On State Capitalism

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.

By 2008’s Atlantic financial crisis, or what is now called ‘The Great Recession’, the neoliberal project effectively came to an end. Since then, it has been in retreat, to the consternation of the true believers. The WTO is no longer setting the agenda in the way it used to do, for it is being changed from within, the ability of the United States to coerce others is in noticeable decline, the United States and Europe no longer see eye to eye, and a series of alternative international structures have gained significant influence, such as the Asia Infrastructure Investment Bank, the Shanghai Cooperation Organisation and the Belt and Road Initiative. How to make sense of these developments? On the back foot, more and more neoliberal true believers have begun once again to speak of the spread of ‘state capitalism’, with dire warnings as to its effects. By state capitalism they mean that 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.

But I have leapt ahead of myself, for the terminology of ‘state capitalism’ was developed mostly in the Marxist tradition, particularly in Lenin’s hands. The term itself may be older, used in relation to Bismarck’s project in Germany, but it is from the Marxist tradition that its most sophisticated sense arose. So let us consider Lenin’s contribution, after which I analyse a number of different paths that arose after Lenin.

Towards the end of his life, Lenin used ‘state capitalism’ on quite a number of occasions (Lenin 1918 [1965]-b, 1918 [1969]-b, 1918 [1965]-a, 1918 [1969]-a, 1921 [1965]-a, 1921 [1970]-a), but the fullest statement may be found in the key work, ‘The Tax in Kind’ (Lenin 1921 [1965]-b, 1921 [1970]-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 very premature state of socialism in Russia, a measure of private enterprise was necessary to get the economy moving again. 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.[1] How so? It would enable the initial impetus for the ‘development of the productive forces’ (Lenin 1921 [1965]-b, 342-43, 345-46).

Of course, Lenin had to overcome ‘left-wing’ opposition to do so, making two crucial points. First, he mapped out a process of transition, since it was not possible to move from a backward, imperialist situation immediately to full-blown socialism. Thus, he envisaged a series of transitions, from petty-bourgeois capitalism (and later from ‘War Communism’), through state capitalism, to socialism itself, during which elements of capitalism would remain.[2] Or, as he puts it more simply, from capitalism, through state capitalism, to socialism. 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, argued Lenin, it would be highly advisable to learn from the German model and locate it within the Russian socialist system.

What has been the fate of Lenin’s insights? Four paths may be identified. First, some Western Marxists have sought to use ‘state capitalism’ to speak of socialist countries, albeit without acknowledging Lenin’s careful development of the idea. Thus, they have applied ‘state capitalism’ to both the Soviet Union and China in a purely negative sense. They do by ignoring Lenin’s key insights and understand ‘state capitalism’ as a system – with its new ‘bourgeoisie’ as exploiters – that is diametrically at odds with socialism, let alone communism (Cliff 1948 (2003); Pannekoek 1937; Norman 1955; Crump and Buick 1986; James 1986; Weil 1996, 26-27; Hooper 2017). Common to these works is a Western ‘betrayal narrative’, trying to find some moment when the Marxist tradition was ‘betrayed’ (see more below).

Intriguingly (and this is the second path), they also come close to a more recent group of non-Marxist scholars, who have begun to use ‘state capitalism’ in relation to a significant number of countries – including socialist ones – that have either refused or turned away from neoliberal approaches. In more detail, they see state capitalism as significant and long-term ‘intervention’ of the state in ‘the market’, by which they mean an entity separate from society and the state. 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 as a favoured example (Haley and Haley 2013; MacDonald and Lemco 2015, 43-69; Naughton and Tsai 2015; Kurlantzick 2016; Chen 2015; Hundt and Uttam 2016, 189-220), 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. 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). One does begin to wonder whether ‘state capitalism’ has become a catch-all category that can be applied to all states to a greater or lesser degree.[3] Ultimately, this tendency is less of a problem than the fundamentally flawed assumptions and its oppositions – state versus market, autocracy versus bourgeois democracy, efficiency and inefficiency – that arise from the Western European liberal tradition, a tradition that has for too long seen the rest of the world in its own image. Unable to think outside this tradition, unable to seek truth from facts, they have resorted to the category of ‘state capitalism’ to try to understand the global shifts that became apparent in 2008.

Third, a few foreign Marxist scholars have continued to use the term, and to their credit they do so through careful engagement with Lenin and the New Economic Policy (which ran for almost a decade in the 1920s). More specifically, they propose that China’s Reform and Opening Up is a longer version, developed in terms of specific conditions, of the NEP (Kenny 2007). This brings us to the fourth direction arising from Lenin’s work, concerning which I need to mention Chinese scholarship. These scholars have pointed out that part of the inspiration for Deng Xiaoping’s breakthrough with the Reform and Opening Up was precisely Lenin’s New Economic Policy (Yang and Li 1998; Le 2000; Wang 2001; Tao 2008).[4] But there is one very important feature of this argument concerning the influence on Deng Xiaoping: the scholars in question rarely, if ever, use the term ‘state capitalism’. Let me put it this way: as we look back after a century, we can see certain shortcomings in Lenin’s approach. Notably, he assumed that private enterprise and market exchange were by definition capitalist, while public ownership and a planned economy were necessarily socialist. We now know that this is not the case, for market economies have existed under many different – and non-capitalist – conditions (as Marx already argued in his analysis of ancient Greece (Marx 1894 [1998], 588-605; 1894 [2004], 583-99)). At the same time, Lenin did make the crucial point that everything depends on the underlying system within which a market economy works. But in order to understand how this point remains relevant, we need to clarify the terms. Lenin called this ‘state capitalism’, in light of the evidence and knowledge available at the time, especially from Germany. But in light of subsequent historical research and current experience, especially in China, it would be better to speak of a market economy as a component of a larger socialist system (Huang 1994). Let me emphasise that this point is not made by foreign scholars, since they tend not to use Chinese sources for their work.

To sum up, state capitalism has an intriguing and complex history, with its initial development in the Marxist tradition through Lenin, its subsequent misuse by a number of Western Marxists in relation to the Soviet Union and China, its redeployment (without knowledge of the Marxist tradition) to try and understand the turn away from the neoliberal project, its Leninist sense by a small number of Marxists in relation to China, and then Chinese scholarship that fully acknowledges Lenin’s influence on Deng Xiaoping but then takes his insights a significant step further.

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[1] It was in ‘The Tax in Kind’ – as noted earlier – that Lenin subsumed his earlier usage of ‘state monopoly capitalism’.

[2] In an insightful section, Lenin identifies the many components present in Russia at the time, in which petty-bourgeois production (mainly peasants with their patriarchal tendencies) and private capitalists were at war with a coalition between state capitalism and socialism (Lenin 1921 [1965]-b, 331; 1921 [1970]-b, 207). Indeed, Lenin argued frequently that many aspects of 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; 1921 [1970]-b, 210).

[3] Earlier, I noted the effort by Kurlantzick to limit the meaning of state capitalism in terms of an implicit state monopoly capitalism.

[4] 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 [1993], 143; 1985 [2008], 140). Apparently, Zhou Enlai had advocated learning from the NEP already in the 1950s (Lüthi 2010, 36).