When the split in the Russian Social-Democratic Party took place at a conference in London in 1903, Trotsky took an individual stand. It is not true that he was a Menshevik, for, although he, like the Mensheviks, opposed Lenin's plan for an organisation of revolutionary conspirators to be controlled by a dictatorship in the centre, his fundamental views differed from both factions. Trotsky himself made it clear that he did not consider the controversy important enough to warrant a split, and continued to work with both groups in an attempt to re-establish unity. whereas both factions were agreed that the coming Russian Revolution would be essentially capitalist and that Russia would consequently have to pass through an era of capitalist democracy, Trotsky was alone in proclaiming that the overthrow of Czardom could be accomplished by the Russian movement alone, which could maintain itself in power and so cut out completely the period of capitalist transition. This point of view he elaborated into a theory called "Permanent Revolution".Trotsky took up a position, arguing that if the working class were to come to power in the course of the coming bourgeois revolution in Russia it was unreasonable to expect them to hand over power to the bourgeoisie; they would, and should according to Trotsky, take steps to transform society in a socialist direction. The basic points of this theory rest on the assumption that power could be held by socialists in Russia long enough to enable the workers of the more advanced Western countries, helped, of course, by their Russian comrades, to introduce Socialism. Then the material backwardness of Russia could be overcome through the united efforts of a Socialist Europe. It was adopted by Lenin himself in April 1917 when he returned to Russia from exile in Switzerland. As a result Trotsky himself then rallied to the Bolsheviks.
When hopes for a socialist revolution in the West had been frustrated, Trotsky blamed this on bad and treacherous leadership. The debates between Trotskyists and Stalinists always revolved around such questions of leadership – if only the leaders had acted in such-and-such a way, things would have turned out better. Tactics, said Trotsky, should have been framed so as to win workers over from their Social Democratic leaders, under the command of the Communist Party: “We must understand how to tear the workers away from their leaders”. Trotskyists continue to attach themselves to larger movements in the hope of providing alternative leaderships and of being at the heart of the struggle.
Trotsky defended Russian state-capitalism on the grounds that the Russian economic system, i.e., state control, was essentially working-class, and apparently required only a change in its political administration to perfect it for working-class needs.This error is bound up with Trotsky's confusion between State-capitalism and Socialism, evidence of which can be found in his writings. Trotsky fell from power because his theory of Permanent Revolution and his consequent insistence on continued revolutionary agitation abroad would have cut off all technical aid from the Western world, and so made any attempt at industrial development more difficult in Russia. In exile Trotsky played the role of "loyal opposition" to the Stalin regime in Russia. He was very critical of the various political aspects of this regime but to his dying day he defended the view that the Russian revolution had established a "Workers State" in Russia and that this represented a gain for the working class both of Russia and of the whole world. Russia under Stalin was a Workers State, not a perfect one, certainly, but a Workers State nevertheless. Trotsky was only able to sustain his point of view by making the completely un-Marxist assumption that capitalist distribution relations (the privileges of the Stalinist bureaucracy) could exist on the basis of socialist production relations. Marx concluded that the mode of distribution was entirely determined by the mode of production. Thus the existence of privileged distribution relations in Russia should itself have been sufficient proof that Russia was not socialist. Trotsky rejected the view that Russia was state capitalist on the of grounds of the absence of a private capitalist class, of private shareholders and bondholders who could inherit and bequeath their property.