State Capitalism

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The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

State Capitalism


a complex of measures adopted by the state to accelerate a country’s economic development. The essence of state capitalism is defined by the class nature of the state, the concrete historical situation, and the specific nature of the country’s economy. State capitalism takes one form in the epoch of premonopolistic capitalism, another in the epoch of the dictatorship of the proletariat, and still another in the postindependence period in developing countries.

In the epoch of premonopolistic capitalism, state capitalism is state intervention in economic life for the purpose of speeding up the process of net capitalist investment.

In the early stages of capitalism the newly arisen bourgeoisie made use of the state to speed up the process of private capitalist accumulation. State measures were carried out in three directions. The first was the conversion of state, church, and communal lands to private property. “State lands were given away, sold at a ridiculous figure, even annexed into private estates by direct seizure” (K. Marx; see K. Marx and F. Engels, Soch., 2nd ed., vol. 23, p. 735). The distribution of state lands was the most widespread form of state subsidies to private capital in later stages of capitalism as well. This was the case in Great Britain, Russia, the USA, and other countries. In the USA, for example, the construction of railroads, which was carried out by private capital, was accompanied by the distribution of state land to railroad magnates. The second direction taken by state capitalism was the provision of manpower for capitalist enterprises by means of the issuance of draconian laws against beggars, on the basis of which poor people were forcibly confined to prison-type workhouses that supplied cheap workers to factory owners; this practice was characteristic of Great Britain. In Russia, the state permitted private factory owners to use their serfs as their manpower. The third direction taken by state capitalism was colonial seizures, the chief benefits of which were extracted by private capital. For example, the accumulation of capital, intensified by the state’s active assistance, accelerated the industrial development of Great Britain, which enabled it to take over the dominant position in the capitalist world in the 19th century.

As capitalism developed in other countries of Europe and America, there appeared a need for new forms of state intervention in addition to the foregoing, forms aimed at speeding up capitalist development and protecting the national bourgeoisie from British competition. In many countries of continental Europe where the development of capitalism was lagging far behind Great Britain and where the shortage of private capital for the construction of large plants, railroads, means of communication, and the like was acutely felt, the state itself began to act as a large-scale capitalist. At its own expense it built mines, metallurgical plants, arsenals, railroads, telegraph communications facilities, and so on. In this way, government industry arose in the 18th and 19th centuries in Germany, Russia, and elsewhere. Government industry became the main element of the state capitalism of continental Europe. In addition, a large role was played by direct state subsidies to capitalists for the construction of large plants. The growth of state investments and subsidies brought with it an increase in taxes and the state debt.

In order to obtain an additional source of revenue, the state in a number of countries established a monopoly on the production and sale of certain consumer goods; for example, in the second half of the 19th century, Germany instituted a state tobacco monopoly and Russia an alcohol and vodka monopoly.

By promoting the development of capitalism in this way, the state at the same time was protecting its national bourgeoisie against foreign competition. Hence protectionism, expressed in high customs tariffs, became a universal phenomenon in the last quarter of the 19th century. Under the shield of protectionist customs tariffs, the development of national industries accelerated in all the countries of Europe and America. In characterizing protectionism, K. Marx wrote that it was “an artificial means of manufacturing manufacturers . . . , of forcibly abbreviating the transition from the medieval to the modern mode of production” (ibid., p. 767).

With the development of capitalism, the attitude of the bourgeoisie toward the state was changing. The state’s role, in the view of the bourgeoisie, should basically be the protection of the foundations of capitalism and the support of the position of the bourgeoisie in foreign markets. With the formation and growth of a reserve labor army, the bourgeoisie no longer required the forcible recruitment of manpower. On the other hand, there was a sharp exacerbation of the proletariat’s class struggle against barbarian, no-holds-barred methods of exploitation. As a result, the bourgeois state was compelled to pass laws that restricted the use of child and female labor, shortened the workday, and laid the basis for social-security insurance. The development of new means of communication and transportation (including the organization of telegraph and telephone communications, the introduction of municipal transport, and the construction of railroads) required financial assistance and regulation from the state. Sometimes the state itself was compelled to construct unprofitable railroads or to buy them up from private companies that had gone bankrupt.

The bourgeoisie also began to resort to state assistance during economic crises. Besides rescuing bankrupt capitalists by granting subsidies and inexpensive government credit and by purchasing bankrupt enterprises at high prices, as Chancellor Bismarck did in Germany in the 1880’s, the state, in order to reduce unemployment and blunt the class struggle, organized public projects during crises; these projects always involved profitable orders for private industry to deliver materials for government construction of roads, canals, and the like.

Thus, the main content of state capitalism in the period of free-market capitalism consisted of the support of conditions for exploiting manpower and squeezing out surplus value, the distribution of state lands to private ownership, the conquest and robbery of colonies, the creation of government industry and state monopolies, state subsidies and inexpensive credits to capitalists, protectionism, and public projects during crises. V. I. Lenin wrote that “state capitalism exists—in varying form and degree—wherever there are elements of unrestricted trade and capitalism in general” (Poln. sobr. soch., 5th ed., vol. 43, p. 222). Still, in this epoch state intervention in economic life was at a minimum and was episodic in character.

The growth of state ownership of the means of production and the development of labor legislation and social-security insurance by the bourgeois state served as grounds for the contentions of certain bourgeois economists (K. Rodbertus-Jagetzow in Germany) and reformers (F. Lassalle in Germany) about the peaceful transformation of capitalism into socialism. F. Engels, who sharply criticized the untenability of such views, wrote: “It is a purely mercenary, Manchester-bourgeois falsification to term as ‘socialism’ any intervention of the state in free competition—protective duties, guilds, a tobacco monopoly, or the turnover to state control of certain industries, maritime trade (Seehandlung), or a royal china factory. We must subject this process to criticism and not take it on faith” (K. Marx and F. Engels, Soch., 2nd ed., vol. 35, p. 140). At the same time, Engels always stressed the dual nature of state capitalist ownership. State ownership under capitalism does not solve the conflict between productive forces and production relations, but “concealed within it are the technical conditions that form the elements of that solution” (ibid., vol. 19, p. 223). First, it proves the possibility of carrying on production without capitalists; second, when power passes into the hands of the working-class state, ownership automatically turns into socialist ownership. Engels pointed out that the passing of industrial and commercial functions into the hands of the state can be of a progressive character, that it is a step forward toward communism (ibid., vol. 34, p. 255).

State capitalism is qualitatively different from state-monopoly capitalism. Whereas the former arises in the early stages, the latter is a result of the highest stage of the development of capitalism. Whereas the former is based on a deficiency of private capital accumulation, the basis of the latter is the concentration of production and the dominance of monopolies, which are evidence of an enormous accumulation of capital. Whereas in the first case state intervention in the economy is carried out episodically, in the second case it becomes constant and systematic in character, with the purpose of preserving overripe capitalism under the conditions of its own general crisis, the existence of the world socialist system, and the disintegration of the colonial system of imperialism.


In the developing countries, state capitalism is the creation of state enterprises and institutions in the economic sphere, as well as a system of economic measures aimed at the regulation of private national and foreign enterprise, the maintenance and expansion of the labor force, and the financing and provision of credit for highly important projects of nationwide significance. In countries that achieved independence as a result of the downfall of the colonial system of imperialism, state capitalism is the most important means of active intervention by the state in the economy, a tool for reorganizing the economic structure that evolved in the period of colonial or semicolonial dependence. The incentive for this intervention is the desire to step up the economic development of backward countries and to ease their economic and political dependence on the world capitalist system. A further consideration for many developing countries is the weakness of private national capital, which is unable to provide financing for the construction of costly projects with a long developmental cycle.

Beginning with the 1960’s the creation and expansion of the state sector has been one of the characteristic features of the economic development of most countries in Asia, Africa, and Latin America, regardless of the political orientation of these countries’ governments. However, the character of the development and the economic significance and social consequences of the growth of the state sector vary sharply, depending on who has the power and what the social aspirations of the prevailing forces in society are. In a number of countries (Egypt, Burma, Guinea, Algeria, and the People’s Republic of the Congo), the state sector and measures for state regulation of economic life are aimed against imperialist monopolies and the big national bourgeoisie. The strengthening of the state’s position in the decisive branches of the national economy (power, large-scale industry, foreign trade, and finance and credit) promotes the creation of an independent economy and the solution of complex social problems. In countries where the state’s economic policy is determined by the big national bourgeoisie, the development of the state sector is frequently limited to branches and enterprises that promote the growth of private enterprise in the more profitable branches of production.

The formation of the state sector in the developing countries proceeds in various ways. In a number of countries it was initially created at the expense of the enterprises and institutions that remained from the colonial authorities. The amount of such property was usually not great, since the colonialists did not build many large enterprises. In other countries the state sector was created through the nationalization of foreign and domestic companies. In some countries only foreign-owned property was partially nationalized after independence was won; in Egypt, Burma, and other countries, nationalization affected local capital as well.

The chief method of expanding the state sector is the new construction that is usually carried out in accord with national development programs. It is on this basis that the state sector in Egypt, Guinea, India, and a number of other developing countries is developing and growing stronger.

In Egypt, the nationalization of the property of private companies and large-scale state investments in new construction had become so general that by the beginning of the 1970’s more than half the value of all fixed assets in the economy belonged to the state or was under its control. All assets in finance, education, energy, communications, and the like have been nationalized. In industry, about 90 percent of production capacity is state property or is controlled by the state. At the end of the 1960’s the state sector’s enterprises were producing more than three-fourths of all industrial output.

In India, in the course of three five-year plans (1951/52–1955/56; 1956/57–1960/61; 1961/62–1965/66), large state metallurgical and machine-building plants and enterprises of the petroleum-extracting, chemical, and consumer industries were built. The volume of industrial production increased between 1960 and 1969 by 54 percent. The policy promoting further strengthening of the state sector found expression in the nationalization of the largest private banks and the decision by the Indian government to nationalize the import of industrial raw materials (1969).

In Burma, as a result of the nationalization of the property of foreign monopolies and the restriction of private enterprise, the state sector took over the dominant position in the extractive and processing industries, transport, banking, and foreign trade.

Of particular significance for the developing countries is the introduction of a total, or at least partial, monopoly on foreign trade, as well as the consolidation of the state’s position in the sphere of banking and credit. Such state measures make it possible to concentrate the country’s revenue on the needs of national development and promote a solution of the problem of accumulation. The growth of the state sector makes it possible to draw the surplus able-bodied population of the countryside into industry, transport, and the service sphere, expands the capacity of the domestic market, and contributes to a rise in the population’s living standard.

State capitalism in the economy of developing countries is also significant because the growth of state and national ownership and the expansion of state intervention in the economy contribute to carrying out a national development program on the basis of long-range plans. The workability of these plans is directly dependent on the size and structure of the state sector, the volume and distribution of state investments, and the consistency in the implementation of measures for state regulation of domestic economic processes.

The development of state capitalism is an objective necessity for the countries of Asia, Africa, and Latin America that are struggling for their economic autonomy and full sovereignty.


In the transitional period from capitalism to socialism, state capitalism is one of the socioeconomic structures permitted and regulated by a proletarian state. It exists in the form of foreign-capital concessions, the renting of state enterprises, joint-stock societies, private trade on a commission basis, cooperation, and the like.

A theoretical justification of the need for state capitalism in the transitional period from capitalism to socialism was given by Lenin. He noted that the fundamentally new stature of state capitalism is predetermined by the new (proletarian) character of authority and by the conditions in which it is operating, with capitalism having ceased to exist but socialism not yet being the prevailing mode of production (see Poln. sobr. soch., 5th ed., vol. 45, pp. 84–85).

As a special structure of the transitional period, state capitalism can play an important role in the process of socialist reorganization of the economy. It is a more progressive form of economy than private capitalism, small-scale commodity production, and subsistence production. The transition of private capitalism and, together with it, small-scale commodity production onto the track of state capitalism eases a country’s transition to socialism, for it makes possible the maintenance or creation of large-scale machine production and the use in the proletariat’s interests of the monetary resources, knowledge, experience, and organizational capacities of the bourgeoisie and bourgeois intelligentsia.

A plurality of structures in the economy of the transitional period is a general natural law for all countries proceeding toward socialism. The liquidation of the plurality of structures and the institution of the socialist structure as the prevailing system of social production constitute the content of the transitional period. The transition of individual countries from capitalism to socialism occurs at different times and under different domestic and external conditions. Two factors—the initial level of the country’s economy from which the transition to socialism begins and the balance of class forces within the given country and in the world arena—determine the specific nature of the utilization of state capitalism in the interests of the victory of socialism.

A unique feature of state capitalism in the USSR was the fact that state capitalist enterprises remained the people’s property. Only working capital (finished output and monetary resources) were retained as the property of the lease-holding concessionaires. Fixed assets (such as buildings, equipment, and land), including those that were newly built or imported from abroad, could not be sold or turned over by a capitalist to another person, and financial bodies could not alienate fixed assets to recover debts from the lease-holding concessionaire. “A lessee,” Lenin noted, “is not a property owner. ... A lease is a contract for a period. Both ownership and control remain with us, the workers’ state” (ibid., vol. 52, p. 193). The relations between the capitalists and the workers of concessionary enterprises remained those between capital and hired labor, manpower remained a commodity, and the antagonism of class interests continued. At the same time these relations were under the control of and were regulated by the proletarian state, which substantially changed the conditions of the class struggle in favor of the working class.

State capitalism did not receive any broad development in the USSR and held a minor position in the country’s economy, a situation attributable to the rapid growth of a large-scale socialist industry. Moreover, the Soviet state’s attempts to use state capitalism for socialist reorganizations encountered active resistance from the bourgeoisie. The Russian bourgeoisie would not accept state capitalism and was therefore forcibly expropriated. By 1923–24 the share of state-capitalist enterprises in the gross output of the national economy was only 0.1 percent, and the number of persons they employed at the end of 1925 did not exceed 1 percent of the country’s workers.

State capitalism as a means of reorganizing capitalist ownership into socialist ownership was used in the transitional period in a number of socialist countries. It received the greatest development in the German Democratic Republic, the Korean Democratic People’s Republic, and the Democratic Republic of Vietnam.

A specific characteristic of these countries was the fact that, thanks to the comprehensive assistance of the USSR, they did not resort to the services of foreign capital. State capitalism in the German Democratic Republic and the Democratic Republic of Vietnam chiefly took the form of joint state-private enterprises with the participation of state and national private capital. The formation of these enterprises was preceded by the wide proliferation of less developed, so-called lower, forms of state capitalism— capitalist enterprises whose production or commercial activities were under the direct economic control of the proletarian state. Subsequently the joint state-private enterprises were gradually and consistently transformed into socialist enterprises. State-private enterprises were widespread in the People’s Republic of China. In the mid-1960’s forms of state capitalism were preserved to varying degrees in the People’s Republic of China, the Democratic Republic of Vietnam, and the German Democratic Republic.



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