Cooking the Books: State Capitalism

For a week in September BBC Radio Four ran a series of short lunch-time programmes on ‘The New Age of Capitalism’. On the Wednesday (19 September) the theme was ‘state capitalism’. The presenter, David Grossman, began by reading a dictionary definition of ‘capitalism’:

‘An economic and political system in which a country’s trade and industry are controlled by private owners for profit rather than the state.’

And then asked if the term ‘state capitalism’ was not therefore a contradiction. His answer was that it wasn’t. In fact the term is routinely used now, particularly in relation to China as, for instance, by the then Australian Prime Minister, Malcolm Turnbull earlier this year (Sydney Morning Herald, 23 April).

Grossman’s two guests identified two kinds of state capitalism. (1) where the state controls major companies producing for profit, and (2) where the state intervenes in the capitalist economy to direct and develop it. China, Cuba, Vietnam and North Korea were given as examples of the first kind. Singapore, Taiwan, South Korea, the United Arab Emirates and, perhaps surprisingly, Norway were given as examples of the second, on the ground of having built up substantial ‘sovereign wealth funds’ (hence Norway’s inclusion) which were used to further develop capitalism in their country. State intervention in general was traced back to the implementation of policies advocated by Keynes.

The term ‘state capitalism’ has been part of the socialist vocabulary since the end of the nineteenth century to refer to industries and services, producing for profit and employing wage workers, such as the Post Office in Britain and railways on the Continent. Marx himself wrote of ‘state capital, in so far as governments employ productive wage-labour in mines, railways, etc., and function as industrial capitalists’ (Capital, Vol 2, ch. 3).

So, the programme was a welcome advance in understanding – as far as it went. Because it didn’t go the whole hog. China was said to have become a state capitalist country only from 1979. So what was it from 1949 to 1979? One of the guests used the word ‘socialist’ in reference to this period. There was certainly a change of policy on the part of the Chinese government in 1979 but what existed before then also had ‘state capitalist’ features – industry and trade were controlled by state companies producing for the market and employing wage-labour.

The difference was that, while after 1979 the remit of these companies was to make a profit at company level, before then the government’s aim was to increase the surplus (make an overall profit) at national level. The same system had existed in the old USSR. Which was why we described both pre-1979 China and the USSR as state capitalism.

The programme, however, exhibited a better understanding of state capitalism than Lenin or Trotsky who, basically, accepted only the programme’s second definition – the use of the state to direct and develop capitalism. This was the policy, which he openly called ‘state capitalism’, that Lenin advocated the Bolshevik government should adopt but which they were unable to implement until after the civil war in Russia was over in 1921.

Although Grossman rejected the dictionary definition of capitalism, he did not offer a corrected version. It would not have needed much change, to for instance:

‘Capitalism is an economic and social system in which trade and industry are controlled by private owners or the state for profit.’

This would also require a change in dictionary definitions of socialism, to eliminate any reference to state ownership and control. But that’s another matter.