Authoritarian Capitalism

The collapse of Communism was, in the dominant view, brought about because soviet-type central planning was economically inefficient, unstable, unsustainable, and unreformable. The only alternative was a capitalist, liberal, open market economy. [Those averse to history may skip the next paragraph, Ed]

The socialist model was consolidated in the USSR between 1928-32; it transformed from War Communism 1918-1921 to the New Economic Policy 1921-26, to central planning in 1928. It went through many other major changes from vertical integration to Soviet regional decentralisation (1958), the repressed reforms in Hungary (1956) and Czechoslovakia (1968), the Yugoslav self-managed market economy (since the 1950s), from Chinese local de-centralisation and market progress after 1978, to Gorbachev's perestroika 1985-1990. The wave of 'Improvements in the System of Planning and Management' that began in the 1960s, and the extensive radical reforms towards market socialism,particularly in Hungary and Poland right up to the Shatalin Plan 500 Days for Russia, made the system remarkably more efficient and closed the distance with a market economy.

In truth, it was capable of extensive reform. What did for it was inflation and fear of inflation resulting in endemic, large scale excess demand for goods and services that were under-priced with respect to market-clearing levels. This repressed inflation was due to the impossible pursuit, by an economically uneducated leadership, of fixing both quantities and prices arbitrarily. Market clearing prices are required under any orderly and efficient system of central planning, as the Chinese accepted from 1978, with their two-track price system, part controlled and part free. Russia ran out of time, the imbalances were too large, and there was too little administrative capacity. Two other obstacles to the successful construction of market socialism: failure to liberalise foreign trade and failure to allow private ownership of land and the formation of new private enterprises (rooted in another political, not economic, ideology) completed the debacle.

Russia was pitched into embracing a hyper-liberal model of capitalism with neophyte enthusiasm in 1992-1999, and suffered economic and political decline, quite unnecessarily, had the transition been undertaken more gradually. The political shock was enormous and led to default and a decade of international weakness that is now being retrenched. The capitalist system Russia seems to have implemented from 2000 is '...a dual economy, in which the rules of the economic game have been evolving rather differently in different sectors'.

Since Mr Putin's second term it has been veering towards statism. The private sector share of GDP is falling (70% in 2000-04, 65% 2005-07).The state share in the oil industry rose from under 20% in 2004 to over 50% in 2007. State control has increased in banks, engineering, defence related industries. State holding companies have been set up (cars, aerospace, shipbuilding, pipelines, railways) and there is a declared policy to Russify or nationalise unspecified strategic sectors. Its sovereign funds own capital stakes within Russia and globally.

A dose of statism seems quite compatible with deep involvement in the globalisation process. It seems too that the socialist model was reformable, was reformed radically and successfully, and a move to the new market socialism or to market socialism 'lite', the European Social Model, might be horribly attractive to our beleaguered Labour regime.