Trotsky on “State Capitalism” (1922)

There’s more to Leon Trotsky than the West’s — Orwell’s — Trotsky. He was an able thinker before his narcissism in defeat turned into acts of sabotage. ^[1]

This speech excerpt was first published, under the original sub-heading “The Forces and Resources of the Two Camps,” in The New Economic Policy of Soviet Russia and the Perspectives of the World Revolution (Izvestia nº 259, 16 November 1922).

From the helm of a triumphant Soviet Union, Trotsky defends the theoretical foundations of Lenin’s then-controversial “New Economic Policy.” He directly rebukes flippant accusations of “state capitalism” from various powerless European communists such as Karl Kautsky, who claimed that the NEP constituted a “retreat” from socialism.

The text remains very relevant today in the context of Deng Xiaoping’s explicitly NEP-inspired Reform and Opening Up. ^[2] While Trotskyists viciously denounce China’s as (yet another) revolution betrayed, the Chinese revolution carries on.

Whither is the NEP leading us: Toward capitalism or toward socialism? This is, of course, the central question. The market, the free trade in grain, competition, leases, concessions — what will be the upshot of all this? If you give the devil a finger, mightn’t it be necessary to give him next an arm and then a shoulder, and, in the end, the whole body, too? We are already witnessing a revival of private capital in the field of trade, especially along the channels between the city and the village. For the second time in our country private merchants’ capital is passing through the stage of primitive capitalist accumulation, while the workers’ state is passing through the period of primitive socialist accumulation. ^[3] No sooner does private merchants’ capital arise than it seeks ineluctably to worm its way into industry as well. The state is leasing factories and plants to private businessmen. The accumulation of private capital now goes on, in consequence, not merely in trade but also in industry. Isn’t it then likely that Messrs. Exploiters — the speculators, the merchants, the lessees and the concessionaires — will wax more powerful under the protection of the workers’ state, gaining control of an ever larger sector of the national economy, draining off the elements of socialism through the medium of the market, and later at a propitious moment, gaining control of state power, too? For we are as well aware as Otto Bauer that economics constitutes the social foundation, while politics is its superstructure. So doesn’t all this really signify that the NEP is a transition to capitalist restoration?

In answering abstractly a question posed in so abstract a manner, no one can of course deny that the danger of capitalist restoration is by no means excluded, no more than, in general, danger is excluded of a temporary defeat in the course of any struggle. When we fought Kolchak and Denikin, who were backed by the Entente, we incurred the likely danger of being defeated as Kautsky benignly expected from one day to the next. But, while taking into consideration the theoretical possibility of defeat we oriented our policy in practice upon victory. We supplemented this relation of forces with a firm will and a correct strategy. And in the end we conquered. Once again there is war between the self-same enemies: the workers’ state and capitalism. But this time the hostilities occur not on the military arena but in the field of economy. Whereas during the civil war there was a duel for influence over the peasants between the Red Army on the one side and the White Army on the other, so today the struggle between state capital and private capital is for the peasant market. In a struggle it is always necessary to have the fullest and most accurate estimate possible of the forces and resources disposed by the enemy and at our own disposal. How do matters stand on this score?

Our most important weapon in the economic struggle occurring on the basis of the market is — state power. Reformist simpletons are the only ones who are incapable of grasping the significance of this weapon. The bourgeoisie understands it excellently. The whole history of the bourgeoisie proves it.

Another weapon of the proletariat is that the country’s most important productive forces are in its hands: the entire railway system, the entire mining industry, the crushing bulk of enterprises servicing industry are under the direct economic management of the working class.

The workers’ state likewise owns the land, and the peasants annually contribute in return for using it, hundreds of million of poods (one pood equals 36 lbs.) in taxes in kind.

The workers’ power holds the state frontiers: foreign commodities, and foreign capital generally can gain access to our country only within limits which are deemed desirable and legitimate by the workers’ state.

Such are the weapons and means of socialist construction.

Our adversaries gain of course the opportunity to accumulate capital even under the workers’ power — exploiting above all the free trade in grain. Merchants’ capital may infiltrate and is already infiltrating industry, leasing enterprises, making profit on them and growing. All this is absolutely incontestable. But what are the reciprocal quantitative relations between these contending forces? What is the dynamic of these forces? In this sphere as in all others quantity passes into quality. If the country’s most important productive forces were to fall into the hands of private capital, then there could not naturally even be talk of socialist construction and the days of workers’ power would be numbered. How great is this danger? How close is it? Only facts and figures can give an answer to this question. I shall cite the most important and indispensable data.

Our railway system extends for 63,000 versts, employs more than 800,000 persons, and is wholly in the hands of the state. No one would deny that the railway system is a very important factor in economic life, and in many respects a decisive factor; and we do not propose to let it slip out of our hands.

Let us now consider the field of industry. Even now under the New Economic Policy all industrial enterprises without a single exception remain the property of the state. True enough, some of these enterprises are leased out. But what is the correlation between the industries which the state continues to operate itself and those which it has leased?

This correlation may be gauged from the following figures: There are more than 4,000 state-owned and state-operated enterprises, employing approximately one million workers; there are a little less than 4,000 leased enterprises employing all told about 80,000 workers. This means that in the state enterprises the average number of workers is 207 workers per enterprise, whereas in the leased enterprises the average is 17 workers. The explanation for this is to be found in the fact that under lease are secondary and, for the most part, tertiary enterprises in the light industry. But even of the leased enterprises only a little more than half (51 per cent) are exploited by private capitalists: the remaining enterprises are operated by individual commissariats and distributive co-operative societies who rent them from the state and run them on their own account. In other words, there are about 2,000 of the smallest enterprises employing 40,000 to 50,000 workers under the exploitation of private capital as against 4,000 of the most powerful and best equipped enterprises, employing approximately one million workers, which are operated by the soviet state. It is laughable and ridiculous to talk of the triumph of capitalism “in general” in the face of these facts and figures. Naturally the leased enterprises compete with the state-operated enterprises and from an abstract standpoint, one may say that if the leased enterprises are run very well while the state enterprises are run very poorly, then over a period of many years private capital would devour state capital. But we are still very far removed from this. Control over the economic process remains in the hands of the state power; and this power is in the hands of the working class. In re-establishing the market, the workers’ state naturally introduced a number of juridical changes indispensable for obtaining a market turnover. Insofar as these legal and administrative reforms open up the possibility of capitalist accumulation they constitute indirect but very important concessions to the bourgeoisie. But our neo-bourgeoisie will be able to exploit these concessions only in proportion to its economic and political resources. We know what its economic resources are. They are less than modest. Politically its resources are equal to zero. And we shall do everything in our power to see to it that the bourgeoisie does not “accumulate capital” in the political field. You ought not to forget that the credit system and the tax apparatus remain in the hands of the workers’ state and that this is a very important weapon in the struggle between state industry and private industry.

True enough, private capital plays a more extensive role in the field of trade. No exact figures on this score are as yet available. According to very rough approximations made by statisticians of our distributive co-operatives, private trading capital comprises 30 per cent of the trading turnover in the country, while the state and the co-operatives have 70 per cent. Private capital plays in the main the role of middleman between agriculture and industry, and in part, between the different branches of industry. But the most important industrial enterprises belong to the state; the key to foreign trade is likewise in its hands; the state is the chief buyer and chief seller on the market. Under these conditions the distributive co-operatives can compete quite successfully with private capital, with time working in favour of the former. Further, let us repeat once again that the pruning knife of taxation is a very important instrument. With it the workers’ state will be able to clip the young plant of capitalism, lest it thrive too luxuriously.

In point of theory, we have always maintained that the proletariat would, upon conquering power, be compelled for a long while to tolerate alongside the state enterprises the existence of those private enterprises which are technologically less advanced and least suited for centralization. Therewith we never had any doubt that the relations between the state enterprises and private enterprises, as well as the reciprocal relations among individual state enterprises or groups, would be regulated by the market through monetary calculations. But for this very reason we consequently recognized that parallel with the process of socialist economic reorganization there would still recur the process of private capitalist accumulation. It never entered our minds, however, to fear that private accumulation would outstrip and devour the growing state economy. Whence and why, then, all this talk about the inevitable victory of capitalism or of our alleged “capitulation” to it? It arises for no other reason save this, that we didn’t at first simply leave the small enterprises in private hands but nationalized them and even attempted to run a number of them on the state’s own account, but leased them later on. But, however you evaluate this economic zigzag — whether as an exigency arising out of the entire situation or as a tactical blunder — it is perfectly clear that this turn in policy or this “retreat” alters nothing in the relation of forces between the state industry and privately leased sectors. On the one hand you have the state power, the railway system and one million industrial workers; and on the other, approximately 50,000 workers exploited by private capital. Where then is the slightest justification for claiming that under these conditions capitalist accumulation is assured the victory over socialist accumulation?

Clearly we hold the trump cards, all except one, which is indeed very important, namely: Private capital now operating in Russia is backed up by world capital. We are still living in a capitalist encirclement. For this reason, one can and should raise the question whether our incipient socialism, which still has to employ capitalist methods, may not in the end be bought up by world capitalism.

There are always two parties to a transaction of this kind: the buyer and the seller. But we hold the power — it is in the hands of the working class. It decides what concessions to make, their object as well as their scope. Foreign trade is a monopoly. European capital seeks to make a breach in this monopoly. But they will be sadly disappointed. The monopoly of foreign trade is of principled importance to us. It is one of our safeguards against capitalism which, of course, would not at all be averse under certain conditions to buy up our incipient socialism, after failing to snuff it out by military measures.

So far as concessions are concerned today, Comrade Lenin has here remarked: “Discussions are plentiful, concessions are scarce.” (Laughter) How explain this? Precisely by the fact that there is not and there will not be any capitulation to capitalism on our part. To be sure, those who favour the resumption of relations with soviet Russia have more than once contended and written that world capitalism, in the throes of its greatest crisis, is in need of soviet Russia; England needs an outlet for her goods in Russia, Germany needs Russian grain, and so forth and so on. This seems perfectly true, if one surveys the world through pacifist spectacles, that is, from the standpoint of “Plain horse sense” which is invariably quite pacifistic. (Laughter) And that is why it is invariably bamboozled. One would then imagine that the English capitalists would try with might and main to invest their funds in Russia; one would then imagine that the French bourgeoisie would orient German technology in this same direction so as to create new sources whereby German reparations could be paid. But we see nothing of the sort. Why not? Because we are living in an epoch when the capitalist equilibrium has been completely upset; because we live in an epoch when economic, political and military crises instantly criss-cross; an epoch of instability, uncertainty and unremitting alarm. This militates against the bourgeoisie’s conducting any long-range policy, because such a policy immediately becomes transformed into an equation with too many unknowns. We finally succeeded in concluding a trade agreement with England. But this happened a year and a half ago; in reality, all our transactions with England are still on a cash-and-carry basis; we pay with gold; and the question of concessions is still in the phase of discussion.

If the European bourgeoisie and above all the English bourgeoisie believed that large-scale collaboration with Russia would bring about immediately a serious improvement in Europe’s economic situation, then Lloyd George and Co. would have undoubtedly brought matters in Genoa to a different conclusion. But they are aware that collaboration with Russia cannot immediately bring any major and drastic changes. The Russian market will not eliminate English unemployment within a few weeks or even months. Russia can be integrated only gradually, as a constantly increasing factor, into Europe’s and the world’s economic life. Because of her vast extent, her natural resources, her large population and especially because of the stimulus imparted by her Revolution, Russia can become the most important economic force in Europe and in the world, but not instantaneously, not overnight, but only over a period of years. Russia could become a major buyer and supplier provided she were given credits today and, consequently, enabled to accelerate her economic growth. Within five or ten years she could become a major market for England. But in the latter event, the English government would have to believe that it could last ten years and that English capitalism would be strong enough ten years hence to retain the Russian market. In other words, a policy of genuine economic collaboration with Russia can only be a policy based on very broad foundations. But the whole point is that the post-war bourgeoisie is no longer capable of conducting long-range policies. It doesn’t know what the next day will bring and, still less, what will happen on the day after tomorrow. This is one of the symptoms of the bourgeoisie’s historical demise.

To be sure this seems to be in contradiction with Leslie Urquhart’s attempt to conclude an agreement with us for not less than 99 years. ^[4] But this contradiction is truly only an apparent one. Urquhart’s motivation is quite simple and, in its own way, unassailable; should capitalism survive in England and throughout the world for the next 99 years then Urquhart will keep his concessions in Russia, too! But what if the proletarian revolution erupts not 99 years or even 9 years from now but much earlier? What then? In that case, naturally, Russia would be the last place where the expropriated proprietors of the world could retain their property. But a man who is about to lose his head, has little cause to shed tears over his mop of hair…

When we first made the offer of long-term concessions, Kautsky drew the conclusion that we had lost hope in the early coming of the proletarian revolution. Today he ought to conclude flatly that we have postponed the revolution for at least 99 years. Such a conclusion, quite worthy of this venerable but somewhat shabby theoretician, would, however, be groundless. As a matter of fact, in signing a particular concession, we assume obligations only for our legal code and administrative procedure with regard to this concession, but in no case for the future course of the world revolution. The latter will have to hurdle several major obstacles other than our concession agreements.

The alleged “capitulation” of the Soviet power to capitalism is deduced by the Social Democrats not from an analysis of facts and figures, but from vague generalities, as often as not from the term “state capitalism” which we employ in referring to our state economy. In my own opinion this term is neither exact nor happy. Comrade Lenin has already underscored in his report the need of enclosing this term in quotation marks, that is, of using it with the greatest caution. This is a very important injunction because not everybody is cautious enough. In Europe this term was interpreted quite erroneously even by Communists. There are many who imagine that our state industry represents genuine state capitalism, in the strict sense of this term as universally accepted among Marxists. That is not at all the case. If one does speak of state capitalism, then this is done in very big quotation marks, so big that they overshadow the term itself. Why? For a very obvious reason. In using this term it is impermissible to ignore the class character of the state.

It is not unhelpful to bear in mind that the term itself is socialist in its origin. Jaurès, and the French reformists in general who emulated him, used to talk of the “consistent socialization of the democratic republic.” To this we Marxists replied that so long as political power remained in the hands of the bourgeoisie this socialization was not socialization at all and that it would not lead to socialism but only to state capitalism. To put it differently, the ownership of various factories, railways and so on by diverse capitalists would be superseded by an ownership of the totality of enterprises, railways and so on by the very same bourgeois firm, called the state. In the same measure as the bourgeoisie retains political power, it will, as a whole, continue to exploit the proletariat through the medium of state capitalism, just as an individual bourgeois exploits, by means of private ownership, “his own” workers. The term “state capitalism” was thus put forward, or at all events, employed polemically by revolutionary Marxists against the reformists, for the purpose of explaining and proving that genuine socialization begins only after the conquest of power by the working class. The reformists, as you know, built their entire program around reforms. We Marxists never denied socialist reforms. But we said that the epoch of socialist reforms would be inaugurated only after the conquest of power by the proletariat. There was a controversy over this. Today in Russia the power is in the hands of the working class. The most important industries are in the hands of the workers’ state. No class exploitation exists here, and consequently, neither does capitalism exist although its forms still persist. The industry of the workers’ state is a socialist industry in its tendencies of development, but in order to develop, it utilizes methods which were invented by capitalist economy and which we have far from outlived as yet.

Under a genuine state capitalism, that is, under bourgeois rule, the growth of state capitalism signifies the enrichment of the bourgeois state, its growing power over the working class. In our country, the growth of soviet state industry signifies the growth of socialism itself, a direct strengthening of the power of the proletariat.

We observe more than once in history, the development of economic phenomena, new in principle, within the old integuments, and moreover this occurs by means of the most diverse combinations. When industry took root in Russia, still under the laws of feudalism, in the days of Peter the Great and thereafter, the factories and plants, while patterned after the European models of those times, were nevertheless built upon feudal beginnings. That is, serfs were attached to them in the capacity of the labour force. (These factories were called manorial factories). Capitalists like the Stroganovs, Demidovs and others, who owned these enterprises, developed capitalism within the integuments of feudalism. ^[5] Similarly, socialism must unavoidably take its first steps within the integuments of capitalism. It is impossible to make a transition to perfected socialist methods by trying to leap over one’s own head, especially if it happens to be a head that is not very clean nor well combed, as happens to be the case with our own Russian heads. This remark, I hope, will not be taken amiss, it is not meant personally. We must still learn and keep on learning.