There can't be any capitalism without corruption. The rule of law and going by the book take too much time & are inefficient. Too much corruption is inefficient, too, so what the system needs is just the right amount of corruption to oil the machinery of the state & civil society. Hard to come by in the periphery.
More specifically with regard to post-socialist societies, primitive accumulation = gangster capitalism.
***** Nancy Holmstrom and Richard Smith, "The Necessity of Gangster Capitalism: Primitive Accumulation in Russia and China," _Monthly Review_ 51.9 (February 2000)
The Russian bank laundering scandal in the newspapers last fall is only the latest installment in the ongoing saga of corruption coming out of the former Soviet Union. The more important question is: where did they get the money in the first place? How, for example, did the former Premier of the Ukraine manage to buy a seven million dollar mansion in Marin County, California, on his official salary of a few thousand dollars a year? The answer is only too apparent: Moscow's gangster rule has become so well known that the term "Mafia" has lost its exclusively Italian connotation. China is not much better. Ten years after the Tiananmen Square demonstrations were called to protest official corruption, corruption is still the "Number 1 Complaint" of Chinese today, according to a recent headline in the New York Times. Western economic experts, who were the architects of the former communist countries' transition to market economies, have expressed shock and disappointment at the extent of corruption, criminality, and social collapse that have accompanied the market reforms they prescribed. As one U.S. Treasury official complained, "We had a belief that the first generation of Russian capitalists would be nice guys, but they are ruthless motherfuckers."
We will argue here that the reason Western economists were surprised by these outcomes is because they relied on a historical-fantasy-world, neoliberal model of capitalism. The emergence of gangster capitalism and wholesale corruption in the former Soviet bloc and China should have been entirely predictable to anyone familiar with the historical origins of capitalism in Europe, the United States, and elsewhere, and to anyone with a passing familiarity with Marx's account of "primitive accumulation." After a brief review of Marx on the origins of capitalism, we will consider the theory's current usefulness as an aid to understanding what is happening in Russia and China today.
The Secret of Primitive Accumulation
Towards the end of volume one of Capital, in a chapter called "The Secret of Primitive Accumulation," Marx raises the question of how the process of capitalist accumulation got started in the first place. Though markets existed from antiquity, capitalism as a social productive system did not really emerge until the sixteenth and seventeenth centuries, first in England. This system which, unlike all previous historical modes of production, was based on generalized production for market, and depended on the predominance of two kinds of commodity producers/sellers: on the one hand, a class of capitalists vested with a virtual monopoly of the ownership of the means of production and, on the other hand, a propertyless proletariat dispossessed of the means of production and subsistence and, consequently, with nothing to sell but their capacity to labor. The emergence of these two great social classes was the indispensable condition for the operation and development of capitalist production. "Capital," Marx was keen to emphasize, is not just money; it is this unique social relationship. So if one wants to understand the origins of capitalism, one has to understand how these these two great classes came onto the historical stage in the first place. Mainstream economists of Marx's day relied upon a "Just So" story of how the diligent, intelligent, and frugal people accumulated wealth, while the other, lazy rascals, lost theirs. Dismissing this myth as "insipid childishness" in defense of (stolen) property, Marx argued that primitive accumulation is nothing but the "historical process of divorcing the producer from the means of production." In early Europe, the producers had to be freed from feudal bonds, but they also had to be "freed " from possession of any means of subsistence-access to land and any feudal guarantees of survival. In England, the first capitalist nation, an alliance of landlords, nascent capitalist farmers, and the state waged a centuries-long campaign to privatize farms and commons traditionally held by peasant collectivities. England's peasants were forcibly evicted from their farms by a series of enclosure movements from the fifteenth century through the nineteenth century, and thereby came to be wholly dependent on the market for the satisfaction of their needs. By seizing these lands and thus securing a virtual monopoly of the agrarian means of production, England's nascent agrarian bourgeoisie established the conditions for the normal operation of capitalist production, i.e., for the systematic exploitation of wage labor. This institution was greatly facilitated by the English state, which enacted harsh vagrancy laws (the "bloody legislation against the expropriated") to compel the newly propertyless proletariat to take up wage labor or be forced to labor in workhouses. Marx sums up this process of primitive accumulation by noting that: "In actual history it is notorious that conquest, enslavement, robbery, murder, briefly force, play the great part."
Today, we are witnessing a similar process throughout the post-Communist world carried out under the banner of "market reform." Indeed, this modern version of primitive accumulation in Russia, Eastern Europe, and China amounts to the greatest enclosure movement in history-virtually a continent-wide drive to privatize state-collective property, far surpassing in scope the historic enclosure movements. And, as in the past, this process is hothousing the emergence of a class of newly rich capitalists, side-by-side with growing millions of unemployed and starving. No one can forsee the end result of this struggle to create the social property foundations of capitalism, but what is certain is that economic depression, social polarization, corruption, and class struggle are going to increase. Today, as yesterday, the process of primitive accumulation is not a pretty one....
The Demodernization of Russia
The result was an unmitigated disaster. In the first year of reform, industrial output collapsed by 26 percent. Between 1992 and 1995, Russia's GDP fell 42 percent and industrial production fell 46 percent-far worse than the contraction of the U.S. economy during the Great Depression. Worse, pace Dr. Sachs, it has yet to recover. Since 1989, the Russian economy has halved in size, and continues to drop. Real incomes have plummeted 40 percent since 1991; 80 percent of Russians now have no savings. The Russian government, bankrupted by the collapse of economic activity, stopped paying the salaries of millions of employees and dependents. Unemployment soared, particularly among women. By the mid to late nineties, more than forty-four million of Russia's 148 million people were living in poverty (defined as living on less than thirty-two dollars per month); three quarters of the population live on less than one hundred dollars per month. Suicides doubled and deaths from alcohol abuse tripled in the mid-nineties. Infant mortality reached third-world levels while the birthrate plummeted. After five years of reform, life expectancy fell by two years (to seventy-two) for women and by four years (to fifty-eight) for men-lower than a century ago for the latter. Currently, deaths so greatly exceed births that the Russian population is falling by about one million per year. If these trends continue, in the next thirty years Russia's population is expected to fall from 147 million to 123 million-a demographic collapse not seen since the Second World War.2
"Economic reform" has also brought the mass abandonment of children. By the end of 1998, at least two million Russian children were orphaned-more than at the end of the Second World War-and only about 650,000 live in orphanages. The rest were homeless. A year after leaving orphanages, one in three becomes an alcoholic, one in ten commits suicide. In what was once the second industrial power in the world-where schools turned out far more scientists and engineers per year than the United States-ten million children currently do not attend school....
The Role of Force and Violence in the Institution of Capitalism
...In 1994, a U.S. Treasury official told journalist Seymour Hersh that U.S. shock therapists failed "to anticipate fully the viciousness and rapaciousness" of Russia's new mafioso capitalists: "Much worse than the American robber barons. These guys take the fillings out of teeth after murder. It's a nightmare."3 Sachs explains these unhappy results by blaming the political culture of the old Communist regime. But this cannot be a sufficient explanation for the wholesale plunder brought on by the transition to capitalism throughout the post-Communist world. The main reason is that capitalism as a social system requires such a one-time wholesale expropriation of social property.
Why? Because capitalism requires capitalists, a class of people vested with an effective monopoly ownership of the means of production. But as Sachs himself points out, prior to 1989, Russia's industries, mines, and natural resources "were nominally owned by the state and thus by nobody." The nomenklatura collectively monopolized control of the means of production but they did not own them privately. The class had to be created....
"Getting Rich is Glorious"
...China's transition to capitalism has differed from the Russian case in two main ways: first, the Chinese, starting in 1978, broke up their communes and effectively privatized much of the agricultural sector (whereas in Russia, agricultural production is still carried out mainly by large-scale, state-owned, state-managed farms). Though still maintaining formal legal ownership of all agricultural land, the government instituted long-term leases that gave peasants some incentive to improve. Though still enforcing production quotas for major crops like grain, oil crops, and cotton, the government allowed peasant farmers freedom to organize production and to sell sideline produce on the free market. These reforms transformed China's agricultural sector, generating regular and sustained increases in farm output that served to underpin the entire reform process.
Secondly, whereas the Russians rapidly (and criminally) privatized large sections of state industry right at the start of the reform process, the Chinese have, so far, maintained state ownership, management, and planning of the bulk of the industrial economy. Side-by-side with this state sector, however, the Chinese simultaneously promoted the development of a new private and semi-private economy, heavily foreign-funded and export-oriented. This economy is composed mainly of new rural township industries and "Special Economic Zones" established in the 1980s in Guangdong and other coastal provinces. In contrast to state industries, which still produce mainly for the plan, these new industries produce for market, and they have few to none of the restrictions or social obligations imposed on state industries. So the Chinese created, in essence, an economy within the economy. They were able to do this mainly because they were able to tap into the vast wealth of Hong Kong and other overseas Chinese to fund private and semi-private development. The Chinese leadership also invited western, especially U.S., investment, which began flowing heavily into the special economic zones in the mid-to-late 1980s. So, again in contrast to the Russian case, foreign investment has largely funded the breathtaking growth of China's non-state sector industries in the eighties and nineties. In this way, in the first phase, at least, the transition to capitalism has not been as traumatic as the shock therapy model Sachs' HIID and the International Monetary Fund (IMF) imposed on Russia. Yet by preserving state ownership of most of the industrial economy, the process of primitive accumulation in China has only been delayed.
Under Mao's "classless communism" prior to 1978, China had no capitalists and no private property. Virtually all industry was government owned, as was all land. Workers were tied to their production units, but as part and parcel of their lack of freedom, they had a presumptive right to their jobs, and their children could likewise expect to be assigned work, and enjoyed rights to their housing, medical care, childcare, free schools, and numerous subsidies. This was the workers' so-called "iron rice bowl." Everyone wore the same blue suit and was more or less equally poor-but could feel economically secure. The Communist cadres enjoyed the fruits of the system but they owned nothing personally. When, in 1978, Deng abandoned Mao's "socialism in poverty" and called on China's masses to "get rich!" he was careful to bar Communist officials from going into business-it being unseemly at the time for actual card-carrying Communists to become practicing capitalists.
For years after launching the market reforms in 1978, the government sought to confine the developing market economy to farm sidelines, small-scale private manufacturing, and petty trading. These reforms were quite successful as far as they went. But rural, small-scale industry and farmers' markets were not going to generate the capital to renovate China's economy, and were not going to employ China's growing population.
Reluctant to give up control of state industry, China's Communists tried, in the 1980s, to reform state-owned urban industries by introducing some market reforms, such as pay hikes, bonus incentives, and two-tier pricing structures to encourage some out-of-plan production. But since they also continued to enforce mandatory production targets and state ownership of industry, the reforms had little effect. State industry stagnated, the national debt mounted as the government took on foreign loans, and, meanwhile, China's surging population growth was putting enormous pressures on the government to generate new jobs and raise incomes. By the mid-1980s, therefore, Deng gave the Communist cadres the go-ahead to get into business in a big way. The cadres were freed to set up joint ventures with foreign capitalists and even private enterprises in order to generate jobs, foreign investment and tax revenue. Yet China's cadres, like Russia's, lacked the personal capital to set up private businesses, and they did not own the state enterprises they ran. So without a "legal" way to embourgeoisment, China's red bourgeoisie began to build their fortunes through corruption. In the beginning, they enriched themselves by trading on their position, but they soon graduated to siphoning off state funds to set up private businesses. Rural cadres also levied numerous ad hoc levies on peasants....
Capitalism requires a class of capitalists and a class of proletarians. These classes do not come into existence naturally and spontaneously. As evidenced in the first transition to capitalism from feudalism, and as we can see from observing the rapid transformations in the former Soviet bloc countries within the last twenty years, the enrichment of some and the impoverishment of the many is inevitably a brutal and corrupt process. The wonder is not that the introduction of capitalism is responsible for these disasters, but that the illustrious western economic "experts" who were the architects of the transition expected anything else.
1.The Economist (January 13, 1990), p. 23; the following quotes from Sachs are also from this article. 2.Michael Specter, "Russia's Degenerating Health: Rampant Illness, Shorter Lives," New York Times, February 19, 1995. 3.Atlantic Monthly, June 1994, p. 79, also the source of the quote on page 2. 4.Some measure of the depth of despair among the victims of the transition to capitalism in Russsia is revealed in a recent poll on attitudes to reform. When asked, "What economic system would you prefer?" 48 percent of Russians polled said they would prefer "state planning and distribution," while just 35 percent preferred "private property and the market." To the statement "It would have been better if the country had stayed as it was before 1985," 58 percent answered "yes;" only 27 percent said "no." See the Economist, December 18, 1999, p. 21. 5.For a lengthier analysis, see Richard Smith, "The Chinese Road to Capitalism," New Left Review (May-June 1993), pp. 55-99. The following description draws from that article. 6.The methods and extent of offical corruption have been widely reported in China and the West. One of the best sources is a widely read new book Zhongguo de xianjing [China's Pitfall] (Hong Kong: Mingjing chubanshe, 1998), by newspaper reporter and former economist He Qinglian, which pushed the limits of official tolerance. Though not yet available in translation, see the review by Liu Binyan and Perry Link in the New York Review of Books (October 8, 1998).
NANCY HOLMSTROM is professor of Philosophy at Rutgers Universityin Newark, specializing in social philosophy, particularly marxist and feminist theory. She is co-editor of Not for Sale: In Defense of Public Goods (Westview Press, 2000). RICHARD SMITH has taught history at Rutgers University in New Brunswick, and has written on the social and environmental impact of the transition to capitalism in China for the New Left Review, the Ecologist, and other publications. *****