At the first stage of development of society, in the primitive society, there was no surplus product and hence no profit. The emergence of exploitation in society is linked with the instruments of labour which created the possibility of producing surplus product. As society and the means of production developed the proportion of surplus produce in the given amount produce also increased up to a given point. However, under capitalism the reverse process started and it becomes evident already in the 18th century when David Ricardo came out with the theory of the fall in the rate of profit, that the source of profits is the surplus produce.
The rate of profit is the relationship of profit to the cost of production. For example, if a capitalist invests 100 million dollars in production and after realisation of commodities receives 115 million dollars then his profit constitutes 15 million dollars. Then the rate of profit is:
Along with the development of production technological know-how also increased. In this process the size of profit increases but its increase lags behind the increases in expenses incurred on the means of labour. After some time as the capitalist puts into production, for instance, 200 million dollars, he obtains 20 million dollars as profits. The rate then constitutes:
As the rate of profit drops to 2.5 to 4% production becomes simply unprofitable. A paralysis of the economy takes place, a state which all developed capitalist countries have reached.
In other words as a result of the objective laws of development of society humanity reaches a stage beyond which the entire manufactured product objectively is comprised of necessary product.
Because of non-equivalent exchange with the countries of the 'third world' the more developed capitalist countries are able to maintain their cost of product and receive profit. But in this process a significant part of the necessary product is squeezed out from the exploited peoples. As a result in the second half of the 20th century global famine spreads and affects 200,000 human lives every three days.
Therefore a revolutionary transition to a new socio-economic formation becomes inevitable. One of the distinguishing features of the new communist formation is an economy in which profit as an economic category is necessarily absent.
The creative forces of the masses and the genius of J.V. Stalin allowed those variants of organisation of production and state to be selected and incorporated into a system which would ensure the progressive development of socialist society.
The essential principles of this model of society which received the name 'Bolshevist' are:
l. Extraction of income from the last stage of production, based on the all-people's ownership of the means of production and distribution of income according to labour inputs.
2. The dictatorship of the proletariat with the formation of a Deputy body of Soviets in accordance with labour services based on production-territorial principles.
3. Freedom of individual creative self-expression. The first principle was achieved through the single component socialist market with a two-scale system of prices from the 1930s through to the beginning of the 1950s.
This market was called a 'single component market' because the commodities in this market consisted only of the essential consumer goods for the people and not the means of production nor the product of production-technical assignments. Naturally labour power was not a commodity as the workers themselves were collective owners of the means of production.
The retail price of the commodity (the final product) was determined by the two factors: quality and demand. The better the quality of the commodity the higher its demand and so a higher retail price was established. It is this price which forms the equilibrium between demand and supply.
The total difference between the cost price and the retail price of commodities constitutes the centralised net income of the state, part of which is directed towards the social funds for social accumulation and consumption, part of which is passed on to the workers indirectly in the form of decreased retail prices for consumer goods and services.
Since the basis of the centralised net income of the state derives from consumption goods the state is interested in greater production of these goods as well as in an improvement of their quality.
Wholesale prices are determined by the level of the cost price. During the course of a particular time frame (at least a year) they are not reviewed. They remain unchanged irrespective of any changes in the actual cost-price. The producers of various articles, of industrial machinery and semi-finished goods are interested in reducing the cost-price of their products as the difference between the wholesale price and the real (new) cost-price at a given moment remains with the manufacturer. These circumstances stimulate a rise in labour productivity, lower energy consumption, decrease the material intensity of production and promote the development of applied sciences.
A periodical fall in the retail prices by decree of the leadership of the country stimulated sufficient substitution of goods by superior products.
Let us observe how the mechanism of the single component socialist market functions through the example of the production of a refrigerator.
A certain factory 'A' manufactures 'Sosulka' refrigerators which are of a very good quality. Because of this and a high demand the initial retail price is set at 350 roubles. The cost price of 'Sosulka', however constitutes only 100 roubles so that the sale of each refrigerator means that a centralised net income of 250 roubles is earned by the state.
The factory 'A' obtains freezers for their refrigerators from another plant 'B'. The initial cost price of the freezer turned out to be equivalent to 10 roubles. The wholesale price, say for a year, is determined at this level. If plant 'B' can decrease its cost from 10 to 8 roubles, without any change in the quality, the wholesale price does not change till the expiry of the period. Therefore plant 'B' while supplying freezers to factory 'A' will be profiting by 2 roubles for each freezer supplied. This money is at the complete disposal of plant 'B'.
Only the initial retail price of a commodity gets established as a price in equilibrium between supply and demand. In due course it is reduced lawfully. In the process the gap between cost price and sale price also decreases which leads to a reduction in payments in the form of bonuses etc. from the centralised net income of the state. This compels the manufacturers to develop and produce perfected models of consumption goods. In the given example of 'Sosulka' refrigerators the factories which are manufacturing this item are interested in producing a refrigerator with better usage qualities: utilising less electricity, more voluminous freezers, automatic defrosting etc. Let us call the new model 'Penguin'. On this a new equilibrium price will be established afresh, which may be quite high because of its better quality. But because many people would already be possessing 'Sosulka' the demand for 'Penguin' would be low. Therefore a retail price of 350 roubles would not be achieved; it would be perhaps, 320 roubles.
A similar scenario takes place in the production of other commodities.
As a result of the reduction of retail prices the general mass of money circulating in the economy also decreases. Because of a reduction in the cost of essential commodities and services in larger quantities they become free. Gradually value, commodity-money regulators cease to play any role in social production and so cease to exist.
We are not dwelling upon a description of the smaller mechanisms for stimulating production, such as the system of payment for labour, bonuses, nor are we touching upon the question of planning either. Two factors are significant: firstly, the described system automatically rids itself of its shortcomings, the commodity-money relationship dies off, and, secondly, profit as an economic category is absent in this system, therefore David Ricardo's law does not function here. This is the reason for the growth of the gross national product in the USSR up to 1953.
The formation of a Deputy body of Soviets for labour services leads to legislative work being carried out by workers in the interest of the development of the whole society. This is expressed for example in the proportion of expenditure in the national income. In the period when the Bolshevist model of society was in force this proportion was higher than in the developed capitalist countries. Here one factor is also important: the candidate put up by the collective of the industry for the post of Deputy has to be elected by all the citizens living in the territory of that particular electoral area. This eliminates the danger of the Deputy looking only after the interests of his particular collective.
During the First Five-Year Plan when there was a mass movement for higher labour productivity, when the movement for rationalisation was in force, the conditions were also created for guaranteeing personal creative projects.
The first such condition is glasnost, the forming of an atmosphere of romanticism, respect by the entire people for the innovators, combining moral and material incentives.
The second condition is emulation between the foremost innovators.
The third condition is the legal defence of the innovators.
The anarcho-syndicalist model presupposes a collective form of property over the means of production which excludes the possibility of a single component socialist market with a dual scale system of prices. Here there is no centralised state net income. There is no possibility of transfering a product from one production point to another at cost price. In the example cited above factory 'B' will not supply freezers to factory 'A' but will sell them at a profit because these factories belong to different 'collectives' of workers. This, firstly, brings into force the law of the falling rate of profit which soon leads to economic paralysis, and, secondly, under such a model there grows the tendency to group egoism and economic anarchy.
The formation of a Deputy body based on the productive principle leads to outbursts of localistic tensions between the branch and regional levels. This process gets aggravated by the so-called 'sovietisation' of production when the Director of Enterprises are elected by the collectives. Directors who take a strict but just stand are often not re-elected. There is a decline in work discipline as well as a fall in effective production. Soviets of workers' collectives are another body which oversee the administration. Lenin's principle of one-man management is violated and this gives rise to anarchy in the management of production. The process of division of the single national economy into isolated units takes place which results in the fight of all against all for a piece of cake which belongs to society at large.
The social democratic model stipulates different forms and equal rights for different types of ownership in the means of production. Therefore, here also profit as an economic category exists. One should only add that redistribution of parts of this profit by the state for the defence of the privileged few by increasing tax on the profits aggravates the decline in the rate of profits which again leads to economic paralysis.
The models described above have been functioning for long. The Bolshevist model showed its effectiveness in the USSR up to 1953 after which it was destroyed by the post-Stalinist leadership. The All-Union Communist Party (Bolshevik) [A-UCP(B)] and Communists in other communist parties are now calling for its revival.
The anarcho-syndicalist model also underwent a long journey and showed its incompetence in Yugoslavia and a number of developing countries. Some essential elements of this model aggravated the disintegration of the economy of the USSR, particularly in the period of 'perestroika'.
The social-democratic model was tested in many countries and showed its ineffectiveness. For example, even Sweden which receives two-thirds of its income by plundering the developing countries through non-equivalent exchange is undergoing difficulties. One hears more and more voices which wish to do away with the state system of social protection.
Therefore one is bewildered that both the Russian Communist Workers' Party and the Russian Workers' and Peasants Party are persisting on the anarcho-syndicalist model.
The leaders of a number of parties including some which do not claim to have a communist orientation (the CPRF of Zyuganov, the SDNPR of Rutskoi and others) are advocating the social-democratic model with some modifications.
The aspiration of the Communists to unite is growing. But unification makes sense only on the basis of a theory which has been tested and which guarantees the progressive development of the economy. In the event of unification at any cost, indifference, impatience and incompetence on the part of the communists in choosing the right model for the social and economic development of the country will lead the country again to a blind alley. This will discredit the ideas of Socialism and Communism yet again for a long time.
The author is a member of the Central Committee of the A-UCP (B) and Secretary of its Ulyanovsky Organisation.
Krasnaya Molodyozh No.4, 1995
Translated from the Russian by Neelakshi Suryanarayan.
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