Depending upon the evolution of social institutions, especially the state, capitalism assumes distinctive characteristics in different nations. The state—that is, government organizations of a nation and its territorial subdivisions and localities—protects and provides a legal framework for businesses operating through markets. In state capitalism, broadly defined, the state actively fosters, subsidizes, provides services to, regulates, and sometimes controls investor-owned business.
Many varieties of state capitalism can be found throughout the world. In formerly communist nations, for example, the state determines how the enterprises it previously owned can adopt features of capitalism, such as private ownership and buying and selling on open markets. State capitalism also includes established capitalist economies where authoritarian or fascist states direct the economy. In most democratic nations, state capitalism takes the form of welfare-state capitalism. For the marketoriented capitalism of the United States, strong military and international organizations are used to enforce a hierarchical economic order around the globe.
Some communist regimes, like that of the People’s Republic of China, have opted for a gradual transition to state capitalism. Despite the expansion of markets and private ownership, much state ownership and control remains. In contrast, Russia and Eastern Europe having attempted a rapid shift from communism to extensive private ownership and markets, can be characterized as transitional-state capitalism.
In the state capitalism of the People’s Republic of China after 1993, markets and capitalism coexist with continuing state and collective ownership and government plans that determine the quantity of goods produced and the prices paid to enterprises for their products. Nevertheless, Chinese firms purchase materials and hire labor through markets. One-quarter of industrial goods were produced in 1999 by state-owned enterprises, one-third by collectively owned enterprises, and two-fifths by individually and family-owned enterprises and ventures with foreign corporations. In state enterprises one-third of the shares were privately owned. Top local government and party officials control collectively owned enterprises. In contrast, foreign joint ventures are freer from government interference and corruption and are judged by economists to be more efficient producers. However, much of China’s economic growth stems from local government leaders who act as “bureaucratic entrepreneurs” (Gore 1998, p. 96), promoting growth in their communities.
“State capitalism” was initially a controversial concept that was coined and applied to the Soviet Union in 1950 by socialists sharply critical of the regime of Joseph Stalin. C. L. R. James used the term state capitalism to argue that the Soviet Union, far from being a worker’s paradise as claimed by Stalinist communists, actually extracted surplus value from Soviet workers. Although there were practically no capitalist private enterprises in Stalin’s Soviet Union, the Soviet state, according to James, exploited workers through bureaucratic regimentation just as capitalists did elsewhere.
At the end of the twentieth century in Russia, capitalism was not merely a conceptual label but rather a tangible reality of privately owned, profit-driven enterprises, operating in global markets. The capitalism in Russia could be considered state capitalism because the state, while somewhat less authoritarian than before, nonetheless has exercised tremendous power to create a new capitalist society. In Russia and Eastern Europe, the government has been a transitional state, setting policies for a very rapid adoption of capitalism. Russian and Eastern European leaders, in contrast to the Chinese, have pushed for a “shock therapy” transition through neo-liberal policies, opening their nations to global trade, attempting to stabilize their currency in relation to the dollar, and privatizing state-owned enterprises. Beginning in 1992, shares in Russian state-owned enterprises were purchased by employees of the enterprises (who held 40% of the shares in 1996), managers (held 18%), other Russian firms (11%), and individuals (6%). Although the government offered a voucher to each citizen to buy shares, most citizens sold or gave away their vouchers or placed them with investment funds. Enterprises whose shares had been largely sold accounted for more than 90 percent of Russian industrial output by 1998. The government then exchanged additional shares for loans from selected Russian private banks and investments from Western corporations. A small group of Russians received huge financial windfalls through their connections with government elites who directed the privatization process. Privatized enterprises were even more likely to show a loss than enterprises that remained in state hands. Privatization has not revived the ailing Russian economy, which lost one-half of its domestic production between 1989 and 1999.
In the transitional-state capitalism of the Czech Republic, compared to Russia, more shares of companies are held by the public, and fewer by workers in state enterprises. In the Czech Republic, shares amounting to one-half the value of state enterprises were privatized through vouchers distributed to citizens by 1995. Two-thirds of the vouchers were handed to investment privatization funds, run by state banks, which purchased shares of enterprises for individuals. In Poland, the state maintains an even larger role, maintaining more public enterprises and deciding which key enterprises are made available for foreign joint ownership.
The concept of state capitalism can also be applied to capitalist economies where an authoritarian, one-party government actively directs the economy. In South Korea, the military regime of Park Chung Hee (1917–1979) in the 1960s gave money to exporters, raised tariffs on imports, created industrial zones, controlled wages, and channeled capital to favored chaebol (coordinated industrial conglomerates), thereby producing rapid development of the steel, cement, shipbuilding, and machinery industries, followed by the chemical, auto, and electronics sectors in succeeding decades.
In the more established capitalist economy of Germany in 1933, the fascist regime that took power allowed cartels of large businesses to continue under the same ownership. Whereas the cartels preferred state policies to increase their exports, Führer Adolf Hitler developed an autarkic economy (independent from trade with rival industrial nations) to fight wars. Production increased because of new state-subsidized industries in motor vehicles, aviation, aluminum, and chemicals. After World War II, dictatorships in Spain, Portugal, and Greece supported the dominance of domestic banking and commercial establishments that played a junior rule to large U.S. and European firms.
In democratic nations with advanced economies, some national governments have brought together trade unions and big business associations into “corporatist” agreements on wages, prices, government budgets, welfare-state programs, investments, and economic growth. In Japan, the government Ministry of International Trade and Industry (MITI) brought business, labor, and government officials together and, between 1950 and 1980, successfully encouraged economic growth through an industrial policy that subsidized exports, developed technologies, and promoted new industries.
In Sweden, Norway, and Denmark, strong social-democratic political parties rooted in trade unions have produced relatively generous subsidies for children, paid leave for parenting, unemployment and medical insurance, and relatively egalitarian, government-provided retirement benefits. On the continent of Europe, welfarestate programs have been geared toward male breadwinners who have stable and well-paying jobs in unionized industries. As welfare-state spending has been cut throughout Europe, Anthony Giddens has advocated trimming subsidies for consumption and boosting investments in people, such as job training, education, and health care to make more productive workers.
Government programs providing pensions and health care in the United States, compared to other economically developed nations, have been less generous and comprehensive and have been adopted later in history or not at all. Presidents such as Ronald Reagan and George W. Bush attempted to cut welfare spending for the poor, reduce tax rates and business regulation, and increase spending for the military and foreign affairs.
Since the fifteenth century, dominant nations have developed strong states to gain a superior position in a world system of capitalism. By the beginning of the twenty-first century, national sovereignty had been eroded amid the rapid flow of goods, investments, and knowledge that spanned the globe. In their book Empire (2000), Michael Hardt and Antonio Negri argued that capitalism still requires state power; not in the form of a colonizing nation but rather in the form of international elites and institutions backed by the military power of the United States.
SEE ALSO Capitalism
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Gore, Lance L. P. 1998. Market Communism: The Institutional Foundation of China’s Post-Mao Hyper-Growth. Oxford: Oxford University Press.
Hardt, Michael, and Antonio Negri. 2000. Empire. Cambridge, MA: Harvard University Press.
James, Cyril Lionel Robert. 1986. State Capitalism and World Revolution. Chicago: Charles H. Kerr.
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Clarence Y. H. Lo
"Capitalism, State." International Encyclopedia of the Social Sciences. 2008. Encyclopedia.com. (August 24, 2016). http://www.encyclopedia.com/doc/1G2-3045300279.html
"Capitalism, State." International Encyclopedia of the Social Sciences. 2008. Retrieved August 24, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3045300279.html
The term state capitalism was coined by political economists to describe market economies heavily regulated or controlled by the state, on behalf of property owners. Unlike stateless capitalism, where markets function without governmental assistance, commonly called "free enterprise," political authorities play a powerful role in state capitalist systems. The government is the agent of property holders, and functions as the executive committee of the capitalist class, even though it usually claims to rule in the interests of all the people. Social democratic regimes such as those of France and Germany, and big-government systems such as the United States that rely on Keynesian and other macromanagement methods, are often classified as state capitalist. Post-Soviet Russia, which describes itself as a mixed social economy, combining state and private ownership of the means of production with an autocratic state, can also be listed under this heading.
Even states dominated by administration and planning, with restricted markets such as the Soviet Union during the era of the New Economic Policy (NEP) 1921–1929, have been accused of being state capitalist by alleging that self-serving bureaucrats, or capitalist roaders had subverted and co-opted the state. Post-Maoist China provides a good example of how a socialist society governed by a Communist Party can serve the interests of property holders from the perspective of Marxist-Leninism.
These distinctions are devoid of any rigorous economic content. They may serve some useful purpose for ideologues, but the classification reveals nothing about the productive potential, economic efficiency, or welfare characteristics of any particular state capitalist regime, or even whether the system relies primarily on markets or plans. The burden of the term is to place most economies outside the hallowed pale of Marxist socialism. Only North Korea and Cuba appear to be mostly directive regimes, with strong states and a socialist credo, in the twenty-first century.
See also: capitalism; command administrative economy; economic growth, soviet; market socialism
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Raiklin, Ernest. (1989). After Gorbachev: A Mechanism for the Transformation of Totalitarian State Capitalism Into Authoritarian Mixed Capitalism. Washington, DC: Council for Social and Economic Studies.
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GORDON MARSHALL. "state capitalism." A Dictionary of Sociology. 1998. Retrieved August 24, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O88-statecapitalism.html
GORDON MARSHALL. "capitalism, state." A Dictionary of Sociology. 1998. Encyclopedia.com. (August 24, 2016). http://www.encyclopedia.com/doc/1O88-capitalismstate.html
GORDON MARSHALL. "capitalism, state." A Dictionary of Sociology. 1998. Retrieved August 24, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O88-capitalismstate.html