Capatalism, Colonialism and Sociolism

Modes of Production and Socio-Economic Systems

  MAN is a social being. He requires various kinds of goods and services to satisfy his numerous and varied needs. The needs change with socio-x cultural development and so do the type of goods and services required to satisfy them. To sustain life, man needs food, clothing, shelter and other things like medicines. To defend himself against wild animals and enemies, he requires weapons and to satisfy his cultural needs, he needs books, writing materials, musical instruments, etc.
   Some needs of man are individual while others are collective. For instance, food, clothing, medicines, etc., are required to satisfy individual needs while army, police, schools, cinema and concert rooms, meeting-places, parks, etc., are necessary to satisfy collective needs.
   Looked at from another angle, some needs are physical while others are non-physical. Without satisfying the physical needs, man cannot survive. He must have food to satisfy his hunger and provide nourishment to his body, wrappings to cover himself in, and medicines to fight out diseases and cure injuries. These needs have to be satisfied in every society and in every age or period. It is, however, a different matter that the ways and means to satisfy these needs have differed from society to society and from time to time. Likewise, the nature and the ways and means of meeting non-physical needs have never been the same in all societies and at all times. For example, the need of transportation has been met differently at different stages of social development. So also the means of entertainment have varied from society to society. One may observe very easily the differences in dance forms and in musical instruments. Looking around, we find that the forms of entertainment are not the same in rural areas and towns and cities. They are not the same for tribal and non tribal societies. Even the way the food is prepared is not the same in all parts of the world.
   Man satisfies a number of his needs by taking required goods directly from nature without making much effort. In other words, he does not have to spend his labour on transforming them or making them suitable for the satisfaction of his needs. Examples of such goods include air to breathe, sunrays, water from rivers and springs. Such goods are very limited in number as compared to the total number of goods and services needed by man, so such goods may be ignored in our discussion.
   Most of the goods needed by man are not consumed in the form they are found in nature. Man has to spend labour or make efforts to make them capable to meeting human needs. For example, he needs a writing-table, which is not available directly from nature. He obtains wood from nature and then spends his labour on it to transform it into a writing-table to satisfy his need for it. This process of transformation is production.
   This process consists in the interaction between men, or rather society, and nature. Irrespective of the form of society, the interaction between man and nature consists in the unity of things, namely. labour, objects of labour, and means of labour.
   Labour is a purposeful human activity the aim of which is to transform natural objects in such a way that they satisfy some human needs. In this process, human beings acquire knowledge and skills and introduce improvement in me process of transformation. It may be mentioned here that labour is an attribute of only human beings because animals consume things as they are found in nature-they do not have the capability to transform and adapt natural objects.
   The things, to which a human being applies his labour, are called objects of labour. They may be obtained directly from nature such as wood, minerals, soil, fish, etc., or may be had as a result of previous labour process like yams, cement, and paper for printing books. As a result of the development of science and technology, the range of such objects of labour has increased enormously. Not only the man-made objects of labour such as synthetic fibres, steel, brass, bronze, plastics, etc. have emerged in a big way but new usages of the already known objects of labour have also been discovered.
   The means of labour include all such things that are used by human beings for adaptation or transformation of the objects of labour in order to make them capable of satisfying human needs. They consist of both infrastructural facilities like canals, roads, railways, etc., which are used directly in the labour process, and the instruments, tools, machines, etc., which are used dime by labour. Man alone can manufacture and use means or instruments of labour. Moreover, the level of the means of labour is one of the main indicators of the stage of development of the society. To give one concrete example, by examining grains of wheat one cannot say whether they have been produced by a primitive society or by a highly advanced one, but one can say this by knowing the tools and instruments that have been used to produce the grain. Further, the tractor cannot be used in the production of wheat in a primitive society. Likewise, cloth is produced with the help of sophisticated machinery only in developed societies. Thus, the development of technology is of enormous significance.’
   Looking at human history, one is amazed at the distance traversed in the sphere of means or instruments of labour. Man has travelled a long way from the stone axe, the mattock, and the bow and arrows to the present-day sophisticated machines and devices of remote control. In the sphere of infrastructural facilities he has travelled a big way from wells and ponds to giant river-valley projects, from animal sources of energy to nuclear energy, and from cans to supersonic aeroplanes.
   The objects of labour and the means of labour together constitute means of production. The means of production and labour (i.e. the people who handle them with all their experiences, knowledge, and skills) together constitute productive forces of the society. Human beings are the main productive force because it is they who make and improve the instruments of labour and act with them on the objects of labour the range of which they always try to expand. The level of development of productive forces is an important indicator of the extent of man’s control over nature.
   Human beings carry on the production of goods and services not in isolation from one another but in cooperation with one another. In other words, production is always social production. Let us take the case of cloth production. It cannot be accomplished without the cooperation of people engaged in various activities such as cotton growing, manufacturing of textile mill machinery, dye-making, and working in textile factories. Even in the primitive times nobody was able to carry on production work without direct or indirect cooperation from others.
   In this connection one may cite the case of Robinson Crusoe, the character created by the famous author Daniel Defoe. Crusoe reaches an almost uninhabited island after the shipwreck. Being alone there, he has to produce all the goods required to satisfy his needs. There is no ‘scope for cooperation and production becoming social in nature. It may be pointed out here that ‘the Robinson Crusoe are seldom found in the real world. Even if they are found they are more of an exception than a rule. Even if we assume the case of Robinson Crusoe to be real, it must not be forgotten that he had already spent a significant pan of his life in society and absorbed the skills of production, and developed thinking capacity.
   As has already been mentioned, the production of goods and services requires the cooperation of a large number of people. With every successive stage of social development, this cooperation goes on widening and becoming more and more complex. At present, in any developed society no worker produces any commodity en-entirely by himself. He plays only a small, though significant and indispensable, role in the process of production. If we imagine the production process to be a chain, a particular worker is only a link in it, and if one link is broken, the entire chain disintegrates.
   The place and role of each worker in the process of production is fixed by a definite process, which is widely known as division of labour. All the workers become interdependent and interconnected.
   In the process of production, people participating in it enter into more or less definite relations with one another. These are called relations of production. They are determined with reference to concerned persons’ positions vis-a-vis the means of production. What one has to ascertain is whether they are owners of the means of production. If they are owners, they are the owners of final products and are also competent to take decisions regarding production. That is, what to produce, how to produce, and for whom to produce. In other words, they determine the use of means of production. If they are non-owners, they have no such rights.
   In the ultimate analysis, relations of production are determined by the extent and character of the development of productive forces In other words, they depend on the level and stage of the a development of productive forces Between them, the productive forces are more dynamic and they always go on developing, and the relations of production have to adjust themselves to the requirements of ever-developing productive forces. This, however, does not mean that the relations of production are a totally passive element. On the contrary, they also influence the development of productive forces by promoting or retarding it. For instance, the land systems introduced by the British hindered the fast development of productive forces in agriculture and, in a large measure, the growth of productive forces in other sectors.
   Productive forces and relations of production pertaining to them at any stage of social development constitute a specific mode of production. In other words, the mode of production is the result of the unity of productive forces and relations of production corresponding to them. They interact with and influence each other. They develop and undergo transformation in the 'process of production. As has already been mentioned, the productive forces are more dynamic, Relations of production, which are initially in correspondence with the productive forces, after a while, lag behind the productive forces. First they promote the development of productive forces up to a point, and then they act as a brake on them. When this contradiction becomes acute, the relations of production have to give way and change in such a way as to correspond to the level and requirements of the development of productive forces. Sometimes this contradiction is resolved through violent changes or through revolution. This happens when the contradictions become acute and reforms are not effective in solving or even lessening them. Once the existing relations of production are changed and replaced by new ones which are conducive to further development of productive forces, smooth and rapid development of the latter, at least for some time to come, is assured.
   In every society the sum total of relations of production corresponding to the existing level of the development of productive forces constitutes the base or basis of the society. In every phase of social development there is superstructure, corresponding to the basis. The superstructure corresponding to comprises political system, jurisprudence, literature, art, educational system and institutional arrangements of various kinds, ideology, religious beliefs, etc. The superstructure is determined, in the ultimate analysis, by the basis but it also acts on and influences the basis. Thus the relationship between the two is neither unilinear nor unidirectional. A very important constituent of the superstructure is the State and its apparatus.
   As has just been noted, the superstructure also influences the basis of society. Property relations, legal systems, political institutions, moral values, religious beliefs and attitudes, etc., influence the development of productive forces and the nature of production relations.
   There is seldom a wholesale change in the superstructure when the base changes. Only certain constituents of the superstructure change and the rest linger on for quite some time. It takes time to change the superstructure completely and bring it in line with the newly established basis. The remnants of the old superstructure continue to exist for a long time. For example, we find the remnants of feudal values and attitudes even in developed European societies. The persistence of un touch-ability in India may be cited as remnant of some past superstructure.
   The mode of production and the superstructure corresponding to it together constitute a socio-economic system. When historians divide the history of a community or of a country or of the world as a whole into broad periods, they do so by trying to define a period in terms of the socio-economic system that characterized it and differentiated it from another society.
   The earliest period of the primitive society-or ‘primitive communism’ as some have termed it-was one in which the society was not divided into classes and the means of production were very primitive. With advances in the means of production, ‘civilization’ developed and, as an integral part of it, social classes emerged. In some societies, the socio-economic system was characterized by slavery. In others, there was no slavery, but a part of what people engaged in producing goods produced was taken by others, the State, for example. Slavery and other forms of ancient socio-economic system were, in some countries, replaced by a socio-economic system called feudalism. This happened in what historian’s term as the medieval period. Here again, the socio economic system was not the same everywhere. There are many controversies among historians about the characterization of the socio economic system which obtained in most countries of Asia and Africa and during the medieval period.
   In some countries feudalism gave way to capitalism the elements of which had arisen in its womb. These elements became more and more assertive after the collapse of feudalism.

Capitalism-The Early Phase

  The factory system of production of non-agricultural goods became the dominant organizational form under capitalism. In the course of its development, capitalism has passed through two stages, namely, pre-monopoly or competitive capitalism and monopoly capitalism. The common characteristics of both these stages are private ownership of the means of production, the production for sale in the market, and the use of the hired labour.
   During the first stage, free competition predominates and the means of production belong, in the main, to individuals. The scale of production is relatively small and no individual entrepreneur has any influence on the determination of the market price of the product or the prices of raw materials. The second stage which set in at the turn of the present century is dominated by monopolies and the corporations of big capitalists. The monopolies have a dominant role in the economy and polity of the countries where they operate. They influence price-fixation and various aspects of production. The intervention by the State to help the monopolies increases.
   What precisely is meant by the term ‘capitalism’? In simple words, ‘capitalism’ may be explained as follows - it is the name given to that socio-economic system under which the land, factories, implements, etc., belong to a small number of people, while the mass of the people possesses no property, or very little property, and is compelled to hire itself out as workers. The landowners and factory-owners hire workers and make them produce wares of this or that kind which they sell in the market. The factory owners pay the workers only such a wage that provides them and their families with a bare subsistence, while everything the workers produce over and above this amount goes into the factory-owner’s pocket as his profit.
   From this explanation, three conditions seem to be essential for the emergence of capitalism. They are -
(1) The vast majority of the people in the society should have no means of production of their own.
(2) Being deprived of the means of production and, therefore, of the means of subsistence, these people should have no alter native but to sell their labour-power (the capacity to labour) or hire themselves out in order to earn a living. These people should have personal freedom in the choice of occupation and the place of work. There should be, in other words, no restriction on their mobility.
(3) The means of production and huge amount of money should get concentrated into the hands of a few people in the society.
   These conditions began to appear during the last phase of feudalism. The process of the emergence of these conditions was subsumed of under the term ‘primitive accumulation’ while Adam Smith called it ‘previous accumulation’.
   Capitalism, as a mode of production, dates back to the sixteenth century, though some initial signs had become visible in certain Mediterranean towns even during the fourteenth and fifteenth centuries. The capitalist mode of production had three distinguishing characteristics - (1) Almost the entire output was for sale in the market in order to earn profit, rather than for; self-consumption of the producer. (2) The conditions of production were such that the means of production, such as raw materials, factories, machines, land, means of transport, etc., and a huge sum of money had got concentrated into the hands of a small number of people. It meant that the right to take production-decisions-what goods and services to produce, how to produce, where to locate the units of production and for whom to produce-were taken by a few people. Since the production was for sale in the market, the situation and the conditions in the market became the major determinants of production decisions. The sole aim was to maximize the profits. (3) The overwhelming majority of the population was deprived of the means of production and of subsistence. The only alternative left to the deprived people if they wished that they and their families physically survived was to sell their labour-power to buy the means of subsistence. These people came to be known as work as or proletariat. They constituted the working class. Here it may be noted that all deprived people cannot be included in this category, but only those who are willing to remain in the process of production and earn their living by the sale of their labour-power. Obviously, the deprived who indulge in robbery, pick-pocketing, beggary, etc., are excluded.
   In the history of mankind, capitalism has played a tremendous role in advancing civilization and culture. It has revolutionized every aspect of human life by radically transforming the material basis of existence. Let us recount some of the specific contributions of capitalism to economic progress.
   Capitalism cleared the path for further development of productive forces. It abolished the hold of feudal lords on agriculture and of guilds on industrial production. It destroyed the factors which hindered the freedom of enterprise and of choice of occupation, and the mobility of labour and other factors of production. The differences between the value system of capitalism and its immediate predecessor may be seen from one example. The capitalist believed in the virtue of work as against the idealization of leisure by the feudal lord. While the deliberate display of wealth was a specific trait of aristocracy, a capitalist seldom indulged in it. While an aristocrat valued his honor and that of his family, a capitalist emphasized personal responsibility.
   About the overriding influence of profit-motive, it may be stated that under capitalism, man’s greed is systematic and prudent, and this is a virtue conducive to saving and thus to capital accumulation. In capitalism, an individual is calculating, and approaches an economic activity in a rational manner. He is ambitious and competitive. He is open to innovation rather than bound by the past.
   The desire to secure maximum possible profit induces the capitalist to invent new technologies, new machines, equipments and plants, new processes of production new kinds of raw materials, etc., and discover and develop new methods and principles of organization of production. Obviously this desire promotes the development of science and technology and leads to inventions and innovations. Consequently, productive forces develop under capitalism, and the society advances and is further enriched. It so happens that certain capitalists who are able to secure and introduce new and better machinery, equipment, technology, etc., are in a position to increase labour productivity and reduce the cost of production and reap extra profit.
   Competition is largely responsible for the rapid development of productive forces under capitalism. Since no single capitalist can influence the per unit market price, the only way to increase profit is through the introduction of new plants, machines, instruments, etc., and by applying new methods and technologies of production and new types of management Thus, every capitalist is ever active in the fields of science, technology, and management in order to make such discoveries as may lead to a reduction in the cost of production. The capitalist who fails to keep pace with others, is bound to be ousted Rom the sphere of production.
   In the early phase of capitalism, the intervention of the State in economic affairs is the minimum possible. It does not have any say in production decisions and disposal of products.
   In such a system, no producer or consumer is in a position to influence the volume of production, price and technology. A very important feature of this is complete personal freedom. Labourers are free to choose their occupation or profession and the place of their work according to their discretion. Similarly, the owners of the means of production are free to use them in whatever manner they desire. There is no restriction of any kind, whether governmental or customary, on sale and purchase of the means of production and commodities of all varieties. The government refrains from regulating or influencing markets of all types. Thus the ideal capitalist system is called the system of free enterprise.
   Instability and crises are an integral part of the capitalist system. This is because the production of goods and services seldom correspond in practice to the volume of demand. Goods and services are produced in different enterprises, and the ownership and control over these enterprises are in different hands. Each enterprise takes its production-decision on its own and it has no coordination with other enterprises nor does it knows what other enterprises are going to do. The volume of demand remains an unknown magnitude to the entrepreneur both in regard to quality and quantity. Hence sometimes there is overproduction and sometimes there is under-production. There are other causes of instability too. Instability and crises bring about untold miseries to the working people, producers of raw materials, and owners of small enterprises, as also bankruptcies, etc. Huge natural and manpower resources are wasted.

Monopoly Capitalism

  During the second half of the last century, certain qualitative changes took place in capitalism. Consequently, the place of free enterprise was taken by monopoly. This meant the domination of monopolies in the sphere of production and distribution. Monopoly was the arrangement among capitalists by which a handful of them came to control and regulate production and sale of the commodities. What form this arrangement could take depended on the concrete conditions and circumstances of the country concerned. The most important forms in which this takes place are - (1) Gentlemen’s agreement, (2) Pools, (3) Cartels, (4) Syndicate, (5) Trusts, (6) Concerns or Holding Companies, and (7) Mergers.
   During the second half of the nineteenth century, especially during the last three decades, certain technical changes of great import took place. Many people have termed these changes and their impact as the Second Industrial Revolution. Among the inventions which played a big role was dynamo (1867), internal combustion engine (1877), steam turbine (1983-85), etc. Petrol, electricity and, much later in the twentieth century, nuclear power became major sources of energy. From the last decade of the nineteenth century onwards, internal combustion engine and electric motor began replacing steam engine. There was a big change in the fields of production and transportation. Electric tram-car (1879), motor car (1885), diesel engine (1891), and aeroplane (1903) reduced the distances and the journey-time.
   Because of the scientific and technological changes, heavy industries came to occupy dominant positions. In addition, new types of industries emerged. Steel-making received a new impetus because of the introduction of the Bessemer process, the open hearth furnace, Siemens-Martin regenerators, besides the processes of hardening steel with alloys. The use of steel increased, and it became a basic industrial metal. As a result of electrolysis of bauxite, the cost of production of aluminums sharply declined, and it came to be widely used in industries.
   With the increasing knowledge of the byproducts of coal, the manufacture of synthetic dyes became possible. Synthetic fibre also came into existence. Thus, the importance of chemical industry increased. The position of cotton textile industry declined. This was reflected in the shifting of the centre of industrial gravity in England from Manchester to Birmingham. Gradually, the USA replaced Britain as leader of industrial nations because she had, among other advantages, vast oil deposits.
   The Second Industrial Revolution helped the emergence of monopolies. It did this by accelerating the process of concentration and centralization of capital. The process was already there Manse even during the era of free competition frequent economic crises made small and weak enterprises bankrupt. The number of enterprises wet on declining, and the production became concentrated in fewer and fewer enterprises. As a result of the increased concentration of capital and increased scale of production, a small number of enterprises could manipulate the supply of commodities in the market and influence the prices to their advantage. Increased profits led to increased capital accumulation, and more and more investments. The joint stock form of business organization helped the increasing concentration of capital.
   Along with the concentration of capital, there was also the process of centralization of capital. It took place in either of the two ways - by an agreement among the existing enterprises resulting in the formation of cartels, trusts, concerns, etc., or by grabbing the capitals of enterprises mined by competition and economic crises. In this process, the power to take production-decisions became concentrated m a few hands.
   A number of consequences followed from the centralization and, to some extent, concentration of capital. First, the scale of production and business became larger and larger, and internal and external economies were secured. Second, technical changes received a fillip.
   From the very beginning, monopolies actively worked for ending competition, either through the process of absorbing the competitors by ruining them. There are examples to show that on a number of occasions competitors were persuaded to join the monopolies because of various advantages resulting there from.
   During the monopoly phase of capitalism, the role of banks underwent an important change. They no longer remained intermediaries mobilizing the savings of the people and lending them t6 entrepreneurs, traders, etc. In the course of the development of banking business, a few banks became bigger in size and came to have at their disposal huge amounts of money capital. They started purchasing the shares of enterprises engaged in production and, thus, took part in cone trolling them.
   This change in their role came about as a result of increasing concentration of money capital in the hands of banks and the expansion of bank credit. By looking into the current accounts and balance sheets of the companies having dealings with them, they came to know of their true state of business affairs and tried to influence and control their various decisions.
   In the course of time, banking business got concentrated in the hands of only a small number of banks and the entry of new banks was almost impossible. Each economic crisis resulted in the liquidation of a number of banks. For instance during the Great Depression (1929-33) in the USA over five thousand banks collapsed. Besides, small banks were, from time to time, forced to merge with bigger ones. Bankruptcy and mergers thus, reduced the number of banks, and increased the business of surviving ones. Obviously, the monopolistic trend in banking business got strengthened.
   The increasing concentration of deposits in the hands of a small number of banks and the lack of alternative sources of credit increased their capacity to influence the decisions and working of the enterprises which borrowed from them. They also saw to it that the position of enterprises in which they had substantial stakes did not deteriorate.
   Banks started helping companies in issuing shares, debentures, other securities, etc. Most of the financial transactions took place through them. Banks acted as promoters of companies and themselves bought shares and advanced credit on the basis of securities of various types. In this process, bank representatives got into the boards of directors and influenced the policies and decisions of the companies concerned.
   A reverse tendency was also witnessed when industrial monopolies started buying blocks of shares of major banks or began setting up their own banks so that they could have access to larger and larger financial resources.
   Consequently, there emerged a fusion or coalescing of banking and financial capital with industrial capital, leading to the appearance of a new sort of capital-finance capital.
   As a result of the growth of monopoly capital and the emergence of finance capital, a small group of big bankers and industrialists came to control the economy of the country. The small group which plays a decisive role in the economy is called financial oligarchy. The American economists Berle and Means in a book The Modem Corporation and Private Property, published in 1932, asserted that the financial oligarchy was so powerful that it could confront the modem State in any advanced capitalist country.
   Financial oligarchy influences not only the economy but the entire socio-political life of the nation. For instance, there are eight financial groups which dominate the socio economic life in the USA. These groups are - Morgan, Rockefeller, Du Pont, Mellon, and the Bank of America, the Chicago Bank, the Cleveland Bank, the First National City Bank. It has been brought to light that only 1 per cent of property-owners in the USA control 59 per cent of the entire property of the nation. Among them only 250 to 300 families predominate.
   The existence of the financial oligarchy along with its enormous powers is termed by some economists as Business Elite which comprises “a cadre of perhaps five thousand to ten thousand persons: top executives, members of the boards of directors, partners in big law and accounting firms, chief executives of important financial institutions”.
   All that has been said above is true only for countries where the capitalist system had developed. However, most countries of the world were brought under its purview in different ways.

Export of Capital and International Rivalries

  At the stage of monopoly, capitalism became a worldwide system. All the countries of the world came within its sphere of influence. Another dimension was added to the mutual relations of countries. It was the export of capital from one country to the other.
   Before the advent of monopoly capitalism, international economic relations took the form of foreign trade in goods among the countries. When capitalism entered the monopoly stage, the volume of international trade increased but the main feature of this era became the export of capital. The export of capital is the result of capital accumulation in a large quantum and the difficulties encountered in its investment in advanced capitalist countries themselves.
   In advanced capitalist countries, the problem of surplus capital became quite acute. They had accumulated huge amounts of capital as a result of high rates of profit and also owing to the drain of wealth from colonies. If all this stock of capital had been invested in them, there might have been a tendency of average profit to fall. The size of labour force was more or less fixed. It was but natural that outlets would be explored in other countries especially less developed ones, to escape from this situation. In less developed countries capital was generally in short supply while labour, land and raw materials were cheap, and there was absence of suict laws to protect the labour and regulate its Working conditions. Labour was either unorganized or trade union organizations were very weak. All these conditions helped raise the rate of return.
   The export of capital took various forms from direct investment to loan capital. Sometimes the owners of capital fanned new companies or set up branches of some existing companies or entered into collaboration with the government or private companies of host countries. On other occasions they gave loans to governments.
   As a result of the export of capital, the export of commodities from the lender countries rose, easing the difficulties of marketing and realization. The repayment of loans and the payment of interest on them were generally in the form of export of primary commodities from debtor countries.
   Wherever monopolies arose, they tried, first of all, to establish their complete control over the home market. They divided the home market among themselves in such a manner as to finish competition and pave the way for raising the prices in order to secure maximum possible profits.
   Since the home market was seldom sufficient to absorb their expanding production, they tried to capture the markets of other countries. If the penetration into foreign markets proved difficult as a result of import duties and other restrictions, they resorted to export of capital. Factories were set up in foreign lands to produce goods for marketing there. Local competitors were eliminated through various devices such as dumping. Many a time they reduced the prices even below the cost of production and made up the losses from profits in other countries in order to finish off local competitors.
   The government of every capital-exporting county sought to protect and advance the interests of its own monopolies. Consequently, there were conflicts, tensions and wars among various groups of monopolies and their governments. This becomes clear when one looks into the causes and the background of wars since the beginning of the nineteenth century.
   As is well known, during the last century, Britain became ‘the workshop of the world’. It produced goods in factories run on steam power and the scale and volume of production became so large that the domestic market was unable to absorb it. It therefore had to seek entry into foreign markets. It also exported capital for the construction of railways in foreign lands in order to get its goods distributed swiftly and get their raw materials, minerals and foodstuffs to England to feed its factories and population.
   Towards the end of the nineteenth century, many other countries also had their industrial revolution, and soon became Britain’s rivals in the world market. British exports received a setback and British manufacturers encountered marketing difficulties. In these circumstances the export of capital to colonies was resorted to in order to reduce the cost of production by cutting down on costs of transportation, wages of labour, and expenses on raw materials, The export of capital by Britain was $ 1 Billion by 1880, $ 2 billion by 1905, and $ 4 billion by the beginning of the First World War. By 1913, 25 to 33 per cent of the total British private capital was invested abroad. The current net foreign investment was greater than the current net domestic investment. The same process and trend could be seen in other industrial countries too. By 1914 France, Germany and the USA had invested around 5 2.5 billion, $ 1.75 billion, and $ 0.4 billion, respectively.
   To avoid mutual struggles and conflicts, monopolies tried to reach agreements among themselves in order to divide the world among themselves. They sought to demarcate and allocate marketing areas, sources of raw materials, and outlets for the export of capital.
   These agreements were, however, never lasting. The uneven growth of monopolies and their growing needs for outside markets and territories for investment of surplus capital and for raw materials rendered the old arrangements inoperative. Monopolies backed by their governments tried to grab the areas of others. The result was wars and local conflicts.
   By the beginning of the nineteenth century, the territorial division of the world among major European powers was completed, and there was no unclaimed space anywhere. In this situation any major capitalist power could extend its territorial possessions only by depriving the others. It could have meant a bid to redraw the map of the world and it was sure to lead to strong resistance by the ‘haves’. Both the First and Second World Wars were caused by this. After the First World War was over and the map of the world was redrawn settling the claims of different powers, the monopolies of Germany. Japan and Italy started pressing their governments for making additional areas available to them for their expansion. This could be possible only if Britain, America. France, etc., were dispossessed of some of their possessions and the Soviet Union was colonized. The governments of Britain, France and the USA tried first the policy of appeasement towards Hitler and Mussolini and tried to accommodate them by sacrificing Czechoslovakia and some other Eastern European countries, but they failed in their attempts, and the Second World War ensued.

Neo-Colonialism

  Before the First World War the crisis of capitalism did not damage its existence as a world system. By the end of the nineteenth century it established its supremacy as the only world system. Almost all pans of the globe were brought within its purview.
   During the First World War, however, the process of its decline began and its sphere of influence began contracting. In 1917, a major country-Russia-went out of it and after the Second World War began the process of disintegration of colonialism. The Indian subcontinent was the first to go out of the fold of colonialism, and by the end of 1960s this process of the breakup of colonialism was almost complete.
   The erstwhile colonial powers reformulated their economic strategy and tactics vis-a-vis the newly independent countries so that the old economic relations could be continued. This reformulated strategy came to be known as neocolonialism. Though this term gained currency, only after the Second World War, the phenomenon had been known for a long time.
   Neo-colonialism brings about reconciliation between political independence of a country and its economic dependence. Under the old style colonialism, an imperialist nation hunting for sources of valuable raw materials and minerals, markets and avenues for the investment of surplus capital had to hoist its own Hag over the country grabbed by it; the colonial power had to establish its own rule with suitable institutions and governmental apparatus and the police and army to keep the native population under control.
   With the passage of time and changing world situation, this kind of arrangement became outdated and very expensive. The two world wars weakened the big colony-holding imperialist powers; the pressures from American finance capital for dismantling the barriers for its operation in other parts of the world mounted; the Russian Revolution and, later, the emergence of the Soviet bloc, signified a shift in the world balance of forces in favour of the colonial peoples fighting for their independence; and above all, the growing power of liberation struggle of the subjugated nations made it impossible for colonial powers to continue their rule. They were forced to recognize that their interests in developing countries could be protected even without governors in ceremonial dress, and expensive colonial administrative machinery. It was stressed that the twentieth century capitalism no longer needed colonialism to serve its aims and political and military costs of maintaining it were both high and unnecessary. They had by then devised other, apparently less offensive and cheaper, ways of maintaining economic dominance. They had before them the example of the USA which was dominating Latin America not by direct presence but trough American private capital.
   The decline of the old-type colonialism and its placement by neo-colonialism coincided with me emergence of dominant role of transnational commons (TNCS) or multinational corporations (MNCs) whose interests became a key consideration in the formulation of the relationship of their governments with newly independent countries.
   Neo-colonialism, like its predecessor, provides markets for finished products from imperialist countries, makes available raw materials, minerals, and other primary products needed by the imperialist countries; and opens the doors of the newly liberated countries for investment of surplus capital. The perpetuation of this kind of arrangement requires a complex and skilful operation. It also encompasses the shaping of attitudes of the elites in developing countries. Wherever a developing country or its government proved to be recalcitrant, economic and military pressures were mounted from outside and even a military coup was organized.
   In the post-Second World War period, the USA emerged as the strongest military and economic power. American TNCs started spreading their business in the newly liberated countries of the world. Their expansion was backed and interests protected through the US foreign policy. Loans and aids were advanced to stimulate the demand for their products and secure raw materials and minerals for them. Military bases were intended to safeguard their interests. The US military aid was designed to boost the demand for armaments produced in America. Through various agencies, the penetration by TNCs was facilitated.

Multinational Corporations

  It has been stated earlier that with the emergence of monopoly capitalism, production became Concentrated in a few giant firms. At present small firms do exist but they have really become subsidiary or satellites to these large firms. The emergence of MNCs meant not only increasing concentration and centralization of capital and production in their hands but also a qualitative change in their outlook and operation. Their administrative structure became more complex in order to coordinate their activities which encompassed within them various kinds of activities ties in various parts of the globe.
   Large business organizations as such are not a new phenomenon. Even during the eighteenth century they were in existence in the field of international trade. One may easily recall the example of the East India Company, which had the monopoly of British trade with the Indian subcontinent. Other such companies were Hudson‘s Bay Co., The Royal African Co., etc. To quote Stephen Hymer, “But neither these firms nor large mining and plantation enterprises in the production sector, were the forerunners of the multinational corporation. They were like dinosaurs, large in bulk, small in brain, feeding on the lush vegetation of the new worlds.
   “The merchant’s planters and miners laid the groundwork for the Industrial Revolution, but the driving force came from the small-scale capitalist enterprises in manufacturing, operating at rust in the interstices of the feudalist economic structure, but gradually emerging into the open and finally gaining predominance. It is 'in the small workshops, organized by the newly emerging capitalist class. that the forerunners of the modem corporation are to be found.”
   In the course of time, large firms emerged out of these small scattered industrial firms. With the expansion of the size of the market, the demand for commodities increased, and this, in turn, resulted in the expansion of the scale of production; gradually, large firms came to diversify their activities in many other fields too. These developments created the problem of management and administration. The functions of administration were split into various divisions or departments, ranging from finance, personnel, purchasing, marketing and engineering to handling labour, manufacturing, relations with the government, etc. The R. and D. division assumed importance because of the pressing needs of survival in competition and growth. A central office came into being to coordinate and direct various activities of different branches located in the country and abroad.
   In 1973, the UN Department of Economic and Social Affairs explained the term ‘MNC’ - “The term ‘multinational’ signifies that the activities of the corporation or enterprise involve more than one nation. Certain minimum qualifying criteria are often used in respect of the type of activity or the importance to the foreign component in the total activity. The activity in question may refer to assets, sales, production employment, or profits of foreign branches and affiliates.”
   Among the MNCs the most powerful are those originating in the USA. Multinationalization of large US monopoly firms started around the beginning of this century when the export of capital was undertaken on a large scale. It received a fillip during the 1920s. During the 1930s the export of capital slowed down but was resumed with greater vigour after the Second World War. During the 1950s and the 1960s, foreign investments of American firms increased at 10 per cent per annum. At the compound rate of growth it doubled in less than a decade. After 1970 the rate of growth has increased, and the USA’s foreign private investments would reach enormous proportions by the turn of the next century.
   The economic power of the MNCs has increased phenomenally. To give an example, in the early 1970s the gross sales of General Motors were equal to the GNP of developing countries of Africa (excluding Algeria, Egypt, Libya and Morocco). The gross turnover of Royal Dutch Shell was more than the GNP of any developing country in Africa or Asia, except India and Pakistan.
   The head office of an MNC is the centre where all major policy decisions are taken and the activities of numerous branches and activities are coordinated. The head office decides the level of investment the source and price of the capital and intermediate inputs, the quantum of output and its distribution, pricing formula, and the distribution of surplus. All these decisions are taken basically from the point of view of maximization of profits and the interests of the mother country. Generally, the surplus extracted in peripheral territories is repatriated to the mother country or to some other new peripheral territories.
   Maurice Odle in his book Multinational Banks and Underdevelopment has shown that MNCs and MNBs (Multinational Banks) cannot be separated. They are part of the same phenomenon and they reinforce each other. Wherever the MNBs dominate the financial system, they gather the savings of the local population but they lend them mostly to the MNCs. Even where they are not allowed to lend to MNCs and they have to lend only or mostly to indigenous enterprises, they manoeuvre things in such a way that the indigenous enterprises are made to go in for projects with very high import content, which benefit MNCs.
   Obviously, the MNCs appear as one of the distinctive features of the present-day world capitalist system. They control more than one third of the GNP of the entire capitalist world and more than 50 per cent of its foreign trade, besides four-fifths of the exchange of technological know-how. Since the seventies, the export of MNC capital to newly liberated countries has been growing much faster than that of State capital. By 1971, MNCs had more than 50,000 affiliates in the developing world.
   Developing countries do not have happy experience with the MNCs. They are there only to serve their own interests, which are not the same as those of the host countries. They never set up basic and heavy industries in developing countries nor do they establish the complete line of production in order to ward off the danger of nationalization. They do not generally (zany out R and D activities in developing countries and they keep their host countries in most cases dependent on imported obsolete and discarded technologies. Almost 97 per cent of all research and design work of the capitalist world is done by industrialized States where it is monopolized by MNCs.
   In the years to come the expansion of the MNC activities is going to receive a big boost from two factors, namely, the sharp decline in concessional loans and official development assistance, necessitating the inflow of direct foreign private investments in the developing countries, and the establishment of Multilateral Investment Guarantee Agency to insure the investors against the risks.
   Developing countries have been demanding the formulation of a code of conduct for MNCs so that they are made to respect the sovereignty and interests of host countries.

Role of the State

  Brief references to the economic role of the State in the capitalist system have been made earlier. During the eighteenth century, Adam Smith wanted the State to keep its interference in economic matters as little as possible. According to him, the State should confine itself basically only to three functions, namely, (1) defense of the country against external enemies, (2) maintenance of law and order inside the country and organization of police force and establishment of law courts for this purpose, and (3) provision of such communal services as roads, educational institutions, hospitals, etc. These functions could not be performed by any individual or group of individuals, and without them no economy could work smoothly. To perform these functions, the State should be allowed to raise resources through taxation and other fiscal measures. The State, in no case, should go beyond this. It should leave the economy to be regulated by market forces. It should act as an arbiter, seeing to it that various economic contracts and agreements are enforced. Thus, the role of the State was visualized as that of an umpire in a game. It interprets and enforces the rules by which the economic game is played and economy is run. In other words, the State was required to see to it that no difficulties or hurdles were created in the way of the operation of market forces.
   By keeping the organization and operation of the economy separate from political power, market would see to it that the coercive functions of the latter were not allowed to assume large proportions. Economic power would keep a check on it and would not allow it to go beyond a particular limit. However, it is not really true to say that the State kept itself confined mainly to the three functions prescribed by Adam Smith. The State in Britain, for example, took a number of steps between 1760 and 1850 to facilitate the development of industrial capitalism. It repealed many medieval laws which were hindering its development. It eliminated the legal hurdles coming in the way of mobility of labour and capital. For example, there was a law which said that a person must have at least seven years of experience of apprenticeship to start an independent business enterprise. Usury laws were hindering the mobility of capital, because under them the rate of interest could not exceed 5 per cent per annum. Many other examples can be given to show that the State played an active role in promoting capitalism. Contrary to what Adam Smith had said, the British government intervened to regulate industrial relations.
   One may take the example of Japan. The State played a very active role in economic transformation. It abolished the rules and regulations of the Tokugawa period, which hindered the growth of capitalism, and put an end to the existing feudal legal, political and administrative structure. It tried to spread Western education, modem science and technology, and brought about such changes in the fields of transport and communications and finance that could promote the development of industrial capitalism. It preserved the Japanese market for domestic production and did not permit foreign capitalists to set up industrial units there.
   Finding the indigenous capitalist class very weak, the State itself set up industrial units, and when they came of age, they were sold to Japanese capitalists at throwaway prices.
   After the emergence of monopoly capitalism, the economic role of the State became more significant. It was observed that market for had become incapable of running the economy and if the situation was left uncontrolled, there might be serious instability in the economy. Concentration of production in the hands of monopolies meant the end of the system of automatic regulation of the economy by competition. This was the reason for more and more intervention by the State in the economies of advanced capitalist countries from the beginning of this century. It was compelled to regulate the distribution of incomes among different social classes. The State also took upon itself the responsibility of increasing the volume of effective demand to solve the problem of over-production or un-utilization of the installed capacity and unemployment of labour. It had to intervene in the sphere of foreign trade to promote exports’ and protect the interests of its own manufacturers. Whenever it became necessary it nationalized enterprises and undertook the production of goods and services.
   Thus during the monopoly phase of capitalism, be it peace time or war time, the State intervened in the economy on a large scale. In Nazi Germany it promoted cartels and restricted wage-increases. During the Roosevelt administration it initiated and implemented the Ne, Deal programme. After the Second World War, industries were nationalized in Britain, France and a number of other European countries. There has been an unprecedented increase in the State, expenditure, which influences market and decisions concerning investment and production. A large part of this expenditure is on militarization.
   The increasing economic role of the State has added a new dimension to monopoly capitalism. In advanced capitalist countries, the State machinery is increasingly used to save the economy from crises. The State has been endeavoring to introduce certain elements of planning and guide the monopolies to save them from falling into the grip of crises. This coming together of the State and monopolies is termed state monopoly capitalism.
   The government budget provides opportunities for monopolies to make profits. It increases allocations to militarization, and this creates a demand for the products of armament manufacturers. When the government of an advanced capitalist country gives military aid to any other country, or launches aggressive wars, it creates a demand for its arms manufacturers. In addition, public investments in the productive infrastructure create conditions for profitable operation of monopoly enterprises. Public spending on education, training, fundamental and applied sciences and research help monopolies secure needed human capital.
   As a result of the development of state monopoly capitalism, close personal unions have been established between the monopoly capital and various echelons of the State. This has happened in two ways (1) the State officials sit on the boards of directors of monopoly companies and financial institutions and (2) the persons connected with monopoly houses occupy top positions in the government and international agencies. The available statistics show that during 1839 and 1949 the business representation on the US cabinet was 60 per cent. The situation remained unchanged and afterwards. The same is true for Britain. During 1886-1950 about one-third ministers were connected with the business world. Three Prime ministers, namely, Bonar Law, Baldwin and chamberlain were directly connected with monopoly houses.
   To sum up the main features of the State monopoly capitalism - (1) the State ownership of a Significant portion of the means of production and the emergence of the State as an important entrepreneur; (2) the State regulation of the economy directly and indirectly through programming. budget credit and financial system, and price policies; (3) regulation of industrial relations; (4) the State purchases of goods and services, particularly military wares; (5) protection and promotion of the interests of monopoly capital abroad; (6) promoting ties and agreements among monopoly capitals of various countries; and (7) personal union between the various echelons of the State and the monopoly capital.

Role of the State in Developing Countries

  Most of the developing countries won their political freedom during the post-Second World War period. They are engaged in rebuilding their economies in such a way as to secure economic independence so that their political freedom becomes secure and meaningful to the masses.
   At the time of their independence these countries were at different levels of development, but almost all of them were socially and economically very backward. Modern manufacturing industries and infrastructural facilities were either meagre or completely non-existent. A backward agriculture along with extractive industries dominated the economies of most of these Countries. Vestiges of pre-capitalist 8%tems were big impediments in the way of modernization. Even during the middle of the 1970s the developing countries, which accounted for 70 per cent of the world population, were responsible for only 13-14 per cent of the industrial production. The gap between per capita income levels between the advanced capitalist countries and the developing countries was very large and was increasing. Technologically, developing countries were extremely backward. They lacked technically qualified people, and the level of education was very low. Health services were deficient, epidemics and diseases ravaged them; and the death rate was very high.
   There were two courses open to the developing countries. They could either follow a dependent course (neo-colonialism) or try to build up an independent economy. If they followed the second, they were bound of face a number of difficulties and problems concerning capital accumulation, narrow home markets, and lack of trained and technically qualified personnel. Then, there was an unjust external economic environment, inherited from their colonial past.
   These problems and difficulties could not be solved without an active involvement of the State because the capitalist class was either nonexistent or very weak.
   The intervention of the State was thought to be indispensable for overcoming backwardness and promoting independent development. The State in the developing countries has introduced reforms to wipe out the old outdated relations of production and other archaic arrangement of things. It has introduced land reforms. It has set up and developed a modern public sector, and has strengthened and expanded financial institutions. It mobilizes the savings of the people, and arranges for foreign loans and collaborations. It tries to solve the scarcity of trained manpower and inputs, and looks after the marketing needs of the newly set-up industries. It prepares plans for the development of the economy. It provides infrastructural faculties, and protects the economy and the domestic market from foreign capitalists. It has been in the forefront pressing for changes in the existing international economic relations and for the establishment of a New International Economic Order, and restructuring the existing international financial institutions to make them responsive to the needs of the developing countries.
   It advocates disarmament so that the resulting funds would be diverted to developmental purposes. It emphasizes the need to dismantle protective barriers erected by developed countries and adequate How of concessional aid to the developing countries.
   Because of the active role of the State, a number of developing countries have been able to overcome to a large extent, the inherited backwardness and take the economy forward on to the path of modernization.
   Whatever has been said above does not mean that the State in the developing countries does not put sufficient emphasis on its traditional regulatory functions. It regulates wages and working conditions, it introduces price control and rationing so that the essential items of consumption are properly distributed and price stability maintained, and it sees to it that investable resources are properly allocated in order to correspond with the priorities fixed by it. It regulates the pattern of production and consumption, builds up infrastructural facilities, and regulates foreign economic relations.
   The State in the developing countries has to step in and perform many of the above-mentioned functions because the market forces are not equal to the task, and entrepreneurship is very weak and short-sighted. The aim of the State is to secure economic growth with price stability and social justice.

Socialist System

  The word ‘socialism’ was coined only in 1809, and was first used in print in the London Cooperative Society’s magazine in 1827. Its applied form, however, has been seen only since the October Revolution of 1917.
   Yet in the embryonic form socialist ideas have been present for centuries. It will not be wrong to say that these ideas have been as old as the struggle against social exploitation and oppression. The belief that in a just society all things should be held in common runs right through the Middle Ages.
   With the beginning of the Industrial Revolution, capitalism struck deep roots, and evils inherent in it came to be felt by some perceptive individuals. Consequently, with the beginning of the nineteenth century, a number of books and periodicals in Britain and France tried to present an alternative to capitalism. Attempts were made to translate the dream of a society free from injustice, exploitation and oppression into reality.
   Then came three great thinkers--- Robert Owen, Saint-Simon and Charles Fourier-who endeavored to replace capitalism by socialism of their imagination. They wanted to replace private property by social property and introduce planning to curtail the operation of market forces. Workers were to appropriate the fruits of their labour, and there was to be no place for exploiters and parasites in their scheme of things.
   It was Karl Marx and his associate Frederick Engels who placed socialism on the scientific basis. Their conception of socialism was based not on sentiments but on a thorough scientific study of the history of human society.
   They did not present any detailed blueprint of the socialist system nor did they say how it would work in practice. They concentrated their attention mainly on the existing system, capital; ism, its emergence and working. They threw light on those forces that would bring about a change in the social system. They demonstrated that the establishment of socialism was inevitable and it would be the next stage in the historical development of human society. This would be, according to them, the inevitable and definite result of the development of Capitalist system.
   After socialism was established, the private ownership of the means of production would end and its place would be taken by social ownership. In place of old capitalist society, with its classes and class antagonisms, there would come about an association in which “the free development of each was the condition for the free development of all”.
   The ultimate aim they said was to establish communist society whose first phase is called socialism. Under capitalism, as has already been noted, productive forces develop tremendously and, as a result of growing concentration of production, widening range of social division of labour, increased specialization, and cooperation among producers and various spheres of economic activities, various sectors and branches of the economy become interdependent and in the course of time a world capitalist system emerges and the economies of various countries become dependent on one another. Thus production assumes a highly social character and productive forces reach a level of development which is unprecedented in human history. These two features call for certain changes in the mode of appropriation, and capitalist relations of production are unable to guarantee further smooth development of productive forces.
   Simultaneously, the size of the working class grows and this class becomes better organized and consolidated. A sense of solidarity grows among the workers. They bring with them other toiling and oppressed sections of the society Such as working peasantry, agricultural proletariat, and a section of intelligentsia and form an alliance with them.
   The aim of socialist revolution is to build up a classless society where there is no place for oppression of any kind. In this society where the interests of individuals are not supposed to be opposed to one another-in fact, they will coincide-there will be no place for competition. There will be no classes. As soon as private gain, the aim of the individual to enrich himself on his own, disappears from the sphere of production and distribution, there will not be any trade cycle. There will be no scope for uncertainty about the volume of production. This society will regulate production according to needs and the basis of distribution will be “from each according to his ability and to each according to his needs”. This can be possible only when there is plenty of everything. The communist society will be, in reality, ‘an association in which the free development of each will become the condition for the free development of all’. The State as an institution of coercion will wither away.
   This society will not come into existence overnight after the socialist revolution but a long period will intervene. A number of stages will have to be traversed before reaching the ultimate gaol.
   The first task of the socialist revolution was visualized to be the breaking of the resistance of former exploiting classes by breaking their economic base. Through nationalization of large enterprises and foregin trade and far-reaching agrarian reforms, big capitalists, foreign monopolies and large landholders are made powerless and the socialist State establishes control over the commanding heights of the economy. This enables the State to organize and finance socialist construction of the country.

Socialist System in the USSR

  The first socialist revolution, as has been mentioned earlier, took place on 7 November 1917 in Russia. Some of the developments that took place in Russia after the Revolution have also been mentioned.
   During the eight months from 7 November 1917 to 10 July 1918, the revolutionary government enacted a number of laws, issued decrees, and took various steps to create the new kind of State. The first constitution was adopted on 10 July-1918. On the economic front an immediate transition to a socialist economy was not on the agenda. Immediate preoccupation was with the seizure of certain key economic positions to consolidate the power that had already been won.
   The key positions in the economy were taken over by the government through nationalization. The State Bank, all commercial banks, major industries, and grain trade were nationalized.
   After May 1918 there was a radical shift in the government policy because of growing threats of foreign invasion and internal sabotage. The protection of the nascent revolution assumed supreme priority. The government was forced to issue the Decree of General Nationalization. All large-scale enterprises in mining, metallurgy, textile, glass, leather and cement were nationalized. In addition, by separate decrees merchant marine, foreign trade, and oil and sugar industries were nationalized. The new government repudiated all outstanding foreign debts incurred by the previous regime.
   In the rural sector, the Decree on Land was promulgated on the very next day of the Revolution. It abolished all landed proprietorship and took over all landed estates.
   On the eve of the Revolution foreigners held around 33 per cent of the total investments in the private sector. The nationalization decrees ended this.
   The new State faced grave dangers to its survival during 1918-20 because of the civil war and foreign intervention. In order to save the Revolution, a set of policies came to be adopted, which came to be known as War Communism. War Communism was made up of two major elements - concentration of economic authority and power, including centralized control and management, and departure from commercial and monetary forms of distribution, including rationing and supply of basic goods and services a free or at nominal prices, payment in kind, and a production for direct use rather than for market.
   After the civil war and the foreign intervention had ended, a new set of policies---New Economic policy (NEP)-followed. The NEP was intended to win over the alienated peasantry. The tax in kind was fixed at a level much lower than the level of grain requisition in the preceding year Thus the peasants were allowed to retain the surplus and given freedom to sell it in the market. In 1924 the tax in kind was replaced by a money tax, and private trade was allowed Along with this, move to form cooperate also n began so that peasants could be brought into them.
   It was realized that without increasing the supply of food grains, raw materials and other agricultural products, it was not possible to develop and sustain industrialization. For this peasants had to be won over and brought under cooperatives.
   While the State retained commanding heights of the economy in its hands, it allowed the restoration of capitalism in small and medium scale industry, but their activities were restricted and controlled by the State. In the nationalized industry material incentives were given to workers to improve efficiency, and certain managerial techniques, that were characteristic of capitalism, came to be adopted.
   During the NEP an attempt was made to bring about a combination of State management and private initiative in the industrial sector. The State tried to secure its position in the industrial sector by establishing public control over vital means of production and capturing the commanding heights in the economy, including banking and foreign trade, so that it could bring the rest of the economy also under its purview. The State sector in the industry was to improve its efficiency in order to compete with the private sector.
   A number of similarities with the private sector enterprises were observed in the State enterprises. They were - financial autonomy, independence of management, direct relationship between economic units, and profit maximization. During War Communism all private sector enterprises were brought under the State supervisions and their debts to the nationalized banks were cancelled by being convened into grants. During the NEP this decree was abrogated and the budgetary support to State enterprises was ended. They were asked to seek credits from banks to meet their financial requirements relating to the working capital.
   One can now see that Mikhail Gorbachev wants the Soviet economy to return to these arrangements of the NEP, which were terminated by Stalin.
   The NEP brought about a great measure of stability in the Soviet economy. Socialist transformation of industry was accomplished. But the socialization of agriculture was not yet completed and worker-peasant alliance was not fully cemented. On the solution of this problem hinged the fate of building up a socialist economy and society. And with the approach towards peasantry and agriculture were linked the question of accumulation and the pace of industrialization, besides the strategy and tactics of industrialization.
   Lenin had envisaged that the NEP would pave the way to socialism, but he could not elaborate the transition to socialism in any great detail because he became incapacitated in 1922 and died in January 1924.
   Russia faced a unique situation. It was the tint Country in the world to venture to build up a Socialist economy. It did not have the experiences of others or any blueprint to profit by. Industrially the country was under developed and agriculture was very backward or one may say, even primitive. The government had expropriated capitalist and landlord classes and socialized the large-scale industry. As Mac Nove has put it, “By 1925-26 the party had to face a vast question of political economy - how to transform the entire social-economic situation by deliberate action from above. If this was to be done by planning, then by what kind enforced by what mechanism? A large increase in savings, in accumulation of capital, would be necessary. Who was to bear the sacrifices, and how severe would these sacrifices be?”
   Another question was the security of the nation. Though foreign intervention and internal enemies were defeated the danger from them was not yet finally over. In this context it was necessary that the country must build up a modern, industrialized economy to strengthen its national security. This consideration had an important beating on the pace and direction of industrialization. The higher projected rate of growth demanded greater amounts of savings and sacrifices. More stress on national security meant priority to building up military might and economic independence. This obviously led to gamer emphasis on heavy industry, steel, coal, machinery, etc. at the expense of the production of consumer goods. Savings and capital accumulation had to take place at the expense of the agricultural sector.
   In December 1925 it was decided to convert the Soviet Union from a country importing machines to a country producing machines.
   In December 1927 a decision was taken to terminate the NEP and take to the path of planned economic development. Maximum attention was to be given to those branches of the national economy in general, and of industry in particular, that would ensure defence and economic stability.
   It was realized that the strategy of industrialization could not succeed so long as agrarian structure was not altered. Thus the policy of collectivization was undertaken, and by 1937 Collective farms came to account for 93 per cent of the total cultivated area. If one takes the State farms also into account, almost the entire agriculture was socialized.
   In recent years the policy of forcible collectivization and human costs involved in it has come to be sharply criticized.
   By 1937 the socialized sector became all pervasive. Its share in the national income increased to 99.1 per cent, in gross industrial product to 99.8 per cent, and in gross agricultural product to 98.5 per cent. The retail trade was fully socialized.
   In socialist countries the social ownership of the means of production is the foundation of the economic system. The State runs the economy through specific institutions. A socialist economy is, by its very nature, planned. Planning is a method to orientate economic activities.
   Democratic centralism and party spirit were considered the political cornerstones of economic administration in a socialist economy. Democratic centralism, as a principle, sought to combine democracy with centralization. Democracy was to guarantee local initiative and participation and the right to criticize the proposals and the shortcomings in implementation while centralization meant the leadership from one single centre, subordination of the minority to the majority, and strict discipline.
   Party spirit was considered a guarantee of the unity of political and economic management. The Communist Party played the leading role in socialist countries. It determined the direction of the economy, approved five year plans, and introduced reforms. It directed the economic activities and kept a watchful eye on the performance of various economic bodies.
   Recently, these two principles and the role of the Communist Party have come in for criticism. It has been brought to light that they have not worked well in practice. The excessive interference by the Party has done more harm than good. It is said that in the name of democratic centralism bureaucracy, and in the name of patty spirit, party apparatus have been exercising all powers.
   The assumption of the leadership by Mikhail Gorbachev in early 1985 marked a radical break. All aspects of the Soviet life came in for thorough critical examination.
   He came out with a new economic strategy. It rested on three key concepts, namely, uskorenie (acceleration), perestroika (restructuring be and glasnost (openness).
   These three foundation pillars of the new strategy are organically linked. The most basic of them is uskorenie (acceleration) of the pace of economic development. It is projected that the Soviet economy will grow at the rate of 5 per cent per annum during the thirteenth and fourteenth plans (1991-2000). In other words, acceleration’ will take the rate of growth from zero during 1981-85 to 5 per cent per annum during the last decade of the present century.
   The term ‘acceleration’ has a qualitative aspect also. In other words, it has a socio-economic aspect. It means the transition to a qualitatively new stage of growth of the economy. For this a radical retooling of the economy is required. In plain terms, the existing structure of I the Soviet economy, which is backward and conservative, and is dominated by mining and agriculture, and where the tertiary sector is very underdeveloped, will be radically altered At present the Soviet economy is plagued by low quality goods, high inefficiency, and lack of competitiveness. There is a very high incidence of obsolete production. There is a wide gap between the range of goods and services offered and those really needed by the people. Thus, ‘acceleration’ will lead to altering the structure of the economy in such a way that it becomes more progressive, efficient and socially oriented, by aiming at the satisfaction of the needs of the people.
   The Soviet Union will increase the production through intensification It Will mean that production will be increased through enhanced efficiency rather than using more resources. The quality of goods will be improved to satisfy the expectations of the people. Obviously, the latest technologies and methods of management will be used.
   Secondly, the pattern of production will be such as to give priority to the satisfaction of the needs of the people. In other words, the production of consumer goods and services will receive priority.
   ‘Acceleration’ presupposes perestroika (restructuring). The concept of perestroika has been put forth because it has been realized that cosmetic repairs and patching up would not do; a major overhaul is required.
   To quote Gorbachev - “The principal priorities are known to lie... in a profound structural reorganization of the economy, in reconstruction of its material base, in new technologies, investment policy changes, and in high standards of management. All that adds up to one thing--acceleration of scientific and technological progress.”
   Perestroika is a very comprehensive concept. It is aimed at changing the moral and psychological situation in the society and improving the level of human interest in production and involvement in socio-economic transformation. And this necessitates glasnost (openness). Freedom of expression and of frank debate is being established. Gorbachev has admitted that “unless we activate the human factor, that is. unless we take into consideration the diverse interests of people, work collectives, public bodies, and various social groups, unless we rely on them, and draw them into active constructive Endeavour, it will be impossible for us to accomplish any of the tasks set, or to change the situation in the country”.
   The central planning authority will define only basic priorities and objectives for the national economic development, trends in scientific and investment policy, scientific and technological progress, and targets for scientific, educational, and cultural potential and defence capability. It will prepare a 15-year perspective plan. It will not interfere in the day-to-day working of the economy and enterprises.
   In the agricultural sector full-scale economic self-accounting and self-repayment, the contract system and lease arrangements, cooperation, agro-firms, extension of farming on individual and small holdings, launching of family farms, leasing out, etc., are the main steps to break the inertia in this sector.

Socialist System in China

  Another major country to have a socialist revolution is China. This most populous country in the world had a socialist revolution in 1949. As compared to the Soviet Union, it had a number of advantages to begin with. For example, it had the experiences of the Soviet Union to profit by, and the Soviet Union gave it massive economic and technical aid. It did not face economic blockade or diplomatic isolation. Unlike Lenin, its supreme leader Mao continued to guide the country for a long period. In addition, it was fully familiar with rural problems and had a firm base among the peasants.
   After winning political power in 1949, relations of production in both rural and urban areas were sought to be altered mainly through land reforms and collectivization in the former and through nationalization and regulation and control in the latter. Like the Soviet Union, there was emphasis on the development of basic and heavy industries because they were important not only for industrialization and the creation of modern infrastructural facilities but also for agricultural development and defence.
   China continued on the path of socialist transformation till 1957 when it completed its First Five Year Plan. Around this time there came about differences and, ultimately, break with the Soviet Union. This had a disastrous impact.
   It adopted unrealistic policies during the period of what is known as the Great Leap Forward (1958-59). It established communes and forced the people to join them. The failure of the new strategy was reflected in the drop in agricultural production and wastage of valuable resources in the name of building backyard steel furnaces. There was a serious economic crisis in the country during 1960-62.
   After the failure of the Great Leap Forward, a witch-hunt was started in the name of the Great Proletarian Cultural Revolution to show that the faction opposed to Mao was responsible for it. The result was a complete chaos in the country and dislocation in the economy. The disruption lasted throughout the Third Five Year Plan (1966-70) and the Fourth Five Year Plan (1971-75). The annual rate of growth of the combined gross value of industrial and agricultural output dropped to 7.8 per cent, with industry declining to 9.1 per cent and agriculture to 4 per cent. The rate of growth of the national income came to only 5.6 per cent.
   In 1975 there was a change in the situation when Deng Ziaoping took over the leadership. Cultural Revolution was terminated and its initiators made powerless. The Fifth Plan began the process of correcting the mistakes and deviations and the focus was shifted to the completion of the task of socialist modernization.
   In China once again the emphasis has shifted on to the development of productive forces, and it has been realized that the changes in relations of production alone will not lead to spontaneous development of productive forces. The system of management is being reformed and highly centralized administrative and command system of management is being sought to be replaced. The indicators of planning are also being changed to make production more responsive to social needs. Efforts have been made to normalize relations with the Soviet Union, and open up the economy to Western capital and technology. Private initiative is also being allowed in the economy.

Impact of Industrialization

  It is obvious from the above that both capitalism and socialism have been bound up with industrialization of the economy. Ever since the middle of the eighteenth century industrialization has been a cherished goal of all societies of the world. The countries which came to socialism or have been trying to take to the path of socialism, have been making efforts to have quick industrialization without the attendant evils witnessed under capitalism.
   Industrialization has changed the socio-economic face of almost all the countries of the world. Let us first begin with the countries which are industrialized.
   With the beginning of the process of industrialization in any country the rate of growth of the national product has shown a long-term upward trend, and it has always exceeded the rate of growth of population substantially leading to a long-term sustained and substantial increase in the per capita real income.
   The impact of industrialization on population is manifold. As soon as the process of industrialization gets going, its impact on the rate of growth of population is felt. It gets accelerated. If one looks at the data, it becomes obvious that the rate of growth in recent centuries has been much higher in the areas of European settlement which have felt the impact of industrialization than in other parts of the world. According to Simon Kuznets - “People of European stock increased from about 150 million in 1750 to about 800 million in 1950, a rise of 433 per cent; whereas the rest of the world’s population grew from about 580 million to about 1,600 minion, or less than 200 per cent.”
   In the beginning the acceleration of the rate of growth is mainly due to a continuous decline in the death rates while the birth rates remain more or less unchanged. The decline in death rates benefited all age-groups but younger age-groups more than older ones because of significant advance in the prevention and control of in a factions, and respiratory and digestive diseases and in medical science and the elimination of famines.
   When industrialization advanced significantly and the death rates came down very appreciably along with a substantial rise in the average age, birth rates also started moving down. The declining birth rates were due to voluntary decisions of the people, within the framework of marriage. In other words, the decline in birth rates was due to the spread of family planning. Fertility and birth rates were negatively associated with the level of income, employment opportunities for women, and education.
   During the pre-industrial period, both birth and death rates were high (ranging from 30 to 50 per thousand) and the rate of increase of population was very small. With the beginning of the process of industrialization, the rate of growth of population rose appreciably mainly due to the decline in mortality rates.
   When birth rates also started declining, the rate of growth of population began falling down. In a number of countries where industrialization has reached a very high level, the natural rate of growth has reached a very low level.
   International migration from the mid-eighteenth century to the mid-twentieth century was influenced by the opportunities opened up by industrialization in North America, Brazil, Argentina and Oceania. The migrants were mostly from European countries and were skilled people. The increase in population contributed to the process of industrialization in several ways. First, since the decline in death rates benefited the lower age-group most, the labour force increased
   sufficiently to match the growing demands for labour. The decline in death rates and in birth rates at later stages reduced the need to rear a large number of children and eliminated the waste of resources besides making available a large proportion of potential female work force for gainful employment.
   Second, the increasing population along with rising per capita income led to the expansion of the market and the volume of demand for goods and services.
   Industrialization increased the mobility of the population and the people migrated to the areas of greater economic opportunity. Transport and communication facilities accelerated this process. In this process the joint family or multiple-generation family gave way to one or two-generation family. The younger generation got detached from the family of parents as soon as economic opportunities called them to some other place. ,
   It is believed that the growing control over epidemics and infectious diseases and the increasing role of deliberate decisions in birth control changed the attitude and values of the people. They developed self-confidence, and became less fatalistic.
   With the spread of modem education and technical training along with greater availability of better technology and per capita capital, the efficiency of work force increased and, at later stages, most of the increase in national product was contributed by this.
   The progress of industrialization led to a decline in working hours while labour productivity went on rising.
   Industrialization brought about a radical change in the organization of production. The single proprietorship and partnership firms became unequal to the task when huge amounts of capital were required to sustain the large-scale factory system of production. Thus, joint stock companies with limited liabilities came to be adopted, In the course of time the gap between ownership and management became wider and wider.
   The modern factory system replaced the system of production in homes and houses of workmen. Workers were brought in large numbers to places where factories were located. Defined norms and forms of work with a clear-cut discipline were adopted. The close personal relationship between the workers and the employer vanished.
   The growth of the factory system led to urbanization, expansion of transport and communication facilities, and the growth of trade-unions. The growing unity of workers in the struggle for their common demands brought about unity among them, overriding the differences of region, religion, nationality and caste. During the middle of the nineteenth century strong socialist movements arose the aim of which was to replace capitalism by socialism so that industrialization without attendant evils could be promoted.
   Industrialization brought about a rapid and substantial shift of the working population and recourses from agriculture and allied activities to industry and services sector. Similarly, the relative share of agriculture and allied activities in the total national product declined though their absolute contribution increased.
   The relative share of agriculture and allied activities in the total labour force declined and more and more labour was engaged in industrial and services sectors. At present in many developed countries, agriculture and allied activities engage less than 10 per cent of the total labour force. This does not, however, mean any decline in the absolute amount of production in agriculture and allied activities. On the contrary, it has gone up enormously. This has been possible because of better inputs provided as a result of industrialization. Over the years there have been structural changes in both industrial and services sectors. In the industrial sector; the emphasis has shifted from agro-based industries like cotton textiles to iron and steel and then to chemicals, and now to electronics.
   In the services sector, the shares of commerce, finance and entertainment have shown an upward trend. Along with this the shares of government in the output of services and the employment of labour have become very much marked.
   It has been underlined that the shifts in the industrial structure have been due mainly to technological changes. Over the years, new products and new processes have been created and they have provided the basis for the emergence of new industries. And this means a change in the industrial distribution of output and factors of production. It has been further stressed that the pace of shifts in the industrial structure depends on the rate of the technological change.
   Industrialization has brought about a change in the place of women in the economy. They got rid of the responsibility of rearing a large number of children, and their proportion in the labour in force has been increasing. In the United States during the first sixty years of this century it increased from 23 to 34 per cent. This has brought about an improvement in their social status.
   There has been a marked shift in the consumption pattern in industrialized countries. The relative shares of the primary products in total consumption expenditures have declined while those of the industrial products, especially consumer durables and services, have increased. Among the latter too the new products and better varieties of the existing products have been pushing out the old ones. For example, pushbutton and cordless telephones have pushed out old types of telephones, digital battery-run watches have displaced older varieties, colour television with remote control has replaced its black and white sister, and so on.
   Industrialization divided the world into two parts-industrialized and non-industrialized. In the field of international trade both were thought to be complementary. The former provided industrial products while the latter gave raw materials and minerals and market.
   With the revolution in the fields of transport and communications and the advance in medical sciences, the developing countries or less industrialized countries have found their problems to be aggravating. Death rates in these countries have gone down substantially without much change in birth rates. Consequently, their population has been increasing rapidly. This has imposed strains on education, health, medical, transport, and other social services. Unemployment problem has aggravated. There is he adequate capital and technical know-how to expand the productive activities. Because of the growing contacts of their population with industrialized countries, ‘demonstration effects’ come into play. The potential savings do not materialize into capital accumulation because they are, to a significant extent, spent on acquiring consumer products from and aping the life styles of industrialized countries.
   The disparities in the average incomes between the two parts of the world have increased, and this has generated tensions.
   At the same time, there has been a great urge among the peoples of non-industrialized parts to industrialize themselves and perform this task as quickly as possible.
   There has been a fast dissemination of ideas from industrialized countries into non-industrialized ones. Modern scientific outlook and education have also been adopted by non-industrialized countries and they have made a deep impact on some segments of the population.