Semi-Peripheral Countries and the Contemporary World Crisis

Author(s): Immanuel Wallerstein

Source: Theory and Society , Winter, 1976, Vol. 3, No. 4 (Winter, 1976), pp. 461-483
Published by: Springer

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 461

SEMI-PERIPHERAL COUNTRIES AND THE CONTEMPORARY

WORLD CRISIS*

IMMANUEL WALLERSTEIN

If the philosophy of praxis affirms theoretically that ev

'truth' believed to be eternal and absolute has had prac-
tical origins and has represented a 'practical' value. . ., it is
still very difficult to make the people grasp 'practically'
praxis itself, without in so doing shaking the convictions
that are necessary for action. . . This is the reason whty the
proposition [in Marx] about the passage from the reign of
necessity to that of freedom must be analyzed and elabo-
rated with subtlety and delicacy.

Antonio Gramsci1

We find ourselves at the beginning of one of those periodic downturns, or

contractions, or crises that the capitalist world-economy has known with
regularity since its origins in Europe in the sixteenth century. The present
moment of the history of the world-economy is marked by a number of
striking phenomena:

(1) The heyday of U.S. world hegemony is over. This means that at no
level-economic production and productivity, political cohesiveness and in-
fluence, cultural self-assurance, military strength-will the U.S. ever again
match its unquestioned primacy of the period 1945-67.
However, the decline from a peak is scarcely precipitous: the U.S. is still
today the most powerful state in the world and will remain so for some time.
The U.S. still incarnates the political interests of the world's capitalist forces.
Nonetheless, it is weaker than it once was and is going to become still weaker.

* Prepared for a seminar on "The Problems of the Capitalist World-Economy and Its
Repercussions on Developing Countries," Caracas, 1975

Department of Sociology, State University of New York at Bingbamton

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(2) The unity of what was a bloc of socialist nations is more or less defini-
tively broken, and the U.S.S.R. and China are both challenging each other's
socialist credentials. This obviously has an immense impact on the pattern of
inter-state relations. But it also marks a turning-point in the history of the
international workers' movement at least as important, and probably as
long-lasting, as the one that resulted in the definitive split of the Third from
the Second International at the time of the Russian Revolution. One of the
most important consequences of this present split is the destruction of the
myth about the monolith of party and state in socialist countries, a myth
sedulously cultivated by political forces of all hues from the 1920's to the
1960's. We are now forced to take seriously the reality of continuing internal
class struggle within socialist countries.

(3) At the end of this present downturn (which may not come until 1990)
there will probably be a new inter-state political alignment of forces at the
world level, reflecting a new phase in the economic history of the capitalist
world-economy. If one limits oneself to the five most significant present-day
economic-military entities - the U.S., the European Common Market, Japan,
the U.S.S.R., and China - the least likely regrouping is the one which
prevailed during the previous era, that of the first three joined together as the
"Free World" against the latter two united as the "Socialist Bloc." Which if
any of the other permutations will consolidate into effective working
alliances is risky to predict but necessary to consider.2

Assuming rather than discussing these three phenomena, this paper examines
the consequences of such a world-economic downturn (both in general, and
this one specifically) for that group of states one might call semi-peripheral,
as well as the consequences for revolutionary socialist forces throughout the
world. It is crucial that the argument move back and forth from the abstrac-
tion (but terribly meaningful one) of inter-state struggles, whether political or
economic, to the underlying pattern of class forces and their trans-national
political expressions.

Semi-peripheral states play a particular role in the capitalist world-economy,

based on the double antinomy of class (bourgeois-proletarian) and function in
the division of labor (core-periphery). The core-periphery distinction, widely-
observed in recent writings, differentiates those zones in which are concen-
trated high-profit, high-technology, high-wage diversified production (the
core countries) from those in which are concentrated low-profit, low-
technology, low-wage, less diversified production (the peripheral countries).
But there has always been a series of countries which fall in between in a very
concrete way, and play a different role. The productive activities of these

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semi-peripheral countries are more evenly divided. In part they act as a

peripheral zone for core countries and in part they act as a core country for
some peripheral areas. Both their internal politics and their social structure
are distinctive, and it turns out that their ability to take advantage of the
flexibilities offered by the downturns of economic activity is in general
greater than that of either the core or the peripheral countries. It is in this
context that we propose to look specifically at this group of countries in the
present world situation.

We begin by outlining the principal market consequences of long-term

economic fluctuations, the better to understand the shift in the range of
political possibilities at different moments of the cycle. What in fact causes
long-term cyclical shifts? The immediate answer is an acute disequilibrium in
the world market between the immediate capacity for production of high-
cost, high-profit economic goods and effective demand. The long-term
tendency to "over-supply" is inevitable in the pattern of separate decision-
making processes by producers in a capitalist market. "Over-supply" leads to
a shift in the terms of trade (between the core and the periphery), a shift in
the loci of profitable investment world-wide and the loci of employment
opportunities. This in turn affects the wage structure in those parts of the
world-economy based on fully proletarianized labor, as well the degree to
which workers in other areas will continue to draw part or all of their income
from sources other than wage-employment. When these shifts result in a
strengthened world-wide effective demand, concordant expansion of the
capitalist world-economy can once more take place. Subsequently the balance
will shift acutely in favor of core producers; in other words, the percentage of
surplus-extraction that ends up in the hands of producers located in the core
steadily grows. When it becomes so great as to limit marked demand, another
crisis results. This at least has been the pattern up to now and, mutatis
mutandis, this cyclical pattern persists, despite various major changes in the
economic and political organization of the world-economy in the twentieth
century

One aspect of these shifts is the shift in bargaining power of various groups
with each other. The central issue here is whether the producer (of the
high-cost, high-profit commodity) has on his side the virtue of scarcity or the
misfortune of glut vis-a-vis his potential customers. The first great European
expansion (of land area, population, trade, and prices) took place between
1150-1300, under a feudal mode of production, and was followed by a
corresponding contraction from 1300-1450. One major difference between
the two periods was the relative bargaining power of lord and serf. The period
of expansion was precisely a period of juridical ensconcement of feudal

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services, a period thus of increased exaction of surplus by the lord from his
serf, exaction that took the form largely of unpaid labor (the corve'e) on the
lord's domains. When contraction occurred, this bargaining relationship
altered. The "overproduction" of agricultural products led to a contracting
demand (for any given producer's goods). It also led via a series of inter-
mediate factors (wars, famines, and epidemics) to a population decline and a
labor shortage (particularly of skilled labor). Suddenly the lords were
squeezed and the serfs could demand higher "wages" (whose prerequisite was
the conversion of the corvee to money-rent).3 At each succeeding moment of
crisis in the history of the capitalist world-economy, a similar shift of
"bargaining power" has taken place. It is taking place again today, the most
spectacular example being the rise in oil prices effectuated by OPEC.

Today surplus is still being extracted, possibly even the same amount. But the
world-wide distribution of the surplus is different. And intermediate elements
in the surplus-extraction chain gain at the expense of those at the core of the
system. In present-day terms, this means among other things a shift in relative
proflt advantage to the semi-peripheral nations. In moments of world
economic downturn, semi-peripheral countries can usually expand control of
their home market at the expense of core producers, and expand their access
to neighboring peripheral markets, again at the expense of core producers.

The reason for this is relatively straightforward. As long as the products of

core producers are relatively "scarce," they can pick and choose among
semi-peripheral bidders for their investment in (semi-) manufactures and for
their purchase of commodities. When the core producers face a situation of
"over-supply," they begin to compete intensely with each other to maintain
their share in a comparatively shrinking world market for their finished goods
(especially machinery). At that time, semi-peripheral countries can, up to a
point, pick and choose among core producers not only in terms of the sale of
their commodities (viz., OPEC oil) but also in terms both of welcoming their
investment in manufactures and of purchasing their producer's goods.

These shifts in advantage are reflected in the policies of states, in the degree
of their "nationalism" and militance, and in the pattern of t1 eir international
diplomatic alliances. They often result in shifts in regime where the previous
regime is insufficiently flexible to respond to the changed world political
situation. And of course the ability of core powers to intervene illicitly in
the state affairs of each semi-peripheral state decreases somewhat in moments
of downturn, for piecisely the reasons discussed above in terms of produc-
tion and trade patterns.

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But state policies are only the surface of the continual turbulence of class
politics lying more or less visibly beneath. Another consequence of world-
wide downturn is a shift in the location of wage employment. Grosso
modo, unemployment tends to rise in the core, albeit unevenly. But there is
probably a de facto compensation in an increase of real employment in the
semi-periphery. Such a shift in employment patterns translates itself into real
wage patterns. In the core, two things happen. The real wages of wage-
workers as a whole (within the bounds of any state) decrease because so
many are unemployed. Insofar, however, as prices decrease those who
remain employed may well have an increase in real wages. The result is a
combination of a politics that reflects disillusionment with and rejection of
the system by those who become unemployed (usually generating increased
class consciousness), and a politics that reflects the "clinging to a lifeboat"
of those still employed (or who, being so no longer, still hope to become so
once again by ousting others still employed). The latter often provide the
mass base for fascist movements.

In the semi-periphery, however, the situation is different. The "semi-

periphery" includes a wide range of countries in terms of economic strength
and political background. It includes the economically stronger countries of
Latin America: Brazil, Mexico, Argentina, Venezuela, possibly Chile and
Cuba. It includes the whole outer rim of Europe: the southern tier of
Portugal, Spain, Italy and Greece; most of eastern Europe; parts of the
northern tier such as Norway and Finland. It includes a series of Arab states:
Algeria, Egypt, Saudi Arabia; and also Israel. It includes in Africa at least
Nigeria and Zaire, and in Asia, Turkey, Iran, India, Indonesia, China, Korea,
and Vietnam. And it includes the old white Commonwealth: Canada,
Australia, South Africa, possibly New Zealand. Furthermore, it is obvious
that such a purely "economic" grouping includes two very different varieties
of states. There are "socialist" states, that is, those with governments ruled by
a Marxist-Leninist party, which has nationalized the basic means of produc-
tion. And there are those states in which there is still the possibility
of "private" capital and therefore indigenous property-owning bourgeoisie, or
the legal possibility for others to translate their income into capitalist invest-
ment. This latter set varies in terms of the degree to which the governments in
power are overtly repressive of all or part of the population. The point is,
there are very real differences between the manners in which socialist and
non-socialist governments respond to the crisis in the world economy, reflec-
ting the different set of internal contradictions to which each is subject. But
before examining these differences, we must pose a general problem in the
strategy of change.

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Within the existing framework of the capitalist world-economy, a downturn is

more or less advantageous to all semi-peripheral countries, but only a few are
able to translate that advantage into a real shift in economic position (to that
of a "core power") at any given moment in history. To do this, such a
semi-peripheral country must gamer a heavy portion of the collective
advantage of the semi-periphery as a whole to itself in particular; that is, a
semi-peripheral country rising to core status does so, not merely at the
expense of some or all core powers, but also at the expense of other
semi-peripheral powers. This is simply the state-level adaptation of the tradi-
tional "dog eat dog" workings of capitalism. This is not "development" but
successful expropriation of world surplus.

One need not accept this path as inevitable, much less laud it as the path of
virtue, and dub it "growth, progress, and development." What R. H. Tawney
said of individuals in an unequal world is equally true of states:

It is possible that intelligent tadpoles reconcile themselves to the incon-

veniences of their position, by reflecting that, though most of them will
live and die as tadpoles and nothing more, the more fortunate of the
species will one day shed their tails, distend their mouths and stomachs,
hop nimbly on to dry land, and croak addresses to their former friends on
the virtues by means of which tadpoles of character and capacity can rise
to be frogs. This conception of society may be described, perhaps, as the
Tadpole Philosophy, since the consolation which it offers for social evils
consists in the statement that exceptional individuals can succeed in
evading them ... And what a view of human life such an attitude implies!
As though oppQrtunities for talents to rise could be equalized in a society
where the circumstances surrounding it from birth are themselves unequal!
As though if they could, it were natural and proper that the position of
the mass of mankind should permanently be such that they can attain
civilization only by escaping from it! As though the noblest use of
exceptional powers were to scramble to shore, undeterred by the thought
of drowning companions!4

For those who do not wish to "scramble to shore," the alternative is to seek
to transform the system as a whole rather than profit from it. This I take to
be the defining feature of a socialist movement. The touchstone of legitimacy
of such a movement would be the extent to which the totality of its actions
contributed, to the maximum degree possible, to the rapid transformation of
the present world-system, [Link] the eventual replacement of the capitalist

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world-economy by a socialist world-government. For a movement in power in

a semi-peripheral state, this presumably requires a strategy different from
governments who seek relative advantage, that is, who attempt to "develop."

Let us first analyze the "non-socialist" states, keeping in mind that a state's
use of "socialist" slogans is not a prime criterion in identifying its form.
Many "non-socialist" states claim to be on a socialist path - India, for
example. If we take the traditional criterion of collective ownership of the
means of production as a base line, we find that only a certain group of
countries, those that once were grouped in a "socialist bloc," have eliminated
all or virtually all private ownership of the means of production, both internal
and external. In the others, some substantial sector of production remains in
the hands of private owners, although some countries have moved systematic-
ally to eliminate external owners and a few have moved systematically to
minimize internal private owners. But a combined and systematic move
against external and internal private owners is the hallmark of the "socialist
bloc."

What are the class alignments of these "non-socialist" states, as defined

above? They obviously vary considerably among the semi-peripheral states.
While nearly all have an indigenous bourgeoisie, it tends to be smaller and
weaker than comparable groups in core countries, and it tends to be located
only in certain sectors of national economic activities. The degree to which
this indigenous bourgeoisie is structurally linked to corporations located in
core countries varies, but the percentage tends to be far larger than is true of
the bourgeoisie within any core country; indeed, this is one of the defining
structural characteristics that differentiates a contemporary core and "non-
socialist" semi-peripheral country.

The working classes may be divided into three sectors: the well-paid,
highly-skilled "professionals" and semi-professionals; the less skilled but fully
proletarianized workers (that is, whose real family income comes exclu-
sively or primarily from wage employment); and the semi-proletarianized
sector (whose real family income comes only partially, if at all, from wage-
employment), including most "migrant workers" and the bulk of the
"peasantry." If we compare these three sectors between core and "non-
socialist" semi-peripheral countries, we note a series of contrasts. The profes-
sional sector is smaller in semi-peripheral countries but, in terms of real
income, is frequently better paid than persons in equivalent positions in core
countries. (Compare the real income of senior civil servants in Canada and the
U.S.A., of managerial personnel in Brazil and Germany, of university profes-
sors in Iran and France, etc.) The sector of fully proletarianized, less skilled

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workers is again smaller in semi-peripheral than in core countries and on the

whole receives much less real income than its counterpart in core countries.
As for the sector of semi-proletarianized workers, it is a myth to believe it has
disappeared in core countries, but it is certainly far smaller than in semi-
peripheral countries, and probably receives more real income (although to
my knowledge no serious statistical analyses have ever been done).

Thus the mark of a "non-socialist" semi-peripheral country in comparison to

a core country is: a larger external and a weaker internal property-owning
bourgeoisie; a better-paid professional sector and a more poorly-paid sector
of fully proletarianized workers, but a far larger (and probably worse off)
sector of semi-proletarianized workers. What happens to these five groups in
times of world economic downturn? And in particular, to which of these
strata is it advantageous that the semi-peripheral state as a state expand its
national product, better its terms of trade, shift its economic role in the
world-economy?

The external bourgeoisie, which today means largely the multi-national

corporation, is not necessarily hurt by semi-peripheral "development." Since
the whole point of a multi-national corporation is to be able to manipulate
the locations in which it realizes its profit, at least in bookkeeping terms, it is
capable of accommodating to fluctuations in the roles particular states play in
the world-economy, provided the state in question does not undertake any
efficacious measures to reduce its world-wide profit. For example, Exxon has
not thus far lost one penny as Saudi Arabia's national income has been
increasing vertiginously since 1973. The Saudi Arabian state's increased share
of world surplus has occurred to someone's disadvantage, but that someone is
not Exxon. Thus, the key point for a multi-national corporation is state
policy (not polemic), and this in turn is in large part a function of the
interplay of the other economic strata plus the various states as states in the
internal politics of a given semi-peripheral country, always holding constant
the steadfast devotion of multi-nationals to their own profit levels.

The indigenous property-owning bourgeoisie, known as the "national

bourgeoisie" in much literature, has been underestimated in recent writings.
In reaction to an older tradition of both liberals and Marxists to see in such a
national bourgeoisie a sort of heroic figure who would one day turn on the
imperialist outsiders and lead the country through its phase of nationalist
bourgeois democratic development, there has been drawn a counter-picture of
an inefficacious, stunted, irreducibly comprador bourgeoisie, incapable of
identifying its interest with those of the nation and, having missed its histor-
ical calling. This critique is far closer to the mark than the older mythology.

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But its danger is that on the one hand it exaggerates its truth and on the other
it misses a crucial function of the "national bourgeoisie" in the contemporary
world. It exaggerates its truth by comparing existing "national bourgeoisies"
in semi-peripheral countries with idealized counterparts of yesteryear, sup-
posedly found in an earlier epoch in England, France, Germany, and the
U.S.A. In fact the role of the national bourgeoisie in earlier historical epochs
was far more complex, far more ambivalent, and far less "heroic" or
nationalist than this comparison assumes.

This is not to suggest that the national bourgeoisie did not play a central role
in the economic growth of Western Europe. Of course it did, and the
changing structure of the capitalist world-economy makes it highly im-
probable that any national bourgeoisie could play a comparable role in the
20th century. For one thing, the economic and political strength of multi-
national corporations is far greater. But there is a second function the
national bourgeoisie historically played which is still plausible today. Even if
it can no longer assume a central role in fostering collective national advance
("development"), national private enterprise still can play a critical role in
individual and familial social mobility. The state bureaucrat, the university
graduate, the technician may still aspire via a combination of individual
competence and astuteness, political influence, and corruption to translate his
training into wealth as part of a "career pattern" as he moves into his "middle
years." But, and this is crucial, he can only do this to a significant degree if
the society legitimizes large-scale property-holding in the form of economic
enterprises. It is this "option" that complete public ownership of the means
of production closes off. In particular, it eliminates the option of creating
"family wealth," and hence greatly reduces the ability to transmit privilege
from generation to generation.

Here the analysis of the indigenous property-owning bourgeois and the skilled
professional blurs together. For the latter nearly always aspires to be the
former, and these aspirations are most realizable in precisely the category of
country we are discussing: "non-socialist" semi-peripheral countries. These
"realistic" aspirations have a profound impact on the politics of these
countries. In general, both groups - the indigenous bourgeoisie and the
professional strata - look upon the state as their negotiating instrument with
the rest of the capitalist world-economy. In that narrow sense, they are
"nationalist"; that is, they will always be ready to brandish the flag if they
believe it has a blackmail effect, and to put the flag in cold storage for a price.
No doubt, there are isolated "idealist" individuals who act differently, but in
general it is hard to persist in such "idealism" given the social setting, except
by becoming a full-time revolutionary, which of course some do.

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Does world economic contraction change the politics? To be sure. It is

precisely easier to gain profit for this class via economic nationalism. There-
fore such "economic nationalism" is widespread in world depressions in all
those semi-peripheral areas that are juridically sovereign (for example, Mexico,
Brazil, Italy, South Africa in the 1930's; Canada in the 1880's, etc.). We shall
see such policies utilized in the present downturn. But the meaning of such
nationalism is not given by the form. "Protectionist" measures can turn out
to be merely obstacles whose very existence encourages the multinationals to
determine new ways of hurdling them.5 "Import substitution" may simply
involve substituting one kind of import dependence for another, thereby
creating an even worse "technological dependence."6 In such a case world
economic downturn merely accelerates a process that in the long run was part
of the built-in program of multi-national corporations.

It is worth distinguishing between the effect of world economic downturn on

the structure of national economic enterprise in semi-peripheral countries and
the ability of some countries to take advantage of what is defined as an acute
commodity shortage during such crises: for example oil today, gold today
and in previous downturns, and other commodities yet to be so defined. For
such commodity exports show high relative price rises, and in and of them-
selves may catapult some countries into the semi-peripheral category (Saudi
Arabian and Iranian oil today, but also South African gold in the 1930's).
And here, state policy intervenes at two moments, not one: first to ensure
and protect the price rise, and secondly to translate the windfall profits into
particular kinds of imports. Each additional moment of state intervention
represents a benefit for the existing structure of distribution within the
world-system, since non-action is on the side of maintaining the status quo.

If the problem were merely one of the confrontation of core states and
semi-peripheral states, the interests of both the national bourgeoisie and the
professional strata would be basically conservative (albeit including what one
might call "one-shot blackmail programs"). But it is not possible, even in
moments of world contraction, for all semi-peripheral states to do well,
certainly not equally well. Thus there is also a competition between semi-
peripheral states, and it is this fact that may on occasion push the indigenous
bourgeoisie and professional strata of a particular country to a more political-
ly "radical" stance. Fearing that they may lose out in a game of "each on his
own" against the core powers, they may come to favor a strategy of
collective trans-national syndicalism which inevitably pushes them "left-
ward," more in terms of international policy, but with perhaps some carry-
over in terms of internal redistribution. (A good example might be Algeria's
aggressive role in the Group of 77, OPEC, and elsewhere, combined with the

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moves internally towards "land reform.")

This brings us to the two strata that account for the bulk of the population:
the proletariat and the semi-proletariat, the two being distinguished not in
terms of urban location but in terms of mode of payment leading to family
income. Defined in terms of mode of payment, they probably represent in
most semi-peripheral countries roughly equal proportions of the population.
Furthermore, there is one important social complication to bear in mind: the
distinction between proletarian and semi-proletarian nearly always correlates
highly with an ethnic distinction, those in the semi-proletariat usually being
defined as coming from a "lower ranking" ethnic stratum. Thus we may
speak of working classes, there being roughly two main groups, and those
classes overlap heavily the ethnic distinction. It is therefore no wonder that a
united singular working class represents a political ideal difficult to achieve
rather than a description of social reality. Here too we must ask the question,
what happens during world economic contraction? Among "non-socialist"
semi-peripheral states, those that succeed in garnering the most collective
advantage in such periods may be precisely those who maintain a relatively
high wage-labor cost differential with core countries. To obtain such a cost
differential they must either be able to hold back the proletariat's demands
for real wage increases, using segments of the semi-proletariat as "strike
breakers," or if they transfer a portion of the advantage to the proletariat
they must obtain the assistance of this group to hold the semi-proletariat
firmly in check - indeed to expropriate some or all of its land resources.
From the outside, states using the first formula may look like right-wing
repressive regimes, while the states using the latter seem more difficult to
label. These latter may indeed be run by "progressive military" or "populist"
governments but their "progressive" quality may in fact be transient
(Kemalism in Turkey, Peronism, etc.).

In this economic climate of world contraction, what are the possibilities for
revolutionary socialist movements? This is hard to say, since in the modern
world to date, there has been no instance of a revolutionary socialist
movement arising and coming to power in such a country during such an
economic conjuncture. But this does not necessarily predict the future. One
of the real difficulties of revolutionary movements in such countries has been
a reluctance to openly face and politically deal with the combined economic-
ethnic split between the proletariat and the semi-proletariat. Movements of
the left have tended to be based either in the proletarian sector, which in the
long run has pushed them in a reformist direction, or in one wing of the
semi-proletarian sector, which has pushed them towards sub-nationalism or
"adventurist" uprisings. Obviously, if a party were to find ways to unite both

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working-class sectors, the politics of a given semi-peripheral country would be

transformed. And if several were to be so transformed, the entire face of
world politics would be altered.

To summarize the politics of "non-socialist" semi-peripheral countries during

times of world economic downturn: there tends to be an increase in
"economic nationalism," but most likely the sort that favors the indigenous
upper strata, and hence leaves largely intact the cohesion of the capitalist
world-economy. However, this view has to be tempered by the effect of the
pressures of trans-national syndicalism, a subject we shall examine in a
moment.

But first we must consider what happens to "socialist" semi-peripheral

countries during crises of the capitalist world-economy. The initial economic
thrust of those who made the Russian Revolution was that the construction
of a socialist society required a withdrawal from the capitalist world-economy
to the maximum degree possible. It was a call for autarky, not for its own
sake, but to enable the speedy reordering of the whole society. The policies
of the Soviet government always envisaged the possibility of some inter-
national economic relations with capitalist countries, but this was to be
limited in scope and to take place only "at the frontier", so to speak, via
special state agencies. The de facto practice of great emphasis on barter
arrangements7 resembled to a considerable extent what in pre-capitalist
empires has been called "administered trade," as described by Polanyi:

Administered trade has its firm foundation in treaty relationships that are
more or less formal. Since on both sides the import interest is as a rule
determinative, trading through government-controlled channels. The export
trade is usually organized in a similar way. Consequently, the whole of
trade is carried on by administrative methods. This extends to the manner
in which business is transacted, including arrangements concerning "rates"
or proportions of the units exchanged; port facilities; weighing; checking
of quality; the physical exhange of the goods; storage; safekeeping; the
control of the trading personnel; regulation of "payments"; credits; price
differentials. Some of these matters would naturally be linked with the
collection of the export goods and the repartition of the imported ones,
both belonging to the redistributive sphere of the domestic economy.8

With the emergence of more than one socialist country, a distinction was
made between economic relations among socialist countries, and trade
between a socialist country and a capitalist country. The former were seen as

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involving a new international division of labor, whose organizational expres-

sion was the Comecon, whereas the latter proceeded as before. The concept
of a second world-system, a socialist system, separate and distinct from the
capitalist world-economy has been developed more and more explicitly in
recent years by Soviet thinkers.9 The heart of the argument is that capitalist
principles do not govern the economic arrangements between socialist states.

The best answer to this point of view, in my estimation, has been given by
Comrade Kim I1 Sung in "On Some Theoretical Problems of the Socialist
Economy," quoted here in extenso because I believe it states the issue with
great clarity:

I have heard that some economists are arguing about the questions of
whether the means of production are commodities in socialist society and
whether the law of value operates in the domain of their production and
circulation.

I do not think these questions should be handled indiscriminately. In

socialist society the means of production are sometimes commodities and
sometimes not, as the case may be. The law of value will operate when
they are commodities, and not when they are not. Because the law of
value is a law of commodity production.

Then, when are the means of production commodities and when are they
not? To find the right solution to this question, I think it necessary, first
of all, to have a clear idea of the properties of commodities and the origin
of commodity production.

Commodities are produced not for one's own consumption but for sale. In
other words, not all products are commodities; only things produced for
the purposes of exchange are commodities. As is clear from commodity
purposes of exchange are commodities. As is clear from this, in order for a
product to be a commodity there are required: first, the social division of
labor through which different kinds of goods are produced; second, the
seller and the buyer - the man who gives up the right to possess a thing by
selling it, and the man who buys and acquires the right to possess it. That
is to say, commodity production presupposes the social division of labour
and the differentiation of appropriation of the products. Therefore, where
there is no social division of labour and ownership is not differentiated but
remains in a unified form, there can be no commodity production.

The continuance of commodity-money relations in socialist society is also

due to the existence of the social division of labour and different forms of
ownership of the products. As everybody knows, in socialist society the

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division of labour not only exists but develops day by day. As for
ownership, there exist both state and co-operative property of the means
of production, and private ownership of consumer goods as well, though in
the course of the socialist revolution private property is abolished and
different forms of economy that existed early in the transition period are
gradually fused into a single, socialist form. Besides, the socialist states
must carry on foreign trade while communism has not yet triumphed on a
world scale and national frontiers still exist.

All these are conditions that give rise to commodity production in socialist
society. It goes without saying that in socialist society commodity produc-
tion is a production of goods without capitalists and, therefore, the law of
value does not operate blindly as in capitalist society but within a limited
scope, and the state uses it in a planned way as an economic lever for
effective management of the economy. Later, when the transition period is
over and co-operative property is transformed into property of the entire
people so that a single form of ownership is established, the product of
society, leaving aside for a moment the consideration of foreign trade, will
not be given the name "commodity" but simply called "means of
production" or "consumer goods," or some other names. There the law of
value will also cease to operate. Needless to say, even then the social
division of labour will continue to develop but there will be no more
commodity production.

Scholars, leading economic functionaries and many other people are now
committing Right or "Left" errors both in the domain of theory and in
economic management, because they have not fully understood the
question of whether or not the means of production are commodities in
socialist society. As a result, some fall into the Right tendency to manage
the economy in a capitalist way, overrating the importance of commodity
production and the law of value in the wake of revisionist theory, while
others commit the ultra-left error of failing to streamline management of
enterprises and causing great wastage of means of production and labour
power by totally ignoring commodity production and the role of the law
of value, taking no account of the transitional character of our society. A
correct understanding and treatment of this question is of great impor-
tance in socialist economic construction. After all, the question of utilizing
commodity-money relations is an important one which the working-class
state must settle properly in the period of transition from capitalism to
socialism. Right or "Left" mistakes on this question can do serious harm.

The factor determining when the means of production are commodities

and when they are not in socialist society, should also be found in the

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differentiation of ownership. In socialist society the means of production,

even when shifted from one place to another, are not commodities as long
as they do not change hands, and they are commodities when they do
change hands. An obvious conclusion follows from this:

First, when means of production made in the state sector are transferred
to co-operative ownership or vice versa, they are commodities in both
cases and the law of value is therefore operating; second, when means of
production are exchanged within the bounds of co-operative ownership -
between co-operative farms or between producers' co-operatives, or
between the former and the latter - they are just as much commodities
and here, too, the law of value is operating; third, when they are exported
the means of production are commodities and are traded at the world
market price or at the socialist market price. For instance, when countries
such as Indonesia or Cambodia ask our country for machine tools, the
machine tools sold to these countries are commodities for which we
should receive due prices. And when a Confederation of the north and the
south, though not yet realized at this time, is established in our country in
accordance with our Party's proposal for national reunification, and
businessmen in south Korea ask us for machines and equipment, we will
have to sell them. In that case the machines and equipment we sell them
will be commodities, and the law of value will be bound to come into
consideration.

What, then, are the equipment, raw materials and other supplies that are
transferred between the state enterprises? They are not commodities,
because means of production such as these are turned out on the basis of
socialist co-operation between production enterprises, and even when they
are turned over from one enterprise to another they remain under the
ownership of the socialist state, and such means of production are supplied
not through free trade but under state planning of equipment and material
supply. When the state believes it necessary, it provides the enterprises
with the means of production, even if the enterprises do not ask for them,
just as it provides the army with weapons. Therefore, the machines,
equipment, raw materials and other supplies, which are transferred
between the state enterprises, cannot be called commodities realized
through the operation of the law of value.

Then, what shall we call these means of production transferred between

the state enterprises, if not commodities, and what shall we say is being
made use of, if not the operation of the law of value, in fixing the prices of
the means of production when they are turned over, or in calculating their
costs when produced? It would be correct to say that the means of

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production transferred between state enterprises according to the plans for

equipment and material supply and for co-operative production are not
commodities, but assume the commodity form and, accordingly, that in
this case the law of value does not operate in substance as in the case of
commodity production, but only in form.

In other words, such means of production are not commodities in the

proper sense of the word, but merely assume the commodity form, and,
accordingly, what is made use of here is not the operation of the law of
value in the proper sense of the word, but the law of value in its outward
form; and in the case of the production and exchange of means of
production, it is not value itself but the form of value which is made use of
simply as an instrument of economic accounting.

Then, how do you explain that the means of production transferred

between state enterprises are not really commodities but only assume the
form of commodities? This occurs because the state enterprises are
relatively independent in using and managing the means of production and
in running the economy, just as if they were under different ownership,
when in fact they are all under one and the same state ownership. Though
all the cost-accounting enterprises in the state sector are owned by the
state, they independently use the means of production received from other
enterprises according to unified state plan, and must net a certain profit
for the state over and above their production costs . . .

Why, then, should the enterprises within the state sector be granted
independence in management, and, if the means of production are not
commodities, why should they be delivered and received under strict
accounting, on the principle of equivalence? That has something to do
with the specific feature of socialist society, which is a transitional one. In
socialist society the productive forces have not developed to such an
extent that each person works according to his abilities and each receives
according to his needs. And not all people possess so great a collectivist
spirit as to value and take responsible care of state properties like their
own. In quite a few cases, even those who are educated enough do not care
so much about the affairs of other state bodies or enterprises as about
their own affairs, nor do they devote themselves to them, to say nothing
of those who still harbour such old ideological debris as stodgy depart-
mentalism and parochialism, gnawing away at the interests of the state or
other institutions and enterprises, putting the narrow interests of their
own institutions and localities above everything else. Further, under
socialism labouf has become, of course, an honourable and worth-while
thing, but not yet life's prime requirement as in communist society. All

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these things require that under socialism equivalent values be strictly

calculated in transactions between the enterprises, though they are all
state-owned. If our society had a great affluence of goods and if the
managing staffs and working people of all enterprises were free from
selfishness, were concerned about all the state properties as about their
own, and conducted all the state affairs as devotedly as their own, then
there would be no need of keeping accounts on the basis of equivalent
exchange. 10

Ixt me underline the crucial relevance of this exposition for our analysis.
Within a capitalist world-economy, there exists a world market price for any
item traded. A socialist country is free to sell an item for a price below the
world market price, what Kim I1 Sung calls the "socialist market price," but
that is a political decision which amounts to a transfer of surplus for
non-economic reasons. No doubt this is frequently done by socialist and
capitalist countries; subsidies to friends, allies and clients has long been one of
the central inter-state political mechanisms of capitalism. But nonetheless, as
Kim I1 Sung says, "the law of value will be bound to come into con-
sideration."'1

Let us turn to a class analysis of socialist countries. The crucial difference

between socialist semi-peripheral and "non-socialist" semi-peripheral
countries is the absence in the former of an indigenous property-owning
bourgeoisie and the exclusion of non-indigenous capitalist enterprises. The
latter statement, however, must be modified to the extent that there have
existed or may come to exist joint arrangements of socialist state enterprises
and multinational corporations. As long as the inter-state economic relation-
ships of socialist countries with non-socialist countries is limited largely to the
genre of administered trade, represented by "barter deals," and as long as
such trade plays a minor role in the overall economic planning of the socialist
state, such a socialist state has to some degree "withdrawn" from the
capitalist world-economy. But are there any social forces, internal or external
to these states, that would push for more "normal" integration into the
world-economy, towards the transformation of administered trade to simple
market trade? The answer is that not only is this so, but one might say that
this has been at the heart of a crucial political debate within all socialist
countries since their respective existences.

Each successive socialist government, starting with the U.S.S.R. and including
the eastern European countries, China, Korea, Vietnam, and Cuba, has
sought simultaneously to expand the forces of production and hence total
production within its frontiers, and to increase the relative degree of equality

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of distribution of the social surplus. Furthermore, each has sought to remold

the social psychology of its citizens, that is, to create "socialist man" in one
form or another. In the course of pursuing these objectives, each has
undergone a debate, often repeatedly, about policy priorities, which in the
Chinese literature has been called the issue of "red and expert." Obviously, all
groups witliin socialist society say they are for being both red and expert.
The issue is, to the extent that a choice must be made, even momentarily,
which takes precedence, and with what frequency? This is a real issue
which should not be dusted under the carpet, and as with all real issues it is
ultimately a class issue. For there remain today in every socialist country
persons who are "experts," that is, persons having more skill and/or
education than others in specific fields, and these persons generally have more
organizational responsibility and more income than others. But how much
more? And subject to what controls? These are key questions.

Those who lean on the side of expertise naturally tend to draw support from
those strata who have this "expertise." Their most effective public argument
is in terms of efficiency of economic production. That is, they claim that if
the policies they propose are pursued by the government, the consequence
will be higher productivity. And what is the measure of this efficiency? It can
be none other than the scales of the capitalist world-market. And what will be
the reward of this efficiency? It can be none other than "national develop-
ment," precisely the same objective presumably sought by non-socialist
nations. Of course, it might be said that "experts" in socialist countries
pursue "development" more effectively than the indigenous bourgeoisie and
state bureaucrats of "non-socialist" countries; this might even be true. But is
this an argument for a socialist to put forward?

Against the technocratic thrust may be found the ideological one. In China,
this position is called "politics in command," but parallel positions have been
argued at one time or another in every socialist country. This position reflects
different class forces, particularly that of the semi-proletarianized segments of
the working classes. The case for this position is many-sided. On the one
hand, it is a negative case. "Politics in command" seeks to prevent the
encrustation of the interests of the "professional strata," minimize the
income differentials, and in particular, destroy the persistence and/or growth
of a separate style of life and other status-group attributes so central to the
process of class consolidation in a capitalist mode of production.

On the positive side, "politics in command" argues that ultimately, given the
continuing existence of a capitalist world-economy, deemphasizing
"expertise" may do more to expand production and productivity during the
transitional era than yielding to technocratic priorities. This point has been

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 479

well-articulated in the language of capitalist economics by an American

observer:

Individuals may take risks because they are wealthy; poor people rarely
become rich by taking risks. From this perspective we can derive some
important policy implications. If, for example, market uncertainty must
be borne individually, and some individuals are more financially able to
bear the risk than others, then a very small percentage of the community
will exhibit innovative or entrepreneurial qualities. By distributing the risk
inherent in these uncertainties more equally throughout the community,
the supply of potential innovators is going to be sharply expanded...
Unless collectivization [of land] is accompanied by other policies designed
to minimize the withdrawal of innovative behavior by the wealthy and
popularize new opportunities for the poor, collectivization may tem-
porarily have a perverse effect on the innovative and risk-taking behavior
of a community. The stress on mass technical innovation and mass entre-
preneurship by the Chinese elite speaks to this problem as does the effort
to cultivate a genuine commitment to the community and the nation
among all classes of the people. Indeed, to the extent that egalitarian
policies are placed in a group setting, the dynamics of group interaction
may lead the community to more innovative and adventurous policies than
would be pursued by the individual."2

I wish to highlight two points. Since the real issue is that of the proper
balance in the politics of "red and expert," there has been a continual
fluctuation in emphasis in all socialist countries throughout their respective
histories. Secondly, while frorn the perspective of "development" within the
capitalist world-economy both sides in the debate might be able to put
forward cogent arguments, from the perspective of transforming the capitalist
world-economy into a socialist system, it is clear that "politics in command"
is the slogan of those giving priority to such efforts, and that this debate is
indeed the consequence of a continuing class struggle within socialist coun-
tries. The reason this debate has not been definitively resolved in any socialist
country, nor will be in the near future, is that as long as capitalism is the
defining mode of production in the still single world-economy, there are
constant benefits for certain powerful strata within the socialist countries to
tie economic decisions more closely to the workings of the world market. The
internal contradictions of these states express themselves as a continuing
strain against pursuing socialism as the objective of state policy, a strain that
can only be countered by great political effort, rooted in the poorest strata of
the population.

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480

This contradiction, however, expresses itself differently for those socialist

countries who, to the extent that they tie themselves to the world-market, do
this in the form of core, semi-peripheral, or peripheral areas. One key
problem of a core country in this era is to find adequate markets for its
production. Another is to encourage a deepening of the international division
of labour. The U.S.S.R. shares such interests today with other core capitalist
states. To the extent that world economic crisis means a tightening of these
markets, the U.S.S.R. is faced with the same world market squeeze as other
major industrial powers. Conversely, some of the smaller and less in-
dustrialized socialist states-are still playing essentially peripheral roles in the
world-economy and must still heavily depend, in terms of annual national
income, on exports of basic commodities. To the extent that these com-
modities are less "essential," they will face the same difficulties of reduced
world demand that will be faced by other peripheral countries in the world-
economy.

But the semi-peripheral socialist states are our immediate concern here. While
it is difficult to determine who they are, they surely include China, Korea,
and the German Democratic Republic, and probably several others,
especially in eastern Europe. To the extent that world economic downturn
means an improved bargaining position on the world market for semi-
peripheral states in general, those states should profit from this shift in world
terms of trade. How will such states in fact react to the downturn, and in
particular to this downturn, which is occurring in a situation involving the
end of U.S. world hegemony and a prospective realignment of world politico-
military alignments? Obviously, the answer lies there, as well as elsewhere, in
the internal rapport de forces of various social strata and the degree to which
external interests can affect internal political decisions. What can be said is
that in the "red versus expert" debate, such a world situation can provide
reinforcement for the technocratic element in such states precisely because
short-run rewards for such state policy may be particularly great.

This brings us to the issue of trans-national class alliances and their impact on
the internal politics of semi-peripheral states. We have spoken of the altered
bargaining possibilities of semi-peripheral states vis-d-vis core states.
Bargaining always raises the issue of syndicalism: "In union there is strength."
When two interest sectors face each other in a market, one bey element in
deciding the outcome is the relative internal unity of each sector. Today,
inter-imperialist rivalry is more acute than yesterday - but how much more
acute? Today, unity of the semi-peripheral nations is unexpectedly vigorous
- but how solid is the foundation? We shall concern ourselves primarily with
the latter question.

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 481

There are two central difficulties in maintaining the unity of the semi-
peripheral countries of the world today. They can be seen as analogous to the
difficulties faced by a group of workers attempting a strike in a 19th-century
factory. The bosses handled a strike in two ways: first, they tried to divide
the strikers by offering attractive bait to the better paid, more efficient
workers, thus hoping to sow internal dissension; secondly, they tried to
isolate the strikers from external workers' support by bringing in as "strike-
breakers" precisely some economically weaker group of unemployed (often
from a different ethnic group). As the attempts to create syndical unity occur
today - alliances of key commodity producers, Group of 77, etc. - one
danger is that a few of the relatively better off will not go along for
"political" reasons. For example, in 1975 Canada refused to consider joining
a prospective cartel of iron producers. The second danger is that the
peripheral states will be set against the semi-peripheral ones. Recent strains
within the Group of 77 and within the Organization of African Unity reflect
precisely this possibility.

How these two dangers will be handled is a function of the class-conscious-

ness of the syndical group. But here the analogy with 19th-century strikers
breaks down. The latter were individuals, members of a class, who might or
might not have effectively mobilized at a given moment., But semi-peripheral
states are organizations, not individuals, each itself the meeting point of
contradictory internal class forces. How the semi-peripheral states act as a
collectivity will be a function of two things: the outcomes of the continuing
class struggles within each state, and the degree to which the relative strength
or victory of socialist forces in one or another of these semi-peripheral states
will affect the internal balance of power in the others.

Let me put it another way. The semi-peripheral states in the coming

decades will be a battleground of two major trans-national forces. One will
be the multi-national corporations who will be fighting for the survival of
the essentials of the capitalist system: the possibility of continued surplus-
appropriation on a world scale. The other will be a trans-national alignment
of socialist forcces who will be seeking to undermine the capitalist world-
economy, not by "developing" singly, but by forcing relatively drastic
redistributions of world surplus and cutting the long-term present and
potential organizational links between multi-nationals and certain strata inter-
nal to each semi-peripheral country, including such strata in the socialist
semi-peripheral states.

It can be predicted that the period of world economic downturn will be a

period of "low profile" for the multi-nationals. They will be on their best

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482

behavior, particularly visd-vis the governments of semi-peripheral states. They

will act in a sophisticated manner and make many concessions. They will even
minimize, to the extent possible, their political links with core states, par-
ticularly the U.S.A. They will offer the equivalent of a world welfare state for
the world's "middle" strata, provided that they can continue to function and
make real profits, whatever the channel. They will only be countered by
equally sophisticated tactics on the part of socialist forces who remember
three points: (1) the internal class struggle continues unabated in the socialist
as well as the "non-socialist" semi-periphery; (2) the professional strata of the
stronger semi-peripheral states will tend to be Trojan horses and can only be
effectively neutralized by strong workers' organizations that give due place to
the poorest sector of semi-proletarianized workers; (3) it will take consider-
able effort and sacrifice by semi-peripheral states to maintain an alliance with
peripheral states, especially in an era of world economic downturn.

We are not at Armageddon. But we are at an important turning-point in the

historical life of the capitalist world-economy. The next 25 years will
probably determine the modalities and the speed of the ongoing transition to
a socialist world-government. We could emerge with a real strengthening of
world socialist forces. But there could as well be a setback. One of the critical
political arenas is precisely the semi-periphery.

NOTES

1. Antonio Gramsci, "Problems of Marxism," in Quintin Hoare and Geoffrey Nowell

Smith, eds., Selections from the Prison Notebooks (New York, 1971), p. 406. The
proposition in Marx to which Gramsci is referring is found in the "Introduction" to
the Critique of Hegel's Philosophy of Right.
2. I have in fact speculated on this matter cautiously in "Old Problems and New
Syntheses: The Relation of Revolutionary Ideas and Practices," Sixth Sorokin
Lecture, University of Saskatchewan, 1975 (forthcoming).
3. For a more detailed analysis of the "crisis of feudalism" in the late Middle Ages, see
my The Modern World-System: Capitalist Agriculture and the Origins of the
European World-Economy in the Sixteenth Century (New York & London, 1974),
pp. 21-28.
4. R. H. Tawney, Equality (New York, 1961), pp. 108-109.
5. This is the basic argument found throughout a long series of articles by Stephen
Hymer.
6. The case is made by Meir Merhav, Technological Dependence, Monopoly and
Growth (London, 1969).
7. "The most distinctive of these [special trade-promoting instruments of socialist
countries] is the long-term bilateral trading agreement, or barter agreement, that
now covers 50-60 percent of East Europe's - and 90 percent of Russia's - trade
with the [Third World]. Normally it sets quantitative targets for the major traded
commodities, as 80 percent of Russia's bilateral arrangements do; it stipulates that
trade should balance more or less each year and that settlement should be in the

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 483

currency of the [Third World] partner. In this way the key agreement tends to
create fixed, identifiable markets for certain goods while insulating them from
world trade." Michael Kidron, Pakistan's Trade with Eastern Bloc Countries (New
York, 1972), p. 3.
8. Karl Polanyi, "The Economy as Instituted Process" in K. Polanyi et al., eds., Trade
and Market in the Early Empires (Chicago, 1971), p. 262.
9. See for example a recent complete overview by Shalva Sanakoyev, The World
Socialist System: Main Problems, Stages of Development (Moscow, 1972). The
moment that this system came into existence is left somewhat unclear in
Sanakoyev's account: "The formation of the world socialist system is an intricate
and prolonged process which began in October 1917 when the new, socialist world
was born" (p. 100).
10. Kim I1 Sung, On Some Theoretical Problems of the Socialist Economy, March 1,
1969, placed as an advertisement by the Office of the Permanent Observer of the
Democratic People's Republic of Korea to the United Nations, in The New York
Times, March 16, 1975, pp. 6-7.
11. Kidron observes about this pressure: "However, often what seems to be purely
political is so only in the short term and ultimately becomes economic; and even
where time does not perform that particular alchemy, both sides would find it
punitively expensive to sustain a political association that remained for long at
variance with their economic interests. By the early 1960's Russia and the East-
European countries were clearly beginning to count, and reject, the cost of purely
political trade." Op. cit., p. 7.
Kidron's position is that: "None of this is fortuitous. Faced with the unremitting
pressures of world-wide military and economic competition and the growing
truculence and power of their own people, the [Socialist bloc] bureaucracies
simply cannot afford to forego the technical and organizational advantages of a
Western-type economic maturity, no matter how insistent the lobbying from the
[Third World]. Ibid., p. 13.
12. Dennis M. Ray, "Mao Tse-Tung's Development Strategy: Same Common Criticisms
and an Uncommon Defense," India Quarterly, XXX, 2 (April-June 1974), p. 118.

Theorv and Society 3 (1976) 461-483

? Elsevier Scientific Publishing Company, Amsterdam - Printed in the Netherlands

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