With the devastation of the First World War, the Soviet economy was in dire straits in 1919. Realizing that the new regime had no chance of surviving without reviving food production, Lenin launched the New Economic Policy (NEP), allowing market transactions in agriculture and letting the peasants keep the profits from those transactions.
The Bolshevik party was split. On the left of the party, arguing that the NEP was no more than a regression to capitalism, was Leon Trotsky. He was supported by the brilliant self-taught economist Yevgeni Preobrazhensky. Preobrazhensky argued that if the Soviet economy was to develop it needed to increase investment in industries. However, Preobrazhensky argued, it was very difficult to increase such investment because virtually all the surplus the economy generated (that is, over and above what was absolutely necessary for the physical survival of its population) was controlled by the farmers, as the economy was mostly agricultural. Therefore, he reasoned, private property and the market should be abolished in the countryside, so that all investible surplus could be squeezed out of it by the government suppressing agricultural prices. Such surplus was then to be shifted to the industrial sector, where the planning authority could make sure that all of it was invested. In the short run, this would suppress living standards, especially for the peasantry, but in the long run it would make everyone better off, because it would maximize investment and therefore the growth potential of the economy.
Those on the right of the party, such as Josef Stalin and Nikolai Bukharin, Preobrazhensky’s erstwhile friend and intellectual rival, called for realism. They argued that, even if it was not very ‘communist’ to allow private property in land and livestock in the countryside, they could not afford to alienate the peasantry, given its predominance. According to Bukharin, there was no other choice than ‘riding into socialism on a peasant nag’. Throughout most of the 1920s, the right had the upper hand. Preobrazhensky was increasingly marginalized and forced into exile in 1927.
However, in 1928, it all changed. Upon becoming the sole dictator, Stalin filched his rivals’ ideas and implemented the strategy advocated by Preobrazhensky. He confiscated land from the kulaks, the rich farmers, and brought the entire countryside under state control through collectivization of agriculture. The lands confiscated from the kulaks were turned into state farms (
Stalin did not follow Preobrazhensky’s recommendation exactly. Actually, he went rather soft on the countryside and did not squeeze the peasants to the maximum. Instead, he imposed lower-than-subsistence wages on industrial workers, which in turn forced urban women to join the industrial workforce in order to enable their families to survive.
Stalin’s strategy had huge costs. Millions of people resisting, or being accused of resisisting, agricultural collectivization ended up in labour camps. There was a collapse in agricultural output, following the dramatic fall in the number of traction animals, partly due to the slaughtering by their owners in anticipation of confiscation and partly due to the shortage of grains to feed them thanks to forced grain shipments to the cities. This agricultural breakdown resulted in the severe famine of 1932–3 in which millions of people perished.
The irony is that, without Stalin adopting Preobrazhensky’s strategy, the Soviet Union would not have been able to build the industrial base at such a speed that it was able to repel the Nazi invasion on the Eastern Front in the Second World War. Without the Nazi defeat on the Eastern Front, Western Europe would not have been able to beat the Nazis. Thus, ironically, Western Europeans owe their freedom today to an ultra-left-wing Soviet economist called Preobrazhensky.
Why am I nattering on about some forgotten Russian Marxist economist from nearly a century ago? It is because there is a striking parallel between Stalin’s (or rather Preobrazhensky’s) strategy and today’s pro-rich policies advocated by free-market economists.
From the eighteenth century, the feudal order, whereby people were born into certain ‘stations’ and remained there for the rest of their lives, came under attack from liberals throughout Europe. They argued that people should be rewarded according to their achievements rather than their births (
Of course, these were liberals of nineteenth-century vintage, so they had views that today’s liberals (least of all American liberals, who would be called ‘left of centre’, rather than liberal, in Europe) would find objectionable. Above all, they were against democracy. They believed that giving votes to poor men – women were not even considered, as they were believed to lack full mental faculty – would destroy capitalism. Why was that?
The nineteenth-century liberals believed that abstinence was the key to wealth accumulation and thus economic development. Having acquired the fruits of their labour, people need to abstain from instant gratification and invest it, if they were to accumulate wealth. In this world view, the poor were poor because they did not have the character to exercise such abstinence. Therefore, if you gave the poor voting rights, they would want to maximize their current consumption, rather than investment, by imposing taxes on the rich and spending them. This might make the poor better off in the short run, but it would make them worse off in the long run by reducing investment and thus growth.
In their anti-poor politics, the liberals were intellectually supported by the Classical economists, with David Ricardo, the nineteenth-century British economist, as the most brilliant of them all. Unlike today’s liberal economists, the Classical economists did not see the capitalist economy as being made up of individuals. They believed that people belonged to different classes – capitalists, workers and landlords – and behaved differently according to their classes. The most important inter-class behavioural difference was considered to be the fact that capitalists invested (virtually) all of their incomes while the other classes – the working class and the landlord class – consumed them. On the landlord class, opinion was split. Some, like Ricardo, saw it as a consuming class that hampered capital accumulation, while others, such as Thomas Malthus, thought that its consumption helped the capitalist class by offering extra demands for their products. However, on the workers, there was a consensus. They spent all of their income, so if the workers got a higher share of the national income, investment and thus economic growth would fall.
This is where ardent free-marketeers like Ricardo meet ultra-left wing communists like Preobrazhensky. Despite their apparent differences, both of them believed that the investible surplus should be concentrated in the hands of the investor, the capitalist class in the case of the former and the planning authority in the case of the latter, in order to maximize economic growth in the long run. This is ultimately what people today have in mind when they say that ‘you first have to create wealth before you can redistribute it’.
Between the late nineteenth and early twentieth centuries, the worst fears of liberals were realized, and most countries in Europe and the so-called ‘Western offshoots’ (the US, Canada, Australia and New Zealand) extended suffrage to the poor (naturally only to the males). However, the dreaded over-taxation of the rich and the resulting destruction of capitalism did not happen. In the decades that followed the introduction of universal male suffrage, taxation on the rich and social spending did not increase by much. So, the poor were not that impatient after all.
Moreover, when the dreaded over-taxation of the rich started in earnest, it did not destroy capitalism. In fact, it made it even stronger. Following the Second World War, there was a rapid growth in progressive taxation and social welfare spending in most of the rich capitalist countries. Despite this (or rather partly because of this –
When growth slowed down in the rich capitalist economies from the mid 1970s, however, the free- marketeers dusted off their nineteenth-century rhetoric and managed to convince others that the reduction in the share of the income going to the investing class was the reason for the slowdown.
Since the 1980s, in many (although not all) of these countries, governments that espouse upward income redistribution have ruled most of the time. Even some so-called left-wing parties, such as Britain’s New Labour under Tony Blair and the American Democratic Party under Bill Clinton, openly advocated such a strategy – the high point being Bill Clinton introducing his welfare reform in 1996, declaring that he wanted to ‘end welfare as we know it’.
In the event, trimming the welfare state down proved more difficult than initially thought (
