Inequality in Qingdao, China. (Credit: Gauthier DELECROIX - 郭天/Flickr)
Inequality in Qingdao, China. (Credit: Gauthier DELECROIX - 郭天, 'Rest area'/Flickr licensed under CC BY 2.0) (via: bit.ly)

It is well-known that the reduction of the role of the market and increase of that of the state (for example, in labour relations, medical care, education, transfer payments) can reduce inequality in capitalist countries.

It is also well-known that initial results of the collapse of state socialism and the transition to capitalism in the former USSR and Eastern Europe were widespread impoverishment and an increase in inequality (Milanovic, 1998; Ellman, 2000).

It is important to stress these facts in an era dominated by neoliberal ideology. However, it does not follow from this that revolutionary change aiming to eliminate capitalism will eliminate inequality. This can be shown by considering some important examples of non-market inequalities resulting from socialist experiments in the 20th Century.

A striking and not much-known example of inequality in a non-capitalist economy is the famine in Kazakhstan in 1931-34. It seems that it caused about 1.4 million deaths (Davies & Wheatcroft, 2004, p. 415). This was about 36% of the Kazakh people, a much higher proportion of the population than that in the much-publicised Ukrainian famine of 1932-33.

This disaster was not the result of a deliberate intention to kill a large part of the Kazakh population. It was a by-product of the political system. The leadership in Moscow launched a plan “to liquidate the kulaks as a class”, and to collectivise agriculture, which was aimed at the grain-growing regions that produced the main wage good in the USSR (bread) and the main export item (grain).

A large and continuous supply of grain to the towns and the army was essential for the implementation of the industrial and military plans of the leaders and to pay for the import of technology. The centre urged the local leaders all over the country to implement collectivisation quickly and meet the state’s grain delivery targets.

In Kazakhstan, grain-growing was largely confined to Russian settlers. The indigenous Kazakhs (who comprised most of the population) were a pastoral people who predominantly practised transhuman-nomadic animal herding.

The leadership in Kazakhstan, eager to show their loyalty to Moscow, requisitioned large numbers of animals from the Kazakhs (this was the local version of dekulakisation). This greatly reduced the herders’ means of subsistence. The Kazakhstan leadership also required the herders to deliver grain to the state. Since the herders did not grow grain, they had to sell their animals to enable them to buy the grain required. The local leadership tried to organise large collective livestock farms. But, without fodder, water for the animals, and adequate veterinary services, and with inadequate food for the new collective farmers, this was a failure.

Food shortages led to mass flight from Kazakhstan to Siberia, European Russia, other Soviet republics such as Kirghizia, and also across the border into China. The migrants were generally unwelcome and suffered from disease, unemployment, and starvation. Those who remained also suffered from illnesses and poverty, and starved.

This chain of events was a catastrophe for the affected population but did have an advantage for the state. Whereas previously the herders had consumed part of the grain produced in Kazakhstan (mostly by Russian peasants from whom the herders had obtained it by purchase or barter of animal products), after the famine that part of the grain harvest previously consumed by the now dead herders could be delivered to the state.

The inequality resulting from the famine – between the living and the dead ‒ was an extreme example of inequality. However, it did not result from a difference in money incomes, which were irrelevant, but from a difference in position within the political hierarchy.

The Kazakh famine was just part of the demographic disaster which resulted from the collectivisation of agriculture. It has been estimated (Nefedov, 2017, p. 351) that the population of the USSR at the beginning of 1935 was 18 million less than it would have been had the New Economic Policy been continued (about two-thirds of this demographic loss resulted from the decline in the birth rate.)

The disaster of 1930-34 was not the only example of a famine in a non-capitalist economy. The USSR itself experienced another (much smaller) famine in 1947. However, the largest famine (by the number of victims) in the world in the 20th Century was that in China in 1958-62 (which peaked in 1960). Its ultimate cause of was the extreme inequality to which the rule of the Communist Party and the collectivisation of agriculture had led.

One man at the head of the ruling party was able to enforce policies which damaged agriculture and the welfare of the rural population and reject sensible criticism. The inequality between the living and the dead was not caused by differences in money income but were a result of the victims and survivors occupying different roles in the politically determined national hierarchy.

A similar, but less extreme, case of inequality resulting from the political system is that of the lishentsy (this is a Russian word which describes people who are deprived – in this case of the right to vote). This was a group of several million people who from the 1920s down to 1936 were excluded from the Soviet political community (symbolised by their not having the right to vote and thus the possibility of demonstrating their loyalty to Soviet power ― Soviet elections were not about deciding who was going to rule, but about demonstrating political loyalty).

This could have serious consequences, such as the loss of housing or of a job, and to being excluded from the rationing system when food was rationed. The difference between the lishentsy and the rest of the population was not caused by differences in money incomes (although job losses may have led to them), but was a result of a difference in position in the political hierarchy which had many of the consequences that in a capitalist economy would be caused by differences in money income.

If one looks at the situation in the USSR under late Stalinism, there was great inequality between different layers of the population, but the inequality was not primarily a matter of money incomes but of position in the political system. At the bottom were the Gulag prisoners (about 2.5 million at the time of Stalin’s death), followed by the ‘special settlers’ (almost 3 million), whose situation, while not good, was better than that of the Gulag inmates since they could live in family groups and could often determine their own work, but who were confined to rather inhospitable areas and supervised by state security officials.

Then followed the collective farmers, who comprised a large but declining proportion of the total population. In 1940 collective farmers comprised 46% of the working population and in 1960 still comprised 26% (Narkhoz, 1987, p. 411).  Collective farmers were, in principle, tied to their native villages (they did not have internal passports and required permission to move away) and had low living standards.

The inequality between them and the better-off groups in society was partly monetary (they had very low money incomes) but mainly socio-political (their status was inherited, the restrictions on their mobility, the poor amenities of their villages, their low consumption levels, the taxes they had to pay, and the work they were compelled to do for the collective farms for little reward, were all a result of the political system).

The next layer was the mass of the urban population. This was divided by location. There was a hierarchy of supply and amenities, with Moscow at the top, followed by Leningrad and the capital cities of the Union republics, with peripheral cities and small towns lagging behind.  It was also divided by housing (much of the urban population lived in communal apartments, but some in worse conditions and some in better).

Other divisions concerned access to the distribution of goods at the place of work, and money income. Although unequal, their inequality was not large by the standards of capitalist countries at the stage of early industrialisation. At the top of the hierarchy were the elite, the senior figures in the Communist Party, state security, the military, industrial management, and intellectual institutions such as the Academy of Sciences and Union of Writers.

They often enjoyed state-provided dachas, domestic servants, and access to better quality food and other consumer goods than most urban inhabitants, and both higher salaries and, in some cases, bonuses (known in the USSR as ‘packets’ since they were paid in cash in packets filled with notes). Their higher real incomes were partly monetary and partly non-monetary. However, their living standards were modest compared with those of millionaires in capitalist countries.

Many people were surprised and disillusioned by the existence and importance of inequality under socialism. However, 17 years before the USSR was established, the fact that inequality would persist under socialism was foreseen by the Polish revolutionary Machajski (1905). He argued that socialism would not bring equality and the rule of the workers, but would establish the rule of a group of socialist intellectuals and that inequality and a ruling class would persist under socialism.

This echoed some of the arguments of Bakunin and his critique of Marx. Lenin was aware of Machajski’s work and was naturally hostile to it. In 1902-3, in an overview of the political-ideological situation in Russia, he included Machajski’s followers as one of the ‘non-social democratic revolutionary and opposition trends’.

In 1921 Lenin criticised the Workers’ Opposition (an opposition group within the Communist Party) for being a Makhaevist deviation from the party line. The experience of the last century showed that some of Lenin’s goals were utopian and some of Machajski’s criticism of socialism were accurate. After socialism had been introduced and had existed for some time, analogous arguments were put forward in the well-known books of Orwell (1946) and Djilas (1957).

However, in the post-Stalin period, there was a sharp decline in inequality in the USSR. The Gulag was closed down (although imprisonment for criminals and some political dissenters naturally remained), and the system of ‘special settlements’ was ended. The position of the collective farmers was greatly improved, by the abolition of taxes on the output of their household plots, the issue of passports to them, improved facilities in rural areas, higher incomes, and eligibility for state old age pensions.

Nevertheless, the differentiation of the mass of the urban population (by location, housing, access to closed distribution, and income) remained. However, it was reduced by the (re)introduction of a minimum wage and increases to it. An additional equalising factor was the development of a pension system. Another was the reduction in piecework. Yet another was the growth in food subsidies (to the extent that food was actually available at the subsidised prices).

The elite (senior party officials, senior military and state security officers, large-enterprise managers, senior intellectuals) enjoyed state-provided dachas, relatively good housing, better consumer goods than those available to the rest of the urban population provided at place of work or in special shops (or parts thereof), and access to better quality clinics, hospitals, and holiday resorts. They also had privileged access to the best schools and higher education institutions. Although much better-off than the mass of the population, they were not well-off compared with Western millionaires of that period.

As Wiles (1974, p. 25) long ago pointed out “the statistical record since Stalin is a very good one indeed. I doubt if any other country can show a more rapid and sweeping progress towards equality”. Later data showed that this reduction in inequality did not persist indefinitely. Atkinson & Micklewright (1992, p. 88, 132-33) estimated that earnings inequality increased in 1968-76 and in the 1980s, and that income inequality increased in the 1980s. It should be noted that the growth of the informal sector during the 1970s and 1980s also had the effect of increasing income inequality.

While the USSR gradually expanded access to consumer goods (one-family apartments, refrigerators, televisions) and increased welfare provision (minimum wages and old-age pensions), China moved in a different direction. Maoist China developed what was essentially a caste system. There were five red castes and eight black castes. The five red castes were: the workers; poor and middle peasants; soldiers; cadres (for example, officials); and relatives of revolutionary martyrs. The eight black castes were landlords; rich peasants; counter-revolutionaries; bad elements; rightists; renegades; enemy agents; and capitalist ‘roaders’.

In 1966-76 there was an additional black caste, the ‘stinking ninth’ (i.e., intellectuals). Those born into a black category were discriminated against from birth, and the person’s spouse, family and children were similarly affected. An example of what this meant has been given by Lee (1978, p. 39).

A friend of ours was staying at a farm in northern Guangdong for six years. He met a man by the name of Chan there. This young man was by nature taciturn and clumsy, and smiles and talks little. He was conveniently classified as ‘backward’ for his father was a schoolteacher, an intellectual. His parents were struggled against and denounced in the Cultural Revolution. But he remained quiet, kind, solitary and ‘backward’. And he developed secret sentiments towards a girl in the herding brigade. When he could contain himself no longer, he wrote a fiery letter of love to this girl. The girl was a ‘poor peasant’ and therefore of impeccable family history. She was startled and scared and immediately showed the letter to her brigade (all girls).

Their leader arranged for her to shame Chan in public, and the incident spread. All the farm marvelled at his recklessness. A man in his position daring to touch the daughter of a poor peasant family! The local party branch secretary saw fit to warn him in person, this was a grave violation indeed.

The idea that an intellectual (i.e., the son of a school teacher) could marry a poor peasant (for example, the daughter of a poor peasant) was an unacceptable breach of the socialist caste system. The differences in social position that determined potential marriage partners was not one of income but of position in the politically determined social hierarchy.

It can be seen from the above that money income, although important, was less important in determining inequality in state socialist economies (especially in the Stalinist and Maoist periods) than in capitalist economies. That is entirely understandable since one of the goals of the socialist movement was to reduce the role of money and increase that of non-monetary social provision.

In a society in which housing, education, medical care and much public transport are provided free or at heavily subsidised prices, money plays a lesser role than one in which the costs (in full or in part) of housing, education, medical care, and public transport have to be paid for out of personal incomes.  Furthermore, the role of money was also reduced by the importance of shortages. Even with money, goods were often unobtainable in ordinary state retail trade. Hence, access to places of work, or special shops, or special parts, theft from state enterprises, and personal contacts were often more important than money income.

Therefore, trying to compare the distribution of welfare in capitalist and state socialist economies using just data on the distribution of official money income, as is sometimes done, raises serious problems because of the importance of non-monetary factors in determining inequality in the latter. As a result, calculations based on official figures for the distribution just of money incomes are likely to give a misleading impression if used for inter-system comparisons.

Despite these complications, a number of economists have attempted to incorporate estimates of non-monetary income into total income and to compare total income between capitalist and state socialist economies. This was long ago done for the 1970s by Morrison (1984). His calculations showed a mixed picture. Just taking Gini coefficients, Czechoslovakia – a state socialist country ― appeared to be the most equal of the countries considered and the USA – a capitalist country ― was the most unequal. However, both the USSR and Poland had higher Gini coefficients than the UK or Sweden. The USSR and Poland also had a higher share of income going to the top decile than all the capitalist countries considered (which included the USA).

On the other hand, the relative position of the lowest four deciles was relatively favourable in the state socialist economies. Morrison’s paper is interesting, but it was just an initial study of a complex issue. Nevertheless, one important issue to which it drew attention was the difference in inequality between state socialist countries. This complicates the comparison of inequality under state socialism and capitalism. Bergson (1984) drew attention to the fluctuations in Soviet inequality over time, so that the outcome of comparisons of inequality between the USSR and capitalist countries depends very much on which periods are chosen for comparison.

A later comparison of inequality under state socialism and capitalism was made by Dominique Redor (1992). Redor compared the distribution of earnings (for full-time employees paid the full rate, i.e., excluding apprentices) and that of disposable income, in 1980, in Belgium, Denmark, the United States, France, West Germany, and the UK, on the one hand, and Hungary, Poland, East Germany, Czechoslovakia and the USSR, on the other.

As far as official earnings in are concerned, he found large intrasystem differences in the dispersion of earnings but no clear intersystem difference. Redor did, however, find that workers in the mining and steel industries were relatively well paid in the state socialist countries. He also found that the differential between manual workers and non-manual workers was lower in the state socialist countries than in the capitalist ones.

Earnings in some service sectors (such as education and health) were also relatively low in the state socialist countries. Redor ascribed the similarity between the wage differentials in the two systems to the analogous processes (efficiency wages, internal labour markets) for managing the labour force in the two systems. He also considered the effect of including income from secondary activities and benefits in kind and concluded that, while they increased inequality, the increase was quite small. However, it did change the relative position of some occupational groups, such as employees in trade (who were able to sell goods at market prices which they had bought at the lower state prices or simply stolen) and doctors who in some countries benefitted from substantial ‘gifts’.

A classic comparison of income inequality under state socialism and capitalism is that of Atkinson & Micklewright (1992). This is marked by detailed attention to the sources. For example, it suggests (p.125) that Morrison’s data for the UK were misleading and that inequality there was greater than Morrison had estimated. It also recognises the importance of subsidies, transfers, elite benefits, and shortages. However, it does not take account of Collier’s (1985, 1986) estimates of the cost of shortages.

Collier came to the conclusion that in 1977, shortages reduced the real income of East German families by 13%. This is a striking result when one bears in mind that the extent of shortages in East Germany in 1977 was considerably less than in the USSR in the 1970s and 1980s, or in Poland in the 1980s. It gives an indication of the kind of adjustment to the incomes of different layers of the population, according to the extent to which they were subject to shortages, that would be necessary to take full account of shortages.

In addition to the differences in shortages between members of the nomenklatura and ordinary citizens, and between the inhabitants of Moscow and provincial cities and small towns, there were also differences between those who owned hard currencies and those who did not. (In the USSR in 1931-36 there were special shops where consumer goods such as bread were readily available to those with gold and foreign currency. Such shops were reintroduced – with a wider range of goods ― for those with foreign currency in the USSR and Eastern Europe in the post-Stalin period.)

Atkinson & Micklewright  (1992) draw attention to the diversity between countries, the high level of equality in Czechoslovakia, the big differences between Soviet republics, and the importance of changes over time (such as the reduction in inequality in the USSR in the post-Stalin period). They note (p.104) that because of the diversity between countries and over time, it is ’not easy to draw clear-cut conclusions about the comparison of earnings inequality under capitalism and Communism.’ As for the meaning of the data on the distribution of incomes, they end their analysis of this (p.177) with the traditional academic conclusion that more research is required to reach a satisfactory result.

That conclusion is confirmed by the fact that even the adjustments to the published official data made by Redor and Atkinson & Micklewright fail to capture important inequalities in state socialist economies that do not exist in market economies. For example, in the USSR travel to capitalist countries was restricted to people whom the authorities regarded as reliable. People regarded as actually or potentially unreliable were unable to travel to capitalist countries.

This contrasts with the situation in capitalist economies where international travel is normally available to anyone with the money to pay for it. This kind of inequality (between those permitted, and those not permitted, to travel abroad) is important but has not been captured up till now even by calculation of corrected income distribution statistics by distinguished specialists.

The distribution of wealth in the two systems differed substantially. A characteristic feature of capitalism is that it produces a small number of very rich people with large amounts of legitimate wealth. These people have extensive economic and political influence. The absence of this group under state socialism was a major difference between the systems. (There were millionaires under state socialism, chiefly corrupt officials and second-economy operators, but their wealth was usually not legitimate, not in the form of means of production, and liable to confiscation with a change in the political situation.)

However, control over the means of production, analogous to the control exercised by wealthy capitalists under capitalism, was exercised under state socialism by senior Party and state officials and directors of large enterprises. The relative position of tenants and owner-occupiers also differed. Whereas in the capitalist world, the latter are generally better-off than the former, in the state socialist world the situation was reversed. For example, in the USSR the majority of houses in private ownership were traditional-style houses without modern amenities. The high-income groups lived predominantly in flats (and dachas) with good facilities and low rents which were the property of the state.

Considering inequality under state socialism from a sociological point of view, which is wider than just concentrating on the distribution of money income, Lane (1982:159) concluded that in a relational sense there is inequality of control over wealth, inequality of political power, and in a distributional sense, there is inequality of income and inequality of status.

The origins of such social stratification lie in the bureaucratic nature of political power, in the role structure created by the division of labour sanctioned by the educational system and perpetuated by the family. Such structural features give rise to a hierarchy in which some groups of men (and a few women) have power, prestige and privilege while others lack them. Politically, and not without internal conflict, the privileged acquire the means to help maintain and justify ideologically their advantage.

Conclusion

Reducing the role of the market and increasing that of the state (for example in labour relations, medical care, education, or by introducing or increasing transfer payments) can undoubtedly reduce inequality in capitalist economies. Furthermore, major initial results of the transition from state socialism to capitalism in the former USSR and Eastern Europe were widespread impoverishment and an increase in inequality.

However, experience also shows that revolutionary social change aiming to eliminate the role of money and the market may well fail to eliminate inequality but simply change its causes from ownership of wealth to positions in the political and bureaucratic hierarchies and/or the need to manage effectively complex economic systems. Those who want to replace neoliberalism and contemporary capitalism by a different ideology and alternative institutions should take account of this.

 

Michael Ellman

Emeritus Professor, Amsterdam University

 

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