Revolution, class and globalisation in the transition from state socialism Open Access

Traditional Marxist analysis has difficulty, not only in explaining the class structure of former Soviet type societies but also in detecting the dynamics of the transformation from state socialism. (I use the term ‘Soviet type’ as a neutral description of regimes based on the model of the USSR). Ownership of assets, giving rise to class interest, has been replaced by a more politically geared concept of control over assets giving rise to the extraction of surplus value. Resnich and Wolff¹³ follow a long line of writers¹⁴ who contend that Soviet-type societies have always been on a continuum of capitalist societies, sharing a statist economy similar to Nazi Germany. In essence, a dominant (state) capitalist class extracted surplus value, exploited the working class and redistributed the surplus product to different end users and itself. In this evaluation, control of the state apparatus is a crucial pivot of class exploitation and domination, and class analysis is moved to the political realm – to those who control the state. An important consequence of this analysis is that the post 1989 transformations of the USSR and the Eastern European societies are not a revolutionary process, but are more in keeping with the system change accounts. As Alex Callinicos has put it, the transformations are a shift between two types of capitalism¹⁵ (state to multinational) and the process is not an example of a revolution in an analytical sense. ‘The transition from state capitalism to multinational capitalism is neither a step forward nor a step backwards, but a step sideways’.¹⁶ This approach leaves some questions unanswered. If the ruling state capitalist class extracted surplus value, then why was there a need to change from state capitalism to private market capitalism? Another implication is that in the transformation process, social structure and forms of class domination and exploitation need not change from the previous one.

This approach departs significantly from a Marxist class analysis of capitalism as a mode of production. Capitalism is distinguished by the production of exchange value through markets, competition of capitals, the necessity to make surplus and consequent labour exploitation, and the continual accumulation of capital; class conflict is an in-built motor of social change. Resnich and Wolff correctly contend that the extraction of economic surplus is fundamental to the analysis of capitalism. However, the dynamics of the system of production did not stem from competition of capitals (as enterprises had no economic autonomy and were not profit maximising), hence ‘administered values’ (occurring under state socialism) do not have the same role as exchange values which distinguish modern capitalism.¹⁷ There was no production of exchange value as there was crucially no free market for commodities and assets¹⁸. Money as understood in capitalism was non-existent and there were no financial institutions or banks. Superstructural institutions (such as ideology and a dominant communist party) are beyond the scope of this paper, but they too were not supportive of capitalistic forms of exploitation and accumulation. Hence the context in which surplus value was extracted was quite different from under modern capitalism. To equate fascism (as state capitalism with an ‘inhuman face’) with Soviet type societies (state capitalism with a ‘human face’)¹⁹ is to conflate two completely different types of economy. Britain during the Second World War also had a state-driven economy, presumably making its face even more human than Soviet Russia – however, it did not have the same form of political economy.

Writers adopting the state capitalist perspective fail to identify an ascendant class in Soviet type societies. The bourgeoisie could not be an ascendant class, because it was already in power – as the ruling state capitalist class. There could be no process of the ‘restoration’ of capitalism, because capitalism was already in place.²⁰ This position is disputed in the present paper. The class structure of Adenauer's Germany was the same as Hitler's and this explains why no major changes were necessary in the ownership and control of German industry after World War II. Following the fall of the former state socialist societies, however, all had significant structural changes involving the introduction of markets and privatisation of economic assets. This was a revolutionary change, not just a change of ‘systems’ as described in current political science.

As to class antagonism between labour and capital, writers such as Hillel Ticktin and the Critique school have a long history going back to Trotsky in predicting that the working class would be the class bearers of any political transformation.²¹ But there is no evidence to substantiate this viewpoint in the history of the end of state socialism.²² As there was no ascendant working class in place which had to be reconciled to the capitalist system, this may explain why the movement for democracy has been relatively weak – in Rueschemeyer's terms. One of the main reasons for this weakness is that the working class was atomised and was either voluntarily or forcibly coopted into the regime.

Ivan Szelenyi and his associates, in recognising the absence of classes, have also suggested a technocratic–intellectual class approach.²³ However, their actors are ‘the technocracy’, ‘bureaucracy’ and intellectuals. What is striking about their account is the absence of any empirical research on classes in post-communist society. ‘Class formation’ is ‘under way’ in neo-liberal systems (Czech Republic, Hungary, Poland), in ‘patrimonial systems’ (Russia, Ukraine) there is a ‘dominant estate’ structure.²⁴ In their discussion of ‘classes and elites’, Eyal et al. make clear that they are focusing on ‘intra class or more precisely inter-elite struggles’;²⁵ the concern is about how different types of elites make classes and there is no empirical analysis of class identity, class conflict or a revolutionary paradigm in this work. As the title of their book suggests, capitalism is being made without capitalists.

An important component, in some versions of the state capitalist argument, is to be found in the presence of interests created by the global economic system of which, it is contended, the state socialist societies were a part. Both the world system approach associated with Emmanuel Wallerstein and the ‘state capitalist’ interpretation of Alex Callinicos and others²⁶ consider the state socialist countries to have been part of the capitalist world economic system. The world system orientation attempts to combine a Marxist capitalist ownership paradigm of capitalism with a political-military state system. World system writers divide the world economy into three sectors: the hegemonic core (the dominant ‘Western’ capitalist countries), the periphery (developing countries of the South) and the semi-periphery – countries with industrial capacity and national capital but not part of the capitalist core.

State socialist countries were part of the semi-periphery. There were no ‘socialist economies’. Wallerstein claims that the world capitalist economy included the ‘entire world, including those states ideologically committed to socialism’.²⁷ State socialist systems, it is contended, were not socialist modes of production, but interacted with the capitalist world economy. The socialist state, which exhibited some features of socialism (e.g. employment security, comprehensive welfare provision), nevertheless became a major player in capitalist accumulation, which in turn provided a basis for reintegration into the world capitalist system. An analogy is made with socialist parties under capitalism: they are separate from, but part of, capitalist economies; with time, trade unions have become functionally integrated parts of modern capitalist societies.²⁸

Christopher Chase-Dunn concedes that even if involvement in the world market is low, other forms of integration in the capitalist world-economy may be decisive. The Soviet Union, he argues, entered into the interstate system in its military and political form of engagement and particularly through commodity production for the world market which led to primary production exports and Western capital goods imports.²⁹ They concede that the extraction of surplus at the level of the enterprise is not a dynamic for economic development, but is given by the need to compete in the world economy. To survive, ‘… global military competition compelled the subordination of production within the USSR to the goal of capital accumulation’.³⁰ However, if peace had broken out in the world arena before 1989, it seems unlikely that the Soviet Union, China and the Eastern European societies would have stopped the accumulation of capital. Indeed, China has managed a ‘detente’ with the West and has achieved a remarkable economic growth.

These developments are considered by world system theorists to predate the revolutions of 1989; the socialist states ‘never fully escaped the capitalist world economy. Their political and economic development can only be understood as a response to the threats and inducements of the larger environment’.³¹ A process of ‘reintegration’, they contend, took place from around the 1970s. Following the Second World War, international capital had penetrated the socialist bloc and had undermined it.

There are two main arguments put forward in support of this thesis: first, the increasing levels of imports and consequent high levels of foreign debt – these developments created dependency on the Western capitalist system; and second, the growth of communist transnational corporations – which led to a direct internal dynamic. In my opinion, these developments exaggerate economic dependence and did not amount to the rise of capitalism. As I shall show later, the global factor was of crucial importance, but it did not operate, as argued by some world system theorists, to undermine economically the state socialist system.

The scale of imports and their impact on the internal economies of the state socialist societies was relatively modest before the reforms set in place by Gorbachev. The total imports from capitalist countries in 1984 was only 1.39% of gross national product for the USSR, the comparable figures for Hungary and Poland were much higher but only came to 4.2 and 2.1%, respectively.³² The low dollar values of imports expressed as an average per capita of the population are shown in Table 1.

A second development was the growth in debt to Western governments and financial institutions. By 1975, gross indebtedness was $17.6 billion, and European banks were owed (gross) $13,500 million.³³ As shown in Table 2, indebtedness rose steeply from 1971. By 1986, net debt for the European socialist countries has risen greatly though it was distributed very unevenly: of particular significance are Poland and Hungary. The high level of imports, mentioned above, was financed through loans from the West. The USSR, however, was not a large debtor and the Soviet bloc's total export earnings covered imports.

Taken as a whole, we might conclude (a) that by the mid 1980s the state socialist societies were entering capitalist world trade though they were not dependent on it, and (b) that the USSR was much less exposed to world trade than the central European countries. While the state socialist societies as a whole were in debt to the West, this debt was manageable, Poland and Hungary however were exceptional cases.

A further criticism of dependency as a form of globalisation, in my view, lies in the absence of the interpenetration of companies between the capitalist and socialist economies. This becomes clear when we consider the ways in which flows of investment took place.

It is true that investment occurred through outflows to Western countries and also foreign investment inflows to socialist countries. Both were small in scale before the collapse of state socialism. The loans mentioned in Table 2 above were the financial side to the growth of east–west trade agreements which enabled the exchange of licenses and designs, co-production ventures (usually Western firms providing key components).³⁴ But there were few transnational corporations in the socialist countries. Of some 100 applications for FDI investment in the Soviet Union in 1987, only three had been endorsed.³⁵ Outward investment from the state socialist countries to the advanced capitalist countries and in the Third World took different forms. It included the setting up of offices of companies abroad (such as airlines and banks) which were registered in the host countries) as well as direct investment in host country companies. Carl H. McMillan estimates that by 1983 some 500 companies in OECD countries had equity participation from state companies in Comecon countries: from the USSR were 116;³⁶ followed by Hungary 107, Poland 102 and Bulgaria with 48. The most important host countries were West Germany (83 companies), United Kingdom (68), France (46) and Austria (44).³⁷ The major goal of these companies was in support of the marketing of exports from the home country; only 34 companies were concerned with material production.³⁸ The scale of such investment was small: a total of only $550 million in 1983 and more than half of this was capital in banks and financial companies.³⁹

The Third World accounted for approximately a third of outward investment which was directed to resource exploitation and was in small local companies. Overall, the outward investment from the state socialist countries was relatively meagre. Even relatively small TNCs like Pepsi Cola had a greater share in the world stock of foreign investment than did all the state socialist countries combined. In 1985, the share of socialist countries (excluding China) in the world stock of foreign direct investment was approximately between 0.1 and 0.2%, whereas IBM alone had 3.32%. The state socialist countries’ foreign holdings were low in capital value. As the CTC Reporter puts it: ‘… these figures suggest that the economic impact of equity capital originating in socialist countries on the market economies is negligible and that the role of this capital in the international economy is insignificant – considerably less significant than that of selected TNCs’.⁴⁰ Moreover, one must take into account the political factors. The economic corporations were controlled by the home governments, they did not operate with the freedom of capitalist firms and they exerted little pressure over governments.

One might conclude that the inward and outward penetration of capital was absent and therefore could have no direct part in the early period of transformation. Global capital, it is true, brought important but indirect consequences for the state socialist system – at best a modicum of Western capitalist know-how concurrently with a market ideology. There were, however, no capitalist enterprises; the economic plan was not under threat. There was no internal capitalist class – either state or private. They may be regarded as symbolic islands in a centrally planned sea.

It must be conceded that traditional class analysis is inadequate as an approach to state socialist society and to explain the post-communist transition. A paradigm of class has to take into account the ways in which life chances were structured under state socialism and the global context in which class interests were, and are, located. Such interests, I contend, were (and remain) a dynamic factor in transforming state socialism.

The analysis of Soviet type societies as ‘transitional’ predates their disintegration between 1989 and 1991. Trotsky in The Revolution Betrayed (1945) defined the Soviet Union as a ‘contradictory society, halfway between capitalism and socialism’.⁴¹ The ruling group has its basis of privilege in control of the administration; it is bureaucratic, rather than economic in character. It may be conceded that bureaucratic position gives rise to economic privilege but it does not give the right to ownership of the means of production and their class transmission through the family – which ensures the reproduction of capitalism.⁴² Such societies were not state capitalist because they had no classes defined ‘by their position in the social system of economy and primarily by their relation to the means of production’.⁴³

As Ernest Mandel⁴⁴ has argued: Soviet type societies were not modes of production but ‘transitional societies’ combining elements of capitalism and communism. The form of ownership and direction of the economy was socialist because there was no alienation of labour power, no production of exchange value. But the system was ‘bourgeois’ in so far as distribution was carried out through an imperfect market for commodities and labour. There was then an ‘antagonistic logic’ between markets of commodities and labour and the plan for the macro ordering of the economy. The end stage of ‘transition’ for Mandel was indeterminate – it could lead to socialism, or degeneration could result in a capitalist restoration. From this point of view, and contrary to Harman and Callinicos, any privatization of property under state socialism would entail the creation of a bourgeois class with legal rights to property and would be the basis of the restoration of capitalism.

The collapse of state socialism finally answered the dilemma of the transition – the state socialist societies progressed towards capitalism. These critical Marxists, however, did not address the class dynamics of the restoration of capitalism which is attempted here.

A social class is defined as a group of people sharing the same life chances which are determined by their relationship to the market.^*State socialism was characterised by two major overlapping classes: one with administrative control of economic assets (an administrative class) and the other constituted of individuals with personal skill assets (an acquisition class). (A third class, which does not concern us here, was the mass of the population engaged in manual and unskilled non-manual occupations). As these economies were subject to state organisation and were autarchic and (economically) independent from global capitalism, transnational corporate interests were not present. I contend, however, that the global capitalist class, through the global political class, had a major effect on the collapse and the direction of transition.

The administrative class was constituted of people with executive control of the means of production and the institutions of reproduction (such as education and science). The reform strategy of the administrative class changed over time depending on the political possibilities for change. Initially, it supported a move to a market within state socialism (similar to the market reformers in China). One of the most important implications of this position, I would suggest, is that the state would continue to own and control economic assets, and would have no interest in furthering representative (polyarchic type) institutions as they would challenge the hegemony of the state through demands for individual property rights and civil society. Coordination would be secured by the (renewed) state apparatuses and Communist Party led institutions, operating through subservient and limited markets. Other members of this class under state socialism shared a latent radicalism and would support opportunities, if they arose, for the extension of their administrative control of the means of production to its ownership. They were thus in support of the weakening of the Soviet state, particularly its centralised form of control and planning. This was particularly the case in Poland and the other central European countries. Grzegorz Kolodko, for example, has shown that groups within the opposition, favoured ‘reform’ which would lead to economic deterioration ‘and ultimately lead to the end of the socialist order’.⁴⁵ It was a latent ascendent class. If this class was latent, which group then precipitated radical reform?

As noted by Mandel, Soviet-type societies were bourgeois in the distribution of commodities, this led to the rise of what I would define as an ‘acquisition class’. This was a social class distinguished by its actual and potential interest to enhance its position through the exploitation of individual ‘skill assets’ through a market system. Educational qualifications and occupational skills are the major distinguishing features of this class.

Following Weber, members of the ‘intelligentsia’ as well as skilled workers were potentially privileged with respect to their market position. Under state socialism, moreover, they were disadvantaged in that they were Taken from brief discussion in Scott, Stratification and Power (28) and Eldridge notes p. 87.dependent on the administrative class which controlled the market for labour (i.e. occupational mobility was not competitive and income differentials were administratively determined). Hence the bourgeoisification of distribution was circumscribed. In the 1980s, the intelligentsia was a stratum receptive to an alternative conception of socialism in its social democratic form (which in practice embraced many of the practices of contemporary capitalism), to a vision of a future different from that of their parents. As Millar concludes from a study of Soviet immigrants to the United States, ‘A long term trend toward [personal] privatization is evident, which shows up not only in the evasion of mobilization effort… but also in the economic realm. The study reaffirms the pervasiveness of illegal as well as private economic activity’.⁴⁶ This study may be biased in its sample of Soviet people, but it includes people from what concerns us here – the acquisition class.

Field studies conducted in 1991 confirm that, on the part of the intelligentsia in the post-communist countries, there was a significantly negative attitude to socialist principles and a positive attitude to capitalist ones. (i.e. opposition to: income being determined by need rather than merit, government provision of employment, egalitarianism of income distribution, limits on earned income.) One study shows that there was a ‘steady decline in support for socialist principles from those with low education to those with higher education. Across all the East European countries, the correlation coefficient between the socialism index [measuring socialist values] and education level is −.33… [N]on-egalitarian reforms are supported by the more highly educated minority in those societies, who, as it happens, also have the most to gain from such reforms’.⁴⁷

The reform strategy of the acquisition class was to support a change to a market system, it was less concerned with privatisation of state assets. It was a class which sought to increase the significance of the bourgeois distribution of resources through strengthening, extending and profiting from the market. This class supported representative political institutions as forms of coordination and civil society as a context for its own development as well as a springboard for launching a critique of the existing order. Gorbachev, himself, at least in the early years of reform, was an advocate of this position. From the point of view of the historic Marxist analysis of transition to capitalism, the acquisition class furthered a market system of exchange and market valorisation of labour but, unlike Marx's ascendant capitalist class, it had no propensity to accumulate.

The top political leadership under Gorbachev was a crucial factor for change as it altered the opportunity structure for the two classes. As long as the political leadership was adamant in maintaining the administrative, ideological and coercive components of the political system, the costs of opposition were too great for the rise of an ascendant class. The reformist groups within the administrative class had to be content to press for a move to a limited market and producer cooperatives within the framework of state socialism. The hegemony of the Communist Party, state planning and state ownership of property would be maintained. This was the case in the USSR before Gorbachev (and has continued into the twenty-first century in China).

Many members of the administrative class were in contradictory class positions. They occupied influential, secure and privileged positions in the ruling elites. But they also had potential to an even more privileged economic class position if they could turn their administrative control into ownership of property and/or were able to valorise their administrative and executive capital through a market. From being members of a privileged salaried administrative class they would become part of a capitalist class with legal rights over the expropriation of surplus value.

The USSR was the lynch-pin of the power structure of the state socialist social formation. The ruling elite under Gorbachev played an important role in leading the movement for radical reform and in doing so responded to, and cultivated, the acquisition class. Initially, it sought a move to the market within the context of a Communist Party-led political order, rather than a move to capitalism. It also responded to the exogenous transnational political class, discussed below. To secure support for change, the Gorbachev leadership shifted the political ballast within the political class from the administrative to the acquisition class. Gorbachev created conditions which widened considerably the political opportunity structure. This set off a tipping process whereby previously loyal ‘within system’ reformers felt able to shift their support to (and even to advocate) radical market reform.

Under state socialism, however, this potentially ascendant class was unable to articulate an ideology of capitalism involving privatisation of property and a comprehensive move to a market system. Here Gorbachev was dependent on external allies. As noted above, internal penetration of capital and external economic links to host countries were very weak, the global element, initially, took a political and not an economic form.

The role of the global (or imperialist) system has been recognised since the foundation of the Soviet system, and centred around the debate about the possibility of socialism in one country or group of countries. The ‘geographic diffusion of capitalism’ and the spread of capitalist world markets has been noted by Randall Collins,⁴⁸ though he focuses on collapse prior to the period of transformation. Like many structural theorists, he ignores social agents, such as class actors. Scholars in international relations and political science have also acknowledged the importance of international factors. Michael Cox has recognized the impact of America's ‘strategic mission’ on Russia in the 1990s.⁴⁹ Valerie Bunce has also emphasised the importance of the international dimension in the transition process⁵⁰. She points out that ‘Gorbachev assumed that the resistance to reform was so substantial and the problems of Soviet socialism so considerable that the only solution was to build a domestic–international coalition for reform that spanned the Soviet Union, Eastern Europe and the West, and that involved a virtual revolution from above’.⁵¹ The destruction of socialism and the dissolution of the state, Bunce continues, involved a ‘transition from one international order to another’.⁵² Writers such as Collins and Bunce, however, do not theorise their position in the context of a global capitalist class. Politics is a consequence of the actions of political leaders and the pacts that they make.

The global dimension may be captured by changes in the culture–ideology sphere and also in the impact of the transnational political class. It was the externally generated changes in values and aspirations that impacted on the growth of a capitalist ideology. This marks a departure in the traditional Marxist explanation of revolutionary changes – rather than endogenous economic interests shaping a counter revolutionary ideology, exogenous cultural values led to political demands for structural change.

For a considerable period of time before the collapse, the culture ideology of consumerism influenced internal developments in the state socialist countries. From the time of Khrushchev's speech in 1956 predicting catching-up and passing American standards of living, the population's expectations rose: there was a development of a consumer mentality and a bourgeoisification of aspirations.⁵³ In the early 1980s, there was a qualitative rise in the levels of Western mass communications which directly and indirectly changed people's perceptions of life in the West.

From the 1980s, traditional communist ideology lost its grip on the population. In Poland and Hungary, a shift in media policy took place involving the screening of Western TV programmes oriented to entertainment, broadcasting (in some countries) also took on a commercial function. By 1985, even in countries such as Czechoslovakia, TV entertainment programmes (not informational ones) were imported.⁵⁴ Foreign radio channels were infrequently jammed and in central Europe (including Eastern Germany) Western TV could be received.

Television became widespread and Western programmes became directly accessible in the German Democratic Republic, Czechoslovakia, Hungary and the Baltic areas, including Leningrad and Kaliningrad oblast; video recorders (brought from abroad or purchased in dollar shops) gave privileged access to members of the acquisition class to Western films – though on a small scale until the 1990s. Western ‘pop’ political culture was widely available through radio and gramophone records. These developments were accompanied by a population more receptive to a move to a market economy – especially with the decline of growth rates in the planned economies of state socialism. Such changes in public perception had important implications for the public ‘emulation’ of society models in the interstate system. American consumer artifacts from jeans to jeeps upgraded the USA in the hierarchy of states and downgraded the USSR. Demands for the bourgeoisification of distribution qualitatively increased.

In the USSR, the provision and development of a consumer market was a major component of Gorbachev's policy of perestroika. The greater monetarisation of the economy, including incentives for work, would only work if there were goods and services to buy. As radical economic reformer Aganbegyan put it: ‘The whole transformation is directed towards fulfilling the needs of the consumer. The reform in prices, financing and banks; the shift from central supply to industry; the return, in the future to a convertible ruble; and all technical renovation and regeneration is directed towards this aim’.⁵⁵ In the popular consciousness during the collapse of state socialism, there was a Messianic form of Cargo Cults – the boat of capitalism would return all that had been taken away by the communists and lacking under socialism. As one member of the Russian Duma put it: ‘we should move to a socialism like that in Sweden, Austria, Finland, Norway, Holland, Spain, and Canada (sic), there workers were four to five times better off than in the USSR’.⁵⁶

Modernisation through internationalisation had occurred to some extent before, but was greatly accelerated after, the fall of state socialism. Post-1989 developments become the major stage of class changes. This has involved the transnational political class, transnational companies and the rise of an internal capitalist class.

While the culture-ideology of consumerism was taking grip, the transnational capitalist class had little presence in the state socialist societies due to the absence of independent economic units in the state owned economy. A transnational capitalist class could not exist within the boundaries of the state socialist countries. Rather than a global capitalist class operating in the former communist countries, political alliances between internal political elites and external capitalist members of the global political class are crucial agents of change. By global political class I refer to international actors who help to shape global economic and political policy. These include the heads of transnational corporations, chief executives of international economic and political organisations, leading professionals in non-government organisations with a global perspective, national politicians and executives with a globalising intent.⁵⁷

The ‘spontaneous’ and later regularised privatisation, privileged local, not global capitals, except in Hungary and the Czech Republic where the sale of assets to foreigners was more open. The major development was to take place after the collapse of communism, from 1990. As internal movers of transformation, the transnational corporations could not be said to have been influential. Indeed, it may be the case that in some of the post-communist countries, capitals with a national or regional dimension are a more important category than global ones. This is confirmed by a study of the levels of transnationality in the various countries.

Following the fall of state socialism, FDI rose considerably, by 1995 reaching in Russia $5.5 billion. Even by 1998, however, this was a small proportion of fixed capital formation (5% in 1998, compared to 39% in Latvia and 21% in Hungary)⁵⁸. Only in three societies did foreign direct investment have a significant impact: Estonia $947 (cumulative total per capita 1989–98); Czech Republic $968; and Hungary $1652. (Belarus in comparison had only $39, Ukraine $54 and Russia $60.)

The transnationality index provides a very good index of the involvement of countries in the global economy. The transnationality index is calculated as the average of four ratios, FDI inflows as a percentage of gross fixed capital formation for the past three years, FDI inward stocks as a percentage of GDP, value added of foreign affiliates as a percentage of GDP, employment of foreign affiliates as a percentage of total employment. A high index indicates a high dependence on foreign countries. As shown in Table 3 in 1999, the USA had a low index (8.2%) and UK 14.5, the lowest of the developed countries was Japan with 0.6%. As one might expect from the earlier discussion, Russia was low down the list with an index of 4.6, Ukraine 4.8 – both similar to Turkey with 4.1, much higher was Hungary with 27.6, Czech republic with 17.6, even higher than China 14.4, though Hong Kong (China) had a massive 98.4% (disproportionately due to massive FDI inward stock).⁵⁹

After the collapse of state socialism, export orientated companies, have sought foreign markets and but only a few firms have aspired to become significant transnational companies. Unlike in Hungary and the Czech Republic, the Russian government under Eltsin fixed a limit on foreign shares in Russian strategic companies (originally not more than 15% of shares in Russia's oil companies, for example, could be foreign owned) and the state in different forms owned (and still owns) a very large proportion of assets. Of the top 300 European companies, by value added, in 2001, Russia had only three (Sperbank, Gasprom and Lukoil),⁶⁰ two of which were then largely state owned and controlled and the third had a major government stake.

The non-financial transnational corporations of the former state socialist countries are relatively minor companies compared to the Western TNCs. Of these, Russia has the top two in terms of foreign assets – Lukoil and Novoship. Their foreign assets are 4,189.0 million dollars and 963.8 million, respectively⁶¹, this compares to the world's top company (Vodafone) with foreign assets of 221,238 million and General Electric (in second rank) with 159,168 million dollars.⁶² Other countries in the top central and east European 10 included in the following order: Latvia (included Latvian shipping), Russia (Primorsk shipping), Hvatska elektroprivreda (Croatia), Gorenje Group (Slovenia), Far East shipping (Russian Federation), Podravka group (Croatia) and Atlantska Plovidva (Croatia).

Outward direct investment from the former state socialist countries has been relatively small, as noted above, and their transnational companies have not been major players in the world economy. In the World Investment Report 2002, not one of the world's top 100 non-financial transnational companies originated from the former socialist countries, though one (Hutchison Whampoa) had its headquarters in China/Hong Kong.⁶³ (See Table 4 for comparisons.)

Substantiating an interpretation of an international ‘political elite pact’ is difficult, not only are negotiations undertaken in secret, but also they lack legitimacy in public eyes. ‘Reputational’ studies of the Soviet and Russian political elites under Gorbachev⁶⁴ and Eltsin⁶⁵ confirm the perceived influence of the West. With respect to international policy, the extension of private ownership, and the move to the market, members of Gorbachev's political elite considered the most important influence on the leadership was a ‘demonstration effect’ – ‘The need to show the West that Gorbachev was serious about economic reforms’. Direct influence of external people or institutions was ranked third.⁶⁶

Under the Eltsin political elite, foreign influences on the leadership on privatisation policy and the sequestration of the property of the CPSU were considered to be indirectly (demonstration effect) and directly (through foreign organisations or leaders) important. Further study of the views of the Eltsin elite showed that the government executive members gave little credence to the influence of foreigners, though the rule-making and party groups did so. A similar result was found of elite views on those advocating the formation of a democratic and market system: the Eltsin executive strongly denying Western influence, but the law-making and political party elites stressed the role of foreign influence.⁶⁷ The Eltsin government elite, of course, could not publicly acknowledge being under Western influence.

If we turn to the conditionality factor, there can be no doubt of the impact of the West in the transition process. These developments have a long history going back to the Helsinki agreements under Brezhnev which conceded an area of individual rights which the West could monitor. Gorbachev's attempt at detente with the West, his aim to return to Russia's European home, led to the West imposing conditions: Helmut Kohl's resolution that the German Democratic Republic came home first to the Federal Republic; Margaret Thatcher's insistence on the introduction of real democracy in the shape of competitive elections as a condition for changing economic relations. George Bush's demand that the Berlin Wall be pulled down as a test of people's commitment to socialism. Since the collapse of state socialism, the conditions placed on economic transition by international organisations (such as the IMF, OECD, European Union) have had a direct influence in adjusting internal policies to external demands.

More specific conditions on the building of capitalism and its inclusion in the global order are to be found in the requirements of the IMF and other bodies, such as the Council of Europe and the European Union.⁶⁸ The implantation of liberal economic and political democracy has been a major policy of the hegemonic Western powers. ‘Economic democracy’, envisaged in the Washington Consensus, involves individual rights to private property, privatisation of enterprises, deregulation, a weak non-distributive state, and an economy open to the global market.⁶⁹ It is here that the global class interest is most visible as this policy precludes the development of other forms of national capitalism – social democratic and corporatist.

Loans from the IMF and other external agencies have been linked to conditionality in terms of increasing levels of privatisation and decline in government spending. For example, the IMF loan negotiated to Russia in April 1999 was conditional to acceptable changes taking place in fiscal, banking and structural areas.⁷⁰ Michel Camdessus has defined these conditions to include a limited economic role for the state, further privatisation, integration into the global system, international standards of global governance and an effective system of taxation.⁷¹ In a nutshell, as Camdessus quotes President Eltsin, ‘The motto of the [21st] century is competitiveness and integration into the global processes’.⁷²

Traditional Marxist and state capitalist theories of transition do not adequately define or explain the role of classes. A revised social class paradigm is suggested. This involves two major endogenous classes in the state socialist societies, the dominant administrative class, and an acquisition class which provided the initial ballast for a move to markets. Both these classes were constituents of the political class under state socialism. The political leadership of Gorbachev weakened the administrative class and tipped the balance towards the acquisition. Consequently, members of the administrative class realised a potential for ownership of material assets. The transnational corporations did not play a direct part in the transformation and the political structure of state socialism precluded the formation of a capitalist class. Nonetheless, the globalising tendencies of capitalism played a major role in the transformation of state socialism. The culture ideology of consumption emulated the West in the popular consciousness and stimulated demands of the acquisition class. It is contended that a global political class acting through the hegemonic governments of the West and international organisations attempted to define the course of transition and supported the creation of capitalism and a bourgeois property owning class. In this they found support in the reformist leaderships in the countries concerned, especially that of Gorbachev. Global capitalism has made greater progress in the central European countries than in the East. Barriers limit the spread of global capitalism: among these are disparities between the interests of local domestic and export industries, the legacy of state socialism – particularly the absence of a propensity to acquisition rather than accumulation, and the continued presence of state ownership. In Russia, out of state socialism has risen a hybrid social formation combining different production systems containing elements of state economic control, national capitalism and global capitalism.

David Lane is Senior Research Associate in the Faculty of Social and Political Sciences at the University of Cambridge. Educated at Birmingham and Oxford Universities, he has taught at Essex University and Birmingham University where he was Professor of Sociology. His most recent books include: The Legacy of State Socialism (Editor and contributor) Maryland and Oxford: Rowman and Littlefield, 2002; Russian Banking: Evolution, Problems and Prospects, Edward Elgar, 2002 (Editor and contributor); and The Political Economy of Russian Oil (Editor and contributor) Maryland and Oxford: Rowman and Littlefield 1999, 225 pp.