Socialism, Markets and Restoration

Against the Current, No. 25, March/April 1990

Aleksei K. Zolotov

THE COLLAPSE OF Stalinist economic centralization promises to beget the greatest crisis in the history of the international left. The outcome of the concomitant debate on the theory and practice of socialism will determine whether socialism will survive into the next century as a significant historical current.

Marxists should not delude themselves with the mixed glories of putatively socialist past triumphs. However much Russian, Chinese and other left upheavals dominated the history of the twentieth century, it may well be that the momentum of these epochal processes is spent Just as the American “Movement” of 1965-70 vanished overnight into nothingness, the far more substantial revolutionary socialist processes of our century may also soon vanish. It is possible that the U.S.S.R and People’s Republic of China will not exist in the year 2000. It is possible that world globes in the year 2010 will show “Russia” and “China,” as they did in 1910.

That is, the stakes in the present, greatest, and perhaps last socialist debate concern less progress and retrogression than survival and extinction. The stakes require that the debate center on first principles. What is socialism? What is its essence, that which should be preserved? What is accidental and must be shucked to avoid Idling the essence?

The Essence of Socialism

Socialism is humane. Socialism is efficient. Utopians focus on the humane,(1) technocrats on the efficient. Marx’s greatest achievement was to identify them as the two-fold dynamic principle of the new society, the coequal essential characteristics of any socialism worth fighting for. The rest is detail: planning, markets, income distribution, revolutionary strategy, party organization, class alliances, labor politics, ethnic alliances, gender politics, culture. Wage policy in a socialist state is a detail. Transitional demands in a capitalist state are details. Military shipments to Third World radicals are details. Details are important. But they are to be approached in the light of the larger essential principles.

Unfortunately, details, ephemera, dominate the present discussion. Unless this changes, unless a reconsideration from the root up occurs, socialism risks becoming an extinct ideology and movement. Even by the standards of the left, such an outcome would be just: it is correct for ossified, historically obsolete phenomena to perish.

Perestroika and Restoration

Soviet socialism has spent seventy years digging itself into a pit. Whatever is left alive in Soviet society is at last trying to clamber out of that abyss of blood, poverty, disillusionment and moralistic effluvia. Perestroika is the economic, political and social aspect of this desperate ascent into the light, as glasnost is its cultural aspect.

However lurching and inchoate, and however many its halts, false starts, and contradictions, perestroika/glasnost is a seminal activity of a growing mass consciousness. It is a world-historical light thrown on the claims of left and right. Who really is for the humane? Who really is for the efficient? The left’s defining of perestroika as progressive or reactionary is in vain. It is rather the other way around: itis for the unfolding new Russian Revolution to define the left as progressive or reactionary.

But the details of perestroika are difficult for the left James Petras (ATC 20) warns that what is happening is restoration, and calls for Western radicals to sound the counterrevolutionary alarm. To one degree or another, the same sentiment lurks in nearly all the recent ATC pieces on the upheaval in the socialist world.

Yet, if socialism is to survive, to be rejuvenated, it must sail new waters, without charts. For those who fear that the voyage might end in restoration, it must be said: there are no guarantees. Perhaps such will indeed be the destiny of the noblest hopes of the age. But, other than dreams, is so much to be lost even in restoration? And is anything to be gained by staying ashore, clinging to the stinking corpse of Stalinism?

The remainder of this piece surveys some of the perceived obstacles in the new course, and finishes with speculations on the eventual destination.

Wages and Inflation

The left is horrified that the East bloc reformers seek wage restraint. The left calls on Polish workers not to accept wage limitations as part of a Solidarnosc pact with Jaruzelski, but what is the alternative? It is important not to pick battles that can only be lost. The battle for indefinitely repeated wage increases in an inflationary crisis is the archetype of such a vain cause. Thatcher, Reagan, Pinochet and Hitler were the ultimate victors in four memorable wage-centered social conflicts.

Inflation is a symptom of a weak regime. The weaker the regime, the greater the inflation. Prolonged inflation occurs when the minimal claims of different social groups—workers, capitalists, militarists, bureaucrats—exceed the economic product. The weak, demagogic regime’s formula for short-run social peace is to provide all the social groups with cash to meet their minimal demands.

But in a crisis these demands exceed the actual economic output. In meeting the several demands, the regime increases the cash in the hands of the groups by, say, 20% or 2000%. The inevitable result is that there are not enough goods to satisfy the cash demand. Either prices rise (Chile 1973), so there is inflation of 20% or 2000%, or prices are forced to remain fixed (Poland 1981), in which case interminable lines form for all commodities, and only 83% or 5% of the money in people’s hands will actually be able to find goods to purchase. Either outcome is a recipe for disaster.

A strong regime will suppress the demand of some groups. Thus, Pinochet resolved Allende’s inflationary crisis by crushing the power of the workers. Had Allende’s regime been stronger, it might have resolved the crisis by suppressing the claims of capitalists and the military.

Thus, labor politics in a social crisis that has not yet matured to the point of revolution is quite tricky. If the left is not yet sufficiently strong, as in Chile or Poland, to bring to power a regime that will suppress the claims of the other groups—capitalists, militarists, bureaucrats—what is it to do?

The facile response is that the left fights to defend the living standard of the masses. This is an empty boast in such a crisis; the left does not have the power to determine the living standard. True, mass strikes can bring about dramatic money wage increases. However, the regime will print money to cover the wage increases, and the resulting inflation will wipe out any apparent gain. The battle over wages determines, under a weak regime, not the standard of living of the masses, but the rate of inflation.(2)

The left typically responds to such inflation with a demand for an even larger wage increase to make up for the failure of the previous wage increase to improve the workers living standard. The larger increase begets yet greater inflation and the process of labor mobilization is caught up in an indefinitely prolonged cycle of wage and inflation spurts.

Nothing improves. Indeed, things slowly get worse. Fixed income recipients—people on welfare, pensioners, less strategically placed workers—suffer collapses in their living standards. Economic calculations become more and more impossible, and accordingly, more and more of the productive process loses its direction, drifts. Factories and enterprises cut back production or shut down, unless rescued by government bailouts.

And if there are bailouts, money is printed to pay for them, and thus the in disaster is reinforced.

Few workers’ movements have dealt with this bitter reality. Most have followed the inflationary wage-price shell game to its ultimate logic: at best, Thatcherism at worst, fascism.(3)

The Polish workers’ movement is at present trying to fight its way out of this trap. The endeavor of Lech Walesa and the Solidarnosc leadership, supported increasingly by the workers, to make a social pact with Jaruzeiski is the most exciting piece of world working-class politics in decades. What do workers do when they cannot assume power? To pretend to be making a revolution is irresponsible. To rise up, again and again, in vain threats to a regime that will, for now, survive, is pseudo-revolutionary posing.

However exhilarating, such posturing is worse than no revolution at all. It causes the revolutionary process to pre-ignite, thus dissipating its energies before they are fully gathered. It ‘victimizes people who later would be able to make a real revolution. It destroys the image of the left instead of strong, competent and compassionate; the left is seen as weak, frivolous and recklessly endangering. It demoralizes the masses. It gives credibility to the claims of the right that what is needed is order, authority, self-discipline, hard work. It ends by bringing to power a strong regime of the right.

Solidarnosc recognizes that the existing deadlock between state and people will almost certainly persist for some time, probably several years. It is at pains to avoid an abortive uprising. At the same time, it is concerned not to sell the partial power of workers for a pittance, but rather to achieve some modus vivendi until the larger East-bloc upheaval shifts decisively the currently deadlocked balance of forces.

Solidarnosc recognizes that wage increases do nothing for the workers, that they determine the inflation rate, not living standards. This was appreciated to some degree in 1980-81; the ensuing eight years have brought the lesson home with far greater force.

The deal offered Jaruzeiski is that Solidarnosc will work for wage restraint, thus giving up the power to wreak inflationary havoc, in return for democratic reforms in the society and workplace. Thus, Solidarnosc hopes to find breathing space for society and itself, a space in which to await the larger Soviet-bloc emancipation.

It is not dear that this latest version of Jacek Kuron’s “self-limiting revolution” can be pulled off. If it fails, Walesa and the other leaders of the Polish workers’ struggle face scorn and ridicule from their constituency, smug sectarian homilies from the Western left and the usual dangers from the Polish regime. They are running considerable personal risks in charting a new, desperately needed course for the workers’ movement Placing in jeopardy a place in history already secured, they have eschewed the rhetorical dramatics of the demagogues more typically at the head of workers’ uprisings, those who lead the meaningless struggle for money wages. They are seeking a formula, one no one has yet discovered, for a way of exacting something meaningful from a regime they cannot yet displace.(4)


Along with the level of money wages, the other great fetish of the left is unemployment. Unemployment would seem to be an ultimate category. Perestroika is unacceptable because it will make for unemployment. Solidarnosc is selling out by pushing for a market reform that will make for unemployment.

But any economic change means disruption. Any redirection of the economy away from the present absurd structure of production means that people are going to be uprooted from one production site and moved to another. Any significant economic redirection means a great many people are going to have to move to new lines of work, learn new skills, abandon old skills, move to new towns, leave old towns. To demand that this pain not be endured is to propose that there be no change. The tears shed for this pain are those of the crocodiles who would continue centralization’s devouring of the workers.

When one considers the unprecedented pain and bloodshed that was endured to make the unworkable Stalinist system of central planning grind along, the pain of unemployment is by comparison negligible. At worst, even substantial unemployment for several years is to be preferred to the continuing of the soul-crushing poverty and irrationality of the centralized economy.

Moreover, the worst is a lower limit only. The transition period from centralized to market socialism can be made less painful by the development of labor exchanges, employment services and training centers, and by the creation of adequate unemployment compensation and income-maintenance programs.

Can the state afford such programs? Yes, definitely. The incoherent present structure of production in the Soviet Union wastes a great deal of labor. People have jobs, but much of their labor time yields no output This means they are already being carried, subsidized, by the rest of the society, with the subsidy disguised as a wage payment.

When perestroika’s rationalization of production takes hold, the implicit unemployment of such unproductive workers will be made explicit. The implicit subsidy will no longer be paid as a wage it will rather be made an explicit subsidy of the unemployed. This is in keeping with the program of honesty of glasnost: let words come again to mean something. Let employment come to mean once again creative production, not busywork and time-serving.

Thus, in the short run, the transition will replace the pain of disguised, subsidized unemployment with a roughly comparable undisguised, subsidized unemployment. In the long run, the shift to the new, rational structure of production will mean that those who were previously  the victims of disguised unemployment will be the beneficiaries, at last, of real creative employment.

Strategy for the Left

The experiments of Solidarnosc suggest the beginning of an orientation the left might take toward perestroika.

The wage struggle can inflict unacceptable pain on the regime. This means the regime may be willing to rant certain democratic social and political rights in return for wage restraint Since, on the other hand, the wage struggle cannot improve the workers’ living conditions, while democratic conquests enlarge the sphere for labor’s political autonomy, it may well be appropriate for the left to support such a trade. The crucial issue, after all, is the independent organization of the workers for long-term victory, not illusory short-term economic pseudo-triumphs.

Perestroika in the Soviet Union originated with the regime. It reflects a split between the bureaucrats, who want to continue the old, fatally ill, economic methods, and the technocrats, who hope somehow to salvage the Soviet economy. In Poland, market reform forces have been even stronger within Solidarnosc than within the regime, but still, the split between the regime’s bureaucratic Stalinists and technocratic reformers is crucial to the evolution of the process.

In all of these situations, the left should support the technocrats against the bureaucrats. This support should be highly critical. The technocrats will vacillate time and again and must be forced by the workers to move forward. The left must be prepared both for an eventual capitulation by the technocrats and, as well, for an overthrow of the technocrats by the bureaucrats. In these situations, labor must be prepared to lead the market-reform struggle on its own.

The workers must push the market reform in a socialist direction: toward the humane and efficient The technocrats will, of course, seek to smuggle in caste privileges in the guise of economic rationalization, and these need to be opposed, in forms dictated by the concrete situation. Workers’ self-management and political democracy must be accentuated at all times as distinguishing features of s socialist market reform.

Less obvious, but more important, is the need to press for the acceleration of the process of going over to an ubiquitous market. The two systems, centralized and decentralized allocation, Stalinist planning and market socialism, are completely incompatible. To mix them is disastrous. To transplant a mammal’s head onto a dinosaur’s body yields two dead creatures, not a more advanced dinosaur.

The left and the workers have every interest in the success of the reform, and everything to lose in a reform that aborts through half-measures. The technocrats, however, tremble before fundamental reform. Their natural bent is toward incremental change, and they must be driven from below toward structural, global change.

This is nowhere so important as in the area of prices. It is crucial that prices be completely free of controls if rationalization of production is to occur. This means, for example, that bread prices must be allowed to rise to reflect the actual social cost of producing bread, and few reforming regimes and fewer workers’ movements have been willing to support this. The fear is that this will lead to inflation and malnutrition. Both fears are misplaced.

Bread is made cheap by making other goods more expensive. That is, substantial excise taxes are placed on other goods—for example, clothing and shoes—to raise the funds that the state uses to subsidize cheap bread. When the subsidy is removed, the taxes are also removed, so that while the bread price will rise, the other prices will decline. The general price level will remain constant; there is no inflation associated with the increase in the price of bread. Accordingly, the population as a whole will be able to use its savings from the purchase of the now cheaper goods to pay the increased cost of bread.

If there are serious income inequalities, this could work a hardship on the poorer strata, for whom bread is a proportionally larger budget item. At the same time, the reduction in the prices of other items would provide a windfall gain for the relatively wealthier strata. This can be remedied by increasing income taxes on the wealthier citizens and reducing income taxes (or increasing income subsidies) for the poorer citizens.

This latter concern brings out an important principle. Prices are not of interest in themselves, but for their role in determining the real income of the citizens. It is much easier and far more efficient to adjust income directly and openly via income taxes and subsidies rather than indirectly and mysteriously by manipulating prices. Steering the economy with income taxes is using the steering wheel. Steering with price manipulation is akin to using now the right brake, now the left, to skid the vehicle now in one direction, now in the other.

To summarize. The workers will be able to purchase as much bread after the price increase as before, provided a proper income tax/subsidy charge is included in the reform. There will not be inflation. Other prices will decline to offset the rise in the price of bread. Incidentally, this confirms what was pointed out earlier inflation results from the excessive printing of money, not from freely fluctuating prices. But with the higher price, which reflects the real cost of production of bread, it will be economized, rather than used frivolously. For example, in Poland, subsidized bread was cheaper than feed grain and was served to pigs. Higher bread prices suppress such uses and thus increase the bread consumption of the population.

The Market as Socialism

Thus, the workers’ strategy needs to account for some paradoxes. To fight for cheap bread through controlled prices is to fight for a strangling of the reform, a continuation of irrational, inefficient production, and therefore a fight for a lower standard of living for the workers. The same is true of cheap books, milk infant supplies and housing. These paradoxes need to be kept in mind just as much as the earlier paradox of wages, namely, that the fight for higher wages is a fight for inflation, not for an increase in living standards of workers.

How exasperating! Is there no struggle of the workers that doesn’t lose its object in a paradox? In fact, there is, and it involves the last and central item in a workers’ program for market socialism. The struggle over distribution of income.

As noted previously, this is what wage and price battles really concern. High wages and low prices are not ends, they are, or try to be, means to greater real income for the workers. Unfortunately, in the aggregate they don’t work. What will work is taxation policy: taking from the income of the wealthier participants in the market and transferring to the poorer. For one not lost in the fetishism of wages and prices, this is the egg of Columbus. If what is at issue is using the workers’ power to extract real income from the rich on behalf of the poor, why not do this directly? Why not tax the rich and subsidize the poor?

The mechanism is simple. People earn what they can on the market Their earnings are subject to an extremely steep progressive income tax, with a cap on after tax income of, say, $90,000 in the United States, or $30,000 in the Soviet Union. The proceeds are then distributed regressively no one gels less, after the redistribution, than, say, $7,000 in the U.S. or $2,500 in the Soviet Union The figures in Table 1, which is illustrative only, suggest the outcome for the United States.

The numbers can be varied at will, subject to the available output of the society. The cap can be set arbitrarily high or low. The minimum can be set arbitrarily high or low. The point is that the workers’ movement should concentrate its efforts on the bottom line, the ultimate real income of the workers. To be concerned with any particular component of income—wages, profit, taxes, subsidies—rather than with the bottom line is irrational fetishism.

So constructed, market socialism is socialist, where Stalinist planning is not. It is efficient: the interplay of demand and supply forces in individual markets sets up a rational price structure that signals resources to leave less useful lines of production and move to more useful lines. It is humane: the distribution of income can be set anywhere from perfectly egalitarian to highly skewed, according to society’s notion of the humane and just.

Such a setting provides a framework for an empirical quantitative science of socialism. Issues of equity, efficiency and motivation clash in choosing the tax subsidy structure. Scientifically, by measuring causes and effects, it can be determined how much income inequality is necessary to generate a certain amount of efficiency.

The framework allows for continuous corrections, as the Stalinist framework with its stop-and-go campaigns does not. If income differentials are making for unexpected class divisions, the numbers in the tax table can be adjusted for greater equality. If more material incentives seem, sadly, needed to enhance production, the numbers can be adjusted for greater differentiation.

If the dreams of State and Revolution are viable, the following should happen with the passage of decades. The minimum and maximum income levels should rise with the progress of the rationalized economy, with the approach of an eventual economy of abundance. This would be the triumph of socialist efficiency. At the same time, the relative (and perhaps absolute) gap between maximum and minimum would shrink as the need for material incentives diminishes with the development of socialist values in the population. This would be the triumph of the humane aspect of socialism.

Stalinism’s first voyage ended in the Gulag. Perhaps, risking restoration, this one will attain the realm of freedom.

TABLE 1: Sample tax-subsidy scheme for market socialism
with $7,000 minimum, $90,000 maximum after tax Income

Before Tax lncome $     0 $10,000 $20,000 $40,000 $70,000 $100,000 $1,000,000,000*
Tax 0 0 1,000 5,610 17,830 34,868 999,910,000
Subsidy 7,000 13,000
Alter-tax 7,000 13,000 19,000 34,390 52,170 65,132 90,000

  (& subsidy income)

*Thus, Michael Milken, who had pre-tax income of $550 million in 1987, would have ended up with a shade under $90,000. Perhaps this might have induced other behavior. (Wall Street Journal, 30 March 1989).

Addendum—November 1989

This article was completed in April 1989. Since then events in China, Poland, Hungary, the USSR and now East Germany have shown a rate of decomposition of the East even more rapid than that suggested in this once seemingly alarmist piece.

Although the analysis here is applicable in larger part to all of the bureaucratic societies, special reference is made to Poland, and a few remarks are in order on the current outlook in that country.

People cannot consume goods that don’t exist. This means that no matter what happens in PoIand (barring a Prudhoe Bay oil strike in Pomerania), there will be austerity. The real issue is whether it is austerity of and for the workers, or austerity against the workers.

The Solidarnosc leadership has known this since at latest 1981 but has only more recently grappled with constructing a progressive program that recognizes thus reality. The dabblings in Friedmanism by many Solidarnosc intellectuals need to be appraised in light of the imperative of austerity. The left has never provided answers on this score: we should be neither surprised nor chiding if the Poles look at the answers suggested by the right (although we can be properly nervous).

When we do have an-activists will be eager to consider them. The negative signs in Poland are well known. In addition to the current of Friedmanism, there is the parade of western academics, management consultants, government officials and corporate representatives. There are ominous hints that the bureaucrats are privatizing the means of production for themselves.

On the other hand, there is an intense discussion in the factories and in the many milieus of the Solidarnosc political structure. Jacek Kuron’s TV chats with the population, in which he comes back repeatedly to the inevitability of austerity, are an important contribution to focusing debate on the real issue—the shape of austerity—and away from the will-o’-the-wisp of nominal wage increases.

If Solidarnosc is indeed to carry through a market reform, it needs to do so with alacrity and thoroughness. All prices should be freed simultaneously and soon. This probably will be undertaken in the next months, and—with luck—the worst pain and dislocations will be out of the way by next summer.

If all of this can be carried off, then the real political battle can be joined by mid-1990. This, one can hope, will center on true state power (the army and police), workers’ self-management of production and the linking of individual plant-investment decisions via a movement from below of democratic planning.

For all the very real dangers from the Western and Stalinist right, there is much to hope for. And, given the accelerating pace of collapse in the East, it is possible that by next spring the Solidarnosc cohabitation might be repeated in one or several other countries.


  1. Humane” Includes the notions of democratic, egalitarian, free and unalienated.
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  2. In the aggregate. In the small, it determine, the degree of enrichment of stronger workers at the expense of the weaker.
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  3. Should one then blame workers for inflation? Of course not: they should be blamed for this no more than for the collapse of living standards during a prolonged general strike. The real issues is that while the left has never pushed for unending, years-long general strikes, it has shown no such responsibility on the count of money wages. As a result, it has several  times led the workers to disaster.
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  4. Western radicals should note that their situation is not without parallels to that of the PLO.
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March-April 1990, ATC 25

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