Two Insights Don’t Make a Theory

Michael Kidron

IT IS THIRTY years since Cliff set out the state capitalist analysis which has been the main theoretical nutrient of International Socialism, its forerunners and its heirs. In these thirty years capitalism has remodelled itself so radically that only the freest and most daring imagination of the time could have sensed what was to emerge.

State capitalism and private capitalism
There are no empires left. There are only independent states, more or less powerful militarily and economically, with more or less integrated and secure ruling classes. Although all of them are constrained to a greater or lesser degree in their freedom to act by the actions of the others and the actions of their own workers, the most powerful of them usually manage to implement policies which make them even more powerful.

These policies are of two kinds: labour policies at home designed to extract as much product from the workers for as little expenditure as possible; and foreign and international trade policies designed to gain from abroad a share of the unpaid output of other workforces or to prevent the loss abroad of domestic unpaid output. In pursuing both policies the people who run the state can be seen to be fulfilling the traditional capitalist functions of extracting and centralizing surplus value. But in both respects there’s an important new element which the capitalist in the private capitalist system seldom needed to take into account.

In private capitalism labour policy was simple: as a capitalist you paid as little as you needed to and got as much as you could from as many workers as you could afford to employ given the size of your total capital and its distribution amongst wage and other costs. The capitalist had no further responsibility. If unemployment was high and wages could be driven below subsistence, that was fine – the private capitalist bad no need to worry if, as a result, the current stock of labour power was not fully renewed from day to day or not fully reproduced from generation to generation. There was always more to be found, for in private capitalism labour power could easily be shunted in and out as part of the interchange between the system – the profit-seeking market economy – and the great outside – the imperfectly monetized, semi-subsistence rural economy of direct agricultural consumption in which that market economy developed; and it could be done at very little cost to capital.

There is no great outside any longer. Although one or another state capital might be able to take in and expel labour cheaply whenever necessary, the cost of producing and reproducing that labour is borne somewhere within the system. Even fairly weak countries now deploy arrays of instruments designed to maintain or augment the existing stock of labour power – minimum wage legislation, unemployment insurance, educational, health, housing and family welfare services. A single capital can avoid paying fully for these instruments, but only by shifting the cost on to other capitals – there is no non-capitalist society to ravage for human resources.

In its external policy too a state capital has to take on a wider range of functions than any but the most exceptionally placed private capital in the past. Then as now capitals tried to outbid one another in gaining legal or de facto monopolies: they used force and fraud, ganged up against each other and broke solemn agreements. But it was only in the rarest of rare circumstances that a capital in the era of private capitalism could unilaterally alter the conditions of struggle with other capitals. by bending to its advantage the legal, currency or military arrangements which governed the market. Normally it had to take for granted that it was to operate under the same general constraints as its competitors and confine itself to competing on price and availability.

A state capital operates under very different conditions. There is no system-wide legal code governing the relations between such capitals other than that agreed between them. There is no common currency always acceptable to them all. And there is no power on earth that could hold them to such arrangements even if they existed. On the contrary, a state capital controls many of the instruments through which its relation with other capitals are mediated. Paradoxically, it faces for that reason a far less certain world than did its private capitalist predecessor.

These differences in both the internal and external policies of capitals are underpinned by the different parts the state plays in the two systems. In private capitalism, the state almost always presided over the fortunes of a number of capitals: it policed society in their general interest, suppressing workers, oppressing peasants; it defended them against external attacks or promoted their interests through such attacks, in principle, and often enough in practice, it also affirmed the general interest of the capitals in its jurisdiction against the particular interests of each of them by setting out norms of behaviour and adjudicating between them in cases of conflict. In private capitalism the idea of a neutral state had some purchase in reality: in order to fulfill all the functions assigned to it, it needed to enjoy some independence of individual capitals.

There is no such independence in state capitalism. The state presides over the fortunes of a single national capital. While many of its former functions remain – the state still suppresses workers and, in countries where they exist, oppresses the peasants – and while many new functions have accrued to it, particularly in the sphere of direct involvement in productive activity, including the renewal of labour power, it does not represent the general interests of capital in relation to an individual capital, but the interests of the single capital in relation to all other capitals and classes. That many of its actions further the general capitalist interest goes without saving; hut it adopts them only to further its own interest. The state in state capitalism cannot be an authority above the capitals, it cannot adjudicate between them or represent the interests of capitalism as a whole. The state as we understood it in private capitalism has been fragmented and the fragments absorbed by individual capitals.

The labour market in state capitalism
State capitalism approaches the pure model of capitalism more closely than private capitalism ever could or did: within it capital is king because capitals are kings and there are no others. Capitals have no constraints on their behaviour and decisions other than those they impose on themselves as a result of their encounters with each other and with other classes, there are still many non- or imperfectly capitalist social formations within the territories occupied by the weak state capitals: but there is no non-capitalist space between them.

One clear implication is that the growth of the state capitalist system depends wholly on its internal resources, on the size of the productive working class and on the rate of surplus extraction from it. While individual capitals can grow by absorbing other capitals, the system as a whole cannot – there is no place in it for the primitive or original accumulation which fuelled the growth of private capitalism. There is no non-capitalist society to rob.

There is also no external market that is not some capital’s domestic market; no peasant sector external to capitalism forcibly waiting to be integrated into the capitalist market economy; no "third persons". In private capitalism, individual capitals carved a huge market for themselves out of the ruin of non-capitalist modes of production. More often than not they did so under a system of colonial control or some equivalent system of monopoly and exclusion. Today, the ruin of non-capitalist societies takes place on a relatively smaller scale in the protected backyards of individual state capitals – in the Brazils, the Indias or the Chinas.

The result is that the expansion of a capital’s sales in the series of domestic markets which make up the world market has to be negotiated between states. Very often the bargains they strike relate not to the entry of goods as such but to the conditions for undertaking production in each others’ territory, by means of the misleadingly named multinational corporation.

The world market too is more real than ever before. For most of the private capitalist period it was divided into protected spheres in each of which a group of metropolitan capitalists monopolized the forced, unequal exchange of functionally different products between themselves and their country’s colonies. The world market was then more a concept or an aspiration than a reality. Now, although there appears to be far more regulation and inhibition of trade, the absence of a non-capitalist sphere ensures that there be a real world market, even if still not fully formed.

The only market of which this is not true, which on the contrary tends to disappear the closer reality approaches the model of state capitalism, is the labour market; in private capitalism, although the workers’ freedom to hawk their ability to work was often curtailed by influx and migration controls, by legal attachments to jobs, to dwellings and to creditors, they were free in principle, and often free enough in practice for the principle to carry some weight, to move between capitals in search of a buyer or a higher bid for their labour power. In private capitalism, capitals bought and used the ability to work; they did not produce it or invest in its production. That was the concern of the individual worker or the workers’ family within the system, or of the peasant community outside. However limited their freedom, workers in private capitalism were free outside the workplace.

In state capitalism workers can no longer hawk their ability to work between competing capitals; from their point of view, all employers in a country, whether Britain, the US or Russia, work to common guidelines on pay and conditions, are simply agencies of a single capital. Shifting from one to another can improve one’s circumstances – even within a single plant or office, some jobs are better than others – it can’t change the terms of the bargain. Even international migration in search of jobs is not the exchange between capital and workers that it appears to be: the interstate treaties that govern such traffic fix it firmly within the larger pattern of commercial bargaining between state capitals. What is kit of that exchange is between the modern and peasant sectors within the weak, imperfectly developed, peripheral state capitals, and in the labour black-market sustained by illegal migration from them to the central state-capitals.

If labour power is to remain in continued supply in state capitalism, capital must assume responsibility for its production and maintenance. However reluctantly or inadequately, each capital must invest in a stock of labour power from which it then taps a service, rather than buying a service from free stock as was the position in private capitalism. It is in order to conserve this stock of labour power that state capitals must maintain their panoplies of welfare services: for the same reason they must pay the unemployed. And since they can no longer cast out their workers, they need to employ other means to tame them – control over their leisure time and activities, positive structuring of their attitudes. In state capitalism workers are no longer free in principle, even in the crippled sense such freedom was understood in private capitalism.

Naturally many of the concepts that tic in with the existence of a labour market in private capitalism cannot survive its atrophy. One of them is the reserve army of labour seen as a motley of would-be workers who are paid only when hired, which contracts and expands in sympathy with the rate of accumulation within the system. hi state capitalism, there is, in principle, no reserve army of labour and even in practice. in the imperfectly developed state capitalist system we’re living in. where workers are paid morn or ate paid less according to whether they are employed or unemployed, according to whether they are men or women, working under direct supervision or at home, they are almost always paid.

Another concept that cannot survive unchanged the attenuation of the labour market is that of the working class. In private capitalism the working class defined itself primarily through being engaged in those activities which were a sphere of accumulation for capital. There were important activities in which capital did not engage notably the production of many foods and raw materials and, most important of all, the production of the ability to work. In state capitalism there it by definition a perfect fit between capital’s sphere of activity and social activity. All production including the production of the ability to work is production by capital and everyone engaged in that production is a member of the working class. They may be productive in the sense that what they do is necessary for further production, or they may be unproductive, but they all relate to capital, whether they work in a factory, a government office, a school or in the home. Not only can the working class be expected to be larger in state capitalism, even in an imperfectly developed state capitalism, it can be expected also to form a significantly larger proportion of the total population and to be very much more diverse.

The change in the composition of the working class and in its relation to capital must have profound effects on every aspect of working class life. Trade unionism, political activity and organisation, revolution itself is different as between the two phases of capitalism. If in the private capitalist system workers safeguarded a modicum of independence and strength in their relations with each capital by forming unions that spanned several capitals, in state capitalism the task is very much harder since the only equivalents are international organisations which must inevitably be political. Within each state capital, workers newly brought into large employing units do join trade union-type organisations, only to find that the organisations face their members on behalf of the capital rather than the other way round, and belie the adversary role they played in private capitalism. Even the fast growing white collar unionism is trade unions as we know them increasingly reflect the interests of a privileged sector of the working class – the native, male dominated, skilled, white, manual workers who formed the core of the working class in private capitalism, who created the independent unions then and who now use them, largely unchanged, to buttress their own relative position within the larger, more diverse working class of state capitalism. Even the fast growing white collar unionism is growing within the patterns of behaviour and attitudes set by the traditional movement.

If trade unions neither reflect the extent and composition of the working class nor fulfill their earlier role as independent representatives of working class interests, a political strategy structured around them is bound to fail. Yet that is what so much of our practice does: the issues we stress in our propaganda and agitation are the narrow defensive issues selected by the elite of the trade union world to which we add a gloss of revolutionary interpretation, not the problems created for the whole of the working class by its suicidal bondage to state capitalism. The attitudes we foster, of principled opposition to the objectives and object of labour, make sense in a society in which workers enjoy, however miserably, an existence, however temporary and interrupted, apart from capital. They do not make as much sense in state capitalism from which workers cannot escape at all. In many spheres, and not only in the vast number of service’ jobs relating to the production and maintenance of labour power-aggressive alienation, a posture of principled irresponsibility with regard to the ends and means of the work given to us, can no longer be effective as a psychological defence nor, therefore, as trade unionism.

State capitalism
I have presented the state capitalist world system as if it were a finished, functioning, pure system, and have avoided all the obvious problems of the transition from private capitalism, as well as all the complexities of its day-to-day working. I’ve made no mention of the relations between the private and public sectors within the western state capitals or between multinational corporations and state capitals. I’ve not touched on the prospect for fuller integration of the eastern bloc countries with the world market, or the fate of the weak, backward state capitals on the periphery of the world system. Are state capitals tied immutably to the national frontiers inherited from private capitalism, or can they merge, go bankrupt and behave like the smaller capitals of that epoch? I’ve not asked this or any of the many related questions. And, most important, rye not touched on the modes of political action and organisation appropriate to revolutionary socialists in state capitalism. There is a lot missing even in the abstract model I’ve pictured. But there is enough in it to suggest that the analysis of modern capitalism as a state capitalist system can be a powerful guide to political activity. Very, very few readers of this journal are familiar with the analysis. Although the International Socialists and their forerunners in the Socialist Review group were known as the "state caps" for many years, and presented a "state capitalist" analysis as their central, distinguishing tenet, our collective expressed view has not kept pace with the formation and consolidation of state capitalism as a world system; and the analytical variant of "state capitalism" current in the organisation remains locked into the limited partial insight of its original formulation.

The argument was and remains simple. If it could be shown that the political, social and economic arrangements in the eastern bloc countries were easily understandable in the terms marxists apply to capitalism in general. and conversely. if it could be shown that their internal regimes could not, by any stretch of the imagination, be thought of in the vastly different terms we use to conceive socialist society or even a society in transition to socialism, those countries could legitimately be called state capitalist. Cliff. the prime author of the analysis1 was down to earth in his method. He brought a vast array of facts into play. He described in minute detail the lack of control by workers over their lives, in production and out, in the "state capitalist" countries. He summarized carefully Marx and Engels’ views on socialism and the economy of the workers’ state. He analyzed the marxist law of value and its application to the eastern bloc. He took Trotsky’s contorted view of Russia as a "degenerated workers’ state" to task and showed how heterodox it was from a marxist point of view. Cliff did more than explain: he powerfully reasserted the prime inspiration of the socialist movement – that there can be no civilised future unless workers fight their way into becoming the subject of history.

Cliff’s variant of state capitalism was a political tour de force in its day. If now it is less stunning, this is panty because its revelations and approach have become absorbed into the shared culture of the revolutionary left. Partly also it is because the analysis left out a great deal of what has since become necessary for a realistic view of the social world Above all it ignored the mutual conditioning of what we then termed the "state capitalist" and "orthodox capitalist" countries as pans of a single ongoing system.

The thrust of Cliff’s argument was to show that Russia was not an anomaly in a capitalist world; he did not try to explain that world. Nor could he, for the syllogism which underlay his method – such-and-such occurs in the eastern bloc; the same such-and-such occurs in the West; the West is capitalist; therefore the East is capitalist – cannot do so. It can compare one part of a whole with another, it cannot analyse the whole nor can it infuse the formal definitions it rests on with a sense of history and change.

There was very little development of Cliff’s original analysis. He himself extended its coverage to Eastern Europe2 and later to China,3 applying the same method for the same purpose. but with less blinding results since the major conclusions had already been reached. Beyond these there was only one other publication of note: Chris Harman’s Bureaucracy and Revolution in Eastern Europe4 whose blow-by-blow account of the Hungarian Revolution of 1956 can stand comparison with the best in historical writing, but which represents something of a regression in theory for, in Harman, even more than in Cliff, the "state capitalist" countries are treated as unique and ghettoized analytically.

In its day, to depict Russia and the eastern bloc countries as state capitalist was a profound insight, of critical importance to IS and to the revolutionary left at large. But the analysis was never a general theory. It was incapable of incorporating "state capitalism" into a broader picture of capitalism as it was evolving, incapable too of itself evolving to take account of the changing structure of capitalism.

The second string
Something very similar can be said of IS’s second major tenet for which I bear as much responsibility as anyone. To survive the high boom of the fifties and early sixties even as a small revolutionary group with modest aims and few pretensions, we needed to explain that boom, to know whether it would ever lose its momentum. The explanation was presented as the theory of the permanent arms economy.

The theory did not emerge fully-fledged. Its origins were in a heavily Keynesian view of the post-second-world-war economic order set out in 1944 by "Walter J. Oakes" in the American socialist journal The New International5 and later elaborated by "T.N. Vance" in the same journal in 1950-51.6 It was brought over with its Keynesianism more or less intact in an article by Cliff in Socialist Review, May 1957,7 and only later underwent a marxist conversion. Even then it was never elaborated in any detail: a couple of articles in IS,8 one of which is repeated as a chapter in a book,9 a few further passing observations in other articles some of which were collected in another book,10 and that’s all. Not much for an analysis that was meant to encompass the world order and explain its innermost drives.

The permanent arms economy
As a first stab the analysis was not bad. It rests on the most fundamental characteristics of capital: its drive to grow, the way its structure changes as a result of growth, the way this changing structure piles up limitations on further growth, which, in the absence of some countervailing mechanisms, reveal themselves through a decline in the general rate of profit. It concludes that the most effective countervailing mechanism is the waste occasioned by military spending, partly because the ratio of non-labour to labour resources absorbed by such spending is higher than in most other forms of waste and higher than in the economy overall; and partly because military spending is imperative-it must spread throughout the system.

The analysis was questioned in a number of respects both inside IS and out. There was a confused debate in the IS Bulletin in the Spring and Summer of 1972, a series of intemperate attacks by some of the principals in that debate once they had constituted an independent political grouping and some censorious chalking of blackboards from new entrants into academe via the Communist Party. The permanent arms economy thesis was accused of being empirically wrong, theoretically heterodox, and loose in logic.

This is not the place to take up the criticisms point by point or to pull out the sense from the spleen. As I understand it the key point at issue is whether it is or is not legitimate to segregate a waste sector from a productive sector and to impute to the latter, and to it alone, the dynamics of the capitalist system. If it is legitimate, a shift of resources of a certain mix from the productive to the waste sector could, in principle, prevent the value-structure of capital in the productive sector from changing, or could change it in a benign direction, and so maintain or even augment the rate of profit.

We implied it was legitimate separation. We understood Marx’s Capital, which we took as our starting point, to be a model of a purely productive system. Besides our usage appeared to reflect in theory what had been happening in fact since the Second World War. Our critics implied that it was not legitimate, that Marx’s model incorporated waste as an essential element and that any explanation based on such a usage could not stick. Characteristically, we did not plunge into lengthy exegeses of the holy texts; equally characteristically, they did not, and still do not, come up with a better explanation for the long boom.

I still think we were right about the general thrust of Marx’s argument. But also, I think now that the model of capitalism we were using was the wrong one – we were working with a model of private capitalism in a period of consolidating state capitalism. What we needed was a model of state capitalism in the sense proposed above. A private capitalist system assumes, let me repeat, the continued, although declining, existence of non-capitalist modes of production. In such a system the tendency is for productive spending or accumulation to be undertaken by capitals, and waste, albeit necessary, spending to be undertaken by the non-capitalist society, either directly or through the state. While the Lancashire millowners of the nineteenth century invested their all and paid no taxes, the Indian peasants they were ruining raised the tribute that maintained not only the British colonial administration in most of South Asia, not only the military operations that delimited the boundaries of Empire in Asia, but a substantial part of Whitehall as well.

In considering such a system it makes sense to segregate the two sectors, a productive capitalist sector and a non-productive (from capital’s point of view), non-capitalist sector. Equally it makes sense analytically to treat a transfer of resources from the one to the other as a diminution in surplus value, which might, if the material composition of that transfer is right, reduce the organic composition of capital in the only sector in which capital exists, the productive sector, and so keep up the rate of profit.

But the separation makes little sense in state capitalism. In the pure model of state capitalism, non-capitalist modes of production do not exist; in it, non-productive expenditure essential to the system has to be borne by capitals directly. Although the distinction between productive and waste activity remains and becomes increasingly clear as capital itself agonises over the allocation of resources between them, there is no way in which the growth of the productive sector – a growth governed in private capitalism by the rate of profit – can any longer be isolated from the unproductive expenditure undertaken in the system. It is no longer reasonable to treat a transfer of resources from the one to the other as a diminution in surplus; such a transfer needs to be treated as an increase in constant capital, which amounts to saying that capital’s value structure (the organic composition of capital in the era of private capitalism) becomes heavier (rises) and the rate of growth of the system (the rate of profit) falls.

On this reading of the economic effects of arms expenditure, and assuming the foundations of the state capitalist system to have been effectively laid during the Second World War, it is hard to sustain the view that it was the permanent arms economy that fuelled the long boom. On the contrary, such expenditure must have worked towards stagnation. And if in reality heavy spending on arms coincided with an unprecedented expansion of capital, it can only be because the effects of arms vending were overpowered by the effects of something much more fundamental – the changes that attended the consolidation of the state capitalist system; changes that redirected vast working populations from barely-productive work in agriculture towards highly productive occupations in industry; changes that reduced the amount of social capital required for the new workers and so sharply lightened the capital structure throughout the world; changes that increased the technical division of labour sharply arid reduced duplication of effort as capitals themselves grew to national proportions. On this reading it was despite the arms economy, not because of it, that the first years of state capitalism were years of release of the productive forces and of expansion.

State capitalism as a system is written into the horoscope of the very first proto-capitalists. It is the outcome of parasitic growth, the growth of some capitals at the expense of others (the centralization of capital). It implies the arming of each capital, the dispersal of authority throughout the system, a permanent arms economy which ultimately saps the sources of progressive growth (through accumulation) at the same time as it makes parasitic growth more dangerous. State capitalism is a permanent arms economy; a capitalist arms economy can only be a state capitalist one.

In retrospect there were a disturbing number of loose ends left by IS’s originally illuminating but unconnected insights into contemporary capitalism. They need not remain loose ends. They can be woven into a general theory; and they need to be. For without theory no organisation can do more than ride the tides of working class consciousness, which might be exhilarating as sport but is irrelevant as revolutionary politics.

London May 1977


1. Notably in The Nature of Stalinist Russia, published in duplicated form as an internal document of the Revolutionary Communist Party in June 1948, and subsequently published as Stalinist Russia, a marxist analysis, London: Michael Kidron 1955, Russia, a marxist analysis, London: International Socialism, n.d. (1964) and State Capitalism in Russia, London: Pluto Press, 1974.

2. Notably in On the Class Nature of the "People’s Democracies", London, 1951 (duplicated), reprinted in The Origins of the International Socialists, London: Pluto Press, 1971; and Ygael Gluckstein, Stalin’s Satellites In Europe, London: George Allen & Unwin, 1952.

3. Ygael Gluckstein, Mao’s China, London: George Allen & Unwin, 1957.

4. London: Pluto Press 1974.

5. "Towards a Permanent War Economy", The New International, February 1944.

6. "After Korea – What?", The New International, November-December 1950; and "The Permanent War Economy", a six-part series in The New International, January-February to November-December 1951.

7. "Perspectives of the Permanent War Economy", Socialist Review, May 1957.

8. Michael Kidron, "Reform and Revolution", International Socialism 7, Winter 1961; and "A Permanent Arms Economy", International Socialism 28, Spring 1967.

9. Michael Kidron, Western Capitalism Since the War, London: Weidenfeld & Nicolson, 1968; revised edition, Penguin 1970.

10. Michael Kidron, Capitalism and Theory, London: Pluto Press, 1974.

First published in International Socialism 100, July 1977.