The almost universal assumption, at all points of the political spectrum, is that Russia is in the throes of a painful transition to capitalism.footnote1 Privatization is seen as the key to this transition, and resistance to privatization is accordingly seen by the Western Left as the essential basis of a progressive politics seeking to salvage something from the debris of the collapse of the Soviet system. In this article I want to question all three of these assumptions.footnote2 The fundamental error underlying the conventional interpretation is its implicit identification of the development of a market and the privatization of the enterprise with the development of capitalism. To understand the dynamics of the transformation of the Soviet mode of production we have to look behind juridical and political changes to the development of the social relations of production. It remains an open question whether the dynamics of this development determine a transition to capitalism, but this transition will not be determined by the relatively superficial changes which have taken place so far, but by the development of class struggles over the social relations of production.footnote3

Privatization is the culmination of a period in which the growth of the market and the collapse of the administrative-command system has meant that the control of state property has largely passed out of the hands of the state. However, to see this as the end of the process is to adopt a very superficial understanding of the transition to capitalism, which focuses on juridical and political changes, without reference to the development of the social relations of production. This is not a dogmatic theoretical point, emanating from an outmoded Marxism.footnote4 It is merely the conceptual expression of a very obvious social reality.

Capitalist elements have undoubtedly emerged in Russia, but these remain in the interstices of the former administrative-command system, and are largely parasitic on it. The disintegration of the administrative-command system has not been accompanied by any transformation of production relations at the enterprise level. The growth of the market has not been associated with the development of competition, through which enterprises would be subjected to the law of value, but to the consolidation of monopolies and cartels through which enterprises suppress competition and resist pressures for fundamental change. The liberalization of prices has not provided the basis for the growth of the capitalist sector, but for its absorption by the state sector, in removing the dualistic price system which was the basis of the most profitable forms of entrepreneurial activity. The growth of a banking sector has not subjected enterprises to a ‘hard budget constraint’, but has removed all constraint by fuelling an explosion of credit. However, although there is no evidence to support the argument that Russia is in transition to capitalism, most commentators simply assume that such a transition is inevitable.footnote5

Michael Burawoy has drawn the analogy with the transition from feudalism to capitalism. Feudalism saw the emergence of money and commercial capital at a very early stage in its development, but this capital was for a long time parasitic on, and subordinate to, feudal social relations of production and so played a conservative rather than a revolutionary role.footnote6 Burawoy sees Russia as a social formation in transition to a kind of parasitic ‘merchant capitalism’. However, the failure of capital to make any significant inroads into the sphere of production must lead us to ask whether what we are observing is not the development of any kind of capitalism, but a restructuring of the soviet system from below, subordinating capital and the commodity to the reproduction of the existing social relations of production. To put the point aphoristically, it is not the state which is privatizing the soviet enterprise in Russia, but the soviet enterprise which is privatizing the state.

The characterization of the soviet mode of production has been a notorious lacuna in both Marxist and bourgeois social theory, depriving us of the conceptual tools to understand what is happening in Russia. The most common conception, among both bourgeois and Marxist theorists, is that which sees the Soviet system as ‘state capitalist’, in which case the collapse of the administrative-command system would set free the elements of the capitalist mode of production which have been contained by the bureaucratic state apparatus. However, there is no basis for this conception. Capital did not exist in Russia, and played no role in the soviet system of production.

The Soviet system was based on a form of wage labour, but it was not based on social relations of capitalist production. While the system as a whole may have been subject to the international operation of the law of value, Soviet enterprises most certainly were not subjected to the law of value, and so to the production and appropriation of surplus value. Production was neither based on nor regulated by abstract labour, but was based on the reproduction of the labour collective and regulated by the Plan. This was expressed in the essentially nonmonetary character of economic transactions.

Soviet enterprises produced according to the plans negotiated with the centre. All transfers of products between enterprises were equally directed, at least in principle, by higher authorities. Although prices were attached to these transfers, and monetary balances were adjusted correspondingly, such transactions were only nominal since the ‘money’ in question was strictly money of account, which could not be diverted to other purposes or converted into cash. The bank balances of enterprises, whether they were in credit or in deficit, were equally nominal. Only wage payment involved a transfer of purchasing power, but the enterprise was strictly limited in the amount it could pay out as wages by its wage fund, while workers were limited in what they could buy by the availability of goods. Although the state bank and the Ministry of Finance kept a strict eye on financial transactions, money played no regulatory role in either production or reproduction.