For many years capitalism was defined in terms of two key elements: private ownership of the means of production, and the existence of wage labour. footnote These conditions gave rise to the existence of surplus value, which, in the hands of capitalists, became capital. From this sprang a definition of socialism, as the expropriation of the capitalists and the transfer of the means of production into common ownership. No longer would surplus labour be appropriated by capital as profit. It would now exist as a social fund to meet common needs. This is how Clause Four of the Labour Party’s 1918 Constitution saw the Party’s objective: ‘To secure for the producers by hand or brain the full fruits of their industry, and the most equitable distribution thereof that may be possible, upon the basis of the common ownership of the means of production, and the best obtainable system of popular administration and control of each industry and service.’ The emphasis here was on distribution. Others put more emphasis on using the surplus for needs-led rather than profit-led investment. But the basic approach was the same. The haunting difficulty lay with the notion of common ownership. As Tawney said at this time, ‘when the question of ownership has been settled the question of administration remains for solution.’ footnote1 Control could not be exercised directly by all of the people all of the time. The Labour Party’s ‘best obtainable system of popular administration and control’ was evocative but undefined, and certainly far less clear than the daily reality of private capitalist control. The predominant Marxist tradition at this time solved the problem through the concept of the workers’ party. If there was a party composed of workers and representative of working-class interests then it would administer the means of production on behalf of the producers.

After much cooking and boiling, socialism emerged as a simple equation: nationalization plus the party. It is an equation which still holds considerable sway today. I remember a colleague recounting a discussion he had had with a militant in South Yemen. There existed a revolutionary party in control of the government. The government had nationalized the principal means of production. Therefore, according to the militant, the country was socialist. A similar logic was applied by the military government in Ethiopia. First they nationalized the top 150 companies. Later, under Mengistu, they formed what might best be called a ‘post-revolutionary’ party. The two key structures of socialism were then in place.

The very simplicity and lack of ambiguity gives to this equation a substantial force. But ambiguity has forced its way back in two forms. First—and much more debated—is the question of whether the Leninist Party adequately represents the interests of the producers. Second, even if it does, or if some alternative system of popular administration exists, does the formal ownership of the means of production give the state and the direct producers power over the economy? It is this second question which has been relatively neglected, and which I want initially to discuss.

Let us return to Ethiopia. The top fifty companies accounted for some eighty per cent of industrial production. When they were analysed immediately after nationalization, it turned out that a third of them were making regular losses. These loss-makers were of two kinds. First there were primary product exporters. Some of these had declared losses for up to twenty years, yet had expanded. On investigation it turned out that most were underinvoicing their exports to tied outlets, often their own affiliates. Their nationalization raised the overwhelming question of finding alternative outlets. As the Zambians found with copper, nationalization did not give control over a key part of the international chain—the overseas markets.

The second group of loss-makers were, and had always been, state companies, the creation of foreign technology and machinery suppliers. In three cases the firms which had carried out the feasibility studies were found to have links with those supplying the equipment. Sometimes the machines supplied were an assorted set which did not make up an integrated whole. The Ethiopian Shipping Lines, for example, were set up with one slow ship and one fast: since the fast one always caught up the slow, regular scheduled services became impossible. Sometimes, although the machines were sold as new, they were actually second-hand and subject to constant breakdown. Sometimes the plant was far too large for the Ethiopian market, and worked with excess capacity. In all these cases, the profit—if there was any profit—was capitalized, and taken by the technology suppliers before the plant had even started. As with a conjuror, the business was done before anyone was looking. Public ownership of the means of production was a means only for the technology suppliers to realize their capital, with loans guaranteed, and the losses serviced by the Ethiopian Exchequer.