STATE CAPITALISM

LENIN; On State Capitalism, During the Transition to Socialism

From REPORT ON THE NEW ECONOMIC POLICY TO THE SEVENTH MOSCOW GUBERNIA CONFERENCE OF THE RUSSIAN COMMUNIST PARTY OCTOBER 29, 1921

If you recall the declarations, official and unofficial, which our Party made in late 1917 and early 1918, you will see that even at that time we were aware that the revolution, the struggle, might proceed either by a relatively short road, or by a very long and difficult road. But in estimating the prospects of development we in most cases—I can scarcely recall an exception—started out with the assumption—perhaps not always openly expressed but always tacitly taken for granted—that we would be able to proceed straight away with socialist construction. I have purposely read over again all that was written, for example, in March and April 1918 about the tasks of our revolution in the sphere of socialist construction, and I am convinced that that was really the assumption we made.

This was the period when we accomplished the essential, and from the political point of view necessarily the preliminary, task of seizing power, setting up the Soviet state system in place of the former bourgeois parliamentary system, and then the task of getting out of the imperialist war. And this withdrawal from the war was, as you know, accompanied by extremely heavy losses, by the signing of the unbelievably humiliating Treaty of Brest, which imposed almost impossible terms upon us. After the conclusion of that peace we had a period—from March to the summer of 1918—in which war problems appeared to have been solved. Subsequent events showed that this was not the case. In March 1918, after the problem of the imperialist war was solved, we were just approaching the beginning of the Civil War, which in the summer of 1918 was brought closer and closer by the Czechoslovak mutiny. At that time—March or April 1918—in discussing our tasks, we began to consider the prospect of passing from methods of gradual transition to such modes of operation as a struggle mainly for the expropriation of the expropriators, and this, in the main, characterised the first months of the revolution—the end of 1917 and the beginning of 1918. Even at that time we were obliged to say that our organisation of accounting and control lagged considerably behind our work and activities in connection with the expropriation of the expropriators. That meant we had expropriated more than we could take account of, control, manage, etc., and thus the question was raised of transferring our activities from the task of expropriating, of smashing the power of the exploiters and expropriators, to that of organising accounting and control, to the, so to speak, prosaic tasks of actual economic development. Even at that time we had to retreat on a number of points. For example, in March and April 1918, the question was raised of remunerating specialists at rates that conformed, not to socialist, but to bourgeois relationships, I. e., at rates that corresponded, not to the difficulty or arduousness of the work performed, but to bourgeois customs and to the conditions of bourgeois society. Such exceptionally high—in the bourgeois manner—remuneration for specialists did not originally enter into the plans of the Soviet government, and even ran counter to a number of decrees issued at the end of 1917. But at the beginning of 1918 our Party gave direct instructions to the effect that we must step back a bit on this point and agree to a “compromise” (I employ the term then in use). On April 29, 1918, the All-Russia Central Executive Committee adopted a decision to the effect that it was necessary to make this change in the general system of payment.

We regarded the organisational, economic work, which we put in the forefront at that time, from a single angle. We assumed that we could proceed straight to socialism without a preliminary period in which the old economy would be adapted to socialist economy. We assumed that by introducing state production and state distribution we had established an economic system of production and distribution that differed from the previous one. We assumed that the two systems—state production and distribution and private commodity production and distribution—would compete with each other, and meanwhile we would build up state production and distribution, and step by step win them away from the hostile system. We said that our task now was not so much to expropriate the expropriators as to introduce accounting and control, increase the productivity of labour and tighten up discipline. We said this in March and April 1918; but we did not ask ourselves in what relation our economy would stand to the market, to trade. When in the spring of 1918, for example, in our polemics with a number of comrades, who were opposed to concluding the Brest peace, we raised the question of state capitalism, we did not argue that we were going back to state capitalism, but that our position would be alleviated and the solution of our socialist problems facilitated if state capitalism became the predominant economic system in Russia. I want to draw your particular attention to this, because I think it is necessary to bear it in mind in order to understand the present change in our economic policy and how this change should be interpreted.

I shall give you an example which may illustrate more concretely and vividly the conditions under which our struggle has evolved. In Moscow recently I saw a copy of the privately owned publication Listok Obyavleni. After three years of our old economic policy this Listok Obyavleni seemed to me to be something very unusual, very new and strange. Looking at it from the point of view of the general methods of our economic policy, however, there was nothing queer about it. Taking this slight but rather typical example you must remember how the struggle was developing, and what were its aims and methods in our revolution in general. One of the first decrees at the end of 1917 was that which established a state monopoly of advertising. What did that decree imply? It implied that the proletariat, which had won political power, assumed that there would be a more gradual transition to the new social and economic relations—not the abolition of the private press, but the establishment of a certain amount of state control that would direct it into the channels of state capitalism. The decree which established a state monopoly of advertising thereby assumed that privately owned newspapers would continue to exist as a general rule, that an economic policy requiring private advertisements would continue, and that private property would remain—that a number of private establishments which needed advertising and advertisements would continue to exist. That is what the decree on the state monopoly of private advertising meant, and it could have meant nothing else. There was something analogous to this in the decrees on banking, but I shall not go into that, for it would only complicate my example.

What was the fate of the decree establishing a state monopoly of private advertising issued in the first weeks of the Soviet government? It was soon swept away. When we now recall the course of the struggle and the conditions under which it has proceeded since then, it is amusing to think how naïve we were to talk then, at the close of 1917, about introducing a state monopoly of private advertising. What sort of private advertising could there have been in a period of desperate struggle? The enemy, i.e., the capitalist world, retaliated to that Soviet government decree by continuing the struggle and by stepping it up to the limit. The decree assumed that the Soviet government, the proletarian dictatorship, was so firmly established that no other system of economy was possible; that the necessity to submit to it would be so obvious to the mass of private entrepreneurs and individual owners that they would accept battle where we, as the state power, chose. We said in effect: “We will allow your private publications to continue; private enterprises will remain; the freedom to advertise, which is necessary for the service of these private enterprises, will remain, except that the state will impose a tax on advertisements; advertising will be concentrated in the hands of the state. The private advertising system, as such, will not be abolished; on the contrary, you will enjoy those benefits which always accrue from the proper concentration of publicity.” What actually happened, however, was that we had to wage the struggle on totally different terrain. The enemy, i.e., the capitalist class, retaliated to this decree of the state power by completely repudiating that state power. Advertising ceased to be the issue, for all the remnants of what was bourgeois and capitalist in our system had already concentrated their forces on the struggle against the very foundations of state power. We, who had said to the capitalists, “Submit to state regulation, submit to state power, and instead of the complete abolition of the conditions that correspond to the old interests, habits and views of the population, changes will be gradually made by state regulation”—we found our very existence in jeopardy. The capitalist class had adopted the tactics of forcing us into a desperate and relentless struggle, and that compelled us to destroy the old relations to a far larger extent than we had at first intended.

Nothing came of the decree establishing state monopoly of private advertising; it remained a dead letter, while actual events, i.e. the resistance of the capitalist class, compelled our state to shift the struggle to an altogether different plane; not to the petty, ridiculously petty, issues we were naïve enough to dabble in at the end of 1917, but to the issue of “To be or not to be?”—to smash the sabotage of the former salaried class; to repel the white guard army, which was receiving assistance from the bourgeoisie of the whole world.

I think that this episode with the decree on advertising provides useful guidance on the fundamental question of whether the old tactics were right or wrong. Of course, when we appraise events in the light of subsequent historical development, we cannot but regard our decree as naïve and, to a certain extent, mistaken. Nevertheless, it did contain something that was right, in that the state power—the proletariat—made an attempt to pass, as gradually as possible, breaking up as little of the old as possible, to the new social relations while adapting itself, as much as possible, one may say, to the conditions then prevailing. But the enemy, i.e., the bourgeois class, went to all ends to provoke us into an extremely desperate struggle. Was this strategically correct from the enemy’s point of view? Of course, it was; for how could the bourgeoisie be expected to submit to an absolutely new, hitherto unprecedented proletarian power without first testing its strength by means of a direct assault? The bourgeoisie said to us, in effect, “Excuse us, gentlemen, we shall not talk to you about advertisements, but about whether we can find in our midst another Wrangel, Kolchak or Denikin, and whether they will obtain the aid of the international bourgeoisie in deciding, not whether you are going to have a State Bank or not, but an entirely different issue.” Quite a lot was written about the State Bank at the end of 1917 but as in the case with advertisements it all remained largely a dead letter.

At that time the bourgeoisie retaliated with a strategy that was quite correct from its point of view. What it said was, “First of all we shall fight over the fundamental issue of whether you are really the state power or only think you are; and this question will not be decided by decrees, of course, but by war, by force; and in all probability this war will be waged not only by us, the capitalists who have been expelled from Russia, but by all those who want the capitalist system. And if it turns out that the rest of the world is sufficiently interested, we Russian capitalists will receive the assistance of the international bourgeoisie.” From the standpoint of its own interests, the bourgeoisie acted quite rightly. If it had had oven a crumb of hope of settling the

fundamental issue by the most effective means—war—it could not and should not have agreed to the partial concessions the Soviet government offered it while contemplating a more gradual transition to the new system. “We don’t want your transition, we don’t want your new system,” was the reply of the bourgeoisie.
That is why events developed in the way they did. On the one hand, we had the victory of the proletarian state accompanied by a struggle of extraordinary magnitude amidst unprecedented popular enthusiasm, which characterised the whole period of 1917 and 1918. On the other hand, the Soviet government attempted to introduce an economic policy that was originally calculated to bring about a number of gradual changes, to bring about a more cautious transition to the new system. This policy was expressed, among other things, by the little example I have just given you. In retaliation, the enemy camp proclaimed its determination to wage a relentless struggle to decide whether Soviet power could, as a state, maintain its position in the international system of economic relations. That issue could be decided only by war, which, being civil war, was very fierce. The sterner the struggle became, the less chance there was of a cautious transition. As I have said, in the logic of the struggle the bourgeoisie was right from its own point of view. But what could we say? We said to the capitalists, “You will not frighten us, gentlemen. In addition to the thrashing we gave you and your Constituent Assembly in the political field, we shall give you a thrashing in this field too.” We could not act otherwise. Any other way would have meant the complete surrender of our positions.

If you recall the conditions under which our struggle developed you will understand what this seemingly wrong and fortuitous change meant; why—relying upon the general enthusiasm and on ensured political power—we were so easily able to disperse the Constituent Assembly; why we at the same time had to try a number of measures that meant the gradual and cautious introduction of economic reforms; and why, finally, the logic of the struggle and the resistance of the bourgeoisie compelled us to resort to the most extreme, most desperate, and relentless civil war, which devastated Russia for three years.

By the spring of 1921 it became evident that we had suffered defeat in our attempt to introduce the socialist principles of production and distribution by “direct assault", i.e., in the shortest, quickest and most direct way. The political situation in the spring of 1921 revealed to us that on a number of economic issues a retreat to the position of state capitalism, the substitution of “siege” tactics for “direct assault", was inevitable.

If this transition calls forth complaints, lamentations, despondency, and indignation among some people, we must say that defeat is not as dangerous as the fear to admit it, fear to draw all the logical conclusions from it. A military struggle is much simpler than the struggle between socialism and capitalism; and we defeated Kolchak and Co. because we were not afraid to admit our defeats, we were not afraid to learn the lessons that these defeats taught us and to do over and over again what had been left unfinished or done badly.
We must act in the same way in the much more complicated and difficult field of struggle between socialist and capitalist economy. Don’t be afraid to admit defeat. Learn from defeat. Do over again more thoroughly, more carefully, and more systematically what you have done badly. If any of us were to say that admission of defeat—like the surrender of positions— must cause despondency and relaxation of effort in the struggle, we would reply that such revolutionaries are not worth a damn.

I hope that, except in isolated cases, nobody will be able to say that about the Bolsheviks, who have been steeled by the experience of three years of civil war. Our strength lay and will lie in our ability to evaluate the severest defeats in the most dispassionate manner and to learn from them what must be changed in our activities. That is why we must speak plainly. This is interesting and important not only from the point of view of correct theory, but also from the practical point of view. We cannot learn to solve our problems by new methods today if yesterday’s experience has not opened our eyes to the incorrectness of the old methods.

The New Economic Policy was adopted because, in the spring of 1921, after our experience of direct socialist construction carried on under unprecedentedly difficult conditions, under the conditions of civil war, in which the bourgeoisie compelled us to resort to extremely hard forms of struggle, it became perfectly clear that we could not proceed with our direct socialist construction and that in a number of economic spheres we must retreat to state capitalism. We could not continue with the tactics of direct assault, but had to undertake the very difficult, arduous and unpleasant task of a long siege accompanied by a number of retreats. This is necessary to pave the way for the solution of the economic problem, i.e., that of the economic transition to socialist principles.

I cannot today quote figures, data, or facts to show the results of this policy of reverting to state capitalism. I shall give only one small example. You know that one of our principal industrial centres is the Donets Basin. You know that there we have some of the largest of the former capitalist enterprises, which are in no way inferior to the capitalist enterprises in Western Europe. You know also that our first task then was to restore the big industrial enterprises; it was easier for us to start the restoration of the

Donets industry because we had a relatively small number of workers there. But what do we see there now, after the change of policy last spring? We see the very opposite, viz., that the development of production is particularly successful in the small mines which we have leased to peasants. We see the development of state capitalist relations. The peasant mines are working well and are delivering to the state, by way of rent, about thirty per cent of their coal output. The development of production in the Donets Basin shows a considerable general improvement over last summer’s catastrophic position; and this is largely due to the improvement of production in small mines, to their being exploited along the lines of state capitalism. I cannot here go into all the data on the question, but this example should clearly illustrate to you some of the practical results that have been achieved by the change of policy. A revival of economic life—and that is what we must have at all costs—and increased productivity—which we must also have at all costs— are what we are beginning to obtain as a result of the partial reversion to the system of state capitalism. Our ability, the extent to which we shall be able to apply this policy correctly in the future, will determine to what extent we shall continue to get good results.

I shall now go back and develop my main idea. Is our transition to the New Economic Policy in the spring, our retreat to the ways, means and methods of state capitalism, sufficient to enable us to stop the retreat and prepare for the offensive? No, it is not yet sufficient. And for this reason. To go back to the analogy I gave at the beginning (of direct assault and siege in war), we have not yet completed the redeployment of our forces, the redistribution of our stores and munitions, etc.; in short, we are not yet fully prepared for the new operations, which must be conducted on different lines in conformity with the new strategy and tactics. Since we are now passing to state capitalism, the question arises of whether we should try to prevent the methods which were suitable for the previous economic policy from hindering us now. It goes without saying, and our experience has proved it, that that is what we must secure. In the spring we said that we would not be afraid to revert to state capitalism, and that our task was to organise commodity exchange. A number of decrees and decisions, a vast number of newspaper articles, all our propaganda and all the laws passed since the spring of 1921 have been directed to the purpose of stimulating commodity exchange. What was implied by that term? What plan of development, if one may so express it, did it imply? It implied a more or less socialist exchange throughout the country of the products of industry for the products of agriculture, and by means of that commodity exchange the restoration of large-scale industry as the sole basis of socialist organisation. But what happened? You are all now well aware of it from your own practical experience, and it is also evident from our press, that this system of commodity exchange has broken down; it has broken down in the sense that it has assumed the form of buying and selling. And we must now admit this if we do not want to bury our heads in the sand, if we do not want to be like those who do not know when they are beaten if we are not afraid of looking danger straight in the face. We must admit that we have not retreated far enough, that we must make a further retreat, a further retreat from state capitalism to the creation of state- regulated buying and selling, to the money system. Nothing came of commodity exchange; the private market proved too strong for us; and instead of the exchange of commodities we got ordinary buying and selling, trade.

Take the trouble to adapt yourselves to this; otherwise, you will be overwhelmed by the wave of spontaneous buying and selling, by the money system!

That is why we find ourselves in the position of having to retreat still further, in order, eventually, to go over to the offensive. That is why we must all admit now that the methods of our previous economic policy were wrong. We must admit this in order to be able to understand the nature of the present position, the specific features of the transition that now lies ahead of us. We are not now confronted with urgent problems of foreign affairs; nor are we confronted with urgent war problems. We are now confronted mainly with economic problems, and we must bear in mind that the next stage cannot be a transition straight to socialist construction.

We have not been able to set our (economic) affairs in order in the course of three years. The devastation, impoverishment and cultural backwardness of our country were so great that it proved impossible to solve the problem in so short a time. But, taken as a whole, the assault left its mark and was useful.

Now we find ourselves in the position of having to retreat even a little further, not only to state capitalism, but to the state regulation of trade and the money system. Only in this way, a longer way than we expected, can we restore economic life. Unless we re-establish a regular system of economic relations, restore small-peasant farming, and restore and further expand large-scale industry by our own efforts, we shall fail to extricate ourselves from the crisis. We have no other way out; and yet there are many in our ranks who still do not understand clearly enough that this economic policy is necessary. When we say, for example, that the task that confronts us is to make the state a wholesale merchant, or that it must learn to carry on wholesale trade, that our task is commercial, some people think it is very queer and even very terrible. They say: “If Communists have gone to the length of saying that the immediate task is to engage in trade, in ordinary, common, vulgar, paltry trade, what can remain of communism? Is this not enough to make anyone throw up his hands in despair and say, ’All is lost’?” If we look round, I think we shall find people who express sentiments of this kind, and such sentiments are very dangerous, because if they become widespread, they will give many people a distorted view of things and prevent them from appraising our immediate tasks soberly. If we concealed from ourselves, from the working class, from the masses the fact that we retreated in the economic field in the spring of 1921, and that we are continuing the retreat now, in the autumn and winter of 1921-22, we would be certifying to our own lack of political consciousness; it would prove that we lacked the courage to face the present situation. It would be impossible to work and fight under such conditions.

If an army which found that it was unable to capture a fortress by direct assault declared that it refused to leave the old positions and occupy new ones, refused to adopt new methods of achieving its object, one would say that that army had learnt to attack, but had not learnt to retreat when certain severe conditions made it necessary, and would, therefore, never win the war. There has never been a war in history that was an uninterrupted victorious advance from beginning to end—at any rate, such wars are very rare exceptions. This applies to ordinary wars but what about wars which decide the fate of a whole class, which decide the issue of socialism or capitalism? Are there reasonable grounds for assuming that a nation which is attempting to solve this problem for the first time can immediately find the only correct and infallible method? What grounds are there for assuming that? None whatever! Experience teaches the very opposite. Of the problems we tackled, not one was solved at the first attempt; every one of them had to be taken up a second time. After suffering defeat, we tried again, we did everything all over again; if we could not find an absolutely correct solution to a problem, we tried to find one that was at
least satisfactory. That is how we acted in the past, and that is how we must continue to act in the future. If, in view of the prospects before us, there were no unanimity in our ranks it would be a very sad sign that an extremely dangerous spirit of despondency had lodged itself in the Party. If, however, we are not afraid to speak the sad and bitter truth straight out, we shall learn, we shall unfailingly and certainly learn to overcome all our difficulties.

We must take our stand on the basis of existing capitalist relations. Will this task scare us? Shall we say that it is not communist? If so, then we have failed to understand the revolutionary struggle, we have failed to understand that the struggle is very intense and is accompanied by extremely abrupt changes, which we cannot brush aside under any circumstances.
I shall now sum up.

I shall touch upon the question that occupies many people’s minds. If today, in the autumn and winter of 1921, we are making another retreat, when will the retreat stop? We often hear this question put directly, or not quite directly. This question recalls to my mind a similar question that was asked in the period of the Brest peace. When we concluded the Brest peace we were asked, “If you concede this, that and the other to German imperialism, when will the concessions stop? And what guarantee is there that they will stop? And in making these concessions, are you not making the position more dangerous?” Of course, we are making our position more dangerous; but you must not forget the fundamental laws of every war. War itself is always dangerous. There is not a moment in time of war when you are not surrounded by danger. And what is the dictatorship of the proletariat? It is war, much more cruel, much more prolonged and much more stubborn than any other war has ever been. Here danger threatens us at every step.

The position which our New Economic Policy has created—the development of small commercial enterprises, the leasing of state enterprises, etc.—entails the development of capitalist relations; and anybody who fails to see this shows that he has lost his head entirely. It goes without saying that the consolidation of capitalist relations in itself increases the danger. But can you point to a single path in revolution, to any stage and method that would not have its dangers? The disappearance of danger would mean that the war had come to an end, and that the dictatorship of the proletariat had ceased. Of course, not a single one among us thinks that anything like that is possible at the present moment. Every step in this New Economic Policy entails a series of dangers. When we said in the spring that we would substitute the tax in kind for requisitioning, that we would pass a decree granting freedom to trade in the surplus grain left over after the tax in kind had been paid, we thereby gave capitalism freedom to develop. Failure to understand this means losing sight of the fundamental economic relations; and it means that you are depriving yourself of the opportunity to look round and act as the situation demands. Of course, the methods of struggle have changed; the dangers spring from other sources. When the question of establishing the power of the Soviets, of dissolving the Constituent Assembly was being decided, political danger threatened us. That danger proved to be insignificant. When the period of civil war set in—civil war backed by the capitalists of the whole world—the military danger, a far more formidable danger, arose. And when we changed our economic policy, the danger became still greater, because, consisting as it does of a vast number of economic, workaday trifles, which one usually becomes accustomed to and fails to notice, economics calls for special attention and effort and more peremptorily demands that we learn the proper methods of overcoming this danger. The restoration of capitalism, the development of the bourgeoisie, the development of bourgeois relations in the sphere of trade, etc.— this constitutes the danger that is peculiar to our present period of economic development, to our present gradual approach to the solution of problems that are far more difficult than previous problems have been. There must not be the slightest misunderstanding about this.

We must understand that the present concrete conditions call for the state regulation of trade and the money system, and it is precisely in this field that we must show what we are capable of. There are more contradictions in our economic situation now than there were before the New Economic Policy was adopted; there is a partial, slight improvement in the economic position of some sections of the population, of the few; there is an extreme disproportion between economic resources and the essential needs of other sections, of the majority. Contradictions have increased. And it goes without saying that in making this very sharp change we cannot escape from these contradictions at one bound.

In conclusion, I should like to emphasise the three main points of my report. First, the general question—in what respect must we admit that our Party’s economic line in the period preceding the New Economic Policy was wrong? By quoting the example of what had occurred during a certain war I tried to explain the necessity of passing from assault to siege tactics, the inevitability of assault tactics at first, and the need to realise the importance of new fighting methods after the assault tactics have failed.

Next, the first lesson, the first stage which we had reached by the spring of 1921—the development of state capitalism on new lines. Here certain successes can be recorded; but there are still unprecedented contradictions. We have not yet mastered this sphere of activity.

And third, after the retreat from socialist construction to state capitalism, which we were obliged to make in the spring of 1921, we see that the regulation of trade and the money system are on the order of the day. Remote from communism as the sphere of trade may seem to be, it is here that a specific problem confronts us. Only by solving that problem can we get down to the problem of meeting economic needs that are extremely urgent; and only in that way shall we be able to restore large-scale industry—by a longer and surer way, the only way now open to us.

These are the main factors in the New Economic Policy that we must always bear in mind. In solving the problems of this policy we must clearly see the fundamental lines of development so as to be able to keep our bearings in the seeming chaos in economic relations we now observe, when, simultaneously with the breakup of the old, we see the still feeble shoots of the new, and often employ methods that do not conform to the new conditions. Having set ourselves the task of increasing the productive forces and of restoring large-scale industry as the only basis for socialist society, we must operate in a way that will enable us to approach this task properly, and to solve it at all costs.
Vol. 33, pp. 87-101