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    Our country, comrades, is living and developing in the conditions of capitalist encirclement. Its external position depends not only on its internal forces, but also on the state of that capitalist encirclement, on the situation in the capitalist countries which surround our country, on their strength and weakness, on the strength and weakness of the oppressed classes throughout the world, on the strength and weakness of the revolutionary movement of those classes. That is apart from the fact that our revolution is a part of the international revolutionary movement of the oppressed classes.

    That is why I think that the Central Committee's report must start with a sketch of our country's international position, with a sketch of the situation in the capitalist countries and of the state of the revolutionary movement in all countries.

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    a) The first question is that of the state of production and trade in the major capitalist countries.

    The basic fact in this sphere, comrades, is that during the past two years, during the period under review, production in the capitalist countries has transcended the pre-war level, has gone beyond the pre-war level.

    Here are some figures relating to this.

    Index of world output of pig iron : in 1925 -- 97.6 per cent of pre-war; in 1926 -- already 100.5 per cent of pre-war; for 1927 no complete figures are available; figures are available for the first half year, showing a further increase in the output of pig iron.

    Index of world output of steel : in 1925 -- 118.5 per cent; in 1926 -- 122.6 per cent of pre-war.

    Index of world output of coal : in 1925 -- 97.9 per cent; in 1926 -- a slight drop -- 96.8 per cent. This evidently reflects the effect of the British strike.

    a) In this connection, the question of redividing the world and spheres of influence, which constitute the basis of foreign markets, is today the principal question in the policy of world capitalism. I have already said

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that the existing distribution of colonies and spheres of influence brought about as a result of the last imperialist war has already become obsolete. It now fails to satisfy either the United States, which, not being content with South America, is trying to penetrate Asia (primarily China); or Britain, whose dominions and a number of whose most important Eastern markets are slipping from her hands; or Japan, which every now and again is "obstructed" in China by Britain and America; or Italy and France, which have an incalculable number of "points of dispute" in the Danubian countries and in the Mediterranean; and least of all does it satisfy Germany, which is still bereft of colonies.

    Hence the "general" striving for a new redivision of markets and sources of raw materials. That the Asiatic markets and the routes to them are the chief arena of the struggle needs no proof. Hence a series of key problems, which are veritable hotbeds of new conflicts. Hence the so-called Pacific problem (the America-Japan-Britain antagonism) as the origin of the struggle for supremacy in Asia and on the routes to it. Hence the Mediterranean problem (the Britain-France-Italy antagonism) as the origin of the struggle for supremacy on the shores of the Mediterranean, as the origin of the struggle for the shortest routes to the East. Hence the aggravation of the oil problem (antagonism between Britain and America), for without oil it is impossible to wage war, and whoever has the advantage as regards oil has a chance of victory in the coming war.

    Recently, the-British press published Chamberlain's "latest" plan for "settling" the Mediterranean problem. I cannot guarantee the authenticity of this plan; but

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there can be no doubt that the appearance of Chamberlain's plan in the press is symptomatic. According to this plan, the "mandate" for Syria is to be transferred from France to Italy, Tangiers is to be transferred to France on the payment of financial compensation to Spain, the Cameroons are to be restored to Germany, Italy is to pledge herself to stop "making trouble" in the Balkans, etc.

    All this is on the pretext of fighting the Soviets. It is well known that no dirty work is undertaken nowadays without dragging in the Soviets.

    a) For waging war, increased armaments are not enough, the organisation of new coalitions is not enough. For this it is necessary in addition to strengthen the rear in the capitalist countries. Not a single capitalist country can wage an important war unless it first strengthens its own rear, unless it curbs "its" workers, unless it curbs "its" colonies. Hence the gradual fascisation of the policy of the bourgeois governments.

    The fact that the Right bloc now rules in France, the Hicks-Deterding-Urquhart bloc in Britain, the bourgeois bloc in Germany, the war party in Japan,

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    a) Thus, we have all the symptoms of a most profound crisis and of the growing instability of world capitalism.

    Whereas the temporary post-war economic crisis of 1920-21, with the chaos within the capitalist countries,

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and the breakdown of their external ties, may be regarded as having been overcome, as a result of which a period of partial stabilisation has begun, the general and fundamental crisis of capitalism ushered in as a result of the victory of the October Revolution and the dropping out of the U.S.S.R. from the world capitalist system, far from being overcome is, on the contrary, becoming deeper and deeper, and is shaking the very foundations of the existence of world capitalism.

    Far from hindering the development of this general and fundamental crisis, stabilisation, on the contrary, has provided the basis and source for its further development. The growing struggle for markets, the necessity of a new redivision of the world and of spheres of influence, the bankruptcy of bourgeois pacifism and of the League of Nations, the feverish efforts to form new coalitions and to align forces in view of the possibility of a new war, the furious growth of armaments, the savage pressure upon the working class and the colonial countries, the growth of the revolutionary movement in the colonies and in Europe, the growth of the prestige of the Comintern throughout the world, and lastly, the consolidation of the might of the Soviet Union and its enhanced prestige among the workers of Europe and the labouring masses in the colonies -- all these are facts which cannot but shake the very foundations of world capitalism.

    The stabilisation of capitalism is becoming more and more putrid and unstable.

    Whereas a couple of years ago it was possible and necessary to speak of the ebb of the revolutionary tide in Europe, today we have every ground for asserting

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that Europe is obviously entering a period of new revolutionary upsurge ; to say nothing of the colonies and dependent countries, where the position of the imperialists is becoming more and more catastrophic.

    b) The capitalists' hopes of taming the U.S.S.R., of its capitalistic degeneration, of the decline of its prestige among the workers of Europe and the labouring masses of the colonies, have collapsed. The U.S.S.R. is growing and developing precisely as a country which is building socialism. Its influence among the workers and peasants all over the world is growing and gaining strength. The very existence of the U.S.S.R. as a country which is building socialism is one of the greatest factors in the disintegration of world imperialism and in the undermining of its stability both in Europe and in the colonies. The U.S.S.R. is obviously becoming the banner of the working class of Europe and of the oppressed peoples of the colonies.

    Therefore, to clear the ground for future imperialist wars, to secure a tighter grip on "their" working class and to curb "their" colonies with the object of strengthening the capitalist rear, it is necessary, the bourgeois bosses think, first of all to curb the U.S.S.R., that seat and hotbed of revolution, which, moreover, could be one of the biggest markets for the capitalist countries. Hence the revival of interventionist tendencies among the imperialists, the policy of isolating the U.S.S.R., the policy of encircling the U.S.S.R., the policy of preparing the conditions for war against the U.S.S.R.

    The strengthening of interventionist tendencies in the camp of the imperialists and the threat of war (against

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the U.S.S.R.) is one of the basic factors in the present situation.

    It is considered that the most "threatened" and "injured" party under the conditions of the developing crisis of capitalism is the British bourgeoisie. And it is the British bourgeoisie that has taken the initiative in strengthening interventionist tendencies. Obviously, the assistance that the Soviet workers rendered the British coal miners, and the sympathy of the working class of the U.S.S.R. for the revolutionary movement in China, could not but add fuel to the flames. All these circumstances determined Britain's rupture with the U.S.S.R. and the worsening of relations with a number of other states.

    c) The struggle between two tendencies in the relations between the capitalist world and the U.S.S.R., the tendency towards military aggression (primarily Britain) and the tendency to continue peaceful relations (a number of other capitalist countries), is, in view of this, the basic fact in our foreign relations at the present time.

    Facts which denote the tendency towards peaceful relations during the period under review are: the Non-Aggression Pact with Turkey; the Guarantee Pact with Germany; the Tariff Agreement with Greece; the agreement with Germany on credits; the Guarantee Pact with Afghanistan; the Guarantee Pact with Lithuania; the initialling of a Guarantee Pact with Latvia; the Trade Agreement with Turkey; the settlement of the conflict with Switzerland; the Treaty of Neutrality with Persia; improvement in relations with Japan; growth of commercial intercourse with America and Italy.

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    Facts which denote the tendency towards military aggression during the period under review are: the British Note in connection with financial assistance to the striking coal miners; the raid on the Soviet diplomatic representatives in Peking, Tientsin and Shanghai; the raid on Arcos; Britain's rupture with the U.S.S.R.; the assassination of Voikov; terroristic acts by British hirelings in the U.S.S.R.; strained relations with France on the question of the recall of Rakovsky.

    Whereas a year or two ago it was possible and necessary to speak of a period of a certain equilibrium and "peaceful co-existence" between the U.S.S.R. and the capitalist countries, today we have every ground for asserting that the period of "peaceful co-existence" is receding into the past, giving place to a period of imperialist assaults and preparation for intervention against the U.S.S.R.

    True, Britain's attempts to form a united front against the U.S.S.R. have failed so far. The reasons for this failure are: the contradiction of interests in the camp of the imperialists; the fact that some countries are interested in economic relations with the U.S.S.R.; the peace policy of the U.S.S.R.; the counter-action of the working class of Europe; the imperialists' fear of unleashing revolution in their own countries in the event of war against the U.S.S.R. But this does not mean that Britain will abandon her efforts to organise a united front against the U.S.S.R., that she will fail to organise such a front. The threat of war remains in force, despite Britain's temporary setbacks.

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    Hence the task is to take into account the contradictions in the camp of the imperialists, to postpone war by "buying off" the capitalists and to take all measures to maintain peaceful relations.

    We must not forget Lenin's statement that as regards our work of construction very much depends upon whether we succeed in postponing war with the capitalist world, which is inevitable, but which can be postponed either until the moment when the proletarian revolution in Europe matures, or until the moment when the colonial revolutions have fully matured, or, lastly, until the moment when the capitalists come to blows over the division of the colonies.

    Therefore, the maintenance of peaceful relations with the capitalist countries is an obligatory task for us.

    Our relations with the capitalist countries are based on the assumption that the co-existence of two opposite systems is possible. Practice has fully confirmed this. Sometimes the question of debts and credits is a stumbling-block. In this our policy is clear. It is based on the formula: "give and take." If you give us credits with which to fertilise our industry, you will get some part of the pre-war debts, which we regard as extra interest on the credits. If you give nothing, you will get nothing. Facts show that we have some achievements to record as regards receiving industrial credits. I have in mind just now not only Germany, but also America and Britain. Wherein lies the secret? In the fact that our country could be a vast market for imports of equipment, while the capitalist countries need markets for precisely that kind of goods.

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    To sum up, we have:

    Firstly, the growth of the contradictions within the capitalist encirclement; the necessity for capitalism of a new redivision of the world by means of war; the interventionist tendencies of one part of the capitalist world headed by Britain; the reluctance of the other part of the capitalist world to become involved in war against the U.S.S.R., preferring to establish economic relations with it; a conflict between these two tendencies and a certain possibility for the U.S.S.R. to turn these contradictions to account for the purpose of maintaining peace.

    Secondly, we have the collapsing stabilisation; the growth of the colonial-revolutionary movement; the signs of a new revolutionary upsurge in Europe; the growth of the prestige of the Comintern and its sections throughout the world; the obvious growth of the sympathy of the working class of Europe for the U.S.S.R.; the growing might of the U.S.S.R. and the growing prestige of the working class of our country among the oppressed classes throughout the world.

    Hence the Party's tasks:

    1) In the sphere of the international revolutionary movement:

    a) to strive to develop the Communist Parties throughout the world ;

    b) to strive to strengthen the revolutionary trade unions and the workers' united front against the capitalist offensive ;

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    c) to strive to strengthen the friendship between the working class of the U.S.S.R. and the working class in the capitalist countries ;

    d) to strive to strengthen the link between the working class of the U.S.S.R. and the liberation movement in the colonies and dependent countries.

    2) In the sphere of the U.S.S.R.'s foreign policy:

    a) to combat the preparations for new imperialist wars ;

    b) to combat Britain's interventionist tendencies and to strive to strengthen the U.S.S.R.'s defensive capacity ;

    c) to pursue a policy of peace and to maintain peaceful relations with the capitalist countries ;

    d) to expand our trade with the outside world on the basis of strengthening the monopoly of foreign trade ;

    e) rapprochement with the so-called "weak" and "unequal" states, which are suffering from oppression and exploitation by the ruling imperialist powers.

    Permit me, comrades, to pass to the internal situation in our country, to the successes of our socialist construction, to the question of the fate of the dictatorship of the proletariat, of its development, of its consolidation.

    The Fourteenth Congress of our Party instructed the Central Committee to direct the development of our national economy from the standpoint of the following principal tasks:

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    firstly, that our policy should promote the progressive growth of production in the national economy as a whole;

    secondly, that the Party's policy should promote the acceleration of the rate of development of industry and ensure for industry the leading role in the whole of the national economy;

    thirdly, that in the course of development of the national economy, the socialist sector of the national economy, the socialist forms of economy, should be ensured ever-increasing relative importance at the expense of the private-commodity and capitalist sectors;

    fourthly, that our economic development as a whole, the organisation of new branches of industry, the development of certain branches for raw materials, etc., should be conducted along such lines that the general development should ensure the economic independence of our country, that our country should not become an appendage of the capitalist system of world economy;

    fifthly, that the dictatorship of the proletariat, the bloc of the working class and the peasant masses, and the leadership by the working class in this bloc, should be strengthened, and

    sixthly, that the material and cultural conditions of the working class and of the rural poor should be steadily improved.

    What has our Party, the Central Committee of our Party, done in regard to carrying out these tasks during the period under review?

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    First question -- development of the national economy as a whole. I shall quote here some of the principal figures showing the growth of the national economy as a whole, and of industry and agriculture in particular, during the period under review. I take these figures from the estimates of the State Planning Commission. I have in mind the State Planning Commission's control figures for 1927-28 and the rough draft of the five-year plan.

    a) Growth of production in the whole of the national economy of the U.S.S.R. during the two years. Whereas in 1924-25, according to the State Planning Commission's new calculations, the gross output of agriculture amounted to 87.3 per cent of the pre-war level and the output of industry as a whole amounted to 63.7 per cent of the pre-war level, now, two years later, in 1926-27, agricultural output already amounts to 108.3 per cent, and industrial output to 100.9 per cent. According to the State Planning Commission's control figures for 1927-28, a further increase in agricultural output to 111.8 per cent of pre-war and of industrial output to 114.4 per cent of pre-war is anticipated.

    The growth of trade turn-over (wholesale and retail) in the country during the two years. Taking the volume of trade in 1924-25 at 100 (14,613 million chervonets rubles), we have an increase in 1926-27 by 97 per cent (28,775 million rubles), and in 1927-28 a further growth to over 116 per cent of the previous year (33,440 million rubles) is anticipated.

    The development of our credit system during the two years. Taking the combined balance-sheets of all

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our credit institutions on October 1, 1925, at 100 (5,343 million chervonets rubles), we have an increase on July 1, 1927 by 53 per cent (8,175 million rubles). There are no grounds for doubting that 1927-28 will show a further growth of our nationalised credit system.

    The development of railway transport during the two years. Whereas the freight turn-over of the whole of our railway system in 1924-25 amounted to 63.1 per cent of pre-war, now, in 1926-27, it amounts to 99.1 per cent, and in 1927-28 it will amount to 111.6 per cent. That is apart from the fact that during these two years the total length of our railways increased from 74,400 kilometres to 76,200 kilometres, which is an increase of 30.3 per cent above the pre-war level and of 8.9 per cent above the level of 1917.

    The growth of the state budget during the two years. Whereas our combined budget (the single state budget plus the local budgets) in 1925-26 amounted to 72.4 per cent of pre-war (5,024 million rubles), at the present time, i.e., 1927-28, the combined budget should amount to 110-112 per cent of pre-war (over 7,000 million rubles). The increase during the two years is 41.5 per cent.

    The growth of foreign trade during the two years. Whereas our total foreign trade turn-over in 1924-25 amounted to 1,282 million rubles, i.e., about 27 per cent of pre-war, now, in 1926-27, we have a turn-over of 1,483 million rubles, i.e., 35.6 per cent of pre-war, and it is anticipated that in 1927-28 we shall have a turn-over of 1,626 million rubles, i.e., 37.9 per cent of pre-war.

    The causes of the slow rate of development of foreign trade:

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firstly, the fact that the bourgeois states often place obstacles in the way of our foreign trade which sometimes amount to a secret blockade;

    secondly, the fact that we cannot trade according to the bourgeois formula: "we shall export, even if we go short of food."

    A good feature is the favourable balance of the People's Commissariat of Foreign Trade in 1926-27, amounting to 57 million rubles. This is the first year since 1923-24 that we have had a favourable balance of foreign trade.

    Summing up, we have the following picture of the general growth of the total national income during the two years: whereas the national income of the U.S.S.R. in 1924-25 amounted to 15,589 million chervonets rubles, in 1925-26 we had 20,252 million rubles, i.e., an increase for the year of 29.9 per cent; and in 1926-27 we had 22,560 million rubles, i.e., an increase of 11.4 per cent for the year. According to the State Planning Commission's control figures, in 1927-28 we shall have 24,208 million rubles, i.e., an increase of 7.3 per cent.

    Bearing in mind that the average annual increase in the national income of the United States does not exceed 3-4 per cent (only once, in the eighties of the last century, did the United States have an increase in national income of about 7 per cent), and that the annual increase in the national income of other countries, Britain and Germany, for example, does not exceed 1-3 per cent, it must be admitted that the rate of growth of the national income of the U.S.S.R. during the last few years is a record one compared with that of the major capitalist countries of Europe and America.

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    Conclusion : the national economy of our country is growing at a rapid rate.

    The Party's task : further to promote the development of our country's national economy in all branches of production.

    b) The growth of our national economy is proceeding not blindly, not along the line of a simple quantitative increase in production, but in a known, strictly defined direction. The decisive factors in the development of the national economy during the past two years have been the following two principal circumstances:

    Firstly, the key-note of the development of our national economy is the industrialisation of the country, the increasingly important role of industry in relation to agriculture.

    Secondly, the development of the national economy, the industrialisation of the country, is proceeding in the direction of an increase in the relative importance and commanding role of the socialist forms of economy, in both production and trade, at the expense of the private commodity and capitalist sectors.

    Figures showing the increase of the relative importance of industry in the national economy (exclusive of transport and electrification). Whereas in 1924-25, industry's share of the gross output of the national economy, calculated at pre-war prices, amounted to 32.4 per cent, and the share of agriculture to 67.6 per cent, in 1926-27 industry's share rose to 38 per cent while the share of agriculture dropped to 62 per cent. In 1927-28, industry's share should rise to 40.2 and that of agriculture should drop to 59.8 per cent.

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    Figures showing the increase in the relative importance of the production of instruments and means of production -- which is the chief core of industry, as compared with the whole of industry during the two years: in 1924-25 the share of production of means of production -- 34.1 per cent; in 1926-27 -- 37.6 per cent; in 1927-28 it is proposed to bring it up to 38.6 per cent.

    Figures showing the increase of the relative importance of the production of means of production in state large-scale industry during the two years: in 1924-25 -- 42.0 per cent; in 1926-27 -- 44.0 per cent; in 1927-28 it is proposed to bring it up to 44.9 per cent.

    As regards industry's output of commodities and the relative importance of this output in the total volume of commodities, industry's share in the two years rose from 53.1 per cent in 1924-25 to 59.5 per cent in 1926-27, and in 1927-28 it should reach 60.7 per cent, whereas agriculture's share of the output of commodities amounted to 46.9 per cent in 1924-25, dropped to 40.5 per cent in 1926-27, and in 1927-28 should drop further to 39.3 per cent.

    Conclusion : our country is becoming an industrial country.

    The Party's task : to take all measures further to pro mote the industrialisation of our country.

    Figures showing the growth of the relative importance and commanding role of the socialist forms of economy at the expense of the private-commodity and capitalist sectors during the two years. Whereas capital investments in the socialised sector of the national economy (state and co-operative industry, transport, elec-

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trification, etc.) increased from 1,231 million rubles in 1924-25 to 2,683 million rubles in 1926-27, and in 1927-28 should rise to 3,456 million rubles, which amounts to an increase from 43.8 per cent of total investments in 1924-25 to 65.3 per cent in 1927-28 -- investments in the non-socialised sector of the national economy have been relatively decreasing all the time, and in absolute figures have increased only slightly from 1,577 million rubles in 1924-25 to 1,717 million rubles in 1926-27, and in 1927-28 should reach the figure of 1,836 million rubles, which will be a fall in the relative importance of investments in the non-socialised sector from 56.2 per cent in 1924-25 to 34.7 per cent in 1927-28.

    Whereas the gross output of the socialised sector of industry rose from 81 per cent in 1924-25 to 86 per cent of the total industrial output in 1926-27, and in 1927-28 should rise to 86.9 per cent, the share of the non-socialised sector of industry has been falling year by year: from 19 per cent of the total industrial output in 1924-25 to 14 per cent in 1926-27, and in 1927-28 it should fall still further to 13.1 per cent.

    As regards the part played by private capital in large-scale (statistically registered) industry, it is falling not only relatively (3.9 per cent in 1924-25 and 2.4 per cent in 1926-27), but also absolutely (169 million pre-war rubles in 1924-25 and 165 million pre-war rubles in 1926-27).

    The same ousting of private capitalist elements is seen in the sphere of home trade. Whereas in 1924-25 the socialised sector's share of the total trade turn-over (wholesale and retail) amounted to 72.6 per cent -- wholesale 90.6 per cent and retail 57.3 per cent, in

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1926-27 the socialised sector's share of total trade rose to 81.9 per cent -- wholesale to 94.9 per cent and retail to 67.4 per cent. On the other hand, the private sector's share dropped in this period from 27.4 per cent of total trade to 18.1 per cent -- wholesale from 9.4 per cent to 5.1 per cent and retail from 42.7 per cent to 32.6 per cent, and in 1927-28 a further drop in the private sector's share in all branches of trade is anticipated.

    Conclusion : our country is confidently and rapidly proceeding towards socialism, pushing the capitalist elements into the background and step by step ousting them from the national economy.

    This fact reveals to us the basis of the question: "Who will beat whom?" This question was raised by Lenin in 1921, after the New Economic Policy was introduced. Shall we succeed in linking our socialised industry with peasant economy, ousting the private trader, the private capitalist, and learning to trade; or will private capital beat us by causing a split between the proletariat and the peasantry? -- that is how the question stood at that time. Now we can say that, in the main, we have already achieved decisive successes in this sphere. Only the blind or the imbecile can deny that.

    Now, however, the question: "Who will beat whom? " assumes a different character. This question is now shifting from the sphere of trade to the sphere of production, to the sphere of handicraft production, to the sphere of agricultural production, where private capital is of a certain importance, and from which it must be systematically eliminated.

    The Party's task : to extend and consolidate our socialist key positions in all branches of the nation-

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al economy, both in town and country, pursuing a course towards the elimination of the capitalist elements from the national economy.

    a) The growth of the output of large-scale nationalised industry, which constitutes over 77 per cent of all industry in the country. Whereas in 1925-26 the increase in output (calculated in pre-war rubles) of large-scale nationalised industry over that of the preceding year amounted to 42.2 per cent, in 1926-27 to 18.2 per cent, and in 1927-28 will amount to 15.8 per cent, the State Planning Commission's rough and very conservative five-year estimates provide for an increase in output during five years of 76.7 per cent, with an average arithmetical annual increase of 15 per cent and an increase in industrial output in 1931-32 to double the pre-war output.

    If we take the gross output of all industry in the country, both large-scale (state and private) and small industry, then the annual, average arithmetical increase in output, according to the State Planning Commission's five-year estimates, will be about 12 per cent, which will be an increase in total industrial output in 1931-32 of nearly 70 per cent compared with the pre-war level.

    In America, the annual increase in total industrial output for the five years 1890-95 was 8.2 per cent, for the five years 1895-1900 -- 5.2 per cent, for the five years 1900-05 -- 2.6 per cent, for the five years 1905-10 -- 3.6

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per cent. In Russia, for the ten years 1895-1905, the average annual increase was 10.7 per cent, for the eight years 1905-13 -- 8.1 per cent.

    The percentage of annual increase in the output of our socialist industry, and also in the output of all industry, is a record one, such as not a single big capitalist country in the world can show.

    And that is in spite of the fact that American industry, and especially Russian pre-war industry, were abundantly fertilised by a powerful flow of foreign capital, whereas our nationalised industry is compelled to base itself on its own accumulations.

    And that is in spite of the fact that our nationalised industry has already entered the period of reconstruction, when the re-equipment of old factories and the erection of new ones has acquired decisive importance for increasing industrial output.

    In the rate of its development, our industry in general, and our socialist industry in particular, is overtaking and outstripping the development of industry in the capitalist countries.

    b) How is this unprecedented rate of development of our large-scale industry to be explained?

    Firstly, by the fact that it is nationalised industry, thanks to which it is free from the selfish and anti-social interests of private capitalist groups and is able to develop in conformity with the interests of society as a whole.

    Secondly, by the fact that it is conducted on a larger scale and is more concentrated than industry anywhere else in the world, thanks to which it has every possibility of beating private capitalist industry.

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    Thirdly, by the fact that the state, controlling nationalised transport, nationalised credit, nationalised foreign trade and the general state budget, has every possibility of directing nationalised industry in a planned way, as a single industrial enterprise, which gives it enormous advantages over all other industry and accelerates its rate of development many times over.

    Fourthly, by the fact that nationalised industry, being industry of the biggest and most powerful kind, has every possibility of pursuing a policy of steadily reducing production costs, of reducing wholesale prices and cheapening its products, thereby expanding the market for its products, increasing the capacity of the home market and creating for itself a continuously increasing source for the further expansion of production.

    Fifthly, by the fact that nationalised industry is able for many reasons, one of them being that it pursues the policy of reducing prices, to develop under conditions of gradual rapprochement between town and country, between the proletariat and the peasantry, in contrast with capitalist industry, which develops under conditions of increasing enmity between the bourgeois town, which bleeds the peasantry white, and the decaying countryside.

    Lastly, by the fact that nationalised industry is based on the working class, which is the leader in all our development, thanks to which it is able more easily to develop technology in general, and the productivity of labour in particular, and to apply rationalisation to production and management, with the support of the broad masses of the working class, which is not and cannot be the case under the capitalist system of industry.

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    All this is proved beyond doubt by the rapid growth of our technology during the past two years and the rapid development of new branches of industry (machines, machine-tools, turbines, automobiles and aircraft, chemicals, etc.).

    It is also proved by the rationalisation of production that we are carrying out, along with a shorter working day (a 7-hour day) and along with a steady improvement in the material and cultural conditions of the working class, which is not and cannot be the case under the capitalist system of economy.

    The unprecedented rate of development of our socialist industry is direct and indubitable proof of the superiority of the Soviet system of production over the capitalist system.

    Lenin was right in saying, as far back as September 1917, before the Bolsheviks had captured power, that after establishing the dictatorship of the proletariat we can and must "overtake and outstrip the advanced countries economically as well " (Vol. XXI, p. 191).

    The Party's task : to maintain the achieved rate of development of socialist industry and to increase it in the near future with the object of creating the favourable conditions necessary for overtaking and outstripping the advanced capitalist countries.

    a) In the countryside, on the other hand, we have a relatively slow growth of output. Whereas in 1925-26 the increase in gross output (calculated in pre-war rubles) compared with the preceding year amounted to 19.2 per cent, in 1926-27 to 4.1 per cent, and in 1927-28 will

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amount to 3.2 per cent, the State Planning Commission's rough and very conservative five-year estimates provide for an increase in output during five years of 24 per cent, with an average arithmetical annual increase in output of 4.8 per cent, and with an increase in agricultural output in 1931-32 of 28-30 per cent compared with pre-war output.

    This is a more or less tolerable annual increase in agricultural output. But it cannot possibly be called either a record one compared with the capitalist countries, or an adequate one for maintaining in the future the necessary equilibrium between agriculture and our nationalised industry.

    In the U.S.A., the annual increase in the gross output of agriculture was 9.3 per cent in the decade 1890-1900, 3.1 per cent in the decade 1900-10, and 1.4 per cent in the decade 1910-20. In pre-war Russia the annual increase in agricultural output in the decade 1900-11 was 3.2-3.5 per cent.

    True, the annual increase in the output of our agriculture in the five-year period 1926-27 -- 1931-32 will amount to 4.8 per cent; moreover, as is seen, the percentage increase in agricultural output under Soviet conditions has grown compared with that in the period of capitalist Russia. But it must not be forgotten that whereas the gross output of nationalised industry in 1931-32 will be double that of pre-war industry and the output of all industry in 1931-32 will show an increase of about 70 per cent above the pre-war level, the output of agriculture by that time will exceed the pre-war agricultural output only by 28-30 per cent., i.e., by less than a third.

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    In view of this, the rate of development of our agriculture cannot be regarded as quite satisfactory.

    b) How is this relatively slow rate of development of agriculture compared with the rate of development of our nationalised industry to be explained?

    It is due to the extreme backwardness of our agricultural technique and the exceedingly low cultural level in the countryside, and particularly to the fact that our scattered agricultural production does not have the advantages that our large-scale, united, nationalised industry has. First of all, agricultural production is not nationalised and not united, but broken up and scattered. It is not carried on in a planned way, and for the time being an enormous part of it is subjected to the anarchy of small production. It is not united and organised in large units on the lines of collective farming and for that reason still provides a convenient field for exploitation by kulak elements. These circumstances deprive scattered agriculture of the colossal advantages of large-scale, united and planned production which our nationalised industry possesses.

    What is the way out for agriculture? Perhaps the slowing down of the rate of development of our industry in general and of our nationalised industry in particular? Under no circumstances! That would be most reactionary, anti-proletarian utopianism. (Voices : "Quite right!") Nationalised industry must and will develop at an accelerated rate. That is the guarantee of our advance to socialism. That is the guarantee that, finally, agriculture itself will be industrialised.

    What is the way out? The way out is to turn the small and scattered peasant farms into large united

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farms based on cultivation of the land in common, to go over to collective cultivation of the land on the basis of a new and higher technique.

    The way out is to unite the small and dwarf peasant farms gradually but surely, not by pressure, but by example and persuasion, into large farms based on common, co-operative, collective cultivation of the land with the use of agricultural machines and tractors and scientific methods of intensive agriculture.

    There is no other way out.

    Unless this is done, our agriculture will be unable either to overtake or to outstrip the capitalist countries with the most developed agriculture (Canada, etc.).

    All the measures we have taken to restrict the capitalist elements in agriculture, to develop the socialist elements in the countryside, to draw the peasant farms into the channel of co-operative development, to exercise planned influence by the state on the countryside by embracing peasant economy both as regards supplies and marketing, and as regards production -- all these measures are decisive, it is true, but for all that they are only preparatory to putting agriculture on to a collectivist basis.

    c) What has the Party done in this direction during the two years? Not a little has been done, but it is far from all that could have been done.

    As regards embracing agriculture from outside, so to speak, along the line of supplying agriculture with the manufactured goods it needs and the marketing of agricultural produce, we have the following achievements: the agricultural co-operatives now unite about a third of all peasant households; the consumers

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co-operatives have increased their share of supplies to the countryside from 25.6 per cent in 1924-25 to 50.8 per cent in 1926-27; the co-operative and state bodies have increased their share of the marketing of agricultural produce from 55.7 per cent in 1924-25 to 63 per cent in 1926-27.

    As regards embracing agriculture from inside, so to speak, along the line of agricultural production, terribly little has been done. Suffice it to say that at the present time the collective farms and state farms provide only a little over 2 per cent of the total agricultural produce and a little over 7 per cent of the total marketed produce.

    There are quite a few reasons for this, of course, both objective and subjective. Unskilful approach to the matter, insufficient attention to it on the part of our officials, the conservatism and backwardness of the peasants, the shortage of funds necessary for financing the passing over of the peasants to the common cultivation of the land, etc. And quite large funds are needed for this purpose.

    Lenin said at the Tenth Congress that we still lacked the funds necessary for making agriculture subject to the state or collective principle. I think that now we shall have those funds, and they ought to increase in the course of time. But, meanwhile, things are taking such a turn that unless the scattered peasant farms are united, unless they go over to cultivation of the land in common, it will be impossible to make serious progress either in the intensification or in the mechanisation of agriculture, it will be impossible to arrange things in such a way that the rate of development of

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our agriculture can exceed that of capitalist countries, such as Canada, for example.

    Therefore, the task is to concentrate the attention of our officials in the countryside on this important matter.

    I think that in this matter the machine-hiring stations under the People's Commissariats of Agriculture and of the agricultural co-operatives must play an exceedingly important role.

    Here is an example how the state farms sometimes help the peasants to go over to collective cultivation of the land with enormous benefit to the peasants. I have in mind the assistance in the way of tractors which the Association of Ukrainian State Farms rendered the peasants in the Odessa District, and the letter from those peasants, recently published in Izvestia, expressing thanks for this assistance. Permit me to read this letter. (Voices : "Please do!")

    "We settlers in the hamlets of Shevchenko, Krasin, Kalinin, Red Dawn and Rising Sun express our profound gratitude to the Soviet Government for the enormous assistance afforded us in restoring our farms. The majority of us -- being poor, possessing neither horses nor implements -- were unable to cultivate the land allotted to us and were obliged to lease it to the long-resident kulaks, receiving part of the crop in return. The crop was a bad one because, naturally, a tenant will not trouble to cultivate properly other people's land. The small credits we received from the state we used up for food and we sank into deeper poverty every year.
    "This year a representative of the Association of Ukrainian State Farms visited us and proposed to us that instead of taking financial credits we should allow our land to be ploughed with tractors. All the settlers, except for a few kulaks, agreed to this, although we had little confidence that the work would be done efficiently. To our great joy, and to the chagrin of the kulaks, the tractors ploughed

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up all the virgin land and fallow land; they ploughed and harrowed 5-6 times to clear the land of weeds and finally sowed all the fields with high-grade wheat. The kulaks are not jeering at the work of the tractor team now. This year, owing to the absence of rain, the peasants in our district planted hardly any winter wheat, and where it was planted it has not come up yet. But our, settlers', fields, stretching for hundreds of dessiatins, are green with splendid fallow-sown wheat such as cannot be seen even in the richest German settlements.

    "In addition to sowing winter wheat, the tractors ploughed up the whole of the winter fallow for the spring crops. Now, not a dessiatin of our land has been left unploughed, or leased out. There is not a single poor peasant among us who has not several dessiatins of winter wheat.
    "After we have seen the way the tractors work we do not want to carry on poor, small farming any more, and we have decided to organise common tractor farming in which there will be no separate peasant plots. The organisation of tractor farming for us has already been undertaken by the Taras Shevchenko State Farm, with which we have signed a contract" (Izvestia, No. 267, November 22, 1927).

    That is what the peasants write.

    If we had more examples like this, comrades, it would be possible to make great progress in the collectivisation of the countryside.

    The Party's task : to enlarge the extent of peasant economy embraced by the co-operatives and state bodies in the matter of marketing and supplies, and to make it the immediate practical task of our work in the countryside gradually to transform the scattered peasant farms into united, big farms, to introduce collective cultivation of the land on the basis of the intensification and mechanisation of agriculture, calculating that such a path of development is a most important means of accelerating the rate of development of agriculture and of defeating the capitalist elements in the countryside.

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    Such, on the whole, are the results and achievements in the sphere of the work of economic construction.

    This does not mean that all is well with us in this sphere. No, comrades, by no means everything is well with us.

    For example, we have elements of a goods shortage. That is an unfavourable feature in our economy, but, unfortunately, for the time being an inevitable one. For the fact that we are developing the production of instruments and means of production at a faster rate than light industry, this fact in itself predetermines that there will still be elements of a goods shortage in the country during the next few years. But we cannot act otherwise if we want to push forward the industrialisation of the country to the utmost.

    There are people, our opposition for example, who draw material for their ideology in profiteers' queues and shout about the goods shortage, and at the same time demand a policy of "super-industrialisation." But that, of course, is stupid, comrades. Only ignoramuses can talk like that. We cannot, we must not, cut down our heavy industry for the sake of developing light industry to the utmost. And, besides, it is impossible to develop light industry to a sufficient extent unless the development of heavy industry is accelerated.

    We could have increased imports of finished goods and thus have mitigated the goods shortage, and that is what the opposition insisted on at one time. But that proposal was so silly that the opposition had to drop it. Whether we are working efficiently enough to mitigate

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the elements of the goods shortage, which it is quite possible to do under our conditions and on which our Party has always insisted, is another question. I think that it is precisely in this sphere that not all is well with us.

    Further, we have a fact like the relatively large number of capitalists both in the sphere of industry and in the sphere of trade. The relative importance of these elements is really not quite so small as some of our comrades sometimes depict it. That, too, is a liability in the balance-sheet of our economy.

    Recently I read what is in every respect an interesting book by Comrade Larin: Private Capital in the U.S.S.R. I would advise you to read this book, comrades. In it you will see how adroitly and skilfully the capitalist hides himself behind the flag of producers' co-operation, behind the flag of agricultural co-operation, behind the flag of state trading bodies of one kind or other. Is everything being done to restrict, reduce and, finally, to oust the capitalist elements from the sphere of our national economy? I do not think that everything is being done. I know, for example, that in handicraft industry in general, and in the leather and textile industries in particular, there are quite a number of new millionaires, who are enslaving the handicraft workers and small producers generally. Is everything being done economically to surround and oust these exploiting elements by linking the handicraft workers with the co-operatives or with state bodies? There can scarcely be any doubt that far from everything is being done in this sphere. And yet this question is of extreme importance for us.

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    Further, there has been a certain increase in the number of kulaks in the countryside. That is a liability in the balance-sheet of our economy. Is everything being done economically to restrict and isolate the kulaks? I do not think that everything is being done. Those comrades are wrong who think that it is possible and necessary to put an end to the kulaks by means of administrative measures, through the GPU: give an order, affix a seal, and that settles it. That is an easy way, but it is far from being effective. The kulak must be defeated by means of economic measures and in conformity with Soviet law. Soviet law, however, is not a mere phrase. This does not, of course, preclude the taking of certain necessary administrative measures against the kulaks. But administrative measures must not take the place of economic measures. Serious attention must be paid to the fact that the Party's line in the fight against the kulaks is being distorted in the practice of our co-operative bodies, especially in the matter of agricultural credits.

    Further, we have a fact like the extremely slow rate of reduction of production costs in industry, of reduction of wholesale prices of manufactured goods, and especially of retail prices of urban goods. This, too, is a liability in the balance-sheet of our work of economic construction. We cannot but observe that in this we encounter the tremendous resistance of the apparatus -- state, co-operative and Party. Evidently, our comrades fail to understand that the policy of reducing the prices of manufactured goods is one of the principal levers for improving our industry, expanding the market and strengthening the very basis on which alone our

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industry can expand. There can scarcely be any doubt that only by ruthlessly combating this inertia of the apparatus, this resistance of the apparatus to the policy of reducing prices, will it be possible to wipe out this liability.

    Lastly, we have liabilities like vodka in the budget, the extremely slow rate of development of foreign trade and the shortage of reserves. I think that it would be possible to start gradually to reduce the output of vodka and, instead of vodka, to resort to sources of revenue such as the radio and the cinema. Indeed, why not take these extremely important means in hand and put on this job real Bolsheviks, shock workers, who could successfully expand the business and make it possible, at last, to reduce the output of vodka?

    As regards foreign trade, it seems to me that a number of the economic difficulties we are encountering are due to the insufficiency of exports. Can we push exports forward? I think we can. Is everything being done to increase exports to the utmost? I do not think that everything is being done.

    The same must be said about reserves. Those comrades are wrong who say, sometimes thoughtlessly and sometimes because of their ignorance of the matter, that we have no reserves. No, comrades, we have some kind of reserves. All the organs of our state, from uyezd and gubernia to regional and central, try to put something in reserve for a rainy day. But these reserves are small. That must be admitted. Therefore, the task is to increase reserves as much as possible, even if that sometimes entails cutting down some current requirements.

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    Such, comrades,, are the darker sides of our work of economic construction, to which attention must be paid, and which must be eliminated at all costs in order to be able to move forward at a faster rate.

    From questions of the country's economic situation let us pass to questions of the political situation.

    a) The working class. Figures showing the numerical growth of the working class and of wage-workers generally. In 1924-25 there were 8,215,000 wage-workers (not including unemployed); in 1926-27 there were 10,346,000. An increase of 25 per cent. Of these, manual workers, including agricultural and seasonal, numbered 5,448,000 in 1924-25, and in 1926-27 -- 7,060,000. An increase of 29.6 per cent. Of these, workers in large scale industry numbered 1,794,000 in 1924-25, and in 1926-27 -- 2,388,000. An increase of 33 per cent.

    The material conditions of the working class. In 1924-25 the wage-workers' share of the national income amounted to 24.1 per cent, and in 1926-27 it grew to 29.4 per cent, which is 30 per cent above the wage-workers' share of the national income before the war, where as the share of the national income received by other social groups, including the bourgeoisie, diminished during this period (for example, the share of the bourgeoisie dropped from 5.5 per cent to 4.8 per cent). In 1924-25 real wages (exclusive of social services) of the workers in state industry as a whole amounted to 25.18 Moscow computed rubles per month; in 1926-27

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they amounted to 32.14 rubles, which is an increase of 27.6 per cent for the two years and is 5.4 per cent above the pre-war level. If we add social insurance and cultural, municipal and other services, wages in 1924-25 were 101.5 per cent of pre-war and in 1926-27 -- 128.4 per cent of pre-war. The social insurance funds increased from 461 million rubles in 1924-25 to 852 million rubles in 1926-27, i.e., by 85 per cent, which made it possible to send 513,000 persons to rest homes and sanatoriums, to provide allowances for 460,000 unemployed and 700,000 pensioners (disabled workers and disabled civil war veterans) and to pay workers full wages during sickness.

    Two years ago, in 1924-25, expenditure on workers' housing amounted to something over 132,000,000 rubles; in 1925-26 -- to something over 230,000,000 rubles; in 1926-27 -- 282,000,000 rubles, and in 1927-28 it will amount to something over 391,000,000 rubles, including 50,000,000 rubles provided for in the Manifesto of the Central Executive Committee. The total expenditure on workers' housing in the past three years by industry, transport, local Executive Committees and co-operatives (not including individual construction) was 644,700,000 rubles, and including the assignments for 1927-28 -- 1,036 million rubles. These assignments for the three years made it possible to build housing accommodation with a floor space of 4,594,000 sq. metres and to provide accommodation for 257,000 workers, and, counting their families, for about 900,000 persons.

    The question of unemployment. I must say that there is a discrepancy here between the figures of the

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All-Union Central Council of Trade Unions and those of the People's Commissariat of Labour. I take the figures of the People's Commissariat of Labour because they cover the truly unemployed element connected with the labour exchanges. According to the returns of the People's Commissariat of Labour, the number of unemployed during the two years increased from 950,000 to 1,048,000. Of these, industrial workers constitute 16.5 per cent and brain workers and unskilled labourers 74 per cent. Thus, the chief source of unemployment in our country is the over-population in the countryside; the fact that our industry has to some extent failed to absorb a certain minimum of industrial workers is only a subsidiary source.

    To sum up: there is an undoubted rise in the standard of living of the working class as a whole.

    The Party's task : to continue along the line of further improving the material and cultural conditions of the working class, of further raising the wages of the working class.

    b) The peasantry. I do not think it is worth while quoting figures on differentiation among the peasantry because my report is already too long, and everybody is familiar with the figures. There can be no doubt that differentiation under the dictatorship of the proletariat cannot be identified with differentiation under the capitalist system. Under capitalism the extremes grow, the poor peasants and the kulaks, while the middle peasants melt away. In our country the opposite is the case; the number of middle peasants is growing, because a certain part of the poor peasants rise to the position of middle peasants; the number of kulaks is growing;

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the number of poor peasants is diminishing. This fact shows that the central figure in agriculture is, as previously, the middle peasant. The bloc with the middle peasants, while relying on the poor peasants, is of decisive importance for the fate of our entire work of construction, for the dictatorship of the proletariat.

    The general improvement of material conditions in the countryside. We have figures on the increase in the incomes of the peasant population. Two years ago, in 1924-25, the income of the peasant population amounted to 3,548 million rubles, in 1926-27 this income grew to 4,792 million rubles, i.e., it increased 35.1 per cent, whereas the peasant population during this period increased only 2.38 per cent. This is an indubitable indication that material conditions in the countryside are improving.

    This does not mean that the material conditions of the peasantry have improved in all districts of the country. It is well known that in some places the harvest was uneven during these two years, and the effects of the crop failure of 1924 have not yet been fully over come. Hence the assistance the state renders the working peasantry in general and the poor peasants in particular. In 1925-26 state assistance to the working peasantry amounted to 373,000,000 rubles and in 1926-27 to 427,000,000 rubles. Special assistance to the rural poor in 1925-26 in the shape of grants to the poorest farms amounted to 38,000,000 rubles, tax exemptions for poor farms amounted to 44,000,000 rubles and insurance exemptions for poor peasants to 9,000,000 rubles, making a total of 91,000,000 rubles. Special assistance to the rural poor in 1926-27 under the same

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heads: 39,000,000 rubles, 52,000,000 rubles and 9,000,000 rubles, making a total of about 100,000,000 rubles.

    To sum up: there is an improvement in the material conditions of the main mass of the peasantry.

    The Party's task : to continue along the line of further improving the material and cultural conditions of the main mass of the peasantry, primarily of the poor peasants, to strengthen the alliance between the working class and the peasantry, to raise the prestige of the working class and of its Party in the countryside.

    c) The new bourgeoisie. The intelligentsia. A characteristic feature of the new bourgeoisie is that, unlike the working class and the peasantry, it has no reason to be satisfied with the Soviet regime. Its dissatisfaction is not accidental. It has its roots in life.

    I have spoken about the growth of our national economy, I have spoken about the growth of our industry, about the growth of the socialist elements of our national economy, about the decline in the relative importance of the private owners, about the elimination of the small traders. But what does that mean? It means that while our industry and our trading bodies are growing, tens of thousands of small and medium capitalists are being ruined. How many small and medium shops have been closed during these years? Thousands. And how many small manufacturers have been proletarianised? Thousands. And how many civil servants have been discharged in connection with the reduction of staffs in our state apparatus? Hundreds and thousands.

    The progress of our industry, the progress of our trading and co-operative bodies, the improvement of our state apparatus, is progress and improvement of

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benefit to the working class, of benefit to the main mass of the peasantry, but of disadvantage to the new bourgeoisie, of disadvantage to the middle strata generally and to the urban middle strata in particular. Is it to be wondered at that discontent with the Soviet regime is growing among those strata? Hence the counter-revolutionary moods in those circles. Hence the Smena-Vekhist ideology, as a fashionable commodity on the political market of the new bourgeoisie.

    But it would be a mistake to think that the whole of the civil service element, the whole of the intelligentsia is in a state of discontent, in a state of grumbling or unrest against the Soviet regime. Parallel with the growth of discontent in the depths of the new bourgeoisie we have the fact of a differentiation among the intelligentsia, a desertion from Smena-Vekhism, the passing of hundreds and thousands of working intellectuals to the side of the Soviet regime. This fact, comrades, is undoubtedly a favourable fact, which must be noted.

    The pioneers in this are the technical intelligentsia, because, being closely connected with the process of production, they cannot but see that the Bolsheviks are leading the country forward, to a better future. Such gigantic works of construction as the Volkhov Power Plant, the Dnieper Power Plant, the Svir Power Plant, the Turkestan Railway, the Volga-Don project and a whole series of new gigantic industrial plants with which the fate of whole strata of the technical intelligentsia is bound up, cannot but exercise some beneficial influence upon these strata. It is not only a bread and butter question for them, it is also a matter

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of honour, a matter of creative effort, which naturally draws them to the working class, to the Soviet regime.

    That is apart from the rural working intelligentsia, especially village school-teachers, who began to support the Soviet regime long ago, and who cannot help welcoming the development of education in the countryside.

    Therefore, parallel with the growth of dissatisfaction among certain strata of the intelligentsia, we have the bond between the working intelligentsia and the working class.

    The Party's task is to continue along the line of isolating the new bourgeoisie and to strengthen the bond between the working class and the working Soviet intelligentsia in town and country.

    d) The state apparatus and the struggle against bureaucracy. So much is being said about bureaucracy that there is no need to dilate on it. That elements of bureaucracy exist in our state, co-operative and Party apparatus, there can be no doubt. That it is necessary to combat the elements of bureaucracy, and that this task will confront us all the time, as long as we have state power, as long as the state exists, is also a fact.

    But one must know how far one can go. To carry the struggle against bureaucracy in the state apparatus to the point of destroying the state apparatus, of discrediting the state apparatus, of attempts to break it up -- that means going against Leninism, means forgetting that our apparatus is a Soviet apparatus, which is a state apparatus of a higher type than any other state apparatus in the world.

    Wherein lies the strength of our state apparatus? In that it links the state power with the millions of

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workers and peasants through the Soviets. In that the Soviets are schools of administration for tens and hundreds of thousands of workers and peasants. In that the state apparatus does not fence itself off from the vast masses of the people, but merges with them through an incalculable number of mass organisations, all sorts of commissions, committees, conferences, delegate meetings, etc., which encompass the Soviets and in this way buttress the organs of government.

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that all is well with us in this sphere. No, comrades, we have shortcomings in this sphere too, which we, as Bolsheviks, cannot and must not conceal.

    Firstly, we have unemployment. This is a serious shortcoming, which we must overcome, or at least reduce to a minimum at all costs.

    Secondly, we have grave defects in housing construction for the workers, a housing crisis, which we must also overcome, or at least reduce to a minimum within the next few years.

    We have some manifestations of anti-Semitism, not only among certain circles of the middle strata of the population, but also among a certain section of the workers, and even in some quarters in our Party. This evil must be combated, comrades, with all ruthlessness.

    We also have a shortcoming like the slackening in the struggle against religion.

    And lastly, we have a terrible cultural backwardness, not only in the broad sense of the term, but also in its narrow sense, in the sense of elementary literacy, for the percentage of illiteracy in the U.S.S.R. is still not inconsiderable.

    All these and similar shortcomings must be eliminated, comrades, if we want to advance at a more or less rapid rate.

    To finish with this section of my report, permit me to say a few words about the most characteristic appointments during the period under review. I shall not touch on the appointment of the Vice-Chairmen of the Council of People's Commissars of the U.S.S.R. Nor shall I touch on the appointment of the People's Commissars of the Supreme Council of National Economy,

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of the People's Commissariat of Trade, and of the Joint State Political Administration of the U.S.S.R. I would like to deal with three appointments that are significant. You know that Lobov has been appointed Chairman of the Supreme Council of National Economy of the R.S.F.S.R. He is a metalworker. You know that Ukhanov, a metalworker, has been elected Chairman of the Moscow Soviet in place of Kamenev. You know also that Komarov, also a metalworker, has been elected Chairman of the Leningrad Soviet in place of Zinoviev. Thus the "Lord Mayors" of our two capitals are metalworkers. (Applause.) It is true that they are not of the nobility, but they are managing the affairs of our capitals better than any member of the nobility. (Applause.) You may say that this is a tendency towards metallisation, but I don't think there is anything bad about that. (Voices : "On the contrary, it is very good.")

    Let us wish the capitalist countries, let us wish London, let us wish Paris, success in catching up with us at last and in putting up their own metalworkers as "Lord Mayors." (Applause.)

    Comrades, I shall not deal at length with the numerical and ideological growth of our Party, I shall not quote figures, because Kosior will report to you on this in detail.

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    Nor shall I speak about the social composition of our Party, or about the figures relating to this, because Kosior will give you exhaustive data on it in his report.

    I should like to say a few words about the higher level, the qualitative improvement, in our Party's work of leadership both in the sphere of economics and in the sphere of politics. There was a time, comrades, two or three years ago, when a section of our comrades, headed by Trotsky, I think (laughter, voices : "Think?"), rebuked our Gubernia Committees,our Regional Committees and our Central Committee, asserting that the Party organisations were not competent to interfere in the country's economic affairs and had no business to do so. Yes, there was such a time. Today, however, it is doubtful whether anybody would dare to cast such accusations at the Party organisations. That the Gubernia and Regional Committees have mastered the art of economic leadership, that the Party organisations are leading the work of economic construction and not trailing in its rear, is such a glaring fact that only the blind or imbecile would dare to deny it. The very fact that we have decided to put on the agenda of this congress the question of a five-year plan of development of the national economy, this very fact alone shows that the Party has made immense progress in the planned leadership of our work of economic construction both in the districts and at the centre.

    Some people think that there is nothing special about this. No, comrades, there is something special and important about this, which must be noted. Reference is sometimes made to American and German economic

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bodies which, it is alleged, also direct their national economy in a planned way. No, comrades, those countries have not yet achieved this, and never will achieve it, as long as the capitalist system exists there. To be able to lead in a planned way it is necessary to have a different system of industry, a socialist and not a capitalist system; it is necessary to have at least a nationalised industry, a nationalised credit system, nationalised land, a socialist bond with the countryside, working-class rule in the country, etc.

    True, they also have something in the nature of plans; but these are forecast plans, guess-work plans, not binding on anybody, and they cannot serve as a basis for directing the country's economy. Things are different in our country. Our plans are not forecast plans, not guess-work plans, but directive plans, which are binding upon our leading bodies, and which determine the trend of our future economic development on a country-wide scale.

    You see, we have a fundamental difference here.

    That is why I say that even the mere fact that the question of a five-year plan of development of the national economy has been put on the congress agenda, even this fact is a sign of the qualitatively higher level of our leadership in planning.

    Nor shall I deal at length with the growth of inner Party democracy in our Party. Only the blind fail to see that inner-Party democracy, genuine inner-Party democracy, an actual upsurge of activity on the part of the mass of the Party membership, is growing and developing in our Party. There is talk about democracy. But what is democracy in the Party? Democracy for

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whom? If by democracy is meant freedom for a couple or so of intellectuals divorced from the revolution to engage in endless chatter, to have their own press organ, etc., then we have no use for such "democracy," because it is democracy for an insignificant minority that sets at naught the will of the overwhelming majority. If, however, by democracy is meant freedom for the mass of the Party membership to decide questions connected with our work of construction, an upsurge of activity of the Party membership, drawing them into the work of Party leadership, developing in them the feeling that they are the masters in the Party, then we have such democracy, that is the democracy we need, and we shall steadily develop it in spite of everything. (Applause.)

    Nor shall I, comrades, deal at length with the fact that, parallel with inner-Party democracy, collective leadership is growing, step by step, in our Party. Take our Central Committee and the Central Control Commission. Together they constitute a leading centre of 200-250 comrades, which meets regularly and decides highly important questions connected with our work of construction. It is one of the most democratic and collectively functioning centres our Party has ever had. Well? Is it not a fact that the settlement of highly important questions concerning our work is passing more and more from the hands of a narrow upper group into the hands of this broad centre, which is most closely connected with all branches of our work of construction and with all the districts of our vast country?

    Nor shall I dilate on the growth of our Party cadres. It is indisputable that during the past few years the

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old cadres of our Party have been permeated with new, rising cadres, consisting mainly of workers. Formerly, we counted our cadres in hundreds and thousands, but now we have to count them in tens of thousands. I think that if we begin from the lowest organisations, the shop and team organisations, and proceed to the top, all over the Union, we shall find that our Party cadres, the overwhelming majority of whom are workers, now number not less than 100,000. This indicates the immense growth of our Party. It indicates the immense growth of our cadres, the growth of their ideological and organisational experience, the growth of their communist culture.

    Lastly, there is one further question, which there is no need to deal with at length but which ought to be mentioned. That is the question of the growth of the Party's prestige among the non-Party workers and the masses of the working people in general of our country, among the workers and the oppressed classes in general all over the world. There can scarcely be any doubt now that our Party is becoming the banner of liberation for the masses of the working people all over the world, and that the title of Bolshevik is becoming a title of honour for the best members of the working class.

    Such, in general, comrades, is the picture of our achievements in the sphere of Party affairs.

    This does not mean, comrades, that there are no shortcomings in our Party. No, there are shortcomings, and grave ones at that. Permit me to say a few words about them.

    Let us take, for example, the guidance of economic and other organisations by our Party organisations.

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all well with us in this respect? No, not all. Often we settle questions, not only in the districts, but also at the centre, by the family, domestic-circle method, so to speak. Ivan Ivanovich, a member of the top leadership of such and such an organisation, has, say, made a gross mistake and has messed things up. But Ivan Fyodorovich is reluctant to criticise him, to expose his mistakes and to correct them. He is reluctant to do so because he does not want to "make enemies." He has made a mistake, he has messed things up -- what of it? Who of us does not make mistakes? Today I shall let him, Ivan Fyodorovich, off; tomorrow he will let me, Ivan Ivanovich, off; for what guarantee is there that I, too, shall not make a mistake? Everything in order and satisfactory. Peace and good will. They say that a mistake neglected is detrimental to our great cause? Never mind! We'll muddle through somehow.

    Such, comrades, is the way some of our responsible workers usually argue.

    But what does that mean? If we Bolsheviks, who criticise the whole world, who, in the words of Marx, are storming heaven, if we, for the sake of this or that comrade's peace of mind, abandon self-criticism, is it not obvious that that can lead only to the doom of our great cause? (Voices : "Quite right!" Applause.)

    Is there any sense, any value in a Party discussion?

    Sometimes people say: Why on earth was this discussion started, what good is it to anyone, would it not have been better to settle the disputed questions privately, without washing dirty linen in public? That is

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wrong, comrades. Sometimes a discussion is absolutely necessary, and indubitably useful. The whole point is -- what kind of discussion? If the discussion is con ducted within comradely limits, within Party limits, if its object is honest self-criticism, criticism of short comings in the Party, if, therefore, it improves our work and arms the working class, then such a discussion is necessary and useful.

    But there is another kind of discussion, the object of which is not to improve our common work but to worsen it; not to strengthen the Party, but to disintegrate and discredit it. Such a discussion usually leads not to the arming, but to the disarming of the proletariat. Such a discussion we do not need. (Voices : "Quite right!" Applause.)

    When the opposition demanded an all-Union discussion about three months before the congress, before the Central Committee's theses had been drawn up, before the publication of those theses, it tried to thrust upon us the kind of discussion that would inevitably have facilitated the task of our enemies, the task of the enemies of the working class, the task of the enemies of our Party. That was precisely the reason why the Central Committee opposed the opposition's plans. And it is precisely because it opposed the opposition's plans that we succeed ed in placing the discussion on the right lines by giving it a basis in the shape of the Central Committee's theses for the congress. Now we can say without hesitation that, on the whole, the discussion has been a gain.

    As regards washing dirty linen in public, that is nonsense, comrades. We have never been, and never will be, afraid of openly criticising ourselves and our

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mistakes before the whole Party. The strength of Bolshevism is precisely that it is not afraid of criticism and that, in criticising its defects, it acquires the energy for making further progress. Thus, the present discussion is a sign of our Party's strength, a sign of its might.

    It must not be forgotten that in every big party, especially a party like ours, which is in power, and which contains a certain proportion of peasants and civil servants, there accumulate in the course of a certain time some elements who are indifferent to questions of Party practice, who vote blindly and swim with the stream. The presence of a large number of these elements is an evil which must be combated. These elements constitute the marsh in our Party.

    A discussion is an appeal to this marsh. The oppositionists appeal to it in order to win over some part of it. And they do indeed win over its worst part. The Party appeals to it in order to win over its best part to draw it into active Party life. As a result, the marsh is compelled to exercise self-determination in spite of all its inertia. And it does indeed exercise self-determination as a result of these appeals, by giving up one section of its ranks to the opposition and another to the Party, thus ceasing to exist as a marsh. In the general balance-sheet of our Party development this is an asset. As a result of our present discussion, the marsh has diminished; it has wholly ceased, or is ceasing, to exist. Herein lies the advantage of the discussion.

    The results of the discussion? The results are known. Up to yesterday, it turns out, 724,000 comrades voted for the Party and a little over 4,000 voted for the oppo-

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sition. Such are the results. Our oppositionists thundered that the Central Committee had become divorced from the Party, that the Party had become divorced from the class, that if "ifs" and "ans" were pots and pans they, the oppositionists, would certainly have had 99 per cent on their side. But since "ifs" and "ans" are not pots and pans, it turns out that the opposition has not even one per cent. Such are the results.

    How could it happen that the Party as a whole, and after it the working class as well, so thoroughly isolated the opposition? After all, the opposition is headed by well-known people with well-known names, people who know how to advertise themselves (voices : "Quite right!"), people who are not afflicted with modesty (applause ) and who are able to blow their own trumpets, to make the most of their wares.

    It happened because the leading group of the opposition proved to be a group of petty-bourgeois intellectuals divorced from life, divorced irom the revolution, divorced from the Party, from the working class. (Voices : "Quite right!" <