4. State Industry and the Building of Socialism
The Tempo of the Development of Industry
The only material basis for socialism can be large-scale machine industry, capable of reorganising agriculture. 
The basic condition for a socialist development in the present preliminary stage and in the given historical situation – capitalist encirclement and a delay in the world revolution – is a rate of industrialisation sufficiently rapid to guarantee, in the near future, a solution of at least the following problems:
(1) The material positions of the proletariat within the country must be strengthened both absolutely and relatively (growth in the number of employed workers, reduction of the number unemployed, improvement in the material level of the working class and, especially, raising of housing space per head to meet sanitary standards).
(2) The output of industry, transport and the power stations must grow at least at an equal pace with the growing demands and resources of the country as a whole.
(3) Agriculture must find it possible to pass over, by degrees, to a higher technical basis, and guarantee to industry an expanding supply of raw material.
(4) In the matter of developing the productive forces, in the matter of technique, and in the matter of improving the material conditions of the working class and the toiling masses, the Soviet Union must not fall further behind the capitalist countries, but in the near future must overtake them.
(5) Industrialisation must be sufficient to guarantee the defence of the country and in particular an adequate growth of the war industries.
(6) The socialist state and co-operative elements must increase systematically, crowding out some and subordinating and transforming others of the pre-socialist economic elements (capitalist and pre-capitalist).
In spite of our considerable successes in the sphere of industry, electrification, and transport, industrialisation is far from having attained that development which is necessary and possible. The present tempo of industrialisation and the tempo indicated for the coming years are obviously inadequate.
There is not, and of course cannot be, a policy which would permit us to solve all our difficulties at a stroke, or leap over a prolonged period of systematic promotion of our economy and culture. But our very backwardness in economy and means, a rational and timely mobilisation of all our reserves, a correct utilisation of the country. The chronic lagging of industry, and also of transport, electrification and building, behind the demands and needs of the population, of public economy and the social system as, a whole, holds as in a vice the entire economic turnover of the country. It narrows the realisation of the marketable part of agricultural production and its export. It confines imports within extremely narrow limits, drives prices and costs of production upward, causes the instability of the chervonetz, and retards the development of the productive forces. It delays all improvement of the material condition of the proletariat and the peasant masses, produces an alarming growth of unemployment and a deterioration of housing conditions. It undermines the link between industry and agriculture and weakens the capacity of the country for self-defence.
The inadequate tempo of industrial development leads in turn to a retardation of the growth of agriculture. At the same time, no industrialisation is possible without a decisive increase of the productive forces of agriculture and its production for the market.
The necessary acceleration of industrialisation is impossible without a systematic and determined lowering of the costs of production and of wholesale and retail prices of industrial goods, and their approximation to world prices. In that lies real progress, both in the sense of advancing our production to a higher technical basis and in the sense of better satisfying the demands of the toiling masses.
It is time to put an end to the meaningless and indecent hullabaloo to the effect that the Opposition wants to raise prices. The party is absolutely unanimous in the desire to lower prices. But the desire alone is not enough. Policies should be judged not by intention, but by result. The results of the present struggle to lower prices have more than once compelled even important members of the leadership to raise the question:
“Aren’t we losing by this policy some large sums of money?” “Where did the milliard go?” Bukharin was inquiring in January of this year. “What becomes of the difference between wholesale and retail prices?" asked Rudzutak, speaking after him on the same theme.  With the chronic lack of goods, the sweeping and clumsy bureaucratic lowering of wholesale prices, since it does not in the majority of cases reach down to the worker and the peasant, entails a loss to state industry of hundreds of millions of roubles. The resulting disparity between wholesale and retail prices, especially in the hands of the private trader, is so monstrous that it fully admits – were a correct policy followed – to the possibility of retaining a part of this trade profit in the hands of state industry. The irrefutable conclusion from the whole economic experience of the last few years is the need for a most rapid overcoming of disproportions, an increase of the mass of industrial commodities, an acceleration of the rate of development of industry. That is the main road to a real lowering of wholesale and retail prices and above all to a lowering of the cost of production, which has revealed during the last year an upward rather than a downward tendency.
The question of a five-year plan of development of the national economy, on the agenda of the coming Fifteenth Party Congress ought properly to occupy the centre of the party’s attention. The five-year plan is not yet officially adopted and will hardly be adopted in its present form. Nevertheless, it shows the fundamental outlook of the present economic leadership in its most systematised and finished aspect.
Capital investments in industry will hardly grow at all from year to year, according to this plan (1,142 million next year, 1,205 million in 1931). And in proportion to the total sum invested in the national economy, they will fall from 36.4 per cent to 27.8 per cent. The net investments in industry from the state budget according to this programme, will fall during the same years approximately from 200 million to 90 million. The annual increase in production is fixed at from 4 to 9 per cent each year over the year preceding – the rate of growth in capitalist countries during periods of rapid progress. The gigantic advantages involved in the nationalisation of the land, the means of production and the banks, and centralised in management – that is, the advantage deriving from the socialist revolution – find almost no expression in the five-year plan.
The individual consumption of industrial goods, beggarly at the present time, is to grow during the five years only 12 per cent in all. The consumption of cotton fabrics in 1931, which is to be 97 per cent of the pre-war amount, will be one-fifth of that in the United States in 1923. The consumption of coal will be one-seventh of that in Germany in 1926, one-seventeenth of that in the United States in 1923. The consumption of pig iron will be something over one quarter of that in Germany, one-eleventh of that in the United States. The production of electric energy will be one-third of that in Germany, one-seventh of that in the United States. The consumption of paper at the end of the five years will be 83 per cent of the pre-war amount. All this, 15 years after October! To bring forward on the anniversary of the October Revolution such a parsimonious, thoroughly pessimistic plan really means that you are working against socialism. The lowering of retail prices by 17 per cent, as projected by the five-year plan, even if it is realised, will hardly have any effect upon the relation between our prices and world prices, which are two-and-a-half to three times as low as ours.
But even with this insignificant price-reduction (and that, too, as yet only a project), the five-year plan foresees a shortage of industrial goods in relation to the effective demand of the country to the extent of 400 million roubles a year. If one assumes that the present monstrous wholesale prices are to be lowered by 22 per cent in the course of five years – a more than modest reduction – that alone would result in a shortage of goods amounting to a whole milliard. The disproportion is thus preserved inviolate, a perpetual source of increase if retail prices. The five-year plan promises the peasants by 1931 approximately the pre-war amount of industrial goods at prices one-and-a-half times as high. To the worker in large-scale industry it promises an increase of 33 per cent in the nominal wage by the end of the five years, disregarding the ill-founded hope of a fall in prices. The disproportion between supply and demand is to be overcome, according to the scheme of the State Planning Commission, by raising the rent paid by the workers to 200 or 250 per cent of the present amount, approximately by 400 million roubles a year. Seeing that there is an excess of purchasing power in the well-to-do sections of the population, the officials of the Planning Commission are going to correct that situation by cutting down the real wages of the workers. It is hard to believe that such a method of restoring the equilibrium of the market is proposed by the responsible organs of a workers’ state. All this false prospect forcibly impels the consumer to seek a way out along the ruinous course of abolishing the monopoly of foreign trade.
The construction of 6,000 to 7,000 versts  of new railways, indicated in the five-year plan – as against 14,000 constructed, for example, during the five years from 1895-1900 – means a dangerous shortage, not only from the point of view of socialist industrialisation, but from that of the most elementary economic demands of the principal regions.
With deviations to this side or that, such is the real attitude of the state organs actually guiding the development of our economy. That is how the political line of our present leadership really looks.
The Soviet Union And International Capitalist Economy
In the long struggle between two irreconcilably hostile social systems – capitalism and socialism – the outcome will be determined, in the last analysis by the relative productivity of labour under each system. And this, under market conditions, will be measured by the relation between our domestic prices and world prices. It was this fundamental fact that Lenin had in mind when in one of his last speeches he warned the party of the coming “‘test’ to be applied by the Russian market and the international market, to which we are subordinated, with which we are bound up, and from which we cannot break loose”.  For that reason the idea of Bukharin that we can go along at any pace, even a “snail’s pace”, towards socialism, is mere petty-bourgeois trifling.
We cannot hide from the capitalist environment under cover of a nationally exclusive economy. Just because of its exclusiveness, such an economy would be compelled to advance at an extremely slow pace, and in consequence would meet, not a weakened, but a strengthened pressure, not only from the capitalist armies and fleets (“intervention”), but above all from cheap capitalist commodities.
The monopoly of foreign trade is a vitally necessary weapon for socialist construction, when the capitalist countries possess a higher technique. But the socialist economy now under construction can be defended by this monopoly only if it continually approaches the world economy in respect of technique, cost of production, quality and price of its products. The goal of the economic leadership ought to be, not a shut-in, self-sufficient economy, at the price of an inevitable lowering of its level and rate of advance, but just the opposite – an all-sided increase of our relative weight in world economy, to be achieved by increasing our tempo to the utmost.
For this it is necessary:
- To understand the gigantic significance of our export trade, now so dangerously lagging behind the development of our economy as a whole. (The participation of the Soviet Union in the world volume of commercial transactions has diminished from 4.2 per cent in 1913 to 0.97 per cent in 1926.)
- To change especially our policy toward the kulak, which makes it possible for him to undermine our socialist export by the usurious hoarding of produce.
- To develop our bonds with world economy from the angle of an all-sided speeding up of industrialisation and strengthening of the socialist element, in contrast to the capitalist element, in our own economy; not to fritter away our limited accumulations in the near future, but gradually and with a deliberate plan to pass over to new forms of production which will assure us, in the first instance, a mass output of the most necessary and most available machines; skilfully and prudently to supplement and stimulate our own industry by systematically utilising the achievements of world capitalist technique.
Resting our hope upon an isolated development of socialism and upon a rate of economic development independent of world economy distorts the whole outlook. It puts our planning leadership off the track, and offers no guiding threads for a correct regulation of our relations with world economy. We have no way of deciding what to manufacture ourselves and what to bring in from outside. A definite renunciation of the theory of an isolated socialist economy will mean, in the course of a few years, an incomparably more rational use of our resources, a swifter industrialisation, a more planful and powerful growth of our own machine construction. It will mean a swifter increase in the number of employed workers and a real lowering of prices – in a word, a genuine strengthening of the Soviet Union in the capitalist environment.
Will not the growth of our bonds with world capitalism involve a danger in case of blockade and war? The answer to this question follows from everything that has been said above.
Preparations for war demand, of course, the creation of a reserve of the foreign raw materials necessary to us and a timely establishment of the new industries vitally necessary – as, for, instance, the production of aluminium, etc. But the most important thing in case of a prolonged and serious war is to have industry developed to the highest degree and capable both of mass production and of rapid switching from one kind of production to another. The recent past has shown how such a highly industrial country as Germany, bound up by a thousand threads with the world market, could display a gigantic vitality and power of resistance when war and blockade cut her off at one blow from the entire world.
If with the incomparable advantages of our social structure we can, during this “peaceful” period, utilise the world market in order to speed up our industrial development, we shall meet any blockade or intervention infinitely better prepared and better armed.
No domestic policy can of itself deliver us from the economic, political, and military danger of the capitalist encirclement. The domestic task is, by strengthening ourselves with a proper class policy, by proper relations of the working class with the peasantry to move forward as far as possible on the road of socialist construction. The internal resources of the Soviet Union are enormous and make this entirely possible. In using at the same time the world capitalist market for this same purpose, we bind up our fundamental historic calculations with the further development of the world proletarian revolution. Its victory in certain leading countries will break the ring of capitalist encirclement and deliver us from our heavy military burden. It will enormously strengthen us in the sphere of technique, accelerate our entire development in town and country, in factory and school. It will give us the possibility of really building socialism – that is, a class-free society, based upon the most advanced technique and upon the real equality of all its members in labour and enjoyment of the products of labour.
Where To Find The Means
To the question of where to find the means for a bolder and more revolutionary solution of the problem of real industrialisation, and a swifter elevation of the culture of the masses – the two problems upon whose solution depends the fate of the socialist dictatorship – the Opposition answers as follows:
The fundamental source is the redistribution of the national income by means of a correct use of budget, credit, and prices.
A supplementary source is a correct utilisation of our connections with world economy.
(1) According to the five-year plan, the budget, both state and local, will increase in five years from 6 to 8.9 billion roubles, and will amount in 1931 to 16 per cent of the national income. This will be a smaller share of the national income than the prewar Tsarist budget, which was 18 per cent. The budget of a workers’ state not only may but should occupy a larger place in the national income than a bourgeois budget. This assumes, of course, that it will be really socialistic, and along with increasing expenditures for popular education will allot incomparably larger sums to the industrialisation of the country. The net appropriation from the budget to the needs of industrialisation can and should reach 500 to 1,000 million a year in the course of the coming five years.
(2) The tax system is not keeping up with the growth of accumulation among the upper layers of the peasants and the new bourgeoisie in general. It is necessary:
- to tax all kinds of excess profits from private enterprises to the extent of not less than 150 to 200 million rubles, instead of five million as at present;
- in order to strengthen our export, to assure a collection from the well-off kulak levels, constituting approximately 10 per cent of the peasant establishment, of not less than 150 million poods  of grain. This should be collected in the form of a loan from those stores of grain which reached in 1926-1927 the amount of 800 to 900 million poods, and were concentrated, for the most part, in the hands of these upper levels of the peasantry.
(3) It is necessary to put into effect a decisive policy of systematic and determined lowering of wholesale and retail prices and narrowing of the disparity between them. And this must be done in such a way that the lowering of prices affects above all objects of mass consumption among the workers and peasants. (It must be done without the adulteration of quality, low enough already, which is being practised now.) This lowering of prices should not deprive state industry of its necessary accumulations and should be carried out chiefly by way of an increase of the mass of goods, a lowering of the cost of production, a lessening of overhead charges and a cutting down of the bureaucratic apparatus. A more elastic price-lowering policy, more adapted to the conditions of the market, and more individualised – that is, taking into greater consideration the market position of each kind of goods – would retain in the hands of state industry enormous sums which now nourish private capital and commercial parasitism in general.
(4) The regime of economy, which was supposed, according to last year’s manifesto by Stalin and Rykov, to yield 300 to 400 million roubles a year, has given as a matter of fact completely insignificant results. A regime of economy is a question of class policy and can be realised only under direct pressure from the masses. The workers must dare to exercise this pressure. It is entirely possible to lower non-productive expenditure by 400 million roubles a year.
(5) A skilful use of such weapons as the monopoly of foreign trade, foreign credit, concessions, contracts providing for technical aid etc., can provide supplementary income. It will also and above all greatly increase the expediency of our own expenditure, fertilising it with modern technique and accelerating the whole course of our development, and thus strengthening our real socialist independence of the capitalist environment.
(6) The question of choosing personnel – from top to bottom – and of the proper relations among them is, to some extent, a financial question. The worse the personnel, the more funds are needed. The bureaucratic regime counteracts good selection of personnel and correct relations.
(7) The “wisdom after the event” of our present economic leadership means in practice the loss of many tens of millions. That is the price we pay for lack of foresight, disharmony, niggardliness and lagging.
(8) Tax receipts alone cannot cover the continually growing demands of our national economy. Credit must become a more and more important lever in the distribution of the national income, along the lines of socialist construction, which assumes, above all, a stable currency and a healthy circulation of money.
(9) A firmer class policy in our economy, narrowing the limits of speculation and usury, would make it easier for the governmental and credit institutions to mobilise private savings. It would make possible an incomparably broader financing of industry by way of long-term credits.
(10) The government sale of vodka was originally introduced as an experiment, and with the idea that the bulk of the income from it should go towards industrialisation, primarily for restoration of the metal industry. In reality industrialisation has only lost through the state sale of vodka. It is necessary to acknowledge that the experiment has proved completely unsuccessful. Under the Soviet regime the state sale of vokda is at a disadvantage, not only from the standpoint of private economy – as under Tsarism – but also and chiefly from the standpoint of state economy. The increase of absenteeism, careless workmanship, waste, accidents, fires, fights, injuries, etc. – these things mount up to losses of hundreds of millions of roubles a year. State industry loses from vodka no less than the budget receives from vodka, and many times more than industry itself receives from the budget. The abolition of the state sale of vodka at the nearest possible date (two to three years) will automatically raise the material and spiritual resources of industrialisation.
Such is the answer to the question where to find the means. It is not true that the slow pace of industrialisation is directly due to the absence of resources. The means are scanty, but they exist. What is wanted is the right policy.
The five-year plan of the State Planning Commission should be categorically rejected and condemned as basically incompatible with the task of “transforming the Russia of the NEP into socialist Russia”. We must carry out in deeds a redistribution of the tax-burden among the classes – loading more heavily the kulak and the Nepman, relieving the workers and the poor.
We must reduce the relative importance of the indirect taxes. We must abolish in the near future the state sale of vodka.
We must put in order the finances of the railway transport service.
We must put in order the finances of industry.
We must restore to health neglected forestry, which can and must become the source of an immense income.
We must guarantee the unconditional stability of the currency unit. The stabilisation of the Chervonetz demands a lowering of prices on the one hand, and a balanced budget on the other. The issuing of paper currency to cover a budget deficit must not be permitted.
We must have a strictly rationalised budget, without deficits, harsh, intolerant of everything superfluous or accidental.
In the budget of 1927-1928 we must considerably increase the appropriation for defence (primarily for the war industries), for industry in general, for electrification, for transport, for house-building, for measures leading to the collectivisation of agriculture.
We must resist with determination all attempts to tamper with the monopoly of foreign trade.
We must steer a firm course towards industrialisation, electrification and rationalisation, based upon increasing the technical power of the economy and improving the material conditions of the masses.
2. Politburo Minutes, March 3, 1927, pp.20-21.
3. A verst equals 3,500 feet.
5. A pood equals 36 lb. avoirdupois.