
present,firmsfrom the Federal Republic of Germanyare engaged in about 350 cooperation projects with enterprisesand economic organizations in east European
countries.2*

By 1975, the 200 agreementsof 1971 and the 600 agreementsof 1973 had
of whichover600
grownto over 1,000 such East-Westco-operationagreements,
were in the metal-usingsector.22 East-West industrialcooperationagreements
have a growingimpacton theemerging
divisionof
of theinternational
structure
labor and, as we will observe,on the structureand relationsof productionin
East,West,and South,suggestedin partby Wilczynski:
Joint East-Westventuresassume differentforms: (i) The mildestformis the exchange
of licenses, designsand industrialtrainees,(ii) Co-operationin exportingpartsof complete plants to thirdcountries,(iii) Co-productionventureswherea socialistenterprise
is usuallysupplied by a Westernfirmwith initial key equipment and then certainkey
components, technical designs,and perhaps technical advisers The Westernfirmis
entitledto an agreedportionof the complete article,(iv) Dual productionand marketing undertakingswherea socialistenterpriseis supplied withsimilarassistanceas under
(iii), but the final stages of production are usually completed in the West ("vertical
co-production"). Subsequentlythe socialistenterpriseundertakesthe marketingof the
completed article in the Socialist Bloc whilstthe Westernpartnerdoes it elsewhere.
(v) A Westernenterprise,using its own key equipment,technicalknow-how,management methods, and technical staff,carrieson production in a socialist country.The
latter supplies the buildings, raw materials, and labour. The Westernenterpriseis
guaranteedan agreed share of production.. . . The initiativein the new driveforjoint
production and tradingschemes has originatedprimarilyfromthe socialistside, particularlyfromthe more dynamicEasternEuropean countries.2^

East-Southcollaborationin theproductionof manufactures


and rawmaterials
and in the processingof the latteris also proceedingspace. Since the underbase or otherinfrastructure
developedcountriesoftendo not have theindustrial
to supportagreementsquite like the East-Westones outlinedabove, someEastSouth patternsof industrialcooperationare somewhatdifferent.
U.N.C.T.A.D.
summarizes:
The supply of [capital] equipment and [related] serviceswithpaymentsin derivedor
other manufacturesmay referto the supply of production lines or complete plants;
the supply of equipment or plant for the exploitation of natural resources supplemented by studies of the avalability and accessibility of the resources.. . and the
supply of equipment on a leasing basis. ... It is beyond doubt thatprojectsproviding
for the transferof complete plants facilitatethe incorporationinto the relevantcontracts of explicit guaranteescoveringthe set-up time schedule, performanceof the
production line, breakdowns before expiration of the warrantyand output quality
.... Most contractsconformto the formulaof "two-phase" co-operation.. . . During
the firstperiod, the partnerfrom the industrializedcountry usually deliverscapital
21
22
AO

U.N.E.C.E., The European Economy in 1974, op. cit., 76-78.


See U.N.E.C.E., Economic Bulletinfor Europe, op. cit., 41.
Wilczynski,op. cit, 382-383.

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Enterprise!
Long Live Transideological

103

equipment incorporatingspecifictechnologyaccompanied by technicalassistance. In


the course of the second phase. . . the developingcountrypays forgoods and services
receivedby returndeliverieswhich can consist in goods produced throughthe use of
contract
the equipment and knowledgeit has received.... A typical sub-contracting
provides that the industrialenterprisein the developingcountry will produce and
or finishedgoods that are generally
deliver an agreed quantityof semi-manufactured
produced on the basis of documentation., know-how, frequentlymachinery,and
occasionally particularproduct components, provided by the contractingsocialist
country.. . . Most contracts have a long-termand hence dynamiccharacter.. . . Subcontractingbetween enterprisesof developingand socialist countrieswould appear to
meet threespecificsituationsin particular.First,the case where the enterprisein the
developingcountryhas an economic advantagein the manufactureof certaincomponents of an industrialproduct owing to a favorableproductionfunction(factormix).
Secondly, where the productioncapacity of the enterprisein the socialist countryis
insufficientto meet effectivedemand and new investmentis considereduneconomical
in view of industrialspecializationtargetsadopted by the countryin question. Thirdly,
an industrialenterpriselocated in a developingcountrymightconsiderthat the cost of
a new line of production would allow it to be more competitiveif. . . part of the
transformationprocess requiring highly specialized machinery and labor is subcontracted to an enterprise in an industrialized country.. . . Co-production and
specialization.. . consistsin the specializationby each partnereitherin the production
of certaincomponents or in parts of a finalproduct, which is thenassembledby one
of the partnersor by both, each for the requirementsof its own market(s). . . . There
are two fundamentalformsof joint venture:the equityjoint ventureand the contractual joint venture. In general, equity joint ventures are the traditionaland most
common form.. . in developing countries. Contractualjoint venturesare frequently
used where the laws of the developingcountryin which the businessoperationsare to
be conducted do not recognizethe concept of privateownershipof propertyor do not
allow forownershipof propertyby non-residents.*

In otherwords,withcertainvariations,East-Southindustrialco-operationagreeWest-Southones) rangefromsimple
mentslike East-Westones (and traditionally
licensingand the export of equipmentor of completeplants all the way to
socialistforeigninvestment
in underdeveloped
countries,eitherthroughordinary
cases,throughsome
or,in politicallyinconvenient
equityownershiparrangments
kind of "contractual"subterfuge.By 1975, the socialistcountriesof Eastern
Europe had completed, or were implementing,2,900 industrialand other
projectsin developingcountriesand had extended11 billionrublesin credits.25
East-Southtrade,aid, and othereconomicrelationshave,as observedabove,
expanded more rapidlythan tradebetweenother"regions."Estimatesof total
tradeand the East Europeanbalance of tradesurplusforvariousyearsappearin
Table 6:

24

U.N.C.T.A.D., "The Scope of Trade-CreatingIndustrialCooperation at EnterpriseLevel Between


Countries Having DifferentEconomic and Social Systems," (New York: UNCTAD, TD/112, Jan. 20,
1972), 8-11.
25

See Ivan Ivanov, "Tripartite Industrial Co-operation: Recent Situation, Problemsand Prospects"
(Geneva: UNCTAD, TAD/SEM.1/27,Nov. 12, 1975), 4.

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104

AndrGunderFrank
Table 6. GROWTH OF EAST-SOUTH TRADE, 1952-1972
(in $U.S. millions)
1952

1956

1960

1964

1968

1972

East European Trade withCapitalistUnderdevelopedCountries


5080
3070
East European Exports
175
880
470
2100
1940
East European Imports
2820
950
405
1520
215
East European Trade withLess Developed Socialist Countries*
East European Exports
East European Imports

860
610

1213
1130

1767
1722

1122
1010

1717
863

2180
1160

*China, Cuba, Mongolia, North Korea, North Vietnam. Decline after 1960 reflectsthe
Sino-Sovietbreak.
Source: Nayyer,op. cit., 4.

The distributionof this tradeby continenthas been roughly40% withAsia and


30% each with Africaand Latin America.But untilrecently,East-Southtrade
has been highlyconcentratedin relativelyfewcountriesin each of thesecontinents. In Latin America,Argentinaand Brazil have been the only important
tradingpartnersin additionto Cuba. In Africa,the majortradingpartnersuntil
recentlyhave been Algeria,Ghana,Guinea,Sudan,Tanzania,and Egypt;but the
latter,of course, has overshadowedall the others by far. Recently,SovietEgyptianrelationshave broken down; and economic, political, and military
relationswithSomalia and Angolahave increased.In Asia beyondthe East Asian
cosocialist countries,by far the most importantsocialisttrade-aid-industrial
operationpartnerhas been India, withlessereconomicrelationswithAfghanistan, Pakistan,Sri Lanka, Burma, Malaysia, Indonesia,Syria,Iran, and Iraq.
These countriesaccount for about three-fourths
of East-Southtrade and aid.
East European economicrelationswiththesecountrieshas been preferentially,
Some of the
thoughnot exclusively,withtheirpublic sectorand itsenterprises.
countrieshave received importantaid for capital projects,particularlythe
famousAswan High Dam in Egyptand the Bokaraand othersteelmillsin India,
whose financehad previouslybeen consideredbut thenrejectedby international
and privatefinancialinstiagencies (World Bank), as well as by governmental
tutionsin the capitalistworld.Indeed,about 30% of socialistEast-Southaid has
gone to India and Egyptalone. Beyond Vietnamand Cuba, thesetwo countries
have also been the major recipientsof socialist,especiallySoviet,militaryaid,
whichhas suppliednot onlyarmamentsto India but has enabledit,forinstance,
to build MIG jet fighters
at home. Most of thistradeand aid has been through
bilateralclearingarrangements.
Paymentforimportsand loans fromthesocialist
countriesof Eastern Europe has been made primarilywithraw materials(e.g.,
some 30% of Egyptiancotton exports).Increasingly,
and especiallyin the case
of India, however,exportsto the socialistcountriesincludesignificant
amounts
of lightmanufactures
and more recentlyalso productsof heavyor engineering
industry,which now account for some 40% of India's exportsto the socialist
countries.One item of agreed-uponIndian exportsto the Soviet Union, for
instance,was 10,000 railway wagons per year for severalyears.26 However,
26 See
Salvi,op. cit., 62.

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Long Live Transideological


Enterprise!

105

accordingto PekingReview, afterIndia had built some of these wagons,the


Soviet Union decided not to pay thepreviouslyagreed-uponpriceand offereda
muchlowerone, whichwas evenbelow the Indiancost of production.27
East-Southagreementsto develop economicrelationshaverecentlyexpanded
to include ever moreunderdevelopedcountriesand a widerrangeof products,
In 1973 alone, 130 new agreements
weresignedand
especially,of manufactures.
in 1974-75 the pace did not seem to slacken. The U.S.S.R. has doubled the
numberof underdevelopedcountrieswith which it has agreements.By now
havebeen signedwithnearly70 underdeveloped
East-Westeconomicagreements
countries,of which30 are in Africa,20 in Asia, and 13 in LatinAmerica.There
are 650 projectsin the fieldof electricpowergenerationalone. Economicagreementsbetween the U.S.S.R. and Iran reach $3 billion,and include the steel,
and agricultural
sectorsin Iran. They also provide
electricity,
heavymachinery,
forthe exportof naturalgas fromIranto the SovietUnionand the manufacture
of paper and pulp in the U.S.S.R. for Iran.28 U.S.S.R.-Indian trade was
supposedto double between 1976 and 1980 accordingto an agreementas first
announced,but when finallysignedthe agreementprovidedforan increaseof
only33%.29
U.N.C.T.A.D. suggeststhat the possibilityof an emergenceof a new pattern
theneedsof developingcountries.
of specializationvis-a-vis
In recentyears, some socialistcountriesof EasternEurope (in particularthe U.S.S.R.)
have started to supply or have increased their supplies of industrialraw and semifinished materials to several more industrially advanced, developing countries
.... Some socialist countriesof Eastern Europe have arrangedlong-termpurchasesof
petrochemical products, mostly from factories they helped to establish (e.g., the
U.S.S.R., Czechoslovakia, the German Democratic Republic, Rumania and, among
The
others, Afghanistan,Egypt, Lybian Arab Republic, Syrian Arab Republic)
promisingprospects of specializing in iron and steel products for the purposes of
supplyingthe socialist countrieshave only been taken up in a modest scale as yet. It
appears that only the U.S.S.R. is importingon a more or less regularbasis iron and
steel products from India, Yugoslavia, Egypt (produced in plants it helped to estabindustries.. . provides an especially suitable
lish). . . . The field of metal-transforming
area. . . . The U.S.S.R. and India have established such links in the trade of surgical
instruments,lenses and other optical material, electric motors, simple gears, and
excavators.The U.S.S.R. has agreed with Egypt that the latterwill supplyit regularly
on a sub-contracting
basis with specificcomponentsformotorcars. Also the shipyard
in Alexandria, built with the assistance of the U.S.S.R., is exportingships to the
U.S.S.R. The partnershave in several cases explored possibilities for specialization
based on factoriesestablishedin the developingcountryby a socialistcountry(Czechoslovakia and India in engineering;Czechoslovakia,the U.S.S.R., and Iran in machine
tools; Rumania and Iran in railway carriages;the German Democratic Republic and
India in electro-mechanicalgoods). The convergence of interestswith respect to
specializationand cooperation has been more visiblein the textileindustry,wherethe
tendencyof the socialist countriesto shifttowardshigher-pricedtextilegoods. . . has
been matched by the developingcountries' ability to offerneeded manufacturedand
semi-manufacturedgoods. . . .

27
no

29

PekingReview.
See U.N.C.T.A.D., "Trade RelationsAmongCountries. . .," op. cit., 10-11.
See Economic and Political Weekly,April17, 24, 1976.
U.N.C.T.A.D., "InternationalSpecialization in IndustrialProductionand its Impact on the Expan-

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106

AndrGunderFrank

East-Westand East-Southas well as the traditionalWest-Southcollaboration


in production,distribution,and financedoes not take place and extend the
internationaldivisionof labor only on a bilateralbasis betweeneach of these
categoriesof countries.This collaborationalso occurson a multilateralor "tripartite" basis, involvingenterprisesfrom each of the three categoriesof
countriesin a singleindustrialor otherproject.U.N.C.T.A.D. sponsoreda seminar to examine and to promote this significant
new developmentin the internationaldivisionof labor in 1975. In the documentationfromthisseminarwe
mayread:
1. International co-operation between more than two enterprisesfrom countries
havingdifferenteconomic and social systemscan materializethroughvariousformsof
multipartitedeals. Tripartiteco-operation, which is one of them, seems to be of
particularinterestin view of its intrinsicadvantages especially in the frameworkof
changing world economic conditions. In particular,it permitsthe extension to the
developing countries of the profitableimpact of growingEast-Westtrade and economic co-operation.
2. International tripartiteco-operation at the enterprise/organization
level between
countries having differenteconomic and social systemsis not confined to the industrial sector. Successful tripartiteprojects have been undertakenor are being negotiated, or could be envisaged for future co-operation, inter alia, in the fields of
agriculturalproductionand researchand infrastructural
development.. . .

11. Tripartite industrial co-operation has begun to develop significantlyin recent


years.It has developed from,and largelyrelieson, the experienceof bilateralindustrial
co-operation. The surveyconducted by the secretariatfound that many of the motives, substantive arrangements,problems, and prospects of tripartiteindustrialcooperation are quite similarin theirnatureto those whichhad alreadybeen recognized
in East-West industrialco-operation, largely through the work carried out by the
Economic Commission for Europe. According to existing evidence, Rumania was
among the first countries which promoted the tripartiteform of industrialco*
operation.. . .3

The cited documentrefersto 132 tripartite


projectsin 33 (plus some unspeci153
fied) underdevelopedcountries,
projectsin 7 (plus one unspecified)East
and
13
socialist
countries
European
(plus some unspecified)Westerndeveloped
countriesfor a total of 453 cases of participationby individualcountriesin
At the timethereportwas
projectsthatare completedor underimplementation.
were
further
contracts
under
such
29
written,
negotiationin 33 countripartite
tries.The surveyedtripartiteprojectsthat had been completedor wereunder
had involvedan estimatedtotal cost of $21 billionat the time
implementation
of implementation
or $29 billionin currentvalue. 83% of thesetripartite
prowere
in
jects
including43% in basic iron and steel industries
manufacturing,
U.N.C.T.A.D. adds that
togetherwithbasic chemicalsincludingfertilizers.
this figureis far from negligible;it representsthe equivalent of slightlymore than
one-eighthof total imports of investmentgoods by developingcountriesduringthe
last ten years (1964-1973). . . . The surveyfound that intergovernmental
action was
one of the main factors influencingthe development of tripartiteindustrialco-

sion of Trade and Economic RelationsBetweenthe Socialist Countriesof EasternEurope and the DevelopingCountries,"(Geneva: UNCTAD, TSC/24,Jan. 21, 1976), 7-9.
31

U.N.C.T.A.D., "TripartiteIndustrialCooperation,'' (Geneva: UNCTAD, TAD/SEM.1/2, Nov. 26,


1975), 4-7.

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Enterprise!
Long Live Transideological

107

operation.... It appears that an importantincentivefor participationin such cooperation by enterprisesfromboth socialist and Westerncountriesis to develop new
marketsor to consolidate export flows,eitherto the host developingcountryor region
or to thirdcountries. *

Supplementarydocumentspreparedby the U.N.C.T.A.D. secretariatand by


consultantsit retainedfor the seminarfromEast, West,and South permita
further
appreciationof what is at stake and involvedin thesetripartite
arrangements:
Experience has shown that actual co-operation between East and West is generally
more extensivethan the countriesconcerned will normallyacknowledgepublicly. . . .
It shouldbe noted thatthe thirdworlddoes not generallyfeel thatan ententebetween
industrializedcountriesis necessarilyin its interest.Rather,it would see an advantage
in a competitivesituationin which those countriestryto outbid each other.. . . The
systematicsubmissionof joint tenders by enterprisesbelonging to the two systems
may not, therefore,be equally appreciated by all developing countries.. . . For example, as far as the promotion of North-Southco-operationis concerned,an industrialized countrybelongingto one systemmay findthat its alliance witha countryof the
other system enables it to penetrate a third world market,access to which would
previouslyhave been politically difficultto achieve. . . . The industrializedpartners
may find that an East-Westjoint ventureis less likely to have its interestsharmedby
the developing country in whose territorythe operation takes place (after a coup
d'tat or other political shiftin one directionor the otherforinstance) than would be
the case if the interestsof a singleindustrializedcountrybelongingto just one system
were involved.The developingcountriesmay consider that by enteringinto contracts
with representativesof both systemsthey may benefitfromthe advantagesof each
and insurethemselvesagainstthe inherentrisksof establishingan exclusiveassociation
withone alone.33

Nonetheless,Dr. Ivan Ivanov of the Instituteof United States and Canadian


Studies,Moscow,who prepareda discussionpaper fortheTripartiteSeminarat
the request of the U.N.C.T.A.D. secretariatand as its consultant,offersthe
followingopinion:
It should be noted, in particular,that tripartiteco-operationhas been facilitatedby
the steadyprogressin East-Westindustrialco-operation.This appears to be the logical
result of the open and complementarypatternof East-Westcommerce,which generates a multipliereffectin other world trade flows and thereforeis trade-creativefor
developing areas too. East-Westindustrialco-operation (especially throughsubcontracting,co-production,licensing,and joint marketing)is in fact very oftenprimarily
"triangular"in orientation,providingopportunitiesfor the integrationof exports of
developing countries that call for more intensiveutilization of their resources,including skilledlabor and even technologicallysophisticatedinputs.... It is important,
particularlyin regard to the implementationof the New International Economic
Order, that tripartiteindustrialco-operation should involve all groups of countries
concerned,both producers and consumers,in mutually advantageous arrangements,
thus providingan example fora generalimprovementin multilateralunderstanding.^

Amen!
U.N.C.T.A.D., "TripartiteIndustrialCooperation,"op. cit, 16, 17, 24.
go

Guy de Lacharrire,"The Role of East-WestCo-operationin the Development of TripartiteCooperation,"(Geneva: UNCTAD, TAD/SEM. 1/16,November18, 1975), 7, 4.
34

Ivanov,op. cit., 5,3.

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108

AndrGunderFrank

ImmediateMotivesforEast-West/South
EconomicRelations
For the capitalistWest,the socialistEast offersa life-buoy,in timesof economic crisis.35Fromthepointof viewof theWesterngovernments
withbalance
of paymentsproblems,chronicand increasingbalance of paymentssurpluses
with the socialist East offersome relief.As U.S. Deputy Secretaryof State
KennethRush notedin April1973, "at a timewhenwe havea tradedeficitwith
most areas of the world,our balance of trade surpluswith easternEurope is
welcome."The nationaltradedeficitis, of course,a reflectionof the
particularly
of
inability privatecapital to sell enoughabroad.Therefore,it shouldalso come
as no surprisefor the Vice-Presidentof the Chase ManhattanBank to declare:
"Let's be quite honest.. . . We do have a balance of paymentsproblemand we
6 Therefore,
he suggested,
Nixon'sand Kissinger's
haveto look fornewmarkets."3
detentewas bornout of necessity.
Reflectingon Marxisttheorizingabout cycles and crisesin capitalismand
an earliercycle,Wilczynski
writes,"it is ratherironicalthat,duringthe
reviewing
1958 recession,the Westerncountries'tradewithothercapitalistcountriesdeclined by 5%, whilst,with the Socialist Bloc, it rose by more than 6%."37
Ironical or not, that is the patternin all capitalistrecessions,most particularly
includin&the last one, in which Westernexportsto the Soviet Union,Eastern
Europe, and China rose whileworldtradeas a wholedeclinedmorethan10% in
the one year of 1975, (as did Westernimportsfromthe East). Perhapsmore
significantstill, the capitalistexports that rise most sharplyto the socialist
countriesduringa capitalistrecessionare thosewhosecapitalistmarketdemand
is most affectedin all recessions:capital goods and particularly
machinetools.
to
the
American
of
the
ten
Machinist?*
According
largestproducersof machine
tools in the world in 1974, the three socialist countriesin EasternEurope
accounted for28% of total productionand 15% of total exports;but fourEast
European socialistcountriesaccounted for44% of thetotalimportsof machine
tools, worthover U.S. $1 billion,most of whichthe capitalistproducerswere
unable to sell elsewherein the recessionyear. Conversely,in capitalistboom
times, capitalistinterestin exportingto the socialist countrieswanes a bit,
especiallyif paymentis not made in convertiblecurrency.This suddenloss of
interestaffectsparticularlythe capitalistexportersof rawmaterialsfromunderdeveloped countries,who can then fetch high prices in hard currencyfor
theirraw materialsin the Westernindustrialcountries,whereupontheybecome
loath to sell them (or even to fulfilltheirdeliveryobligations)to the socialist
countries.This circumstancemay help account for the relativelylow increase
consideringthe rise in the pricesof rawmaterials,in the importsby thesocialist
countriesfromthe underdevelopedcountriesduringthe yearsof the 1972-74
boom in rawmaterialsprices.
35
See Joyce Kolko, America and the Crisis of World Capitalism (Boston: Beacon Press, 1974),
150-161.
Both quotes are cited in ibid., 159-160.
37

Wilczynski,op. cit., 53.

38

Cited in Ernest Mandel, "Prospects for the InternationalCapitalist Economy," Intercontinental


Press,July 7, 1975, 965.

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109

Economic fluctuationsand perhapscycles in the socialisteconomies themselvesmay also help accountforvariationsin theirforeigntrade,or in itsrateof
growth(althoughin the socialisteconomiesthe influenceof economic fluctuaon theirimportsratherthanon theirexports,as it is in
tionswould be primarily
capitalisteconomies).Moreover,also contraryto thecapitalisteconomies,in the
- or "hardtimes"
socialisteconomieslow growthratesof incomeor investment
- are likelyto lead to an increaseof importsfromabroad,includingthecapitalist West.The patternof "storming"(the rushto fulfillplan targetswhenbehind
scheduleat the end of the plan period),whichis familiarin domesticeconomic
behaviorin the East Europeansocialistcountries,seemsalso to be reflectedin a
Annualgrowth
temporalincreasein importsto aid in theprocessof storming.39
rates of national income,industrialproduction,and investmentare knownto
fluctuatewidely.Thus, between 1966 and 1974 the maximumannual growth
rate of national income was 50% higherthan the minimumannual rate in the
GermanDemocraticRepublic (G.D.R.), 100% greaterin Bulgaria,130% greater
in the U.S.S.R., and 288% (nearly4 times)greaterin Poland.40
but less demonstrably
More significantly,
so, thereappearsto be a patternof
economic fluctuationsin investmentand income in the socialisteconomiesof
EasternEurope,whichseemsto assumea patternof "cycles" of about 8 years
duration,with four or five years of acceleratedgrowthalternatingwith the
1
yearsof lowergrowthrates.4 The greatestamplitudesare in therate
remaining
and constructionimplyingthe existenceof "investment
investment
of industrial
in
and
secondly industrialproduction.There is at least seeminglya
cycles,"
between the up and down phases amongthe various
temporalsynchronization
in
the
1960's theG.D.R. and Czechoslovakiaseemedto lead
countries,although
the othercountriesby a year or two. The early 1950's seemto havebeen years
of lowergrowthratesor downswing,1958-1960 acceleratedgrowthor upswing,
the 1961-65 period downswing,the 1966-70 plan periodupswing.Finally,there
was anotherdownswingduringthelast fiveyearplan periodfrom1971 to 1975,
in whichthe growthof industrial
production,especiallyof consumergoods,was
below plan and lower than in the previousplan period. The growthrates of
foreigntrade, and particularlyof East-Westtrade,seem to have followedan
inversepattern:higherin the early 1950's and lower towardsthe end of the
decade, 10% growthin the firsthalf of the decade of the 1960's, 11% (unadjusted for inflation)in the second half,and a verymuch fasterexpansionof
foreigntradein the 1970's.
Entirelysatisfactoryexplanationsfor such apparenteconomiccycles in the
socialistcountriesare not yet available.But thereis some suggestionthatambiThese lead to supplybottlenecksand
tiousplans lead to upswingsin investment.
behind
of
restrictions,
shortagesof consumergoods,and
lags wages
productivity,
that expressesitselfin politicalpressure,and
increasedconsumerdissatisfaction
See U.N.C.T.A.D., "Trade RelationsAmongCountries. . .," op. cit., 14.
See U.N.E.C.E. Long TermEconomic Growthof East European Countries. . ., op. cit.y7.
41 For
a reviewof the evidence and of possible explanations,see AlexanderBajit,"InvestmentCycles
in European Socialist Economies: A Review Article,"Journalof Economic Literature,IX, 1, 1971, 55-63.

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110

AndrGunderFrank

2
resultsin renewedloweringof the pace of investment.4
Importsfromabroad
would seem to offersome possibilityto supplementthe supplyof goods, and
in machineryand equipment,particularly
especiallyto maintainthe investment
iftheseimportscan be boughton credit.U.N.C.T.A.D. notes:
The trendtowardsgrowingrelianceby the socialistcountriesof EasternEurope on the
utilizationof externaleconomic factorsin the course of the implementationof their
currentfive-yearplans was clearly reflectedin the marked acceleration in the growth
of the volume of theirforeigntrade,both in comparisonwiththe levelsachievedin the
43
past and withthe planned annual targetsfor 197 1-75.

Greaterrelianceon foreigntrade than plannedin EasternEurope is, however,


normal.44The 1976-80 plans envisagesignificantly
lowerratesof growththan
those plannedor achievedin the previousplan period.45 It is stilltoo earlyto
tell whetherthiswill resultin more modestgrowthof foreigntradeor whether,
as now seemsmorelikely,it impliesthatrelianceon foreigntradeto supplement
scarse domesticresourceswill increasestill further.U.N.C.T.A.D. expects the
"outward-looking
policies" to be continued.46
AnotherU.N.C.T.A.D. reportnotes:
As a rule the currentpolicy of the socialist countriesappears to be progressivelyto
replace, wheneverpossible, bilateralclearingarrangementsby arrangementsproviding
for payments in convertiblecurrencies.. . . The multilateralizationof payments arrangementsfavours the establishmentof rational price structuresin inter-enterprise
transactions.47

The same documentalso anticipatedcompletetransferability


and possiblyconruble
at
of
the
least
C.M.E.A.
within
vertibility
(Comecon). But thereare imeconomic
and
portant
political impediments,imposed particularlyby the
for
whom
increased
U.S.S.R.,
multilaterality
impliesthreatsto itseconomicand
her
control
over
C.M.E.A.
Ausch
political
argues:
partners.
For political as well as economic reasons the U.S.S.R. will also fora long timeto come
strivefor bilateralismin her trade with capitalistcountries.Profoundchanges would
have to occur in the world's entirepolitical patternto induce the U.S.S.R. to enter
into multilateraltrade with the latterand to introduceconvertibility.. . . There is, of
course, steady pressureon the U.S.S.R. fromthe developingcountriesto bringabout
the external convertibilityof the ruble. It is possible that the U.S.S.R., aftertaking
into account the position of the dollar, will meet these demands in some formwith
suitable restrictions.. . . The switch-overto multilateraltrade and payments,to transferabilityand varying degrees of convertibilitywithin C.M.E.A. cannot thus be
achieved by simplemeasuresof monetaryreform.All thiscan emergeonly, on the one
hand, as the concentrated expression of gradual changes withinthe individualcountries and in the mechanism of co-operation,changes which must lead to qualitative
and to the abolition of the systemof directiveplan instructions;and,
transformation
42 See ibid.
43
44
45
46

U.N.C.T.A.D., "Trade Relations. . .," op. cit, 1975, 3.


See U.N.C.T.A.D., "Trade Relations. . .," op. cit, 1972, 3.
See Le Monde, December 16, 1975.
Sec U.N.C.T.A.D., "Trade Relations. . .," op. cit., 1975.
IndustrialCo-operation. . .," op. cit, 6.
U.N.C.T.A.D., "The Scope of Trade-Creating

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Enterprise!
Long Live Transideological

Ill

on the other hand, as a resultof a generalefficiencyof the individualeconomies and


of fundamentalchangesin the political patternof the world.48

EconomicRelations.. .
Advantagesand Disadvantagesof East-West/South
The internationaldivisionof labor experiencesits most qualitativechanges
crisisin the worldcapitalistaccumulationof capital.
duringperiodsof structural
the
erstwhile
these
methodsand relationsof production,particuperiods,
During
those
in
the
larly,
previouslyleadingindustriesin the most advancedsectorsof
the world capitalistsystem,become relativelyless profitable,even altogether
unprofitable,so that the crisis of accumulationobliges capital to undertake
importantchangesin the divisionof labor. At the same time,thisneed created
by or at least magnifiedby the crisisoffersthe opportunityto undertakethis
change for those sectors of capital that are able and willingto do so. This
and intratransformation
of the international,intra-national,inter-sectoral,
sectoraldivisionof labor is also reflectedin, or rathereffectedthrough,changes
in patternsof East-West,East-South,and West-Southproductionand trade,as
well as in the relationof these patternsof trade and productionamongeach
other.
. . .fortheWest
Lookingat the matterfromthecapitalistWest,Timemagazinerefersto more
than 1,000 cooperationagreementsbetween Hungaryand the Westand offers
the clue that "in theirsimplestform,such venturesinvolvelittlemore than a
thinlydisguisedexploitationof,cheap Hungarianlabor."49
Writingin the AmericanEconomic Review, Hewett adds furtherconsiderations:
For the Westernpartnerthese "small deals" are quite profitable,since they shiftthe
less profitableprocesses to an area wheresemiskilledand skilled
more labor-intensive,
labor is relativelycheap and a good deal more dependable (no strikes). "

These two economic and political reasons for expandingtrade with and production in Eastern Europe appear repeatedly,often explicitly,in the U.S.
businesspress such as BusinessInternational/
BusinessEasternEurope. Morethe
and
not
unlike
of
investment"
over,
elsewhere,Internationpractice "foreign
al Harvester'smanagerof special operationsnotes that "the Poles have made a
substantialcapital investment
in a facilityto build an IH product.To the extent
have
IH doesn't have to make it."51 In the West,
made
the
investment,
they
Harvesterwillhave exclusiverightsto marketthePolish-built
International
units,
and in the underdevelopedcountriesthe same bulldozers,loaders,and other
48

Sandor Ausch, "Problems of Bilateralismand Multilaterismin the External Trade and Payments
System of the CMEA Countries," in I. Vajda and M. Simai, eds., Foreign Trade in a Planned Economy
(Cambridge:CambridgeUniversityPress,1971), 90-93.
49

TimeMagazine,Apr. 26, 1976.

Edward A. Hewett,"The Economics of East European TechnologyImportsfromthe West,"4 merican Economic Review,LXV, 2 May, 1975, 379-380; cf.Joyce Kolko, op. cit., 157.
51

Quoted in BusinessWeek,Sept. 28, 1974, 110.

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AndrGunderFrank

112

equipmentwill be marketedpartlyby InternationalHarvesterunder its own


label and partlyby the Poles withouttheIH label. "A numberof Polishgarment
factories.. .are producingentirelyforthe U.S. market."52And Westernsales of
electronicsis expected to more than treblebetween1972 and 1978.53 Xeroxis
in the U.S.S.R. forincorporationinto
alreadyusingcomponentsmanufactured
the
sold
in
West.54
equipment
These items are illustrativeof the significanttrendsin East-Westeconomic
relationsthatparallelthe transfer
of certainkindsof industrial
productionfrom
the Westto certainpartsof theunderdeveloped
of laborcountries:the transfer
intensiveindustries,such as textiles,clothing,and footwear,or manufacturing
processes such as the fabricationof electronicscomponents,fromeconomies
where the cost of labor has become too highto keep themprofitableto areas
with cheap labor; the transfer
of some heavyindustry,
part of automotiveand
and
of
steel
production,to more advanced
related-equipment
manufacturing,
of
the
South
and
of
the
East.
These
industries
includenot only indusparts
triesin the Westthatare now becoming"sick" because of problemsin demand,
cost of production,and relationof productionon the assemblyline. They also
includeindustriesin which"labor trouble"has been politicallyimportantin its
effecton the rest of Westernsociety.Witnessthe strikeinitiativesin the Fiat,
Renault,and Ford plantsin Italy,France,and Britain,or steelstrikesin theU.S.
and theirconsequencesforthe labor and political"climate." Whatbetterstrategy than to shiftsome of theproductionin theseindustriesto Brazil,theSoviet
Union,and Poland, wherelabor is not onlycheaperbut moredisciplined?Moreover, to be politicallyeffectiveat home, it is not necessaryforall of the productionto be transferrred.
It is enoughto transfer
a littleto makethe threatof
anotherrunawayfactorycrediblewhenthe nextstrikedevelops!
the
AnotherWesterninterestin the East is the role the latter,particularly
Soviet East, can play in the provisionof fuelsand raw materialsin the international divisionof labor. Duringthe recent"energycrisis" and the renewed
Westerncapitalistinterestin the developmentof new sourcesof fuelsand raw
materials,the Soviet regionsof Siberiaand the Far East havebeen thesubjectof
continuous discussionby the Westernpress. These have been the object of
political negotiationsat the highestlevel. At stake is not only Soviet oil, gas,
coal, timber,copper (negotiationswithAnaconda wereannouncedtheveryday
thatAllende'sChile nationalizedits coppermines!),etc. forconsumptionin the
and pipelineequipmentfor
West,but also the sale of Westernmining,transport,
multibilliondollar projects.At stake also is the international
politicalequilibrium in a multipolarworld,in whichjoint U.S.-Japaneseinterestin the Soviet
Tuymengas project (Japanwantsthe gas but cannot financeit alone) and the
constructionof anotherproposedBaikal-Amurrailwayline to transportpetroleum - but also troops - just north of its bordersthreatensChina and its
politicaland othereconomicrelationswithJapan and the U.S. Immediateeconomic and politicalobstacleshave scuttledor delayed severalsuch major East52

Ibid., 195.

53

See Financial Times,Feb. 25, 1975.

54

1974.
7&id.,June25,

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Long Live Transideological


Enterprise!

113

less ambitiousand noteworthy


ones are
Westprojects,thoughmanyindividually
proceeding.On the recentoccasion of the WestGermanChancellor'sstatevisit
deal worth DM 1,7 billion(U.S. $700
to Moscow the thirdgas-cum-pipeline
Million) was signed.
AdvantagesforWesterncapitalin East-Westrelationsare also accompaniedby
otherthan the higherprice of wheat resultingfromSoviet
some disadvantages,
purchases.Of course, in a competitiveif highlymonopolizedworld capitalist
economy,East-Westbusinesssignifiesnot only collaboration,but also competitionforbusiness- and verybusiness-like
waivingof ideologicalconsiderations.
Fiatsin WestGermanyunderthe tradeThe U.S.S.R. is sellingits Togliatti-built
mark "Lada" and has undersold Fiat in Britainby one-third.The Financial
Timeshas printedalarmistheadlines:"Comecon exportsthreatenWesternmotor
the
producers.""Poland's driveinto new car markets.. ." "From thebeginning,
with about 70 per cent of its
Polski-Fiat125 plant has been export-oriented,
productiongoingoverseas.. . . Havingexported70,000 cars last year the com"55 The Soviet
fishingfleetis
panyis planningto tacklethe U.S. marketin 1977.
of
seas
to
the
its
the
seven
increasinganger
ransacking
capitalistcompetitors.
make- and occasionally
Not infrequently
socialistmachine-building
enterprises
win - competitivebids on turbinesor otherequipmentformajor capital projects. Duringtheoil embargoagainstHolland,imposedby the Soviet-alliedArabs
afterOctober 1973, the Soviet Union deliveredoil to Rotterdam.Duringa coal
miners'strikein FrancoSpain,the SovietUniondeliveredcoal there.Partof the
butterthe Soviet Union purchasedfromthe Common Market"buttermountain" at halfprice was resoldto Allende'sChileat the fullworldmarketpricein dollars. Perhaps the most widely remarkedrecent Soviet competitionon
world marketsis the Trans-SiberianRailroad which, althoughthe 1975 depressiongenerateda decline in world shipping,carried100,000 of the halfmillioncontainersor 20% of theJapan/Korea- WesternEurope ocean freight
trafficat 25, 40, and even 50% below the ocean freightfaresand withfaster
Africaroutewiththe Suez Canal stillclosed.56 At the
deliverythan the roundsame time,growingat 6% a year,Sovietshippingitselfhas increaseditsshareof
world shippingby one-thirdto over 200 milliontons between 1970 and 1975
and charges30% less thantheFarEasternFreightConferencerates. Experienced
low budgetair travelersbetweenthe Westand Asia or Africaknowthecut-rate
and similarfaresof Westernand other
airfares,below the lowestgroup/charter
I.A.T.A.
non-I.A.T.A.
and
now offeredby Aeroflot.Moreover,
airlines,
capitalist
the
other
also
works
so much so thatRockefellerhas
around;
way
competition
to
West
German
alreadyproposed cooperation
capitalistsso that the socialist
countrieswill not be able to play one Westernbusiness partneroff against
anotherany more.58
55

Ibid., Feb. 18, 1976, and Mar. 12, 1976.

56

See Business Week,Jan. 12, 1976; Far EasternEconomic Review,Nov. 21, 1975.
See Far EasternEconomic Review, Feb. 13, 1976.

58

See Frankfurter
Rundschau,Dec. 5, 1975.

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114

AndrGunderFrank

forthe South
The advantagesof East-Southeconomicrelationsfromthe point of view of
the capitalistunderdevelopedcountries,or at least of theirrulingclasses, are
fairlyeasy to see. To the extentthattheirexports,and theimportsthatcan be
to theirtradewithcapitalistcounconsequentlypurchased,are supplementary
and
insofar
as
need
not
"divert"
tries,
they
exportsfromconvertiblehard curtrade
to
inconvertible
bilateral
trade, this East-South trade represents
rency
a
net
to
the
mostly
gain
underdevelopedcountriesor ratherto theirbourMost
studies
geoisies.
suggestthat such exports to the East are in fact not
The
construction
of capitalprojectsthat,otherthingsremain"trade-diverting."
the
same
that
is
ing
(if
imaginable)would not be undertakenwithoutEastern
are
even
more
help,
clearly a net gain - to those who benefitfromthem.
Economic and militaryaid on relativelyfavorableterms- generallylower
interestrates,longeramortizationon loans repayablebilaterallyin merchandise
of accumuratherthan hard currency,some grantaid or favorablerenegotiation
lated debts - are of course welcometo thosewho benefitfromit fortheirown
Moreeconomic,political,and militarysupport,protection,or aggrandizement.
over,beyond the directadvantages,supportfromthe socialistcountriesand the
withcapitalist
alternativeit offersstrengthens
the recipient'shand in bargaining
- or othersocialist- countries.
The termsof trade in East-Southand the real cost of aid that is tied to a
particulardonor countryfor a particularproject have long been a subject of
In 1964 already,addressingthe Afro-Asian
heated controversy.
EconomicSeminar in Algiers,Che Guevarapointed out that,insofaras the socialistcountries
trade with the underdevelopedones at the "world market"prices set by the
imperialistmonopolies,the socialistcountriesexploit the underdevelopedones
throughunequal exchangeno less thanthedevelopedcapitalistones do. Pricesin
East-South(as well as in intra-socialist)
trade - now notably in petroleumhave as a rule followed "world market"prices,albeit with a certainlag that,
however,has been drasticallyreducedrecently(beingchangedfromfiveyearsto
one in intra-socialist
tradesince 1975). Indeed, a socialistcyniconce remarked
that after all the world had become socialist,Switzerlandmighthave to be
retainedas a capitalistcountryin orderto provide"worldmarketprices"forthe
socialistworldto follow.
fromsome quartersin theWest,in the
However,therehave also been charges,
countries
and
themselves,
recentlyvery insistentlyby the
underdeveloped
that
the
countries
of
Eastern
socialist
Chinese,
Europe even chargepricesthat
are higherand pay pricesthatare lowerthanthosegoingon the "worldmarket."
M. Sebastianforinstancereviews:
have
likeJ.R.Carter,
M.Golman,
andKurtMuller
Authors
VassilVassilev,
J. Berliner,
charged that the Soviet Union sells its commoditiesto the developingcountriesat 15
to 20 per cent higherthan the world prices and that it purchases mostly primary
commoditiesfromdevelopingcountriesat a rate 15 to 20 per cent lower thanworld
prices.. . . Our analysis of the data forcesus to conclude that India sold dear to and
bought cheap from the Soviet Union. In the trade with the Soviet Union, India has
been a net gainer: Similar conclusions have been reached by J. Bhagwatiand Padma
Desai the N.C.A.E.R. and Dharm Narain.59
59 Economic and Political
Weekly,Dec. 1, 1973.

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Long Live Transideological


Enterprise!

115

which also includesother authorswe have conIn view of this controversy,


sulted60 it is not possible to make a definitejudgmenton thisquestionhere.
on some itemsin
Sebastian foundsome individualcases of Soviet overcharging
Soviet exports to India, and similarinstancesappeared in Chile duringthe
of Allendeand elsewhere,but whethertheyadd up to a systematic
government
of
pattern exploitation- over and above thenormalunequal exchangebetween
moreand less developedcountries- is anotherquestion.Whatexperiencedoes
show is that the socialistcountriesof EasternEurope stickto businessand drive
tradeas anybodyelse.
as hardas bargainin international
Soviet
Thus, afterexamining
capitalprojectsin India,where,until1970, 85%
of Soviet aid was concentratedin steel (40%), oil, power,and heavy-machinebuilding a studyof "Soviet Social Imperialismin India" concludes:
In the case of India too thereis no basic differencebetween investmentsby the Soviet
Union and by otherimperialists.. . .

have been able to force on the Governmentof


(1) The Soviet socialist-imperialists
India unequal contracts,without even the normal commercialsafeguards[regarding,
for instance, the also "normal" delays in the deliveryof contraced equipment and
completionof projects].
(2) Machineryfrom the Soviet Union is sold at a very high price [at least in documentedcases of the Bokara steel project and threepetroleumrefineries].
(3) Sales of components and raw materials,induced by the originalinvestment,are
veryprofitable.
(4) The projectsare designednot witha view to economy but to maximize sales.
(5) Outmoded technology is transferred[and complete Soviet technological and
managementcontrolis maintaineduntilproject completion].
(6) Indian technology is not encouraged and Indian conditions are not adequately
taken into account [even when Indian technologyand installedcapacity are adequate
to supplycomponentsof the project] .
(7) The basic considerationof Soviet 'aid' is to gain a foothold and break established
. . . The pricingpolicy of the Soviet Union [is]
Westerncartels and earn super-profits.
to raise the price aftera foothold has been established . . . The commercialnatureof
the so-called aid is seen in that the repaymentmay begineven beforethe project goes
into production; e.g., Bokara Steel plant creditswere beingrepaid even beforeproduction began. . . . The Soviet Union then has up to now got the highestrate of repayment to 'aid* given - almost 75 per cent as againstjust 12 per cent forU.S.A., 25 per
cent for U.K. and 50 per cent forWestGermany.... Up to 1969 grantswere only 3.7
*
per cent of total Soviet aid against 19 per cent forU.S.A.

The questionof theadvantagesand disadvantages


of East-Southeconomicand
otherrelationsmustbe examinedfromsome additionaland broaderperspectives
as well. One of theseperspectivesis participationby the socialistand capitalist
underdevelopedcountriesin the internationaldivisionof labor. U.N.C.T.A.D.
observes:
See Salvi, op. cit; Nayyar,op. cit.; D. Nayyar,d., Special Issue on "Economic RelationsBetween
the Socialist Countries and the Third World," WorldDevelopment, III, 5, May, 1975; and Sankar De,
"Foreign Aid and the CommunistBloc," Economic and Political Weekly,X, 50, Dec. 13, 1975, 1905-1913.
CPI-ML, Soviet Social Imperialismin India (a CPI-ML publicationreproducedby Indian People's
Associationin NorthAmerica,Westmount,Quebec, Canada, 1976), 4-5, 10-11; materialin bracketsadded
by authorfrompp. 3-10 of thispublication.

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AndrGunderFrank

116

The increased scope for an East-West-Southspecialization could contributeto the


developmentof marketsfor exportsof manufacturesfromthe developingcountriesas
well. Certainproduction operationswhichare no longereconomicallyadvantageousas
a result of the opportunitiesopened up by expanded East-Westproductionspecialization could be shifted to the developingcountries,under appropriateformsof cooperation agreements and contracts. The institutional development which have
accompanied the growthof East-Westtrade and economic relationscan help promote
the expansion of global and integratedco-operationbetween the socialist,the Western,
and the developingcountries. 2

For instance,in India, a numberof "conversion"deals have been enteredinto


withthe Soviet Union,in whichcottonpurchasedby the U.S.S.R. in theSudan
was supplied to Indian mills,who obtained paymentin turnin the formof
textiles,thus obtainingthe surplus-valueof Indian labor. The collaborativeinsertionof the Soviet Union and India in the international
capitalistdivisionof
Anotherexampleis theIndo-Sovietprotocolsigned
labor,however,goes farther.
on February20, 1970:
The two sides agreed detailed examinationsshould be made at expertlevel, as earlyas
possible, for identificationof the possibilitiesof exportsof productsmanufacturedin
Soviet-assistedplants in India to Third World countries, and for considerationof
various aspects connected with the implementationof India's participationin Sovietassisted projects in such Third World countries. In particular,the Soviet side would
examine the possibilities of assistingin exports of turbojets and components to be
^
produced at Heavy ElectricalPlant in Hardwar.

On the one hand the socialist countries,in their Declaration at the third
U.N.C.T.A.D. Conferencein Santiagoin 1972, observethat "the causes of the
continuingeconimicbackwardnessof developingcountriesare theexistingstructureof international
economicrelationsin thecapitalisteconomicsystem,based
on an obsolete and irrationaldivisionof labor. . ."64 On the otherhand,at the
same conferencewhere they issued thisstatement,the East Europeansocialist
countries,and particularlythe Soviet Union,in factlined up in debate and in
vote (except when they abstained) on the crucialissuesbehindthe developed
capitalistand imperialistcountriesled by the United States. At the various
laws to governthe
international
conferencesforthe negotiationof international
of economic
the
coincidence
and
their
of
the
oceans
sea-beds,
exploitation
interests
betweenthe U.S.S.R. and the U.S.A., WestGermany,etc. has also made
them willingallies againstthe demandsfor protectionpressedby the underdevelopedcountries.65At the fourthU.N.C.T.A.D. Conferencein Nairobi,
. . . despite Indian Prime MinisterIndira Gandhi's enthusiaticexpression of appreciation for Soviet support for the Third World on her arrivallast week in Moscow
[Japan's Chief Delegate to the Conference,Toshio] Kimura was struckat Nairobiby
the gap between Moscow's words and its actions. "The Soviet Union and the East
Europe bloc (the *D Group') expressed great sympathyfor the less developed coun62

U.N.C.T.A.D., "Trade Relations. . .," op. cit, 1975, 17-18.

See CPI-ML, op. cit., 18-19, and "Declaration by the Socialist Countries.. . at the ThirdSession of
the United Nations Conferenceon Trade and Development"(Geneva: UNCTAD, TD/154, Apr. 12, 1972).

64 me.

This also happened at the Caracas Law of the Sea Conference;see Frankfurter
AUgemeineZeitung,
Sept. 6,_1974.

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117

tries, but their attitude did not differfrom that of the B Group (the developed
countries) on specific matters such as the common fund and accumulated debts,"
which were the two principal points of contentionbetween the capitalistdeveloped
and underdevelopedcountries,in which the latter demanded a common fund to finance and stockpile raw materialsand a moratoriumon accumulated debt, both of
whichthe U.S.A., WestGermany- and the U.S.S.R. - refusedto accept.66

Economic interestsmake strangepoliticalbedfellows,and so do politicaland


strategicinterests.But perhapstheyneed or should no longeroccasionsurprise
afterthe multipolarization
of ping-pongdiplomacy.If we viewthismultipolarization fromthe perspectiveof the underdevelopedcountries,theirliberation
movementsand theirpeoples, the questionof theadvantagesand disadvantages
of East-Southno less than West-Southrelationspresentsitselfwithparticular
force.Reviewingand introducingthestudieson economicrelationsbetweenthe
socialistcountriesand the thirdworld collected under his editorship,Deepak
Nayyarasserts.
Interestinglyenough, economic ideology and political developmentswithinthe poor
countrieshad little to do with the relationship.Internationalpolitical developments
were farmore important.To begin with,it was factorssuch as cold war rivalriesand
the decolonization policies in Third World countries that sought to assert national
economic independence. Later, it was a question of internationalbalance of power in
certainregionsof the world,e.g., the Middle East and South Asia. '

it is simply
And where"politics" was not or is not immediatelydeterminant,
business.For "businessis business,"as the FirstSecretaryof a SovietEmbassy
in Latin Americaansweredthe presentauthor,in responseto thequestionwhy
but increasingits tradeand creditsto
was not only maintaining
his government
Brazilafterthe reactionarymilitaryregimewas installedtherethroughthe 1964
coup d'tat. The sameexplanationprobablyappliesto the factthatthe U.S.S.R.
increasedits creditsto BoliviaafterBanzer'smilitarycoup againstthe populist
Torres.68The same explanationplus politicalcompetitionwithChina and the
U.S.A. no doubt also applies to continuedSoviet economic supportfor the
Suhartoregimein Indonesia,whichkilledoff500,000 to 1,000,000 people in its
repressionof capitalistAsia's largestCommunistParty,and whicha dozen years
afterits militarycoup stillmaintainstensof thousandsimprisonedwithouttrial
while the Soviet Union "will financemost of the expected U.S. $100-million
cost of two dams and hydroelectric
stations.. . . Moscow has been knownto
wantexpanded relationswithIndonesia,the area's largestcountry(132 million
of diplomaticrelations
people) in advance of Jakarta'sexpectedfullrestoration
with China."69 Moscow also gave economic and militarysupportof Egyptwhichmaintainedthe EgyptianCommunistPartyillegaland its membersinjail
fora decade and whichfinallybrokeoffthe "special relationship"at thebehest
of Kissingerand the rightwing of the Sadat government.
Moscow's similarly
continuedsupportof SyrianPresidentAssad - whileSyriantroopssuppressthe
66 Far EasternEconomic
Review,June 18, 1976, 52.
Deepak Nayyar,d., op. cit., 245.
68
69

See ElMercurio, Apr. 19, 1973.


Far EasternEconomic Review,Dec. 12, 1975.

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118

AndrGunderFrank

Palestiniansand the Moslemleftin Lebanon withAmericanand Israelisupport.


And Moscow recognizedthe American-imposed
puppetLon Nol regimein Cambodia literallyuntil the eleventhhour of its fall to the liberationtroops. All
theseand so manymore cases, on the otherhand,the Chinesesupplytrade,aid,
and even weapons, to the PinochetJunta in Chile and supportthe F.N.L.A./
U.N.I.T.A. oppositionto the M.P.L.A. in Angola,call some of theadvantagesof
"socialist" aid to the underdevelopedcountriesand theirpeoples seriouslyinto
question.
On balance, it appears that most East-Southeconomicrelationstend to reinforcethe existingplace of the underdevelopedcountriesin the international
capitalistdivisionof labor and/orto propel them furtherinto the "new" directionsthat the process of world capitalistaccumulationof capital now requires. The economic and political advantages that East-South economic
different
relationsconferon the underdevelopedcountriesare not significantly
from the "advantages" of imperialistand neo-colonialisteconomic relation
betweenthe capitalistunderdevelopedand the capitalistdevelopedcountriesof
the West.East-Southeconomicrelationsthusdo not seemparticularly
to further
the liberationof the underdevelopedcountriesfromeconomicdependence.Nor
do theynecessarilyfurther
politicalliberation,whichtheseEast-Southrelations
even hinderin all too manycases by lendingsupportto the rulingclasses and
even to the most reactionaryregimesamongthem.Withinthe capitalistunderfurther
developedcountries,East-Southeconomicrelationsdo not significantly
theinterestsof the exploitedproducingclasses- as distinctfromthe owingones
- any morethando capitalistWest-South
relations.
Those who actually produce the exports to the East do not particularly
benefitmorefromthemthaniftheywentto theWest(exceptto the extentthat
they offeradditional employmentopportunities).Imports fromthe socialist
countriesmaysometimesbe moreof greater"mass benefit"whentheygo to the
Eastpublic sector,but even that is not necessarilythe case. The preferential
ecoSouth relationswith the public sector in the oftenprobablystrengthens
nomicallyand politicallythe relativelymore "progressive"sector of the local
bourgeoisie,and therebymay offerthe population of these underdeveloped
countriessome relativelygreaterbenefitsdirectlythroughsome public sector
projects, and indirectlythroughthis more "progressive"political influence.
However,insofaras these East-Southeconomic and otherrelationsstrengthen
state capitalismand the state at the serviceof privatecapital in the underdeveloped countries,as on balance they undoubtedlydo, all talk about "nonthe socialist countries are therebygiving
capitalist paths" notwithstanding,
furthersupportand protectionto capital and capitalismin the "thirdworld"
and in the worldas a whole.
Because of the vast economic and political importanceof India, relations
between India and the U.S.S.R. may be consideredthe criticalcase of EastSouth relations.Beyond the narrowquestionof "does India buy dear fromand
sell cheap to the Soviet Union?" it is necessaryto evaluatethe developmentof
Indian state monopoly capitalism,the Indian economic,political,and military
in South Asia and the de-factotripleU.S.-U.S.S.R.-Indianalsub-imperialism
liance supportingthe Indian bourgeoisie'srole in the area. And now it is also
necessaryto consider the "emergency"repressionof the workingclass, the

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119

eliminationof habeas corpus, and the detentionof reportedlyover 180,000


politicalprisoners,70among a host of othermeasuressuch as a ban on strikes
and even on legal protection(forbiddingpetitionsforinjunctions)againstem1
ployerswho themselvesbreak the law.7 These and other measuresof Emergency Rule have brought"an observableimprovementin labor discipline,"72
and a decline by more than half of man-dayslost throughstrikes,with "the
whichare
. . more impressivein the public sectorenterprises,"73
improvement.
preciselythose most closelylinkedwithSoviet "aid". Aid to whom?,we must
asL The only possibleanswerconsistentwiththe factsis that thisaid is to the
first
Big MonopolyBourgeoisiein India,whichis themaineconomicbeneficiary
of the Soviet supported"public" sectorin India and now of the "emergency"
the IndiraGandhiregime.That thisregime
ruleby theirpoliticalrepresentative,
stillenjoys the politicalsupportof the CommunistPartyof India (C.P.I.-Dange)
and thatMr.Brezhnevin hisvisitto India has gone so faras to call Mrs.Gandhia
is leadingIndia to socialismwithbroad support
greatsocialistwhosegovernment
changesnothingin thesefacts.74On theotherhand,the economicand political
independenceof Mrs. Gandhi's governmentwas illustratedwhen afterSadat's
breakwiththe SovietUnionand on thegroundsthat"businessis business"India
wanted to sell its Soviet-licensed,Indian-builtMig jet fighterspare parts to
Egypt, "the Indian governmentacknowledgedtoday that the Soviet Union
blockedIndia fromsupplyingEgyptwithsparepartsforMig-21fighters."75
. . .forthe East
economicrelationsderivesalso fromthe inThe growthof East-West/South
ternalneeds of socialistcountriesand has far-reaching
consequencesfortheir
"external" policy and their internalstructure.That is, it derivesfromtheir
and contributesto theirresolution.As longas the socialistcouncontradictions
trieshave to take account of capitalistimperialism,if only to combat it devotingover 8% of GNP and over 50% of researchand developmentexpenditures on defense76 - political and economic developmentsin the capitalist
world necessarilyaffectthe socialistcountries.But the effectsof the capitalist
world on the socialistcountriesgo farbeyond that, since the latterhave not
capitalistdivisionof labor.
escapedtheinternational
Not only has socialismnot foundan acceptableconcept of its own to cover
economicrelations,as Imre Vadja pointsout,77
foreigntradeand international
70

See New India Bulletin,Jan.-Feb. 1976, 9.

71

See Economic and Political Weekly,Oct. 11, 1975.

72 Neue Zrcher
Zeitung,Mar. 18, 1976.
Far EasternEconomic Review, Feb. 20, 1976.
74

See Economic and Political Weekly,Dec. 8, 1973, 2161.

75 International
Herald-Tribune,Mar. 18, 1976.
76

See Ruth L. Sivard, WorldMilitaryand Social Expenditures(Leesburg,Va.; WMSE Publ., 1976), 8.


See I. Vajda, "Preface" in Vajda and Simai, eds., op. cit., viii.

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AndrGunderFrank

but it has not foundany practiceof its own thatis acceptableto socialists.We
observein the epigraphsas the beginningof thisarticlethat,since the timeof
Lenin and Trotsky- and withthe approvalof both - the "socialistworld"has
divisionof labor,under
continuedto participatein the capitalistinternational
the sway of imperialism.Whenthisinternational
divisionof labor changes,the
socialistcountriesfindit convenientor necessaryto changewithit,lest- as in a
game of musical chairs- theybe leftsitting.. . and out! Thus the Directorof
Intercooperation,the official Hungarian agency concerned with relations
between socialist and capitalistenterprises,
observes:"We are aware than an
in the international
divisionof labor is takingplace.
epoch-making
rearrangment
We must findour place in this new internationaleconomic order."78 Understandably,thisimperativeis greaterforthe smallersocialistcountriesof Eastern
forHungarywhichdependsso heavilyon foreigntrade,
Europe, and particularly
than it is for the relativelymore self-sufficient
Soviet Union. Nonetheless,the
Ministerof ForeignTrade of the U.S.S.R., N. Patolichev,believesthat "in this
age of scientificand technicalrevolution,no country,not even the most developed one, can advance its industryfast enough without using efficiently
ecoworld achievementsin science and technology".79The 1971-75 five-year
nomic plans of the individualsocialistcountriesof EasternEurope (as well as
Brezhnev'sintroductionof the Soviet Plan at the meetingof the CentralCommittee of the.CommunistParty in 1971), and the C.M.E.A. Comprehensive
Programmefor the Further Extension and Development of Co-operation
sessionin 1971, laid particularemphasison technoadopted at its twenty-fifth
logical advance to improvelabor productivityor to reduce costs, and on the
expansionof and increasedrelianceon foreigntrade.
The increasingparticipationof the socialistcountriesin the capitalistinternationaldivisionof labor also has far-reaching
implicationsforthe intra-socialist
divisionof labor, forthe structureof socialistsociety,and fordomesticas well
as foreignpolicy. As the formerPresidentof the HungarianEconomic Association, Imre Vajda, observedin thebook underhis editorship,
ForeignTradein a
PlannedEconomy,
Stalin's thesis of two parallel world marketshas had to be rejected, and not only
because the parallelismnever materialized,althoughdespite the alienation of the two
systems, they were never totally separated. The thesis also had to be abandonded
because the socialist "world market" revealeditselfto be a fiction,within facthardly
any of the characteristicsof a real market.. . . The marginalrole which foreigntrade
came to play in the Soviet Union was to some extent due to the fact that the Soviet
Union is a "big country". ... It also became evidentthatthe problemswhicharose in
the field of foreigntradewere not marginalin characterand could not be neglected.

adUnderthe title,"ProspectsforProfits:Comecon," BusinessInternational


visesitsWesternbusinessclients:
78
79
80

TimeMagazine,Apr. 26, 1975.


Quoted in U.N.C.T.A.D., "Trade RelationsAmongCountries. . ." op. cit., 39.
Vajda, op. cit., ix, and I. Vajda, "External Equilibriumand Economic Reform,"in Vajda and Simai,

op. cit.,54.

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121

Symptomsof what Eastern Europe calls "the Westerndisease," i.e. recession,will be


blockingthe path to higherlivingstandardsin thatarea duringthe next fiveyears.The
Comecon countries,like their market-economycounterparts,know that only a full
internationalrecoveryfromrecessioncan reigniteindustrialdevelopment.Untilthen,
Comecon governmentswill walk the familiartightropebetween fear of social and
political unrest and the economic need to enforce austerity.Specifically,sharp increases in the cost of energyand raw materials,the gradual disappearance of surplus
labor, heftyrises in the East European externalindebtednessand diminishedexport
possibilities all spell a lower GNP - "social product" in Comecon terminology.In
addition,prices are going up. (Hungary,and to some extentPoland, have alreadygone
a long way toward allowing world marketprices to determinedomestic prices.) As a
result of these factors,growthtargetshave been lowered in all the 1976-80 five-year
plans.81

Indeed,as citedin our epigraphs,BrezhnevhimselfwhileaddressingtheCongress


of the HungarianCommunistParty on March 17, 1975, has admittedthat
"because of the broad economiclinksbetweencapitalistand socialist countries
the ill effectsof the currenteconomiccrisisin theWesthavealso had an impact
on the socialistworld." Even thatis an understatement,
forhis colleagueComrade FirstSecretaryof the CommunistPartyof BulgariaTudor Zhivkovexplains
one such impact: "It may be hoped thatthe crisiswhichis ragingin the West
may come to a rapid end, since it affectsand createsuncertaintiesfor the
Bulgarianeconomy,which to a certainextent is dependenton tradewiththe
countriesof the West."82 One mighthave thoughtthatcrisisin the capitalist
world mightbe welcomed by socialistsand especially those in positionsof
leadership- the situationis "excellent" as the Chinesenevertireof sayingbecause theysharpenthe class struggleand mightbringthe adventof socialism
nearer.But no, Mr. Zhivkovhopes thecrisiswillcome to a rapidend! No doubt
he and his fellowFirstSecretariesof the CommunistPartieswill do all in their
powerto helpthecrisisof capitalismcome to a rapidend.
As fortheimmediateill effectsof thecapitalistcrisis,Mr.Zhivkovis of course
right.As Timeobserves:
The Eastern bloc has been caught in the same economic squeeze as WesternEurope.
Inflationsharplyraised the prices of all the capital and consumergoods that had so
confidentlybeen ordered from the West. At the same time, recession in the West
reduced the demand for Czechoslovak machine tools, Polish hams, East German
radios, Hungarian textiles, and other produces. The result was a widening trade
deficit.. . and the only way to bridge the gap was to secure more creditsfromthe
West.83

Moreover,the Soviet Union has now reducedor eliminatedthe subsidythatit


had in effectbeen accordingits C.M.E.A. tradingpartnersthroughthe delivery
of raw materialsand fuelsat relativelylow pricesin exchangeforitsimportsof
manufactures
fromthem.84In partcaughtin the same capitalistworldmarket
squeeze (thoughit has of coursebenefitedfromthe higherprice of petroleum)
and unwilling,or for internalreasonsunable, to continuethis subsidyat the
BusinessInternational,Feb. 27, 1976, 68.
82
83
84

See Le Monde, Apr. 17, 1976.


See TimeMagazine,Apr. 26, 1976.
See Hewett,op. cit.

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AndrGunderFrank

122

expense of its own fuel and raw materialsproducingareas,and in part taking


the Soviet Union increasedthe
advantageof the O.P.E.C. oil price increase,85
pricesof its own rawmaterialsand morethandoubled thatof petroleumsold to
wereadjustedonlyfiveyearsusinga threeitsC.M.E.A. partners,
whichpreviously
or five-year
the
movingaverageof
previousperiod's "world market"prices,are
a
not
clearlydefinedmovingaverage).As a result,as a
adjustedyearly(on still
Financial Time headlineput it "Inflationgoes East: withinfiveyearstherewill
be littledifference
betweenComeconand worldprices."86But higherpricesare
not limitedto foreigntradeprices.Althoughtherehas been a policyof absorption of price increasesby the state throughincreasingsubsidieson consumer
itemsto keep thelatter'spricesstable,it has become impossibleto continuethis
policy endlesslyin the face of the inflationimportedfromthe Westand from
the East itself.Accordingly,
Rumania,Hungary,and Polandhavebeen obligedto
increaseconsumerpricesas well.87 The consumerprice index in Hungaryrose
3.8% in 1975 Some prices,particularlyformeat,rose muchmoreand as much
as 30% on some items.88 In Poland, food priceswere maintainedstable while
the price indexrose 2.9% in 1975; but in mid-1976the State triedto raiseprices
at one fellswoop by up to 60% on some items,and unleasheda popularreaction
obsimilarto that of 1970 that had broughtdown the Gomulkagovernment,
is
there
Nonetheless,
ligingthe Gierek Governmentto back down temporarily.
another.
thatpricesmustbe increasedone way or
generalunderstanding
The relationsbetween socialistprices,and pricingpolicy,and the capitalist
price system,however,antedatesand goes deeperthanthepresentinflation.The
writes:
Hungarianeconomist,Bla Csiks-Nagy
The price problem of the international market within C.M.E.A. cannot be solved
without takinginto account the connectionswiththe world marketas a whole and the
extent of separation between C.M.E.A. and the rest of the world market.The connection between the internationalmarket within C.M.E.A. and the world market
outside it means that the marketvalue judgementsof the C.M.E.A. countriesabout the
productscan be
prices of individualproducts and about the relativeprices of different
formed only by taking into consideration the price relations in the capitalistworld
market.Quite independentof the factwhetherand to what extenta C.M.E.A. country
has the opportunityof chosing between variousmain world markets,the concept of a
"realistic" price necessarily involves the consideration of the price of the product
outside the C.M.E.A. market.... In view of the actual mechanismof co-operation- it
would be unrealisticto expect to be able to change over to a price basis reflectingthe
particularproduction conditions and exchange relationsof the C.M.E.A. countries.In
the given situation the real problem is not whetherthe principleof applyingcapitalist
world marketprices should be givenup forthe pricingprinciplebased on own inputs,
but consistsmuch more in doing away withthe distortionwhichassertthemselves- in
contrastwith the termsand the spiritof the Bucharestagreement- in the course of
the practical application of the world marketprice principle.But neithershould we be
blind to the problems emergingfrom the adoption of the capitalist world market
85

See Financial Times Feb. 24, 1975.

86

See ibid., Feb. 25, 1975.

See U.N.E.C.E., The European Economy in 1914, op. cit., and U.N.E.C.E., The European Economy
in 1915, pre-publicationtext (Geneva: UNECE, XXXI/1, Add. 1), ch. 2.
88

See Neue lurcher Zeitung,Jan. 10, 1975.

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Enterprise!

123

prices,since they may sooner or later become serious hindrancesto the progressof a
purposefuldivisionof labor.89

If this is true for intra-C.M.E.A.foreigntradeprices,it soon becomes equally


and
true for planningprices,which determinethe decisionsabout investment
all
and
then
subsidies
about
consumer
notwithstanding,
possible
production,
priceswhichdetermineconsumptionwithinany one of thesocialistcountriesof
EasternEurope.
Two of the principleacknowledgedproblemsof the socialisteconomies in
EasternEurope are inadequate technologicalprogressand low qualityproduction. The latter has been a constant complaintfor decades and is now also
reiteratedin regardto productsmade under Westernlicense,e.g., "Fiat" cars
where the directorscomplain to the workersthat "our
built at Togliattigrad,
too
receives
manyprotestlettersbecause of the low qualityof producfactory
tion."90 One of the less acknowledgedproblemsemphasizedby Ticktinamong
1 is the relatedinefficiency
and wastefulnessof the Sovieteconomy,in
others,9
which the frequencyof breakdownof engineeringmachinery,includingthe
defensesector,is said to be threeto fourtimesthatof the U.S.A. and in which
machinetools as in producing
fourtimesas manypeople are engagedin repairing
lie
in
the organizationof the innew ones. The reasons for these deficiencies
for
dustrialprocessand the incentivesystemat theplantlevel.Organizationally
instance,while in the U.S.A. two-thirdsof researchand developmentoccurs
of R & D occurrs
withinthe industrialfirms,in the Soviet Union three-quarters
But beyond
in institutesthat are independentof the producingenterprises.92
this organizationalproblem, which the recent formationof vertically-and
industrialconglomoratesis designed to reduce, the
horizontally-integrated
planningand incentivesystem,which emphasizesthe productionof targeted
quantitieswith existingtechnologyand methods,does not provideadequate
- to innovatein
guidanceand incentive- indeed oftenbuilds in disincentives
the applicationeven of existingnew technology,let alone to inventit withinthe
enterprise,and to improve the quality of production.The importationof
Westerntechnologyis meantto help overcometheseproblems,but it cannotin
are givenincentivesor
and of itselfdo so unlessmanagersof socialistenterprises
intotheirown processesof
obligedto incorporatethistechnologyor derivatives
is
production.The corollaryof the entranceof Westerntechnology,therefore,
theneed to competewithit on the domesticmarket,and throughexportson the
world marketas well. But thismeansthe further
introductionof the capitalist
marketand its priceswithinthe socialisteconomies.On the one hand,thereis a
naturalresistanceto thisprocessfromthe adverselyaffectedvestedinterests:
The enterprises,the ministries,and the labor unions in Hungarycomprisea formidable
protectionistlobby which effectivelyopposes proposals for substantiallyopening the
on

Bla Csiks-Nagy,"Some Theoretical Problemsof the Price Systemin the Trade between CMEA
Countries,"in Vajda and Simai,eds., op. cit., 106, 110.
yu

Cited by Carlo, 110.

91

H. H. Ticktin,"Towards a PoliticalEconomy of the U.S.S.R.." Critique,I, 1, Spring1973, 20-41.

Q2

See Hans Heymann, "La economa sovitica. Problemas de la productividadde la economfa


sovitica,"ElMercurio, Santiago,Apr. 24, 1973.

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AndrGunderFrank

124

economy to foreigncompetition.. . . The organizationalchanges which would make


Hungarianenterprisesindependentlycompetitiveon Westernmarketswould be quite
difficultand costly, requiringa substantialredistributionof power. . . . Probably the
only trulyeffectivemechanismfor compellingthese changes is increasedcompetition
in Hungarian markets,primarilythroughlowered barriersto foreigntrade, and a
substantial curtailmentof the extreme power of ministriesover enterprises.... It
seemsunlikelythatsuch drasticchangeswill occur soon".93

On the other hand, Ticktinarguesthat the economic reformsand the introduction of foreigntechnologyalso have a mutuallyreinforcing
spiraleffect,in
whichthe failureof thereformsto liveup to expectationsso farwilllead to still
closerties withthe Westand to stillgreaterconcessions.94The importationof
technologywhetsthe appetiteformoreof the same and increasesthe attractiveness of the reforms.
concessionsto foreignfirmsand to
They requirestillfurther
the states of the imperialistWest,on both of whichthe socialistcountrieswill
become increasinglydependentfor creditsto financetheirimportsof technodiverted
logy and capital,whiledomesticproductionwillhave to be increasingly
into exportsto pay forthe importsand to repaythecredits.Thus,thebeneficiaries of thisprocessof East-Westintegration
in the socialistcountriesand their
rulingclass will become increasingly
dependenton theWest- and on economic
and political stabilityin the West to maintaintheireconomic and political
power in the East. Meanwhile,no less than in the underdevelopedcapitalist
countries,the socialistcountriesof EasternEurope and theSovietUnionwillbe
importingnot only Westernfactories,technology,and products,but thecapitalist relationsembedded in them, includingspeed-up of production,capitalist
a capitalistwage structureand
organizationand criteriaof decision-making,
incomedifferentials,
capitalistconsumptionpatternsand ideology,and capitalist
class structure.In short,the "socialist" countriesof EasternEuropewillbe and
are alreadyimporting
capitalism.
Poland's programfor allowing foreignersto establishprivatebusinessesin the country
- Eastern Europe's most forthright
bid everforcapitalistinvestment- is even broader
in its final form than was originallyenvisaged by planners. A key condition that
investorsbe of Polish originnow livingin the West has been dropped in the detailed
regulationspublished in recent weeks. Instead, virtuallyanyone willingto put up the
money evidentlywill be considered under termsthat seem notably flexible.. . . The
unique feature of Poland's new programis that business will be wholly-ownedand
operated by foreign individualsor corporations.. . . The leadership's willingnessto
submergeideological principlesof state economic managmentto blatantexpediencyis
a potentially importantbreakthroughin East-Westties. [At the same time,] Poland
has ceased buildingstate apartments,ending a 30-yearCommunistprogramand opening the way for what is virtuallyprivateenterprisein provisionof most privatedwellings.95

Thus, no less than in the developed capitalistWest or the underdeveloped


economicrelationsof the "socialist"East and
capitalistSouth, the international
theirsourcesin and effectson the societyare not class-neutral
but class-based.
93

Hewctt,
op. cit.,380-381.

94

und Entspannungspolitikder
See Hillel Ticktin, "Das Verhltnis zwischen Wirtschaftreformen
Sowjetunion,"inJahn,op. cit., 50-72.
See InternationalHerald-Tribune,
June 22, 1976.

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125

The politicalpressurefortheinternaleconomicreformsand the relatedexternal


economic"liberalization"comes fromtherulingclass and is designedto benefit,
and does benefit,its membersand some otherprivilegedsectors.Liberalization
benefitsthemeconomicallythroughthe resultantimportation,
production,and
the
automobile.
more
it also
consumptionsymbolizedby
Perhaps
importantly,
benefitsthem politicallyby buying the political support of the potentiallydissaffected
bureaucratic,professional,and intellectualgroupsthatneutralizeor
controlthe potentialpoliticalpressureof the alienatedworkingclasses.These
class imperatives
and goals in the "socialist"societiesof EasternEurope and the
and supportedby acceleratedparticipationin
Soviet Union are partlyfurthered
a worldcapitalistdivisionof labor thatpermitsthe importof technology,and its
adjunctsfromthecapitalistWest,and thatpermitsa convenientdivisionof labor
withthe capitalistSouth, whichadditionallyhelpspay forthe importsfromthe
West.
From anotherpoint of view these institutionaldevelopmentsare especiallysignificant
because they help integrateEast-West(and South) trade into the system of world
commerce,which dtente has made politicallyfeasible.. . . This institutionalprogress
can be expected to promote both the continued growthand the greaterstabilityof
East-Westeconomic relations. "

China

China's participationin the capitalistinternationaldivisionof labor will be


examined brieflywithout attemptingto analyze Chinese society itself. For
presentpurposes,thismay perhapsbe justifiedby the factthat,althoughChina
has 20% of the world'spopulation,in 1970 it accountedforonlyless than0.7%
of the world's foreigntrade, that is, less than Hong Kong, some of whose
fromChina.97 China'sforeigntradeis about 5%
exports,however,are re-exports
of its GNP. Our discussionwill limititselfto the barestoutlinesof theplace of
China in the international
divisionof labor,as seen throughits foreigntradeand
about China'sforeignpolicy.
aid, withsome added reflections
In apparentcontrastin the socialist countriesof EasternEurope, China's
foreigntradehas increasedwhen its economicgrowthrate has risen,and it has
fallen,when,as duringthe Great Leap and the CulturalRevolution,attempts
weremade to bringChina'sdevelopmentonto a qualitativelydifferent
economic
footing.Duringthesetwo periods,1959-61 and again 1966-68, China's foreign
trade fell,albeit with a lag, but even more than its agricultural
and industrial
output.In otheryearssince 1949, foreigntradehas generallygrown,thoughalso
at ratherunevenrates.The followingperiodsand fluctationsor even "cycles"
can be roughlyidentified.1949/50 to 1958: rapid expansionof heavyindustry
on the Soviet model and withthe latter'said, whichwas also reflectedin substantialgrowthof foreigntrade. 1959-61: the withdrawalof Soviet aid, two
consecutiveyears of disastrousharvests,and the Great Leap Forward,with
absolute declines in both output and trade. 1962-65: renewedgrowth,now
ratherthanindustry,
givingpriorityto agriculture
againaccompaniedby growing
foreigntradebut at lowerratesthan in the 1950's. 1966-68: theCulturalRevo96

U.N.C.T.A.D., "Trade Relations. . .," op. cit., 1975, 15.

97

See U.N.C.T.A.D., "Trade RelationsAmongCountriesHavingDifferent. . .," 1972, op. cit.

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lution,involvinga certain"involution"that was also reflectedin absolutedeclinesin foreigntrade.1969 to thepresent:generallyrenewedeconomicgrowth,


"walking on two legs" of agricultureand industrycombined,with moderate
increasesof foreigntrade duringthe firstyears and substantialones in more
recentyears.98
Since the Sino-Sovietsplitin 1960, Chineseforeigntradewithothersocialist
countrieshas declinedfromover70% of its totaltradeto 17% in 1973, including
only 1% withthe U.S.S.R. That is, over80% of China'sforeigntradeis withthe
capitalistcountries,of whichover50% withthedevelopedones,includingabout
20% withJapan alone, 20% withthe underdeveloped
countries,and nearly10%
with or throughHong Kong and Macao. Japan has consistentlybeen China's
most importantsingletrade partner,followedby Hong Kong, whichhowever
was replacedin the No. 2 spot by the UnitedStatesin 1973, afterNixon'svisit
to Pekingin 1972.
The commoditycompositionof China's importshas been about 50% manufactures,concentratedin iron and steelproductsand machineryand equipment,
with a tendencyto rise; chemicals10%-15%, witha tendencyto fall;raw materials20%; and foodstuffs,
wheatand soybeans,20%. Partof the
particularly
wheat importscan be attributedto a sort of wheat/ricecaloric arbitrage,in
whichChina exportshigher-priced
rice to purchasecheaperwheatwithan equal
caloriccontent,makinga substantial"caloricprofit"on thedeal, whichpermits
it to increaseits totalgraincalorieconsumption
by about 1%." The commodity
of
China's
is
30-33%
20% rawmaterials
foodstuffs,
composition
exports roughly
and fuels,among which oil has become importantsince the O.P.E.C. oil price
witha tendencyto rise.100
increase,and 40-45% manufactures
Since the adventof ping-pongdiplomacyin 1971/72,foreigntradepolicyhas
undergonesignificant
changes.Total foreigntradesuddenlymore thandoubled
between1972 and 1974 and has levelledoffsincethen.
Table 7. CHINA'S FOREIGNTRADE
(in SU.S. millions)
1971
1973
1974
1972
Imports
Exports
Balance

2,305
2,415
+110

2,835
3,085
+250

4,975
4,895
-80

7,518
6,247
-1,271

1975
7.430
7,284
-146

Source: CurrentScene, December1974; Far EasternEconomicReview,June 20,


1965,andMarch26, 1976.

In view of the frequentzig-zagsin China'spolicy,it is difficult


and hazardous
to say whetherthisimpliesa new trendor what it may be. The eliminationin
mid-1971 of Lin Piao, who stood for a strongself-reliant
and anti-imperialist
98

For a reviewof thiswhole period,see CurrentScene, Julyand September,1974.

See Keith Griffin,The GreenRevolution:An Economic Analysis(Geneva: United NationsResearch


InstituteforSocial Development,1972), 133-134.
1ftft
1UU
AU data are fromCurrentScene, Dec. 1974.

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127

line,and theascensionto dominantinfluenceof Chou En-lai,was reflectedin an


expansiveforeigntrade policy. In early 1975, Chou En-laiissueda document
"On CertainProblemsin Speedingup IndustrialDevelopment,"also knownas
should not mean
the "Twenty Points," in which he argued that self-reliance
isolationismand thereforehe supportedthe importationof advanced(that is,
capitalist)technology,and the developmentof petroleumproductionforexport
to pay forthistechnologyimport.AfterChou's deathin late 1975, not onlythis
policy,but the authorshipof thisdocumentitself,was attributedto Teng Hsiaoroadercampaignagainsthim thatwas spearheadedby
Pingin the anti-capitalist
the "radicals" in early 1976 Teng was accused, amongotherthings,of selling
out China's patrimony.Importsand petroluemexports,whichhad levelledoff
alreadyin 1975, declined in the firsthalf of 1976, particularlyin tradewith
Japan. But then the eliminationof the "radical Shanghaigroup of four" in
October 1976 and theconsolidation(forthe timebeing?)of Hua Kuo-fengafter
the death of Mao would appear to have altered the generalcourse and the
directionof foreigntrade policy again, to resume,develop, and expand that
of
chartedby Chou En-laisince 1971. Beyond the generalpoliticalsignificance
self-reliant
the defeatof theradicals,who espouseda particularly
anti-imperialist
line (againstboth the U.S. and the U.S.S.R.), but who like Lin Piao are now
intenton the
accused of really havingbeen covert rightistcapitalist-roaders
the probable
are
indications
of
there
several
of
influence,
corruption foreign
The militaryand
economic and foreigntrade policy of the new government.
bureacraticas well as urban supportfor"technocrat"Hua's "pragmatic"policies, the apparentascendanceof Economic MinisterLi Hsien-nienand his posof Railway
sible appointmentas Prime Minister,the apparent reinstatement
MinisterWan Li, who had been dismissedupon the fallof his mentorTeng,and
rumorsof the possiblerehabilitation
againof Tenghimself(the attackon whom
has certainlybeen replaced by the much strongerattack on the "radicals").
Additionally,at the timeof thiswritingseveralpressreportsare availablethat
on China'sprobableforeigntradepolicyforthenearfuture:
bearspecifically
China's new authoritiessaid in an editorial today 'that they would carry out the
ambitious program of economic development originallyput forwardby the late
camPremierChou En-lai early last year but criticized this year in the anti-rightist
paign. The pledge to returnto Chou's plan, which called for the modernizationof
China by the end of the century,is the firstofficialindicationof the policies thatHua
Kuo-feng,China's new leader, and his associates will pursue. It representsa major
triumphfor the veteranparty bureaucrats,long championed by Chou, who are often
termedthe "moderates"/*01

The International
Herald-Tribune
reports,witha Pekingdateline:

The Chineseofficialswho make theircountry'sforeigntradepolicy seem like new men


these days. In the wake of the purge of the radical "gang of four," they are talking
frankly,realistically,and optimisticallyabout the future.What theyhave been saying
to visitingbusinessmenand journalistsduringthe past few weeks boils down to this:
It's going to be easier to do businesswithChina, and there'sgoingto be more business
to do. ... [Economics MinisterLi Hsien-nien] said that the governmentwanted to
import more capital equipment. He mentioned petrochemical technology, oil and
systems
mineral-exploration
equipment,steel-makingtechnologyand power-generating
- the sort of technologyChina has been importingin recent years.. . . But to go

101 International
Herald-Tribune,Oct. 26, 1976.

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128

AndrGunderFrank

beyond thatand predicta big boom in China tradeis around the cornerwould be rash,
givensome realities.. . .102

China has since 1972 embargedon a massiveprogramof purchasingforeign


technologyand advanced high technologyincorporating
equipment,including
the importationof various complete turnkeyplants. The most spectacular
French
symbolof this policy, perhaps,is China's option offerto buy British/
ten
American
Concorde
airliners
after
supersonic
having already purchased
"ordinary"Boeing 7O7's; and the reportedagreementto importBritishRolls
Moreimportantin the
Royce enginesforinstallationin China'smilitaryaircraft.
is
on
China's
new
reliance
long run, however,
foreigntechnologyincludingthe
of
whole
from
purchase
plants,particularly
Japan, to develop its industry.In
1973 alone, China contractedfor the purchaseof 62 whole plants for $1.2
billionor 6 timesmorethanin all of the 1960's combined.103
and throughtheimplementation
of thistechnologicalimport
Simultaneously,
policy,Chineseimportshave risenmuch fasterthanherexports,despitehernet
exportsof petroleumsince 1974. As a result,in 1973, China had a balance of
tradedeficitof a modest $80 million,afterhavinghad a surplusin almostevery
year since 1956, except for threebad harvestyears. Trade balances with the
capitalistcountries,however,had been in deficitin some otheryearsas well,
particularlyeveryyear between 1957 and 1964, as well as duringthe Cultural
Revolution.Withthe socialistcountries,on the otherhand, China has had a
consistenttrade surplusin everyyear since 1956. In 1974, however,withexportsrising28% but importsrising51%, China'soveralltradedeficitroseto over
$1.2 billion.104 But in 1975 the Chinesetradedeficitwas alreadycut back to
U.S. $150 million throughcutbacks on imports,105includingmany already
contractedfor.106 For 1976 and 1977 a surpluswas again consideredpossible
by the same Japanese foreigntrade experts,107(that is, before the above
mentionedpoliticaleventsof October 1976). Aftertheauspiciousbeginnings
of
Chinese oil exports,particularlyto Japan but also to the Philippines,the 30
millionton targetof oil exportsto Japan was reducedagain to 10 milliontons
for 1977 and 15 milliontons in 1981 - thoughin themeantimethereis talkof
Chinese export of oil to the United States!108 Perhaps,afterOctober 1976,
thesetargetswillbe raisedagain.
Howeverall this may turnout, anotherapparentreversalof earlierChinese
policy has now been to accept, indeed to seek, foreigncreditsand loans,which
theypreviouslyrejectedor did not need. So far,however,thesehavebeen on a
20% down paymentand five-yearrepaymentbasis, ratherthan the long-term
102
103
104

See InternationalHerald-Tribune,Nov. 12, 1976.


See CurrentScene, March 1974.
See Far EasternEconomic Review,June 20, 1975.

105

See Far EasternEconomic Reveiw,Mar. 26, 1976.

106

See Financial Times,Feb. 26, 1975.


See Far EasternEconomic Review,June 20, 1976; Le Monde, Apr. 17, 1976.

108

Sec Far EasternEconomic Review,Jan. 23, 1976.

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Long Live Transideological

129

creditscustomaryelsewhere.To pay for these increasedimportsand credits,


China is as alreadyobservedbankingparticularlyon the developmentof heron
and off-shore
petroleumproductionand exports,whichit is also promotingwith
foreigntechnologicalhelp. Additionally,China is drivinghard to increaseher
and no longerat bargainbut at worldmarketprices.
exportsof manufactures,
and medicalequipment,
are
irongoods,instruments
these
machine
tools,
Among
and
also
machines,
chemicals,
radios,elecincreasingly transistor
bicycles,sewing
tric householdand othergoods, wristwatches,
photographicequipment,tires,
and of course clothingand footwear.For theseconsumer
musicalinstruments,
goods, the preferredexport marketfor China is in the developed capitalist
countries,withwhichit has a balance of tradedeficit.Withtheunderdeveloped
countries(not unlike the socialistcountriesof EasternEurope) China already
has a balance of tradesurplus,despitethe factthat it has recentlyincreasedits
importsfromsome of these countriesby buyingdirectlyfromthem the raw
materialsproducedby themthatChinahad previouslypurchasedon the London
09
MetalsExchangeand otherdevelopedcapitalistmarkets.1
Socialist China's insertionin, acceptance of, and use of the capitalistinternationaldivisionof labor is also manifestthroughits use of overseasChinese,
and particularlythe active capitalist businessmenamong them, throughout
South-EastAsia forChina'snationaleconomicand politicalpurposesand policy.
This is especiallyvisiblein China's use of Hong Kong and Macao as entreptsin
its economic relations with the capitalistWest, which gives these colonies,
indeed
colonies thatare stillmaintainedon Chinesesoil withChina'sagreement,
at her insistence,as Portugal'srecentattemptsat decolonizationshow,a unique
role. A substantialportion of Hong Kong's exportsconstitutere-exportsfrom
China, arisingout of its entreptfunction,whichChina maintainsforvarious
purposesof itsown. Moreover,as the HongKong businessmagazine,Far Eastern
EconomicReviewpointsout,
China's dogmaticresistanceto the whole concept of foreigninvestment- both in its
own territoryand in other underdevelopedcountries - is completelywaived in the
case of Hong Kong, where Peking indulges in investmentwith the greatestenthusiasm. . . . The People's Republic of China (P.R.C.) publiclycontrolsinvestmentswhich
annually bringit staggeringsums in hard currency- much more than the U.S. $300
millionwhich is sometimesquoted as an estimateforthese invisibleearnings.This, of
course, is separate from the U.S. $1,400 million or so which China is now earning
yearly by supplying the colony with food, water, consumer goods, and petroleum
fuels,and the extra which it gains by employingHong Kong as an entrepot.. . . Less
easy to follow up. . . is China's involvementin banking,insurance,transport,retailing,
warehouse and cold storage facilities,propertydevelopmentand investment,advertising,and the manufactureof cigarettesand monosodium glutamate.China also controls holding companies which could enable it to invest in virtuallyanything.Most
recently,the Hong Kong Governmenthas been asked to consider permittingthe establishmentof a P.R.C.-controlled plant manufacturingmachine tools and heavy
* *"
machineryon Tsin Yi Island.

The plant is to cost about U.S. $10 millioninitiallyand is intendedto supplement China's alreadylarge exports of machinetools throughand fromHong
109

See CurrentScene, Oct. 1972.


Far EasternEconomic Review,July30, 1976, 44.

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130

AndrGunderFrank

Kong.111
SocialistChina's use of Hong Kong literallyas a capitalistislandcolonymust
be relatedalso to the economic,social,and politicalconditionsthatexistand are
maintainedwithChinesesupportin HongKong:
Hong Kong probably has grosser inequalities of wealth than any society in the
world
In 1971 the Mongkok area of the Colony had a densityof 400,612 people
per square mile - more than ten times the population densityof Tokyo . . . [Hong
Kong] has by farthe highestlevel of utilizationof plant in the textileindustryin Asia:
in 1965, looms were employed the equivalent of 24 hours a day for360 days a year.
No other country approached even 75% of this figure.... In 1968, Hong Kong
workershad the longest workingday and the longestworkingweek of citydwellersin
Southeast Asia: 58% worked 7 days a week, 52% worked 10 hours or more a day.
There is no legal limit.. . . [There] is widespreaduse of child labor. . . . Hong Kong is
a rich territorywhich compiles a huge budget surplus each year, and yet stolidly
refusesto spend this surplus to help the local population. ... In fiscal 1969-70, while
the London-appointed colonial administrationwas spending HK $19,204,686 on its
Social Welfare Department, the Colony's budget showed a surplus of HK
$618,678,000. The bulk of this was sent to London to bolsterthe U.K.'s reservesand
support the pound. By 1972 one American so rce calculated that Hong Kong was
1
providingas much as half all the backingof the pound.1 ^

Le Monde reportsfurtherthatin 1971, 174,339 personsworkedover75 hoursa


week, including13,700 over 105 hours,and that 36,000 childrenworkedillegally.Hong Kong has theworld'shighesttuberculosisrateand thethirdhighest
suiciderate,as well as severalhundredthousanddrugaddicts.But in thisgreatest
and last of the world'sislandparadisesof completelaissez-faire,
even the most
modest demands of labor for higherwages or betterworkingand livingconditions,let alone any possible movementfor liberationor socialism,are condemnedand combattedby thesocialistrevolutionary
Peoples Republicof China
as foreign"Trotskyist"agitation.
China has also been active in foreignaid. Afterbeginninga moderateaid
programin 1956, which dropped to near zero duringthe "involution"of the
CulturalRevolution,Chineseforeignaid expandedrapidlyin the late 1960's to
reachlevelsof $500 milliona yearequivalentsand morein theearly1970's.113
Whileforthe whole period 1956-69 total aid was $1.1 billion,in the fiveyears
1970-74 alone the total reached $2.4 billion.114 The recipientsof Chinese
foreignaid have been more widelydispersedthan those of othersocialistcountries,but about halfof it has been concentratedin Africa,goingup to two-thirds
15
in the 1970's, albeit distributedto 23 different
countriesin thatcontinent.1
The mostimportantproject,of course,has been the construction
of therecentlv
opened TanZam railroad,designed to give Zambia an outlet for its copper
throughTanzania so as to renderit less dependenton South Africa,Rhodesia,
111

Ibid.,80.

112

Books,
Spokesman
HongKong ResearchProject,Hong Kong:A Case to Answer(Nottingham:
1974),25-28.
113 See Current
Scene,Dec 1973.
See FarEasternEconomicReview,
July30, 1976.
115 See
Scene,Dec. 1973.
ibid.,andCurrent

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!
Long Live Transideological
Enterprise

131

and the thenPortuguese-controlled


Mozambique.Otherimportantrecipientsof
Chinese foreignaid in Africa have been Somalia and Egypt where China is
competingwith the Soviet Union,as well as Algeriaand Ethiopia.In capitalist
underdevelopedAsia,Chinahas maintainedtheclosestof relationswithPakistan
and Sri Lanka. Some Chinese aid has also gone to a few countriesin Latin
America.UnlikeSoviet aid, only 5% of China's aid has been allocatedto heavy
industryand all of that in Pakistan.116Moreover,Chinese aid is known for
beingextendedon verymuch more favorabletermsthanthatof othersociolist,
loans for lengthyperiods follet alone capitalist,countries,with interest-free
lowed by periodsof graceifnecessary.Chinesetechnicaland otheraid personnel
in the underdevelopedcountrieshave the reputationof alwaysadaptingthemselves to the standardof livingof the local populationand doingtheirbest to
teach theirlocal counterpartworkers,evenifsociallythe Chinesekeep to themselves.Thus, with regardto the termsof Chineseaid and its executionat the
themselvesmost favorablyfrom
grassroots level,the Chinesereallydistinguish
all othermajorgiversof "aid," capitalistor socialist.
Nonetheless,when Chinese trade and aid relationswiththe underdeveloped
and nationalpoliticapitalistcountriesare examinedin thebroaderinternational
cal context of which they are an integralpart, these Chineseeconomic and
politicalrelationsappear no better- and oftenmarkedlyworse thantheseof
of
thecountries
list
of
some
the
examine
to
It
is
countries.
other
enough
many
or regimesto whichChineseaid has been extended- especiallysincethe fallof
Lin Piao - and the particulartimes at which it has occurred: Ayub Khan's
the Nimeiry
Pakistanat the time of its genocide in East Pakistan/Bangladesh;
of
for
the
bid
after
it
the
in
Sudan,
power progressive
brutallyrepressed
regime
officersand the Moscow-alliedCommunistsin 1971; in the same year to Mrs.
Bandaranaike'sregimein Sri Lanka at the timeof her brutalrepressionof the
JVP uprising(in which,notably,she had thesupportnot onlyof Chinabut also
of the Soviet Union and the UnitedStates,India and Pakistan,Westand East
Germany,Yugoslaviaand Egypt).WhileSovietarmswereshippedto thegovernin Colombo harborrefusedto supplyitsload of arms,
ment,a Chinesefreighter
for
destined
Africa,to the rebelsin need, whom Chou-Enlai then
supposedly
condemnedin his messageof political supportfor Mrs. Bandaranaike.)Other
recipientsof Chinese economic and militaryaid have been Zaire's Mobutu,
whose reactionaryregimehad been installedby the C.I.A.; C.I.A.-agentHolden
Robertoand his F.N.L.A. in Angola,longafterit had become clearthatby then
the M.P.L.A. representeda progressiveforce there; and General Pinochetin
Chile, whom the Chinese supplied with creditsand a shipmentof small arms
(suitable for the repressionof the population)while,at least in word if not in
action, this regime had been condemned by virtuallyevery other civilized
countryin the world individually,and by all of themcollectivelythroughthe
UnitedNationsGeneralAssembly.In the meantime,China has not hesitatedto
"normalize" its relations with the Philippinesafter Marcos has established
martiallaw thereand to makecrystalclearto one and all thatChinadesiresthat
the U.S. military,economic,and political,presencein SoutheastAsia continue
fora long timeto come. This Chineseforeignpolicydoes not seemto varywith
See Far EasternEconomic Review,July30, 1976.

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AndrGunderFrank

132

the ups and downs of the politicalfortunesof itsdomesticleadershipfromone


year or monthto another.This policy is only matchedby China'spublicpolitical wooing of and supportfor the most reactionaryof all available political
forcesand personagesin the imperialistWest,fromFranz JosephStraussand
in the
Edward Heath in Europe to the ex-Secretary
of DefenseJamesSchlesinger
U.S., and last but not least to the Shah of Iranand now to theultra-reactionary
new PrimeMinistersFraserof Australiaand Muldoon of New Zealand. All this,
of course,has onlyone majorreasonand explanation:theChineseoppositionto
the Soviet Union throughall possible means, includingthe policy of "my
a friend
thisstatement,
enemy'senemyis my friend."(Afterhavingformulated
who recentlyreturnedfromChina told me thathe heardthisself-sameformulation used by the Chinesethemselvesin the explanationof theirforeignpolicy
givenin a CommunistPartycadre school in Tientsin!)Only thiscan and does
explain the seeminglyblind supportof PakistanagainstIndia and theU.S.S.R.,
or of Mobutu and Roberto in Africa,or Pinochetin Chile and Straussin Germany,not to mentionthe downright
counter-revolutionary
practiceof "Maoist"
or
partiesin Portugaland elsewherewhen thereappearsto be a Soviet-aligned
Soviet-backedalternativeliberationmovement.The Soviet Union of course,
Lon Nol in
pursuesthe same my enemy'senemyis my friendpolicy,supporting
Cambodia while Sihanouk is in Pekingand maintaining
politicalcontactseven
with Chiang Kai-Shek and his son's regimein Taiwan. The result,however,is
that the economic and politicalliberationof the peoples of theworldand their
progressiveorganizationsnecessarilysuffer;and this includesthe Vietnamese,
who did receiveSoviet and Chinese aid in theirwar of liberation,but not as
muchas theyshouldand could have received.
Korea and Vietnam
It is perhapsappropriateto add a verybriefnote on Korea and Vietnam,
without pretendingto give them the carefulexaminationhere that they no
doubt deserve.The economic and politicalsacrificesand successesof theDemocraticPeoples Republic of Korea and of Vietnamhave won thejust admiration
of progressiveand honest people around the world for many years,and they
continueto do so today. Nonetheless,recentnewshas also been disquietingand
bear further
consideration.
For many years, North Korea faithfullypursued itsjuche (self-reliance)policy, but in
the early 1970's it startedto look to the industrializedcountriesforimports- especially modern technology- so that the countrycould pull itselfup to the technological
level of its bitterrival,South Korea. Trade with the West is now believed to account
for half the North Korean total. No sooner were the trade doors opened, however,
than the trade position deterioratedfrom a small surplus in 1970 to a burgeoning
deficit from 1973, largelybecause of soaringimportprices, includingthe cost of oil
bought fromthe Soviet Union and China. . . . Pyongyang'sdifficultiesare [also] due
to fallingprices received for exports.In addition,the NorthKoreans ofteninvoicedin
17
sterling,and the pound has been fallingrapidlyin value.1

noris thisall:
Two reasons are given for the North Korean economic misery. First: North Korea
importedlargequantitiesof Westernproducts,in orderto fulfillits six-yearplan ahead
See Far EasternEconomic Review,Dec. 19, 1975.

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133

of schedule. In doing so, it moved away fromeconomic realities.Secondly: a significant fall in metals prices on the internationalmetals exchangeshit the NorthKorean
metals industryin its vital nerve. Thirdly: the increase of oil prices by the Soviet
Union and China made the NorthKorean economic crisisworse. . . -118

As a result,NorthKorea's foreigndebtshaverisenrapidly;and it has become


one of the fewcountries- and the only socialistone - to defaulton its loan
repayments.Estimatesof its foreigndebt vary. One estimate for 1975 was
$1,130 million,of which$700 millionto socialistcreditors.119For 1976, externaldebt was more thanhalf to capitalistcountries.120The most important
debts to a capitalistcreditorare due to Japan. It is estimatedthat $270-300
millionof thesewereoverduealreadyin mid-1976and thatat least $120 million
have alreadybeen defaulted.121The Japanese are carefulnot to forecloseon
but in
any of thesedebtsas longas possible,not out of humanitarian
generosity,
orderto avoid a chainreactionof bad debtsand exportcreditstoppageat home.
On theotherhand,
Paris: North Korea's creditorshave adopted a policy of 'every man for himself since
Pyongyanghas made it clear debt repaymentswill not begin forseveralyearsand it has
become obvious neitherthe Chinese nor the Soviets will bail it out. Of Pyongyang's
communistcreditors,only China has offeredany sympathy.When PresidentKim II
Sung was in Peking last year, it is believed they agreed to cancel North Korea's U.S.
$200 milliondebt. At the same time,Kim also intendedto visitMoscow. . . . Although
the Soviets contributedto Pyongyang'sheavy debt burden by increasingthe price of
oil sold to North Korea in 1974, they have not offeredto reduce the debt, estimated
at U.S. $400 million.122

an
Thus, thecapitalistworldcrisishas created,or at leastseriouslyaggravated,
economic and politicalcrisisof majorproportionsalso in NorthKorea, which
had long distinguished
itselffor its self-reliant
economicand technologicaldeThe
internal
crisis
has led to countlessand invelopment.
resulting
political
cessantrumorsof a successioncrisis,involvingKim II Sung'sson Kim Chong II,
his supporters,and his opponents.Indeed, even the spectacleof the expulsion
of NorthKorean diplomatsfromDenmarkforsmuggling
and
whisky,cigarettes,
even drugs,and the subsequentrevelationof similarsystematicNorthKorean
and elsewhere,could no longer
activityin Sweden,Finland,Malaysia,Argentina,
be laid to aberrationsof individualdiplomatsbut had to be accounted for
throughinstructionsto Korean diplomatsto do anythingto earn additional
foreignexchangefor the state treasury.123And what,we may ask, is the explanationfor the factthat the DemocraticPeoples Republic of Korea was still
trainingMobutu's militaryforcesin Zaire - withpublicappearancesat military
parades- whilethe latterwas helpingthe F.N.L.A. to combat the M.P.L.A. in
Angolain 1975?
| 1O
1
Oct.22, 1976.
See Frankfurter
Rundschau,
1
| Q
ll*
See FarEasternEconomicReview,Dec. 19, 1975.

120 See
ibid.,Nov.5, 1976.
121 See
ibid.,July16, 1976andNov.5 1976.
1 11
A FarEasternEconomic
Review,
June11, 1976.
123 Sec
Oct.22, 1976.
Rundschau,
ibid.,Nov.5, 1976;Frankfurter

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134

AndrGunderFrank

The Vietnameseachieved a historicmilitaryand political as well as moral


victoryover Americanimperialismon April 30, 1975. But, perhapsnot surdifficult.
prisingly,
theyhave foundreconstruction
Nayan Chandareports:
Vietnam has been forcedinto a major reappraisalof its economic strategy.The reasons
are dissapointmentover the lack of aid from the socialist camp, and the growing
urgencyof providingfood and otheressentialsto a countrywhose population now has
peace-time expectations.... It is now clear Hanoi will trim some of its ambitious
heavy industryprojects and give top priorityto agricultureand exports of farmproducts. And it is steppingup its search for capital and technologyfromthe developed
capitalistcountries.This change of strategyis not only a fundamentaldeparturefrom
the economic philosophy embracedby the country'since 1960 - Soviet-styleplanning
emphasisingheavy industry- but is also noticeablydifferentfromthe plan outlinedin
June by V.W.P. secretaryLe Duan.124

EarlierChandahad reportedthat

Vietnam Workers'Party First SecretaryLe Duan has made it clear in his latestspeech
that technologywill be givenpriorityover narrowideological considerationsin order
to rebuild the country'sbattle-scarredindustry.. . . Apparently,most investmentwill
go towards buildingheavy industryin the north,while the south concentrateson light
industryand agriculture.In a commentaryon the speech, the Hanoi daily Nhan Dan
went furtherand said that scientificand technicalrevolution"is the key to achieve the
goal of socialism." If this is the official line, it is inevitable that massive foreign
assistancewill be required.125

That thisis th officiallinehas been confirmed


by otherVietnamesespokesmen,
such as a VietnameseAmbassadorwho, to the expresssurpriseof his listeners
includingthe presentwriterat an Afro-AsianConference,used the self-same
words in outliningas well the long-standing
Vietnamesestrategyof developing
with
large-scaleagriculture
special emphasison export.In his laterabove-cited
Chanda
states
that
"the
report,
presentPlan relegatesheavyindustryto third
after
and
place
agriculture lightindustry.. . . 'We mustadmit',[ForeignMiniTrinh
'we have failedover the past severalyearsto understandtruly
said,
ster]
"* 26
theextremelyimportantpositionof agriculture.'
However,agricultureand lightindustryas well as the coal minesare to increase productionnot only for Vietnameseconsumptionbut also to increase
exports in order to obtain capital to financeheavy industry.As the political
reportto the Fourth PartyCongressin December 1976 says:
Foreign trade must be stepped up and become a crucial part of the whole economic
activityof our country. The aim of imports and exports is to acquire for ourselves
modern techniques of the world and to bringhighereconomic resultsto production
and labor. . . . Hanoi's urgencyin boostingfood and consumergoods production,have
led to the adoption of an open-minded foreign policy and a realistic domestic
policy. . . . While senior Hanoi officialshave been visitingWesternEurope and Japan
seeking bilateral aid and trade, the country has joined the InternationalMonetary
Fund and Asian Development Bank and is prepared to accept joint ventureswith
* 7
foreigncompanies. 2
124 Sec
ibid.,July16,1976.
125
Ibid.,Nov.19, 1976.
126
Ibid.,Dec. 17,1976.
127
* FarEasternEconomic
Review,Dec. 17, 1976.

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Long Live Transideological


Enterprise!

135

Active Vietnameseinterestin foreigntrade and the prospectivepassage of


laws permitting
privateforeigninvestment- with minoritysharesand profit
takingthroughcommodityexports- are reportedby the Westernpresswith
increasingfrequency.128Particularlynotable is the statementby the Party's
FirstSecretaryLe Duan - in whichis perhapsnot yetsupersededby the recent
change in emphasis- that "special effortsmust be made to build a petro29 and the
chemicalindustry"1
bids for
frequentreportsthatVietnamis inviting
off-shorepetroleumexplorationby major capitalist,includingAmerican,oil
companies.130
NayanChandanotes:
Vietnam is prepared to provide substantialincentives,including100% foreignownership, to investorsin export industriesin south Vietnam. And Westernbusinessmen
who have been informedof thispolicy by Hanoi thinkthatas a resultVietnambefore
long could emergeas a competitornot only for foreigninvestmentin Southeast Asia
but as an exporterof lightindustrialproducts. AlthoughHanoi has yet to publish its
investmentcode, senior Vietnamese officialshave told businessmenthat if theybring
in machinesand expertiseto produce exportable commoditiesthey can expect many
advantageousconditions and a 10-15 year non-nationalizationguarantee.It is not yet
clear whether export promotion zones, as the old Saigon regime tried to establish.. . will be set up. But Hanoi appears ready to allow tax-freeimportof machinery and raw materialsand duty-freeexport of the products fromfullyforeign-owned
plants. . . . The cost of the plentifullabour in Vietnamis expected by businessmento
be competitivewith Southeast Asian countries,and skillsare claimed to be as good as
those in Hong Kong and Singapore.131

Furthermore, it had been observed earlier that:


In a major changefromearlierdenunciationsof "neo-colonialist"countries.. . . [Vietnam] has quitely gone about mendingdiplomaticfenceswithMalaysia,Indonesia and
the Philippines.. . . Hanoi's media has maintained a surprisingly
low-keyattitude to
individualinsurgencymovementsin South-east Asia. Indeed, there has been no evidence of materialsupport fromHanoi for the insurgents,thus givingno substanceto
the specter that haunts the leaders of the region of 1 million M-16 automatic rifles
capturedin Saigon findingtheirway into insurgenthands.132

the political situationeven afterthe October 6, 1976 reFinally,summarizing


actionarymilitarycoup in Thailand,the Regional Editor of the Far Eastern
Reviewwrote:
Since the fall of Indochina, political obsessions in Asia have givenway to economic
anxieties.. . ,To use a Chineseidiom, the pragmatistsare takingover fromthe radicals
- in China itself,in Vietnam, and in South Asia. . . . The communistcountriesare
playing down proletarianinternationalismwith only verylow-keybacking for insurgencies.. . . The new pragmatismshows itselfmost conspicuouslyin Vietnam.133
128 See Le
i oq

Dec. 13, 1976.


Rundschau,
Monde,Apr.27, 1976;Frankfurter

Far EasternEconomic Review,July 16, 1976.

130

Ibid., May 28, 1976.

131

Ibid.,Dec. 31, 1976.

132

Ibid.,July16, 1976.

133

Ibid.,Nov.12, 1976.

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136

AndrGunderFrank

SomeImplications
In conclusion,
theconsomemajorclaimsof thesocialistcountries
regarding
for
that
the
existence
for
their
and
their
have
sequences
struggle liberapolicy
tionand socialismelsewhere
in the worldappearto be half-truths,
and some
half-truths
are sometimesworse than outrightfalsehoods.This conclusion
of theparticipation
of thesocialistcountries
in
emergesfromourexamination
the capitalist
international
divisionof laborevenwithouta detailedanalysisof
the socialistsocietiesthemselves.
The continuedindeedincreasing
and often
of
the
socialist
in
the
economies
enthusiastic,
participation
capitalistinternationaldivisionof laboraccording
to thelawsandrulesofthelatteris enough
to castthemostseriousdoubton thefullveracity
of theclaimsofthesocialist
countries
abouttheirsocialism
anditsconsequences.
In countlessofficialdeclarations
and statements
by theirauthorized
spokesthe
socialist
countries
make
two
main
of
sets
claims:
men,
One,themereexistence and exampleof the socialistcountries
exercizesa mostbenenecessarily
ficialinfluence
on theotherwise
its
world
and
internal
contradictions,
capitalist
whichare therebyameliorated,
naturalbellireducingcapitalism'sotherwise
of
its
its
and
of
coloniesand
cosity,exploitation
workingclass,
oppression
neo-colonies.
the
active
of
co-existence
of
thesocialist
Secondly,
policy peaceful
their
selfless
to
the
of
the
countries,
plus
help
peoples
capitalist
underdeveloped
countries
andtheirmovements
ofnationalliberation,
makea majorcontribution
to the maintenance
of peace, the furtherance
of nationalliberation,
and the
of
or
transition
to
in
socialism
the
world.134
there
is some
promotion
Though
truthto theseclaims,theycannotbe acceptedat facevalue,and uponfurther
examination
haveturnedoutto be half-truths,
whoseacceptance
without
serious
would
be
indeed
for
who
those
are
to
committed peace,
qualification
dangerous
andsocialism.
liberation,
The existenceof thegroupof socialistcountries,
sinceWorldWarII, hasthus
farcontributed
thebalanceof
to theprevention
of anothermajorwarthrough
nuclearterror.
Butit is lessclearthatthisis theconsequence
oftheirsocialism.
It maybe said to derivefromthebalancebetweentwosuper-powers,
regardless
of how theSovietUnionmaybe defined.The multipolarity
fromthe
emerging
Sino-Sovietsplit,as well as the increasedpowerof EuropeandJapan,may
contribute
to a mutualbalanceof powerstrategy
similarto thatknownin the
WorldWarI, butcertainly
ofsocialno thanksto theexistence
periodpreceding
istcountries.
The balanceof power,however,
is inherently
unstableandhasnot
guaranteed
peace in the past; and thereis no reasonto believethatit will
do so in thefuture.
necessarily
With regardto capitalistand imperialist
Klein claimsthat
exploitation,
becauseoftheexistence
ofsocialism,
and
In view of the changed power relations,the influenceof socialismon imperialismand
the effectsor the example of socialism.. . , themonopolybourgeoisieis, in the interest
of assuringits dominance, obliged among other thingsto expand the sphere of social
consumption,that is withregardto the productionof surplusvalue - of unproductive
labor. . . . [Thereby socialism] also makes a significantcontribution to the fight
134 For an
exampleof suchclaims,see forexampleDieterKlein,"PolitUcheAspektedet Kampfes
zwischenSozialismusund Kapitalismus,"
I.P.W.Berichte(Berlin,DDR), No. 3, 1976. Kleinclaimsthat
"theinfluence
ofsocialism
modifies
theoperation
ofthelawsofcapitalism
. . . ."

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!
Long Live Transideological
Enterprise

137

against reformism,social democracy, and bourgeois conceptions of society generally. ... The power of socialism imposes limitsto the operationof imperialistagressiveness and produces a limitation of the possibilitiesof imperialismto exploit other
peoples. It even obliges imperalismto make certain concessions to these countries,
which cannot be explained throughprivate monopoly competition for maximum
profitsand whichalso enterinto contradictionwiththe same.1^5

It is undeniablethat the existenceof the socialistcountriesexertsan influence


if only because it has
on the operationof nationalcapitalismand imperialism,
of
withdrawn
the
world's
30%
partially(and temporarily?)
people and their
resourcesand marketsfromthe sway of imperialism.But it is less easy to
demonstratethatit has been the existenceof socialismor its example thathas
induced,or even helpedto induce,capitalto introducethewelfarestatein some
of its domains.These developmentsare to be explainedprimarily
by the exigencies of capital accumulation,and certaindemands of the workingclass in the
West. However,far fromhavingbecome more revolutionary,
be it by the exampleof or throughhelp or advicefromthesocialistcountries,the workingclass
and its leadershipin the Westhas become more and more reformist
and socialdemocraticthroughthe influenceof the socialistcountriesof EasternEurope
and the Soviet Union. This was the case most particularlyin the immediate
movepostwarperiod, when Stalin helped sabotage the socialistrevolutionary
ment in Italy, France, and Greece, and would have done so in China if the
Maoists had followed his advice or had submittedto his pressure.Nor has
Chinesesocialism,particularlyin its most recentdevelopment,had suchrevolutionaryeffectson the workingclass in theWest.OnlyVietnamand Cuba can in
any way be said to have had the kind of influence,particularlyin sparkingthe
1968 movements,that Klein attributesto the socialistcountries;and that influencewas combattedtoothand nail by theverysocialistcountriesto whichhe
refers.It is equally or even more impossibleto accept the claim thatthe existence of socialismhas exerciseda limitinginfluenceon imperialistexploitation
of, and has obligedit to make concessionsto, the underdevelopedcountries.If
there is any of this at all, then it is throughthe provisionof an alternative
economic partnerin the socialistcountries,as forIndia or Egypt.But thishas
not been a socialistalternative,
and could in principlehavebeen also offeredby
anothercapitalistimperialistrival,as is common throughoutthe worldin the
sale of arms (by the French),betterpetroleumdeals (by the Italians), or in
variousother economic relations(with anybody and everybody).On the contrary,it can be argued,withequal or greaterforce,thatthepartialeliminationof
the imperialistdomain in the socialistcountrieshas obligedimperialismto increaseits exploitationand oppressionin othercountries.Even in regardto Cuba
and Vietnam,the reactionof imperialism
and itslocal allieshas been to increase
its repressionof liberationmovementsin Latin Americaand SoutheastAsia in
the 1960's, even if the existenceof the Soviet Union and China contributedto
the inabilityof the UnitedStatesto crushCuba and Vietnam.And theliberation
of all of Indochinahas thusfaronlyaccentuatedimperialist,
and local repression
and reaction,in other parts of Southeast Asia. This imperialistreaction,of
course,is not a reasonto cast blame on thesesocialistcountries;but it also does
notaffordthem,and stilllesstheSovietUnionand China,muchcreditforlimiting
135

ibid.,4.

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138

AndrGunderFrank

imperialism'spossibilitiesof exploitationand repressionthroughtheir mere


existence. Whereis the evidence that "the modificationof the world power
relationsstrengthens
theliberationmovementsin thedevelopingcountries,helps
nationalizationmeasuresagainstforeignmonopoliesand that the raw materials
S6
price dictates of the monopoliesare broken?"1 The mere existenceof the
socialistcountries,and least of all theirprogressive
in thecapitalist
rintgration
international
divisionof labor,has not furthered
thesemovementsand measures
appreciably,and the activepolicy of the socialistcountrieshas only supported
themin waysthatrequireseriousqualification.
Some socialistcountrieshave certainlyofferedsome activesupportto Communistparties,liberationmovements,and bourgeois nationalistgovernments
intenton some measuresto nationalizeforeignproperty,or to getbetterprices
socialist
for theirraw materials.But thissupporthas not been forparticularly
or
thatof
socialist
countries
on
of
the
on
either
the
revolutionary
part
purposes,
the groups that they have supportedin capitalistunderdevelopedcountries.
More often than not, and particularlyat the most criticalmomentssuch as
duringthe Spanishcivilwar,thepostwarperiodin WesternEurope,and literally
countless instancesin the underdevelopedcountries,this economic,political,
and militarysupport from the "socialist" countrieshas been for downright
S7
counter-revolutionary
purposes.1 And where this supporthas been used for
movesocialistpurposes,as in Indochina,it was so used by the revolutionary
Both the Soviet Union and China in
ment,because it itselfwas revolutionary.
factrepeatedlyurgedthe Vietnameseto abandontheirrevolutionary
pretensions
as unsuitableor untimely,as Stalin similarlyhad urgedtheChinesein 1947-49.
The Soviet Union in particularwithheldmilitaryaid thatit could and should
have giventhe Vietnamese,such as Mig-21and Sam II Missilesthatcould have
affordeda defenceagainstU.S. B-52 bombersand otherweapons,but whichthe
Soviet Union denied to the Vietnamesewhile Egyptwas alreadysuppliedwith
thesesame Soviet weapons. Peking'sand Moscow's receptionof Nixonwhilehe
was bombingHanoi and miningits harbor- and whilethe Vietnamesethemselves were modifyingthe Soviet-supplied
missilesso theycould bringtheB-52's
down with them,of course speak for themselves.As for "local" wars in the
underdevelopedcountries,neitherthe existencenor the policy of the socialist
countrieshave preventedor even impeded them in the past; and theygiveno
promiseof doing so eitherin the future.
of
As forsupportby the socialistcountriesof EasternEurope fortheefforts
underdevelopedcountriesto raise the pricesof raw materials,the factthatthe
Soviet Unionmade commoncause withthemostdiehardimperialist
countriesat
the U.N.C.T.A.D. and the Law of the Sea Conferencesagainstthe attemptsto
protect and raise raw materialsprices throughthe Common Fund and other
measuresis an indicationof how far this supportwent. If the Soviet Union
she
supportedthe increasein the price of oil, was it not because coincidentally
was also an exporterof the same? Did the Soviet Union not equallywelcomea
136

Ibid,6.

137
For post-war WesternEurope, sec for instance Fernando Claudin, The CommunistMovement:
From Cominternto Cominform,2 vol., (New York: MonthlyReview Press, 1976); also Joyce Kolko, op.
cit.

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Long Live Transideological


Enterprise!

139

high price for gold, of which she is the world's second most importantpro- after South Africa? As far as the termsof trade and the
ducer/exporter
international
divisionof labor in generalgoes, we have seen thatthe "socialist"
countriesbehave no differently
from,and sometimesworsethan,the imperialist
ones, except that for reasonsof theirown they preferlonger-term
price and
become
And
now
the
unless
burdensome.
they
arrangements,
delivery
imperialist
countriesalso showincreasinginterestin stabilityof supplyof rawmaterials,but
commonfundin whichthey
like the Soviet Union not througha multilateral
cannotexercisetheirown bargaining
powerbilaterally.
If
Nationalizationshave long since ceased to be an obstacle forimperialism.
can
the
firm
invest
in
is
which
more
paid,
imperialist
profitable
compensation
abroad to do the same elsewhere,and ifnationalization
endeavours,or transfer
promotesthe formationof mixed companiesbetween imperialistand underare
developed state capital, then the imperialistfirmsand theirgovernments
morethan satisfiedand happy. Supportforsuch nationalizationmeasuresfrom
socialistcountriesis, of course, not so welcometo the imperialistones if this
the bargaininghand of theunderdevelopedstates.But again
supportstrengthens
the objectionis not because the supportis socialist,but ratherbecause it offers
an alternative,which could and oftenis similarlyofferedby anotherWestern
linkswiththestatesector
capitaliststate. For the socialistcountries,investment
of the underdevelopedones is, as we haveseen,beneficial,particularly
insofaras
it providesa basis for exports of otherwisenot so competitiveproductsof
socialist heavy industry.For the underdevelopedcountries,however,this relationis not particularly
more favorablethan it would be or is witha capitalist
And
thecase, thereis
everybodyis made happywhen,as is increasingly
supplier.
collaboration
in
such
East-West-South
major capital projects- everytripartite
body, thatis, exceptthemassesof thepeople,and theirliberationmovementsin
these underdevelopedcountries,who are condemnedto suffercontinuedand
increasingexploitationand repressionfrombureacratizedand militarizedstate
division
capitalism,supportedby Westand East in thename of theinternational
of labor.
We must unfortunatelyconclude that both the Soviet theory of "nonand supposedcapitalistdevelopment"underthe leadershipof thebureaucratic,
in
the
anti-feudal
Third
and
World,and
ly progressive
anti-imperialist
bourgeoisie
the Chinesetheoryof "new democraticrevolution"throughthe anti-imperialist
allianceof fourgroups(workers,peasants,pettybourgeoisie,and
and anti-fuedal
nationalbourgeoisie)againstfeudalismand super-powerimperialism,are little
morethanideologicalfigleafsfortheirrespectiveeconomicinterestsand political policies. Both ideologieshave been invokedin supportof theirsponsor's
respectiveforeignpolicies in Indonesia,India, Egypt,Ghana,Chile,Angola,and
othercountriesin the ThirdWorldas well as in international
forumssuch as the
UnitedNations,U.N.C.T.A.D., the Non-AlignedNationsConference,etc. Their
reformistand sometimesdownrightreactionarysupportfor
indistinguishably
bourgeoisregimes,and frequently
equallyindistinguishable
ideological,political,
and even materialoppositionto popularrevolutionary
movementsin the Third
World,has led to political disasterin one countryafterthe other.We must
concludethatunfortunately
thiskindof "socialist"sponsored"third-worldism,"
whicharguesthat the principalcontradictionis between on the one side the

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140

AndrGunderFrank

"national" bourgeoisies,allied among each other, and their workersand


peasants,and on the otherside theircommon imperialistenemy,ratherthan
betweenthe rulingbut increasingly
dependentbourgeoisiesand their
imperialist
own proletariatand peasantry,offerslittlehope and substantialthreatto the
aspirationsfor national liberationand socialist revolutionin a world internationaldivisionof labor,based on increasingoppressionand super-exploitation
of thepeople by imperialism
in alliancewiththelocal bourgeoisie.

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