Article 3
August 13, 1987


Impact of capitalist expansion on socialist countries. How 1929 capitalist collapse affected first Five-Year Plan in USSR. Soviet economists who lean toward capitalist market--Popkova, Shmelyov, Abalkin, Aganbegyan. Joint ventures: how they've worked in less developed countries; how they'll operate under Soviet law. View of U.S. banker on joint ventures. Gorbachev on the military-industrial complex.

It is impossible to fully consider the Soviet reforms without again and again taking into account the global economic situation. The current phase of relative capitalist expansion, which may be nearing its end sooner than most capitalist economists anticipate, has been accompanied by a most intense assault on the principle of socialist planning.

While the planned economies in the USSR and other socialist countries are their real target, the ruling class ideologues also continually focus their efforts on discrediting and disqualifying any attempt at government planning in the capitalist countries. While the masses may derive some limited, peripheral benefits from capitalist planning, it still doesn't have the remotest connection with planning in a socialist country.

However, the assault keeps gathering momentum under the signpost of deregulation and free market mechanisms. One would think that capitalism had entered a new era in its economic evolution and that the unbridled forces of production were once again experiencing a revival of the conditions that existed at the dawn of the capitalist era.

It is not surprising that the sheer volume of this propaganda has also had its effect in the Soviet Union. Developments in China, Hungary, Poland and certainly Yugoslavia have had their impact in the USSR as well.

How different the situation was during the first Soviet Five-Year Plan! The monumental success of the plan begun in 1929 electrified the worldwide working class and oppressed people and everywhere put the capitalist ideologues and propagandists completely on the defensive. The Soviet plan had gone into effect only months before the stock market crash in the U.S., which came in October of 1929. There soon followed a devastating collapse of all the capitalist economies, and this made socialist planning attractive. There ensued various forms of capitalist state intervention, which got a great deal of their inspiration from the success of the Five-Year Plan. Why doesn't the bourgeois press ever seem to remember this?

The then-famous school of bourgeois liberal economists known as the Keynesians, and particularly those early intellectuals in the Roosevelt administration who helped to frame much of the New Deal legislation, including the National Recovery Act (NRA), were the architects of state capitalist intervention. Their enthusiasm for it came in the wake of the capitalist economic collapse and in response to the desperate situation of the economy and the revolutionary and near-revolutionary pressures of the working class, in the U.S. as well as elsewhere. The era of planning in the capitalist West, while of course mostly the result of the unprecedented economic dislocation, nevertheless owed a great deal to the planning in the Soviet Union. The planning principle had indeed become a magnet, a source of creative ideas and inspiration, even to the bourgeoisie! Of course, socialist planning fits on the capitalist system like a saddle on a cow. Nevertheless, that was what happened.

It should not come as a complete surprise, therefore, if today, as a result of a momentary global economic conjuncture, a somewhat reverse situation exists and a current of thought has emerged in the USSR which is influenced by the glories of the capitalist market. We are not at this point discussing the Soviet reforms as they have unfolded since the June 1987 Central Committee meeting. It's too early for that. But it is instructive to take notice of a tendency which has emerged in the Soviet intelligentsia and which reflects pressures from the current expansionist phase of the world capitalist economy.

Take, for instance, a letter in the May 1987 issue of Novy Mir (as reported in the New York Times, May 9, 1987) from Larisa Popkova, an economist who describes herself as a doctoral candidate of economic science. "Where there is socialism," she writes, "there is no place for markets and liberal spirit. And I repeat, there cannot be. It is my conviction that this is also true about today's [Soviet attempts] to tune the national economy to the frequency of the consumer. You cannot be a little bit pregnant," she says. "It is either plan or market, either directive or competition."

What may surprise most of us here in the U.S. is that this letter was not an attack on the capitalist tendency toward the free market, but the very opposite! She and others like her have been given wide publicity in the capitalist press. Clearly, Popkova and others openly represent a tendency for the restoration of the bourgeois free market as the regulator of the Soviet economy.

Popkova's outlook is not at all the view stated in the Soviet government's plans to radically restructure the economy. To say so is to create a false impression. But her view is representative of a tendency. How deep or widespread it is in the Soviet intelligentsia remains to be seen, but it is not to be confounded with the position of the Soviet government. This has to be stressed, for the capitalist press uses the existence of this bourgeois tendency as the basis for interpreting the Soviet reforms rather than reporting what they actually are. They are building up a tendency which may turn out to be an utterly inane and innocuous group of bourgeois-oriented restorationists in the Soviet economic establishment.

Thus, for instance, the New York Times in its editorial of July 1, 1987, entitled, "Revolution 1987, Soviet-style," states: "Yet another communist giant, the communist giant, now sets out to undo the Revolution of 1917 with the Revolution of 1987." Similar editorials appeared immediately after the New Economic Policy introduced by Lenin in 1921. They all made dire predictions of a counterrevolutionary overthrow of the Soviet government.

Another critic of the reforms who wants the restructuring to go even further is Nikolai Shmelyov. In the June 1987 issue of Novy Mir (reported in the New York Times of June 4, 1987), he proposed that central planning be eliminated altogether, along with subsidies and fixed prices, in favor of the capitalist free market. He wants "central planning to be virtually eliminated"; also that "the ruble be devalued to its real price in the world market and that the leaders accept some unemployment as a natural byproduct of the economy."

"Just as we did in 1953 and 1965," complained Shmelyov, "we are again dooming ourselves to half-hearted measures. And half-heartedness, as we all know, is often worse than inactivity." His arrows are directed against the Soviet leadership and its plans.

Of course, these are the views of the bourgeois tendency who call for the restoration, either in whole or in part, of capitalism. But there are also others who are not in the Popkova-Shmelyov camp but who are advisers to the government and who occasionally are held up as spokespersons for the Soviet government on critical economic issues and reforms. They are frequently quoted, but seldom by name, in the capitalist press. This group includes Leonid Abalkin, director of the Institute of Economics of the Academy of Sciences, and A.G. Aganbegyan, academician with the economics department of the Academy of Sciences. They present the most gloomy prognosis of the reforms and certainly evince a tendency towards the capitalist market.

During the Khrushchev period, there were any number of economists like them, including Professor Yevsei Liberman, who also seemed to reflect the views of the Soviet government and the rapidity with which it was going to embrace not only bonuses and incentives but the entire gamut of capitalist free-market mechanisms as well. It turned out later that the Liberman influence was very limited indeed and in the long run proved to be of little significance.

It's important that progressives in this country understand all this because, as Marx said, the prevailing ideas in any society are always the ideas of the ruling class, who are protecting, preserving and trying to expand their influence. Not all in the ruling class, however, share the view of the above-mentioned editorial in the New York Times. In an earlier article we discussed the trip to Moscow taken by a high-level delegation from the Council on Foreign Relations and an account of that meeting given by Senator Mathias. We find it of some value to now present the views of another group from the Council that met with General Secretary Gorbachev and other high Soviet officials this spring.

It should be remembered that the Council on Foreign Relations is not just another Rockefeller entity. It is generally recognized as having the cadres of an alternate U.S. government, the so-called "invisible government," and is frequently the target of attacks by ultrarightists. These attacks, of course, are fraudulent to the core. Ronald Reagan, for instance, was fond of such anti-Rockefeller demagogy before he became president, but he soon enough made his peace with David Rockefeller and the council.

As we said, these delegations included not only Mathias, Kissinger and Vance but also Jeane Kirkpatrick, Harold Brown, General David Jones and a number of high-ranking officers from the multinational corporations. The delegation this spring also included Peter G. Peterson. Peterson was long involved as an adviser and functionary for the U.S. government in matters of international economic affairs. He served as secretary of commerce under the Nixon administration, attended numerous international conferences on behalf of the U.S. government, and then became chairman of the board of the banking investment firm of Lehman Brothers (which subsequently merged with Shearson-American Express).

In the New York Review of Books, Peterson takes a more sober view of the Soviet reforms.1 He doesn't hold the apocalyptic view about a counterrevolution in the USSR which the New York Times seems still attached to, but he is nonetheless a conservative representative of big business and the banks who is vitally interested in the Soviet Union's new opening in international economic affairs, of which joint ventures are a key element.

Before we go any further with Peterson's view of the Soviet reforms, we must examine how joint ventures have operated in other countries in the past and what limitations will be put on them under Soviet law.

Joint ventures are a notorious form of imperialist penetration for the less developed and especially the poorest and most oppressed countries. They are one of the most significant instrumentalities of multinational corporations to expand their interests and are the sources of fabulous superprofits. In outer form they are supposed to divide the profits derived from the operations of the joint venture according to some definite proportion, usually 49 percent for the foreign corporation and 51 percent for the home country. But in reality, the multinational corporations extract extortionate profits from the exploitation of the working class, the take being more enormous where neocolonialist elements run the regime. The legal form of the joint venture has little to do with the reality of the actual relationship, which is one of super-exploitation. So the question arises, how will a joint venture between the imperialist countries and the USSR operate? Is it at all compatible with socialist planning?

We recall that Lenin in the 1921 New Economic Policy offered the imperialists a great deal more than a 49 percent interest, but there were few takers. At least one of the important differences between then and now is that during the NEP period, the Soviet Union was not yet a planned economy; it had yet to institute a comprehensive economic plan. Since then there have been many five-year plans, and today the USSR has a strong, centrally planned economy.

There have been all sorts of trade deals and transactions over the years between the USSR and Western Europe, and to a lesser extent with Japan and the U.S. Some involved large construction projects in the USSR. But they have been one-shot deals which ended when the project was completed, and they were based on compensation to the foreign corporation.

A joint ownership project is different, however. Under the Soviet joint venture law, which went into effect on January 1, 1987, the USSR contributes the leasing of land and will make available labor and perhaps some technology. The foreign company contributes technology, know-how and what are referred to as management skills. The profits derived from the joint project will of course be taxed. Whether the products will be wholly destined for the Soviet Union or whether some portion will be for export is not clear.

The venture will have a board of directors on which the foreign corporations may have representation, but it is not clear how much. The chairman of the board of directors, however, and the chief operating officer will be from the Soviet Union. There are other provisions, such as those referring to the currency used and how it can be converted into foreign currency so as to make it easy to transfer it out of the country. And, of course, the operation of the venture will be done under Soviet labor law requiring strict compliance with its provisions. The foreign companies will not be allowed to roam through the land seeking cheap labor, as they would in a country ridden with the vast and intractable unemployment characteristic of the bourgeois system.

Nevertheless, about 100 giant corporations are now discussing joint venture proposals with the USSR. Also, letters of intent have already been signed with about 70 of the giant corporations. Some of them are old-timers in dealing with the USSR, such as Occidental Petroleum, but others, like Monsanto, Dresser Industries and Combustion Engineering, are new.2 Under the present Soviet law, as we mentioned earlier,3 these corporations may deal directly with about 70 large state enterprises, which of course is a new element in Soviet foreign economic relations. As we said, this decentralizing of the former foreign trade ministry and permitting as many as 70 enterprises to deal directly with the West does constitute, at least in a formal sense, a breach of the monopoly of foreign trade, which until now has been an indispensable element in the socialist economy. However, this decentralization does not necessarily mean that they have been given complete and unconditional independence free from government control. No government in the world would permit that, least of all the USSR.

The most important part of the law, however, is that the joint venture companies will exist only outside of the planned economy.4 This is of singular significance, because if they were to operate within the planned economy, the joint ventures would have to be integrated into the Soviet economic system, which is based on planning years in advance.

The capitalist entrepreneurs get no economic advantage out of this. On the contrary, it restricts the political leverage they could exert otherwise if they threatened to pull out, suddenly remove their technicians, advisers, executives and so on. U.S. businesses are arguing that they should be allowed to operate within the framework of the planned economy. How can they get raw materials or other supplies, they say, since most of that is within the planned economy? Nevertheless, this is what the Soviet law on joint ventures stipulates.

To those corporations concerned with joint ventures from a narrow economic point of view, this may not be an obstacle. But from the point of view of the U.S. and their overall political motivation in relation to the USSR, they want the joint ventures to become as fully integrated into the planned economy as possible so as to be able to exert not only an economic but a political influence.

The Soviet stand on this is an attempt to insulate the socialist economy from the free capitalist market. However, it should be noted that this is precisely what the Chinese experiments have tried to do with respect to the special zones they granted to the capitalist countries. The rationale China used is that these special zones are separate and apart and this safeguards socialist construction. A large segment of the masses, however, see it as a return to colonialism, especially since China, unlike the USSR, is still largely an underdeveloped country. Nor should it be forgotten that China has established a virtual military alliance with the U.S.

The joint ventures in the USSR, even though insulated from the planned economy, do introduce free market capitalism so far as the external manifestations are concerned. Overall, the coexistence within the USSR of this incursion or invitation, whichever you call it, of capitalist enterprise points up the basic contradiction between capitalism and socialism. The basic motivation on the capitalist side of the joint venture is maximum profit. There can be no doubt about that, whether it is long-term or short-term.

With the Soviet Union, however, and presumably with China, the motivation is to acquire technology and know-how, and to provide the types of products that are necessary either for consumers or for production. In other words, the long-term goal of the socialist economy is to utilize the capitalist enterprises to produce use values, whereas the capitalist goal is to extract as much profit as possible, which is in stark contradiction to the needs of socialist construction and of socialism in general.

It's important to differentiate between those imperialist corporations which would participate in joint ventures from a narrow economic point of view and those which are more concerned with long-term contracts and expansion and hope to use their economic links in the USSR for political leverage in the broader struggle between socialism and capitalism. This is not an inconsiderable factor in the calculations of the U.S. ruling class as a whole and of the U.S. government in particular. Let us return now to Peterson, who is as representative as an individual can be of the U.S. ruling class as a whole, being a banker, government representative and entrepreneur. He confines himself to saying that the joint ventures are "worth exploring."

"Fundamentally," he says, "the Soviets are trying to reconcile market forces with a planned economy. They are seeking a modernized two-sector economy of the kind that was tried in the 1920s. There is no question that the market is going to start driving them one way in resource allocation while central planning and their concept of `social values' [socialism--S.M.] will drive them in the opposite direction. . . . They now wonder how to reconcile market-drive enterprise centers and joint ventures with the central planning." 5

Within the context of understanding that Peterson represents the enemy and is an inveterate opponent of socialism, he is putting it plainly. The joint ventures are an attempt to find ground on which the two systems can coexist. This is what the NEP was. But as Lenin warned in his October 1921 speech which we quoted extensively in an earlier article: "Our Party must make the masses realize that the enemy in our midst is anarchic capitalism and anarchic commodity exchange. We ourselves must see clearly that the issue in this struggle is: Who will win? Who will gain the upper hand?" 6

Now, nearly 70 years later, and even though the Soviet Union has become well-nigh invincible as a fortress of socialist planning, this is still the issue. But in a certain sense, the danger was less in Lenin's time, precisely because they didn't have a planned economy that the joint ventures could disrupt.

It's worth mentioning that immediately after the November 1985 Geneva summit between President Reagan and General Secretary Gorbachev, there was a meeting in the Kremlin with close to 400 U.S. businessmen who came to investigate what the new possibilities were for trade. The gathering was addressed by Secretary Gorbachev on December 10, 1985.7 What surprised Secretary Gorbachev was that instead of all the executives being from corporations mainly interested in trade and commerce, he found that "there are among you senior executives of companies that are prominent in American military business. Let me say this frankly," Gorbachev told the group. "We believe that military business exerts a dangerous influence on politics. In fact, we are not alone in thinking so. The very concept of the military-industrial complex was not formulated by Marxists but by a conservative Republican, President Dwight D. Eisenhower of the United States, who warned the American people of the negative role that can be played by that complex. I'm not saying this to reproach those of our guests who have contracts with the Pentagon." 8 What Gorbachev was interested in was the extension of peaceful commercial and trade relations.9

In examining joint ventures, which seem to be such a narrow economic field, it is important to view them against the overall relationship of the U.S. and USSR and not for a moment to forget the military-industrial complex that is everywhere. Secretary Gorbachev must have been mindful of this.

Not long ago, it was none other than Richard Perle, one of the most right-wing opponents of U.S.-USSR arms negotiations, who said in testimony before the Senate Foreign Relations Committee, "I asked them [meaning the U.S. team at Geneva] how much information did you extract from them? That much!" he said, derisively holding up a piece of paper. Extracting information is one of the underlying U.S. motivations in all negotiations with the USSR.

From whichever angle one discusses relations between the U.S. and the USSR or between the USSR and the West in general, the underlying fundamental problem is still this: that the social system of the USSR is diametrically opposed to the capitalist system and that any meeting ground can under the present circumstances be only peripheral. The USSR will not allow imperialist monopolies to become so embroiled in its economic structure as to give the imperialists the kind of foothold they last enjoyed in czarist days.

Nevertheless, it is a development that has to be carefully assessed and its evolution watched to see where the process leads. It has thus far not been a plunge, at least as far as foreign relations go, into the free capitalist market come-what-may, as the Times editorial obituary for the October Revolution declared.

Lenin, as we showed earlier, was firmly convinced of the need for the New Economic Policy that partially restored capitalism. But at the same time, and this was the important point which we believe is still relevant almost 70 years later, Lenin clearly said that the enemy is commodity production.

And it still is today. If it has to be accommodated, it should be in the same spirit of profound class irreconcilability, of delineating and clearly stating that which is progressive and necessary and that which is regressive and dangerous, of explaining that it must be done as a matter of necessity rather than embellishing or disguising it.


1. Peter G. Peterson, "Gorbachev's Bottom Line," New York Review of Books, June 25, 1987, pp. 29-33.

2. New York Times, August 4, 1987.

3. See Article 1.

4. Journal of the U.S.-USSR Trade and Economic Council, Vol. 12, no. 2.

5. Peter G. Peterson, p. 31.

6. V.I. Lenin, "The New Economic Policy and the Tasks ... ," p. 67. See Article 2.

7. Reprinted in Mikhail S. Gorbachev, "Remarks on U.S.-USSR trade," Harvard Business Review, May-June 1986, pp. 55-58.

8. Ibid., p. 56.

9. Dwight D. Eisenhower, "Farewell Radio and Television Address to the American People, January 17, 1961," Public Papers of the Presidents of the United States: Dwight D. Eisenhower--1960-61 (Washington: Government Printing Office, 1961), pp. 1035-40. Also included in the appendix to Sam Marcy's book, Generals over the White House (New York: World View Publishers, 1980).

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