The period of transition between our current capitalist economic and social system and a socialist economy is a very controversial subject among socialists. Maintaining an active dialogue and critique of this period is absolutely critical to our strategic and tactical understanding of how to achieve a socialist society. Nothing springs from the naked void fully formed1. We need to examine the best avenues open to us for changing our current social direction into a society we would like to bring into existence.

The Juncture

Capitalism is like a hot ember placed on a flammable object – the fire consumes the body in patches and gulps, some areas taking longer to catch, some areas exploding with flame and some areas quickly charred and brought to heel. Yet capitalism smouldered for a long period before catching fire. An economic, social and political regime can appear to remain stagnant while an apparent marginal economic activity moves towards dominance and finally erupts. Capitalism, which was once a marginal approach to economic activity, exploded onto the scene of history with dynamic force; a force which in a few centuries almost completely eliminated feudalism. A theory of social change will have to take into account the conditions which allow new social systems to ignite. It must also recognise that societies can exist in an admixture of various different economic systems. For this reason studying the entrance of capitalism onto the political scene is deeply important. Its genesis can give us clues to its demise.



No period is so exemplary of the manner in which capitalism erupts onto the political scene as the French Revolution. This revolution brought France from a period of decadent and decaying absolutist monarchy into republicanism, a radical departure for the entire social system. When it occurred there was already a new mode of production which was threatening to become ascendant. A bureaucratic, professional or “middle” class was seeking to expand its role in society. At the same time England was already seeing rapid capitalist development and its consequent dynamism threatened to leave France far behind.

Feudalism requires direct coercion to obtain surplus from those who produce. The peasant can live off his or her own subsistence, so it is only through direct taxation that the ruling class can find a share. This is a very inflexible system and it has a tendency to require a large security state and a large state bureaucracy to oversee taxation and advise the use of threat by the security state. It also does not encourage innovation, since those that produce have little incentive to change their mode. Acquiring much above subsistence does them no good since it is likely to be taken from them by force. For example, mechanisation of agriculture is exceedingly hard for feudalism to manage2.

By contrast, this new mode of production, capitalism, was cutting-edge and outward looking. It encouraged trade and direct investment of returns in production itself. The reinvestment of surplus into the method of production itself enabled growth that could not be duplicated by feudalism. Additionally, it did not require direct taxation or forced labour to obtain surplus. Instead, workers were paid wages and the surplus was taken from the sales of the commodities produced, significantly simplifying the relationship for the ruling class and reducing the need for primitive methods of coercion.

Because of the economic meltdown suffered by France, the question of taxation and how it should take place came into direct conflict with this new middle class. The middle class found that it was being completely stymied in its efforts to unbind itself from the feudal regime by legal means. At the same time, economic unrest led to great and periodic riots. With these factors in place, the middle class moved forward, sometimes cautiously, or in the case of the Jacobins, sometimes ferociously, to completely eliminate the fetters on this new and vastly more dynamic mode of production.

The more modern Russian revolution took a very different course. The political aim of revolutionaries in the French revolution ranged from constitutional monarchism to radical democracy, but economically the ideas of how the economy would change were dominated by an envy of England. By contrast, the masses of society in the Russian revolution took up the banner of socialism. They were not looking to replace the economic system with that of a competitor, but instead hoped to forge a new one from scratch. The complete collapse of the Tsarist regime and the incompetence, financial weakness and disorganisation of the middle classes gave a window for the better organised Bolsheviks to take a stab at power buoyed by the help of a supportive mass movement of peasants and workers.

When in power, they sought to establish a new mode of production entirely ex post facto; a mode of production with which they themselves had spent far too little time imagining or experimenting, and one which came not from the activities of the general population, but instead almost entirely by state decree. While this was not their intention, the collapse in production and the pressure wrought by a worsening civil war led them down the cul-de-sac of war communism. Bukharin, a Bolshevik and member of the central committee, and previously a partisan of war communism realised this problem earlier than many of the other Bolsheviks. Eventually Lenin himself realised that the Bolsheviks would have to retrench and take a longer view to the transition and reorganisation of the economy; a view which lead to the establishment of the NEP. Nor were the Bolsheviks unique in their lack of a clear route to socialisation. Even the SPD didn’t have a clear idea of how to proceed towards socialisation, hence the flurry of work in the aftermath of the German Revolution, e.g. Kautsky’s The Labour Revolution, which attempted to navigate a road forward. But this was very late in the day to be working out a feasible route through unknown territory.

Milovan Djilas 3 has promoted a theory as to why so many problems were encountered in attempts to implement socialism. Essentially his theory states that the change in the mode of production might need to precede the revolution. Indeed, his contact with the problem was not the result of idle theorisation. Djilas was involved with an attempt to implement socialism in Yugoslavia after the success of the Yugoslav Partisans in World War II. The tremendous difficulties they encountered in changing the economic structure of society led him to look for some theoretical explanation. Djilas was steeped in Marxist theory and so he naturally looked for an explanation using Marx’s theories of historical change. The mode of production and its relationship to former revolutions therefore rose to the fore.

The Old Mode of Production

Assuming that Djilas’ thesis is correct, that indeed the new mode of production must be ready to replace the old order, and do so in a way that creates active participation of the mass of society, then what does this new mode of production look like?

To understand how we might change the mode of production, it is useful to think about capitalism itself and how it functions. The analysis of capitalism presented by the 19th century socialists and put most forcefully by Marx, describes capitalism as an economic system. This system has a class of capitalists whose major income source is the investment of their income in production with the expectation of profits. More precisely, they hope to engage their income in commodity production while paying less for labour and inputs than the sale price of the produced commodity on the market. There are also indirect capitalists, who invest in various different bodies which will administer the actual production for them as well as secondary, tertiary and so on, financial instruments, which are ever greater abstractions of the actual productive process but which rely fundamentally on profits in production itself. The wage labourer is the other major class in this system, known as the working class, involved in this production process. These workers sell their labour power in productive processes which capitalists see as enabling profits.

This mode of production leaves some individuals with a much greater income capacity than others. While it is true that wage labour can take on virtually any arbitrarily high number, it is equally true that the vast majority of the income is weighted towards some low-end peak. In fact, it follows quite nicely what is known as the Boltzmann-Gibbs distribution4. Income, is in fact, bi-modal, and the income of the capitalist class is distributed according to a different modality. It is instead Pareto-distributed. The underlying fact which may be obscured by this technical jargon is that the capitalists tend to make vastly more money than the rest of us. Wage labour does not give us the same type of access to the social product.

This inequality of access to what society produces is a tremendous problem. It leads to a very lopsided political economy which resembles plutocracy more than republicanism or democracy. The rich and profit-making interests, including corporations, control the lion’s share of all political decisions and virtually all financial decisions about the development of the economy, and what is required of investment. Our only input is in the periodic voting for various candidates pre-approved by corporate interests and a choice of various commodities to purchase. The latter wields even less power than the former.

This inequality of access, however, is only part of the problem. Perhaps worse still is that the circuit of capital requires profit at all costs. In the schematic description given by Marx we have: M→C→(M+ΔM). That is, capitalists put forward money M, to create commodity C in order to make back their investment in addition to some profit M+ΔM.

This profit motive for the production of all goods and services has two major deleterious effects. The first is that all goods which are public goods or common goods can not be usefully integrated into the system. They do not exhibit scarcity naturally, and therefore do not naturally command a price. Digital media such as music, films, software etc., are properties that do not exhibit scarcity after the initial prototype copy is produced. One can say either the labour content of each copy approaches zero, or equivalently that the marginal cost of production approaches zero. The response capitalism has come up with to date is the imposition of state force to require public goods to mimic private ones, and the situation may be even more dire with common goods. This has huge implications for our modern information age.

The second major problem is that production with the sole view of increasing profits puts enormous force towards the externalisation of costs (which are sometimes called externalities). The health of workers and the amount of their wages, the environments of workers and consumers, the quality of the goods, and any sort of knowledge asymmetry between the consumer and the producer, all lead the capitalist to produce a great amount of dis-utility while bundling up an actual or expected utility into the commodity which still obtains price. The relationship with the consumer and the worker is tantamount to predation. However the damage to common goods such as the environment is downright anti-social.

While the second problem makes capitalism undesirable and perhaps terminally destructive, the first problem threatens to go beyond even this and make it entirely unworkable. The extension of the security state which is absolutely necessary for price to be attributed to public goods may come to resemble extraction of the type more familiar from feudal times.

The New Mode of Production

Socialists are often loathe to get into the exact details of what a socialist economy would look like. This is caused, perhaps in equal measure, by complete ignorance and an extensive knowledge of just how large the space of possibilities is. Indeed many proposals have been given about how a socialist economy might best be run.

The question of which system is desirable, in detail, is quite important. Unfortunately we cannot determine in abstract which system will work best and what problems will develop, though we can make guesses. To fully understand the consequences of an economic system can only be decided experimentally. This leads us to the chicken and the egg problem. How can we promote a new system without knowing what it will look like and if we don’t have a new system to promote, how can we convince the broad masses that we should remove the presently existing system – however deformed our present system becomes.

The most viable solution to this Gordian knot is to attempt to create the new modes of production experimentally…… now. It is the corporation which gives us the best experimental laboratory currently within reach and it is the democratically controlled corporation, or cooperative, which gives us the form most likely to succeed in a radically egalitarian programme of transformation.

This idea is not new at all. In fact, it was believed to be a necessary component of the struggle for socialism by both Marx and the Anarchists during the first international. The instructions given to delegates of the first international in 1866 which we put here gives a flavour of just how accurately the early socialists were thinking about this component:

Co-operative labour It is the business of the International Working Men’s Association to combine and generalise the spontaneous movements of the working classes, but not to dictate or impose any doctrinaire system whatever. The Congress should, therefore, proclaim no special system of co-operation, but limit itself to the enunciation of a few general principles. (a) We acknowledge the co-operative movement as one of the transforming forces of the present society based upon class antagonism. Its great merit is to practically show, that the present pauperising, and despotic system of the subordination of labour to capital can be superseded by the republican and beneficent system of the association of free and equal producers. (b) Restricted, however, to the dwarfish forms into which individual wages slaves can elaborate it by their private efforts, the co-operative system will never transform capitalist society. to convert social production into one large and harmonious system of free and co-operative labour, general social changes are wanted, changes of the general conditions of society, never to be realised save by the transfer of the organised forces of society, viz., the state power, from capitalists and landlords to the producers themselves. (c) We recommend working men embark in co-operative production rather than in co-operative stores. The latter touch but the surface of the present economical system, the former attacks its groundwork. (d) We recommend to all co-operative societies to convert one part of their joint income into a fund for propagating their principles by example as well as by precept, in other words, by promoting the establishment by teaching and preaching. (e) In order to prevent co-operative societies from degenerating into ordinary middle-class joint stock companies (societes par actions), all workmen employed, whether shareholders or not, ought to share alike. As a mere temporary expedient, we are willing to allow shareholders a low rate of interest. Instructions to Delegates, First International, 1866

Lest Marxists attempt to claim this is some concession to deviations from the correct programme required for pragmatic purposes we should also quote Capital:

The co-operative factories of the labourers themselves represent within the old form the first sprouts of the new, although they naturally reproduce, and must reproduce, everywhere in their actual organisation all the shortcomings of the prevailing system. But the antithesis between capital and labour is overcome within them, if at first only by way of making the associated labourers into their own capitalist, i.e., by enabling them to use the means of production for the employment of their own labour. They show how a new mode of production naturally grows out of an old one, when the development of the material forces of production and of the corresponding forms of social production have reached a particular stage. Without the factory system arising out of the capitalist mode of production there could have been no co-operative factories. Nor could these have developed without the credit system arising out of the same mode of production. The credit system is not only the principal basis for the gradual transformation of capitalist private enterprises into capitalist stock companies, but equally offers the means for the gradual extension of co-operative enterprises on a more or less national scale. The capitalist stock companies, as much as the co-operative factories, should be considered as transitional forms from the capitalist mode of production to the associated one, with the only distinction that the antagonism is resolved negatively in the one and positively in the other. Karl Marx, Capital, Volume III, Chapter 27

In both of these quotes we see some very clear thinking regards cooperatives. Neither quotes give the view that cooperatives are unproblematic. However, both try to find ways to work with an imperfect form to maximise its capacity as a vehicle of socialist transformation.

There are at least two basic problems with cooperatives. The first is that the working class already has tremendous trouble accessing capital. This means that it is very difficult to find ways of funding the initial start-up cooperative which one might wish to create. In addition capitalism is ruthless at extinguishing those firms which are not productive and consequently, cooperative or not, the majority of firms will be bankrupt within the first five years. This presents a major pragmatic stumbling block.

However even after the cooperative starts there are dangers which are spelled out by Marx and the First International. Within capitalist society each constituent firm must attempt to sell at or below the price that other competing capitalist firms set on the market. The increase in the number of cooperative firms as a movement would not mitigate against this fact; it would simply increase the number of stars in the constellation of the capitalist system which are under worker self-management. This would not be a worthless undertaking in itself, but neither would it in itself be a threat to capitalism.

There are, however, some reasons to be hopeful. Firstly the need to form profit is not immediate for the worker-controlled firm. There are other opportunities present for the firm in terms of the use of surplus gained from production. It is always possible for workers to either make use of this surplus for new investment into their own capital or into expansion of the cooperative system. Workers can also suppress their own wages to weather periodic fluctuations in the market in a way that other small businesses generally can not.

In order to be a successful movement, however, the cooperative movement requires a very big vision: a vision of a transformed society and the attendant actions which could create it. In order to do this the cooperatives will have to attempt to make real the Association of Producers. The association of producers was a broad vision of the integration of productive efforts of the workers on a cooperative, rather than a competitive basis. It would be production under the purposive direction of the workers themselves on a basis not driven by the profit motive.

It was a long standing problem of various cooperative movements and the Kibbutzim that whatever cooperative organisations or federations they made, they rarely found systematic ways of moving goods amongst themselves excepting for the sale of goods to each other through the market. A proper transformational movement would have to seriously experiment with a new system of internal exchange.

This is not an unthinkable idea. Indeed when a capitalist firm finds that it requires the services of another capitalist firm it has two choices. It can either pay a premium on the service which includes the profit margin required of capitalist firms to stay in business or it can acquire it outright and take the services at the cost of their production. In the latter case we see that the capitalist firm has moved the boundary at which surplus takes place from between the firms to between the two firms and the rest of the capitalist world.

Cooperatives can also avail of this fact. There is no need to charge other cooperatives surplus. The goods and services of an ever-larger association of producers should start bringing down the cost of goods within the entire network to within margins which would make capitalists jealous.

However, it is possible for cooperatives to go even further in this vertical integration to attempt to deteriorate the necessity of the wage itself. The greater number of useful goods and services that cooperatives in such a conglomeration produce, the greater number of potential goods could be given to employees “in kind”. This would certainly provide a “reduced cost” to the worker in the cooperative system, but it could also potentially be used to avoid taxation. The lower the wages the less tax, and corporate tax is incredibly low. This tactic is already used widely by corporate executives. The production for production and the production for worker consumption would form a sort of “inside-outside” system in which profits were only necessary at the boundary. All other surplus would be under collective and democratic administration.

The founding principles of many cooperatives state that they should favour business with other cooperatives. This principle should be realised to its fullest extent. Much as in the United States, tariffs between states are illegal and all tariffs must take place at the outer-boundary of the state, so too should cooperatives look to eliminate surplus amongst themselves.

Capital, Capital everywhere……

But how can we expect to find ourselves with the wide diversity of cooperatives which be necessary? This can really only happen with access to capital, the absence of which is the condition of labour under capitalist production itself. But the evolution of capitalism points to a potential solution that wasn’t available to the movement in the 19th century: the internal dynamic of capitalism’s own development has lowered the cost of start-up capital in some very profitable industries, e.g. software, to the point of more or less just the cost of the reproduction of its workers. It’s also the case that workers are much better off than they were in the middle of the 19th century. Indeed a vast amount of capitalists’ wealth is derived from their control of worker owned pension funds and the like. It is entirely feasible that small parts of these funds, together with voluntary contributions from ideologically committed workers would be sufficient to bootstrap the process of getting sufficient capital to set the co-operatives in motion.

But more than just a start is needed. In order to ensure that the expansion of a co-operative mode of production occurs we will need cooperative organs of finance. The cooperatives themselves must have a privileged bank. In fact such peoples’ banks were not only talked about but already Proudhon was attempting to establish one by 1849. This bank would invest only in cooperative endeavours which agreed to abide by some principles which would ensure the inside-outside type approach to the sale of goods and services described above.

Initially such a tactic would require some hard working and lucky activists to involve themselves in a large and long term project. It would require that they actively and politically attempt to find the largest surplus generating activity possible and that they devote the greatest amount of these surplus resources, not to themselves, but to the establishment of more cooperatives and the political movement that will be required to shield the movement from the machinations of big capital, which will certainly occur.

The Other Dimensions

Such a movement, if it were successful, will necessarily come under threat. No ruling class leaves its stage of history without being thrown off by more competent actors. Consequently it would be naive to assume that a quiet transition to a new socialist system could be created without the ruling class impeding its progress. Any programme of transition will have to take this into account.

One of the stages on which the battle will have to be fought is the political. Currently political parties of the left are almost universally supportive of Keynesian policies and/or redistributive justice through taxation.

Despite this, the active participation of political progressives in politics, indeed in the current electoral system will be a requirement. There are useful tasks which must be carried out. It is a fact that legitimacy can best be derived by attempting something through what is widely considered legitimate means first. It’s true that the capitalist class will have no compunction about resorting to undemocratic means or even a generalised investment strike to crush a rising co-operative mode of production which threatens the very foundations of their dominance. But in doing so, they open the possibility for harsh counter-measures such as an resorting to expropriation of the means of production without compensation. While, for socialists, such measures may be politically counter-productive as a ‘first move’ against capitalist firms, since they would likely be perceived as unfair, the rules of the game change when the responsibility for blocking the expansion of democracy, in this case through the promotion of co-operatives, is laid at the feet of the ruling class.

There is no sense attempting to go straight to revolution without first holding the Estates General, before making the Tennis Court Oath. Even the wave of collectivisation in Spain in 1936 arose as part of the counter-measures instigated by workers against the fascist attempt to overthrow the democratically elected government.

Among the sectors of society which will be indispensable in the transitional society are the trade unions. The unions comprise a different relationship to capital and especially to productive and useful organs of the state such as health, transport and utilities. However the unions and syndicalism have a very hard time wielding much power beyond the power to obtain wage increases and better working conditions. The threat of general strike has never actually propelled forward revolutionary success, however terrified the capitalist class was of it during the early part of the 20th century.

The only syndicalist revolution of any note was in Catalonia and it was incomplete and short lived, even if it has surpassed every socialist revolution since. The difficulty for syndicalism is that it is predicated on immediately moving to extra-legal means, that is, expropriation, prior to the point at which it can go into production. In addition it must somehow do so without losing the necessary functions of the managerial and bureaucratic elements of the organisations. It is no secret that these organisations are not run with the view to ensuring that working members are in possession of all the skills necessary to run these firms. This creates a complicated power asymmetry even in the case of successful expropriation. Indeed accounts of the Catalonian situation tell of the rehire of managers and technical personnel who had to be chased down and forced back to work to ensure production and it is unlikely that production would have been successfully continued by the worker collectives without their co-operation, which itself was dependent on the coalition of the CNT with their political representatives in Popular Front.5.

How then can we enable these companies to come under the control of their workforce? What is the best way to engender the radicalisation of the unions themselves? One method, proposed by Cockshott et al.6, is to pass legislation is passed which encourages such a transition. First each good would be printed with a labour value which would estimate the total labour content of goods produced. This would enable workers to clearly see the difference between the wages that they receive and the amount of surplus which is garnered by the capitalists who invest. The second stage would allow unions to sue for the full value of labour for the workforce. Such legislation, adjudicated by jury, both privileging unions and encouraging workers to form or join them, would, on one condition, completely suffocate the capitalist class and would quickly turn control towards the actual workers in the largest enterprises in society. The condition is that the workers organise themselves to take advantage of the favourable environment created by these pro-labour laws. In this scenario, the state is an enabler of socialisation rather than the sole agent of socialisation.

This approach is a more realistic view of how democratic control of large assets could take place without having to go through a state directed nationalisation which has seldom lead to much real participation. Companies which do not see active participation by their union members would never be able to succeed in such a programme. The corollary is that those which do have the active participation of the members will be able to succeed, with the longer-term result that the emerging socialist mode of production is built on a very solid foundation of popular support, a support that is umbilically linked to workers’ own material interests.

Of course, as always, many socialists will say that this approach is naïve in viewing the capitalists as legalists. However, this charge of naïveté hardly amounts to much. Should the capitalists decide to thwart the legal process there is reason for a now activated and organised section of the working class to legitimately lock horns, and possibly with much greater popular support, on a more favourable footing.

It will not just be the unions which can useful be assisted by legislation however. It is also necessary for the continued existence of the cooperatives that they be defended politically by either blocking legislation intended to disarm them or putting forward and supporting legislation which enables them to gain an advantage over capitalist firms, e.g. by making it easier for co-operatives to gain access to access credit or by prioritising co-operative firms when tendering for state projects.

To do any of this, however, will require another component; a party of the working class. This party will have to defend the unions and the cooperatives from attack as best as it is able and attempt to remove any impediment which can feasibly be removed to the establishment of a greater democratic movement of workers control over the means of production. The party will have the charge of promoting the historic mission of socialism; that is, the necessity of workers to take into their own hands the administration of the production and investment in society for their own interests, rather than the narrow interests of profit.

The unions and the cooperatives are those that are best able to garner surplus as they are taking part in the relations of production. It is from here that we will fund the political party and the other institutions of the working class which have atrophied in the modern era, such as workers’ media, workers’ cultural centres and whatever organs we find ourselves in need of.

The party must be constituted as a broad workers’ political party which does not adhere to any specific sectist ideology. The tendency to define politics in terms of narrow political visions is incompatible with any approach save failure or insurrection. The need to simultaneously succeed in garnering cooperation amongst cooperatives and unions as well as those sympathetic to a more egalitarian approach necessitates a broad political approach. The traditional Leninist model of exegesis from the holy canon of Marx, Lenin and Trotsky and the anarchist approach of total disengagement with electoralism both need to be abandoned as a model for the party itself. The party will, however, have to accommodate itself to tendencies of these and other types if it is to be successful as is witnessed by the Left Bloc in Portugal, the Left Front in France, SYRIZA, and even Die Linke in Germany. It’s a curious fact that even in the contemporary period, parties which take this approach are vastly more successful than the narrowly ideological Trotskyist or anarchist parties yet this approach is still rare indeed in the Anglophone world.

Conclusion

Since the dominant elements of the left of the political spectrum have very little in the way of a plan for transition, the ground lies relatively barren. However, due to the capitalist crisis and the failure of the Trotskyist/Anarchist strategies to gain any traction there is a resurgence of interest in both an alternative to capitalism and an alternative to the simplistic insurrectionary route to it.

Capitalism did not ignite until the conditions were appropriate. Similarly we can expect that socialism will not burn until the fuel is dry. Our task then is to discover the conditions which will allow socialism to come about. Once these are understood then we can devote our energies to ensuring that these conditions are created.

Some related articles dealing with the change of the mode of production:

Changing the mode of production

Which way the economic revolution?

The European Minimum Programme