On State Capitalism (updated)

The following is the fourth part of the lecture on why foreign scholars are as yet unable to understand China’s socialist market economy. It deals with ‘state capitalism’, which is probably the most widely used term in both Marxist and non-Marxist traditions. As will become clear, what they mean differs considerably.

Since 2008’s Atlantic financial crisis, or what is now called ‘The Great Recession’, the neoliberal project has been in disorganised retreat. Most countries in the world have rejected the neoliberal model and its global enforcers (WTO, IMF and World Bank) have increasingly lost the ability to impose their agenda as they are transformed from within. In this context, the term ‘state capitalism’ has made a significant comeback in an effort by some to describe these developments. We initially analyse two groups, the first being non-Marxists and liberal true believers, and the second a smaller group of Marxist scholars. Both assume that under state capitalism the state is a large and influential corporation in its own right, a business enterprise and indeed core component that controls significant parts of a capitalist market economy. However, nearly all of them either avoid the most important work on state capitalism, by Lenin.

We begin with the non-Marxist scholars, who have begun deploying ‘state capitalism’ to speak of a significant number of countries – including socialist ones – that have either refused or turned away from neoliberal approaches. Apart from seeing an ‘interventionist’ state as the major controller of ‘the market’, they are also fond of using tired old categories, such as the opposition between ‘autocratic’ and bourgeois ‘democratic’, inefficient and efficient, so that state capitalism means inefficient ‘authoritarian’ capitalism and is contrasted with efficient ‘free-market’ capitalism. It should be no surprise that they see the spread of such state capitalism as a threat and hope to identify its shortcomings. Although they often focus on China (Gittings 2006, 3, 217; Haley and Haley 2013; Chen 2015; MacDonald and Lemco 2015, 43-69; Naughton and Tsai 2015; Kurlantzick 2016),[1] this type of ‘state capitalism’ in certainly not restricted to China. The number identified is relatively large, whether one offers an analysis of the current situation or takes a historical perspective. In terms of the current context, the list includes most countries in East Asia, Central Asia, more and more Latin American and African countries, Russia and some Scandinavian countries – in short, most of the world. Historical surveys like to begin with modern state forms in Europe after the Peace of Westphalia of 1648, and then identify various forms of state capitalist ‘intervention’ in mercantilism, European colonialism, the Soviet Union and Eastern Europe, the welfare state in Europe (especially Scandinavia), many post-colonial states in Africa and Asia, and the Asian economic rise in the last 30 years or so, with particular focus on Singapore and South Korea (Kurlantzick 2016, 49-63; see also MacDonald and Lemco 2015, 17-42). But what is the purpose of seeing ‘state capitalism’ at almost every point in modern history or today in most parts of the world? They clearly see that their beloved ‘free market’ approach and its attendant liberalism are under severe threat and even failing, so they uniformly attempt to find ways to respond, often with suggestions as to internal weaknesses in state capitalism.

With regard to a few Marxist scholars, the term ‘state capitalism’ has a longer history. Initially applied to the Soviet Union during Stalin’s tenure, it has since the 1980s also been applied to China (Cliff [1948] 2003; Pannekoek 1937; Norman 1955; Buick and Crump 1986; James 1986; Weil 1996, 26-27; Hooper 2017). The hypothesis: in a ‘betrayal’ or retreat from socialism, the state with its new ruling class imposed capitalist forms on a population that seems curiously to have lacked a voice. Already a number of problems arise, including the voluntarist approach to political power, an inability to account for why such a decision should be made, and the old ‘betrayal’ narrative. These problems we have found to be common to the previous hypotheses, and we will address them more fully in the conclusion.

Two problems need to be addressed in a little more detail. The first is an assumption that ‘global capitalism’ is a uniform and irrepressible force, into which aspiring socialist countries cannot avoid being drawn (Brink [2008] 2014; Buick and Crump 1986). Slightly more sophisticated is the ‘varieties of capitalism’ approach, which at least recognises significant differences but still assumes a global capitalism  (Gallagher 2005; Coffey and Thornley 2009; Hundt and Uttam 2016). Seriously missing in these proposals is a dialectical approach to modes of production, in which different modes of production – historically or indeed current – can be included within a dominant mode (Boer 2017). Thus, it is feasible for a socialist market economy to engage with capitalist market economies without being transformed into the latter.[2]

Second is a refrain among some: what about the workers? Assuming a narrow definition of socialism as concerned with the urban working class, the favoured approach is to focus on the disruptive changes of the 1990s as sluggish State-Owned Enterprises were broken up or began the long process to efficiency and innovation (they now drive innovation and remain the core of China’s economy). Workers lost their jobs, the ‘iron rice bowl’ connected with SOEs was dismantled, and new labour laws were met with frequent unrest (Whyte 1999; Li 2008, 2016; Gallagher 2005; Hart-Landsberg and Burkett 2005). Again, these developments were not a turn to a capitalist market economy, but internal contradictions arising from the Reform and Opening-Up. The Chinese answer: not a retreat from reform, but a need to solve these problems through further reform. In other words, the Reform and Opening-Up follows and is understood as a dialectical process in a Marxist framework. So, we find later that the workers dismissed were subsequently compensated, a more efficient and comprehensive welfare system – based on economic strength – is gradually being instituted, and more than 800 million workers (both rural and urban) have been lifted out of poverty (World Bank 2018). This point has a direct bearing on the voluntarism that plagues all of the hypothesis examined here: they are unable to explain why Deng Xiaoping, the CPC and the government purportedly took the ‘capitalist road’, apart perhaps from hinting at the desire for private gain. The answer is obvious: political decisions related to liberating the forces of production, with profound consequences and not a few mistakes on the way, were and are guided by Marxism – as Deng Xiaoping repeatedly made clear (Deng [1979] 1995, 239; [1980] 1995b, 261-62; [1980] 1995a, 337; [1990] 1994, 351).

Through most of the ‘state capitalist’ literature there is a glaring omission: an adequate engagement with Lenin. Not unexpectedly, the non-Marxists scholars avoid Lenin, but the Marxists who deploy ‘state capitalism’ struggle over Lenin’s material. Significantly, Chinese scholars do not refer to recent developments in such terms, since they understand ‘state capitalism’ in its specific Leninist sense. So let us consider Lenin’s contribution in a little more detail.

Lenin used ‘state capitalism’ on a number of occasions (1918 [1965]-b, 1918 [1965]-a, 1921 [1965]-a), but the fullest statement may be found in the key work, ‘The Tax in Kind’ (Lenin 1921 [1965]-b). Lenin argued that in light of the sheer devastation and economic collapse caused by the First World War and the Civil War, as well as the premature state of Russian socialism, a measure of private enterprise was necessary to get the economy moving. Peasants could sell the grain left over after paying the ‘tax in kind’, small private light-scale industry could be established, and concessions and leases would be given to foreign capitalist enterprises. All of this would entail the extraordinary dialectical point of building socialism through capitalism, or of private capital helping socialism. How? It would enable the initial impetus for the ‘development of the productive forces’ (Lenin 1921 [1965]-b, 342-43, 345-46).

Lenin had to overcome ‘left-wing’ opposition to do so, making two crucial points. First, he mapped out a transition process, since it was not possible to move from a backward, imperialist situation immediately to full-blown socialism. He envisaged a series of transitions, from petty-bourgeois capitalism (and later from ‘War Communism’), through state capitalism, to socialism, during which elements of capitalism would remain.[3] More simply: from capitalism, through state capitalism, to socialism. Thus, state capitalism for Lenin was, in that specific historical situation, a transitional form to socialism, not an end in itself. Second, it all depends on the over-arching socio-economic and political system. His two examples are Germany (after Bismarck’s reforms) and Russia after the October Revolution. In Germany, this ‘state capitalism’ was firmly in the hands of ‘Junker-bourgeois imperialism’; by contrast, in Russia the socialist system already emerging was the key, with the nature of the socialist state and the proletarian dictatorship playing the major roles. Thus, it would be highly advisable to learn from the German model and locate it within the Russian socialist system.

Apart from a few who struggle over Lenin’s legacy,[4] one occasionally finds a non-Chinese Marxist scholar who engages in detail with Lenin’s justification for the 1920s New Economic Policy, and argues that the Reform and Opening-Up is a longer Chinese version of the NEP (Kenny 2007). On this question, some Chinese scholars differ to some extent: they have pointed out that part of the inspiration for Deng Xiaoping’s breakthrough was precisely the NEP (Yang and Li 1998; Le 2000; Wang 2001; Tao 2008).[5] At the same time, these scholars also stress the specific historical conditions in Russia at the time, where such a transitional policy was necessary, but that Chinese conditions were and are quite distinct – and clearly now not state capitalist. But let us stress the second of Lenin’s insights, that everything depends on the underlying system within which a market economy works. There may be universal features of market relations, although not all are found in every market economy, but there is also a distinct particularity of each market economy since its nature is determined by the over-arching socio-economic system of which it is a component.

Clearly, ‘state capitalism’ has widely divergent uses, whether by liberalism’s true believers to speak of a world gone awry, some Marxists who dismiss the Soviet Union and China, Lenin’s own careful usage as a transitional phase in a specific historical situation, or Chinese scholars who understand the term in its Leninist sense and thus see more recent capitalist developments as Keynesian.

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Brink, Tobias ben. [2008] 2014. Global Political Economy and the Modern State System. Leiden: Brill.

Buick, Adam, and John Crump. 1986. State Capitalism: The Wages System Under New Management. New York: St. Martin’s.

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—.      [1980-1981] 1995. ‘Remarks on Successive Drafts of the “Resolution on Certain Questions in the History of Our Party Since the Founding of the People’s Republic of China”‘. In Selected Works of Deng Xiaoping, Vol. 2, 290-309. Beijing: Foreign Languages Press.

—.     [1980] 1995a. ‘On the Reform of the System of Party and State Leadership’. In Selected Works of Deng Xiaoping, Vol. 2, 319-41. Beijing: Foreign Languages Press.

—.     [1980] 1995b. ‘The Present Situation and the Tasks Before Us’. In Selected Works of Deng Xiaoping, Vol. 2, 241-72. Beijing: Foreign Languages Press.

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Gittings, John. 2006. The Changing Face of China: From Mao to the Market. Oxford: Oxford University Press.

Haley, Usha, and George Haley. 2013. Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy. New York: Oxford University Press.

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Le Chengyao. 2000. ‘Deng Xiaoping lilun shi dui Liening xin jingji zhengce de jicheng he chaoyue’. Ningxia dangxiao xuebao 2000 (3):11-16.

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[1] A fashionable variation is to speak of ‘red capitalism’, with even more apocalyptic warnings of China’s imminent ‘collapse’ (Lin 1997; Walter and Howie 2011).

[2] Lin Chun (2013) comes close to this approach.

[3] Although Lenin assumed – mistakenly – that all types of market relations were inherently capitalist (Deng [1980-1981] 1995, 308-9), he also argued frequently that many approaches first developed under capitalism would also have a proper function under socialism: ‘Socialism is inconceivable without large-scale capitalist engineering based on the latest discoveries of modern science. It is inconceivable without planned state organisation which keeps tens of millions of people to the strictest observance of a unified standard in production and distribution. We Marxists have always spoken of this’ (Lenin 1921 [1965]-b, 334).

[4] For example, C.L.R. James (1986, 18-22) ignores the transition argument in Lenin and emphasises an intensification of crisis in state capitalism; by contrast, Buick and Crump (1986, 111-17) suggest that Lenin and the Bolsheviks were not socialist and undertook a state capitalist ‘revolution’.

[5] Deng Xiaoping hints at this influence in 1985: ‘What, after all, is socialism? The Soviet Union has been building socialism for so many years and yet is still not quite clear what it is. Perhaps Lenin had a good idea when he adopted the New Economic Policy’ (Deng [1985] 1994, 143). Apparently, Zhou Enlai had advocated learning from the NEP already in the 1950s (Lüthi 2010, 36).

4 thoughts on “On State Capitalism (updated)

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