Communism

DISINVESTMENT – BOON OR BANE INTRODUCTION

• 1. Public enterprises are neither new nor unique to India. In good old days, Kautilya in his ‘Arthasastra’ talked of a public sector. A person was made incharge of salt manufacture and fixing its price. Similarily there were people made responsible for mining, coinage and gold, all in public sector. Nowadays there is hardly any country that is not engaged actively and directly in the management of economic and industrial enterprises.

Various names given to these enterprises are ‘Public Sector Undertakings’ or PSUs, ‘Public Sector Enterprise’ or PSEs, ‘Trading Corporations’, State Owned Enterprise or SOEs, Government Owned Enterprise or GOE etc.

• 2. The role of government in businesses and otherwise has been questioned in the past. Thoreau said , “That government is best which governs least”. The only purpose of government would be to protect its citizens from force or fraud.

The protection from force, that is, the protection of individual rights, would be achieved through the use of a police force to protect the rights of citizens at home; a military, to protect the rights of citizens from foreign aggression; and a court system to enforce contracts and settle disputes between citizens. It is not government business to do business. The poor performance of government owned enterprises around the world led to a world wide withdrawal of government from businesses and coining of a new term called ‘Privatisation’.

Privatisation process in India is euphemistically called ‘Disinvestment’ to make it palatable to those who consider privatisation a dirty word. Disinvestment or privatisation in India was initiated in 1991-92 by the Chandrashekhar government and carried forward by subsequent governments. AIM

• 3. The aim of this paper is to study various aspects of Disinvestment so as to conclude whether it is a boon or bane for India. SCOPE
• 4. The paper would be covered under the following heads:-

(a)What is Disinvestment?

(b)Capitalism, Socialism, Communism and Market economy.

c)Genesis of Government Participation In business.

(d)Performance of Government Controlled Enterprises.

(e)Objectives of Disinvestment.

(f)Genesis of Disinvestment process.

(g)The Disinvestment process in India.

(h)Advantages of Disinvestment.

(j)Disadvantages of Disinvestment.

(k)Disinvestment-Boon or Bane.

WHAT IS DISINVESTMENT

Disinvestment can be defined as withdrawal of state from production of goods and services or transfer of ownership from the public sector to the private sector.

CAPITALISM, SOCIALISM, COMMUNISM AND MARKET ECONOMY

Before we proceed further it would be worth our time to understand the concepts of Capitalism, Socialism, Communism and Market Economy.

CAPITALISM

Capitalism is a political system in which factories, companies, land, etc. are owned privately in order to create profit for the owners. Prices of goods and services fluctuate depending on the desire of the consumer and the availability of the goods (the law of supply and demand). In a capitalist society their will be significant differences in wealth and power between those who have capital (machines, factories, ships, land, etc. and those who do not. No one can say when capitalism first began. Clearly the development of capitalism was not revolutionary like that of communism. Instead it emerged gradually without anyone making a plan of what it should become. However, aspects of modern capitalism such as the stock exchange, banks and great disparity in wealth came about during the industrial revolution. In 1776 Adam Smith, a Scottish university professor, produced a book which described the workings of a capitalist society.

He believed that a country’s wealth depends on all people pursuing their own interests. If a person promotes his own interest he or she is unintentionally promoting his country’s interest. Smith thought that governments should promote free trade and not interfere by protecting certain industries from competition. The only duty of governments, Smith wrote, was to provide services that couldn’t be profitable like the building of roads, schools etc. 10. Capitalism means the complete separation of economy and state, just like the separation of church and state.

Capitalism is the social system based upon private ownership of the means of production which entails a completely uncontrolled and unregulated economy where all land is privately owned. But the separation of the state and the economy is not primary, it is only an aspect of the premise that capitalism is based upon: individual rights. Capitalism is the only politico-economic system based on the doctrine of individual rights. This means that capitalism recognizes that each and every person is the owner of his own life, and has the right to live his life in any manner he chooses as long as he does not violate the rights of others.

The essential nature of capitalism is social harmony through the pursuit of self-interest. Under capitalism, the individual’s pursuit of his own economic self-interest simultaneously benefits the economic self-interests of all others. In allowing each individual to act unhampered by government regulations, capitalism causes wealth to be created in the most efficient manner possible which ultimately raises the standard of living, increases economic opportunities, and makes available an ever growing supply of products for everyone.

The free-market operates in such a way so that as one man creates more wealth for himself, he simultaneously creates more wealth and opportunities for everyone else, which means that as the rich become richer, the poor become richer. It must be understood that capitalism serves the economic self-interests of all, including the non-capitalists.

SOCIALISM

Socialism believes that the inequalities that exist in our society are unjust and that the minority of the population should not own the vast majority of the wealth.

Socialists do, nevertheless, differ on ways by which this change should be achieved. Some believe that the change should be gradual, achieved through parliament, and others believe that the change should be rapid, brought about through revolution.  Karl Marx became the prophet and teacher of socialism whose writings transformed socialist thinking all over the world. Marx was a philosopher and an idealist Marx believed that man should labor not only for himself as an individual but for society as well.

Implied in Marxist philosophy is the notion that man, being a social animal, has his destiny and his reality inextricably linked with his society. His analysis describes capitalism as the first stage followed by socialism and finally communism. Marx believed that socialism is an unrealised potential in capitalism and once most workers recognized their interests and became “class conscious,” the overthrow of capitalism would proceed as quickly as capitalist opposition allowed. The socialist society that would emerge out of the revolution would have all the productive potential of capitalism.

People would be aided on the basis of social needs.

COMMUNISM

The final goal, communism, toward which socialist society would constantly strive, is the abolition of alienation. A class-less society would be advantageous for the vast majority of the population. Communism, a form of government, inspires some people with the zeal of a religion. Communism in theory stands for total public ownership and rejects private property and personal profit. In practice, however, the state determines how strictly the doctrine is applied in any particular country.

MARKET ECONOMY

The market economy idea is based on, or at least explained by, Darwin’s theory of evolution. Companies are viewed as organisms in an ecosystem. A company with a successful formula will prosper and grow, spread its formula and ideas, while a company with a bad formula will wither and disappear. A profitable company can grow, or at least survive, while an unprofitable company will wither and die out.

Post Karl Marx, The fight against inequality was viewed as a fight by the collective worker class vs the individual entrepreneur. The individual who complements the group was seen as a contradiction.

Some states evolved on this contradiction, wherein an individual was supposed to surrender his individuality and entrepreneurship for the state and the social security provided by it. On the other side of the world this fad for collectivism was viewed as a threat to its existing capitalist system which not only proved successful in the past, but also held promise for the future. It is this clash in ideologies which gave as a bi polar world of communism and capitalism.

Contrary to widely held beliefs, capitalism is not a system which exploits a large portion of society for the sake of a small minority of wealthy capitalists.

Ironically, it is actually socialism that causes the systematic exploitation of labor. Since the socialist state holds a universal monopoly on labor and production, no economic incentive exists for the socialist state to provide anything more than minimum physical subsistence for the workers except to perhaps prevent riots or revolutions. Exploitation is inherent in the nature of socialism because individuals cannot live for their own sake, rather, they exist merely as means to whatever ends the socialist rulers — the self-proclaimed spokesman of “society” — may have in mind.

Inequality is and progress are directly linked and progress always causes inequality. To reach for something high, we would have to stand on one another and not together on the same platform.

GENESIS OF GOVERNMENT PARTICIPATION IN BUSINESS GOVERNMENT PARTICIPATION IN BUSINESS WORLDOVER

Before considering the need for disinvestment and why disinvestment, it is relevant to consider the main reasons for rise of state power world over. The following are few reasons for state power:-

• (a)Great depression of 1930s, unemployment and hardship.
• b)Rebuilding war-torn economies.
• (c)Redistribution of income, protection to the needy for ethical reasons.
• (d)Developing countries do not have markets in which individuals can operate and ill-developed private enterprise.
• (e)Rise of non-economic objectives (sanctions against apartheid policies, or restraining ethnic minorities dominating an economy).
• (f)Protect employment or ensure good working conditions.
• (g)Total lack of faith in markets and private ownership.
• (h)Cold war, wars among developing countries and border disputes.
• j)State investment in and the control of the strategic sectors of the economy was necessary for the economic development of those sectors and the security of the country.
• (k)Government stepping in to rescue certain enterprises, whose closure could result in significant loss of jobs.
• (l)An economic consensus around the world accepting public enterprises as an integral part of the economy, particularly to manage natural monopolies as also the core industries, like infrastructure, which in turn would promote rapid economic growth and the pace of industrialisation.

GOVERNMENT PARTICIPATION IN INDIA

Before independence, there was almost no “Public sector” in Indian economy. The only industries worthy of mention were Railways, The Post & Telegraph. The Port Trust, The Ordnance and the Aircraft factories and few Government controlled undertakings. 19. In the 1948 Industrial Policy Resolution, the manufacture of arms and ammunition, production and control of atomic energy, ownership and management of railways became the State monopoly. Six basic industries viz. iron & steel, coal, aircraft manufacture, ship building, mineral oils, manufacture of telephone, telegraph and wireless apparatus were to be developed by the State. All other areas were left open to private initiatives. 20. Within a decade of laying down the policy parameters in 1948, another policy statement was issued in April 1956 by the Government to give a new orientation to the “mixed economy” concept. The passage of Industrial Policy Resolution of 1956 and adoption of socialist pattern of society as the national economic goal of the country built the foundation of the dominant public sector as we see it today.

It was believed that a dominant public sector would reduce the inequality of income and wealth and advance the general prosperity of the nation.

The main objectives of setting up the Public Sector enterprises as stated in Industrial policy Resolution of 1956 were:

• (a)To help in the rapid economic growth and Industrialisation of the country and create necessary infrastructure for economic development.
• (b) To earn return on investment and utilise generate resources for development.
• (c)To promote redistribution of income and wealth.
• (d)To create employment opportunities.
• e)To promote balanced regional development.
• (f)To promote import substitutions, save and earn foreign exchanges for the economy.

The 2nd Five year

Plan document clearly stated that “all industries of basic and strategic importance, or in the nature of public utility services should be in the public sector. Other industries, which are essential and require investment on a scale, which only the state, in the present circumstances, could provide have also to be in the public sector”. If further emphasized that, “the public sector has to expand rapidly.

It has not only to initiate developments which the private sector is either unwilling or unable to undertake, it has to play the dominant role in shaping the entire pattern of investment in the economy”. The investment in public sector enterprises has grown from Rs. 29 Crore in 5 PSU on 01Apr 51 to Rs. 2,52,554 Crore in 240 PSU on 31Mar 2000.

PERFORMANCE OF GOVERNMENT CONTROLLED ENTERPRISES

What was the outcome of government investment in business. Over a period of time, the States failed in achieving the goals and results for which State Owned Enterprises had been created.

The following are some of the reasons for the same:

• (a)Politicians govern the state and they serve group interest and not public interests.
• (b)Bureaucracy operates to maximise budget of individual departments, their own prospects and perks.
• (c)Expansions of state control resulting in the loss of economic and freedom and thereof-political freedom as well. (d)Regulation by state tends to serve the interest of regulated. (who capture regulators) rather than public.
• (e)Costs of regulation tend to exceed benefits of regulation.
• f)Supply by public authorities is inherently costly, inefficient usually in over supply, with less choice for consumers. (g)Developing countries have weak institutional structures for governments to operate services efficiently.
• (h)Public enterprises or state owned enterprises tend to be monopolistic, have no risk of closure and are liable to political and bureaucratic manipulation.
• (j)Property rights and transferability with gains or losses are important if owners were to demand information and make the enterprise really accountable and efficient.

During the last ten years, the Tax-payer has had to give about Rs. 80,000 crore directly or indirectly to the public sector, so that it could survive. During 1999-2000 alone, the CAGs report on PSUs for 1999-2000 indicates that the tax-payer has taken a huge burden in one year alone which amounted to Rs. 23,140 crore for supporting PSUs.

OBJECTIVES OF DISINVESTMENT

‘Is the business of government business? ’- Easily the million-dollar question that plauged the minds of policy makers, intelligentsia and the public alike.

The performance of PSUs world over led to introspection and a need for privatisation/disinvestments was felt. Technology and W. T. O. commitments have made the world a global village and unless industries, including public industries do not quickly restructure, they would not be able to survive. Public enterprises, because of the nature of their ownership, can restructure slowly and hence the logic of privatisation got stronger. Besides, techniques are now available to control public monopolies like Power and Telecom, where consumer interests can be better protected by egulation / competition. Therefore, investment of public money to ensure protection of consumer interests is no longer a convincing argument. Disinvestment aimed to achieve the following:

• (a)Promote economic efficiency by fostering well functioning markets and competition.
• (b)Redefine role of the State in order to allow it to concentrate on the essential task of governing and to withdraw from activities, which are better suited to private enterprise.
• (c )Reduce fiscal burden of loss-making public enterprises, in order to help regain fiscal control and macroeconomic stability.
• d)Reduce the public debt.
• (e)Release limited State resources for financing or other demands, for example in the field of education and social health. (f)Generate new investment including foreign investment.
• (g)Mobilise domestic investments and deepen domestic financial development
• (h)Spread and democratise share ownership by encouraging it among individuals, making employees share-owners and by rising productivity through incentives for holding stock.

GENESIS OF DISINVESTMENT PROCESS GENESIS OF DISINVESTMENT PROCESS – WORLDWIDE U. K (Post 1979) 26.

Although the idea of privatisation has been around for a long time (Adam Smith wrote about it as long as 1762), privatisation has been tried widely since the mid 1970s. Privatisation first attracted world-wide attention in 1979 when the Conservative Government of Prime Minister Margaret Thacher began transforming the ailing U. K. economy by selling public holdings in industry, communications and other service sector areas. Since 1979, over 105 countries all over the world have initiated their own privatisation programmes. Following are the salient features of the privatisation programme in the UK:- a)Privatisation carried out in three phases

(i)Phase I: Commercial enterprises (e. g. , British Aerospace)

(ii)Phase II: Utilities (involved more complicated structural & regulatory issues)

(iii)Phase III: Less commercial industries, mainly those performing socially desirable services and dependant on subsidies (e. g. ,the railways).

(b)Around 60 major businesses, representing 10% of GDP, transferred to private sector.

(c)Fundamental issues addressed were:

(i) Ensuring commitment to the policy from the top of the Government.

(ii) Setting clear objectives.

iii) Careful planning.

(iv) Engaging intermediaries-financial, technical and legal advisers.

(d)Regulation & competition effectively used while privatising services and infrastructure.

(e)Initially resisted both by consumers and employees.

(f)However, consumers benefited from lower prices, greater choice & better service and productivity improved.

(g)Employees too benefited in the medium term due to increase in economic activity, though some loss of jobs in the short run as productivity increased rapidly. Offered liberal opportunities to invest in divested shares.

France 27. 8 large groups and 3 medium size banks were privatised. Shares divested to domestic public (about 50%), large shareholders (about 25%), employees (about 10%) & foreign investors (about 15%). 21 companies privatised, including 2 of the largest banks and 3 largest insurance companies. Shares divested to domestic public, large shareholders, employees & foreign investors in. China 28. Market reforms first started in 1978. Corporatisation and then listing on both domestic and foreign stock exchanges favoured for efficient large and medium size SOEs.

Foreign investors permitted to invest in various infrastructure and utility businesses, including railways, toll roads, ports and power plants. In 1978, over three-quarters of industrial output was produced by the state sector. This fell to 34% by 1995. The collective sector increased from 32% to 37%, individual sector (small capitalist businesses) jumped from 1. 8% to 13% and others (including all other capitalist enterprises – local and foreign) leaped from 1. 2% to 16. 6%. Thus, the private sector grew at the expense of the state sector. Gradual stage-by-stage approach followed for reforming State Owned Enterprises (SOEs).

According to the World Investment Report 1997, foreign direct inflows to China amounted to US $42. 3 billion in 1996. Some Other Countries 29. Some other countries which have undergone privatisation are :

• (a)Eastern EuropeBulgaria, Czech. , Hungary, Latvia, Poland, Romania
• (b)Latin AmericaArgentina, Brazil
• (c)Far EastKorea, China, Philippines
• (d)S. E. Asia Malaysia, Thailand
• (e)South Asia Pakistan, Sri Lanka (f)Middle East & AfricaEgypt, Ghana, Kenya, Nigeria

THE DISINVESTMENT PROCESS IN INDIA

A decade ago, the concept of privatisation as a catalyst was hardly acknowledged in India.

Not long ago, it was nationalisation that was in vogue. Even international aid-donors such as the IMF and the World Bank had recommended a larger role for the public sector during the 1950s and 1960s and they refused to grant loans to those countries which did not have government-sponsored development programmes. Now, it is just the other way round. The prescription of privatisation is being sold, rather over-sold, as a panacea to cure our economic ills. India, for almost four decades was pursuing a path of development in which public sector was expected to be the engine of growth.

But by mid-eighties their short comings and weaknesses started manifesting in the form of low capacity utilisation, low efficiency, lack of motivation, over-manning, huge time and cost overrun, inability to innovate and take quick decision, large scale political and bureaucratic interference in decision making, etc. But instead of trying to remove these defects and to increase the rate of growth of national economy, gradually the concept of self-reliant growth was given a quiet burial. The Government started to deregulate the imports by reducing or withdrawing import duty in phases.

This resulted in dwindling of precious foreign exchange reserve to abysmally low level. The foreign debt repayment crisis compelled Government of India to raise loan from IMF against physical deposit of RBI gold reserve, on conditions harmful to the interest of the country. Thus started the reversal of policies towards PSU. The Industrial policy of 1991 started the process of delicensing and except 18 industries, Industrial licensing was withdrawn. The market was opened up to domestic private capital and foreign capital was provided free entry upto 51% equity in high technology areas.

The aim of economic liberalisation was to enlarge competition and allowing new firms to enter the market. Thus the emphasis shifted from PSEs to liberalisation, of economy and gradual disinvestment of PSEs. A paradigm shift of Government’s economic policy orientation originated in 1991 from a foreign debt servicing crisis. Disinvestment Process

The Industrial Policy of 1991 limited the priority areas for the public sector to :

• (a)Essential infrastructure goods and services.
• (b)Exploration and exploitation of oil and mineral resources.
• c)Technology development and building of manufacturing capabilities in areas which are crucial in the long term development of the economy and where private sector investment is inadequate.
• (d)Manufacture of products where strategic considerations predominate such as defence equipment.

Congress

Government in 1991-92 offered up to 20% of Govt. equity in selected PSUs to mutual funds and investment institutions in the public sector, as also to workers in these firms. The objective was to raise resources, encourage wider public participation and promote greater accountability.

As per Rangarajan Committee recommendations in Apr 93, there were only six Schedule ‘A’ industries where the Government might consider holding 51% or more equity, namely

• (a) Coal and lignite.
• (b) Mineral oils.
• (c) Arms, ammunition and defence equipment.
• (d) Atomic energy.
• (e) Radioactive minerals.
• (f) Railway transport.

The Common Minimum Programme of the United Front Govt in 1996 aimed for the following:

• (a)To carefully examine withdrawal from non-core strategic areas.
• (b)To set up a Disinvestment Commission for advising on disinvestments issues.
• c)To take and implement decisions to disinvest in a transparent manner.
• (d)Job security, opportunities for retraining and redeployment to be assured. 36. Disinvestment Commission Recommendationsin Feb 97- Oct 99 aimed for the following:
• (a)72 PSEs were referred to the Disinvestment Commission during 1996-99. The Disinvestment Commission gave its recommendations on 58 PSEs.
• (b)The Disinvestment Commission recommendations gave priority to strategic / trade sales, with transfer of management, instead of public offerings, as was recommended by the Rangarajan Committee in 1993. 37.

In 1998-99, the govt aimed to bring down Government shareholding in the PSUs to 26% in the most of cases, (thus facilitating ownership changes, as was recommended by the Disinvestment Commission). 38. In 1999-2000, the Govt. aimed To strengthen the strategic PSUs, privatise non-strategic PSUs through gradual disinvestment or strategic sale and devise viable rehabilitation strategies for weak units. 39. On 16th March 1999, the cabinet approved classification of PSUs into Strategic and Non strategic. (a)Strategic PSUs:

(i)Defence related

(ii)Atomic energy related

(iii)Railway transport b)Non-strategic PSUs:

Strategy for Non-strategic Public Sector Enterprises wasReduction of Government stake to 26%to be worked out on a case to case basis,on the following considerations:

• (a)Whether the Industrial sector requires the presence of the public sector as a countering force to prevent concentration of power in private hands.
• (b)Whether the Industrial sector requires a proper regulatory mechanism to protect the consumer interests before Public Sector Enterprises are Privatised. 41. In 2000 – 2001, the main elements

Policy were:

• (a)To restructure and revive potentially viable PSUs.
• b) To close down PSUs which cannot be revived.
• (c) To bring down Government equity in all non-strategic PSUs to 26% or lower, if necessary.
• (d)To fully protect the interests of workers.
• (e)To put in place mechanisms to raise resources from the market against the security of PSUs’ assets for providing an adequate safety-net to workers and employees.
• (f)To establish a systematic policy approach to disinvestment and privatisation and to give a fresh impetus to this programme, by setting up a new Department of Disinvestment.
• (g)To emphasize increasingly on strategic sales of identified PSUs.
• h)To use the entire receipt from disinvestment and privatisation for meeting expenditure in social sectors, restructuring of PSUs and retiring public debt.

Utilisation of Proceeds

• In the Budget of 2000-2001 the Govt. outlined its aim for utilisation of the disinvestments proceeds as enumerated below. (a) Restructuring assistance to PSUs.
• (b) Safety net to workers.
• (c) Reduction of debt burden.
• (d) Additional budgetary support for the Plan, primarily in the social and infrastructure sectors (contingent upon realisation of the anticipated receipt).

ADVANTAGES OF DISINVESTMENT

After disinvestments the following would be achieved:

• (a)Releasing of huge amounts of scarce public resources locked up in non-strategic PSUs, for deployment in areas much higher on social priority, such as, public health, family welfare, education and social and essential infrastructure;
• (b)Stemming further outflow of public resources for sustaining the unviable non-strategic PSUs.
• (c)Reducing the public debt that is threatening to assume unmanageable proportions.
• d)Transferring the commercial risk, to which the tax-payers’ money locked up in the public sector is exposed, to the private sector wherever the private sector is willing and able to step in.

The money that is deployed in the PSUs is really the public money; and, is exposed to an entirely avoidable and needless risk, in most cases. (e)Release of other tangible and intangible resources, such as, large manpower currently locked up in managing the PSUs, and their time and energy, for redeployment in areas that are much higher on the social priority but are short of such resources. f)Disinvestment would expose the privatised companies to market discipline, thereby forcing them to become more efficient and survive or cease on their own financial and economic strength. They would be able to respond to the market forces much faster and cater to their business needs in a more professional manner. It would also facilitate in freeing the PSUs from the Government control and introduction of corporate governance in the privatised companies. (e)Disinvestment would result in wider distribution of wealth through offering of shares of privatised companies to small investors and employees. f)Disinvestment would have a beneficial effect on the capital market; the increase in floating stock would give the market more depth and liquidity, give investors easier exit options, help in establishing more accurate benchmarks for valuation and pricing, and facilitate raising of funds by the privatised companies for their projects or expansion, in future. (g)Opening up the erstwhile public sectors to appropriate private investors would increase economic activity and have an overall beneficial effect on the economy, employment and tax revenues in the medium to long term. h)In many areas, e. g. , the telecom sector, the end of public sector monopoly would bring relief to consumers by way of more choices, and cheaper and better quality of products and services.

DISADVANTAGES OF DISINVESTMENT

Having seen so many advantages, what do we have on the flip side? Is disinvestments without any disadvantages? Some of the likely disadvantages could be:

• (a)Non realisation of actual value of the PSU as the realisation would on unit potential and not assets held.The logic is similar to an old Fiat car in Delhi selling for less than what it would fetch as scrap.
• (b)Short term retrenchment occurs in order to increase efficiency. However, It is offset in the longterm by a profitable organisation creating more employment.
• (c)It is the wealthy who would buy the PSUs making them wealthier. Therefore, they inequality in society increases. (d)Creation of monopolies may take place.

DISINVESTMENT-BOON OR BANE

After having seen the advantages and disadvantages of disinvestments, the ast performance of our PSUs, the non accountability of the Public sector to the Tax payer and the consumer we are sure that there is no doubt about the Disinvestment process being a boon for the nation. As the world changed in this era of globalisation, a country living in the past is doomed and economic slavery is not far behind. Proponents of anti-disinvestment campaign have a past record of pushing conglomerate like Coca-Cola out of the country, little realising that it all about creation of wealth by production and not about transfer of wealth to another country.

For the poor to get rich, the rich must get richer and conversely for the rich to get richer the poor must get rich. It this is understood by one and all then the inequalities in the society become acceptable and progress becomes the norm of the day. Going slow on the disinvestments process would be to delay the progress of the country and turning around from it would only prove catastrophic for the economy and the industry. Effecieny is the keyword in the present day world and any thing produced inefficiently is at a cost that the nation has to pay one way or the other.

It is better to give dole than to hire extra people and breed inefficiency. Let the government improve governance before it even thinks of Business. Let not the Pseudo profits earned by monopolistic mineral oil selling agencies like Indian Oil, HPCL etc cloud our vision. We have the example of BSNL, which when faced with private competition is coming out with innovative ideas to lure the customer, while in the past it was sleeping.

CONCLUSION

Every time utopia is discovered in a system, utopia redefines itself. The process of corruption and correction is continuous.

Same may happen with the concept of privatisation in the future. In retrospect, it is easy to fault the vision our leaders of yesteryears. If we need to fault them, it should not be for creating public owned enterprises but for killing the private enterprise by means of license raj, red tapism, lack of infrastructure, rules and rules for rules, corruption and capacity control. It remind me of a statement made by JRD Tata in one of his last interview and I quote “ It is in this country that I was penalised for producing more”.

I had not heard a sadder statement that day and stayed the saddest statement for a long time to come. Entrepreneur and the worker complement each other and need to co-exist. Today, government as an entrepreneur is passe. Yet, the indiscriminate pursuit of the policy, unmindful of the social setting is not without its failings. For in the interregnum, when the benefits of privatisation have not yet completely trickled down, we need sufficient social security mechanisms to ensure the poor do not turn poorer.

We further need strong regulatory regimes and stronger competition laws concomitant with privatization in order to install the ‘consumer as king’, and prevent distortions in the functioning of the market by the big monopolistic players. A fine balance of these competing interests, with the ultimate goal of ‘public good’, which is essentially what the business of government is all about, should be the primary focus of any privatisation agenda.

In this essay I’m going to compare and contrast the developmental paths for China proposed by Deng Xiaoping and Mao Zedong. I’m also going to asses the overall effectiveness of each path. Mao Zedong is best known as the founder of People’s Republic of China. His opinion about the developmental path of China ranged from utopian to pragmatic visions. Therefore, some people believe him to be one of the most brutal dictators in the world’s history, whilst others consider him to be the national hero of China.

The core of Mao’s ideology was Marxism-Leninism, but it was adapted to Chinese circumstances. Mao’s notion of democracy was associated with the leading position of the Communist party, which was a highly disciplined organization able to inspire the masses. Indeed, “the most famous phrase from this resolution is the populist credo of Maoism: ‘Correct leadership must come from the masses and go to the masses. ’”

He introduced the concept of People’s Democratic Dictatorship lead by the working class and based on the joint action of workers and peasants: “Mao assumes that democracy means a government that reflects the interests of China’s ordinary people; he does not mean elected representative government in the American sense. ” (Cheek, 2002:77) The proletarian revolution resulted “in the establishment of a new democratic society under the joint dictatorship of all the revolutionary classes. ”

Along with being a prominent leader, Mao was a great thinker and writer. He tried to understand the events of his lifetime in the general context of Chinese history. Numerous revolutions had taken place in the country by Mao’s times, and he believed that “the revolutionary shift makes sense in Marxist terms – from bourgeois leadership of the old revolution, which achieved national independence in 1911, to proletarian leadership of the new revolution, which was to achieve socialism in the future.

” The developmental path proposed by Mao had many features of authoritarianism, for instance, “one of the core aspects of Maoism, this is the process of changing the way a person thinks, known in the West as brainwashing. ”  While Mao was able to develop a strong and stable system of party leadership and unified the country, some of his ideas were absolutely utopian: the event of 1958 “produced the big push for Mao’s utopian scheme, the ‘people’s communes,’ and ushered in the high tide of the Great Leap Forward.

” The most well-known policies by Mao Zedong are Great Leap Forward and Cultural Revolution, and both failed. Great Leap Forward was “industrial and agricultural program, which did not have the success he expected. He urged to construct backyard steel furnaces to gain the Western steel production. This unrealistic project was not without a certain good will, although results were tragic: about 30 million people died in the famine, when ill-trained peasants were forced to carry out the gigantic industrialization plan.

” Cultural Revolution was a response to the political destabilization in the country and direct threat to Mao’s authority. Within this policy “Red Guards were formed in 1966 and sent into the countryside to force bureaucrats, professors, technicians, intellectuals, and other nonpeasants into rural work. In the vengeful outburst of hatred and ignorance, tens of thousands were murdered or forced to give up their jobs, and China’s economy suffered.

” As for Deng Xiaoping, he managed to unite communist ideology with functioning market economy. He declared that “while it must modernize, China would not liberalize nor take the capitalist road. ” (Marti, 2002:17) But in fact Deng Xiaoping believed that within a “Marxist government which practiced a Marxist, centrally-controlled economic system, allowance would be made for the local, limited practice of capitalist economic methods. These local capitalist initiatives of diversified economic components were mainly characterized by joint ventures and enterprises run by foreign businessmen as sole proprietors. ”All these initiatives boosted Chinese economy to make it one of the most competitive in modern Asia. Simultaneously, westernization and liberalization didn’t lead to destabilization of the communist system.

This scenario of development was possible because Deng Xiaoping “stressed that while the modernization program would continue to draw upon the expertise and experience of foreign models, the process would be integrated with the universal truths of Marxism and the concrete realities of China. ” But Deng Xiaoping took a different developmental path not only in economic life. One of the important social innovations was his policy called Beijing Spring, “which allowed open criticism of the excesses and suffering that had occurred during the period.

However, capitalism tends to incorporate a certain “way of thinking”, driven by greed, the search for ever-increasing profits, relied expansion, and internal development. Starting from the earliest origins of capitalism, only societies with the capabilities and the appropriate mindset could flourish amidst this period of economic, social, and religious dispersion. The earliest form of capitalism is seen in feudalism, the political and economic system based on the relation of lord to vassal held on conditions of homage and service.

The earliest establishment of capitalism originated in Rome through mercantilism. Mercantilism involves the distribution Capitalism, economic system in which private individuals ND business firms carry on the production and exchange of goods and services through a complex network of prices and markets. Although rooted in antiquity, capitalism is primarily European in its origins; it evolved through a number of stages, capitalism spread throughout the world.

The term capitalism was first introduced in the mid-19th century by Karl Marx, the founder of communism. Free enterprise and market system are terms also frequently employed to describe modern non- Communist economies. Sometimes the term mixed economy is used to designate the kind of economic system most often found in Western nations. The individual who comes closest to being the originator of contemporary capitalism is the Scottish philosopher Adam Smith, who first set forth the essential economic principles that undergrad this system.

In his classic An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith sought to show how it was possible to pursue private gain in ways that would further not Just the interests of the individual but those of society as a whole. Society’s interests are met by maximum production of the things that people want. In a now famous phrase, Smith said that the combination of self- interest, private property, and competition among sellers in markets will lead producers “as by an invisible hand” to an end that they did not intend, namely, the well-being of society.

Philosophical Foundations of Capital System

Materialism

Capitalism system has been derived from materialistic philosophy of life. The center and the focus of man’s struggle should be the satisfaction of material needs.

Liberalism

Thee individual have complete freedom of thoughts and action in every sphere of life. No higher authority has the power to impose any restriction on the liberty of individual. The function of the sovereignty of state is not to circumscribe, but to safeguard the liberty of the individual.

Hedonism

The entire struggle of the individual has only one goal personal interest. That thing attitude, behavior is right which brings profit, pleasure and happiness to the individual. That thing attitude or behavior is wrong, false and unacceptable which brings loss, grief or pain to the individual. A system of life raised on this philosophy of life will give rise to cut throat competition among individuals to gain economic means. Freedom of thought and action will not only intensify this competition but also tilt the balance in favor of dominant classes.

Moreover hedonism will provide moral Justification the exploitation of the upper classes. In the presence of these factors, the capitalist system can never be free of the evil of exploitation.

Characteristics of Capitalist Economies

A set of broad characteristics are generally agreed on by both advocates and critics of capitalism. These are a private sector, private property, free enterprise, profit, unequal distribution of wealth, competition, self organization, the existence of markets (including the labor market) and the capitalist class and the proletariat, and he pursuit of self-interest.

Private property rights an essential characteristic of capitalism is the institution of rule of law in establishing and protecting private property, including, most notably, private ownership of the systems such as in ancient Rome but protection of these rights was sometimes difficult, especially since Rome had no police. Such and other earlier system often forced the weak to accept the leadership of a strong patron or lord and pay him for protection. It has been argued that a strong formal property and legal system made possible

1. Greater independence;
2. Clear and provable protected ownership;
3. The standardization and integration of property rules and property information in the country as a whole;
4.  Increased trust arising from a greater certainty of punishment for cheating in economic transactions;
5. More formal and complex written statements of ownership that permitted the easier assumption of shared risk and ownership in companies, and the insurance of risk;
6. Greater availability of loans for new projects, since more things could be used as collateral for the loans;
7. Easier and more reliable information regarding such things as credit history and he worth of assets;
8. An increased fungible, standardization and transferability of statements documenting the ownership of property, which paved the way for structures such as national markets for companies and the easy transportation of property through complex networks of individuals and other entities. All of these things enhanced economic growth. Many governments extend the concept of private property to ideas, in the form of ” intellectual property.
9. It has been argued that the introduction of the patent system was a crucial factor behind the rapid development and widespread use of new technology and mess ruing and following the industrial revolution. Some oppose the establishment of intellectual property as being counterproductive or coercive. Others argue that some intellectual property rights may be too rigid or constraining to innovation, favoring weaker protections.

Free Market

Responsibility of Business is to Increase Profits, as he asserts that business has no social responsibility other than to increase profits and refrain from engaging in “deception or fraud. He maintains that when the business seeks to maximize profits while respecting the guidelines of a free market by not defrauding or deceiving, it almost always incidentally does what is good for society. Friedman does not argue that business should not help the community but that it may indeed be in the long-run self-interest of a business to “devote resources to providing amenities to the community” In order to “generate goodwill” and thereby increase profits. Some, including some supporters of capitalism, dislike the focus on self-interest.

For example, self-described “free market libertarian” founder and CEO of Whole Foods Market, John Mackey, claims in an article in Reason magazine that he is serving customers and society out of “love” rather than self-interest while he boasts the reparability of his company in that article.

Free Enterprise

In capitalist economies, a predominant proportion of productive capacity has belonged to companies, in the sense of for-profit organizations. This includes many forms of organizations that existed in earlier economic systems, such as sole proprietorships and partnerships. N-profit organizations existing in capitalism include cooperatives, credit unions and communes.

Economic Growth

One of the primary objectives in a social system in which commerce and property eave a central role is to promote the growth of capital. The standard measures of growth are Gross Domestic Product or GAP, capacity utilization, and ‘standard of living. The ability of capitalist economies to sustainable increase and improve their stock of capital was central to the argument which Adam Smith advanced for a free market setting production, price and resource allocation

Economic Mobility

One of the key markers of entrepreneurial economies and ‘growth’ in a society is its economic mobility, defined as the existence of large changes in the make-up of its socio-economic strata. This is manifested as the occurrence of large fluctuations in the various deciles or quintiles of income and wealth among the population, and the existence of large changes over a person’s lifetime in relation to their real earning power. In standard economics, a capitalist system provides more opportunities for an individual to rise faster in the world by entering new professions or establishing a business venture.

The instability of economic strata is contrasted with traditional feudal or tribal societies, which are considered to have more stable wealth legislations, and with the egalitarianism that exists in socialist societies, which distribute more of their wealth in the form of social benefits and therefore reduce income mobility, particularly among those who own capital and wish to trade it.

Merits

Maximum utilization of resources: Private ownership, profit motive and economic freedom force individuals to exercise their God-gifted talent to the full and in the best possible manner. This lead to the maximum utilization of human and natural resources. Goods and services are produced in large quantity to satisfy consumer needs.

Inventions and Technical Advances

In the presence of profit motive and competition, the entrepreneurs are forever seeking better techniques of production. This motive leads to new inventions and the development of new techniques of work and business management which are calculated to facilitate and increase production at reduced cost.

Demerits

Materialism gives rise to selfishness in the society which eliminates sympathy and kindles the fire of mutual conflict in the society. Makes individual indifferent to collective interest. They indulge in nepotism and become slaves of pleasure. Man loss the ability to see beyond the self-interest. A society whose members are self seeking, selfish and self centered can never be free of economic hardship and misery.

Callous Competition

Competition and conflict hold great importance in the capitalist system. The expectations attached to competition are based on a supposition that does not exist in practical life. Competition can deliver well only when all parties in competition is equal in power and strength. But in the capitalist system power and strength is concentrated in the hands of big capitalists.

Class Struggle

The capitalist system divides the society in cases: the employer and worker. This hinge shatters peace and harmony in the society. Injustice distribution of Wealth: The capitalist utilize their wealth to earn more wealth so that gradually the bulk of national resources is concentrated in the hands of a few big capitalists.

Economic Crises

In the consequences of the concentration of wealth under this system the purchasing power the masses diminishes leading to reduction in the demand of produced goods. The sale of goods stopped. Large Scale production heaps up stock unsold goods. This creates serious economic crises. Disaster of Interest base Trade: Interest is the backbone of capitalist system. Under this system, interest is the chief means providing finance for the brink of economic disaster. Interest is the major cause of the concentration of wealth. By increasing the inequality of distribution of wealth it creates an atmosphere of class conflict. It increases the cost of production, raises the prices, weakens the purchasing power of the people and discourages the investments.

Flow of Economic Resources in the Wrong Direction

Under this economic system resources flow in the direction of vocations which promise maximum profit, even if they are inferior on the social scale and spread chief. Corrupt Business Practices: This philosophy behind this system is devoid of moral values. Businessmen feel no hesitation in resorting to fair or foul means in order to earn maximum profit. The consumers are exploited by creating artificial monopolies and small businessmen are squeezed out of the sector of production.

Economic Rivalries and Wars

When due to over production demand decreases then capitalists look to foreign markets. This conflict sometime escalates into wars. Economic rivalries were the main cause of two world wars in the twentieth century.

Shadows of Poverty

In this system easy methods of mass production creates an environment of economic prosperity, but the fruits of this prosperity are enjoyed only by a tiny wealthy class. The large majority of people live in the dark shadow of poverty. Unemployment: Unemployment becomes an integral part of this system. To gain maximum profit the entrepreneurs prefer to use capital intensive technology leading to large scale retrenchment of workers. The capitalist utilize their wealth to earn more wealth so that gradually the bulk of national resources is concentrated in the hands of a few big capitalists. Odds.

This creates serious economic crises Critical Analysis of Capitalism: Interest is prohibited in all monotheist religions. However, interest is pervasive in capitalism. “Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, Just as the owner of land can obtain rent because the land is scarce.

But whilst there may be intrinsic reasons for the scarcity of and, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant.

But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which ill allow the growth of capital up to the point where it ceases to be scarce”. Among Muslim Economists, Squid (2002) criticized interest stating that even in commercial loans, the borrower may suffer a loss, yet interest based lending obliges him/her to repay the principal plus compound interest. Conversely, the borrower may reap huge profits, yet the lender gets only the stipulated rate of interest which may likely turn out to be small part of the actual profits.

It results in inefficient allocation of society resources and increases the inequality in the distribution of income and wealth as it remunerates a continuous increase in the monies lent out, mostly by the wealthy, and puts the burden of bearing the losses on entrepreneurs and through loss of Jobs on Growth Vs. Development: Growth is important but development is pivotal. Growth that does not result in development is less desirable. Reducing inequality is more important than increasing the growth rate.

Profit Optimization Vs. Social Optimization: Social Optimization is more important than Profit Optimization.

Achievement of social optimization if not possible through the private sector, it must be brought about through government intervention. What goes around comes around! Reducing trade barriers is said to benefit consumers as they will have range of competitive products at their disposal. But, consumers earn through factor payments that come through producers. If domestic producers will be crowded out of the market in a no-trade barrier regime; then, consumers will lose Jobs and their purchasing power will decrease subsequently. Therefore, in the long run, it merely becomes a zero sum game.

Summarily, as a capitalist, one even with the knowledge that weapons one sells will kill millions in Africa, would not bother as that’s what he goes for profits as a capitalist. Though, one may favor democracy in principle, but if nationalistic interests are better served by dictators, one will bear them as a head of state of a country in a developed world. Though, one may favor progressive taxation in principle, but if indirect taxes can pay back loans smoothly, one may direct imposition of indirect taxes in developing countries as a chairman of MIFF or World Bank.

Socialism

Socialism and communism means an economic system in which the means of production are owned by the state. A central Directorate the production of goods and services. The Directorate decides the nature, quality and mode I of production of goods. The distribution of goods is also directed by this central body. Philosophical Foundations: Materialistic Interruption of History: The evaluation of human history takes place due to material and economic factors. Changes in the social relations and contact follow the changes in the means and modes of production.

The large scale mode of production and factory system created by modern capitalism has led to the formation of labor unions and increase the collective strength of workers. This strength of the workers will strike death blow to capitalism and establish socialism. In the capitalism system a large portion of profit is expropriated by the capitalist. The wage pays to the worker far less than the real value of work. This injustice can only be removed in the system of collective ownership. Class War: The war between rich and poor always exist in the society.

In modern capitalist economy this conflict rages between the capitalist and the worker. Under this system the number of capitalists in constantly decreasing while that of the workers is increasing and unity among the workers is growing strong day by day. Hence It is the errors who will be victorious in this war and a classless society dominated by workers will replace the modern capitalist system.

• Dictatorship of the Proletariat: With the end of capitalist system the supreme power in the state will come into the hands of the workers. They will have the authority to exercise the power of the state.
• Anti-Religion: Religion makes man forget material facts and entangles him in metaphysical issues.
• Characteristics of Socialism: Abolition of Private property: An individual can own nothing expect necessaries of life. No one can run private business.

Collective ownership of Means of Production

All the means of production such as factories, farms, land, trade mines and means of transport and communication are under state ownership and control. Central Planning: The forces of demand and supply are balances by central planning and a balance is not affected by price mechanism.

Elimination of Unfair Gaps in Incomes

Each person is paid compensation according to his needs. This eliminates unfair gaps in income. The system of distribution of wealth based on fair basis.

Provision of Necessaries of Life

In this system state ensure that work is extracted from each individual according to is capacity and compensation is given to him to supply all his needs. The state guarantees economic security to every citizen.

Merits: Elimination of Wastage of Resource

Goods and services are produce according to needs. This eliminates large scale wastage of resources which is an essential feature of competition under capitalist system. Cost of advertisement and businesses are entirely eliminated. Since there is no opportunity to earn private profit in this system, the exploitation and economic plundering of the weak is eradicated.

Elimination of concentration of wealth. There is no possibility of national wealth accumulating in a few hands. Eradication of Unequal Distribution of Wealth: In this system there is no scope of gaining wealth through rent, interest or private profit.

Every member of the society is the worker and receives the fixed wage. So unfair gap in the distribution of wealth do not take place at all. And economic plundering of the weak is eradicated. Elimination of concentration of wealth: There is a opportunity of equal distribution of wealth Critical Analysis of Socialism: On the economic criticism of Socialism, Maude (1970) analyzed that socialism in its guest to tame capitalists brought one big capitalist in the form of government I. E. Unionism party accredited with the responsibility to operate, manage and administer the overall economy without giving society and individuals any recourse to challenge the government. In such a case, no government, consisting of human after all can keep itself Judiciously pursuing common goals than individual goals. Susan’ (2003) reasoned that socialism kills the self motive which drives individuals to excel and be efficient. The predictions of Marx about Capitalism also did not trivialize and his Theory of Surplus Value was also criticized later on.

The problem in distribution of income in Capitalism from an Islamic perspective was only with interest. Land has an intrinsic value and its owners receive rent on land. Labor also earns wages even when the entrepreneur suffers loss. Value of production I. E. Prices of goods is not always sufficient to create surplus after paying wages, rent and interest. While laborer earns wages for work it renders and the land owner earns rent for the use of land, money cannot have a separate compensation of its own until t transforms itself as capital and take the risk of entrepreneurship along with an entrepreneur.

However, the Soviet union established a scalded unionism regime that did not adhere to the Ideologies In which communism was oral signally created, which was to serve the masses. This form of communism failed in countries such as P land, Czechoslovakia. And Hungary. The original intent of communism was meant to have a classless society. However, the e soviet communist parties did not actually achieve that. As Molotov Dismissal wrote In The New Class, “The exclusive, if unwritten, law that only party members can become policeman, officers, diplomats, and only they can exercise actual authority, creates a special privileged group of bureaucrat TTS. The unofficial class of bureaucrats defied the true meaning of communism. Communists rulers cream Ted an illusion that was named communism, but In its basis, was not communism whatsoever. Soviet communists used their privileges to create a class that pushed the everyday cit Zen further down and limited the progress an individual can make. The everyday citizen was force deed to live a life where they wake up, work, go home, eat, and sleep. The citizens were stripped down t o their basic necessities that were sometimes even rejected.

Croatian columnist, Slovenia Dreadful , wrote how, Every mother in Bulgaria can point to where communism failed, from the failure of t he planned economy. To the lack of apartments, child care facilities, clothes, disposable diapers, or toilet paper. ” The communist did not provide all the necessities for people to live comfortably. Still, kept suppressing the lower class, while the bureaucrats lived comfortably. Communism m was never meant to have a society in which an individual is held back from their necessities. Yet , The soviet communists repressed many necessities and civil rights which included freedom of s beech and public expression.

Vocal Have, president of Czechoslovakia, spoke in his New Year’s Day Address of 199 how, “Our country is not flourishing. The great creative and spiritual potential of our nation is not being applied meaningfully. ” Have perfectly understood that communism withheld a lot of their creativity by not allowing people to freely express themselves. He even mentioned how, “The state, which calls itself a state of workers, is humiliating and exploiting them instead. ” Communist worked pee pole extremely hard for a low wage “producing things for there is no demand while we are in short o f things we need. “

Soviet communists took advantage of the power they had over the citizens and used t hat power to enlarge the gap between leaders of the communist party and the people being ruled According to a Croatian columnist, Slovenia Dramatic, “the banality of everyday life is where it [communism] really failed, rather than on the level of ideology. ” The communist party did not provide enough services for the people which caused the people be opposed to communism. Without the support of the people, communism was bound to fail. People are what makes the sees once of government. Without people, there would be no government.

The Soviet government did not make life or the everyday citizen to feel as though they were being heard or included into all the e decisions that were being made by the government every day. Without a classless society, honest rulers, or support from the ruled, communism in t he Soviet Union set itself up for failure. The citizens of the eastern European socialist states ha d no right to go through life under communist rule by the Soviets. Communism did not improve the e economy, or unify the states. Communism actually did the opposite; it impoverished the countries and s operated the states.

This study aims to determine that George Orwell s Animal Farm is a political satire which was written to criticise totalitarian regimes and particularly Stalin s practices in Russia. In order to provide background information that would reveal causes led Orwell to write Animal Farm, Chapter one is devoted to a brief summary of the progress of author s life and significant events that had impact on his political convictions.

Chapter one also presents background information about Animal Farm. Chapter two is devoted to satire. In this chapter, definition of satire is presented and some important characteristics of satire are discussed. In chapter three, the method of this research is described. Under the light of information presented in the previous chapters, Chapter four discusses Animal Farm and focuses on the book as a political satire. The last chapter presents the conclusion of this study.

I would first like to express my sincere thanks to my thesis supervisor, Assoc.Prof. Dr. Jashua M. Bear for his help and freedom he gave me in this study. Without his understanding this thesis would never have been completed.

I also wish to thank my sister Fidan Korkut for her suggestions in the planning stage of this study and her endurance during my long study days at home.

My special thanks go to +zg r Ceylan, who constantly granted me her moral support. She was always there when I needed her.

Presentation

This chapter introduces general information about George Orwell s life. It includes chronological progress of his life and his political convictions. Furthermore, important events, such as The Russian Revolution and The Spanish Civil War which had significant influence on his commitment to write Animal Farm will be discussed. Lastly, general information about Animal Farm will be given.

His Life

The British author George Orwell, pen name of Eric Arthur Blair, was born in Motihari, India, June 25, 1903. His father was an important British civil servant in India, which was then part of the British Empire. A few years after Eric was born, he retired on a low pension and moved back to England. Though their income was not much enough, the Blair family sent their son away to boarding school which was an exclusive preparatory school, to prepare him for Eton Collage. Eric then won a scholarship to Eton Collage. During his education from the age of eight to eighteen, as he wrote in his essay about his school experiences titled “Such, Such Were the Joys,” he experienced many things about the “world where the prime necessities were money, titled relatives, athleticism, tailor-made clothes”, inequality, oppression and class distinctions in the schools of England (In Ball,1984).

After the education at Eton College in England, Eric joined the Indian Imperial Police in British-Ruled Burma in 1922. There he witnessed oppression again, but this time he was looking at things from the top. Having served five years in Burma, he resigned in 1927 and turned back to Europe and lived in Paris for more than a year. Though he wrote novels and short stories he found nobody to get them published. He worked as a tutor and even as a dishwasher in Paris. During his poor days in Paris, he once more experienced the problems of the oppressed, the helpless and lower class people.

In 1933, After having many experiences about the life at the bottom of society, he wrote Down and Out in Paris and London and published it under his pen name “George Orwell.” After a year in 1934 he published his novel Burmese Days, which he reflected his experiences there. Then, he published A Clergyman s Daughter in 1935, and Keep the Aspidistra Flying in 1936.

In 1936, his publisher wanted Orwell to go to the English coal-mining country and write about it which was another important experience in his life. He wrote The Road to Wigan Pier to reflect what he saw there, the real poverty of people of the Lancashire Town of Wigan, and published it in 1937 (Ball, 1984).

1937 was the year that Orwell who for some time had been describing himself as “pro-socialist” (BALL, 1984) joined the Republican forces in the Spanish Civil War. When the Communists attempted to eliminate their allies on the far left, he fought against them and was wounded in the fighting, later was forced to flee for his life. His experience in this war was to have the most significant impact on his political thoughts and his later works.

In 1938, Orwell wrote Homage to Catalonia, which recounts his experiences fighting for the Republicans in the Spanish Civil War. One of his best-known books reflecting his lifelong distrust of dictatorial government, whether of the left or right, Animal Farm, a modern beast-fable attacking Russian Revolution, Stalinism and totalitarianism, was published in 1945, and Nineteen Eighty-Four, a dystopian novel setting forth his fears of an intrusively bureaucratised state of the future was published in 1949. His first fame was brought by these two novels and they were the only ones which made a profit for him as a writer (Ball,1984).

Orwell died at the early age of forty-seven of a neglected lung ailment in London, Jan. 21, 1950.

His Time: Political Background

In his essay “Why I Write”, Orwell (1947) says:

I do not think one can assess a writer s motives without knowing something of his early development. His subject matter will be determined by the age he lives in at least this is true in tumultuous, revolutionary ages like our own Taking Orwell s his own words into consideration, in order to get a better understanding of his works and particularly of his political satire Animal Farm, we should look at his political convictions, and the historical context which influenced Orwell and inspired him to write. Very few authors develop essays explaining the motivation behind their writing. Orwell was of one them. Therefore in order to understand his motivations, his essay “Why I Write” would be the most appropriate source to be looked at.

Orwell was a political writer and according to him he was forced to be a writer by the circumstances under which he has become aware of his political loyalties. His Burma and Paris days increased his natural hatred of authority and made him aware of the existence of the working classes.(Orwell, 1947)

As mentioned above, he described himself as “pro-Socialist.” What he was longing for was a society in which there would be no class distinctions, and he named his ideal ideology “democratic socialism”. He says “every line of serious work that I have written since 1936 has been directly or indirectly, against totalitarianism and for democratic socialism ” (Orwell, 1947)

There are two significant events that have great influence on Orwell s political thoughts: The Russian revolution that took place in the second decade of 20th century and The Spanish Civil War between 1936 and 1939.

The Russian Revolution

Bolshevik Revolution of October 1917 was the first great revolution which aimed at to overthrow the owners of the means of production, that is Capitalist Bourgeoisie, and to establish a state to be ruled by the working class, the Proletariat. Ideological basis of the revolution was taken from the philosophy of Karl Marx and Frederick Angels who believed that the history of the world was the history of a struggle between classes- between ruling classes and ruled classes (Han erlio lu, 1976). Marx was very critical of industrial capitalist society in which there are many cruel injustices and men are exploited by men.

Out of his analysis of Capitalist system, he attained a vision of ending these injustices and establishing a society in which there would be no social classes and everybody would be equal. To him, in order to achieve this end the only way was a revolution made by the working class or the Proletariat against the Bourgeoisie. After revolution working classes would own the means of production. Marx called the new order that would be set after revolution “dictatorship of the Proletariat” which eventually replaced with a classless society (Han erlio lu, 1976).

In October 1917, V.I. Lenin, led the socialist (Bolshevik) revolution in Russia. After the revolution was a four-year bloody civil war. During this war Red Army of the revolution organised and headed by Leon Trotsky had to fight against both Russians who were loyal to Czar and foreign troops (The Academic American Encyclopaedia, 1995).

After Lenin died in 1924, a struggle between Joseph Stalin and Leon Trotsky started for the leadership of the Communist Party. Stalin gained priority over Trotsky and; in 1925 Trotsky with several other members ousted from Politburo (the chief executive and political committee of the Communist Party); in 1927 Trotsky and his followers expelled from Party; Stalin took the control. Later Trotsky was exiled and in 1929 he was deported. In 1940 he was assassinated. During this period, Stalin always denounced Trotsky as a traitor (Ball, 1929).

In the following years, Russia witnessed that Stalin started to take all power only in his hands. In 1930 s, many people were arrested. After public trials most of the opposing elements were eliminated.

Stalin has been accused of being a very cruel dictator. However, Nikita Khrushchev, who ruled USSR between 1958-1964 and who was very critical of Stalin s crimes and non-human practices said in 1956 that:

Stalin believed that all his practices was necessary in order to defend the benefits of labourers. He looked at these practices from the view point of the benefit of socialism and labourers. Thus, we cannot define his practices as of a giddy cruel despot. Here, it is the all tragedy (Han erlio lu, 1979).

The Spanish Civil War

In 1936, General Francisco Franco led a military coup in Spain, plunging the country into civil war. Franklin Rosemont in his article “Spanish revolution of 1936″ defines the beginning of the revolution as follows:

When Franco s fascist troops invaded Spain in July 1936 with the purpose of overthrowing the young and unstable Republic, the Spanish working class responded by making a revolution that went much further toward realising the classless and stateless ideal of proletarian socialism than any preceding popular revolt. Spontaneously and almost overnight, workers seized factories and other workplaces; land was collectivised; workers militias were formed throughout the country; the church age-old enemy of all working-class radicalism and indeed, openly profascist was dismantled, and its property confiscated; established political institutions disintegrated or were taken over by workers committees (Rosemont, 1988).

Yet, between 1936 and 1939 the military rising originating in Morocco, headed by General Francisco Franco, spreads rapidly all over the country, After a number of bloody battles in which fortunes changed from one side to the other. Finally, Nationalist forces occupied the capital, Madrid, on March 28, 1939, and on April 1, General Franco officially ended the war (The Academic American Encyclopaedia).

Orwell And The Spanish Civil War

David Ball (1984) points out three experiences in the Spanish Civil War that were important for Orwell: atmosphere of Comradeship and respect, what happened to his fellow fighters and what happened when he returned to England and reported what he had seen.

After spending very poor days in Paris, Orwell went to Spain to fight for the Republicans in the Spanish Civil War. When he arrived Barcelona, he found an elating “atmosphere of Comradeship and respect”. People were friendly and addressing each other “comrade”. To Orwell, relations in the militia group he joined were the same and this made him feel that socialism was in action there.

But later on, he was disappointed by what happened to his arm friends who were imprisoned and killed by their own “comrades” who were of Communist-dominated elements of the Republican government that they were fighting for. Communists believed that the communist ideas were betrayed by the militia group that Orwell belonged to. After he was wounded Orwell went back to England for remedy and was saved from being killed by his “comrades”.

When he returned England he reported what he witnessed in the war, but Socialists strongly resisted to understand what he told about the practices of communists in Spain. The reason was that it was not the right time to publicise all these things while the war was going on and this information would harm Republican s position in the war. After this bad experience, he started to be more critical of British socialists and of communism. He wrote in his article “The Spanish war and other events in 1936-37 turned the scale and thereafter I knew where I stood.” (Orwell, 1947)

Henry Ford served as the inventor for the assembly line. He believed that the idea of independently manufacturing products was too inefficient and cultivated the idea to move the product instead of the people building it. Ford also pioneered technological research in developing products. Ford served as the turning point for technology; introducing and utilizing break-through ideas. Not only did he change how automobiles were manufactured, he changed the way people thought about technology. He made new technologies readily accessible and set the standard for the 20th century.

In Aldous Huxley’s Brave New World, Huxley makes Ford the center-point for why the new society was created, the old one was un-happy and inefficient. Replacing God with Ford, Brave New World, showcases how Ford’s ideas could have been implemented.  Vladimir Lenin was the first person to make a country completely communist. With his uniting of the Soviet Union, Lenin integrated his communist ideologies into its member countries. Lenin derives many of his beliefs from his time when he was a member of the Bolshevik faction. This is where he accumulated Marxism fundamentals. Unlike in Brave New World, Lenin believed in a single class.

Brave New World, invasions a perfect society with multiple social classes. In these classes, all of their members are perfectly fit with where they stand in society. There is neither backlash nor hatred among the population against the other classes. Lenin, however, believes that having different classes arouses hatred amongst a society’s citizens.  Thomas Malthus was an English economist that is much acclaimed for inventing modern-day rent as well as sparking awareness of population growth. The father of Malthusianism, he believed that economic factors were to be held above all else in a society.

He also believed that England’s out-of-control population growth would eventually hurt the economy. He believed that the government should play a role in determining population growth. He was also, however, a firm believer in natural selection. Brave New World follows many of Malthus’ ideas. The primary being his belief of population growth control. Huxley implements this by having the government control all factors of the population and essentially removes bad-traits through natural selection. The society only produces people that have few DNA imperfections, allowing them to be the strongest.

This essentially removes natural selection as a problem for the society.  Thomas Hunt Morgan was an evolutionary geneticist. He is praised with having found that genes are carried on chromosomes. Morgan also found the significance of sex-linked traits and was able to prove Darwin’s sex determination theory incorrect. Brave New World demonstrates Morgan’s genetic heredity theories by utilizing genetics to artificially create people. Lewis Henry Morgan was an acclaimed anthropologist. He theorized that society in general is much greater than the need for a family.

He stressed that kinship must be attained by all of the societies members. He also believed that people must sense belongingness within a group in order to feel happy. Brave New World demonstrates Morgan’s fundamentals by embracing the need to belong, in order to feel happy. Citizens in Brave New World are made to feel happy by having a sense of belongingness within their own social class. They put down other social groups and only feel good about theirs. Each member is happy where he or she is in the class system. Benito Mussolini was an Italian fascist dictator. Mussolini believed heavily in the national or group based identity.

He wanted his citizens to act as one, having extreme pride for their nation and hiding their personal identities. He demanded that foreign influences be eradicated. Brave New World embraces Mussolini’s ideas by having its citizens share a mass-identity within their class. Individual identity differences are put aside and people only classify others past upon their class. Herbert Hoover, a former U. S. president, believed that efficiency was the solid backbone of an economy. He theorized that the U. S. economy was heavily inefficient and as a result was beginning to slow down.

He instituted many new government policies that were built upon this idea. Brave New World demonstrates this efficiency policy into the society’s main economy. The government controls most enterprises and believes that inefficiencies would slow down the economy. Automation and technology are utilized whenever possible.  Leon Trotsky was a Russian communist leader in the early 20th century. His beliefs, called Trotskyism, stated that the working class should have supreme power in government control. Brave New World implements Trotsky’s ideas through social classification with a cast system.

Although there is a working class and wealthy class, the majority are working class members. Socialism is also used throughout Brave New World by the distribution of wealth and control.  Charles Darwin was the father of evolution and natural selection. Darwin brought about the idea of genetic evolution by theorizing that only the strongest in a population will survive and be able to carry on their genes. Brave New World takes on these ideas by utilizing genetic engineering to ensure that the society members have the best genes and have few DNA imperfections.

This ensures that the members of a class will not be able to become stronger than the high class. It also ensures a broad single identity amongst a class’s members. 1Napoleon Bonaparte was a military ruler and dictator of France and eventually most of Europe. Bonaparte used many tactics in order to control his population. He introduced Napoleonic code, which stated that men were superior and outlined a new French government. He also heavily utilized propaganda by controlling the press and restricting access to historic publications. Brave New World shares many parallels with Bonaparte.

The government uses censorship in order to control public opinion. They ban texts such as Shakespeare in order to alleviate artistic interpretations and opinions.  Hermann von Helmholtz was a German physicist that introduced the conservation of energy and electrodynamics. Helmholtz believed that technological innovation within science was lacking but the information in order to so was. He presented that technology could be used to grow society and make it more efficient. Brave New World takes some of Helmholtz’s ideas about technological innovation and efficiency. The society pushes itself to keep innovating.

The society also embraces science as a way of life through shared concepts such as thermodynamics. John B. Watson was a psychologist of the behaviorism philosophy of psychology. Watson regarding everything that humans do, such as thinking, acting, or sensing, can be regarded as behaviors. These behaviors can be altered through classical or operant conditioning. Brave New World uses these ideals in order to shape how the society members think and act. Classical conditioning is used in order to change people’s behaviors. These are as simple as thinking a pant color looks good or bad.

Karl Marx was a German communist philosopher. He presented his ideas through Marxism, a sub-unit of communism. Working with Friedrich Engels, he believed that capitalism was a corrupt economic policy, stating that it would eventually lead to socialism, followed by communism. Brave New World encompasses his ideas by separating classes but having each class feel good about itself. Alphas look down upon epsilons, but epsilons also look down upon the alphas, instead of having jealousy. Brave New World shares the ideas of Marx but does everything possible in order to avoid them.

Friedrich Engels was an industrialist and co-founder of Marxism. Engels believed in a single working class with quality. Brave New World takes Engels ideas and tries to do everything possible in order to avoid a Marxist based situation. Although there are different classes, they all share similar working types and although there are higher classes, there is not a classic cast system of the haves and have-nots. Jean Jacques Rousseau’s Noble Savage depicts the idea that society corrupts the good natural state of a person. Brave New World shows the noble savage as John. Not correctly anticipating the new society makes him loose his values.

It shows how society changes a person’s personality in order to fit within the society.  The quote “God’s in his heaven – all’s right with the world” in the poem Pippa Passes is modified in Brave New World. The words God and heaven and substituted by Ford and flivver respectively. Ford is used instead of God, as modern-day religion does not exist within the new society. Ford is referred to as the cultivator of the society. Flivver is used instead of heaven as flivver referrers to something unsatisfactory or low in quality. Flivver is also used to describe old cars, notable since Ford created the modern automobile.

When stating that Ford is in his flivver, this indicates that Ford has changes the world forever. Basically stating that Ford is happy where he is, the state of flivver. Shakespeare’s The Tempest is used within Brave New World as an ironic symbol for the new society. When John of Brave New World and Miranda of The Tempest say “O, Brave New World”, they do not what the new society is like. They both incorrectly mistake the new world as perfect with no imperfections. Unlike Amanda, John eventually realizes the imperfections of the new world. Amanda never finds out the truth. Soma is an ancient Indian herb drink.

It was used to give energy to the consumer and is considered a spiritual drink. Brave New World citizens consume soma in order to relax anxiety and stress. Mustafa Kemel Ataturk was the first ruler of modern-day Turkey following its independence from the Ottoman Empire. Kemel was a liberal-progressive who introduced a new Turkish alphabet and introduced many reforms under Kemalism. These included the removal of religious law and introduction of women’s rights. Brave New World encompasses several of Kemel’s beliefs such as the belief of socialism and government-controlled entities.

Imperialism which is often considered to be a final stage of capitalism was a logical continuation of industrialization, development of trade and colonization. Global trade and goods exchange have united Europe, Africa, America and Asia into an integral organism. Imperial system as well as interaction between the major colonial super-powers guaranteed economical stability and peace. Colonies were perfect markets for the goods produced in metropolises and were used as emergency zones in cases of overproduction in order to prevent global or local economical crisis.

Colonies were used as raw material donors of metropolitan industry. In order to prevent movement for political and economical independence, colonies were not allowed to have industrial objects as their economical activity was limited to farming and mining. On the hand with traditional colonial system which took place in France, Great Britain, Belgium which had huge possessions worldwide, American imperialism had introduced a new one without any formal colonial possessions.

American imperialism was different from British and French as it penetrated into independent countries, making their single-sector economies be dependent upon the price policies set by American corporations. American imperialists used different methods in order to widen their spheres of influence in western hemisphere: bribery of corrupted officials, aiding political opposition of unwanted regimes and even open intervention by American troops which always ended with establishing of puppet governments. These methods were used on Philippines, Cuba, and Puerto-Rico.

The effects of imperialism are quite different both for colonies and imperial metropolises: from one side goods exchange ensured economical stability, from the other side imperial ambitions of superpowers resulted WW1. Colonies experienced mostly negative impacts: industrial backwardness, dependence upon metropolises, poverty, social injustice and discrimination. Of course the appearance of imperialism as a new world order at the beginning of the twentieth century had provoked continuing discussions about its real impacts on civilization.

Contemporaries either supported imperialism or sharply criticized it. Kipling, for example, insisted that imperialism was a logical continuation of civilization progress and it was vital in order western civilization to survive, as it prevented it from economical and social crisis, guaranteed goods exchange, development of trade and stability in western world. This concept is rather conservative as Kipling also supports the idea of racial and cultural superiority of western civilization and this factor is considered to be justification of colonial expansion in his theory.

On the other hand such authors as Hobson consider imperialism to be one of the alternatives to economical development which has a global character and is resulted by concentration of wealth within one country. Hobson argues that in order world economy to develop, this wealth has to be distributed overseas as it will promote development of both economies: metropolitan and colonial. The growth of anti-imperialist movement was resulted by its destructive influence on colonial countries which appeared to be in total dependence from imperialist states.

Anti-imperialist movement took place in India, China, and Latin America. In fact the accident which led to WW1 had also anti-imperialist background, as Serbian revolutionaries were afraid that Serbia will become a dependent territory of Austria-Hungary. The results of WW1 were contradictory for different countries. Four European empires: Germany, Austria Hungary, Russian and Ottoman Empire collapsed in 1918 when the war was over.

Moreover, prolonged economical and social crisis caused by the 4 years of bloody war had resulted a series of revolutions and public unrest world wide, changing political orientation of many countries. Bolshevik revolution in Russia brought to power a small group of political radicals led by Vladimir Lenin, who started to build a new order in semi-feudal country according to Marxist ideas of equality, abolition of private property and establishment of proletariat dictatorship. Tsarist regime was substituted by a new radical ideology of communism which was alien to Russian peasants and middle class.

The years of prolonged terror, artificial hunger, repressions had changed the country and had changed people”s mentality to the mentality of oppressed people who was living under dictator”s rule. A new Soviet nation was raised in the fear of capitalist world, in the fear of the possible threat from the side of international capitalism and in constant preparation for war. Actually the premises for future cold war originated in interwar period and foreign intervention against Soviet Russia in 1919-1921 had only deepened fear of Soviet people.

Stalin, a new leader of Communist party had created his own doctrine of socialist state. Rapid industrialization and collectivization in agricultural sector had changed country”s economy, making it stable and more advanced. In fact, Communist Russia was the only country which experienced economical growth starting from middle 1920″s and going all the way to 1941, whiles the world of capitalism was suffering from global economical crisis. Communism became a potential threat for capitalist world and the USSR had become an ideological enemy of the West.

Stalin understood it quite well and was getting ready for a possible war. Industrialization and militarization of economy were essential in order to survive and provide security to the country. As the power of the Soviet Union grew, it became obvious that it would have territorial ambitions for the spread of communist ideology worldwide. Prosperity in major European countries and in the USA in early 1920″s was contrasted by deep economical and social crisis in Germany and Italy.

The conditions of Versailles treaty had imposed unbearable obligations on Germany as the government of Weimar republic had to pay huge reparations to victors of WW1. Besides, ruined infrastructure of Germany lacked mineral resources and industry as Germany lost the region of Saar, Alsace-Lorraine and several major seaports on the coast of the Baltic Sea together with several colonies in Africa and Asia. The country had no opportunity for development; new democratic government failed to rebuild country”s infrastructure, only irritating people and provoking social unrest.

Humiliated nation wanted revenge and retreat. Liberties and democratic freedoms of Weimar constitution were not popular as the nation felt nostalgia about the time of iron order and international respect. Crisis of Weimar republic turned into growth of nationalism and chauvinistic ideas, supported by common people and former WW1 soldiers and officers who were left forgotten by government. This is the main explanation of fascism success in Germany. Crisis in Italy had many similar features to German one.

Unemployment, poverty and social unrest in early 1920″s had created a favorable climate for the rise of Benito Mussolini, the leader of a new party formed by WW1 soldiers and officers who were irritated by economical crisis. Mussolini”s populist ideas were close both to common people ans to upper classes as he promised social stability and order. Mussolini”s political program was successful in 1920″s and in early 1930″s as he stabilized economy, solved major social problems of poverty, unemployment and other social vices and returned self respect and pride to Italian nation.

His government controlled media, regulated economy and social life of the country. But at the same time Mussolini revealed militaristic ambitions of fascist Italia- intervention and capture of Abyssinia is the best proof of it. War in Abyssinia was not the only conflict fought after the WW1. On the Far East, Militarist Japan started intervention against Manchuria in 1938. These conflicts have shown the weakness of League of Nation, organization which was created in order to preserve peace and prevent wars and local conflicts.

Economical crisis on the hand with disintegration of the capitalist world and growing threat from ideological enemy of capitalism-the USSR demonstrate the complicated system international relations in inter-war period. The results of WW1 became obvious after the 20 year period: 2 totalitarian states (the USSR and Nazi Germany) which had colonial ambitions stood against disintegrated democratic world, which was to weak to resist aggression of these two superpowers. The inter war period in the world history is characterized by three different concepts of state development: communist, fascist and traditional democratic.

Even though they are hostile, each was successful on a certain stage of development as it had taken ruined Russian empire, Germany and the USA out of economical crisis and had returned confidence and stability to their peoples. After Bolsheviks revolution in Russia, former empire was turned into a new state ruled by the Communist Party. Communist party of the USSR had made radical changes realizing Marxist ideas about revolution and dictatorship of proletariat: abolition of private property, nationalization and equality of all citizens.

Understandably in a patriarchal agricultural country with underdeveloped industry and ruined economy any idea about a strong state of proletariat (working class) would fail, but not in Russia. Stalin, who became the head of the communist party in 1928, had his own plan how to reform economy: he proclaimed a course on rapid industrialization and collectivization of farming enterprises. In order to achieve development of industry he performed redistribution of property, expropriating agricultural products from peasants and making them work in kolkhozes (collective state owned farms).

In fact he turned free farmers into state slaves who had no property and had to work on state farms in order to survive. This cruel and inhuman practice gave the opportunity to develop heavy industry; mining and it gave the opportunity to start militarization. These results were achieved by numerous victims of innocent people who suffered from repressions and great purges as Stalin”s regime eliminated anyone who had another opinion on the destiny of the country. The total number of Stalin”s victims exceeds 20 million people. So what were his achievements?

In quite a short period (20 years) Russia was turned into an industrial state with developing industry and one of the strongest armies in Europe. Society had changed as it was developing according to a socialist model. State was the only power in the country, state was the only property owner. Citizens in majority were nearly equal; the difference between those who had the highest and the lowest income was not really distinct as in capitalist world. In fact, state provided a working citizen with essential facilities for living and guaranteed basic social and medial care.

People got the facilities in order to work good enough but nothing else. The order in the country was realized by a total control of media, press and oppression of any potential opposition. Communism substituted religion as the official religion of communist state was atheism, communist party controlled all spheres of life, which led to the isolation of the country. Free market was substituted by barter within the country and market relations were substituted by planned economy..

From historical point of view, the politics of Stalin, even being brutal and inhuman, was justified by historical need, as in order to survive and not collapse, Soviet Russia had to become a super power with a strong army and developed industry from an out-dated, semi-feudal empire with ineffective state management and corrupted aristocratic government. The main weakness of Stalin”s Russia was that the only condition under which the country could stand and continue its development was the policy of terror and oppression of any potential threat in the face of political opposition.

Such kind of regime, based only on suppression of human individualism, collectivism and isolation from the rest of the world would definitely fail if some liberties were allowed. So if to look on the history of the Soviet Union starting from Nikita Khrushchev we will see the gradual decline of totalitarian empire, which collapsed in 1991. Another example of totalitarian state of inter-war period is Nazi Germany. Nazi Germany led by Adolph Hitler embodied fascist ideas about a strong state with iron order. Hitler”s phenomenon was a direct result of Versailles Treaty consequences for after war Germany.

Humiliated nation, which suffered the burden of huge reparations, deep economical; depression and social crisis caused by ineffective politics of democratic government of Weimar republic wanted the only thing retreat and revenge. So chauvinist and radical ideas of Nazis have succeeded. Germans saw a leader in Hitler, who promised return international respect and prosperity to the nation. Hitler”s political program was very simple and it satisfied Germans fully. Hitler promised descent work to workers and guaranteed protection of private property to businessmen.

But his political program was also based on racial hatred, anti-Semitism, blind chauvinism and aggression. Nazis used nearly the same methods of oppression Stalin practiced during “great purges”, but they focused on ethnic non-German minorities, Communists and political opposition to Hitler”s national-Socialist Party. German economy during Hitler”s regime was also state regulated, as the owners of industrial objects had certain obligations: they had to provide decent wages to workers and had to fulfill industrial state orders.

Hitler had changed economy, he made it military oriented preparing the nation for a war. Social life during Nazi regime was also subjected to total control, fascist government controlled media, eliminated political opposition, persecuted ethnic minorities, which turned into Holocaust and genocide during WW2. Hitler”s regime which had to solve racial and territorial question was inhuman and contradicted modern human consciousness. It had to be stop anyway by international coalition, otherwise the absurd and paranoia of one man would cause a world human tragedy.

The methods of state regulation were also present during Roosevelt”s office even though he represented a free democratic country living under the laws of capitalism. Roosevelt”s New deal was a set of reforms and a set of measures taken in order to relief the affects of the Great depression. State regulation over prices, control over banks activity and other measures had strengthened economy, getting the country of crisis. Nevertheless, despite the terrible affects of economical crisis and Great depression the USA stood and recovered.

Comparing social and economical situation in the USSR, the USA and Germany in inter-war period we may find several similar features in activities of their governments. All of them provided social programs for citizens in order to guarantee realization of basic human living needs: health care, education, social protection and basic welfare programs. All three political regimes used state control over economy, which never used before. But in comparison to the USA where it had a temporary character, Germany and the USSR used it as an integral method of state administration which guaranteed stability and security.