Part 4, Chapter 3 : Underdevelopment

Underdevelopment

In The Communist Manifesto Marx remarks:

The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication. draws all, even the most barbarian, nations into civilization. The cheap prices of its commodities are the heavy artillery with which it batters down all Chinese walls, with which it forces the barbarians’ intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilization into their midst i.e., to become bourgeois themselves. In one word, it creates a world after its own image.[108]

Of course, capital’s inherent tendency to reproduce itself on an ever greater scale has led to the relentless geographical expansion of capitalism to the point where its has long since encompassed the entire globe. However, this process has been a highly uneven one. The concentration and centralization of capital that has led to rapid capitalist development in one region of the world has presupposed the plunder and de-development of other regions of the world.

As we have already noted, in the late nineteenth century the development of industrial capitalism in Western Europe and North America imposed an international division of labor that still divides the world a hundred years later. The economic relations that served to promote the rapid accumulation of capital in the ‘core’ of world capitalism at the same time served to block the full development of industrial capitalism in the periphery of world capitalism. To this extent world capitalism became polarized.

In this process of polarization Russia found itself in a peculiar position. On the one hand, as the impact of industrial capitalism spread eastwards across Europe from Britain, Russia was the last European country to confront the need to industrialize. As such it was the last of the late European industrialisers. On the other hand, Russia can be seen as the first of the non-western countries that sought to resist the impact of underdevelopment.

To understand this peculiar position that Russia found itself in at the beginning of the twentieth century, and how it shaped the transition to capitalism in Russia, we must briefly consider the question of underdevelopment.

Mercantile and Industrial capitalism

Capitalism, or more precisely the capitalist mode of production, only becomes established with the emergence of industrial capital. It is only when capital takes full possession of the means of production and transforms them in accordance with its own needs that capitalism becomes a self-sustaining economic system that can dominate society. However, where ever there has been the widespread use of money arising from the exchange of commodities capital has emerged in the distinct form of mercantile capital.

Mercantile capital has had an independent existence since the early period of antiquity. However, in pre-capitalist modes of production it has been ultimately parasitic. Mercantile capitalism is driven by profit. But it is a profit not based on the direct expropriation of surplus-value but on unequal exchange — buying cheap in order to sell dear. Mercantile capital was therefore always ultimately dependent on the predominant means of surplus extraction in any particular society.

Following the crisis in European feudalism in the fourteenth century and the subsequent emergence of the world market in the sixteenth century mercantile capitalism came in to its own and began to rapidly expand it influence. As such it had two contradictory effects. On the one side, mercantile capitalism brought with it an increase in the production and circulation of money and commodities and in doing so served to undermine the traditional pre-capitalist social relations. To this extent it prepared one of the essential preconditions for the development of the capitalist mode of production — the creation of an economy based on generalized commodity exchange. On the other side, insofar mercantile capitalism remained dependent on the traditional structures of society, it became a conservative force that blocked the development of an industrial capitalism.

Mercantile capitalism had grown up hand in hand with the development of the Absolutist State. In order to free itself from the feudal nobility the absolutist state was increasingly dependent on loans and money taxes that had become possible with the monatrisation of the feudal economy that was being brought about by the rise of mercantile capitalism. Yet, while the absolute monarchy was dependent on merchants and their bankers for loans and taxes, they in turn were dependent on the state for the defense of their monopolies and access to foreign markets.

However, although there was a certain symbiosis in the development of the Absolutist State and mercantile capitalism, the absolute state was careful to contain the development of mercantile capitalism. The excessive development of mercantile capitalism always threatened to undermine the existing social order on which the Absolutist State rested as traditional relations of authority were replaced by the cynical and impersonal relations of the market. Thus while the state encouraged merchants to profiteer at the expense of foreigners they were far less inclined to allow such profiteering to cause social discord at home. Hence the Absolutist State was keen to intervene to regulate trade, not only to protect the monopoly positions of the favored merchants, but also to maintain social peace and stability.

In order to secure its sources of supply mercantile capital had from an early stage involved itself in production. To this extent the development of commerce led to the development of industry and commodity production. However, for the most part mercantile only formally subsumed production. Mercantile capital left unaltered the traditional craft based methods of production.

In the late eighteenth century, however, industrial capital began to in to its own with the rise of factory production and the application of steam powered machinery. Industrial capital directly expropriated surplus-value through its domination of the production process. As such it had no need for the privileges of bestowed by the state on merchant capital in order to make a profit. Indeed such privileges and monopolies became a block to industrial capital’s own self-expansion. Under the banners of liberty and laissez-faire the industrial bourgeoisie increasingly came into conflict with the conservatism of mercantile capital and the established ruling classes that it upheld.

In the course of the nineteenth century industrial capital triumphed in Western Europe over mercantile capital and its aristocratic allies. As a consequence, mercantile capital became subordinated to industrial capital. It became merely a distinct moment in the circuit of industrial capital; dealing in the sale and distribution of commodities produced by industrial capital. The profits of mercantile capital no longer came to depend on state privileges but derived from the surplus-value produced by industrial capital in production. However, although mercantile capital became integrated with industrial capital in Western Europe its relation to industrial capital in other parts of the world was different.

From the sixteenth century mercantile capital had come to encompass the entire world. However, while in Europe the corrosive effects of mercantile capitalism on the established social order had been held in check by the state, in much of the rest of the world the impact of mercantile capitalism had been devastating:

In America and Australia whole civilizations where wiped out; West Africa was reduced to a slave market and no society escaped without being reduced to a corrupt parody of its former self.[109]

The conditions created by mercantile capitalism in these parts of the world were far from being conducive for the development of industrial capital. Industrial capitalism developed in Western Europe, and subsequently North America where capital had already been concentrated and where conditions were more favorable. As a consequence, industrial capital left mercantile capital to its own devises in the rest of the world. However, as Geoffrey Kay argues:

If merchant capital retained its independence in the underdeveloped world, it was no longer allowed to trade solely on its own account but was forced to become the agent of industrial capital. In other words, merchant capital in the underdeveloped countries after the establishment of industrial capitalism in the developed countries in the nineteenth century existed in its two historical forms simultaneously. At one and the same moment it was the only form of capital but not the only form of capital. This apparent paradox is the specifica differentia of underdevelopment, and its emergence as a historical fact in the course of the nineteenth century marks the beginning of underdevelopment as we know it.[110]

As the agent of industrial capital merchant capital plundered the underdeveloped world for cheap raw materials while providing lucrative outlets for industrial commodities produced in the developed world. To the extent that it retained its independence mercantile capital shored up the conservative elites and blocked the development of industrial capital in the underdeveloped world. Hence:

The consequences were doubly depressing for the underdeveloped world: on the one side the tendency of merchant capital to repress general economic development in proportion to its own independent development; on the other the reorganization of whole economies to the requirements of external economic interests.[111]

The emergence of a world polarized between a core of industrially advanced economies and a periphery of underdeveloped economies was further compounded with the rise of international moneyed capital.

As we saw previously, the growth in the sheer scale of industrial production meant that the mass of capital required to set up in production increased beyond the means of most private individuals. Furthermore, the further development of industrial production itself presupposed the existence of industrial production. This had important consequences on the polarization of the world economy and the process of underdevelopment.

Firstly, whereas in England and Western Europe industrial capital had been able grow up on the basis of the preexistent craft production. In contrast undeveloped economies, like the late developing economies in Europe itself, could not simply repeat the evolutionary stages through which industry had involved in the core economies since they would be uncompetitive in the world market. Instead they had to make the leap and introduce modern plant and machinery. But such modern plant and machinery was the product of industrial production that for the most part did not exist in the underdeveloped world. It therefore had to be imported from the advanced industrial economies.

Secondly, the underdeveloped economies lacked the concentration and centralization of capital necessary to finance of the most advanced capitalist enterprises. It therefore not only had to import productive capital in order to industrialize, it had to import moneyed capital either in the form of direct foreign investments by industrial capitals of the core economies or borrow money-capital from the international banks and financial institutions.

To the extent that the underdeveloped economies were able to attract foreign investment or loans it was able develop it industry. But such industrialization was for the most part limited and orientated towards producing commodities demanded by the needs of capital accumulation in the more advanced industrialized economies. Its serfdom contributed to the creation of an industrial base on which a self-sufficient national accumulation of capital could occur. Furthermore, in the long term the interest or profits on such foreign investments were repatriated to the core economies and did not contribute to the further national accumulation of capital in the underdeveloped economies themselves.

Russia and the problem of underdevelopment

The defeat of the Russian Revolution as a proletarian revolution, and the subsequent failure of the world revolution that followed the First World War, left the Bolsheviks isolated and in charge of a predominantly backward and underdeveloped economy. The very existence of the Russian state, and with it the survival of the ‘Soviet Government’, now depended on the Bolsheviks carrying through the tasks of the national bourgeois revolution — that is the development of national industrial capital.

Yet in order to carry through such tasks the Bolsheviks had to overcome the formidable problems of underdevelopment that reinforced the internal obstacles to the modernization and industrialization of Russia. The two most pressing internal obstacles to the development of a national industrial capital were the problem of finance and the problem of agriculture.

Russian agriculture was predominantly based on small scale subsistence or petty-commodity production. This had two important consequences for industrialization. Firstly, it blocked the formation of an industrial proletariat since the bulk of the population was still tied to the land. Secondly, the inefficient and backward nature of Russian agriculture prevented it from producing a surplus that could feed an expanding industrial proletariat.

To the extent that the Russian peasants could be encouraged to produce for the world market then there could be expected the gradual development of a capitalist agriculture. As production for profit led to an increasing differentiation in the peasantry some would grow rich while others would become poor and become proletarianized. But this was likely to be a long drawn out process. Profits would be small given the mark ups of the international merchants and the need to compete with more efficient capitalist agriculture on the world market. Furthermore, to the extent that the Russian peasantry produced for the world market, it could not provide cheap food for an expanding Russian proletariat.

The second important obstacle to industrialization was finance. The backward character of Russian capitalism meant that there was little internal capital that had been accumulated. To the extent that Russia had industrialized it had been promoted by the state and financed through foreign investments. But with the revolution the Bolsheviks had repudiated all the foreign loans taken out under Czarist regime and had expropriated foreign owned capital in Russia. Once bitten the international financiers were going to be twice shy about financing Russian industrialization.

If the national development of industrial capital was to be achieved in Russia, if Russia was to make the transition to capitalism, then Bolsheviks had to subordinate the fleeting and transnational forms of capital — money and commodities — to the needs of national productive capital — the real concrete capital of factories, plant, machinery and human labor, rooted in Russian soil. This required that the Russian State take charge of capital accumulation — that is that the transition to a fully developed capitalism had to take the form of state capitalism.

Hence, while at the end of the eighteenth century the French Revolution had opened the way for the development of French capitalism by freeing capital from the embrace of the state, in Russia at the beginning of the twentieth century the Revolution opened the way for the development of capitalism by increasing the embrace of the state over capital.