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Humanities & Social Science

Year 12 Modern History

Socialism or State Capitalism?

So what did the Bolsheviks aim to create in Russia? Lenin was clear, state capitalism. He argued this
before and after the Bolsheviks seized power. For example, in 1917, he argued that "given a really
revolutionary-democratic state, state-monopoly capitalism inevitably and unavoidably implies a step,
and more than one step, towards socialism!" He stressed that "socialism is merely the next step forward
from state-capitalist monopoly . . . socialism is merely state-capitalist monopoly which is made to serve
the interests of the whole people and has to that extent ceased to be capitalist monopoly."

The Bolshevik road to "socialism" ran through the terrain of state capitalism and, in fact, simply built
upon its institutionalised means of allocating resources and structuring industry. As Lenin put it, "the
modern state possesses an apparatus which has extremely close connections with the banks and
syndicates, an apparatus which performs an enormous amount of accounting and registration work . . .
This apparatus must not, and should not, be smashed. It must be wrestled from the control of the
capitalists," it "must be subordinated to the proletarian Soviets" and "it must be expanded, made more
comprehensive, and nation-wide." This meant that the Bolsheviks would "not invent the organisational
form of work, but take it ready-made from capitalism" and "borrow the best models furnished by the
advanced countries."

Once in power, Lenin implemented this vision of socialism being built upon the institutions created by
monopoly capitalism. This was not gone accidentally or because no alternative existed. As one historian
notes: "On three occasions in the first months of Soviet power, the [factory] committees leaders sought
to bring their model [of workers' self-management of the economy] into being. At each point the party
leadership overruled them. The Bolshevik alternative was to vest both managerial and control powers in
organs of the state which were subordinate to the central authorities, and formed by them."

Rather than base socialist reconstruction on working class self-organisation from below, the Bolsheviks
started "to build, from the top, its 'unified administration'" based on central bodies created by the
Tsarist government in 1915 and 1916. The institutional framework of capitalism would be utilised as the
principal (almost exclusive) instruments of "socialist" transformation. "Without big banks Socialism
would be impossible," argued Lenin, as they "are the 'state apparatus' which we need to bring about
socialism, and which we take ready made from capitalism; our task here is merely to lop off what
capitalistically mutilates this excellent apparatus, to make it even bigger, even more democratic, even
more comprehensive. A single State Bank, the biggest of the big . . .will constitute as much as nine-tenths
of the socialist apparatus. This will be country-wide book-keeping, country-wide accounting of the
production and distribution of goods." While this is "not fully a state apparatus under capitalism," it "will
be so with us, under socialism." For Lenin, building socialism was easy. This "nine-tenths of the socialist
apparatus" would be created "at one stroke, by a single decree."
War Communism had six principles:

1) Production should be run by the state. Private ownership should be kept to the minimum.
Private houses were to be confiscated by the state.

2) State control was to be granted over the labour of every citizen. Once a military army had served
its purpose, it would become a labour army.

3) The state should produce everything in its own undertakings. The state tried to control the
activities of millions of peasants.

4) Extreme centralisation was introduced. The economic life of the area controlled by the
Bolsheviks was put into the hands of just a few organisations. The most important one was the
Supreme Economic Council. This had the right to confiscate and requisition. The speciality of the
SEC was the management of industry. Over 40 head departments (known as glavki) were set up
to accomplish this. One glavki could be responsible for thousands of factories. This frequently
resulted in chronic inefficiency. The Commissariat of Transport controlled the railways. The
Commissariat of Agriculture controlled what the peasants did.

5) The state attempted to become the sole distributor as well as the sole producer. The
Commissariats took what they needed to meet demands. The people were divided into four
categories – manual workers in harmful trades, workers who performed hard physical labour,
workers in light tasks/housewives and professional people. Food was distributed on a 4:3:2:1
ratio. Though the manual class was the favoured class, it still received little food. Many in the
professional class simply starved. It is believed that about 60% of all food consumed came from
an illegal source. On July 20th 1918, the Bolsheviks decided that all surplus food had to be
surrendered to the state. This led to an increase in the supply of grain to the state. From 1917 to
1928, about ¾ million ton was collected by the state. In 1920 to 1921, this had risen to about 6
million tons. However, the policy of having to hand over surplus food caused huge resentment
in the countryside, especially as Lenin had promised “all land to the people” pre-November
1917. While the peasants had the land, they had not been made aware that they would have to
hand over any extra food they produced from their land. Even the extra could not meet
demand. In 1933, 25 million tons of grain was collected and this only just met demand.

6) War Communism attempted to abolish money as a means of exchange. The Bolsheviks wanted
to go over to a system of a natural economy in which all transactions were carried out in kind.
Effectively, bartering would be introduced. By 1921, the value of the rouble had dropped
massively and inflation had markedly increased. The government’s revenue raising ability was
chronically poor, as it had abolished most taxes. The only tax allowed was the ‘Extraordinary
Revolutionary Tax’, which was targeted at the rich and not the workers.
NEP: the New Economic Policy

The New Economic Policy (NEP), introduced by Lenin at the Tenth Party Congress in March 1921,
represented a major departure from the party's previous approach to running the country. During the
civil war, the Soviet state had assumed responsibility for acquiring and redistributing grain and other
foodstuffs from the countryside, administering both small- and large-scale industry, and a myriad of
other economic activities. Subsequently dubbed (by Lenin) "War Communism," this approach actually
was extended in the course of 1920, even after the defeat of the last of the Whites. Many have claimed
that War Communism reflected a "great leap forward" mentality among the Bolsheviks, but desperation
to overcome shortages of all kinds, and particularly food, seems a more likely motive. In any case, in the
context of continuing urban depopulation, strikes by disgruntled workers, peasant unrest, and open
rebellion among the soldiers and sailors stationed on Kronstadt Island, Lenin resolved to reverse

The linchpin of NEP was the introduction of a tax-in-kind, set at levels considerably below those of
previous requisition quotas, which permitted peasants to dispose of their food surpluses on the open
market. This concession to market forces soon led to the denationalization of small-scale industry and
services; the establishment of trusts for supplying, financing, and marketing the products of large-scale
industry; the stabilization of the currency; and other measures, including the granting of concessions to
foreign investors, all of which were designed to reestablish the link (smychka) between town and
country. Referring to NEP as a retreat of the state to the "commanding heights of the economy" (large-
scale industry, banking, foreign commerce), Lenin insisted that it had to be pursued "seriously and for a
long time."

Under NEP the Soviet economy revived. By 1926-27, most economic indices were at or near pre-war
levels. But recovery via market forces was accompanied by the re-emergence of a "capitalist" class in
both the countryside (the kulaks) and the towns (NEPmen), persistent unemployment among workers
(some of whom referred to NEP as the "new exploitation of the proletariat"), and anxieties within the
party about bourgeois degeneracy and the loss of revolutionary dynamism. The triumph of Stalin over
his political rivals, the adoption of the First Five-Year Plan for industrialization, and the decision to
launch a "Socialist Offensive" against the kulaks effectively marked the abandonment of NEP by 1929.