The novelty of technologically regressive import substitution

 In the next decade or so, the history of economic policy will be enriched by a new, never imagined, experiment: how to accomplish technologically regressive import substitution? This is the problem that Russia will have to face and that is entirely new. To explain why it is new, consider first what is import substitution. It was originally, at the time of Alexander Hamilton and Friedrich List, a policy whose objective was the technological catch-up of less developed countries through the use of high tariff barriers to enable local production of things that were  previously imported. The policy was imitated by many other countries, including the Imperial Japan after the Meiji Restoration and Czarist Russia under the Prime Minister Sergei Witte. Soviet industrial policies in the 1930s and even after World War II were also in the same mold. And, finally, domestic policies in Brazil and Turkey in the 1960-80s (among other countries) defined the meaning of import substitution for several generations of economists.

            In all these cases, not surprisingly, the aim of policies was technological modernization. No one has ever tried to implement import-substitution policies with the objective of going backwards in the development chain. Neither would Russia were she not under the pressure of Western economic sanctions. Why does it have to go backwards? The reason is that Russian “inclusion” in the world economy over the past thirty years has left the country fully dependent on foreign technologies, as Russia has specialized in the production of raw materials, food and relatively unprocessed products. The industrial areas that are normally the backbone of traditional (predigital) development  were well developed in the Soviet Union, but have been abandoned, left to deteriorate and, even if barely existing, are today technologically obsolete. Almost all of what is technologically advanced was produced, or was dependent in part, on Western-made technologies.   

            In the next decade Russia will try to revive these industries (e.g. machine building for petroleum and gas exploration, avionics, car production) on the basis of technologies that have been left rusting for thirty years. For sure, Russia would prefer to catch up with Boeing and Airbus, but an endeavor of that kind requires years and years of development and tens of thousands of specialists. Instead, as the Russian Ministry of Transport’s just published plan for the period up to 2030 envisages, in order to (re)create domestic aviation industry Russia will have to go back to the Tupolev-like technologies and that of the rather unsuccessful Sukhoi Super Jet. Even if Russian regressive import substitution is successful in terms of output, which is very doubtful as it projects the increase of production from 18 domestic aircrafts in 2022 to almost 200 in 2030 (the rate of growth of 35% annually!), once the Russian market gets reopened and sanctions lifted, all that effort will be shown to have been in vain because the new and created-from-scratch Russian models would be less efficient than Western.  Thus, in the year X when sanctions are removed, Russia will be, under the most optimistic scenario, in the same position that the USSR was in the 1980s: it will have an industrial base but that base will not be internationally competitive.

            To further complicate the matters of technologically retrograde import substation, we need to take into account the labor force. In past import substitution episodes, workers were relatively low-skilled and import substitution policies were supported by policies of improved education in order to have workers able to “man” the new and more sophisticated machinery. In the Russian case now, the problem is exactly the reverse. Russia has a labor force that is highly  educated and tends to move towards post-industrial areas, like in other advanced economies. But here it would have to go down in its skills levels to be adequate for the operation or (re)creation of the technologically regressive  import substitution. To put it in graphical terms:  while the original import substitution required that semi-literate peasants learn a bit of arithmetic in order to “service” the machines, here we would expect software engineers to become metal-bashing workers or foremen in large factories. This is because the demand for their (advanced) kind of skills will be reduced as Russian economy is cut off from the global market, and domestically there will be few similarly advanced sectors that would employ them.

            There will be thus a mismatch between the skill level of the labor force and the skill level technologically needed. Suppose that workers  of high skill level (HW) are needed to work with highly sophisticated machines, say robots (HM).  But if HM are unavailable  because previously they were all imported and they cannot be produced at home, the technological level of home-produced machines will be medium, call it MM. For MM however, one does not need HW workers but medium skilled workers MW. Thus, one needs to proceed to the deskilling of high-skill workers or just simply to ignore their level of education and “allocate” them to the jobs for which they are over-qualified. It is hard to believe that workers would find such repositioning attractive whether in terms of income, or challenge of, or interest in, the work they do.   

From the economic point of view this forced experiment will be interesting to observe since, as I mentioned, nothing similar in modern history has ever  happened, but I do not think that it will be very much fun for the participants.

 

The lessons and implications of seizing Russian oligarchs’ assets

 The first and the most obvious lesson that we can draw from the confiscation of Russian oligarchs’ assets is that the pre-February 24 Russia was not an oligarchy, as many believed, but an authoritarian autocracy. Instead of being ruled by a few rich people, it was ruled by one person. To draw this (rather obvious) conclusion, we need to go back to the initial rationale given for the threat of asset seizure. When US government spoke of the seizure of oligarchs’ assets, it was before the war and with the expectations that the oligarchs, faced with the prospect of losing most of their money, will exert pressure on Putin not to invade Ukraine.  We can assume that 99%, or perhaps all, targeted oligarchs (and even those who feared to be possibly targeted) realized the stakes and must have been against the war. But their influence was, as we know, nil. Ironically, they lost their assets because they were not powerful.

If their influence on such an important matter, on which their entire assets and lifestyle depended, was nil, then the system was clearly not a plutocracy, but a dictatorship. I wrote about that in my July 2019 piece “Oligarchs and oligarchs” distinguishing between the early Russian billionaires who manipulated the political system (one should not forget that it was Berezovsky who brought Putin to Yeltsin’s attention because he thought that Putin could be easily controlled), and more recent billionaires who were treated as custodians of assets that the state may, by political decision, take from them at any point in time. It happened –unexpectedly—that it was not the Russian state that took their assets, but the American state. But it did so precisely because it thought (probably not accurately in all cases) that billionaires were “state oligarchs”.

This is the lesson about the nature of the Russian political system. But what are the implications of the seizure of assets?  They are, I believe, two kinds of implications: global and Russia-specific.

The global implication is that foreign plutocrats who often moved their money from their own countries to the “safe havens” of the US, UK and Europe will be much less sure that such decisions make sense. This applies in the most obvious way to Chinese billionaires who might experience the same fate as Russian. But this may also apply to many others. The frequent use of economic and financial coercion means that If there are political issues between the West and (say) Nigeria or South Africa or Venezuela, the same recipe will be applied to the billionaires from these countries, whether simply as a punishment or because of the expectation that they should influence the policy of their governments. Under such conditions, they would be very unwise to keep their money in places where it may be as insecure as in their own countries. We can thus expect the growth of other financial centers, perhaps in Gulf countries and India. Financial fragmentation is very likely, and would be driven not solely by the fears of billionaires but by obvious fears of potential US adversaries like China that their governments’ assets may too prove to be just pieces of paper.

What are the likely implications for Russia? Here we have to take a longer-term view, and to look past the Putin regime. The conclusion that billionaires and people close to power will draw is the one that was drawn a few times in Russian/Soviet history only to be forgotten. Leaving aside the conflicts between boyars and the czar, consider similarities with what happened now with Stalin’s regime. Stalin too was able, through skillful maneuvering to move from being a “gray blur” (as characterized by Trotsky) to the position of complete power including, in the last years of his rule, over the entire Politburo. Putin has not yet started executing people around him, but he has shown that politically they do not matter at all. The conclusion that the future Russian oligarchs will draw is the same that the Politburo members did: it is better to have a collective leadership where individual ambitions will be checked rather than to let one person take the full power.

I think that the future oligarchs (who are probably now making their first steps) will realize that they can either stick together or hang together. Under Yeltsin when they did dictate government policy, they preferred to fight each other, brought the country close to anarchy and even the civil war, and by doing so facilitated the rise of Putin who introduced some order.

Another implication is very similar to what I called the global implication. Again, it is useful to go back in time. When the original privatizations happened in Russia, the commonly-used economic logic was that it does not matter (for efficiency) who gets the assets because they would be bid out by better entrepreneurs, and everybody will have an incentive to fight for the rule of law simply to protect their gains. Communists will not be able to come back: “once the toothpaste is squeezed out, it cannot be put back” (that was a preferred metaphor used to argue for fast and inequitable privatization). The comparison was made with American “robber barons” who also often became rich by illicit means, but had the interest to fight for the safety of property once they became rich. The expectation was that the Russian billionaires would do the same.

These expectations were upended by billionaires’ finding a (seemingly) much better way to make their money safe: move it to the West. Most of them did so and it seemed an excellent decision—all the way to about six weeks ago. The new post-Putin billionaires will probably not forget that lesson: so we may expect them to favor a weak central government, that is, a true oligarchy, and to insist on the domestic rule of law—just because they will have no longer any place where to move their wealth.

 

 

 

 

 

The evolution of Karl Marx: a review of Kevin B. Anderson’s “Marx at the Margins”

 The goal of this very well-researched and well-written book is to show the evolution in Marx’s thinking away from the unilinear view of historical evolution, going  from primitive communism to slave-owning societies to feudalism to capitalism and, in the future, to socialism and communism. This unilinear scheme of history that in Capitalism, Alone I called the “Western path of development” (WPD) is the ”bread and butter”  of classical Marxism. It was based though, as many have argued, and Kevin Anderson very persuasively shows, on a generalization of West European history. It could not be transplanted elsewhere nor used to explain the rest of the world.

Marx was aware of that and introduced his famous “Asiatic mode of production” characterized by land ownership in common (whether by consanguine communities or not) and by an overarching hierarchical authority on the top. It was a prototype of what was later defined by the Marxist scholar Karl Wittfogel as the Oriental or “hydraulic” societies.  The Asiatic mode of production always sat rather uneasily within the Marxist framework because one could not say much about its evolution: whether such societies tended on their own to become capitalist, including by creating private ownership in land, or not. Even less could be said about their socialist prospects: but if so, how could “scientific socialism” argue for global validity?  

 Anderson shows that Marx in his early period, which we may date to the late 1850s, was both Eurocentric and, in a few passages where he discussed the Asiatic mode of production he assumed that it was ahistoric and unchangeable.

Things began to change in the 1860s, under the influence of political developments outside Europe. They led Marx to begin studying much more seriously non-(west) European  societies: the origin, history and class structure of agricultural societies without private ownership of land, their similarities and differences with such early European societies (of Germanic and later Slavic kind). The political events of late 1850s-early 1860 that attracted Marx’s attention and on which he wrote prolifically (mostly as the European correspondent of the New York Daily Tribune and also for Die Presse in Vienna) were the Taiping uprising in China (1850-64), the Sepoy rebellion in India (1857), the end of serfdom in Russia (1861), and the American Civil War (1861-65).

Anderson dedicates a whole chapter to Marx’s and Engels’ writings and mutual correspondence regarding the American Civil War.  As is well-known, both were strong supporters of the Union, and admirers of Lincoln—even if Marx tended to criticize him for timidity—but only to be pleasantly surprised and impressed when Lincoln fired General George McClellan and issued the Emancipation Proclamation. Engels, who had considerable military training, was less sanguine about the chances for an outright Northern military victory. Marx, who paid more attention to the social forces and the position of various classes and groups both in the South and the North, never doubted Northern victory, even at the times when Britain was on the verge on intervening on the side of the South.

The discussion of the American Civil War is important because it lets us see how Marx approached and combined the racial and the class questions. Perhaps this quote from a 1866 letter to François Lafargue (later repeated verbatim in Capital), “labor in the white skin cannot emancipate itself when in the black skin it is branded” summarizes best his opinion. But it leads us astray from the main point of the book, namely non-European nations’ transition to capitalism. Here India and, especially, Russia played a key role in the evolution of Marx’s thinking.

In the period up to the publication of Capital (volume I), Marx regarded Russia, as European liberals of the age did, as an extraordinary reactionary power, dictatorial internally and supporter of anti-revolutionary forces externally: “It is in the terrible and abject school of Mongolian slavery that Muscovy was nursed and grew up…Even when emancipated, Muscovy has continued to play its traditional role of a slave as a master” (p. 48; written in 1856). Russian  intervention on behalf of Austria in 1848-49, the creation of the Holy Alliance, the Crimean War, and bloody suppression of several Polish uprisings all fitted that image.

The change in Marx’s views, and greater interest in Russia, began after the publication of Capital when the Russian translation (which was the first translation of Capital, in 1872) attracted not only an unexpected interest among intellectuals and revolutionaries in Moscow and St Petersburg but also very astute and pertinent commentaries, quoted by Marx in extenso on several pages in his introduction to the second German edition of Capital.  

Marx new-found interests in things Russian, which led him to learn the language and read a number of Russian books in the original, had another important consequence. Russian Marxists posed the following question: could socialism in Russia sidestep capitalist development and use the land held in common (the Russian mir) as the basis for future socialization of the means of production? The question was whether the “natural” evolution was always such as to move from communal land ownership to private small-holding and then eventually into socialism, or could private small-holding be simply skipped?  

The same problem was faced elsewhere: in India and Algeria. In both cases, to which Marx directed his attention, the colonial authorities encouraged privatization of land. That was the way in which the colonists hoped to get hold of the land. If each parcel of land is held in common by a clan or extended family and cannot be alienated, how are French and British colonists going to get any of it? But if it is parceled out into private holdings, these individual lots can be either more easily expropriated or purchased from the new owners. This is why the French were keen to break clan ownership in Algeria, and the British helped zamindars become formal owners of land (zamindars were originally tax farmers who collected taxes from the peasantry and kept a part for themselves but did not own the land).

Everywhere thus, including in the Russian case (the land privatizations after the end of serfdom), the movement seemed to be towards the breaking-up of the communal ownership and the introduction of “land capitalism.” Still, the more Marx studied non-European societies, the more aware he became, Anderson argues,  that the WPD did not necessarily apply to them:  there was no equivalent to West European feudalism, and the future of rural communes was not preordained. It is in that context that Marx’s famous 1881 letter to Vera Zasulich, the Russian revolutionary, was written. The importance of Marx’s letter cannot be overestimated. It is shown by the fact that Marx, a compulsive and fast writer, made no fewer than five drafts of the letter, each more detailed than the short letter he finally sent. He explicitly circumscribed the validity of his analysis: “The ‘historical inevitability’ of this course [i.e. his analysis in Capital] is therefore expressly restricted to the countries of Western Europe”; and he allowed for the possibility of skipping the capitalist stage: “The analysis in Capital therefore provides no reasons either for or against the vitality of the Russian commune. But the special study I have made of it, including a search for original source­ material, has convinced me that the commune is the fulcrum for social regeneration in Russia. But in order that it might function as such, the harmful influences assailing it on all sides [meaning most likely the privatization of land] must first be eliminated, and it must then be assured the normal conditions for spontaneous development.”

Towards the end of his life, through an evolution driven largely by political events outside Europe and Marx’s extensive readings, Marx came to believe that the evolution he and Engels sketched in 1848 was valid for Western Europe alone and perhaps confined to it. It is only within this context that we can understand the apparently barren last decade of Marx’s life when, rather than completing the remaining volumes of Capital, he spent an inordinate amount of time studying the minutiae of Russian and Indian land ownerships, geology, the pre-historical societies and the like.

David Ryazanov, the first editor of Marx’s and Engels’ collected works, criticized Marx for this apparent waste of time: “Why did he waste so much time on this systematic, fundamental summary [of various books] or expend so much labor on one basic book on geology, summarizing it chapter by chapter. In the 63^rd year of his life—this is inexcusable pedantry” (p. 249). However, according to Anderson, the “waste” can be understood  if we realize that Marx, unsatisfied with the WPD and his non-historical “Asiatic mode of production”, was, albeit unsuccessfully, trying to generalize the pathways of transition to capitalism by looking at the world as a whole, no longer Europe alone.