William Henry Chamberlin | Soviet Russia: A Living Record and a History

The Balance Sheet of Socialism

MEN have dreamed of socialism ever since the coming of the modern industrial system. Philosophers and economists have worked out theoretical schemes of substituting public for private ownership of the means of production. Orators have stirred the masses with pictures of a new order which would ensure freedom and plenty for all. In all the industrially developed countries of Europe more or less powerful political parties have set socialism as the goal of their parliamentary efforts.

But the roots of capitalism and private enterprise are deep and strong. Even the World War, probably the greatest shock which international economic life ever received, did not profoundly modify the essential features of the private capitalist system, except in Russia. There, in the technically back-ward former empire of the Tsars, where capitalism itself was a late and largely imported development, superimposed upon a semi-Asiatic feudal and patriarchal social order, there has grown up a new economic system, different from anything that exists elsewhere in the world, and shaped, so far as its organizers, can contrive, along the lines of revolutionary doctrine laid down by Karl Marx and Vladimir Ilyitch Lenin.

The word "socialism" is so loosely used and abused that a little explanatory definition seems necessary. The decisive feature that appears to me to mark the Soviet economic system as genuinely socialist, in the Marxian sense of the term, in contradistinction to the economic systems which have prevailed, under the rule of professedly socialist governments, in Germany and Austria, in Sweden and Czecho-Slovakia, is the elimination of private profit as the dominant incentive in economic activity and the replacement of private by state operation of most of the country's industry and commerce.

State ownership of railroads and municipal ownership of public utilities are quite common in Europe; and in most countries consumers' cooperatives attempt to compete more or less successfully with the private middlemen. But the main branches of commerce and industry are in the hands of private corporations or individuals.

In the Soviet Union, on the other hand, private enterprise accounts for only about 2 per cent of the factory and mining production. Something over 90 per cent of this production comes from enterprises which are, in some form, owned and operated by the state; 6 or 7 per cent is from the factories of the consumers' cooperatives. Less than 10 per cent of the total trade turnover of the country passes through the hands of private dealers; and even in retail trade, where there was a revival of private activity in the first years of the New Economic Policy, the state and cooperative stores now handle more than three quarters of the total volume of trade. The state operates practically all the railroad and water transportation of the country, directs all the large banks, and monopolizes foreign trade.

No private person may legitimately make a penny of profit out of this system of state and cooperative industry and trade, banking and transport. There are no individual shareholders in the state industrial enterprises; and the financial columns of the Russian newspapers are restricted to brief quotations of the rates of the state loans. All the normal means of acquiring large personal fortunes are thus pretty effectively blocked up in Russia; and if there are some Nepmen, or private traders who have become ruble millionaires through lucky dealings in commerce or speculation, they are certainly neither a numerous nor a conspicuous class.

Side by side with this sweeping socialization of trade and industry there still exist considerable elements of capitalism. First and most important, there are twenty-five million peasant households, of which very few yet have cared to sink their personal fortunes in producers' communes. To fit the individualist peasant into the structure of a socialist system is, in my opinion, the most formidable and complex problem with which the Soviet Government is faced. However, if the peasant is, strictly speaking, a capitalist, he is a very small-scale capitalist, with an average money income of a little more than two hundred rubles a year. The big landlord, even the big farmer on the countryside, has been expropriated more thoroughly than the big merchant or manufacturer in the cities.

Then there are the handicraft workers, shoemakers, cobblers, tailors, blacksmiths, etc., who are also, in a way, small capitalist producers. They are more and more becoming organized in productive cooperatives, which receive preference in obtaining raw materials and credit, and in this field also one can scarcely see any signs of a rebirth of large-scale private capitalism.

What may be called a capitalist business technique is quite widely applied in the predominantly socialist organization of Russian trade and industry. Under socialism, as under capitalism, it has been found economically necessary to maintain a steady medium of exchange in the shape of a stable currency, to pay wages and salaries with some regard to the skill and importance of the work which has been performed, to make out budgets for state administrative and economic organizations, and to see that these budgets are observed. So in the transactions of everyday life money plays much the same role in Russia as anywhere else. However, as will be seen later, the uses of banking and credit in Russia are often quite different from what they are under private capitalist systems.

What are the new forms of economic organization which have replaced the familiar business institutions of other parts of the world ? The bulk of Soviet industry, including almost all the big factories and mines, is managed by the Supreme Economic Council, which is practically a state department for industry. Its president sits in the Council of People's Commissars.

Hugo Stinnes, multimillionaire of the German inflation period, never supervised such a. wide range of industrial activities as fall under the jurisdiction of the Supreme Economic Council, which must direct the development of Caucasian oil fields and Siberian gold mines, Moscow textile mills, Ukrainian metal factories, lumber mills of the Far North, and all the host of enterprises which enter into Russian industrial life.

It would, of course, be obviously impracticable for a single central organization to direct all the details of operation of a whole nation's factories and mines. The functions of the Supreme Economic Council are of a general directing character, while actual responsibility for operation is vested in the so-called trusts, into which every large industry is divided. A Soviet trust as a rule manages a certain number of factories and mines, which are grouped together on a regional basis. A trust may be large or small, according to local needs, and there is no fixed rule regarding the number of trusts which may be set up in a given industry. In the oil industry, for instance, there are only four trusts, each directing operations in one of the four centres of oil production, Baku, Grozny, Emba, and the Kuban district. In larger industries, such as the metal and textile trades, with ramifications all over the country, the number of trusts is much greater. It is estimated that two or three hundred of the larger trusts control about 80 per cent of Russian industrial production.

The All-Union Supreme Economic Council appoints and removes the boards of management for trusts which are of All-Union scope. Smaller industrial enterprises are committed to the charge of the Supreme Economic Councils of the various federal republics or to provincial Economic Councils. The trust board of management, in its turn, appoints and removes the managers of the individual factories or mines in its charge, after consultation with the trade-union of the given industry. After fixed charges, including taxes, have been met and an allowance has been made for amortization, the profit, if there is any, is divided between the state Treasury and the industry itself. The proportions of this division vary from year to year, but over a period of five years the Treasury has received slightly more than half the profits, as may be seen from the following table.⁽¹⁾

At the same time, as will be shown later, the Soviet industries receive more from the state budget than they contribute to it.

As a general rule the trusts market their product and receive their supplies through syndicates, which serve all the trusts of a given industry. There are about a score of these organizations, and some of them, such as the Oil and Textile Syndicates, make considerable purchases of supplies and raw material in foreign markets, subject, of course, to the general restrictions of the state foreign trade monopoly. With a view to eliminating superfluous competition and coordinating the general work, the syndicates are united in a Union of Syndicates.⁽²⁾

While the Supreme Economic Council is the highest executive authority in industry, it is by no means an absolute dictator in the industrial field. Experience has shown that the needs and interests of state industry must be harmonized with those of state trade and banking, and other branches of national economic life. One of the great advantages which Communists claim for their system, as against private capitalism, is that it permits the introduction of elements of planned organization not only in the management of individual industries but in the direction of the whole economic life of the country.

A unique body in the Soviet state system, one which would be possible only under a highly centralized and socialized economic system, is the Gosplan, or State Planning Commission. This institution, which is headed by a veteran Communist engineer, Krzhizhanovsky, has set for itself the highly ambitious task of plotting the graph of future economic development, not only for each new business year, but for longer, five-year periods. If one looks into one of these pyatiletkas, or five-year plans of national economic development, one can find a forecast, for 1932, of the population, of the amount of coal that will be mined, of the number of houses that will be built, of the quantity of grain that will be contracted for purchase by the state, etc.

The Gosplan has its agents all over the country, collecting the relative information; moreover, it receives the proposed development plans of the Supreme Economic Council and other economic administrative bodies. Out of this great mass of material it constructs its one-year and five-year projects, which assume the force of authoritative directions when they are confirmed by the Sto, or Council of Labor and Defense. This latter body may best be described as an economic cabinet; it is made up of those members of the Council of People's Commissars whose work is connected directly with economic problems, together with a few industrial and financial experts who do not have seats in the Council of People's Commissars. It is the final arbiter of the disputes which frequently arise between the new organs of Soviet economic administration, although the broad general lines of economic policy are laid down by the Political Bureau of the Central Committee of the Communist Party. Recently, for instance, a difference of opinion developed between the Gosplan and the Supreme Economic Council as to how much the cost of industrial production should be reduced during the fiscal year 1928-1929. The Gosplan demanded an 8 per cent cut, while the Supreme Economic Council insisted that 6 per cent was the best it could promise. The Sto split the difference and decreed a 7 per cent cut as obligatory, simultaneously granting industry an extra appropriation from the state budget to make up for the prospective loss of income.

How far has the wide-reaching experiment in economic planning, exemplified in the work of the Gosplan, justified itself? Its forecasts are seldom grossly mistaken, but 100 per cent accuracy is rarely attained, and, of course, deviations from plan which look small in percentages often involve seriously large financial amounts. Curiously enough, the Gosplan, in its estimates of industrial development, has shown a tendency to undershoot rather than to overshoot the mark. In 1928, for instance, it predicted an increase of industrial production of about 15 per cent; the actual figure was about 23 per cent. On the other hand a projected increase of agricultural production by 4 per cent turned out to be only 2.7 per cent. The output per worker was supposed to increase by 17.6 per cent and actually grew by 14.4 per cent. Wages increased by 10.2 per cent instead of the projected 7.2 per cent. Cost of production was supposed to go down by 6 per cent; it was reduced by 5 per cent; but this apparently slight difference of one per cent in the calculations made a difference of a hundred million rubles in the financial plans of the industries.

There are fascinating possibilities in the Gosplan's scheme of ordered national economic life; it is an extraordinarily daring effort to apply scientific method in a field where, except in war time, laissez fairehas hitherto held almost undisputed sway. But before these possibilities can be fully realized both the socialization of Russia and the technique of economic planning will, I think, have to make substantial further progress. The individualist peasant producer is to-day the main stumblingblock in the path of the Gosplan forecasters. No one can be quite sure when the peasant will feel that he is being paid too little for his products and stop raising them in sufficient quantity, thereby compelling a rise in the price level and disarranging all the carefully prepared advance projects.

Then the familiar Russian faults of bureaucratic delay and red tape make themselves felt in the field of economic planning.

The "control figures," as the Gosplan's yearly projects are called, are seldom ready when they should be, at the beginning of the business year. N. Berezin, writing in the magazine Bolshevik (No. 23-24, for 1928), notes the following characteristic incident: -

"From Ukraina they report that the Supreme Economic Council had to consider 99 projects in 1927-1928 and considered only 42. For the new business year it was necessary to consider 86 projects, of which only 32 came in, and of these 16 were considered. Delay in the confirmation of a project either leads to overhaste, which makes building more costly, or, as before, building begins without any confirmed plan."

So much for criticism of the technique of Soviet planning. The larger question, whether the industrial and commercial life of a country can be planned in advance with profit or whether this complex task places too great a strain upon the wisdom and foresight of any group of men, will be answered with finality only after there has'been a longer period of comparison between Russia's economic experiences and those of countries which employ a different system.

All forms of transport are under the management of the Commissariat for Transport. Most important in this connection are the railroad lines, which in September 1927 had a mileage of 76,200 kilometres. During the five-year period, 1928-1933, it is planned to build 14,400 additional kilometres. The longest of these is the Siberian-Turkestan Railroad, connecting Semipalatinsk, in southern Siberia, with Pishpek (renamed Frunze) in eastern Turkestan, a distance of some seven hundred miles. Work on this line has already begun from both ends, and it is regarded as possessing substantial economic significance, since it will link up the grain regions of Siberia directly with the cotton plantations of Turkestan. Other projected lines will tend to relieve the traffic congestion at Moscow, which is now a central point for almost all the main Russian lines, and will provide more direct outlets from Siberia to European Russia and from the Ural and Volga regions to the ports of the Black Sea.

The Commissariat for Transport contends that the Soviet railroads are definitely profitable in their returns, yielding an excess of income over operating expenses of 279,000,000 rubles in 1927-1928 and promising a corresponding excess of 452,000,000 rubles in 1928-1929. On the other hand a glance at the state budget for 1928-1929 shows that the Commissariat for Transport is expected to yield an income to the state of 1,904,458,700 rubles, receiving at the same time an allotment from the budget of 2,069,461,118 rubles. The expense side of the budget also contains an item of 127,600,000 rubles for the construction of new railroads. The explanation for this apparent discrepancy, which will also be encountered in the field of industry, lies in the fact that both industries and rail-roads draw a sharp line of distinction between operating expenses and new capital investment. The former item, with rare exceptions, is fully covered by their income; capital investments, on the other hand, are to a considerable extent financed through the state budget.

Trade in the Soviet Union is more and more becoming concentrated in the hands of two large cooperative organizations, the Centrosoyuz and the Selskysoyuz. The former is a consumers' cooperative organization, with twenty-two and a half million members, organized in twenty-two regional unions and thirty thousand local societies, and with an annual turn-over of eighteen billion rubles. A system of graduated dues, depending upon the income of the members and ranging from five to fifty rubles, is being introduced.

The Centrosoyuz makes large-scale purchases from the syndicates of the manufacturing industries and distributes its goods among the local societies according to the purchasing power of the region and the exigencies of the grain-buying campaign, which is always an important factor in determining the allotment of goods in peasant regions. Although there is more autonomy and flexibility in the cooperative system than in the state trade which it is replacing, the Centrosoyuz is closely linked up with the general organization of Soviet economic life and is bound to carry out the policies of the Communist Party in such matters as price-fixing, organization of trade, etc.

The consumers' cooperatives have gained rapidly in member-ship and volume of business; in 1926-1927, for instance, their retail turnover increased by 31 per cent while industrial production was growing by about 17 per cent.⁽³⁾ This is quite understandable in view of the fact that membership in a co-operative is often the only guaranty of getting at least a limited supply of some article of which there is a shortage. Moreover, the cooperatives generally undercut the private traders by from 15 to 30 per cent in price.⁽⁴⁾ They are well able to do this, in view of the privileges which they receive from the state in such matters as allotment and transportation of goods and lower sales prices. It must be said that, especially in the case of perishable products, such as meat, vegetables, and butter, the co-operatives are apt to suffer in qualitative comparisons with the private dealers.

Soon after the introduction of the New Economic Policy Lenin told the Communists that they must learn to trade. Under the headline "Cooperation has not learned to trade," the newspaper Commercial-Industrial Gazette, in its issue of February 13, 1929, prints a series of familiar complaints about the work of the cooperatives from various parts of the Soviet Union. In Rostov it is reported that eggs, potatoes, and other products spoil because they are kept in unsuitable places. In Dniepropetrovsk people must stand in line for bread because the co-operatives have not opened enough stores. In a Tartar village an old woman complains that, while the representative of the cooperative makes eloquent speeches about the future electrification of Russia, he doesn't supply the local store with kerosene. In Bokhara a patron of the cooperative reports that it stocks up with wines, liquors, powders, and luxuries, but doesn't supply its customers with the necessities of life.

The cooperatives doubtless have their countercharges and justificatory explanations. They are habitually short of working capital, since their profits are limited and seldom exceed 2 or 3 per cent. So lack of funds is one explanation for their failure to open a sufficient number of stores to care for their growing business.

In addition to its primary function of serving the internal trade of the country, the Centrosoyuz has charge of purchasing abroad the very small quantity of goods for general consumption which are permitted to come into Russia. It also manages a number of its own factories, mostly for the manufacture of sausage, chocolate, soap, and other articles of general use.

The Selskysoyuz, the other chief Soviet cooperative organization, is really a federation of peasant cooperatives for the marketing of the produce of their members. It has also grown very fast and now counts fifteen million members. Allowing for duplicate membership (the same peasant some-times belongs to two or more of these rural cooperative societies), it is estimated that eleven million peasant households, or about 40 per cent of the total number, are enrolled in the Selskysoyuz. Besides marketing the peasants' products on a commission basis, the agricultural cooperatives supply their members with tractors, machinery, fertilizer, and other articles which are directly necessary for farm work. They attempt to improve the quality of the butter and other products made by the peasants, and in some cases open small factories which work on agricultural raw material.

There can be little doubt that the future of Russian trade belongs to the cooperatives. The very visible and noisy revival of private trade which characterized the first years of the New Economic Policy and which caused some hasty and superficial observers to announce that Russia was returning to capitalism has proved hollow and illusory. Freedom of private trade still exists theoretically in Russia; but this freedom is of rather an academic character when the private trader can obtain neither an adequate supply of goods, which are practically all manufactured in state factories, nor store buildings, which are leased first of all to cooperatives, nor transportation facilities.

In 1924-1925 internal trade in the Soviet Union was divided in the following proportions: cooperatives, 36.5 per cent; state trading organizations, 36.8 per cent; private dealers, 26.7 per cent. For 1927-1928 the corresponding figures were 57.9, 32.3, and 9.8 per cent.⁽⁵⁾ During these four years, a period of intensive growth of industrial production, and of some progress in agriculture, the turnover of the cooperatives almost quadrupled, that of the state trading organizations almost doubled, while the turnover of private trade was actually less in 1927-1928 than it was in 1924-1925. It is pretty obvious from these facts and figures that, far from returning to private capitalism, the Soviet Government is steadily and rapidly socializing the field where private capital apparently had gained something of a foothold after the introduction of the New Economic Policy. An expert in the Supreme Economic Council summed up the situation quite accurately, I think, when he said: -

"Immediately after the New Economic Policy we had, for a time, an open economic system, where the uncontrolled market played a considerable role. Now we are tending toward a closed economic system, where everything is planned and arranged in advance."

Banking and finance constitute an integral part of this "closed economic system." With the exception of some small mutual-credit societies which finance the operations of private industry and trade, the banking system is entirely under state management. Separate banks exist for the purpose of fulfilling special functions. The State Bank, besides issuing the chervontzi, or bank notes, which are the basic form of Soviet currency, maintains a virtual monopoly in short-term credits to industries and institutions. A Bank of Long-Term Credit attends to the financing of the less profitable industries, which require extended credits, sometimes almost indistinguishable from subsidies. There are banks also for crediting foreign trade and agriculture and for other specific purposes.

Since 1924 the ruble has been officially stabilized at its pre-war par value of a little less than two to the dollar and a little less than nine and a half to the pound sterling. Internally the stabilization up to the present time has been a fact, finding expression in a price level which has remained generally fairly even, with occasional rises or dips. The Soviet ruble, however, has no standing on international money markets. It is designed, in fact, to be purely a national currency, and its exportation and importation are forbidden by law. The price which smuggled rubles command on foreign markets varies considerably, but perhaps averages half of the official value.

I once asked a distinguished specialist in the Commissariat for Finance whether or not the Soviet ruble could become a stable medium of international exchange. He replied that this was unlikely, so long as such a sharp difference existed in the price levels of the Soviet Union and the rest of the world. The dollar, the pound, the mark, practically every other unit of currency, represents much greater purchasing power than its nominal equivalent in rubles. The gold index of the cost of living in the Soviet Union in June 1927 (and any changes since that time have been in an upward rather than in a down-ward direction) was 221 (taking l00 as the 1914 figure), while in America at the same time it was 173, in Great Britain 168, in Germany 148, in France 107.⁽⁶⁾ Moreover, the international stabilization of the ruble would require large Soviet foreign bank balances in gold or foreign currency; and such balances do not exist at the present time.

The amount of Soviet currency in circulation on January 1, 1929, was 2,028,374,300 rubles, of which 1,091,043,500 rubles, or 53.8 per cent, consisted of bank notes issued by the State Bank, and 730,511,000 rubles, or 36 per cent, were in the form of Treasury notes, issued in one-, three-, and five-ruble denominations. The remainder was made up of silver, copper, and bronze money, used for small change. The difference between the chervontzi, or State Banknotes, and the Treasury notes is that the former require covering to 25 per cent of their face value in gold and foreign currency, while the latter have no guaranty of value except the legal order that they must be accepted on a basis of parity with the chervontzi. The State Bank reserve of gold and foreign currency, according to the Bank's statement of January 1, 1929, amounted to 300,413,928 rubles, thus providing slightly more than the required 25 per cent covering of the chervontzi. As a matter of fact, as the Finance Commissariat specialist pointed out to me, the difference between the chervontzi and the Treasury notes is technical, rather than real, because neither would actually be exchanged for gold or foreign currency if they were presented for payment.

During the year 1928 there was a substantial growth in the amount of currency in circulation, which on March 1 stood at 1,509,700,000 rubles,⁽⁷⁾ thus increasing by more than 500,000,000 rubles before the beginning of the new year. This fact, among others, has led some Soviet economists to raise the question whether the country is not faced with the danger of currency inflation.⁽⁸⁾ According to the law the Treasury notes should not exceed half the quantity of chervontzi in circulation,⁽⁹⁾ and this limit has clearly been exceeded. There is a constant struggle between the Supreme Economic Council and the trusts, which are primarily interested in increasing production and always feel that more funds would mean a greater output, on the one hand, and the Commissariat for Finance, which looks out first for the stability of the currency, on the other; and it is possible that during 1928 the industrialists obtained rather too free a hand. At the same time, the most familiar consequence of inflation, a spiral mounting of prices, is less likely to occur in the Soviet Union, where most prices are under fairly effective state control, than in countries where the role of the free market is greater.⁽¹⁰⁾ This fact, however, does not mean that the Soviet Government, any more than any other, could resort to unlimited currency emission without suffering the inevitable consequence of a fall in the value of the money. It would perhaps be fair to characterize the present currency situation as strained and as requiring watchful attention and some restriction if something in the nature of inflation is to be averted.

A study of the state budget for 1928-1929⁽¹¹⁾ brings out some interesting features of the Soviet economic system. The first impressive fact about the state budget, which balances at 7,731,523,402 rubles, is its size, in relation to the national wealth. The Soviet national income for 1928-1929 is estimated at 28,000,000,000 rubles; and if one reckons the nine billion rubles of the combined state and local budgets it will be seen that more than 30 per cent of this national income flows through budgetary channels. The size of the budget is largely explained by two factors: first, that taxation, both direct and indirect, is very heavy; second, that many items relating to transport and industry, which would be absent in the budgets of other countries, appear in the Soviet state accounting.

Soviet revenue is almost equally derived from taxation and nontaxation sources. The largest tax items are the excises, of which the one on vodka is most profitable, and a general turnover tax on the proceeds of industry and trade. The excise taxes are expected to yield 1,700,287,000 rubles, and the turnover tax is put down for 1,005,000,000 rubles.. The most important items in the nontaxation category are income from the transportation system (1,904,458,700 rubles), state loans (800,000,000 rubles), and the returns from state industrial enterprises, state trade, banks, forests, etc. These sources, taken together, are supposed to yield 784,813,777 rubles.

A little more than a quarter of the Soviet budget is spent on the transportation system and about another quarter on the financing of industry, trade, agriculture, and other branches of economic life. The local budgets, which, incidentally, bear most of the expenses of the education and health services, receive a grant of a billion rubles from the state budget; the military expenses are estimated at 850,742,000 rubles, an increase of 14.6 per cent over the previous year, with an additional 23,833,000 rubles for the military sanitary administration and 55,380,000 rubles for "special troops," presumably those of the Gay-Pay-Oo, or State Political Police. Administrative expenses take up most of the remainder.

Inasmuch as the Soviet state operates almost all the industry of the country, one may wonder why it chooses to impose taxes on its state trusts and then give back substantially equivalent amounts in the form of financial grants. The explanation, however, is quite simple. The budget serves as a redistributing agency, making it possible for the state to spend its money where it is believed that expenditure is most necessary. The heaviest taxes are naturally paid by the most profitable industries, which, as a rule, are those which produce goods for immediate consumption. On the other hand, the state is most interested in the rapid development of the metallurgical, chemical, and other so-called heavy industries, which are regarded as the indispensable foundation for the industrialization of the country. Of the grants and long-term credits which are advanced to industry from the state budget and from the Bank of Long-Term Credit, the heavy industries, which are listed under Group A, in contradistinction to the light industries of Group B, receive 93 or 94 per cent.⁽¹²⁾

I have now completed what is necessarily a very brief and condensed sketch of the structure of Soviet economic administration. As may be seen, the Soviet Government, to a large extent, has welded industry and trade, banking and finance, into one enormous unit of production, theoretically at least responsive to unified centralized control. It is a new and enormously complicated machine, this Soviet system of "planned economic life"; and it is not surprising that the innumerable wheels and cogs and levers do not always function quite as they should.

The Soviet socialist industries have set for themselves extraordinarily high goals of future achievement. No nation ever consciously embarked on such an ambitious plan of economic development as one finds outlined in the five-year plan for the development of industry, composed by the Supreme Economic Council and ratified by the Soviet Congress in the spring of 1929. According to this project, industrial output in 1932-1933 will be 2.67 times the figure for 1927-1928. Heavy industry will more than treble its production during this period, and light industry will more than double it. The basic capital of industry will grow from 9,700,000,000 rubles to 23,366,000,000. Cost of production will be reduced by 32 per cent; wages will increase by 35.6 per cent, measured in money, and by 52 per cent if the projected reduction of living costs is taken into account; productivity of labor will grow by 95 per cent.

This project is grandiose in the extreme, especially if one considers that by the end of the business year 1927-1928 the Soviet Union had already exceeded its pre-war industrial production level by some 25 or 30 per cent. Its achievement will strain to the uttermost every nerve and fibre of the national economic body.

Yet optimistic Communists believe that the plan will be fulfilled not within five years, but within four and a half or even four years. So far as quantity output is concerned the results for 1928-1929, the first year of the plan, seem to give some basis for their optimism. Industrial production during this year increased by 24 per cent, instead of the proposed 21.4 per cent. For 1929-1930 a much more rapid increase has been forecast. Industrial production is supposed to grow by more than 30 per cent, whereas the original pyatiletka (five-year plan) called for a growth of only 20 per cent. Among the factors which, it is believed, will facilitate this extremely rapid growth are the completion of new factories and electrical stations and the extended application of two new devices for increasing output: the so-called socialist competition and the uninterrupted working week.

Under the socialist competition, workers in different factories, or in various branches of the same factory, set up improved standards of productivity and hold competitions for carrying them out efficiently. The unbroken working week is a new scheme for deriving the maximum output from existing plant and equipment. Under this system the factories will work every day, instead of standing idle on Sundays, as is now the case. The workers will have one day's rest in six, instead of one in seven, simultaneously foregoing all the holidays which they now enjoy, except for five big revolutionary holidays, when all work will be stopped. The advantage of this plan is that, by employing more workers, the same amount of machinery can presumably turn out a larger production. In some industries shortage of raw material will perhaps interfere with the success of the scheme; but in enterprises where there is no shortage it no doubt has its possibilities.

Quality, rather than quantity, seems to be the chief stumbling-block in the execution of the five-year plan. While the quantity output for 1928-1929 exceeded the plan, cost of production was cut by only 4 or 5 per cent, instead of the projected 7 per cent; productivity of labor fell a little short of the projected 17 per cent and, most serious of all, the qualityof much industrial production admittedly declined from a level that was certainly none too high in the first place. The plan for 1929-1930 calls for a 10 per cent cut in costs of production and a rise of 23 per cent in productivity of labor; if these severe demands are satisfied it will be a sign that the Soviet industrial machine is swinging into a better pace.

The five-year plan, which will undoubtedly call for an uncommonly rapid pace of industrial development, is simply the concrete expression of the basic Communist economic pro-gramme: to industrialize Russia as rapidly as possible on the basis of applying the most modern technical methods. Lenin, in one of his few expressions where one may detect a glint of nationalist spirit, declared that "Russia must cease to be poor and helpless and become in the full sense of the words powerful and plentiful." On another occasion he said that Russia must as rapidly as possible catch up with and overtake the technical achievements of the leading capitalist countries.

The Communist effort to carry out these injunctions of Lenin by forcing to the utmost the industrial transformation of a technically backward, predominantly peasant country, cut off for several reasons from full economic contact with the outside world, presents an absorbing spectacle of stubborn, disciplined will, pitted against great natural obstacles. One of the most obvious of these obstacles is Russia's inferiority in productivity of labor and technical equipment. Mr. V. V. Kuibishev, President of the Supreme Economic Council, recently cited a number of facts which illustrate this situation.⁽¹³⁾

In machine-building, Germany has achieved one and a half times and America five times the Soviet measure of labor productivity. The average yearly output of a worker on a blast furnace is 330 tons in the Soviet Union and 3,330 tons in America. While a large tractor factory in Germany puts out 4000 tractors a year, the whole tractor production of the Soviet Union does not reach a third, of this figure, and the cost of production is three or four times the foreign cost. In the cotton industry, where England employs three and a half and America three workers per thousand spindles, the general figure for the Soviet Union is eight. Such examples could be multiplied almost endlessly.

The Socialist reconstruction of Russia is further handicapped by the comparative isolation of the country from the markets of world capital and by the failure, as yet, to make a smooth working adjustment with the peasants.⁽¹⁴⁾ The need for a strong upswing in agrarian production is especially keen and urgent. While industry has been striding ahead at a rapid pace, agriculture during the years preceding 1929 has made very slight progress; in fact one can even observe retrograde tendencies. The sweeping programme of industrial progress which has been marked out in the five-year plan cannot conceivably be fulfilled unless the peasant is induced to give a substantially larger surplus of grain to feed the increasing numbers of city workers and of flax, wool, cotton, oil-seeds, and other raw material to feed the growing industries.

One of the weak links in the economic life of the country, and especially in the relations between city and countryside, is the sharp and chronic shortage of manufactured goods. At first sight it seems paradoxical that such a shortage should exist when the state industries report such regular and sweeping gains of output. But there are the indubitable facts of the frequent waiting lines outside the stores which sell textile and woolen goods, the bare or scantily supplied shelves of the rural cooperatives, which sometimes offer the peasants little in exchange for their grain. An official in the Gosplan told me that the unsatisfied annual demand for manufactured products may be estimated at anywhere from 200,000,000 to 400,000,000 rubles.

There are several factors which help to account for this shortage. In the first place, a very large share of the increased industrial output is consumed within the industries themselves and does not reach the consumer. In the plan for 1928-1929, for instance, it is calculated that, while the "organized consumption" of industrial establishments and state institutions will grow by 22 per cent, the amount of goods offered on the broad market for the everyday consumer will increase by only 4 or 5 per cent.⁽¹⁵⁾ Then the lion's share of increased production is in objects which have little direct significance for the consumer. The man, or woman, in the waiting lines before the stores is not apt to be in search of electrical energy (the production of which is supposed to increase in 1928-1929 by 28.4 per cent) or of Diesel motors (scheduled increase, 40.3 per cent), or yet of superphosphate, of which the supply will be greater by 74 per cent. He, or she, is more likely to demand cotton goods (supposed to increase by 12.4 per cent), or woolen goods, of which there will be 8.2 per cent more, or linen, of which there will be slightly less, as compared with last year.⁽¹⁶⁾

Moreover, the regions of the old Russian Empire which are not within the frontiers of the Soviet Union, Poland and the Baltic States, contain in proportion to their population a larger share of factories than one can find in Soviet territory. The loss of the great Polish textile centre of Lodz is alone enough to explain in part the lack of textile goods. ⁽¹⁷⁾

Carrying out a rigid policy of maximum industrialization, the Soviet Government refuses, with slight and unimportant exceptions, to import goods designed for immediate consumption, concentrating its purchases abroad on machinery and essential raw material. This still further deepens the chasm between internal supply and demand. When one further considers that the inferior quality of present-day goods makes it necessary to renew them more frequently, one has perhaps covered the more fundamental causes of the goods shortage which has been one of the most visible Soviet economic problems for the last few years.

Soviet industrial life has still other discrepancies and disproportions which are calculated to make sleepless nights for the officials in the Supreme Economic Council and the Gosplan. The President of the Gosplan, Krzhizhanovsky, lists three of them: the disproportion between industrial and agricultural prices (the former being much higher); the disproportion between the demand for agricultural raw material (cotton, leather, wool, etc.) and its supply; and the disproportion between the number of working hands in the villages and the possibility of using them economically (the agrarian over-population). Then there is the shortage of cast iron and of bricks, cement, and other building materials, a serious problem in view of the fact that every year larger investments are being made in new industrial construction. To make factories with-out bricks is quite as difficult as to make bricks without straw.

Notwithstanding the difficulties which were experienced with building materials, the plan of new building for 1928-1929, according to preliminary reports, has been fulfilled. The amount of projected new industrial building for 1929-1930 is almost double the figure which was achieved in 1928-1929. If this very ambitious plan for 1929-1930 is carried out it will prove the correctness of the argument of the dominant group in the Party leadership that it was possible to get over construction difficulties, not by curtailing building, but by in-creasing the output of building materials.

In general it may be said that under the pressure of the extremely fast tempo of industrialization which has been adopted the whole Soviet economic apparatus works with great strain and tension, and even slight deviations from accepted plans are apt to produce minor crises which seem out of proportion to the causes which lie behind them. Re-serve supplies of every kind (gold, currency, grain, goods) are reduced to the minimum, and sometimes below the minimum which is consistent with the smooth functioning of the machinery of production. And experience has shown that to operate without adequate reserves is as difficult in economics as in war. Nikolai Bukharin, who, although recently under fire for his alleged heresies, has always been regarded as a leading Communist economist, recently wrote: -

"Not only have we no reserves, but we have interruptions in supply, lines and queues have become an everyday event, which to a considerable extent disorganizes our productive life." (Zametki Ekonomista ("Notes of an Economist"), published by State Publishing Company, Moscow, 1928 p. 44.)

If the traditional form of economic crisis in capitalist countries is the failure of purchasing power to keep up with the output of goods, with consequent trade depression and unemployment, the economic crisis which has been chronic in the Soviet Union during the last few years finds expression in the sharp disparity between the supply of consumable goods and the nominal purchasing power of the population. Supply simply does not keep up with demand, despite the sweeping increase in industrial production. It will be interesting to see whether capitalism or socialism first succeeds in creating some-thing like an ideal equilibrium as between production and consumption.

In surveying such a challenging experiment as the organization of the industrial and commercial life of a great nation along socialist lines the questions inevitably arise: How has it worked ? How does the socialist system of the Soviet Union compare in productive efficiency with pre-war Russian capital-ism and with the post-war capitalism of other countries ? I have often wished that the responsibility for answering these interesting but very complicated and difficult questions might rest with some commission of super-experts in economics and industrial production, approaching the subject with no advance bias in favor of either capitalism or socialism and fully equipped with the encyclopedic knowledge which would be necessary for an authoritative consideration of the subject. In the absence of such a commission I shall venture to state a few quite humble and tentative impressions of my own on the working of Soviet economics up to date.

There are two points, I think, in which the Soviet system during the last few years has confounded its critics and given fair cause for jubilation to its upholders. These are quantity industrial production and the development of new capital from the internal resources of the country. In the first years of the New Economic Policy, when the state industries found it most difficult to turn out 25 or 35 per cent of the pre-war output, most foreign observers were convinced that Russia could not regain its pre-war level of industrial production without giving freer scope to the development of private capitalism within the country and attracting large-scale aid in the form of loans and concessions from abroad. But now the pre-war level has been left far behind; the percentage of industry, and especially of trade, in state and cooperative hands is greater than it was a few years ago; and the Soviet Union has received no loans and very little help in foreign investments.

Industrial production for 1927-1928 was about 25 per cent higher than in 1913; production for 1928-1929, if the plan is carried out, will surpass the 1913 figure by 50 per cent. A few comparative figures for individual industries show what a big upswing there has been since the inauguration of the New Economic Policy, when the Russian industries had sunk to a low-water mark of 15 or 20 per cent of the pre-war output.

In 1913 the part of Russia now included in the Soviet Union mined 28,900,000 tons of coal and 9,300,000 tons of oil. The corresponding figures for 1927-1928 were 36,100,000 tons and 11,900,000 tons. The output of agricultural machinery in 1927-1928 was almost double the amount of 1913; the production of electrical energy was two and a half times as great. Even in the textile industry, where there is such a sharp goods shortage, due to causes which have already been discussed, the production for 1927-1928 shows gains ranging from 2 to 20 per cent, as compared with 1913. Only in metal production and building materials does one find a decrease, as compared with the pre-war amount. So one gets the following set of comparative figures: iron ore, 1913, 9,214,000 tons; 1928, 5,800,000 tons; pig iron, 1913, 4,207,000 tons; 1928, 3,328,000 tons; bricks, 1913, 2,144,000,000; 1928, 1,785,000,000. (See the tables in Basic Problems of the Control Figures of National Economic Life for 1928-1929, pp. 172-211.) Metal and bricks are the weak spots in the plan of national economic development; and desperate efforts are being made to increase their production.

In the matter of creating new capital the Soviet industries have passed far out of the stage when they could justly be reproached with consuming the confiscated capital of the past, without creating any new surplus themselves. The sum of three billion rubles, which has been designated for new investments in industry during 1929-1930, is far in excess of the average industrial investment in pre-war years, even if one takes into account the high building index (which was 201 in September 1929), the lack of any inflow of foreign capital and the fact that Soviet economists lump in expenditures on amortization with general costs of new building.

During the last four or five years the total investments in Soviet industry, counting its own accumulations, its assignments from the budget, and its bank credits, have amounted to almost six billion rubles. (See article by S. Kuznetzov published in the newspaper, Ekonomicheskaya Zhizn ("Economic Life"), January 1, 1929.) Any trip through the country shows that these expenditures are beginning to bear fruit. Down on the rapids of the lower Dnieper a huge combination dam and hydroelectric power plant, estimated to cost about a hundred million dollars, is being built for the double purpose of making the upper reaches of the Dnieper navigable for ocean-going ships and supplying electricity to neighboring factories, some of which have still to be constructed. Probably another hundred million dollars is being sunk in the construction of a new railroad line, connecting Siberia with Turkestan. In Rostov-on-the-Don the largest agricultural machinery factory in Europe is already in process of construction, and a big tractor factory is projected in Stalingrad (formerly Tsaritsin). The Soviet oil industry has been provided with modern equipment, and an improved pipe line between Baku and Batum and a new pipe line between Grozny and Tuapse facilitate the flow of oil to the Black Sea ports and hence to the markets of the outside world.

The introduction of electrical energy is making substantial progress, and in some industrial regions, such as the Donetz Basin, many industrial processes have been facilitated in this way. New branches of industry, such as the manufacture of tractors and textile machinery, have started since the Revolution, and while their output thus far is very expensive they fit in with the general plan of industrializing the country and especially freeing it, so far as possible, from dependence on foreign imported machinery. The chemical industry, which was in a very early stage of development in Russia before the War, has greatly increased its output. In short, the Soviet Union to-day makes the impression of a country that is forging rapidly ahead in the field of industrial production. The situation has changed greatly since 1924, when Premier Rykov told the delegates to a Congress of the Communist Inter-national that not a single new factory had been built since the Revolution.

But quantity of output is not the sole or even the chief gauge in determining the relative efficiency of an industrial system. It is perhaps idle to speculate on what might have happened if the private capitalist system had been restored in Russia after the Revolution; but it seems likely that under the same conditions of an enormous hungry market, freedom to charge very high prices, and complete protection against foreign competition private industry would also have shown substantial gains of output from year to year. When one begins to apply such essential standards of comparison as quality and price the case for nationalized and state-operated industry shows many weaknesses.

There is probably no method of measuring quality as precisely and definitely as one may ascertain quantity in industrial production. But it is the unanimous testimony of Russian consumers, a testimony which is not contradicted, even by Soviet economic officials and experts with whom I have talked, that the quality of Russian products, especially of wearing apparel and many other articles of immediate consumption, has not reached the pre-war level. Several years ago Leon Trotzky initiated the idea of a commission which should hear complaints regarding the quality of industrial production; its offices were soon flooded with boots that leaked after the first trial, knives that failed to cut, textiles that tore after a short period of wear, etc. Krzhizhanovsky, President of the State Planning Commission, admits that "the quantitative needs of production often compel us to ignore quality." (Basic Problems of the Control Figures for 1928-1929, p. 9.)And here is an excerpt from The Conjuncture of Industry for 1927-1928, a book published under the auspices of the Supreme Economic Council, regarding the quality of production during this period: -

"During the year there were complaints regarding deterioration of quality from the metallurgical industry, because of the increased number of cinders from the coal, and from the railroads, because of the increased quantity of damaged goods in some products of the metallurgical industry. There were also complaints regarding the deterioration of the quality of overshoes, shoes, building material, aniline dyes, some forms of agricultural machinery, etc."

Low quality is accompanied by extremely high prices. The general wholesale index of prices of industrial products, as estimated by the Supreme Economic Council on October 1, 1928, was 185 (taking 100 as the pre-war level).(Outline of Industry for 1927-1928, p. 84) Even this figure does not indicate how much of the high cost of socialism is borne by the consumer, more especially by the peasant. Prices on iron, steel, chemicals, and other products which are consumed by the industries are artificially kept down, while prices on articles of broad consumption are raised, the index for the latter being about 199. This is only the wholesale index. By the time the products reach the peasant through the several stages of cooperative or state trade he very often is obliged to pay two and a half or three times the pre-war price of the goods. On the other hand the fixed state price on his basic product, grain, has been kept quite low, and up to the summer of 1929 was very little above the pre-war price. In the summer of 1929 with a view to stimulating peasant production, there was an increase of about 15 per cent in the fixed prices of grain; but this obviously did not restore anything like the pre-war relation between industrial and agricultural prices.

What lies behind the high prices and low quality of Soviet manufactured products ? Of course, the price level has risen all over the world since the War, but nowhere to such a great height as in Russia. Formerly foreign industrial products were 40 per cent cheaper than Russian; now they are 60 per cent cheaper.(See the report of the Soviet Commissar for Finance, N. P. Brukhanov, before the Soviet Central Executive Committee, in Izvestia for April 13, 1928.) Increased real wages of the industrial workers legitimately account for part, but only part, of the increased prices of goods, and scarcely justify the deterioration of quality. One evidently must look for further causes within the new Soviet economic system itself.

One should not apply this generalization about high prices and low quality to all Soviet industrial undertakings. The Azneft, the trust which directs the Baku oil industry, has reduced costs of production far below the pre-war figure and increased its extraction of the more valuable petroleum products by introducing in Baku a whole series of modern American methods, including the oil-cracking process. Other individual examples of the same kind could no doubt be cited. But the output of Soviet industry, taken as a whole, unmistakably suffers severely from the two defects which have been mentioned.

If one were asked to sum up in one word the greatest evil of this system, the chosen word, I am sure, would be "bureaucracy," using that term in its worst Russian sense. Anyone who has had extended experience in dealing with Russian offices knows what an extraordinary expenditure of time and energy is often necessary to obtain some very trifling thing - a stamp on an official paper, for instance. From time immemorial Russian officialdom has acted on the double principle that time does not matter and that nothing should be done to-day which can, under any pretext, be put off till to-morrow. Although there is much agitation for combating bureaucracy, the Revolution has not yet effected any great change in these working habits. The introduction of socialism inevitably involved a spread of the bureaucratic tradition over a wide field of industry and trade. How much harm this can inflict on the proper functioning of the productive machinery is visible from the following incident, described with much indignation by a German engineer, Dr. Heinrich Poppelmann, who was employed as a consultant for the building of a new factory in Lubertsi, a station just outside Moscow.(See Pravda for February 6, 1929.)

Dr. Poppelmann at first was permitted to communicate directly with German firms from which he wished to order equipment, but later this right was taken away from him and he was told that all his communications must go through the Soviet Trade Mission in Berlin. He sent some letters in this way, containing urgent orders and accompanied by plans and blueprints, from Lubertsi on October 16. Being in Berlin in December, he was amazed to find that the German firms had not received his letters, and, calling at the Trade Mission, he discovered letters and blueprints still lying there "in a disorderly condition." On another occasion he had to wait two months to obtain an export license for a few pounds of sand, which he wished to send abroad for analysis.

Imagine this sort of thing more or less prevailing throughout the state industries and it is not difficult to understand why overhead costs are so high and so difficult to reduce. Another classical case of almost criminal bureaucratic mismanagement was the building of the Sergievsk glass factory, which was exposed in the winter of 1927-1928 by Mr. Y. A. Yakovlev, Vice-Commissar for Workers' and Peasants' Inspection. In choosing the site no account was taken for the factory requirements in sand and lumber, so that the nearest woods were almost two hundred miles away and sand had to be carried about eighty miles. The expense of building the factory was five times greater than the original plan called for, while the output was one fifth of what was expected. Two thirds of the output was waste and unfit for use.

Obviously Russia could not have made the progress which has been achieved if every industrial enterprise were as badly planned as the Sergievsk glass factory. And, of course, mismanagement and bankruptcy are not unknown under capitalism. But, although definite statistics on such a subject would be difficult to compile, it is my impression that instances of gross industrial negligence, such as choosing unsuitable building sites, making up inaccurate financial plans, and leaving new machinery to spoil unused, are rather more common in Russia than elsewhere. Capitalist enterprises are ensured against such negligence by a very strong human motive, the motive of private gain, while the people responsible for construction in the Soviet Union are handling not their own money but the state's. Unquestionably there are a certain number of devoted Communists, willing to work harder for their cause than private capitalists might be willing to work for the sake of gain. But there are not enough such people to leaven adequately the whole body of industry.

Inexperience is perhaps second to bureaucracy as a handicap in Soviet industrial management. The great majority of the managers of Soviet factories and mines are workers and Communists; about three quarters of them lack the equivalent of an American high-school education.'(Authority for this statement is to be found in the article by M. Rutin, "The Directing Forces of the Communist Party," in the Bolshevik, No. 15 for 1928.) Of course, among these managers one finds a certain number of naturally good executives, "self-made men," who come to the fore in the industrial life of any country. Many of the "red directors," as the Soviet factory managers are called, served as officers during the civil war or had some other preliminary administrative experience. However, lack of adequate technical and general education is apt to prove a serious handicap in the management of a large and complicated industrial plant.

In general, the problem of management is one of. the most serious which socialism in Russia is called on to face. The "red director" has an engineer, usually a man of pre-revolutionary experience, as a technical advisor. Not a few of the engineers are hostile or at best passive in their attitude toward the Soviet regime, and recurring discoveries of cases of de-liberate mismanagement by technical specialists introduce an element of strain and suspicion into the relations between the red directors and their technical associates.

In a sense, this situation leads to a sort of vicious circle. Every new case of sabotage naturally inspires the Communists to apply measures of repression and vigilance which sometimes hamper the work of quite loyal specialists and tend to make the average non-Communist engineer very reluctant to depart from routine methods or to make any experiments which, if they turned out badly, might involve him in a charge of sabotage, an offense which is regarded as very serious and may be punished by death. When all the red directors possess a firm grasp of the technical details of the enterprises which they are supposed to manage and when a new generation of engineers and other specialists, sympathetic with the existing order, is trained, the difficulties with management in Soviet enterprises will probably tend to decline; but there must be considerable lapse of time before either of these conditions is fully realized.

The element of corruption cannot be overlooked in reviewing the difficulties of the new system of economic administration. Of course, this, like bureaucracy, is nothing new in Russia; in fact it is prosecuted and punished more severely under the Soviet Government than was the case under the Tsarist regime. But the new organization of industry and trade affords more temptation, or at least less effective resistance, to corrupt dealing, because people are not always so careful in defending the state's money as they would be in safeguarding their own. The consumers' cooperatives, for instance, lose ten million rubles a year in embezzlements, which are especially common among the rural societies.

Perhaps the most definite lesson that can yet be drawn from the test which socialism has received in Russia is that the mere abolition of private capitalism does not automatically make possible a substantial improvement in the living con- ditions of the masses of the people. Some evils which ardent socialist orators in other countries attribute entirely to the capitalist system, such as congested housing and unemployment, exist in Russia in quite sharp forms; the new system has not provided any immediate remedy for them. The ill-managed, bureaucratic trust, which puts out defective goods at high prices, and the negligent cooperative, which allows its cashier to run off with the funds and stores its potatoes next to leaking kerosene tins, can be just as much of a plague to the consumer as the grasping monopoly or profiteering middleman under capitalism. In short, the magic Marxian formula of nationalizing the means of production has not by itself proved capable of abolishing poverty and want. If socialism is to prove in the end the superior economic system, it must work out a technique of business management and industrial administration which will be more efficient and more economical than that of capitalism.

It scarcely can be claimed that socialism in Russia has yet worked out such a technique. But, of course, it would be unfair to pronounce a final judgment on a new system which has still had less than a decade of peaceful reconstruction in which to orient itself. The late Mr. Leonid Krassin, one of the ablest of the Soviet economic administrators, argued on one occasion that the first stages of a new social and economic order, just because it is new, are always inferior to the last stages of an old order, even though in the end the new system may prove clearly superior.

During the last few years, at the price of tremendous deprivations inflicted upon the consumer, much of the frame-work of a potentially powerful Russian national industrial system has been built. If this system in time begins to operate with smoothness and efficiency it is. possible that many of the difficulties of the present period, outlined in this chapter, will diminish in retrospect and that the industrialization of the Soviet Union will take its place in economic history as a feat comparable with the same process, as carried out at various times by America, Germany, and Japan.

The ultimate success of socialism as an economic system would seem to depend in no small degree upon whether and how far the traditional incentives of private ownership and personal gain, which are weakened and in some cases entirely destroyed under the Soviet system, can be replaced by new stimuli, rooted in class and community loyalty. An example of such a new stimulus is the "socialist competition," which was launched in the Soviet industries during the early months of 1929. The workers of a mine or factory, under the terms of this competition, would sign a pledge to achieve definite results in the way of increased output, reduced costs, diminished absenteeism. Then they would send a challenge to other factories of the same industry to match or exceed their record. At the time of writing this competition has not ended; but it has already achieved tangible results in pushing up the productivity of labor. It remains to be seen whether this will prove a permanent means of heightening labor efficiency or whether the effect will wear off with the novelty. So far the effect of this and other social incentives to more intensive and efficient work varies with different classes of the population. They are more influential in the towns than in the villages, and they carry more weight with the manual workers than with the engineers.

Socialism in Russia, so far as may be judged now, has a tremendous theatre and an indefinite period in which to demonstrate its possibilities. I do not foresee the slightest likelihood of any drastic modification of the existing economic order, or anything in the nature of a return to private capitalism. The workers of Russia, with more than a decade of Soviet rule behind them, would never, I think, submit again to the discipline of a private employer. But the new psychology and new status of the Russian workers are a subject for another

⁽¹⁾ See Konyunktura Promishiennostiv 1927-1928 godu ("Outline of Industry during 1927-1928"), p. 92. Published by State Technical Publishing Company, Moscow, 1928.

⁽²⁾ The share of the syndicates in marketing the products of various industries is 4s follows: oil, 99 per cent; salt, 99 per cent; leather, 95 per cent; textiles, 89 per cent; metal, 75 per cent. See Izvestia for August 3, 1928.

⁽³⁾ I. Lubimov, Dva Goda Raboti Potrebitelskoi Kooperatsii ("Two Years of the Work of Consumers' Cooperation "), p. 11. Published by Centrosoyuz, Moscow, 1929.

⁽⁴⁾ lbid., p. 51.

⁽⁵⁾ See magazine, Sovietskaya Torgovlya ("Soviet Trade"), the organ of the Commissariat for Trade, No. 40 for 1928, p. 38

⁽⁶⁾ These data are taken from the magazine, Planovoe Khozaestvo ("Planned Economic Life"), No. z for 1928, p. 337

⁽⁷⁾ See Outline of Industry in 1927-1928, p. 8.

⁽⁸⁾ A vigorous discussion of this question is to be found in the magazine, Planned Economic Life, No. 1o, for October 1928, pp. 41-70. Mr. L. Shanin, who argues that the country stands in danger of inflation as a result of too reckless financing of industrial construction, points to the feverish haste with which the trusts attempt to convert their money allotments into supplies, even though these supplies may not be of immediate need or value. Mr. N. A. Kovalevsky, who defends the financial policy of the Government against the charge of inflationism, contends that this accumulation of supplies is the result, not of inflation, but of sharp shortage of goods.

⁽⁹⁾ Soviet Union Year-Book ,1918, p. 414

⁽¹⁰⁾ The general Soviet trade index rose from 200 on December 1, 1927, to 215 on December 1, 1928. This was largely due to the increased prices for grain and flax which the Government established in the summer of 1928, with a view to stimulating peasant production.

⁽¹¹⁾ The budget for 1929-1930, though not prepared in final form at the time of writing, is reported to show a marked increase, preliminary estimates placing the total sum at 11,600,000,000 rubles.

⁽¹²⁾ See Putii Industrializatzii("Ways of Industrialization"), No. ,1 for 1929, p. 31

⁽¹³⁾ See his article in Putii Industrializatzii, No. 1 for 1929, p. 8-15.

⁽¹⁴⁾ Both these points are discussed in much greater detail in separate chapters, No. XVI, "Russia and World Capital," and No. VIII, "Karl Marx and the Peasant-Sphinx."

⁽¹⁵⁾ Planned Economic Life, No. 9 for 1928, p. 27.

⁽¹⁶⁾ These figures are taken from the tables appended to the book, 0snovnie Problemi Kontrolnikh Tsiffr narodnovo Khozaestvo na 1928-1929 Goths (" Basic Problems of the Control Figures of National Economic Life in 1928-1929"), by G. M. Krzhizhanovsky, F. G. Grinko, and Z. I. Kviring. Published by Gosplan, Moscow, 1929.

⁽¹⁷⁾ The newspaper, Trud, of March 29, 1929, points out in this connection that the parts of the former Russian Empire which are not included in the Soviet Union contain 21 per cent of the cotton-goods industry and 46 per cent of the woolen industry of pre-war Russia, while they number only 15 per cent of its population.

Soviet Russia