Critique of state capitalism theory

On the murky concept of “state capitalism” and an attempt to define it

by Amelie Lanier

From the Wikipedia entry on “State Capitalism”:

State capitalism, for Marxists and heterodox economists is a way to describe a society wherein the productive forces are owned and run by the state in a capitalist way, even if such a state calls itself socialist. Within Marxist literature, state capitalism is usually defined in this sense: as a social system combining capitalism – the wage system of producing and appropriating surplus valuewith ownership or control by a state apparatus. By that definition, a state capitalist country is one where the government controls the economy and essentially acts like a single giant corporation. There are various theories and critiques of state capitalism, some of which have been around since the October Revolution or even before. The common themes among them are to identify that the workers do not meaningfully control the means of production and that commodity relations and production for profit still occur within state capitalism. …

After 1940, dissident Trotskyist currents developed more theoretically sophisticated accounts of state capitalism. One influential formulation has been that of the Johnson-Forest Tendency of CLR James and Raya Dunayevskaya who formulated her theory in the early 1940s on the basis of a study of the first three Five Year Plans alongside readings of Marx’s early humanist writings. Their political evolution would lead them away from Trotskyism. Another is that of Tony Cliff, associated with the International Socialist Tendency and the British Socialist Workers Party (SWP), dating back to the late 1940s. Unlike Johnson-Forest, Cliff formulated a theory of state capitalism that would enable his group to remain within the Trotskyist fold, albeit in a heterodox way. (

We are confronted with at least two different ideas about what the term “state capitalism” covers: it’s either nationalized companies run by state institutions within a capitalist state, or it is used to denominate the system of former “real socialism.In both cases, there seems to be some confusion about the state, capitalism and the relations between the two.

With the definition of “capitalism” given above: “the wage system of producing and appropriating surplus value,” capitalism as a system is, first, reduced to the sphere of production. The system of competition on the market, the submission of the entirety of production to creating abstract value, and the role of money as a measure of this abstract value – as a result of this money being the real economic power or the “real community” (reales Gemeinwesen), as Marx expressed it – this is not mentioned, and from this we can conclude that this is not the target of criticism for these Marxists. Second, the door is opened to a series of false comparisons: when the payment of wages characterizes capitalism, then every system where wages are paid is “capitalist.” From this definition, we can see that some Marxists have a conception of capitalism with a different meaning than what Marx expressed in Capital and the writings connected to it.

Now, how about the state? State property within a capitalist economy is evidently considered something extraordinary that has to be honored with a special denomination. This shows that, for the adherents of the “state capitalism” theory, state property and private property are evidently considered contradictory and worth special consideration when they coexist. So let’s examine their – rather frequent – coexistence.

State property in a capitalist state

Let’s turn to Austria as an example of a country with a large sector of nationalized industry. In Austria, state property was quite common till the 1990s. The vast majority of banks, the energy sector, the steel and chemical plants, even electronic manufacturing were state-run. A large portion of the apartments were communal property. Without entering into the subject of the historical reasons for this large participation of the state in economy – the former German property had to be saved from the Soviet occupation forces by nationalization – we have to understand why this dual system was kept till the 90s.

Austria did not have sufficient capital to run these enterprises – which were, in fact, owned by Germans in between the wars, or founded during national socialist rule – by private owners after 1955, when the occupation powers left the country. Still, they were utterly necessary as a base for the Austrian economy, as they constituted the base of private entrepreneurship. Banks, energy and primary industry supplied the private sector with all it needed in order to function in national and international competition. They were utterly necessary if Austria was to remain a part of the West, that is, function as a capitalist state.

The nationalized sector therefore neither constituted a contradiction to private enterprises, nor was it a sector excluded from competition, a kind of protected production and employment. It constituted an entirely competitive sector of the economy, and a necessary supplement to it. Just as in the private sector, investment in the national sector was profit-oriented and yielded profit. Often the national industry, as it bore bigger capacities for investment, was a pioneer in introducing new technologies which improved the exploitation rate, or, as it is usually called, the productivity of labor. From there it passed to private enterprises, thus improving the competitiveness of Austrian enterprises on the international stage. This had the usual consequences for the livelihoods of the employees: in the 1980s, for example, at the big steel plant at Linz, the VOEST (originally built as the Hermann Goering-Werke after 1938), the work force was reduced from 25,000 to 6,000 within 5 to 6 years.

As far as the communal apartments are concerned, it has to be remembered that in those days Austria attracted foreign capital by boasting its low wages – partially based on low housing cost – and the low average strike seconds per year.

In other countries, like France or Great Britain, more important from the point of view of capital size and accumulation, nationalization was a means of putting key industries or banks under state management, injecting money out of the state budget and making them efficient; that is, internationally competitive in order to privatize them later on. In all these countries state revenue was used to engage in investments in the national industry with the aim of raising the competitiveness of national capital against the enterprises of other capitalist nations.

It’s necessary to remember these facts, and to remind the reader about them, as nowadays quite frequently – as a result of the general uncertainty of general concepts and also a certain nostalgia – the word “capitalism” is used when talking about liberated markets, free trade, the unlimited transfer of gain, while on the other hand, state property or even just state measures restricting this “turbo capitalism” are considered necessary, democratic and therefore anti-capitalist, just and social – that is, contradictory to capitalism.

Moreover, the supposed antagonism of state property and private property is incorrect because of the fact that capitalism in itself is always state capitalism, in the sense that capitalism cannot exist without a state. That is, the state, as the monopoly of force, is the main basis and condition of capitalism, or as it is called nowadays, the market economy. Without a state, which establishes the exclusion of the workers from the means of production – by its laws, its judiciary, its police, its prisons – and therefore forces him to sell his labor-power to an employer, no capitalist production can take place. The state enforces the cooperation of the classes on the basis of their antagonism, ensures obedience, but also the functionality of the proletariat for the aims of the class of proprietors, that is, the making of profit from the use of labor. Wage labor is the source of surplus value and profit, but this can only exist if the state sets the basis and ensures the necessary preconditions of exploitation.

The fact that the antagonism of the classes again and again creates the necessity for a supreme power that forces the two main classes of this society into cooperation has led to the illusion that the state would “die out” after the abolition of the class of entrepreneurs. This idea, which does not stem from Marx, but from Engels[1], was more or less put into practice with the rise of Soviet Union: the Bolsheviks believed the antagonism of classes to be the essential condition of the state, so they abolished the former while re-creating the latter, in a different form.

Stamocap (state monopoly capitalism) theory

If we keep rummaging in the relic box of Marxist theories – that is, theories that came after Marx’s death but claim to be in keeping with his analysis – we find the so-called stamocap theory that is linked to the names of Hilferding[2] and Lenin[3]. According to this theory, capitalism in the course of its advance leads to the formation of monopolies which dictate prices and exercise their influence on state authorities to such an extent that the state becomes their servant. Furthermore, the stamocap theory stresses the supremacy of finance capital over productive capital.

Concentration of capital is a fact. The idea of the emergence of “monopolies” (today they are called “multinational corporations”), which constitute the real rulers of the world and make governments obey their orders, is nowadays as popular as ever. Whoever thinks this way is convinced that the state, if it were only independent from class interest and truly sovereign, would be a source of benevolence, taking care of its citizens as a foster parent does the minors entrusted to him. That is how the Bolsheviks thought, too, and they started looking after their wards of the state.

One of the offsprings of the stamocap theory was the idea of “Organized Capitalism” that was mainly fostered by the Austromarxists. According to this concept, the state should take over companies and entire industries step by step and, in this way, progress peacefully towards socialism. Here again the state figures as a neutral institution, apart from class interest, which may be used by those in power for whatever noble aims they may pursue. The task is only to get into the position to do so, gain a majority in elections, form a government and, in one fell swoop, the road towards socialism may be taken. Led by such considerations, Hilferding more than once joined the government of the Weimar Republic as minister of finance.

Against the rather naive concept of “Organized Capitalism,” Lenin wrote The State and Revolution on the eve of the October Revolution. In this book, he tries to argue that the bourgeois or capitalist state is a means of class rule which cannot be taken over peacefully and rearranged, but has to be shattered and replaced by a proletarian state which will then, later, as a result of the socialization of the means of production – yes, indeed, die out. For this book, Lenin resorted to some of the writings of Marx and Engels, among them The Civil War in France. Marx, indeed, did not intend it as an instruction manual for future revolutionaries, and most probably never would have guessed that it would one day be read as such. He wrote the book in defense of the Communards and of the International against the defamations spread against them in the press. Lenin, on the other hand, considered it the description of the structures of a proletarian state. It has to be said that the proletarian, though bound to be the liberator of humanity and without egoistic interests, is ignorant and therefore needs leaders. Their task is to set the rules for the new – of course only transitory – state.

Here the adherents of the stamocap theory came to a crossroad and split. Hilferding and the other German and Austrian social democrats continued to believe in a peaceful takeover of power by democratic elections. In Russia, a new type of state was created which, as we know, did not serve the interests of the exploited after the end of the civil war, but called on their subjects to “enrich themselves.” Of course, only transitionally …

On the other hand, one belief still united Bolsheviks and social democrats: the state is an institution apart from and above class interest and is bound to abolish it.

The treatment of the classics: quotation instead of argument

The German and Austrian social democrats and the Bolsheviks also agreed on the method for using the writings of Marx and Engels: these are texts by authorities that have to be referenced. They browsed their writings – the collection and editing of which was linked to the work of the social democrats and the Moscow-based Institute for Marxism-Leninism, and their achievements in this respect should not be underestimated – but to what end? Their method was very unscientific and looked like this: first, they set their mind on something. In the first case, they wanted to be elected, form a government and act. And then they started to search the writings of the authorities until they found a passage that supports this goal. Or, in the case of the Bolsheviks, they seized power and started to wonder what to do and also turned to Marx’s and Engels’ writings.

A good example for this method is a quotation from Marx in Lenin’s The State and Revolution: Lenin unearthed a letter that Marx wrote to Weydemeyer, a friend then already living in the USA:

“2) that the class struggle necessarily leads to the dictatorship of the proletariat, 3) that this dictatorship itself only constitutes to the abolition of all classes and to a classless society”[4]

This letter was written in 1852 when Marx was still far from working out his analysis of capitalism. It was a private letter which he certainly never believed would be published. In Lenin’s book, still, it figures as a statement on the proletarian state, therefore the practice of establishing one is correct and scientifically founded.

This whole procedure is, of course, not scientific at all. An intention is the starting point and guiding idea of this way of arguing, and this intention is justified with quotations, as is every subsequent measure. Arguments are considered obsolete. This approach to theory, unfortunately, was not only practiced in the Soviet Union, but became a habit among those who considered themselves Marxists. Only for this reason could a reproach like “revisionism” come into being, as the followers of Marx did not argue their positions logically, but by pointing to quotations.

A theory has to be presented with arguments and defended by logic. Conclusions have to be drawn from observations, contradictions have to be resolved by finding out what the correct explanation is. Pointing to a remark by Marx or Engels doesn’t solve anything. On the other hand, if we turn to their heritage and use a term created by them, first we have to determine what exactly the author wanted to express with it.

The Ideal Personification of National Capital

With the discussion about collective or corporate capital, we also enter into a translation difficulty. A concept of Marx and Engels is translated into English in three different ways: Marx uses the word “Gesamtkapitalist” in the first and second volume of Capital. In the former case, it is translated into English as collective capital[5], in the latter as “aggregate capitalist”[6]. With “collective capital,” he denominates the whole national capitalist class, with “aggregate capitalist,” a part of it.

The notion “Ideal Personification of National Capital” (“ideeller Gesamtkapitalist”), to which state capitalism theories resort, stems from Engels, and refers to the state.

The modern state, no matter what its form, is essentially a capitalist machine, the state of the capitalists, the ideal personification of the total national capital.”[7]

Engels here points to the fact that the state takes measures that may be against the interest of an individual capitalist, but in the end serve the capitalist classsuch as a national health service financed by state revenue that takes care of the maintenance of the working class and in this way ensures that the entrepreneurs will always find an exploitable workforce in abundance; or the legal authorization of trade unions, in order to have a lever of control and calculability of the workers.

Unfortunately, he sort of refutes his own statement in the continuation and attributes a role to this “capitalist machine” which has given rise to a lot of errors:

The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers – proletarians. The capitalist relation is not done away with. It is rather brought to a head. But, brought to a head, it topples over. State ownership of the productive forces is not the solution of the conflict, but concealed within it are the technical conditions that form the elements of that solution.”[8]

A national capitalist,” this has to be stated, as a single subject can only exist in theoretical or ideal form, as one of the essences of the capitalist system is competition. The state itself may act as a capitalist, but only as described above: as a participant in competition. If the market, that is, competition ceases to exist, it no longer makes sense to talk about capitalism, as in this case we are confronted with something else. This enigmatic subject brings “the capitalist relation” “to a head.” What does that mean? A few will get even richer, the others poorer? So what? That happens every day in capitalism. Why should the state, as an entrepreneur, be more efficient or more cruel than an individual or a private corporation? And then, one day, “the capitalist relation” “topples over.” Why? How? All this sounds familiar, but in an annoying way: the international situation is getting tense to the breaking point. The capitalists produce their own grave-diggers. And so on. One day necessarily revolution or some kind of radical change is bound to come, just like the messiah. With this paragraph from Engels, the social democrats justified their policy and insisted that this is the correct Marxist way to proceed. And “state ownership of the productive forces” made sense to Lenin and his comrades, too.

So much for the antecedents of contemporary state capitalism theories.

Tony Cliff’s book and theory

Cliff’s book State Capitalism in Russia [9] was written in the 1940s and published in 1955. The preface[10] to the 1996 reprint contains numerous obsessions of 20th century Marxist theory which represent canonical principles: they are beyond all question and constitute the basis of all further critical reasoning.

The perception of the Stalinist regime as a socialist state, or even a degenerated workers’ state – a transitional stage between capitalism and socialism – assumed that it was more progressive than capitalism.”

What do workers need a state for? Did they ever ask for one? But these true friends of the working man like Tony Cliff are convinced that this would be a great thing. And, in any case, progressive. His objection to the Soviet Union is that it didn’t meet his standards in this respect.

The transitional period also belongs to the repertoire of Marxism. Though everyone might know from personal experience that makeshift solutions tend to be permanent and it is always better to do things well from the beginning, it is supposed that social change always requires a transitional period. And during this transition the friends of the working class – that is, the Marxist comrades who are, in any case, always wiser than their clients – have the historical obligation to lead their herd. The “transitional period” is necessary in order to fulfill an educational task and form the suppressed and exploited into “new men.” For this, the latter are obliged to be grateful towards their benefactors.

Marxist literature in regard to the “transitional period” relies – also in The State and Revolution as an intermediary – on Marx’s “Critique of the Gotha Program.” This was originally a personal letter to a German social democrat comrade that was published by Engels in 1891. In this letter, Marx criticized the party program of the social democrats in 1875. He pointed out that their magniloquent declarations were really nothing but nonsense, or contradictory. Lenin declared this a guideline for how to move towards socialist society, and with this the necessity of the “transitional period” was born.

There are few words that have been pronounced more frequently and with more devotion than the notion of “socialism. Socialism as an aim could be found – at least till 1989 – in a lot of party programs. Everyone who considers himself left-wing has to be a partisan of this rather formless concept – but, if we take a closer look it, what does it really mean? Nationalized railroads? A system where the unemployed are able to go on the dole? Material support of large families? A system formerly applied in the kibbutzim? What should a “socialist state” look like? And in what way should it be different from what existed in former “real socialist states”?

Another one of these frequently used, but rather empty terms is the one of progress. It belongs to the Marxist teleology of history, according to which history is a subject, follows certain rules and necessarily develops positively, progressively …

Cliff uses the change of the political system in Eastern Europe as an piece of evidence for the continuity of capitalism:

The transition from one social order to another is necessarily accompanied by the replacing of one state apparatus by another. The state machine was hardly touched anywhere in 1989.”

The whole procedure here is again rather unscientific. Cliff simply invents some imperative that fits his purpose, and blames reality for contradicting it. On the contrary, one might conclude, from the way the change of system was effectuated and still continues to be enforced, that it takes a functioning state machine in order to impose the market economy and private property in countries where these blessings have been absent for decades.

Cliff’s unscientific way of arguing continues throughout the whole book. He blows up his rather meager and unsatisfactory reasoning with a lot of facts. Let’s take, for example, the first chapter (“Socio-economic relations in Stalinist Russia”), and in it: “The accumulation of capital on the one hand and poverty on the other”[11]: Here he supplies (in my case: bores) the reader with a lot of facts and tables. We learn that meat consumption in the Soviet Union was very low compared to that in Breslau in the 19th century. We are informed in which year sewerage was introduced into Archangelsk. The miserable living conditions of the population of the Soviet Union are described in a lot of detail. The only thing missing is the evidence promised in the title. The passage closes with a rhetorical question: “Is it necessary to give additional proof that the accumulation of wealth on the one hand means the accumulation of poverty on the other?” But he offers no proof at all that, on the one hand, wealth had been accumulated, and that this assumed wealth would have functioned as capital.

Other passages in the book have a similar quality. Let’s take, as an example, the part on “the turnover tax”[12]: Here Cliff tries to point out how the state exploits its subjects by taxation. It doesn’t enter his mind that the socialist state, which issued its money, might have just printed it, if its leaders needed cash. Taxes, just like prices in the real socialist economy, belonged to the system of levers for controlling the economy, but were not at all necessary for filling the treasury.

The stupidity of Cliff’s method, moreover, clearly shows in the conclusions to one of the chapters.[13] While Marx strove to show the economic laws that determine the capitalist economy and to explain the relation of its momentums, such as, for example, logically deducing the value of labor power or the inevitability of crisis, for Cliff the whole capitalist economy presents itself as a big mosaic, like a lot of stones adjoining each other. He overwhelms his audience with terms, facts, quotations and numbers, and in this way puts together his picture of capitalism and the Soviet (in his words: Russian) system. He comes up with “features,” “elements,” “characteristics” and the like. As the relation between them has no importance, Cliff easily compares the two heaps of singularities that he has collected and – surprise, surprise! – finds that they have a lot in common. This is how the “critical” theory of state capitalism comes into being, a theory hardly deserving to be called one.

Who adheres to the state capitalism theory, and why?

The October Revolution and the foundation of the Soviet Union was a big social experiment. It showed to the world the power of ideas: a bunch of have-nots, organized merely on the basis of thoughts, theories and convictions, could topple the government of the world’s biggest country and annihilate its ruling class. The Bolsheviks constructed the social system they created on a wrong fundament. They were so fond of the working class that they wanted to preserve it and to turn every member of society into a worker, thus ennobling them. Probably inspired by the title of one of Engels’ essays – “The Part Played by Labor in the Transition From Ape to Man”[14]they believed that man gets to the highest stage of evolution by labor, and becomes the “new man.”

The Soviet Union existed for more than 70 years. It defeated fascism. And finally it ceased to be. As a heritage, it left a lot of industrial ruins and scrap, but a still powerful state with an impressive military industry. And it left a lot of questions: Why did it emerge? Why did it vanish? Was it a mistake as a whole, or did it have a sound basis? Did it give in because of external threat, or because of inner antagonisms? The abolition of private property, communism – is this possible at all, or is it just an unrealistic dream of naive idealists? All these questions are inevitable and have to be answered. The more so as it turns out to be clear that Marx was right in his analysis of capitalism.

And then there is a book like Cliff’s. Quite a while ago he already stated that the soviet system isn’t worth anything. And what is more, he said it as a confessed Marxist. Therefore it is regarded as a left-wing, critical theory which can be easily accepted by anyone who is opposed to the current political and economical system. One ought to be careful with the consumption of these types of ready-made goods. Cliff – and all the others who operate with this concept of “state capitalism” – don’t explain, and they don’t convince. The attractiveness of his ideas has other reasons: he is serving popular prejudices. He is reviving well-worn socialist phrases. In times like the ones we are living through and where ideologies crash, this kind of babble offers a safe haven for those who calmly want to watch the others suffer shipwreck in the stormy sea. The talk about state capitalism is adequate for wiseguys who cultivate a critical attitude and sneer at humankind in general as being incapable of escaping from the tread-wheel of its limited insights.

[1] Engels, Anti-Dühring, Part III. Socialism. II. Theoretical, 1878; repeated in: The Development of Socialism from Utopia to Science, 1880: “The state is not «abolished», it dies out.”

[2] Rudolf Hilferding, Finance Capital, 1910

[3] Lenin, Imperialism, The Highest Stage of Capitalism. This text originally appeared in Petrograd in 1917. In the Russian original it is called Imperialism as the Most Recent Stage of Capitalism which indicates an essential difference, as after the most recent stage there is still the possibility of further development while after the highest stage the whole mess is bound to go down the drain. Therefore the little impreciseness in the translation brings Lenin’s pamphlet close to the theories of collapse according to which capitalism is bound to collapse sooner or later as a consequence of its repugnancies.

[4] Lenin, The State and Revolution. II. Chapter 3. “The Presentation of the Question by Marx in 1852”

[5] Marx, Kapital I, Chapter 8 (in German) or X (in English): The Working Day

[6] Marx, Kapital II, Chapter XXI. Accumulation and Reproduction on an Extended Scale

[7] Engels, Anti-Dühring. Part III. Socialism. II. Theoretical

[8] id.

[9] It can be found on the internet at: <;. The original title of the 1955 issue was Russia: A Marxist Analysis. It’s worth noting that Cliff never uses “Soviet Union” but always “Russia” for the denomination of this country. Evidently with this he wants to present the Soviet Union as a mere continuation of tsarist Russia, before and without arguing it.

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