Pravda, 22 September 1925 

When our connection with the world market was minimal, the cyclical fluctuations of capitalism affected us not so much directly, through trade channels, as through politics, sometimes exacerbating, sometimes softening our relations with the capitalist world. We learned, accordingly, to view the development of our economy as almost completely independent of the economic processes taking place in the capitalist world. Even after the restoration of our market, and with it market fluctuations, sales crises, etc., we assessed all these phenomena completely independently of capitalist dynamics in the West or in America. And we were right in so far as our recovery process took place within the borders of an almost closed economy. But with the rapid growth of exports and imports, the situation is changing radically. We are becoming an integral part of the world market, albeit a highly distinctive one. This means that its general factors, refracted and modified, must in one way or another be reflected in our economy. The current phase of the economy is most clearly expressed in how the market buys and how it sells. We appear on the world market both as sellers and as buyers. This means that, to one degree or another, we are economically subject to the commercial and industrial ebbs and flows of the world market.

The significance of this circumstance will become clearer to us if we compare and contrast what new things it brings us. With every major economic shock (the “scissors” effect, sales crises, etc.), our public opinion has been intensely debating the question of whether crises are inevitable for us, to what extent, and so on. At the same time, in accordance with our economic reality, we did not usually go beyond the framework of an almost closed economy. We compared the planned element, whose economic basis is nationalized industry, with the spontaneous market element, whose economic basis is the village. The combination of planning and spontaneity presents great difficulties, since economic spontaneity depends on natural spontaneity. This gave rise to the following perspective: the development of planning will proceed in line with the growth of industry, its increasing influence on agriculture, the industrialization and cooperativization of the latter, and so on. However we defined its pace, we conceived of this process as a planned upward progression. But this path, too, turns out to proceed in zigzags, and we have just come to a new bend. This is most clearly seen in grain exports.

The issue now is not only about the harvest, but also about selling the harvest, not only on our market, but also on the European market. Grain exports to Europe depend on Europe's purchasing power, and the purchasing power of industrial countries (grain is imported, of course, by industrial countries) depends on the economic situation. During a commercial and industrial crisis, Europe will import much less of our grain, and even less of our timber, flax, furs, oil, etc., than during an industrial boom. A decrease in exports will inevitably lead to a decrease in imports. If we do not export sufficient quantities of industrial raw materials and foodstuffs, we will not be able to import the necessary quantities of machinery, cotton, etc. If, as a result of the incomplete sale of our export reserves, the purchasing power of the peasantry turned out to be lower than anticipated, this could lead to a crisis of overproduction; on the other hand, should there be a shortage of goods, we would be unable, in the event of reduced exports, to make up for this shortage by importing finished products, the necessary equipment and raw materials such as, for instance, cotton.

In other words, a commercial and industrial crisis in Europe, and even more so worldwide, could have a negative ripple effect here. Conversely, in the event of a significant commercial and industrial upturn in Europe, there should be an immediate increase in demand for wood and flax, raw materials necessary for industry, and for grain, for which the European population has a higher demand when the economic situation improves. Thus, the commercial and industrial boom, by facilitating the sale of our export goods, will inevitably provide an impetus to our own commercial, industrial, and agricultural boom. Our previous independence from fluctuations of the world market is disappearing. All the fundamental processes of our economy are not only linked to corresponding processes, but are also subject, to one degree or another, to the laws governing capitalist development, including changes in economic conditions. The result is that we, as an economic state, are interested, at least to a certain extent, in improving the economic situation in capitalist countries and, conversely, if this situation deteriorates, we may suffer harm, at least to a certain extent.

This circumstance, rather surprising at first glance, reveals but on a larger scale the same contradiction which is inherent to the so-called New Economic Policy, and which we previously observed within the narrow limits of a closed national economy. Our current system is based not only on the struggle between socialism and capitalism, but—within certain limits—on the collaboration between them. In the interests of developing our productive forces, we not only allow private capitalist trade, but—again, within certain limits—we support it, in the form of concessions and the leasing of plants and factories, and even “impose” it. We are extremely interested in the development of peasant agriculture, notwithstanding the fact that at the moment it retains an almost entirely private-commodity character, and that its rise feeds not only socialist but also capitalist tendencies of development. The danger of such coexistence and cooperation between two economic systems—capitalist and socialist (with the latter using the methods of the former)—lies in the fact that capitalist forces may grow beyond our control.

This danger also existed within the limits of our “closed”^[1] economy, only on a smaller scale. The significance of Gosplan's control figures lies precisely in the fact that, as we saw in the first chapter, they clearly showed the superiority of socialist tendencies over capitalist ones on the basis of the general rise in productive forces. If we had intended (or, more truly, if we had been in a position) to remain an economically closed state to the end, the problem could have been considered essentially resolved. In this case, the only dangers that would then have threatened would have been political, or a military attempt to break through our closed system from without. But in so far as we have economically entered the system of the world division of labor and have thereby become subject to the laws governing the world market, the collaboration and struggle between capitalist and socialist tendencies in the economy take on a much wider scale, which means increased opportunities, but also increased difficulties.

There is, therefore, a profound and entirely natural analogy between the issues that arose for us in the context of internal economic relations with the introduction of the New Economic Policy and those that arise for us now from our broad entry into the world market. However, this analogy is not complete. The cooperation and struggle between capitalist and socialist tendencies on Soviet territory take place under the vigilant control of the proletarian state. Even though the government is not all-powerful in economic matters, the economic might of the state is colossal when it consciously supports the progressive tendency of historical development. While allowing the existence of capitalist tendencies, the workers’ state can keep them in check to a certain extent, while nourishing and supporting socialist tendencies in every possible way. The instruments for this are: the fiscal and budgetary system and measures of a general administrative nature; the system of domestic and foreign trade; state aid for cooperatives; a policy of concessions strictly tailored to the needs of the state economy—in short, a comprehensive system of socialist protectionism. These measures presuppose the dictatorship of the proletariat, and their effect is therefore limited to the territory of the dictatorship. In the countries with which we are entering into growing trade relations, a directly opposite system prevails–capitalist protectionism, understood in the broadest sense of the word. That is the difference. On Soviet territory, the socialist economy is fighting against the capitalist economy, with the workers' state on its side. On the territory of the world market, socialism is opposed to capitalism, which is protected by the imperialist state.

Here we have not only one economy pitted against another economy, but also politics opposed to politics. Powerful instruments of the economic policy of the workers’ state are the monopoly of foreign trade and its policy of concessions. If, therefore, the laws and methods of the socialist state cannot be imposed on the world market, then the connection between the socialist economy and the latter depends to a large extent on the will of the workers' state. Thus, as we have already said, a properly implemented system of foreign trade takes on exceptional importance, and alongside it, the role of the concession policy of the workers’ state grows in significance as well.

It is impossible to exhaustively discuss this question here; the purpose of these lines has merely been to raise it. The question itself, however, is divided into two parts. First, by what methods and to what extent can the planned activity of the workers’ state safeguard our economy from being subject to the fluctuations of the capitalist market? Second, to what extent and by what methods can the workers’ state safeguard the further development of socialist tendencies in our economy from the capitalist domination of the world market? We were confronted with both questions even within the framework of a “closed” economy. They take on new meaning and new scope in the framework of the world market. In both respects, the planned element of the economy is now acquiring incomparably greater significance than in the past period. The market would inevitably subjugate us if we were to compete solely on market terms, for the world market is stronger than we are. It would weaken us with its sharp conjunctural fluctuations and, having weakened us, it would overwhelm us with the quantitative and qualitative superiority of its mass of commodities.

We know how a simple capitalist trust seeks to protect itself from the influence of sharp fluctuations in supply and demand. Even a trust that is close to a monopoly position does not set itself the task of covering the entire market with its products at any given moment. During periods of sharp upturn, trusts often allow non-trust enterprises to exist alongside them, allowing them to cover excess demand and thus freeing themselves from risky new capital investments. When a new crisis hits, these non-trust enterprises fall victim. They often end up being acquired by the same trust for a pittance. The trust then meets a new boom with increased productive forces. If demand again exceeds its production, the trust starts the same game again. In other words, capitalist trusts strive to cover only strictly secured demand and expand as the latter grows, transferring, as far as possible, the risk associated with market fluctuations to weaker and more random enterprises, which play, so to speak, the role of a production reserve. Of course, this system is not in force everywhere and always, but it is typical, and serves to explain our point. Socialist industry is a trust of trusts. This giant production complex is even less able than an individual capitalist trust to set itself the task of following all the twists and turns of market demand.

With its trusts, state industry should strive to meet the demand already secured by all previous developments, using private capitalist reserves where possible to cover temporary excess demand, which may be followed by a new market contraction. The role of such reserves is performed by private domestic industry, including the concessions industry, and by the world market’s mass of commodities. This is what we meant when we spoke about the regulatory significance of the foreign trade system and concessionary policy.

The state imports the means of production, raw materials, and consumer goods that are necessary to maintain, improve, and systematically expand the production process. If we simplify these extremely complicated relationships to a diagram, the situation looks like this. During a period of world trade and industrial boom, our exports will increase by a certain additional amount, and with them, the purchasing power of the population will also increase. It is quite clear that if our industry were immediately to spend foreign currency on the import of machinery and raw materials for the expansion of the corresponding branches of industry, the next world crisis which would decrease our economic resources, would also doom to a crisis the branches of industry that had gone too far ahead, and, along with them, to a certain extent, all of our industry. Of course, to some extent, such phenomena are inevitable.

Peasant agriculture on the one hand, and the world market on the other, are the two sources of crisis fluctuations. But amid rapidly growing domestic demand, the art of economic policy will consist in using our state production only to cover the demand that is guaranteed; the temporary surplus demand will be covered by timely imports of finished goods and the attraction of private capital. Under this condition, the next downturn in the world economy will have a minimal impact on our state industry.

Since the peasant economy is an extremely important, and sometimes decisive, component of this entire work of regulating the economy, it is already clear how immensely important it is, while peasant farming is still fragmented, to develop such organizational forms as cooperation and a flexible state trading apparatus. These should allow us to calculate and foresee possible fluctuations in rural demand and supply in a much better and more comprehensive way.

* * *

But does the process of our “integration” into the global market not entail other, more acute dangers? In the event of war or blockade, are we not threatened by the mechanical severing of countless vital threads? We must not forget that the capitalist world is irreconcilably hostile to us. And so on and so forth. This thought is on the minds of many. Among our industrialists, there are many unconscious or semi-conscious supporters of a “closed” economy. We must say a few words about this. Of course, loans, concessions, and the growing dependence on exports and imports all have their dangers. It follows that we cannot let go of the reins in any of these areas. But there is also an opposite danger, no less significant: it consists in a slower pace of growth than would be possible by an active utilization of all global opportunities. But we are not free to choose the pace of our development, as we live and grow under the pressure of the world economy.

The argument about the dangers of war or blockade in the event of our “integration into the world market” is too bare and abstract. Since international exchange in all its forms strengthens us economically, it also strengthens us in the event of a blockade or war. There can be no doubt that our enemies may still try to subject us to this test. But, first, the more diverse our international economic ties are, the more difficult it will be for our potential enemies to sever them. And second, if this does happen, we will be incomparably stronger than we would have been with a closed and therefore slower development. We can learn something in this regard from the historical experience of the bourgeois countries. At the end of the 19th century and the beginning of the 20th, Germany developed powerful industries, thanks to which it became a most active force in the world economy. Its foreign trade turnover and ties with foreign markets, including overseas markets, developed enormously in a short period of time. The war immediately put an end to all this. Due to its geographical location, Germany was subjected to an almost complete economic blockade from the first day of the war. Nevertheless, the whole world witnessed the astounding vitality and endurance of this highly industrialized country. The preceding struggle for markets had developed exceptional flexibility in its production apparatus, which it utilized to the full on a limited national basis during the war.

The world division of labor is not a circumstance that can be ignored. We can only fully accelerate our own development by skillfully utilizing the resources that arise from conditions of the international division of labor.