Kuliabin Alexander, Ph.D

Semin Sergey, Ph.D

In contrast to the passed years nowadays the social and economic problems of East European countries and similar countries of the other regions .of the world begin being discussed from another standpoint. Some scholars are making attempts to comprehend the phenomenon itself of emerging the countries with predominance of the state sector in their economies.

We consider the loss of topicality of the views attributing certain "initial specific features" to these countries to be natural and regular. Specific colouring is quite natural and explicable in the national culture, but perceiving this colouring in the economic processes taking place in the East and in the South seems to be unsound in our view. An aspiration to explain the nature of these processes by being guided by the countries' specific features cannot result in their comprehension.

The nature of manifestation of "the socialism syndrome" in the international economic order (IEO), that is, strengthening the role of the state in the national economy is examined in the article. Careful consideration is given to the problems of evolution of the Soviet Union, East European and developing countries in the system of the IEO.

The trade regime that was between the West and Russia up to the World War I on the basis of the convention tariffs system¹, the element of the then IEO based on non-equivalent exchange between the countries, made any development of Russia as well as any other state impossible without additional capital inflow (the compensations). And Russia in its turn according to the logic of that IEO had compensated to a considerable degree the trade with the West owing to the similar trade policy in the Far East (Mandschu, Mongolia, China, Korea ). Such was the position and role of Russia in the hierarchy of the then IEO. The loss of the Far Eastern compensation in the Russia - Japan war made it certainly impossible to maintain the former trade relations with the West. By 1914 revising those relations had become vital for Russia². The position and aims of Russia in the World War I were determined by it.

The war had severed the former foreign trade relations with the West inequitable for Russia. The new relations that were being established under the war conditions didn't provide capital inflow either, as they couldn't be of any other character but the government military purchases and supplies according to the union commitments³. The credits granted to Russia by the allies were for the purpose of purchasing the military equipment from them. Under such conditions for conducting the military campaign the government objectively had to take the necessary measures during a few months. The main ones were as follows: mobilization of employable population, accumulation of foodstuffs store, prohibition of commercial transportation and further introducing the military carriage tax, expansion of the emission right, commandeering labour, industrial mobilization, prohibition of foodstuffs conveyance out or military regions, etc. It is quite evident that only those measures had paralysed the internal market.

Under those conditions it was natural for the private sector to suffer grave difficulties. The only possible form of its existence under the conditions was to take military orders. Military orders growth had gradually reoriented the industrial enterprises, agriculture and transport from the sphere of home market to centralized government orders and purchases⁴. The enterprises that couldn't find their position in the military orders fulfillment had to curtail their activities⁵. It was already by the end of 1917 when due to the course of events the whole economic activity in the country had been centralized and the home market destroyed⁶. And since that had happened so any economic activity in the country could be conducted and was conducted in another form, i.e. the uncommodity one. All those processes had an effect on the continuity of the legislative and executive activities of the governments that were in many respects behind their development. To be objective, the single subsistence economy was being formed on the national scale that became then the foundation of the future economy and all the superstructural patterns of the USSR.

The development of the subsistence economy was of the only possible character, namely the extensive one. The development expanded only in breadth due to constant additional involvement of the raw materials and human resources. Reproduction of such a kind resulted in mere enlargement of production assets practically of the former technical level, development of many and many new deposits of raw materials, agricultural lands, forest tracts and so on. Production and consumption of social product were implemented under the appointed plan according to the standards formed (The same economic mechanism was in operation during the New Economic Policy as all the industrial enterprises with the exception of small and handicraft ones as well as all the communications and foreign economic activity remained under the state power. Fundamental contradiction between those two forms of economy was gradually impeding equivalent exchange between them. And by 1929 any reason of economic activity within the New Economic Policy had bean lost).

After the World War II East European countries and later a number of another countries had joined the Soviet system of extensive economy. The single economic organism based on the subsistence economy but already on international scale had been formed.

We emphasize that any violent involvement of these countries in the national economy by the USSR is out of the question, though the USSR was interested in it because of the extensive character of the Soviet economy. After the war the economy of East European countries was able to exist only in a bloc with the USSR. Why is it so? It is necessary to answer this question to understand the nature of the socialist countries economy and the process of its forming (the political economic stock phrases being in use, the term "socialist countries", in the authors' view, herein and hereafter means the countries where uncommodity subsistence economy predominates on a national scale). Let's look back to 1914.

By that time the IEO had been the system of global military political balance that supported hierarchy of protectionism. That hierarchy can be presented by three groups of countries of different economic development stages. The first one comprised industrially developed countries that pursued the policy of severe protectionism regarding all the other countries. The third one comprised colonies. The rest countries that comprised the second group had to seek external and internal sources for their economic development in that hierarchy of the International Economic Order. When receiving the necessary means of production from industrially developed countries at monopoly high prices they offset the trade regime with them due to similar trade policy within their group, but mainly due to their colonies. Finally, the flow of capital was to three industrially developed countries. Under that system the colonies turned out to be in the worst position for undisguised economic dictat on the part of the first and second groups countries.

The I and II groups countries' growing requirements of industrial development resulted in their mutual economic penetration into the colonies, in transfer of competition there and setting up the same system of protectionism. But when ousting their competitors from the colonies, industrially developed countries deprived them of the possibility to offset non-equivalent trade regime with them. The second group countries were deprived not only of rates but also of the possibility itself for economic development. It made it impossible to maintain that international economic order any longer. Thus, the industrially developed countries were cutting their own throats. Transfering competition to colonies put an end to that IEO and consequently to capitalism development in breadth. That was the basic contradiction and insolubility of that IEO. Later it resulted in forming and mutual confrontation of two wellknown groupings, one of them comprised the present East European countries.

Far from having solved that contradiction, the Versailles treaty had even made the existence itself of the old IEO impossible, the treaty had destroyed it, as there was no place at all for those who were vanquished. But after the Versailles treaty the victors didn't realize that and followed the former way. The territorial-political division into the smaller state formations having been inflicted upon and the reparations having been imposed, the vanquished were left without any means and possibilities for existence in the IEO and doomed to isolation. But in that way the victors also isolated themselves. The period of relative mutual economic isolation was coming, politically it was manifested evidently in the USA isolationism policy.

Absolute economic growth of industrially developed countries under the conditions of economic isolation, that excepted capital inflow from outside, was naturally impossible. In that period the state had to play the role as a kind of accumulator, i.e. to feed the national economy with the means saved up during the former favourable period. Thus there was only relative economic growth that comprised the development of internal market previously inefficient, i.e. the growth was directed inward. The World War I chronologically exactly stated the process beginning, the end of which was in the fifties.

The further development of the vanquished countries due to wide economic cooperation with industrially developed countries had no economic foundation. The only possible way of those countries existence under the conditions of economic isolation formed became strengthening the state control and coordination of finance, the key industrial branches activities, transport and agriculture. A wave of socialist revolutions similar to the Russian one even took place in a few of those countries. Newly formed states, being the fragments of the former empires artificially disintegrated, had great economic difficulties. The former economic relations were broken off and establishment of the new ones needed considerable investment. A source of investment and a centre of economic attraction for East European countries became Germany, the most developed country. It was already by 1939 that those countries economies had been centralized by Germany and were a single economic entity, capture of them was a mere political act⁷. That economically and politically single entity could not be isolated any longer, exist by itself. It required revising the international economic order.

But the results of the World War II, when the same adversaries as in the World War I defended their economic interests, were again unfavourable for the countries that lost the World War I. For East European countries in the period of their economic isolation from the world market the defeat and disintegration of Germany caused economic vacuum to be filled up. In that economic and political situation only the Soviet Union was able to do it. It was just the Soviet Union that took the place of Germany. In addition to the processes occured in those countries and stated above, conducting the war required absolute centralization of those countries' economies, that was the very fact that prepared them later for natural and smooth joining with the USSR economic structure. Thus, a single economic entity based on the international labour division within those countries had been formed. The same economic structures and development of productive forces ensured mutual equivalent exchange between them. That entity was formed objectively and can be destroyed or altered only by the course itself of economic development.

Germany was expected to suffer the same lot. But for the allies' interests it proved to be possible to grant its West part the necessary conditions for development it was struggling for.As for Finland and Yugoslavia, the reason for their rapid economic growth was the Soviet Union’s policy of treating those states as special economic zones, through which it gained access to technologies and the know-how of the West. Export of such products to the USSR was often prohibited due to their dual purpose.

Nowadays when East European countries would seem to be politically and economically independent, the USA and Western Europe are unable to admit them into their community. They are eager to do it for political reasons but economically it is impossible. To raise these countries' level of development to that of the USA and Western Europe (an this makes it possible to enter this community) will require hundreds times more investment than for the Marshall plan as well as structural alteration of the existing world market but that will consi- derably lower the rates of Western countries development. Furthermore, it is possible only by means of strengthening the state regulation of their economies.

Many people are of the opinion that destruction of the Berlin Wall has eliminated the barrier between the East and the West. But as a matter of fact the wall was only the upper part of the barrier between two types of economies and unfortunately its foundation will remain for years.

Proceeding to consideration of the USSR and East European countries' uncommodity economies participation in the world market one should note the following. Necessary growth in the volumes of final products required growth in raw materials extraction as well as increment in human resources and creation of additional production base with infrastructure. It is utterly obvious that at a certain stage under the extensive economic conditions it became impossible to manufacture final products of increasing volume. The moment came when the further existence was limited and was possible solely due to acquiring final products in exchange for raw materials. That was the very reason for participation of the socialist countries in the world market. It is absolutely clear that expansion of those countries in the world market didn't eliminate the limit for development but put it farther for a time. And as manpower shortage grow it became the only possible way to maintain the socialist countries' economies. Despite growth of scientific and technological progress in the West, accompanying build up of its military power and our confrontation, economic ties between the West and the East were expanding more and more, though it seems to be incredible on the face of it. The more the socialist countries suffered economic difficulties the more they were involved into the world market, and they formed it actively.

What is the cause of crisis in the USSR and other socialist countries? The cause is the nature in itself of extensive development of subsistence economy. It has reached its limit. Under the conditions of extended extensive reproduction for maintaining national income per capita merely or the former level it is necessary to transfer the whole nature - population growth to material sphere of production. But increment in the national income per capita depends on that to what extent an increment in manpower engaged in material production surpasses natural population growth. It is evident that objectively the extensive economy had a limit of human resources.

Without sufficient natural population growth not only for extended reproduction but even for more one under conditions of extensive economy, the possibilities exhausted for human resources manouvring (such as involvement of women in national economy, orientation of schoolboys towards worker careers and above all transfering human resources from agriculture to industry), the USSR and the other socialist countries began to import foreign manpower in the middle of the eighties. This fact indicates exactly the beginning of the last phase of their economic crisis.

The USSR and the other socialist countries’ economies can not develop extensively any longer. It's perfectly natural that they have plunged into crisis, the last phase of which will be a stop of production. It is a logical consequence that the existing economic system will wreck itself and therefore will prepare conditions for creation of national economy of new kind that will be a part of the future international economic order. What are the prospects for the socialist countries under these new conditions? It is impossible to appraise their position and role in the new economic system without revealing the nature and evolution of the existing international economic order.

The international economic order that existed up to the present time and is disintegrating now was set up in the late fifties and in the early sixties. The IEO was set up due to wide involvement of the developing and socialist countries in the world market. It was preceded, as stated above, by the period (from 1914 to the late fifties) of comparative mutual isolation of industrially developed, developing and socialist countries. The period was characterized by excluding the vast territories (the formation of the socialist and developing countries) from the world market.

Formation of the socialist countries that embraced East European countries of the II group, the main consumers of manufactured products of industrial countries, had deprived the latter of the major markets. And it made the colonies useless as well. Their relations with the developed countries had not the former economic implication any longer. This is the very essence of the so-called disintegration of the colonial system.

The period of comparative economic isolation essentially differs from the former one in the fact that during that period the industrially advanced countries were developing mainly due to formation of capacious home market. The stock market crash of 1929 and the Great Depression that succeeded it indicated the moment after which up to the early sixties that process was the most intensive. But during the period of comparative mutual isolation, when the capital inflow was considerably reduced, the rates of the industrial countries' growth were substantially lower than during the following period that was characterized by formation of the new commodity and raw materials markets in developing and socialist countries. Nowadays these countries are the integral part of the world market that has resulted in its considerable expansion and the structural alteration. Their participation in the world market is so essential (though their percentage share in world trade is small) that economic crisis broken out in these countries will inevitably be of a global character. The existing international economic order is destroying due to the crisis phenomena in the economy of the socialist and developing countries that are the resources base of industrially developed countries and a source of additional capitals.

The nature of the processes taking place in the socialist countries, their position and role in the present international economic order were stated above. The other element of this present IEO is the developing countries, their share in the world market is considerably larger than that of the socialist countries.

The processes that have taken place in Russia and East Europe are conventionally considered in the West (as well as in the socialist countries after 1985) to be accidental and even a social experiment. But this view of the socio-economic phenomenal nature doesn't account for and actually contradicts the facts of emerging among the developing countries these ones that can be defined as socialist according to the present classification (some of them even called themselves so up to the present time).

Above a conventional classification is used as we have not yet touched on the nature of this phenomenon. Now we have to repudiate the common subdivision of the countries into the capitalist, socialist and developing ones.

To reveal the reasons and mechanism of strengthening the state role in the national economy it is necessary to ascertain the qualitative stages of the countries' socio-economic evolution. In this case the various countries can be divided into the following three groups: the countries with predominant foreign capital in the national economy, with predominant state sector and the countries with predominant national private capital. The first two groups comprise the present socialist and developing countries, and the third one - industrially developed countries.

To display the conditions when the developing countries transit to industrial ones (according to the present interpretation of this term) and vice versa the intermediate group III^* is introduced.

But hereafter if it is necessary just to indicate one or another country the conventional classification in used for better perceiving.

The first group developing countries are rather small in number today and are characterized by predominance of foreign capital in the national economy. Any economic development of these countries can be possible only after solution of the basic contradiction inherent in them. The nature of the contradiction lies in the fact that foreign capital destroying the patriarchal structure (objectively it is a catalyst of socio-economic evolution) is not in the least interested and is not able to establish the required socio-economic infrastructure at the same time.

Since the foreign capital owns the nain share of means of production including land, so the economic structure of these countries is formed by the international monopolies according to their interests. Foreign capital is not invest for the development of the industries necessary for the whole social reproduction (the causes of this phenomenon will be examined hereafter). The problems stated are left these countries to solve. Representing themselves as legally independent states they are not such as a matter of fact. The problems in question are the substance of economic and political instability in these countries.

To some extent these countries manage to mollify their socio-economic contradictions by means of limiting the profit export. But the measures to establish balanced structure of national economy and to raise socio-economic level reduce efficiency of foreign capital investment and induce capital outflow. That, in its turn, deprives them of the means for solving the problems in question.

These countries always have to search for the ways for solving this contradiction. Objectively it incites them, on the one hand, to establishment and expansion of the state sector in the national economy, and on the other hand, to nationalization of foreign capital. To a certain extent it solves some socio-economic problems but at the same time another problems arise that are characteristic of the II group developing countries.

Under our classification the II group countries are characterized by predominance of the state sector in the national economy. Proceeding to examining the specific features of their economy we should note that at this stage the economy is developing principally due to the state sector expansion.

Pursueing the path of establishing balanced national economy and suffering great shortage of financial and material resources they have to apply the extensive methods of economic management. But extensive development results in more and more requirements and makes it impossible to stockpile sufficiently not only for achieving qualitative changes in industrial development but even for meeting their main socio-economic needs. So it is quite obvious that at a certain stage these countries inevitably plunge into economic crisis, the nature of which is determined by the pattern of the extensive development collapse, the example is the socialist countries examined.

To avert a crisis these countries increased the export volume. But in spite of its increasing the means were insufficient to solve their problems, they couldn't be sufficient under conditions of that international economic order based on non-equivalent exchange between the countries. If exchange were equivalent even then these countries would need a larger amount of capital inflow than income from it. The point is that to provide economic growth and political stability in these countries the means are necessary not only to support and renew the state sector but also to establish preferential economic conditions for private entrepreneurship (preferential credits, low taxes and prices on the state enterprises goods saled to them and so on). That is, the private sector of these countries should get the same additional capital inflow from the state as the state itself from outside.

All these facts objectively incite the II group countries to make foreign loans and purchases. Such are the features of socio-political instability in the II group countries and the cause of their economic indebtedness.

And if some countries of this group manage to get additional capital inflow (this depends on economic and military-political interests of industrial countries in these regions) then they transit to the III* group of developing countries.

The III* group comprises the developing countries where considerable private capital has been formed but key industries are as before in the state sector of economy. Actually they are already industrial countries as they have developed industrial production and infrastructure but the structure of their economy differs considerably from that of industrially developed countries. To correspond to the economic structure of advanced industrial countries the key industries of their economy must be transfered to less developed countries, that is just what the West has been doing since the fifties. What is the good of it? What is it necessary for?

General outlines should be noted that conventionally define the role and position of economy's state sector. In the structure of any country's economy that has entered into the industrial development stage the key sectors always are sure to be fuel, raw materials and manufacturing branches of basic industry. But they are characterized by rather high level of initial investment, that is why these branches are beyond the private capital's power. The private capital is removed also for the reason that the rate of return in these industries is below the average owing to extremely high organic composition of capital because of long-term investment in fixed capital, long term cover of expenditures, difficulties in inter-branch transfer of capital and so on. In contrast to the private enterprises the aim of state enterprises operation is not to derive profits but to meet socially necessary requirements. The key industries are essential for the entire process of social reproduction. All these facts compel the state to take care of these industries one way or another.

On the other hand, expansion of the private entrepreneurship is known to be possible only on the basis of appropriate growth of production volume in the key industries of national economy. Investment in the key industries is far larger than that in the private sector. It is quite evident that it is impossible to provide the required volume of investment in the key industries of the state sector solely due to tax earnings without additional capital inflow. And this makes impossible not only growth of private entrepreneurship but even maintaining its former level. This very thing results in the fact that the state is compeled to search for foreign sources of investment in the state sector of economy (we call it additional capital inflow). Means and ways to get them depended on specific historical period. Nowadays one of the most efficient ways is transfering the key industries to the developing countries. In this instance considerable amount of costs for their setting up and maintenance is shifted to these countries. Thus, the policy of transfering the key industries to the developing countries expands the limits of economic growth in the developed countries, the industrial countries improving general economic climate and enlarging internal market capacity. This is just what has been taking place since the early fifties. Accelerated economic growth in industrial countries became possible solely due to transfering the enterprises of the industries mentioned (it stands to reason that a part of the key industries enterprises of strategic importance for the state is excepted).

The countries of the III* group, that will succeed in beginning the process of transfering these industries, will be able to alter the structure of national economy and therefore to reach the level of advanced industrial countries' development.

But it should be borne in mind that this process demands a certain capital inflow. It can be got provided there is extreme economic, military and strategic interest of industrially developed countries.

All the other countries of this group will not be able to transfer these industries and therefore will not be able to solve the contradiction of their national economies. The rates of their economic development will slow down. The moment will come when the private entrepreneurship growth will be limited. This accounts for their economic and political instability. If there is unfavourable foreign economic situation tor a long time, these countries will not avoid curtailing the private sector and expanding the state one. A number of East European countries were displayed above as an example of the mechanism of this process, according to the existing classification these countries at the beginning of the XX century were a typical example of the III* group developing countries of the present definition. But the most clearly these processes manifested themselves in Russia.

Two different periods in the history of Russia will be considered. The first period covers the times of the Vitte economic reforms, the second one - after the Russia-Japan war. From the middle of the XIX century due to active economic and political penetration into Mandschu, Mongolia, China and Korea Russia received the necessary capital inflow for the industrial growth under the conditions of non-equivalent trade regime with the West. Just that made it possible to implement the economic reforms of 1895. But after the Russia-Japan war, after the loss of the positions in the region Russia experienced recession and then stagnation of the economic development. That was the reason that plunged Russia into horrors of the World War I. A lack of additional capital inflow from outside was the substance of socio-economic processes in Russia that resulted in nationalization of the economy. The war was only a catalyst that accelerated a course of those processes. Thus, Russia and after the World War II a number of East European countries shifted from the III* group to the II group.

To examine the developing countries as a whole it should be stated that entering more and more the world market those countries involved the productions of high labour intensity from industrially developed countries where those productions were a considerable part of the state sector and began curbing the economic growth. First of all they comprised the enterprises of fuel and raw materials industries. Widespread denationalization in the West in the late seventies and the early eighties reflected transfering the enterprises to the developing countries with low-paid manpower rather than transition of enterprises that conventionally are in the state sector to the private one. Transfering labour-intensive productions of mining and manufacturing industries as well as international monopolies' control over the developing countries' economies covering 80 – 90% ⁸ of their goods sale made it possible for industrial countries to get considerable capital (according to some estimates the developing countries lose from 50 to 100 billion dollars of their national income per year) due to which the accelerated economic growth has been insured since the sixties.

To summarize our consideration of the developing countries' economies (including the socialist ones) and the nature of the crisis they are suffering it should be noted that when crisis phenomena exacerbated, they were involving more and more in the world market. Thus gradually the present market was being formed. And at present time it is based to a great extent on needs of collapsing economies of developing countries (including the socialist ones). This is just the essence of the current phase of the present IEO, its contradiction and inevitable changing.

In our view the relations between the developing and industrial countries within the IEO based on non-equivalent exchange can be rather exactly described by the use of the scheme: donor - acceptor. At least it makes political, ideological and religious aspects of these relations more clear.

The present IEO has already entered its final phase that at the same time is the beginning of the global economic crisis. The crisis will result in the fact that the difference in the levels of the countries' economic development will diminish to some extent. Investments, resources and population will be essentially redistributed.

In our view the post-crisis IEO will have two phases of its evolution. The first phase is that of mutual economic isolation of all the present participants after breaking off the existing economic relations. The second is the phase of widespread involvement of the present socialist and developing countries in the international trade.

In the first phase the current economic relations between the present participants of the IEO will be severed to a great extent. In this period the international trade activities will be concentrated mainly between industrially developed countries. But in this period the economic situation for them will be perfectly different. Excluding the developing countries from the world market will deprive then of large capital inflow that is received due to non-equivalent exchange with them. In this period the key industries transfered to the developing countries will be re-transfered to their conventional place and that will result in structural reorganization of their economies (it has already been noted by some scholars⁹). The economic interests of the industrially developed countries will be more and more differentiated and polarized. This process has started already. It is well manifested in West European countries, for instance. While the "Europe-92" project implementation is prepared there, the standpoint of England is considered to be an exception. But if crisis phenomena grow the England standpoint will be common for all the participants of the project.

The idea of the "Europe-92" project (as well as that of the North American alliance) is based on invariability of the existing IEO. The favourable economic situation for these countries is supposed to be not only maintained but also improved. Integration of these countries into powerful economic structure will make it possible to strengthen Europe position in the world market and to consolidate the existing IEO.

But in our view during the first stage of the IEO transformation, i.e. during the period of isolation, there will be no economic foundation for the "Europe-92" project implementation. This period will be unfavourable not only for Western Europe. There will be general aggravation of economic situation in the world. For industrially developed countries this period will be similar to that between the two World Wars, when main economic activity will be concentrated principally in the home markets. The role of the state sector in their economies will enhance sharply. In addition to supervision over retransfering key industries it will embrace economic control, that is characteristic for the periods of economic crises, economic stabilization of situation, employment, economic security (ensured providing the economy with the resources of paramount importance) as well as pursueing the policy of economic development.

Duration of the mutual economic isolation period will depend on that of the processes of developing countries economies establishment. Entering of these countries in the world market will cease the mutual isolation period and will be the beginning of the second stage - that of setting up the new IEO. But this period will be characterized by considerable protectionism as an instrument of national economies development on the part of the state. The extent of protectionism will be proportionate to the differences in the levels of countries-partners' development. At the second stage any free trade regime is out of the question. Since in the new IEO the natural difference in the levels of countries' development will maintain, so will non-equivalent exchange between them.

To complete the article on the subject in question, the prospects of the socialist community countries should be noted at least in general terms. Our forecast in based on the following outlines:

- emergence, development and destruction of a state as such depend solely on available or unavailable capital inflow from outside;

- in any era the IEO represented hierarchy of economic and political relations between the states when there was evident or concealed pumping capital from some states to the other ones according to the scheme: donor - acceptor;

- for the states-acceptors the capital inflow means economic growth and prosperity, the state costs are covered by it and thus prerequisites are created for private entrepreneurship development;

-for the states-donors the capital outflow results in reducing the private sector and in strengthening the state control over the entire economy what is connected with the necessity to support the process of social reproduction;

- in the IEO the emergence of the states with completely nationalized economy is always inevitable, this phenomenon is objective and regular. It is the protective function of the state economic entity against the unfavourable foreign economic conditions.

For the USSR separated territories the first stage of the IEO transformation will be characterized by mutual economic attraction, the cause of which being the need of each separated republic for restoration of the national economy key industries as a whole. In the long run this will lead to their reunification. A new state formation will be set up. But if there is no necessary and sufficient capital inflow from outside for modernization and development of the key industries, the economy of this new state formation will not change in quality.

As to the prospects and a possibility of establishing the market relations in the future economy then, in our view, three principal stipulations should be observed.

Firstly, available private capital. Secondly, available spheres of capital investment. To be sure these stipulations imply gold backing of currency. And thirdly, available necessary capital inflow for the key industries development.

To begin with the fact that, in our view, emergence of the private enterprises by means of transfering the existing industries of the national economy to the private property is impossible as a matter of principle. It results from the reason that in the USSR a share of the key industries conventional for the state sector is more than 80%¹⁰ . Most enterprises or light, food and suchlike industries because of the extensive development of subsistence economy are large scale works, factories and associations that resulted from reduction of investment per capacity unit. But the main point is the fact that the USSR economy objectively was to solve the only task - to meet socially necessary requirements.

That is why we consider there are no enterprises to transfer to the private property without detriment to meeting socially necessary requirements.

The point in question may solely concern the creation of the private sector new enterprises. But it demands available private capitals (they are not available in the USSR) on the one hand, an expansion of production volumes in the key industries of the state sector,on the other hand. The amount of capital required for it must be several times larger than for investment in the private sector itself.

Thus, as stated above, in the process of establishing free market relations the USSR as well as any state will need additional capital inflow from outside.

As concerns the foreign capital, however paradoxical it may seem, but it should be invested mainly not in the private sector, as the West insists, but in modernization and expansion of the state sector key industries (The main and only cause of the New Economic Policy failure in 1929 was exactly unavailable capital inflow to the state sector of the Russia economy). But under condition of global economic crisis there is no hope of foreign investment inflow.

It stands to reason that it is difficult to predict the future situation, but the following facts are undoubted. Firstly, the site centripetal forces, that will integrate the separated republics into a new state formation will also integrate the countries of the former socialist community into a single economic entity. Secondly, this future economic entity will not be able to exist and develop on qualitatively new basis without capital inflow to this integrated economy.

In our view, the sphere of our economic interests will be as always the countries with less developed economy. It is quite natural that as before these will be the countries that are our conventional trade partners.

The position of Russia in the future IEO and the character of its conventional economic interests cannot be worded better than it was made nearly 130 years ago:

“To create new markets in Europe for our rough articles is utterly impossible. Therefore the national economic interests in Itself demand us to try to reward ourselves in the East for the losses we suffer in the West. For us the East is to be the very same thing what we are for the West"¹¹.

1. See: About the economic conference of the Allied powers

in Paris. 1916.- the USSR Central State Historical Archives

f.560, op.26, d.1505.

2. See: The problems of foreign trade policy in the Russia

press. -Pg.,1916; M.Sobolev, Restructuring of principles of

the Russia trade policy - Kharkov, 1915; Trade and industry

newspaper - 1915.- 5, 12 February.

3. See: T.Krupinina , Russia and France and inter-allied military-economic relations during the World War I (1914 - the beginning of 1917) - French-Bussian economic relations - Moscow-Paris, 1970) D.Babichev, The Russian government committee activities in London during the World War I (1914-1917) - Historical notes, 1956,v.57; The magazines of special conference on the state defence, 1915 -M. 1975. No 7; Secret reference about foodstuffs purchases for the allied states. March 1915. Central State Archives, f. 457, op. 1, d. 52

4. Russia in the World War 1914-1918 (Statistics) - M, 1925, p.70, 103.

5. G. Shigalin .Military economy in the World War I -M., 1956 - P. 167.

6. G. Dukhtyar, Internal trade in pre-revolutionary Russia -

M, 1960 - p 174-175; Works Industry in 1913-1918 -M. ,1926, p. 41

7. Hungary

It was already in the second half of the thirties that the foreign capital played essential role in the country's economy, the most part of it was from Germany (more than 50% of banking capital, 30% - mining industry capital, 20% - stock companies). In 1939 it joined anti-Comintern Pact, in 1940 - the three powers pact. Together with Germany it took part in Czechoslovakia partition (1938-1939), in attacking Yugoslavia, and in 1941 — the USSR.

Before 1918 it was Austro-Hungary industrial region, after Austro-Hungary partition it suffered lack of economic relations and shrinkage of internal market. In the twenties-thirties not all industry capacities were in operation. After 1933 the economic cooperation with Italy and Germany expanded. In 1936 the treaty with Germany was signed en political cooperation. After February 1938 the representatives of Germany were included in the Austria government.

The national economy became brisk only in the pre-war years due to Germany military orders. At the end of the thirties it depended almost completely on Germany. In 1939 it had 46% of Yugoslavia's export and 54% - import. The 1940 trade agreement with Germany had strengthened the dependence of Yugoslavia.

Because of severing economic relations with Russia its industrial products index didn't exceed the 1913 level during the period between the two World Wars. In 1933 the foreign capital predominated in the economy, including the German capital, its share increased up to 44,2% and reached 70-90% in the key industries. It influenced its political orientation. In 1938 it resulted in joint agression with Germany against Czechoslovakia (Poland captured the Teshin Silezia).

In the end of the twenties the German capital was a considerable part in tho country's economy. In 1939 the economic agreement with Germany was signed according to which the Romania economy was completely subjugated to Germany. It became one of the main suppliers of raw materials (mainly oil.) and foodstuff s to Germany. In 1940 Romania joined the Triple Alliance formally.

After formation of Czechoslovakia of Austro-Hungary, Poland and the Carpathians Ukraine territories, severing the former economic relations influenced the economy of the parts integrated. Up to 1939 the Czechoslovakia economy deprived of its main Austro-Hungary commodity markets never was able to eliminate crisis in foreign trade and agriculture. At the end of the thirties in the politicalcircles orientation to Germany strengthened. At the end of 1936 president Benesh offered Germany to sign the secret allied agreement. In 1938-1939 Czechoslovakia was partitioned between Poland, Hungary and Germany.

From the beginning of the thirties economically and politically it was completely orientated to Germany. The key industries were completely depended on German capital. In 1939 the Germany share was about 70% of foreign trade turnover. In March 1941 it joined the Tripple Alliance.

The Italian capital had the key positions in the economy. Before the World War II the economically and .politically dependent position from Italy was confirmed by bilateral agreements. In April 1939 Albania was occupied by Italy.

Economic influence of Germany was not limited by East Europe. The whole Scandinavia and North Europe were economically and politically dependent in different degree.

8. N.Dlin , Socio-economic evolution of non-socialist countries of the East. -M., 1984, p.19-20.

9. The capitalist and developing countries on the threshold of the nineties (the territorial and structural changes in the economy during the seventies and eighties). / V.Volsky, L.Bonifatyeva, L.Smirnyagin - M. 1990 p.3.

10. The data from The USSR economy during 70 years. Anniversary statistics annual. -M,, 1987.

11. Golos, 1865 February, 22 (March 12), No 54.

USSR ACADEMY OF SCIENCES

FAR EAST DIVISION

INSTITUTE FOR ECONOMIC & INTERNATIONAL OCEAN STUDIES

VLADIVOSTOK, 1991