© The Author(s) 2019
C. Ghosh, A. N. GhoshAn Introduction to Economicshttps://doi.org/10.1007/978-981-15-1056-4_6

6. Capitalism Versus Socialism: A Few Country Studies

Chandana Ghosh1   and Ambar Nath Ghosh2  
(1)
Economic Research Unit, Indian Statistical Institute, Kolkata, West Bengal, India
(2)
Economics Department, Jadavpur University, Kolkata, West Bengal, India
 
 
Chandana Ghosh (Corresponding author)
 
Ambar Nath Ghosh

Abstract

This chapter explains the economic performance of the Soviet Union and the reasons for its disintegration. It also seeks to explain China’s economic performance and assess whether it has deviated from the socialist path. It also discusses the economic performance of Cuba and the prospect of its survival as a socialist state. It identifies the inevitable hostility of the vastly more powerful capitalist powers as the sole factor that has led to the collapse of the Soviet Union, aberrations in the People’s Republic of China and uncertainty regarding the prospect of survival of Cuba as a socialist state.

Keywords

Soviet UnionChinaCubaSocialism

6.1 Introduction

This chapter discusses and assesses economic performances of three socialist states, namely, the Soviet Union, People’s Republic of China and Cuba. On the basis of this assessment it seeks to explain why Soviet Union disintegrated, the reasons for the apparent deviations of People’s Republic of China from socialism and the problems faced by Cuba in sustaining socialism. We have divided the chapter into three parts. Part I focuses on the Soviet Union, Part II discusses the state of People’s Republic of China and Part III devotes itself to Cuba.

Part I: Soviet Union

6.2 Economy of the Soviet Union: Introduction

Socialism based on Marxian principles was born in the Soviet Union (Union of Soviet Socialist Republic [USSR]) in 1917 under the leadership of Vladimir Ilich Lenin. Right since its birth, the Soviet Union was engaged in fierce wars with the major capitalist powers. In fact, the history of the Soviet Union is one of unending war with the capitalist foes bent on overthrowing the communist regime and supplanting it with a capitalist one. Lenin died in 1924. Following his death, Joseph Stalin usurped power. Under his able, ruthless and forceful leadership, the Soviet Union made great economic progress, won World War II defeating the axis powers led by Germany and Japan and established itself as a superpower rivalled only by the US. However, the cost of the unending war with the mighty capitalist bloc, which was vastly richer than the Soviet Union, proved to be too much for the USSR to bear. It eventually capitulated in 1985 under the burden of the cost of war and collapsed completely in 1991. In what follows, we shall delineate and explain the triumphs and travails of the USSR and its final surrender to the vastly mightier capitalist force. The Soviet Bloc was held together by force, which came at an enormous cost. Why was application of force necessary to keep the Soviet Bloc together? To answer this, we have to know how the Soviet Bloc was formed. In what follows, we shall briefly discuss that.

6.3 Formation of the Soviet Bloc

The first socialist state based on Marxian principles was born in Russia. The devastation wrought by World War I in Russia created acute scarcities of food and other necessities. This induced nation-wide rebellion against the inept administration of Emperor Tsar Nicholas II all through 2017. In the February revolution, Tsar was overthrown and a provisional government came into power. In the October revolution, the Bolsheviks (communists) led by Vladimir Ilich Lenin ousted the provisional government and set up in its place a permanent communist government which followed Marxist-Leninist principles. Its objective was to establish socialism and eventually communism in Russia. The upper-class people and the officers in the military were opposed to the communists. With the support of the capitalist powers (the US, Europe and Japan), who not only provided the anti-communist forces within Russia, referred to as the White Army, with resources, arms and ammunition but also sent in their own troops, a fierce and bloody civil war broke out, which did not remain confined to Russia alone, but spread to other territories of the erstwhile empire of Tsar. The Red Army of the Bolsheviks came out victorious. They occupied Transcaucasia consisting of Azerbaijan, Armenia and Georgia. These three states were merged into Transcaucasian Soviet Federated Socialist Republic (TSFSR). In December 1922, TSFSR was made a part of the Union of Soviet Socialist Republic (USSR), which is alternatively referred to as the Soviet Union. Following the secret Molotove-Ribbentrop Pact of non-aggression between the Soviet Union and Germany in 1939, the Red Army invaded the Baltic states of Lithuania, Latvia and Estonia and made them a part of the Soviet Union. Finally, after World War II, in which the Red Army defeated West Germany and Japan, the Red Army occupied many East and Central European states. Using its military might, the Soviet Union retained control over many of them through puppet regimes. These states were East Germany, Poland, Hungary, Bulgaria, Czechoslovakia, Romania and Albania. They became the satellite states of the Soviet Union and constituted the Eastern Bloc. Thus, quite a large part of the Soviet Union and its satellite states were occupied by force and, as a result, had to be kept in control by means of force. This called for enormous spending on military and police. The cost assumed onerous proportions as the internal forces opposed to the communist or Soviet rule were aided in all kinds of ways by the much mightier capitalist bloc, which was keen on destabilizing the Soviet Bloc both internally and externally.

6.4 The Spectacular Rise of the Soviet Union

When Bolsheviks came to power in the Soviet Union, it was predominantly an agrarian feudal economy. Industrialization had just started. Beleaguered by hostile mighty capitalist powers, the Soviet Union realized that survival required rapid arms build-up through industrialization at the fastest possible pace. All private enterprises were nationalized or turned into workers’ cooperatives. The state took over all private properties. The goods and services were produced mostly by the state and the rest by workers’ cooperatives. The state distributed the produced goods and services at prices which it fixed. It set consumption quota for every consumption item and distributed the consumption items among the individuals in accordance with these consumption quotas at fixed prices. Thus, production and distribution of all goods and services were completely under the control of the state. After the death of Lenin in 1924, industrialization began in the Soviet Union under the leadership of Stalin through Five Year Plans. The First Five Year Plan was launched in 1928. Let us give you an idea as to how plans are made with a simple example. Consider an economy where only two goods are produced X1 and X2. Usually, industries are interdependent, that is, output of one industry is used as an input in another industry. Suppose a12 amount of X1 is needed to produce one unit of X2 and a21 amount of X2 is needed to produce one unit of X1. X1 and X2 are also used for personal and public (government) consumption and for investment. In any given period, productive capacities for X1 and X2 are already installed. Outputs of X1 and X2 when their respective productive capacities in the given period are fully utilized are denoted by X1t and X2t, respectively, where t denotes the given period of time. Denoting personal consumption demand, public consumption demand and investment demand for the ith good by Ci, Ii and Gi, respectively (i = 1, 2), the equations the planners deal with may be written as follows:
$$ {X_1}^t={a}_{12}\;{X_2}^t+{C}_{1t}+{G}_{1t}+{I}_{1t} $$
(6.1)
and
$$ {X_2}^t={a}_{21}\;{X_1}^t+{C}_{2t}+{G}_{2t}+{I}_{2t} $$
(6.2)

I1t and I2t are used to augment productive capacities of X1 and X2 and also for increasing R&D capacity. The state or the planners decided on the values of Cit, Git and Iit, i = 1, 2 on the basis of equations (6.1) and (6.2) and known values of X1t, X2t, a12 and a21, whose values the planners estimated. The state undertook almost all production and investment. Maximization of the rate growth of production of X1 and X2 from the given period to the next and the rate of technological progress calls for maximization of I1t and I2t. From (6.1) and (6.2) it is clear that there is a trade-off between consumption and investment. Maximization of growth rate entails minimization of personal and public consumption. The planners in the Soviet Union set consumption levels at minimum possible levels to maximize the growth rate. Of course, given the hostile environment, there were limits to which government consumption (comprising expenditures on defence and administration, public health care and education) could be reduced. Moreover, the rapid growth of industry and agriculture required a rapid growth in quality labour force as well. Hence, the Soviet Union had to devote a vast amount of resources to education and health care for the masses. Hence, personal consumption levels were reduced to the minimum possible level by curbing production of non-essential consumption goods. Prices of goods and services produced were set by the planners. From the above it is clear that, through planning problems of both underconsumption and disproportionality were avoided. Planning ensured that productive capacities created in different lines of production were fully utilized in every period. Moreover, since how much capacities were to be created in different lines of production were decided upon by the planners after consideration of all relevant factors, capacities created in different lines of production matched each other perfectly. Since production, investment and consumption were under the complete control of the state in the Soviet Union, the state ensured that the production, investment and consumption targets specified in the plans got fully realized. The fast pace of industrialization in the Soviet Union required a high rate of growth of agricultural surplus (which refers to surplus of agricultural output over and above what is needed by the people engaged in agriculture for consumption and for further production). This was necessary since agricultural products were used as raw materials in industry and as food by industrial workers. To ensure this, land was nationalized and agricultural production was carried out in large collective firms, which belonged to two categories, namely, Sovkhozes (state-owned firms) and Kolkhozes (cooperative firms). All industrial enterprises were state owned. Every year, in accordance with the targets specified by the Five Year Plans, all enterprises in both industry and agriculture were given production quotas, which they had to fulfil. These production quotas were specified in such a manner that productive capacity in every production unit was fully utilized. As trade with hostile capitalist countries was not possible, the Soviet Union had to develop its industry and agriculture on its own. That meant massive investments in R&D to develop its own technology for producing and improving the production of all kinds of goods and services it needed. The Soviet Union produced only essential consumption goods (comprising basic food, clothing, shelter, quality health care service and education), armaments, the intermediate inputs necessary for the production of the abovementioned goods and machinery and equipment necessary for producing themselves as well as for producing the consumption goods mentioned above and the necessary intermediate inputs. Through planning the Soviet Union sought to provide every member of the labour force with gainful employment that best suited her/his ability. It also tried to create a system that made sure that every citizen got quality food, clothing, shelter, health care and education in adequate quantities.

Under state-controlled socialist planning, as it brought about full utilization of productive capacities in every line of production and stopped leakage of resources into non-essential uses, economic development of the Soviet Union was spectacular, to say the least. There took place tremendous surge in production and productivity in both industry and agriculture, and by the end of the 1930s, it was fully industrialized and emerged as a major industrial power. It succeeded in providing every citizen with adequate quantities of quality food, clothing and shelter. It also created a system of universal education and health care under which every citizen got quality health care and education on the scale one wanted or required completely free of cost. Moreover, it fully utilized all the members of the labour force by providing every member with gainful employment that best suited her/his ability. The commitment, intelligence and the skill of the leaders and the people of the Soviet Union made this economic miracle possible. All this happened in an environment of relentless hostility, as anti-communist forces tried to gain control and destabilize the Soviet Union from both within and outside. There was a sizable section of anti-communist people in the Soviet Union consisting chiefly of people who lost properties, power and position on account of nationalization of all private properties that took place following the establishment of the communist rule. Capitalist powers tried to weaken the communist government from within through these people.

6.4.1 World War II and the Post-War Period

Economic strides of the Soviet Union came to a halt in the 1940s with the outbreak of World War II, as West Germany attacked the Soviet Union. The battle that ensued was fiercely fought and arduously long. Even though the Red Army emerged victorious, it did so at a heavy cost. About 72 million people lost their lives and quite a large part of the industrial productive capacity of the Soviet Union built so arduously in the pre-war years lay devastated. Following the conclusion of the War, a period of rapid reconstruction began and the economic development that took place till the end of the fifties was again a Soviet miracle. National income in the USSR in 1960 became 2.34 times of what it was in 1951. This far surpassed the performance of all the capitalist powers. Its industrial performance was equally spectacular and its industrial output in 1960 became 2.28 times of what it was in 1951. It outstripped by far the performance of the US, the UK and France but fell below that of West Germany and Japan. Labour productivity in the USSR in 1960 became 4.6 times of what it was in 1951. Increase in labour productivity may be regarded as an index of technological progress. In this respect also the USSR outstripped the US and the UK (see Khanin (2003) for details).

After the death of Stalin in 1953, Nikita Kruschev came to power. Since 1953 emphasis was laid on improving the living standard of the people. There took place remarkable improvement in the standard of living of the people, which attained the level of many developed countries at the end of the 1950s. During the 1950s, the share of expenditure on education, health care and science and technology in the Soviet Union was one of the highest in the world. There took place enormous increase in life expectancy, which was 69 at the end of the 1950s. This was the life expectancy in most of the developed countries during the given period. There was no poverty. The citizens had a secure and comfortable, though not rich, living standard. Technologically also the Soviet Union made great strides. This is borne out by the following facts. The Soviet Union was the first to successfully launch a satellite, Sputnik, in space; commission an atomic power station; build the first supersonic passenger aircraft; send the first man, Yuri Gagarin, in space and so on. The Soviet Union outperformed the US in many other technological achievements. Soviet computers did not lag far behind those of the US. Technical level in such branches of industry as electric power generation, ferrous metals, coal industry and some branches of non-ferrous metals was not then substantially below the US level. Technical level of military equipment was no less than that of the US. At the end of the 1950s, the Soviet Union emerged as a superpower in military, scientific and economic terms. In all these areas it lagged slightly behind the US, but far outstripped all other countries in the world.

6.5 The Fall of the Soviet Union

After World War II, the capitalist bloc and the Soviet Union engaged in spreading their respective spheres of influence, that is, they wanted to bring more and more countries under their respective control and establish their kinds of societies in those countries. The Soviet Union wanted to spread communism, while the capitalist bloc worked for the spread of capitalism. This struggle and conflict between the two powers is called the Cold War. After the capitalist powers and the Soviet Union had recovered from the ravages of war at the end of the 1950s, the Cold War assumed a fierce pace. The Cold War manifested itself in an arms race, where each power tried to outstrip the other militarily. They also fought each other by providing the pro-communist and pro-capitalist forces in different countries of the world with military and materials aid. The economic might of the Soviet Union was far too small relative to that of all the capitalist powers combined. To keep pace with the capitalist bloc in the areas mentioned above, the Soviet Union had to devote too much of its resources to arms building, police, military and empire building, so much so that it had little resources left for its own economic development. Its growth rate began to decelerate since the end of the 1950s and assumed very low levels in the 1970s and 1980s. As the production base of the Soviet Union was far too small relative to that of the capitalist bloc, with the marked fall in the growth rate of its production base, it was no longer possible for the Soviet Union to compete with the capitalist bloc militarily. It realized this in the eighties and Soviet leadership finally capitulated to the capitalist bloc in the mid-eighties, when the Soviet President Gorbachev shunned the path of communism and ushered in capitalism by adopting the policies of Glasnost and Perestroika. The former meant giving the people the freedom of speech and expression, and the latter aimed at supplanting the state-enterprise-based centrally planned economy (alternatively referred to as a command economy) with a private-enterprise-based market economy. The Soviet Union could no longer hold itself together either. The weakening of the military might of the Soviet Union and the continuing and ever-increasing efforts on the part of the capitalist bloc to strengthen the anti-communist forces in the Soviet Union finally resulted in all the republics of the Soviet Union declaring and gaining independence. Thus, the Soviet Union split up into 15 independent republics. In other words, the Soviet Union ceased to exist as a single nation. All the independent states adopted the path of capitalism. In what follows, we shall develop a simple model to illustrate how the Soviet Union lost the Cold War.

6.5.1 The Model

The Soviet economy was largely a closed economy. It struck up a startling pace of economic development almost under conditions of autarky. Therefore, we shall ignore foreign trade in what follows. We know that the following equation must hold in a closed market economy as well as in a closed planned economy in any given period:
$$ Y=C+I+G $$
(6.3)
where Y, C, I and G denote real net domestic product, aggregate real personal consumption, aggregate real net investment and aggregate real public consumption, respectively of the given period. Equation (6.3) simply states that in a closed economy Y is used for purposes of personal and public consumption and for investment. Henceforth, G will stand for government expenditure in real terms on only military and police for simplicity.
Therefore, aggregate real net investment denoted by I is given by the following equation:
$$ I=Y\hbox{--} C-G $$
(6.4)
Equation (6.4) states that the surplus of Y over C and G is used for purposes of net investment, that is, to add to the capital stock. Denoting aggregate capital stock of the economy by K, we have I ≡ dK. Equation (6.4) holds good in a market economy as well as in a planned economy. In the latter, values of Y, C, G and I are planned by the planners. Dividing both sides of (6.4) by K, we get
$$ \frac{I}{K}\equiv \hat{K}=u\left[1-c-g\right]\kern1.12em \hat{K}\equiv \frac{dK}{K},\kern0.5em u\equiv \frac{Y}{K},\kern0.5em c\equiv \frac{C}{Y}\;\mathrm{and}\;g\equiv \frac{G}{Y} $$
(6.5)

Equation (6.5) identifies the determinants of the rate of growth of capital stock. Here, for reasons to be explained shortly, u is the output-capital ratio, when productive capacity of the capital stock is fully utilized, c is the fraction of aggregate output (NDP) that is devoted to personal consumption, while g is the fraction of aggregate output devoted to government consumption. In a planned economy, planning ensures full utilization of the productive capacity of the existing capital stock in every given period. Hence, in a planned economy, output-capital ratio in any given period is given by u. Planners also determine c and g. Hence, as follows from (6.5), the planners in any given period can raise the rate of growth of capital to the maximum possible level by reducing c and g to the minimum possible levels, given the value of u. The level of u depends upon the level of technology. The better the technology, the greater is the value of u. The rate of growth in the value of u depends on the rate of technological progress. To bring about technological progress, investment has to be made in the science and technology (S&T) sector. The rate of technological progress depends upon the rate at which the productive capacity in the S&T sector can grow over time. To what extent the planners can make the productive capacity in the S&T sector grow over time depends crucially on how much resources the planners can mobilize for purposes of investment. In other words, it depends crucially on $$ \hat{K} $$. The higher the $$ \hat{K} $$, the greater is the capability of the planners to bring about a higher rate of growth of the productive capacity of the S&T sector. Now,

$$ Y= uK $$
(6.6)
Taking log of both sides of (6.6) and, then taking total differential, we get
$$ \hat{Y}=\hat{u}+\hat{K}\kern3.33em \hat{Y}\equiv \frac{dY}{Y}\kern0.62em \mathrm{and}\kern0.62em \hat{u}\equiv \frac{du}{u} $$
(6.7)
Equation (6.7) states that the rate of growth of Y is the sum of the rate of growth of u and the rate of growth of K. Since, as we have already pointed out, the former crucially depends upon the latter, the rate of growth of Y depends principally on that of K. So, in what follows, we shall assume $$ \hat{u} $$ to be equal to zero for simplicity. Given this assumption, Eqs. (6.5) and (6.7) yield
$$ \hat{Y}=\hat{K}=u\left[1-c-g\right] $$
(6.8)
Given u and c, Eq. (6.8) shows that $$ \hat{Y}\;\mathrm{and}\;\hat{K} $$ are decreasing functions of g. This relationship between $$ \hat{Y},\hat{K} $$ and g is shown in Fig. 6.1, where the line gg shows values of $$ \hat{Y}\;\mathrm{and}\;\hat{K} $$corresponding to different values of g. Consider a given period, period zero. Suppose the level of g and the minimum level of c in the given period are denoted by g0 and c0, respectively. The corresponding value of $$ \hat{Y}\;\mathrm{and}\;\hat{K} $$ is denoted by $$ {\hat{Y}}_0=u\left(1-{c}_0-{g}_0\right) $$. The maximum rate of growth of G (expenditure on defence and administration) that is sustainable is $$ {\hat{Y}}_0 $$. Let us explain this point. This may be proved as follows. Suppose $$ \hat{G}>{\hat{Y}}_0 $$. Now, $$ \hat{g}=\hat{G}-\hat{Y} $$ (since g = G/Y, taking log of both sides and then taking total differential, we get $$ \hat{g}=\hat{G}-\hat{Y} $$). Therefore, g will increase in the next period, reducing $$ \hat{Y} $$ below $$ {\hat{Y}}_0 $$. Thus, in the next period, $$ \hat{G} $$ will move further above $$ \hat{Y} $$. Accordingly, $$ \hat{Y} $$ will go on falling over time. Let us illustrate the point made above with a numerical example. Aggregate capital stock and aggregate full capacity output in period 0 of the given economy are denoted by K0 and Y0, respectively, and suppose (Y0/K0) = u = 1/3. The minimum value of c is 0.2 in every period. Also suppose the rate of growth of G from the preceding period (referred to as period –1) to period 0 given by [(G0 – G–1)/G–1] = 0.2 and (G0/Y0) = 0.2. Note that in period 0, G−1 is given and known. Therefore, the rate of growth of Y from period 0 to period 1 (due to growth in K through net investment) is given by (1/3).[1−0.2 −0.2] = 0.2 (or 20 percent). If now the rate of growth of G from period 0 to the next period, period 1, is 0.2 (or 20 percent), [G1/Y1]=[G0(1+0.2)/Y0(1+0.2)] will remain equal to g0 = 0.2 and, hence, given c, the rate of growth of Y from period 1 to period 2 will remain equal to 20 percent. However, if the rate of growth of G from period -1 to period 0 and from period 0 to period 1 is higher than 20 percent, rate of growth of Y will go on falling over time. Work out this point yourself. Thus, if the rate of growth of G exceeds the rate of growth of Y in any given period, the growth rate of Y will go on falling over time. If it falls below a certain minimum level, say, for example, the rate of growth of population, the planners will not be able to fulfil the basic needs of the people, with c kept at the minimum level. In such circumstances, the planners will be forced to lower $$ \hat{G} $$. Alternatively, a continuous fall in the growth rate and the realization of the inevitability of an imminent severe crisis in such a scenario may unnerve the planners and force them to reduce $$ \hat{G} $$. Using this result, we can explain why the Soviet Union lost the Cold War.
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Fig. 6.1

Unsustainable values of $$ \hat{G} $$

The capitalist bloc was much mightier and richer than the Soviet Union. At the beginning of the Cold War, both Y and G of the capitalist bloc were much larger than those of the Soviet Union and, at the same time, in the capitalist bloc g was much smaller and u much larger than those in the Soviet Union. Since the level of G in the capitalist block was much larger, to match any given level of $$ \hat{G} $$ in the capitalist bloc, the Soviet Union had to set its own $$ \hat{G} $$ at a substantially higher level. Thus, it was possible for the capitalist bloc to set its $$ \hat{G} $$ at such a level that it remained sustainable, but it forced the Soviet Union to set its $$ \hat{G} $$ at unsustainable levels. This is why there took place a secular decline in the growth rate of Soviet GDP all through the Cold War, forcing it to reduce $$ \hat{G} $$ substantially. It was no longer possible for the Soviet Union to defend itself against the capitalist bloc. Hence, it had to capitulate to the capitalist bloc and accept all its terms and conditions for surrender.

Let us explain the Soviet Union’s problem vis-à-vis that of the capitalist bloc in greater detail. The Soviet Union was committed to maintaining a minimum standard of living for every one of its citizens. It provided every citizen with gainful employment in accordance with his ability. It created a universal education and health care system where every citizen got access to education and health care services on the scale he required or wanted free of cost. It set the prices of all the produced goods and services and set up a public distribution system to make sure that every citizen had adequate access to quality food, clothing and shelter. In case of the Soviet Union, therefore, c in Eq. (6.8) was quite large and substantial even though luxury consumption was kept to the minimum. In case of the capitalist bloc, however, there was no such commitment. It could allow c to go substantially below the level the Soviet Union was committed to. This was also another reason why the Soviet Union lost the Cold War.

Part II: People’s Republic of China

6.6 People’s Republic of China: Introduction

The Communist Party of China (CPC) under the leadership of Mao Zedong came into power and established People’s Republic of China in October 1949. It was one of the poorest countries of the world. The objective of the CPC was to establish socialism. With this end in view, all agricultural land was nationalized and owners of all industrial enterprises were asked to sell off their units to the state or to convert them into joint ventures with the state. Handicraft industries were organized into cooperatives. By 1956, about 67.5 per cent of all modern enterprises were state owned and the remaining 32.5 per cent were under joint public-private ownership, and 91.7 per cent of all handicraft workers were under cooperatives.

The CPC realized that the only way to survive and improve the living conditions of the people was through fast-paced development of the economy. To achieve this, the CPC adopted the Soviet model of planned economic development through Five Year Plans. The objective was rapid self-reliant industrialization through the development of heavy (machine-making-machine) and basic industries. The latter produce goods such as coal, steel, power and so on that enter into the production of all goods and services directly and indirectly. Rapid industrialization brings about a high rate of growth of demand for agricultural raw materials and food. The latter is needed to feed the growing number of industrial workers. Thus, rapid industrialization calls for a high rate of growth of agricultural surplus. The planned industrialization strategy of China, accordingly, included a strategy for rapid development of the agricultural sector as well. The development strategy adopted in China also aimed at developing indigenous technology and achieving a high rate of technological progress on its own. The First Five Year Plan (1953–57) was launched in 1953. The Second Five Year Plan covered the next five years, 1958–62. The planning process was, however, disrupted after 1962. It began again from 1966, when the Third Five Year Plan was launched. Since 1966 the planning process has been going on uninterrupted till today.

6.7 China’s Growth Performance

China has been by far the fastest growing country in the world since 1978. It grew steadily at a very high rate all through almost the four decades since 1978 (see Tables 6.1 and 6.2). Its growth record during 1953–77 was no less impressive despite a few instances of instability due to early weaknesses of the economy and inexperience of the planners (see Table 6.1). China was one of poorest countries of the world when the Communist Party of China (CPC) came to power in October 1949. At the present, China is the second-largest economy in the world, outstripping by far all the countries in the world except the US. What accounts for this spectacular success? In what follows, we shall try to give an answer to this question.
Table 6.1

Annual growth rate of real GDP in People’s Republic of China

Year

Growth rate

Year

Growth rate

Year

Growth rate

1962

−5.58

1981

5.172

2000

8.492

1963

10.3

1982

8.934

2001

8.34

1964

18.18

1983

10.385

2002

9.131

1965

16.95

1984

15.139

2003

10.036

1966

10.65

1985

13.443

2004

10.111

1967

−5.77

1986

8.94

2005

11.396

1968

−4.1

1987

11.684

2006

12.719

1969

16.94

1988

11.235

2007

14.231

1970

19.3

1989

4.186

2008

9.654

1971

7.06

1990

3.907

2009

9.4

1972

3.81

1991

9.294

2010

10.636

1973

7.76

1992

14.216

2011

9.536

1974

2.31

1993

13.868

2012

7.856

1975

8.72

1994

13.052

2013

7.758

1976

−1.57

1995

10.949

2014

7.298

1977

7.57

1996

9.928

2015

6.918

1978

11.667

1997

9.231

  

1979

7.6

1998

7.838

  

1980

7.807

1999

7.677

  

Source: World Bank

Table 6.2

Average annual growth rate (%)

 

1979–2015

2001–15

Total population

1.0

0.5

Employment

1.8

0.5

GDP

9.7

9.7

Primary industry

4.4

4.1

Secondary industry

11.0

10.4

Tertiary industry

10.6

10.3

Per capita GDP

8.6

9.0

Source: National Bureau of Statistics, China

We attribute China’s spectacular success to planning and to the socialist path of development it followed. China began planned development of its economy since 1953 when it launched its First Five Year Plan. During 1953–78, China succeeded in nationalizing almost all the means of production and laying down the foundation for rapid industrial and agricultural progress. In fact, the period 1953–78 prepared the ground for the take-off of the Chinese economy since 1978. We attribute China’s success to planning and the success of planning to socialism. We explain these points below: Let us first focus on planning. We shall prove the following points regarding planning. Planning leads to full realization of the growth potential of an economy. In other words, through planning, growth can be raised to the maximum possible level. This is not possible in a capitalist market (unplanned) economy. The reasons are the following: (1) In a planned economy, all the economic activities are planned. Planners set investment targets for all lines of production and they do so in such a manner that capacities created in different sectors of production match one another perfectly and, at the same time, there takes place full utilization of capacity in all lines of production. This rules out the problems of excess capacity, disproportionality and underproduction. (2) Investment levels can be maximized by minimizing consumption so that only essential consumption needs of the people are met. (3) Finally, investment pattern can be made to conform to the objectives of the planner. We illustrate the point made above with a simple example. Suppose two goods X1 and X2 are produced in a closed economy. We consider a given period, period zero. In the given period, productive capacities of X1 and X2 are already installed. Full capacity outputs of X1 and X2 are denoted by X10 and X20, respectively. Amounts of X1 required to produce one unit of X1 and one unit of X2 are denoted by a11 and a12, respectively. Again, amounts of X2 required to produce one unit of X1 and one unit of X2 are denoted by a21 and a22, respectively. Suppose, consumption and investment demands for X1 and X2 are denoted by C1, I1 and C2, I2, respectively. Planners know the values of X10, X20, a11, a12, a21 and a22. They specify the values of C1, C2, I1 and I2. They specify these values in such a manner that the following equations are satisfied:
$$ {X_1}^0={a}_{11}{X_1}^0+{a}_{12}{X_2}^0+{C}_1+{I}_1 $$
(6.9)
$$ {X_2}^0={a}_{21}{X_1}^0+{a}_{22}{X_2}^0+{C}_2+{I}_2 $$
(6.10)

Thus, there takes place full utilization of capacity in every line of production. Planners in a planned economy develop administrative mechanisms to control C1, C2, I1 and I2. If the planners want to maximize growth rate, they will reduce C1 and C2 to the minimum possible levels so that I1 and I2 can be raised to the maximum possible levels. If the planners want the output of X2 to grow at a faster rate than X1, they will allot larger part of I1 and I2 to augmenting the productive capacity of the X2 sector. Planning was greatly facilitated by socialism. As China was a socialist state, it nationalized all the material means of production. Thus, all the production enterprises were owned by the state. The CPC was the only political party that formed the government. Its competent, loyal, disciplined and committed cadres were in charge of running, supervising and monitoring all the enterprises. It was, therefore, easy to make sure that full capacity output was produced in every period and its allocation to different uses conformed to the pattern specified in the Plan. It was, therefore, possible for China to grow at the fastest possible pace. To minimize consumption, production of consumer goods was restricted to the minimum level necessary to meet the basic needs of the people. All the retail stores were owned by the state. The consumer goods produced were rationed to the people through these retail stores at prices fixed by the planners. Since production and investment were completely under the control of the government and the CPC, only planned investment projects were carried out. As these projects were carried out by the competent, loyal and disciplined party cadres, no effort was spared to see to it that all the investment targets were fully met.

China adopted the Soviet plan model of development. Its objective was to develop a process of self-reliant growth and development. Achieving self-reliance called for setting up heavy and basic industries and developing a science and technology sector (S&T) capable of producing indigenous technology and improving it continuously. Heavy industries refer to the machine-making-machine industries, which produce machines that produce themselves as well as all other kinds of machines needed to produce consumer goods and intermediate inputs. Basic goods refer to the goods that enter into the production of all goods directly and indirectly. Examples of basic goods are coal, iron and steel, electricity, cement, transport and so on. Once a country develops basic and heavy industries and sets into motion an independent and indigenous process of technological progress to improve the efficiency of production in all sectors and also to eliminate dependence of the country on foreign countries for supplies of crucial inputs and technology, it becomes self-reliant. Obviously, for a poor country like China, for the reasons we have already explained, planning was the best way of making sure that the country gained self-reliance and that it did so in minimum possible time.

China started its development programme with the active help of the Soviet Union. However, as the Soviet Union began to weaken from the beginning of the sixties with the onset of the Cold War, China distanced itself from the Soviet Union to avoid attracting the ire of the capitalist powers. It was necessary for China not to get caught in an arms race or a hostile relationship with the capitalist powers. Such an event would have seriously jeopardized its development goals. As China succeeded in laying down a strong foundation for rapid agricultural and industrial progress by 1978, it wanted to integrate with the rest of the world to expand its business. For this, it was necessary to appease the capitalist powers. To achieve this, China started adopting since 1978 a series of reforms, whose objective was to give the impression that it was earnestly trying to convert its planned (command) economy into a market economy. With this end in view, it privatized all small and medium state-owned enterprises. Privatization took the following form. The ownership of the assets remained with the state. However, an individual or a group of individuals were given the right to run the enterprises and make profit. Similarly, many of the state-owned enterprises (SOEs) were converted into share holding enterprises (SHEs) and their shares were given to their managers and workers. State-owned enterprises also bought shares of other companies. Two stock exchanges were reopened. They started functioning. However, there did not take place any fundamental change. The controlling stakes of most of the SHEs or listed companies directly or indirectly (through the share holdings of the other state-controlled enterprises) remained with the state (see Szamosszegi and Kyle (2011)). Members of the local governments set up another category of firms referred to as village and township enterprises. Ownership of these enterprises is not clear at all. All the enterprises mentioned above have no foreign participation and they are referred to as domestic-funded enterprises. Obviously, all the domestic-funded enterprises are run by the competent, loyal and disciplined cadres of the CPC and they sincerely follow instructions of the CPC and the planners. Besides these, there are foreign-funded enterprises. They are of two types: joint ventures and fully foreign-owned enterprises. The former are owned jointly by foreigners and domestic-funded enterprises, while the latter are owned solely by foreigners. Quite a large number of foreign-funded enterprises are actually owned by SOEs. SOEs set up companies abroad, which, in turn, invest back in China. This phenomenon is referred to as round tripping. China actively courted foreign investment to keep abreast of foreign technology. It set up special economic zones (SEZs), where foreigners could set up business. To make SEZs attractive, the government equipped them with quality infrastructure, made labour laws governing wages and work conditions in other areas inapplicable so that foreign investors could pay market-determined wages, and also arranged for tax concessions/exemptions. China, however, does not allow all kinds of foreign investment. Through a strong non-transparent bureaucracy, it allows only those foreign investments which it considers necessary for its technological and economic development and which agree to technology transfer to China. Thus, despite privatization, all the enterprises remained completely under the control of the state and the CPC. Even though planning became less detailed on paper, it worked through the competent, loyal and committed members of the CPC, who were in charge of all the enterprises. Plan targets were made known to them and they worked to fulfil the plan targets. In China, a single party rules. Accordingly, careers of all individuals depend upon how earnestly they follow party instructions. In such a scenario, instructions regarding production, investment, prices and so on can be conveyed to the cadres through non-official party channels as well. This helps create the illusion that all the decisions are being taken by the managers of the enterprises and resources are getting utilized and allocated by market forces. China created the illusion of moving towards a market economy to disarm the capitalist powers and join the World Trade Organization (WTO) to expand its business beyond its borders. This is nothing new. Capitalist countries also create the illusion of being democratic. In reality, they are as autocratic as the socialist countries. Let us explain. Political parties in capitalist countries are just like business enterprises. They have a product to sell, which the voters have to buy with votes. To campaign for their products among the people and to compete with one another, they have to hire workers. They have to hire services of the media to popularize their products among the masses. Obviously, all this requires an enormous amount of money. Accordingly, political parties can be set up only by the rich. In a capitalist country, capitalists have the money to set up and run political parties. They set up and run political parties to gain state power. It is absolutely essential for the rich to grab state power, as they need it to protect their enormous wealth from the masses. Hence, whichever political party comes to power in a capitalist country, it serves the cause of the capitalists. Thus, democracy in a capitalist country is an illusion. Capitalism or capitalists are not under any kind of threat in a democracy, but all other people are. In contrast, the CPC is all powerful in China. Careers of all individuals, big and small, are shaped by the CPC.

Managers and workers of all enterprises in China, public or private, have to abide by the dictates of the CPC for their survival and well-being. Hence, private ownership and market in China are entirely an illusion. Given its political set-up, it was possible for China to make the details of its planning covert, just the way capitalism makes the control of the capitalists over the political parties and the government covert. Planning allows a country to grow at the highest possible rate by ensuring full utilization of capacity in all lines of production, by keeping consumption at the minimum possible level so that aggregate investment assumes the highest possible value and by making the allocation of aggregate investment across different sectors such that the constraints operating on the country’s growth performance get removed in the minimum possible time.

6.8 Foreign Trade in China

Until 1978 China followed a closed-door policy, that is, it tried to restrict its foreign trade to the minimum possible level. However, in 1978, Chinese leadership realized that it had achieved a state where it can successfully compete with the rest of the world. From 1978, China pursued an aggressive export promotion policy and emerged as one of the most important exporting countries of the world. At the present, it is the largest exporter in the world. To quote from World Atlas: “In 2014, China was by far the leading exporter, exporting goods valued at $2,342,310,000 in the year. The second place United States exported only 69 per cent of this amount in 2014. Germany, Japan and Netherlands exported 64 per cent, 29 per cent and 28.7 per cent, respectively, of the Chinese total.” Persistent current account surplus has allowed China to accumulate an enormous stock of foreign assets. What accounts for China’s spectacular success in export promotion? In what follows, we shall explain this point. China succeeded in developing an independent indigenous base for technological progress. The craftsmanship of the Chinese workers was also world class. China, at the same time, kept the wage rate low. For Chinese firms, the largest source of finance was the banks, which were all state owned. Banks provided the firms with loans free of cost. Firms need not even pay back the loans. The free disbursal of loans, however, did not jeopardize macroeconomic balance, as banks provided firms with loans in accordance with overt and covert plan targets. Locations of firms were planned in such a manner that the transport cost involved in the production of any good was minimized. China also provided the firms with services of quality infrastructure free of cost. All this made China a very low-cost economy. This, coupled with the state-of-the-art technology and superb craftsmanship of Chinese workers, enabled China to provide the rest of the world with high-quality products at unbelievably low prices. The exchange rates of the Chinese currency, Yuan, were fixed by the Chinese government and imports at these official exchange rates were regulated in such a manner that their value remained below that of the exports (see Table 6.3).
Table 6.3

Export and import of China (US$ 100 million)

Year

Export (X)

Import (M)

X − M

1978

97.5

108.9

−11.4

1980

181.2

200.2

−19.0

1985

273.5

422.5

−149.0

1990

620.9

533.5

87.4

1991

718.4

637.9

80.5

1992

849.4

805.9

43.5

1993

917.4

1039.6

−122.2

1994

1210.1

1156.2

53.9

1995

1487.8

1320.8

167.0

1996

1510.5

1388.3

122.2

1997

1827.9

1423.7

404.2

1998

1837.1

1402.4

434.7

1999

1949.3

1657.0

292.3

2000

2492.0

2250.9

241.1

2001

2661.0

2435.5

225.5

2002

3256.0

2951.7

304.3

2003

4382.3

4127.6

254.7

2004

5933.3

5612.3

320.9

2005

7619.5

6599.5

1020.0

2006

9689.8

7914.6

1775.2

2007

12,200.6

9561.2

2639.4

2008

43,306.9

11,325.7

2981.2

2009

12,016.1

100,959.2

1956.9

2010

14,306.9

11,325.7

2981.2

2011

15,777.5

13,962.4

1815.1

2012

18,983.8

17,434.8

1549.0

2013

20,487.1

18,184.1

2303.1

2014

22,090.0

19,499.9

2590.1

Source: National Bureau of Statistics, China

6.9 Conclusion

The Constitution of People’s Republic of China states that it follows Marxist-Leninist principles and its objective is to build a socialist society. We have already argued that despite the apparent shift towards privatization, the control of the state over the means of production is absolute. Moreover, the state exercises full control over the utilization and allocation of productive resources through overt and covert planning implemented through the dedicated and committed cadres of the CPC. Even though wage rates and consumption levels have been kept low, the high growth rate of real GDP has brought about spectacular improvement in the economic conditions of the masses. Before the planned economic development of China had started, most of its people were poor. The sustained high growth rate has reduced poverty to only 1.9 per cent of the population in 2013 (see Table 6.4). The poverty is confined only to rural areas. All the major indicators of people’s health have improved remarkably (see Table 6.5). Life expectancy of the Chinese people, for example, has risen from 41 years in 1950 to 75 years in 2011. About 99 per cent of the Chinese people have received compulsory nine years of education. However, all the improvements in the people’s living conditions notwithstanding, the state’s provision of health care, old-age care and unemployment benefits is inadequate. In the pre-1978 period, which we shall refer to as the pre-reform period, China followed the Soviet model and the state took care of all its citizens from cradle to grave. All the enterprises were state owned and all the working-age people were employed. These state enterprises provided their employees with dwellings and old-age pensions following superannuation. Health care and education were free. In the post-reform period, following ‘privatization’ of many state enterprises, a social security system had to be devised to take care of the employees of the ‘private’ enterprises and the unemployed. This social security system is, however, inadequate. The government is now keen on improving the social security system substantially so that the masses get complete and adequate old age, health and unemployment coverage. It has now lowered its growth targets to raise the consumption levels of the masses.
Table 6.4

Poverty in People’s Republic of China: headcount ratio at $1.90 a day (2011 purchasing power parity (PPP)) (% of population)

2012

2013

6.5

1.9

Source: World Bank

Table 6.5

Health indicators of the People’s Republic of China

Year

Life expectancy

Infant mortality rate

Under 5 mortality rate

Maternal mortality rate

1950

41.6

195.0

317.1

 

1960

31.6

190.0

309.0

 

1970

62.7

79.0

111

 

1980

66.1

47.2

61.3

164.5

1990

69.5

42.2

54.0

88.0

2000

72.1

30.2

36.9

57.5

2011

75.0

12.9

14.9

26.5

Source: World Bank

Part III: Cuba

6.10 Economy of Cuba: Introduction

Cuba is a small island deficient in vital natural resources such as land and oil. A revolution occurred in Cuba in 1959 and the revolutionaries led by Fidel Castro usurped power, overthrowing the dictator Batista. Before the revolution, Cuba was virtually a colony of the US. All its industry and finance and about one-fourth of the best agricultural land were under the ownership of the US firms. Most of its people lived in poverty and destitution. Cuban agriculture specialized in the production of mainly sugarcane. It exported sugar principally to the US and imported oil and food. Cuba was also a favourite holiday destination of the rich of the US. Most of the agricultural land in Cuba was in the hands of large landowners. Upon assuming power, Castro nationalized all enterprises and natural resources, depriving the US firms of all their assets in Cuba. In retaliation, the US attacked Cuba and tried to destroy all its agricultural land. It also imposed economic sanctions on Cuba. This debarred Cuba from having any kind of economic transactions with the US and its allies. This put Cuba in dire straits, as it was dependent on sales of sugar to the US and purchase of food and oil from the US and its allies. However, Cuba succeeded in circumventing this crisis and improving the economic conditions of the masses manifold. This made the revolutionary government of Castro immensely popular. In what follows we shall explain how Cuba made it possible.

6.11 Socialism in Cuba and the Soviet Union

Cuba found an ally in the Soviet Union, who protected Cuba from US invasion. It also bought Cuban sugar and sold Cuba oil and food at subsidized prices. Cuba adopted the socialist plan model of development of the Soviet Union. It nationalized all material means of production; all production took place in state-owned enterprises; planners set wages and prices of all products and rationed consumer goods to the consumers through state-owned retail stores. The revolutionary government through planning developed a nation-wide education and health care system, which provided all the citizens with high-quality education and health care free of charge. The revolutionary government also provided the masses with adequate quantities of food, clothing and shelter at affordable prices. This made the revolutionary socialist government immensely popular. Cuba had monocrop agriculture. It specialized principally in the production of sugarcane. Its industry comprised mainly of sugar, petroleum, tobacco, construction, nickel, steel, cement, agricultural machinery and pharmaceuticals. Its service sector consisted of banking and finance, trade, transport and communication, education and health care. Aided by subsidized trade with the Soviet Union and Soviet technology, Cuban economy grew rapidly until the collapse of the Soviet Union in 1991 (see Table 6.6). However, with the disintegration of the Soviet Union, Cuba entered into a severe economic crisis. With the disappearance of its major market for sugar and the major sources of food and oil, Cuba went into a severe recession and Cubans began to starve (see Table 6.6). However, Cuba did not seek Western assistance, which would have forced Cuba to compromise on its socialist programme. It bore through the shortages and worked hard to rejuvenate the economy. The result was spectacular, given the extremely limited means it had at its disposal and the harsh climatic conditions it is subject to. In what follows, we shall recount Cuba’s fight against poverty and starvation.
Table 6.6

Growth rate of per capita GDP (constant 2010 US$)

Year

Growth rate

Year

Growth rate

Year

Growth rate

1971

6.6

1990

−3.829

2009

1.387

1972

3.02

1991

−11.384

2010

2.294

1973

1.735

1992

−12.167

2011

2.662

1974

0.526

1993

−15.365

2012

2.842

1975

8.049

1994

0.198

2013

2.568

1976

4.259

1995

1.963

2014

0.9

1977

7.689

1996

7.353

2015

4.343

1978

5.754

1997

2.362

  

1979

0.407

1998

−0.217

  

1980

−5.41

1999

5.819

  

1981

19.094

2000

5.569

  

1982

8.464

2001

2.864

  

1983

4.977

2002

1.125

  

1984

7.387

2003

3.512

  

1985

0.932

2004

5.527

  

1986

−0.742

2005

11.00

  

1987

−3.365

2006

11.925

  

1988

2.608

2007

7.178

  

1989

−3.48

2008

4.06

  

Source: World Bank

6.12 Post-Soviet Cuban Economy

The period 1990–94 was the period of most acute crisis and Fidel Castro referred to this period as the ‘special period in peace time’. The main problem areas were food and fuel, which Cuba received from the Soviet Union at subsidized prices. To remove food shortage, the Cuban government brought all unused land in both rural and urban areas under cultivation. Even courtyards, rooftops and playgrounds in urban areas were brought under cultivation/animal raising. As the import of chemical fertilizers and pesticides was not possible, there took place a shift to organic farming. The government started investing heavily in research devoted to improving inputs and methods of organic farming. Cuba reverted to farming with oxen. All this yielded significant results. Food production began to grow steadily. By 2006, urban farms in Havana met 90 per cent of Havana’s food requirements without using any petroleum or petroleum products. The United Nation’s World Food Programme (UNWFP) states the following facts about food security in Cuba: “Over the last 50 years, the country’s comprehensive social protection programmes have largely focused on ensuring food security and nutrition as a key priority …. In 2011, the Government of Cuba launched a process to update its economic model to improve the efficiency, reduce the costs and increase the sustainability of its social protection programmes. These efforts are guided by the Government’s commitment to ensure that no Cuban is left unprotected. With its comprehensive social protection programmes, Cuba has largely eradicated hunger and poverty. It is one of the most successful countries in achieving the Millennium Development Goals and was ranked 44th of the 187 countries in the 2014 UNDP Human Development Index.” For details on Cuba’s efforts in promoting sustainable agriculture in the post-Soviet era, one may go through Koont (2004).

Cuba’s main source of energy was fossil fuel or oil. With the drying up of cheap oil imports from the Soviet Union, Cuba made concerted efforts to reduce its dependence on imported oil and save energy. In 2006, Castro launched ‘Energy Revolution’ in Cuba to achieve this goal. The main problem of Cuba was that its electricity plants (which were thermal electric plants) ran on oil. As Cuba had no river, its potential for large hydroelectric plants was limited. To achieve energy self-sufficiency, it took a number of measures besides the ones delineated above in the context of agriculture. First, it invested heavily in oil exploration to increase domestic production of oil. Second, it replaced old energy-intensive appliances of households with new energy-saving ones. It also made huge efforts at educating people about the urgency and techniques of energy conservation. Third, it tried to develop and promote alternative energy sources such as biomass, hydroelectric plants, solar energy and wind mills. Cuba had started developing wind firms, micro-hydro systems, bio-gas plants and biomass facilities. Cuba had also started exporting its energy revolution to other Southern countries in the framework of the Bolivarian Alternative for the Americas. Rural schools, health clinics and social centres in remote off-grid areas were provided with electricity via solar photovoltaic (PV) systems or micro-hydro plants. Making lights, computers and educational television programmes accessible to every school child in the country won Cuba the Global 500 award from the United Nations in 2001. By 2003, over 2364 schools, 350 doctors’ offices, and hundreds of hospitals had been equipped with solar PV systems. After 2002, in addition to health stations and schools, private homes also have been electrified with solar PVs. For a detailed discussion of Cuba’s energy revolution, one may go through Käkönen et al. (2014).

Cuba found an ally in Venezuela (whose the then president was the socialist leader Hugo Chevez), which began to supply Cuba with oil from 2000. In return, Cuba supplies Venezuela with doctors and nurses to run Venezuela’s health care institutions in poor localities. Cuban medical professionals also train Venezuelans to be medical professionals to run hospitals and clinics for the poor in Venezuela. Venezuela also sends its citizens to Cuba for free treatment. Cuba also helps Venezuela to improve its defence, agriculture and education. Following Chevez’s death in 2013, Maduro came to power in Venezuela and continued with Chevez’s policies. However, from 2014, US began to dump its oil in the world market and lowered oil price to very low levels. This dealt a very hard blow to Venezuela, which exported oil and used the proceeds to purchase basic necessities such as food, medicine and so on. The steep fall in oil prices has created severe shortages of food, medicine and other basic necessities in Venezuela. Taking advantage of these shortages, parties opposed to the socialist rule have become powerful. If they succeed in wresting power from the socialists, Cuba will cease to receive oil from Venezuela and will again get into troubles. Oil shipments from Venezuela have already begun to decline. However, given the ability of Cuban people to withstand crises and to devise innovative ways of tackling them, we seriously believe that all the measures taken by Cuba to achieve self-sufficiency in food and energy will fructify and it will survive the capitalists’ onslaughts to force it into submission.

6.13 Concluding Observations

Capitalist countries are going through a deliberately perpetrated recession to crush the bargaining/competitive strength of workers and small producers and traders. They are cutting down on their welfare spending in the name of ensuring fiscal discipline. They colonized the whole world to expand their business and ownership of natural resources. The USSR, on the other hand, ensured full employment of its labour force and provided the masses with adequate quantities of quality food, clothing, shelter, health care and education until the onerous arms race robbed it of the resources necessary for survival. Cuba also followed the same model and provided its citizens with adequate food, clothing and shelter at affordable prices and completely free quality health care and education. Unlike the capitalist powers, the Soviet Union did not try to exploit Cuba and conquer its resources. It helped Cuba prosper and enrich the lives of common Cubans. China followed the Soviet model initially. However, to neutralize the hostility of the capitalist powers, it had to undertake market-oriented reforms and compromise on its social welfare programmes. However, as we have argued, it retained the state control over the means of production, continued with planning covertly and sustained a very high rate of growth possible only in socialist planned economies and has now started to pass on the benefits of its development to the poor by strengthening its social welfare programmes. It has also succeeded in reducing the incidence of poverty significantly.

Capitalist powers strive continuously to breakdown socialist states through different means. The means they use are the following: They use physical force or they wage economic warfare or both. The USSR had great military capability, but it had extremely limited resources compared to the resources available in the capitalist bloc. Hence, instead of attacking the USSR directly, the capitalist powers created a threat of physical attack and conquest through the build-up of arms. For survival, the USSR had to keep pace. The arms race was set at such a pace by the capitalist powers that it became too costly for the Soviet Union to sustain, given the relatively limited means it had at its disposal. The amount of resources the USSR was left with after meeting the requirements of the arms race was too inadequate to meet the other basic economic requirements. Hence, the USSR had to surrender eventually. Following the collapse of the Soviet Union, Venezuela and Cuba joined hands for their own development as well as for spreading socialism to other third-world countries. The strong social protection programmes in these two countries and the enormous good they did to their masses inspired and strengthened leftist forces in other third-world countries. However, these two economies are weak. Cuba has to depend on Venezuela for oil. Venezuela, on the other hand, depends solely upon the export of oil to buy from abroad all the goods needed even to meet the most basic needs such as food and medicine. The US dumped oil in the world market and, thereby, brought about a steep fall in oil prices. The oil price became so low that it was no longer possible for Venezuela to import essential goods such as food and medicine in adequate quantities using its proceeds from the sale of oil. This created a lot of misery for the masses. This has significantly weakened the ruling socialist party in Venezuela and strengthened the opposition right-wing parties, who may oust the socialist party in the next election. If that happens, it will pose a grave threat to socialism in Cuba as well. However, we do hope that, given the kind of mass support socialist governments enjoy in both Venezuela and Cuba and given the expertise Cubans have deleoped, socialist governments in both the countries will be able to overcome the right-wing attacks and make both the countries self-reliant.