Profiteering Under a Communist Régime


PRESIDENT MASARYK of Czechoslovakia once characterized Bolshevism as a political and military success, but an economic failure. This seems a premature judgment to pass on a social system that has not yet run its historical course; and a Russian Communist might retort that Masaryk’s Czechish legionaries, together with the other forces which took part in the intervention, must bear a considerable share of responsibility for Russia’s present shattered economic condition.

However, Masaryk’s remark contained a kernel of suggestive truth. Acting Premier Kamenev declared at the last Soviet Congress that the Soviet Government now has no political problems, only economic ones, and this observation really sums up the present situation in Russia.

Politically the Soviet Government now appears stable almost to the point of stagnation. There are no ‘politics,’ in the ordinary sense of the word, in Russia to-day. There are no opposition political parties; no hard-fought election campaigns; no anti-Government newspapers. Behind the transparent façade of the Soviet Constitution, the dictatorship of the Communist Party, an organization which now numbers approximately 600,000 members, functions with clockwork regularity.

This dictatorship passed through two severe tests last winter and emerged from both apparently unshaken. There was first the internal Party controversy, in which Trotzky assumed a position in opposition to that of the majority of the members of the Political Bureau of the Central Committee, the highest executive authority in the Party. This controversy ended without any open break; Trotzky withdrew from public activity for a time and has now returned, apparently ready to cooperate with the Central Committee on the same terms as before. The second test was the death of Lenin. Here again the strength of the Party organization made itself felt. The machinery of government continued to function without a sign of creaking. Public order remained undisturbed.

The unbroken political calm in Russia can be ascribed in part to such positive factors as the closely knit, well-disciplined organization of the Communist Party and to its dictatorial control of all such sources of power as the army and the police, the legislative bodies and the courts, the schools and the newspapers. It is also due to certain negative factors. The many Russians who are opposed to Communist rule are helpless in their lack of any common programme or organization. The old social classes about which the anti-Bolshevist movements of Kolchak, Denikin and A wrangel centred, the Tsarist landlords and military and civil officials, have been smashed by the Civil War and the social upheaval in village and city. New self-conscious classes with political and economic interests in opposition to the policies of the Soviet Government have not had time to develop, although the new economic policy has created a basis for such classes both in the country districts and in the towns. However, for the time being, the Soviet Government has easy sailing, so far as the matter of preserving its political domination is concerned.

Economically, on the other hand, the situation is quite different. It is no accident that most of the space in the Russian daily newspapers is given over to discussion of economic problems. Under any conditions the material reconstruction of Russia, after years of steady deterioration, would present colossal difficulties. But the usual difficulties are complicated and enhanced by the fact that the Soviet Government is attempting to apply, in a peasant country with a shattered industrial system, Marxian economic theories which are based on the assumption of a high degree of mechanization both in industry and in agriculture.


Broadly speaking, the Soviet Government is now faced with two main reconstruction problems. There is first the problem which confronts every government, especially every dictatorship, the problem of securing tolerable living conditions for the masses. Then there is the second problem, peculiar to Russia, of directing the country’s revival along State Socialist lines.

Judged by almost any statistical test Russia has experienced a notable material revival during the last three years. Industrial production has risen in volume from ten or fifteen per cent of the pre-war figure, the low level which it touched during the worst years of civil war and blockade, to approximately thirty-six per cent at the present time. Among the more important industries oil and textiles have led in this recovery. Russia’s export trade, which disappeared entirely during the years of blockade, rose in value from approximately $40,000,000 for the year ending October 1, 1922, to $100,000,000 for the following year. This year the export programme of the Commissariat for Foreign Trade anticipates a volume of exports to the value of more than $200,000,000. The deficit in the State budget has steadily diminished, and in February the Government was able to stabilize the currency, although this measure still demands the greatest vigilance and economy in order to ward off the danger of a new inflation.

The daily life of the population has also improved, as compared with the conditions of three or four years ago. People are gradually getting more food and more clothing. The cities are no longer half starved. The famine conditions which prevailed in the Volga Valley in the winter of 1921-1922 and, to a much smaller extent, in the southern Ukraine in the winter of 1922-1923, have been overcome. The fearful cholera and typhus epidemics of the period of civil war and famine have ceased.

One should not exaggerate the tempo of Russia’s recovery. The economic situation still presents many unfavorable aspects. As a result of several factors, loss of livestock through war and famine, high taxes and disproportionately high prices for city products, the material condition of the great majority of the peasants is still very bad. The heavy industries, such as mining and metallurgy, lag behind the general pace of industrial recovery; and it seems doubtful whether they can be restored to anything like pre-war productivity without the expenditure of hundreds of millions of dollars for reconstruction purposes. The impoverished Russian State treasury is, of course, altogether unable to furnish such sums, and no large-scale agreements have been made with foreign capital. During the last eighteen months there has been a perceptible, steady growth of unemployment, due to several causes: the reduction in the number of workers employed in various Government institutions, the demobilization of the former huge Red Army, the influx of peasants from the povertystricken villages into the cities. This influx has proceeded faster than the reviving industries were able to take on new workers, and has contributed considerably to the growth of unemployment. The total number of unemployed is now estimated in round numbers at about a million.

Still the favorable symptoms in Russia’s material development generally outweigh the negative factors. Starting from an almost incredibly low level, the country has been going through a slow and painful, but steady, process of recovery, uninterrupted by any such catastrophic setback as Germany experienced in connection with the Occupation of the Ruhr.

The problem of advancing Russia’s material reconstruction, difficult as it is, has probably given the Soviet Government much less concern than the problem of guiding this reconstruction along State Socialist lines. The struggle between State Socialism and private Capitalism, a struggle that is constantly assuming new forms, is perhaps the most vital and absorbing manifestation in Russian economic life at the present time.

Blockade, intervention, and civil war pushed the Soviet Government into adopting a programme of thoroughgoing Communism, which involved the nationalization of all industry, the forbidding of all private trade, and the industrial conscription of all citizens. Much of this was doubtless inevitable during the Civil War: for it was essential, from the standpoint of the Government, to get food for the cities and the army; and it was impossible, in view of the acute shortage of fuel and raw materials and the concentration of most of the factories upon military production, to turn out enough manufactured goods to give the peasants in exchange for their food. However, this complete Communism proved utterly impracticable as a system of production in time of peace; and in the spring of 1921 the Soviet Government, under the pressure of peasant revolts against the requisitions, desperate food conditions in the cities, and the general economic breakdown of the country, went over to the so-called New Economic Policy, or ‘Nep.’

The most important feature of the Nep was the substitution of a fixed tax for the previous requisitioning of the peasants’ grain, and the legalization of private trade within Russia. This was accompanied by a number of less significant changes, such as the restoration of a monetary system, the granting of a larger measure of autonomy to the coöperatives and the reorganization of the State industries along lines which imposed greater responsibilities and authorized a larger degree of initiative on the part of their managers.

The Soviet Government realized that the reintroduction of private trade would pave the way for the rise of a newly enriched bourgeois class and eliminate the material equality which had prevailed, on paper at least, during the period when the city population was rationed as to food and clothing and the peasant was allowed to keep only as much grain as he needed for his own use. With a view to preventing the private capitalism which was inevitably bound up with the New Economic. Policy from assuming a commanding position and thereby bringing about a complete economic counter-revolution which would certainly entail political consequences, the Soviet Government marked out a number of economic key-positions which should, under no circumstances, be surrendered into private hands. These key-positions, or economic bases of Soviet power, have been described several times: by Trotzky, for instance, at the Communist Party Congress in April, 1923, and, more recently, by Rakovsky in his opening speech at the London Conference. It is well to bear them in mind, for it is by the maintenance or surrender of these key-positions that an outside observer can best judge the success or failure of the State Socialist reconstruction programme.


The first of these key-positions is State control and operation of transport and essential industries. This is designed to prevent the successful merchant or speculator from investing his capital in industry and getting a grip on the processes of Russia’s basic production. The second key-position is State monopoly of foreign trade. This institution, from the standpoint of the Government, has several advantages. By insuring a favorable trade balance it helps the Finance Commissariat in its difficult struggle to stabilize the currency. By creating a centralized apparatus for carrying on commercial relations with other countries it enables the State to direct Russia’s exports and imports along the lines which are believed to be most advantageous for the country’s development. Finally the State monopoly acts as a barrier between the Russian private merchant and the foreign firms with which he might otherwise open up connections. This deprives the new capitalist class in Russia of another possible source of added wealth and economic power.

A third key-position is the Soviet Land Law. This law is based upon the principle t hat use is the only legitimate title to property in land. The village land allotments are based upon the number of workers in each peasant family; and, while the leasing of land for productive purposes is permitted over limited periods, no one is legally permitted to acquire anything in the nature of permanent title in land which he does not propose to till himself. This law is designed to prevent the rise of a class of wealthy peasants upon the ruins of the old landlord system. It should also operate as an effective obstacle to the buying up of land from impoverished peasants by the newly enriched classes in the cities.

Besides holding these most important economic key-positions the Government controls Russia’s banking system and maintains State and cooperative stores in competition with those which have been opened by private individuals. One might think that under such conditions private capitalism had little opportunity to develop, especially as the Government does not hesitate to banish or imprison, with scant legal formalities, any merchant or speculator whose activities it considers obnoxious. But there are other factors in the case that modify the effects of the Soviet Government’s theoretical programme and help to explain the rapid development of certain forms of speculative capitalism.

A régime of State Socialism, in order to function effectively, must have a trained and reliable economic Civil Service staff, consisting of engineers, production managers, accountants, technical and financial experts, and others. The Communists scarcely had any material out of which such a Civil Service could be built. A party of workmen and radical intellectuals, they experienced the greatest difficulty in finding men who were even passably qualified to occupy the more important technical administrative posts after the November Revolution. To be sure the Revolution brought out a good deal of latent untested practical ability in some of the Communist leaders. Such men as Trotzky, Rykov, Dzerzhinsky, the head of the Supreme Economic Council, Pyatakov, one of his chief lieutenants, and Sokolnikov, the Commissar for Finance, have made good records.

But a few able and devoted men at the top cannot make a complex economic system work efficiently. And, in picking out candidates for such posts as heads of State trusts, managers of factories, and sales-directors of syndicates, the Soviet Government is again and again compelled to make a difficult choice between appointing an inexperienced Communist, who is likely to wreck the enterprise through technical blunders, and a specialist of the old régime, who is just as likely to wreck it by working out some elaborate scheme for selling out the State property to private speculators at much reduced prices, receiving a share of the proceeds and making up the loss by charging higher prices to ordinary customers. Of course all the State enterprises are not so badly mismanaged. But in general corruption and inefficiency constitute a heavy burden for the Russian State industries.

Moreover, Russia’s experiment in State Socialism was carried out under conditions of extreme national impoverishment and disorganization. Especially during the first period of the New Economic Policy, the scarcity of goods was so great that any clever speculator could make a small fortune by cornering the available supply of sugar or leather or textiles in a city or region. The spoils of trade, under these circumstances, almost invariably flowed to the shrewd, energetic private trader.

Given these two factors, the absence of a competent and experienced personnel for the work of State economic administration, and the conditions of scarcity which acted as a stimulus to speculation, it is not surprising that private capital developed and accumulated in Russia after the introduction of the Nep at a much faster tempo than the various legal and economic restraints and barriers erected by the Communist Government would seem to permit. The Nep has already contributed to the emergence of two definite, comparatively prosperous classes from the grim, hungry equality of the period of military communism. These classes are the Nepmen in the cities and the kulaks, or rich peasants, in the villages.


The Nepman is a familiar figure in Moscow, Petrograd, and other large Russian centres. He goes to the opera in a fur-lined coat in the winter and spends his summer vacation in a villa outside Moscow or in a Caucasian or Crimean health resort. His money is easily made and easily lost, so he is prone to spend it recklessly while he has it.

The Nepmen may be divided into several species, according to social and economic origin. Some of them are former merchants who have reopened their old businesses. A large element is made up of hardened speculators who contrived to escape the severest persecutions of the period of military communism by their uncanny facility for bribing and swindling. These are the men who are quick to spy out the weak spots in the State economic organization, to tempt corruptible officials in the State trusts and coöperatives with proposals to dispose of their goods at abnormally low prices in return for a bribe. The army of Nepmen also includes an underworld and a semicriminal fringe of successful bootleggers, drug-venders, professional gamblers, and so forth.

How much the Nepmen have made is a subject of heated debate in Communist economic circles. Mr. Preobrazhensky, a well-known economist and one of the members of the Russian delegation to the London Conference, estimated the gains of the Nepmen in trade during the last year at $300,000,000. During the same period the State industries generally showed losses, amounting, as is generally estimated, to a little less than $100,000,000; and these losses had to be made good by means of subsidies from the hardpressed State treasury. Preobrazhensky’s figures about the gains of the Nepmen are disputed, and no very accurate statistics on the subject seem to be available. However, it is known that five sixths of the retail trade of the country is in the hands of private individuals, and private capital is more and more penetrating the fields of wholesale and wholesale-retail trade. In any campaign to carry out a plan of coördinated price reduction the Nep trader is a factor with which the Government must reckon seriously.

Of course the Nepmen have no hold on transport, basic industries or natural resources; and they are completely excluded from any share in political power. But within a comparatively short time they have gained a commanding position in the field of trade, and their real economic power is somewhat greater than would appear on the surface.

Side by side with the Nepman in the city the last three years have witnessed a steady increase of wealth and economic power on the part of the village kulak. The kulak, or ‘fist,’ was a familiar figure in the pre-revolutionary Russian peasant village. He was the village usurer, the man who had got many of his poorer neighbors in his debt. The term also came to be applied, somewhat less justly, to those peasants who had the skill or good fortune to accumulate more land and property than their neighbors.

During the Civil War the kulaks, who generally ranged themselves on the anti-Bolshevist side, fared rather badly. Their horses, cattle, and grain were ruthlessly requisitioned; their land allotments were cut down to correspond with those of the poorer peasants. But the introduction of the Nep paved the way for the return of the kulak to something of his old predominant position in the village community. War, requisitions, and famine played havoc with the peasants’ supply of live stock. According to figures prepared by Mr. Yakovlev, who has been carrying out an extensive investigation of the peasant problem on behalf of the Central Committee of the Communist Party, 52.7 per cent of the Ukrainian peasants have no horses. Ukrainia, to be sure, suffered especially from civil war and banditism; but figures for other regions also show a large proportion of horseless peasants. The percentages for three other districts in different parts of Russia are 37.7, 34.1 and 42.2. Now, the peasant who has no horse is economically very much at the mercy of his richer neighbor. The poorer peasant is legally entitled to his equal share in the village land allotment, but he cannot harvest his crop unless he can get the use of one of the kulak’s spare horses. He must pay heavily for this, and by the time the demands of the tax-gatherer are satisfied the poorer peasant usually has barely enough grain left to meet the food needs of his family and to exchange for the most necessary articles of household use. So his economic bondage continues from year to year, whereas the kulak, fattening on the rental of his working animals, pays his taxes promptly, thereby securing a reduction in the amount, holds back his grain when prices are low in the fall and gets the advantage of the higher prices in winter and spring. The rapid accentuation of class differences in the villages since the introduction of the Nep is commented on both by Yakovlev and by other students of the agrarian problem.

The leaders of the Communist Party are by no means blind to the growth of the Nep and to the dangers which this growth implies for their political and economic hegemony. They see in the Nepmen and in the kulaks the embryo formations of classes which, if they continue to develop and accumulate wealth, will come to constitute a political as well as an economic menace to the existing régime. To a certain extent, of course, they recognize their helplessness in the face of circumstances. The memory of the desperate conditions which produced the Kronstadt mutiny and the peasant revolts of 1921 is too fresh to permit any responsible Communist even to think of the possibility of doing away with the New Economic Policy; but it is possible, within limits, to take political steps against certain phases of the Nep, and some of the recent actions of the Soviet Government seem to have been designed with this in view. So, during the last winter a large number of Nepmen, estimated at several thousand, were summarily told to leave Moscow. Some were sent in exile to remote parts of the country; others were allowed to go where they chose, so long as they left the capital. Last March the well-known Communist bank president, Krasnoschekhov, was brought to trial on charges of abusing his position to serve his private interests and received a sentence of six years in prison. Krasnoschekhov was not convicted of any flagrant corruption; and his case was clearly designed as a warning to Communist industrial administrators who might be tempted by their surroundings into living too luxuriously, thereby bringing on the Party the reproach of harboring ‘careerists’ and bureaucrats. Lately a ‘cheestka,’ or cleansing has been going on among the Communists employed in such institutions as the State Bank, the Foreign Trade Commissariat, the Supreme Economic Council, and the Centrosoyuz or Central Coöperative Organization. This is avowedly designed to weed out Communists who have succumbed to the temptations of the Nep and are living in ‘bourgeois’ style. The admission of two hundred thousand manual workers directly from the factories represents another attempt on the part of the Communist leaders to give the Party a more definite working-class revolutionary orientation, as a counter-balance to the relaxed morale that has made itself felt since the introduction of the Nep.


It is a tragic and fascinating spectacle, this effort of a small band of fanatical Marxian revolutionaries to apply their theories in a primitive, half-Asiatic country like Russia, which differs in almost every conceivable way from Marx’s vision of a thoroughly industrialized society. One constantly returns to the futile but absorbing question: How will it all end? The consequences of the social upheaval in Russia are so complex and far-reaching, the present phase in the post-revolutionary development is so confused and apparently transitional in some of its manifestations, that one shrinks from anything in the nature of premature dogmatic prophecy. One may, perhaps, venture to sketch two alternative lines along which the Communist dictatorship may develop. The Soviet Government may preserve its present State Socialist organization of industry and finance, maintaining the monopoly of foreign trade and contenting itself with the very modest sums of foreign capital which may flow into the country under these conditions. Some Communists are convinced that the salvation of Russia lies in this direction. The country will be built up, they argue, slowly and painfully but steadily; the economic and administrative measures of the State will keep the Nepmen in a subordinate position; with the passing of time a new generation will grow up under the influence of revolutionary ideals and capable of adjusting itself to the demands of the Socialist State.

The chief obstacle to the reconstruction of Russia along these lines would seem to be the sacrifices which it will demand from the masses of the Russian people in the way of a much lowered standard of living over a very long period. Material hardship breeds political discontent; and the Soviet Government, despite its absolutist political system, may some day find itself confronted with a new kind of opposition — not the dead and buried opposition of the Whites and the Interventionists, but a demand on the part of the Russian masses for better living conditions.

There is also the possibility which has been mentioned by several Americans who have recently been in Russia, notably by Colonel Haskell, the former head of the A. R. A. relief work in Russia, and Mr. Irving T. Bush, former President of the Chamber of Commerce of the State of New York. This is the possibility that State Socialism, like the military Communism which preceded it, is only a passing economic phase in the history of the Russian Revolution; that the restoration of full-fledged capitalism, symbolized by the recognition of the Tsarist debts and the turning over of many of the State industries to private operation, is a likely development of the near future. This point of view, however, would seem to underestimate the fanatical loyalty of the Soviet leaders to their ultimate Communist ideal. Among the Communist political leaders, such as Trotzky, Kamenev, Zinoviev, and Stalin, there is no division on the issue of yielding to foreign capital. All are committed to holding the bases of economic power to the bitter end.

There is really no historical precedent to enable one to calculate the future prospects of the Russian Communists. By making the compromises with the peasant and the small trader which were implicit in the Nep they have prolonged the term of their existence far beyond that of their historical spiritual ancestors, the French Jacobins. A hostile commentator once spoke of the Nep as ‘the economic Ninth Thermidor’ of the Bolshevist Revolution; and to some extent the present phase of the Revolution, with its lack of a strong, unquestioned leader, its mixture of old and new social and economic forms, its halfrealized and unrealized ideals, suggests the French Revolutionary aftermath under the rule of the Directory. But no Napoleon has appeared on the Russian horizon, and, if there were such a figure, he would think twice before risking his life in an attempt to substitute personal rule for the Arguseyed dictatorship of the Communist Party Central Committee.