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Why State Capitalism Is A Socialism America Cannot Afford

Updated on June 23, 2009

State capitalism is an economic system in which the means of production have been nationalized and belong to the state. The term was coined in the context of ideological criticism of the Stalinist and post-Stalinist Soviet Union in order to describe the social-economic system which was adopted by that nation.

To describe the term even more extensively, every state-owned company can be referred to as belonging to "state capitalism", even if that nation is not formally politically socialist. This definition can be extended not only to the property of the state at large, but to all public owned assets right down to the municipal level.

Every nation has a part of its economy involved in state capitalism. In general the United States of America has historically had relatively low levels of this system, while the opposite was true of the USSR and the other so called "Iron Curtain" or "popular democracy" nations. Although this list was much more extensive prior to the fall of the Berlin Wall, the currently "officially" communist nations today are:

Democratic People's Republic of Korea
Lao People's Democratic Republic
People's Republic of China
Republic of Cuba
Socialist Republic of Vietnam

Furthermore, these following countries have currently elected communist governments although the structure of the nation does not currently adhere to the textbook definition of communism:

Bolivia
Cyprus
Moldova
Nepal
Venezuela

There is also a gray area when it comes to defining the extent of communism practiced in several nations of the former Soviet Union, such as Belarus.

At intermediate levels of state capitalistic and/or socialistic and/or communist systems are various European states, including some in which the former Yugoslavia was the predominant state capitalist. However, most of these nations vary widely in their current interpretation of state capitalism and none of them have at the present time any level of state capitalism implementation that can compare to that found in that nation prior to 1990.

Politically, the label of "state capitalism", especially applied to the former Soviet Union, but also to its various associates in socialism such as the various "popular democracies," was (and still is) a way to criticize the failure of management by masses of workers and to place in doubt at the final analysis that it is really a socialist state after all, but a totalitarian one commanded by a dictator or Politburo.

In such a "socialist-communist" system we find that all forms of private ownership of the means of production have been totally abolished and the capitalist entrepreneurs and shareholders have been completely stripped of ownership of assets and control of personnel.

In these "socialist-communist" states, it turns out that capitalism is effectively reproduced in everything except name, with the only difference being that there is only one major capitalist and that is the state itself. In these nations, there is no participation or sharing of power by the proletariat to any noticeable extent, but the government has replaced large capitalists while exercising virtually identical mechanisms of exploitation of labor which is typical of private capitalism.

In practice, the capitalist state changes only the entity who implements the exploitation of the proletariat through the appropriation of added value. It is now the state that owns the means of production and appropriates added value by carrying out the exploitation of the working class.

The distortion in the trading system within "socialist-communist" nations is caused by the absence of the most elementary rules of the market and this led to the stereotypical failures of these economies, evident in the formation of long queues in front of stores which actually have product to sell. This inevitably caused extensive black market goods to be traded, especially foreign ones which are usually of much greater quality and workmanship than the local product. This system allowed the rich to have access to high quality "capitalistic" products that can not be found locally, thus it was tolerated in political circles, as in the USSR communist politicians were effectively the only rich class.

State capitalism has its legitimate uses as in the case of, say, a municipality owning a sewage treatment plant, or a nation owning its military bases. However, history teaches us that every time that this profoundly flawed system has been called upon to form the basis of the structure of a nation in order to provide benefits to its population, it has failed 100% of the time.

In this era when we consider the effective "nationalization" of the automotive, financial and other North American industries the question remains: Have we learned the lessons of history, or are we simply going to repeat the horrendous errors of the past?

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    • Hal Licino profile imageAUTHOR

      Hal Licino 

      8 years ago from Toronto

      Thank you for the kind words! :)

    • cjhunsinger profile image

      cjhunsinger 

      8 years ago

      Great article Hal. Enjoyed it and the history lesson. We need a concentrated focus on what is happening to this country. Look forward to more such writing. Keep the focus.

      Charles J Hunsinger

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