L. Shanin

ECONOMIC NATURE OF OUR

COMMODITY SHORTAGE

We are at present displaying great activity in dealing practically with the shortage of commodities. But our activity is aimed rather at its surface. Meanwhile, commodity shortages are building up and coming to be a sustained characteristic of our whole worsening economic situation. We can therefore no longer be content to react with palliatives alone. We are obliged to take a closer look at the nature of this phenomenon and pose this problem in all its real magnitude....

The fact is that when industry operates, it acquires agricultural raw materials, semifinished goods, instruments of production, etc. In addition, it acquires labor, and absorbs, digests all these in the process of production. Atthe same time a distinctive kind of exchange occurs: industry, appearing on the raw materials market and on the labor market, pours its working capital into these markets. Through wages and purchases of raw materials, industry passes on its purchasing power to the workers and the peasants. As a result of the act of production there takes place a shift of purchasing resources from industry to the broad masses (and to other branches of industry producing semifinished goods and instruments of production required for the productive process). This shift means more than just a change in the topography of effective demand. The particular distribution of demand also determines the qualitative nature of that demand. To be concrete: industry has acquired raw materials and semifinished goods, equipment, and labor; the peasantry and the workers, to whom the financial means of industry have been transferred, at once emerge as purchasers of consumer goods. As a result of industry’s emergence as a purchaser, a qualitative metamorphosis of demand occurs and effective demand is created for other commodities. Specifically, a demand is created for consumer goods, replacing the previous industrial demand for producers’ goods.

What has happened during this time with respect to industrial supply? As a result of the productive process not only has there been a shift in demand, but a new industrial supply has been developed as well. At this point we must ask ourselves the following question: what will the result be if industry produces not consumer goods but instruments of production? In that case at the pole representing demand among the worker and peasant masses we shall see generated a growing demand for consumer goods, while at the pole representing industry we shall have a supply that will depend on which branches of industry we are giving priority in development. If it is heavy industry, industrial supply will consist predominantly of tools of production, girders, rails, building materials, etc., i.e., commodities which are out of line with the demand that industry itself has created in the process of its development. A disparity is possible here between the qualitative nature of demand, on the one hand, and of the supply which will be created by the given type of industrial development” on the other....

The illusion prevails in our country that all that has to be done to overcome the commodity-shortage crisis is to develop the industrial machine to the utmost. But we are forgetting that the supply which industry is creating is attended by the demand which it itself is creating. The disparity between the development of agriculture and the development of industry by no means signifies that our industry is not developing vigorously enough, for our industry is not parasitic upon agriculture; the disproportion lies on another plane and consists in the fact that industry’s fixed capital is developing too fast and that the industrial branches which are developing are not those which could satisfy the consumer-goods demand that the development of industry is creating. This is the essence of the phenomenon currently observable in our country. If the capital which has been poured into industry and the enormous productive work it is doing had gone into lifting the branches of light industry-the textile industry, the footwear industry, the glass industry, the various branches of iron processing, the match industry, the food industry-if it were these particular industries in the main that were developing in our country, the satisfaction of peasant demand would have turned out more favorably. This would have meant, however, that where other branches of industry were concerned we should be relying not on domestic production but on imports.

This is precisely why we are pouring our main resources not into light but into heavy industry, and the result is the phenomenon of protracted commodity shortage the signs of which we observe at the present time. In the second volume of Capital, Marx wrote that the communist planned economy would have to be very wary of developing those branches of industry which immediately create a demand for consumer goods in the form of wages and raw materials purchases, but which do not turn out large quantities of consumer goods until they have passed through a number of later stages. We have already had occasion elsewhere to quote the passages relevant to this in the second volume of Capital. Marx wrote: “On the basis of socialized production the scale must be ascertained on which those operations-which withdraw manpower and means of production for a long time without yielding any product as a useful effect in the interim-can be carried out without prejudice to those branches of production which not only withdraw labor-power and means of production continually, or several times a year, but also supply means of subsistence and of production.”^1.

The communist “society must calculate beforehand how much labor, means of production, and means of subsistence it can, without difficulty, invest in branches of production such as railroad building, for example, which for a long time, a year or more, furnish neither means of production nor means of subsistence and in general produce no useful effect, while they withdraw labor, means of production, and means of subsistence from the total annual production.”^2.

Expressed here is the idea that there must be proportionate development of the branches of heavy industry. We cannot be said to have maintained strict proportionality in this respect! In 1925/ 26 we expect to invest in industry’s capital stock around 900 million rubles, 575 million of this in heavy industry and a little over 300 million in light industry. It is contemplated, therefore, that almost twice as much capital will be invested in heavy industry as in light industry. In other words, only one-third of the total investment is expected to be directed into light industry, which produces consumer goods.

The usual reasoning of our management personnel is as follows: The textile industry needs textile machine s for its development; consequently, we must set up the industry to produce them in our country. If there is a demand for, or shortage of, a particular item, then the industry to produce it must be set up in our country. According to this primitive reckoning, mass orders are put through for capital repairs and construction, channeled to particular branches of industry merely because there is a demand for their output.

And yet we must definitely realize that the heavy industries can be developed only on the basis of extensive preliminary development of light industry (or importation of consumers’ goods), i.e., only provided light industry is in a position to make available the very considerable supplies of commodities needed for satisfying the consumers’ goods demand created by the development of heavy industry. Should our light industry get so far ahead that it produces output in excess of the demand which presently exists, and inventories of consumers’ goods, first a two-weeks’ supply, then a month’s, than a two-months’, etc., start to mount up in our country, it would then be heavy industry’s turn for development on a broader scale. Then the extensive development of heavy industry could be handled painlessly, for the demand created in the process of that development could be satisfied easily without any danger of inflation attributable to accumulated inventories of consumers’ goods.

Not even countries like the United States and Germany developed all branches of industry simultaneously or at uniformly vigorous rates of advance. At the beginning only part of them developed, and where the rest were concerned the country lived on imports.

A number of industrializing countries began with light industry, imported semifinished industrial goods and the most advanced equipment purchased at low prices from the better developed countries, and in that way pushed the development of their light industry on a less costly basis. Not until these branches had accumulated considerable inventories of goods, which could be quickly directed into nurturing the branches of industry next in order, did these countries proceed to the development of the latter. Only after extended industrial grounding in the sphere of consumer goods production did they proceed to the development of the basic branches of heavy industry. Only as and when light industry developed on such a scale that it began to turn out surplus products which went into inventories essential for the satisfaction of consumer demand (engendered by the growth of heavy industry) did the country proceed to the development of heavy industry.

In our country this essential proportion has thus far not been maintained. We did not have to maintain it initially, because thus far, without notable outlays, we have been activating capital stock already available. Since the equipment was available, all that was required to start up enterprises in heavy and light industry alike was working capital, and in general the production results were attained equally fast in heavy industry and in light. But now that we are moving on from the recovery process to the building of new plants or the restoration of old ones in need of extensive repair and renovation, any new investment for heavy industry requires a considerably greater capital outlay than for the construction of light industry, while the production results in the former will not begin to be obtained until much later. This is why we must now reconsider the tactics of industrial construction and be especially wary of developing industries which do not directly manufacture consumer goods. Actually, under the influence of the crisis that we are undergoing-the crisis of commodity shortage-we are already partially embarking on this course. If we take the credit plan for the first quarter, we see that it is based on the following directives: industry must be supported, but specifically the industry which directly and with the shortest possible delay makes consumer goods; but we should be doubly wary of everything that calls for investment of funds for a more extended period, in order to avoid a time gap between the appearance of demand and the possibility of its being satisfied.

However, at this point a new problem arises to confront us in all its magnitude: How shall we be able to develop light industry unless we supply it with sufficient equipment, semimanufactured goods, and industrial raw materials out of domestic production? The answer lies in the importation of these groups of commodities for the appropriate industries in our country. But is this solution feasible? Is it not thwarted by the acute shortage of foreign exchange resources in the country?

There is nothing unfeasible in this solution. The only thing is that such a rearrangement does presuppose a number of broad measures for the development of the export branches of our economy.

We must:

(1) Develop more intensively, and in the first instance, those branches of agriculture which produce large masses of goods for export, and those branches of industry with whose development our industrial export capability is linked. Development of consumer goods production and of our economy’s export branches is our central object.

(2) Simultaneously, utilizing these export resources for import purposes, we must adopt a course of initially slower and more cautious development of heavy industry. With the proceeds from exports we must systematically import equipment, processed metals, etc., so that substantial outlays on their production do not have to be made at the present time. Funds made available (as a result of having rejected the forced-draft development of heavy industry) we must pour into light industry and the export branches of the economy.

Our economic strategy should involve, first, export of agricultural commodities, and second, investment of capital in the branches which serve that export. Relying on our agricultural basis, we must build grain elevators, refrigeration plants, and bacon factories, the investments required for these undertakings being infinitely small when compared with the expenditures which would be required by the immediate full-scale development of heavy industry.

At the same time we must do our utmost to speed the development of industries processing farm produce. We must strive to develop the sugar industry, so that we can export sugar. The textile industry must, in its advance, reach the point where it can make its appearance on the Near East market. We must speed the development of other industries producing manufactured goods for export. These are the ways in which we shall secure the foreign exchange we need. The export program set for 1925/26 at 800 million to one billion rubles must next year be brought up to a figure of 1.3 billion to 1.5 billion rubles. It should be this year’s central task to lay the groundwork for this. Every branch of the national economy which can be utilized in the export field should undertake a proper portion of this program.

The economic administrators must at once be asked to decide what is required for bringing the export program up to the scale indicated above. It must be ascertained how many grain elevators, refrigeration plants, and corn driers to build, how to get operations at sugar refineries, sawmills, etc., fully under way, and so forth. Vigorous use must be made of the current year to lay the groundwork for exports in 1926/27.

Foreign exchange earned as a result of pushing exports should be used for so developing imports as to spare us the necessity of expanding all branches of Industry simultaneously. We shall be justified in moving on to the full-scale development of industry only gradually, as we build up the inventories enabling us to do so without inflation; only on the basis of such inventories shall we be able to say that in such and such year, such and such funds can be poured into the development not only of light industry, but of heavy industry.

This should be recognized as the basic principle of our economic policy in the period immediately ahead. It is the only approach that guarantees painless emergence from the commodity shortage crisis which we are undergoing....

“Ekonomicheskaia priroda nashego bestovar’ia,” Ekonomicheskoe oboz-renie, November, 1925, pp. 25-39

1. Karl Marx, Capital, Vol. II, Chapter 18, p. 341, Russian edition.

2. Op. cit., Vol. II, Chapter 16, p. 296.