Tony Cliff

On the Class Nature of the “People’s Democracies”

I. If the “People’s Democracies” are capitalist countries, what conclusion can we draw about Russia?

In all the “People’s Democracies” industry is almost completely state-owned.

In Poland, according to a speech of Roman Zambrowski, Secretary of the Stalinist Party, delivered on 12 July 1948, 85% of industry was in the hands of the state and co-operatives (the latter having not more than 5%), the same percentage of communications and 100% of banking. Since 1948 state ownership has extended even further.

In Czechoslovakia on 1 November 1946, 60.4% of industry, according to the number employed, was state-owned, 11.6% state-administered (later in nearly all cases declared state property), 3.6% owned by co-operatives and municipalities, and only 24.4% privately owned. After the February coup the proportion of industry privately owned was cut even further, to 7%, according to the number employed. Today it is not more than 2.6% (speech of Gottwald, 24 February 1950). All banks and insurance companies, and nearly all transport, have been state-owned since 1945.

In Yugoslavia the percentage of state-owned industry was estimated at 70-80% by the Economist of 19 January 1946, and since then it has risen to over 90%.

In Hungary a law of 25 March 1948 put 78% of industry into the hands of the state. Another law of 28 December 1949 made all enterprises employing more than ten workers state property, and also all enterprises owned by foreign capital (Russian excluded, of course). Thus today more than 90% of Hungarian industry is state-owned, 100% of banks, insurance companies and communications.

In Bulgaria a law of 23 December 1947 transferred 93% of industry into state hands (while 2% was owned by co-operatives and 5% remained private property) and 100% of banks and insurance.

In Rumania, also, more than 90% of industry is state-owned (in this is included Russian state-ownership).

In the Soviet Zone of Germany a minority of industry is privately owned. Here there are three main owners of industry: Russia, which owns “Soviet Shareholding Companies” (SAGs), the Local German States which own Landseigene Betriebe (LEB), and private people. The proportion of these three groups in the total industrial production was as follows (percentages):













(Wirtschaftsprobleme der Besatzungszonen, Berlin 1948, p.235)

Without the SAGs the nationalised enterprises do not comprise the majority of industry. The SAGs importance is even greater than appears from the table, first of all as nearly all the large-scale enterprises are owned by them. Every SAG employs on the average 2,400 workers, as against 139-146 in the LEB’s and about ten in the private industries. Their importance will be even clearer if we take into account that they control heavy industry entirely. Since 1948 the proportion of private industry declined even further and today it does not make up a fifth of all industry in the Soviet Zone.

Banks and transport in the “People’s Democracies” are completely state-owned. Trade is in the hands of the state at least to the same extent as it was in USSR during the NEP period. Foreign trade is 100% in the hands of the state. The majority of wholesale trade is likewise in its hands: Czechoslovakia 100%, Yugoslavia 100%, Poland (state and co-operatives run by the state) 95.6%, Bulgaria 64%. The position of retail trade is different. In Poland (July 1948) the state had only 25-30% of retail trade in its hands; in the Czech lands of Czechoslovakia it had 66.5%; in Bulgaria (31 October 1948) it had 22.3%; in Yugoslavia (31 March 1948) it had 39.9%, and co-operatives had 58.31%.

That on the whole the proportion of private ownership in industry, banking, transport, wholesale and retail trade in the “People’s Democracies” is not larger than it was in USSR during the NEP period is clear if we compare the above figures with the corresponding figures for Russia during the NEP. Trotsky wrote in The Real Situation in Russia (1927): “Altogether, the production of the non-state industries constitutes more than a fifth of the whole production of goods, and about 40% of the commodities in the general market” (p.27). According to International Press Correspondence of 20 October 1927, the percentage of private industry in the total industrial production of Russia in 1926-27 was 18.1%. The proportion of wholesale trade in private hands in 1924-25 was 9.3 % of the turnover and of retail trade 42.6%. (In 1927-28 the figures were respectively 1.5% and 27.0%.)

Only as regards land is there less state-ownership in the “People’s Democracies” than in the USSR during the NEP period. The land in the USSR was nationalised, while that in the “People’s Democracies” is privately owned. Faced by the experience of forced “collectivisation” in Russia, where nationalisation was the point of departure legalising this enforced “collectivisation”, the Stalinist leaders in the “People’s Democracies” had to fight very hard against the accusation that they also intend to enforce “collectivisation”. But in substance, if not in form, there is no great difference between the legal position as regards land in the “People’s Democracies” and that in Russia before the big drive towards “collectivisation”; in the “People’s Democracies” the peasant owns his land, but the basic characteristic of private ownership – the right of contract, of buying and selling, of leasing and renting – is denied him. There are far more state and co-operative farms in the “People’s Democracies” than in Russia during the NEP period. As late as October 1929 – twelve years after the October Revolution – only 4.1% of peasants were in Kolkhozes. As against this, in Yugoslavia today 23% of agriculture is in state and co-operative farms; in Bulgaria in January 1950, 7.2% of land was in the hands of co-operative farms, and the target for 1953 is 60% (probably an exaggerated target which will not be reached); in Hungary state and co-operative farms on 1 November 1949 made up 7% of all cultivated land; in Poland state farms produced about 7.9% of gross agricultural output in 1949.

Together with state ownership there is state planning. Here, no doubt, the plans of the “People’s Democracies” are far more ambitious than those of Russia during the NEP period, and in a number of them the plans even exceed the achievements of Russia in the First Five-Year Plan. The current plans in the “People’s Democracies” fix, as their production targets, an annual increase in the gross national product of 8% in Czechoslovakia, 10% in Hungary and Poland, 12% in Poland, 13% in Hungary, 17% in Bulgaria and 37% in Yugoslavia. In Russia in 1928 industrial production was only 19.6% higher than in 1913, and the First Five-Year Plan aimed at an annual increase of 20.6%.

If an economy based on state ownership with economic planning (with a monopoly of foreign trade as its concomitant) in which the bourgeoisie has a tiny and dwindling part, is nevertheless a capitalist economy, which the “People’s Democracies” represent, how is it possible to argue against the conception of state capitalism and the definition of Russia herself as a state capitalist country?

Only inertia and conservatism can explain why people like E. Germain and John G. Wright define the “People’s Democracies” as capitalist countries while clinging to the definition of Russia as a workers’ state.

In trying to find some economic argument for their case, they point to three things:

  1. The existence of enterprises in the satellites which are not owned by the states of these countries, but by the Russian state;
  2. The greater dependence of the economies of the “People’s Democracies” on the Western world markets than that of the USSR at any time;
  3. The prevalence of capitalist production in agriculture (which point has already been dealt with, showing that in reality the absence of the right to buy and sell cuts across private ownership in land, and as regards “collectivisation” it is more advanced in the “People’s Democracies” today than it was in Russia in 1929). On the first point John G. Wright writes:

Inside the USSR the Stalinists have been and remain a monstrous parasitic growth on the social system that emerged from October. Even today they have no juridical basis for their power and privileges; even today they play no independent role in Soviet economic life.

But what is their position in Eastern Europe? Do their power and privileges have a juridical basis there? Does their position provide them with an independent role in the economic life of these countries?

The answer is of course, yes! To deny it is to blind oneself to the full enormity of the counter-revolutionary crimes of Stalinism and of the counter-revolutionary regimes they have been trying to sustain in almost half of Europe.

In Bulgaria, Rumania, Hungary and Eastern Germany – leaving aside Finland and Austria – they have the status of conquerors of belligerent states. This status is sealed by treaties and underwritten by the Western imperialists. It is paid for in indemnities, reparations, special trade treaties, not to mention outright pillage. One can scarcely use the term parasitism for what they have perpetrated there. They have exploited the masses and economies of Eastern Europe in a way which differs in degree but not in substance from the imperialist brigands. In relation to the other countries – Poland, Czechoslovakia, Albania – they pose as “liberators”. But here, too, they played and still play the role of ruthless conquerors. These countries too are subject nations who are likewise being oppressed and exploited. What is the gist of the Yugoslav charges and revelations if not the exposure of precisely such ruthless exploitation?

Believing that the character of the exploitation of the peoples of the “People’s Democracies” by the Russian bureaucracy throws the clearest light on the capitalist relations of production prevailing between the workers of these countries and the Russian bureaucracy on the one hand, and on the relations of production in Russia herself on the other, we shall give some facts about this.

We have already mentioned the SAGs whose production made up 30-33% of the industrial production of the Soviet Zone of Germany in 1948. In addition to this portion taken by Russia as her property, she also took the products of other industries as reparations. The products of the SAGs are not included as reparations, as the SAGs themselves are declared non-German property. (Their value was originally included in the reparations account.) The Two-Year Plan (1949-50) fixes the reparations deliveries from current production at 17% of the net output of industry plus 8% for the upkeep of the Occupation Forces, making a total of 25%. If to this is added the output of the SAGs, the Russian bureaucracy appropriates 55-58% of the total output of the industrial workers of Eastern Germany. It is difficult to find a colony of a Western imperialist country where a higher proportion of the industrial product is taken as surplus value by the capitalists of the “mother” country.

Rumania and Hungary also had to pay very high reparations. Not to overburden the text with figures, just one thing need be said about the amount of these reparations: measured in relation to the national income, to the Government budget or to foreign trade, the amount of reparations Rumania and Hungary had to pay to Russia was much greater than what Germany paid to the Western imperialist Powers after World War I. In addition to the reparations there are the Mixed Companies, in which Russia owns 50%, but which in reality are completely under her control. These companies are particularly important to Rumania. Mention must first be made of the Sovrom Petrol Company, which controls the richest oil fields in Rumania. Then there are Sovrom companies for shipping, air communications, timber, chemicals, tractor production, steel, engineering, coal mining, the exploitation of natural gas deposits, building, glass; Sovrom Banco (where the Russians have a share larger than half) which controls nearly all the light industries; a Sovrom insurance company – all in all making up far more than half the industries, transport, banking and insurance of Rumania.

In Hungary the importance of the Soviet-Hungarian companies is very much smaller.

A telling characterisation of these companies was given by The World Today, the monthly journal of the Royal Institute of International Affairs (January 1949), describing the position of Sovrom Petrol:

... the only capitalist in Rumanian industry is Communist Russia. Only the Russian Government has the right to own private shares, and only the company in which Soviet Russia has private shares is allowed to make profits and distribute them to the shareholders. Sovrom Petrol has now the best fields and concessions and the right to export in free currency areas. It is also officially subsidised by the Rumanian Government in the event of loss. Thus it can be seen that Sovrom Petrol has the best of the bargain. The second sector belongs in principle to the Rumanian State. Its task will be to prospect for, and explore, new fields as well as to exploit the exhausted wells left by the expropriated companies. Its personnel is untrained. Its trade will be limited to the adverse one with Soviet Russia and the other satellites. Therefore, while both sectors are working for the benefit of Soviet Russia, it is not difficult to guess which has the best chance of successful working, which is doomed to failure.

While one cannot but agree with John G. Wright that there is no difference “in substance” between the exploitation of, let us say, oil workers in Sovrom Petrol by the Russian bureaucracy, and the exploitation of Iranian workers in the Anglo-Iranian Company, this begs the question of what difference there is between these and the relations between the Russian bureaucracy and the Ukrainian, or for that matter the Russian, workers. If the fact that Russia owns 30-33% of industry in her zone of Germany makes the relations in this zone capitalist (as John G. Wright argues) and makes this zone a state capitalist country, would an increase of Russian ownership to 100%, as in Ukraine or Uzbekistan, have made any difference to the relations between Russia and the Soviet Zone, or, for that matter, within Russia herself?

And if we take the trade relations between Russia and the “People’s Democracies” as a proof that the “People’s Democracies” are capitalist countries subordinate to the laws of capitalist exploitation, as John G. Wright tells us, the argument applies no less to the internal relations in Russia herself.

Since the Tito-Stalin conflict, the Yugoslav leaders have dealt at great length with the question of the sharp trade practices used by Russia in her dealings with the “People’s Democracies”. They cite many statistics to prove that Russia sells her products to them at prices far higher than those prevailing on the world market, while she buys their products for very low prices. The leaders of Yugoslavia also proved, basing themselves on the Marxian theory of value, that even if the prices Russia demanded were those prevailing on the world market, there would still have been capitalist exploitation of those “People’s Democracies” which are more backward industrially.

Particularly important in the analysis of this problem is the pamphlet of M. Popovich, Deputy Finance Minister, On Economic Relations among Socialist States. He argues that industries with a high organic composition of capital, i.e. with a great deal of capital compared with living labour, get part of the surplus value which workers in industries with a lower organic composition of capital produce. This applies also in international trade between more developed and less developed countries, i.e. countries which have relatively more capital and those which have less. He quotes Marx to support this: the “favoured country obtains in such an exchange more labour in return for less labour”. Thus, even under conditions of free competition, the toilers of the poor countries produce surplus value which is appropriated by the rich countries. Popovich argues that this exploitation increases where the latter, for one reason or another, has a monopoly position as against the former.

If we accept the Titoist assertions that capitalist exploitation prevails in the relations between Russia and her satellites, it of necessity puts certain conclusions as regards the economic relations within Russia herself, or within each of her satellites. The assumption of Marxism that foreign policy is a continuation of internal policy is as true for trade as for other aspects of policy. If it is true that the country with a lot of capital gets surplus value produced by workers in the countries with relatively less capital, and these relations are capitalist relations of exploitation, then certainly the Russian workers who own no capital at all are exploited, capitalistically, by the bureaucracy which owns all the capital. And if, with her monopoly position, Russia tries to sell her products as dearly as possible to her satellites and tries to buy their products as cheaply as possible, this applies no less to the relations between the bureaucracy and the workers in the USSR when labour power is bought and sold. In the absence of any possibility of choosing their employer and of any political rights, the Stalinist state confronts them as an absolute monopolist.

Thus if we draw the Titoist arguments to their logical conclusions, the capitalist exploitation of Yugoslavia by Russia is only one facet of the capitalist exploitation of all workers in Stalin’s Empire by the Russian bureaucracy. The fact that Tito does not draw this conclusion, but stops midway, is because it will reflect on the regime in Yugoslavia herself (this we shall deal with elsewhere). In a similar manner Gandhi attacked the imperialist exploitation of India without showing the connection between this and the class rule of the British bourgeoisie. But for the Marxist it is clear that capitalist relations of exploitation between ‘nations’ is only a facet of capitalist exploitation prevailing in the ruling nation itself. The capitalist exploitation of the toilers of the “People’s Democracies” by Russia, exposed by the Titoists, is a facet of the capitalist exploitation in Russia herself.

The second argument of an economic character put forward by the comrades who claim that the USSR is a workers’ state while the “People’s Democracies” are capitalist countries, is that the latter are much more dependent on trade with the Western capitalist countries than Russia ever was. This argument is quite wrong. The trade of some of the “People’s Democracies” with the West is relatively no greater than that of Russia during the First Five-Year Plan; in the case of four of them incomparably smaller, smaller even than Russia’s dependence on trade with the West after the First Five-Year Plan. These countries are Bulgaria, Albania, Rumania and Hungary; it was also the case in Yugoslavia until the rift. The position of Poland and Czechoslovakia is different, but the tendency of their foreign trade is more and more towards trade with the USSR and the other “People’s Democracies”. If reparations and the products of the SAGs is taken into account, the Soviet Zone of Germany trades much less with the West than Czechoslovakia or Poland or even Hungary. The trend of the external trade of the “People’s Democracies” can be shown from the following calculation (which excludes the Soviet Zone of Germany):

East European Countries’ Foreign Trade
(millions of dollars in 1938 prices)









Trade among themselves and with the USSR







Trade with other countries














And in percentages:

Trade among themselves and with the USSR







Trade with other countries














* excluding trade between Germany and Yugoslavia        † excluding Yugoslavia

(Calculated from the table on pp.66-7 of
United Nations Economic Survey of Europe in 1948, Geneva 1949.)

As Yugoslavia did not publish figures of foreign trade for the years 1947 and 1948 it was not possible to take them into consideration in drawing up this table. Otherwise the tendency of these countries to trade mainly among themselves and with Russia and to constrict relations with countries independent of Russia would have been even more pronounced. (For the general tendency of Stalinist state capitalism to economic autarchy, see T. Cliff, The Nature of Stalinist Russia, p.99.)

No scholastic argument will succeed in convincing anyone that the “People’s Democracies” with state ownership, a monopoly of foreign trade, planned economy, the increasing collectivisation of agriculture, are capitalist countries, while Russia, the motive force behind the development of all these traits in the “People’s Democracies”, is a workers’ state. In time the position of Germain and John G. Wright will become less and less tenable, and its main danger is not so much in itself, as its absurdity will become manifest, but that by preventing people from thinking it out to its logical conclusion, it can drive them to the other alternative, namely that if Russia is a workers’ state, then the “People’s Democracies” are also workers’ states. This position forces us to drop our definitions of Stalinism in general as counter-revolutionary (a point we deal with afterwards). At the same time the Germain-Wright position, by its internal contradictions, also opens the way to a correct restatement of the question of Stalinism in general: the economic relations between the “People’s Democracies” are not different in substance from the relations between the satellites and colonies of traditional capitalist countries and their “mother” countries, because the economic relations in Russia are basically similar to those in the Western imperialist Powers – they are capitalist relations of production. Supporters of Germain and John G. Wright will therefore have to choose between rallying to the position of those who say that Russia as well as the “People’s Democracies” are workers’ states, or to the position of those (like the present writer) who think that Russia is a state capitalist country.


Last updated on 19.7.2002