An enterprise only qualifies as “socialist” once the distinction between employers and employees within it has been abolished. (Image: Jared Rodriguez / Truthout)

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Regulated private capitalism. State capitalism. Socialism. These three systems are entirely different from each other. We need to understand the differences between them to move beyond today’s dysfunctional economies. With confidence waning in whether modern private capitalism can truly be fixed, the debate shifts to a choice between two systemic alternatives that we must learn to keep straight: state capitalism and socialism.

State capitalism exists when the state apparatus – rather than a group of private citizens – positions state officials to function as capitalist employers. Thus, under state capitalism it is state officials placed in charge of enterprises who hire employees, organize and supervise their activities within enterprises, sell the resulting outputs (goods or services), receive the sales revenues and thus realize any profits. State officials occupy the key directorial positions within such state capitalist enterprises.

In contrast, in private capitalist enterprises, shareholders assign these positions instead to private individuals – not state officials – within structures such as corporate boards of directors. Hybrid capitalist enterprises (part private and part state) also exist. Goods and services produced in state capitalist enterprises are often sold in markets alongside those produced by private capitalist enterprises. Likewise, state capitalist enterprises typically buy their inputs in markets alongside parallel purchases made by private capitalist businesses.

The Difference Between State Capitalism and Socialism

In all countries today, state capitalist enterprises coexist and transact in markets with private capitalist enterprises. The proportions of the different types of capitalist enterprise vary from country to country. Only in some countries are state capitalist enterprises the socially dominant kind of enterprise. In the United States, state capitalist enterprises are definitely not socially dominant, but they do exist: Amtrak, TVA, public colleges and universities, the post office, the Bank of North Dakota, public power companies owned and operated by thousands of US municipalities, and the New York City subway system are all examples. Some state capitalist enterprises in the US obtain subsidies from the government, but then many private capitalist enterprises obtain subsidies, too.

The state directly regulates state capitalism. It does this through the state officials it assigns to direct state enterprise activities. The state indirectly regulates private capitalism. It does this by means of rules and laws that limit the enterprise-directing decisions made by private capitalists.

An enterprise only qualifies as “socialist” once the distinction between employers and employees within it has been abolished.

The fact that the state regulates private capitalist enterprises and operates state capitalist enterprises does not reduce the capitalist structure of an economy. So long as employers, private or state, hire laborers to produce commodities and generate profits that the employers exclusively receive, the economy has a capitalist structure. So long as it is exclusively the employers (whether private, state or hybrid; whether more or less regulated) who decide how to use those profits, it is a capitalist structure.

An enterprise only qualifies as “socialist” once the distinction between employers and employees within it has been abolished. When workers collectively and democratically produce, receive and distribute the profits their labor generates, the enterprise becomes socialist. Such enterprises can then become the base of a socialist economy – its micro-level foundation – supporting whatever ownership system (public and/or private) and distribution system (planning and/or market) constitute that economy’s macro level.

Actual large-scale socialism would thus predominantly entail worker cooperative enterprises such as these. Like the capitalist enterprises that once emerged from European feudalism, these new cooperative enterprises would seek to solve problems such as how to organize their interdependencies with one another and with the public, how to relate to private and public property, and how to manage transitions from smaller- to larger-scale enterprises. Different forms of societal socialisms will emerge: some with markets, private property and large corporations, and others with centralized and/or decentralized planning systems, socialized property, constraints on enterprise size etc. Debates, experiments and choices among them will likely characterize the multiple forms that socialism will take.

Previous economic systems likewise often displayed coexistences among more or less regulated private enterprises and state enterprises. In slave societies, for example, alongside the private masters of slaves working on plantations, states often owned and operated slave plantations. In feudal societies, private feudal manors interacted with the feudal manors operated by kings, to take a European example. In short, slavery and feudalism, like capitalism, display varying combinations of private and state enterprises.

Historical Debates Within Socialism

The European socialism that emerged in the19th century was not initially much concerned with issues of state versus private. It began and evolved – especially with the work of Marx and his followers – as a systemic critique of capitalism, not of regulation or the balance between state and private enterprises. Socialists wanted to go beyond capitalism to an altogether different system, one that fundamentally rejected the basic division between employers and employees. Socialists generally favored organizing society as “classless” where all would be workers who democratically made society’s basic economic and political decisions.

During the 19th century, as the socialist criticism of capitalism grew and spread globally alongside capitalism itself, socialists debated how to accomplish the transition from capitalism to socialism. The debate fixed upon the state as the key means to make that transition. If capitalism’s critics could capture the state, state power could then be utilized for the subsequent transition to socialism. The state could, under socialists, usher the new system into being.

A transition to socialistically reorganized enterprises, once accomplished by a state, would also transform the state as an institution. With capitalists’ power over the state removed, that power would be wielded instead by the workers controlling the socialized enterprises. Ending classes would end the need for a repressive state to secure class divisions. Both Marx’s early and important association with the anarchist Mikhail Bakunin and Lenin’s later concept of the “withering away of the state” shared presumptions that any state apparatus remaining in socialism would (a) be reduced to coordinating socialized enterprises’ interactions, and (b) depend on workers’ socialized enterprises for its resources and powers.

As some put it, socialism either should or could only be achieved by means of evolution, not revolution.

Some socialists have believed in and strategized for a revolutionary seizure of state power from capitalists and their associates. They have sought to replicate the action of revolutionaries in 1789 France who took state power from the feudal lords, the feudal king and their associates. Where the French revolutionary state enabled and facilitated the transition from feudalism to capitalism, a socialist revolution would proceed similarly for a transition from capitalism to socialism.

Other socialists have disagreed and argued instead for a parliamentary/electoral strategy. They have argued that socialists should form political parties and win elections as the way to capture the state. As some put it, socialism either should or could only be achieved by means of evolution, not revolution. As socialism became a powerful global movement, socialists pursued one or the other or both strategies depending on the specific conditions in each place and time.

Since 1900, proponents of both strategies claimed some victories. In Western Europe, socialists built political parties that eventually captured state power such as socialists in France possess today. In Russia, China and Cuba, revolutions brought state power to socialists. However, neither socialist strategy took the next step. Socialists in power could not or would not make transitions to socialism (and ever since have furiously debated whether that is what happened and if so, why).

Looking back now, it seems clear that socialists in power moved to economic systems that mixed state capitalism with more or less regulated private capitalism. That is, they used state power to construct larger or smaller state capitalist sectors alongside often heavily regulated private capitalist sectors. In Western Europe, the state capitalist sectors tended to be smaller than those in Russia, China and Cuba.

Stalin Spreads Confusion

Shortly after the 1917 Soviet revolution, Lenin described the Bolsheviks’ achievement as having constructed “a state capitalism” that he applauded as a necessary step toward a transition to socialism. By the early 1930s, the subsequent leader, Stalin, made a pointedly different declaration: Socialism had been achieved in the USSR. Yet precisely what Lenin had named state capitalism remained the Soviet industrial reality; indeed, Stalin extended state capitalism into Soviet agriculture.

Conceptual confusions set in about what exactly separated state-regulated private capitalism from state capitalism from socialism.

In effect, Stalin had pronounced a new and daring definitional equation: State capitalism was socialism. Many other socialists, including those who otherwise denounced Stalin and reviled Stalinism, sooner or later agreed with this new definition. So too did most of socialism’s enemies. In practice, when socialists achieved state power, they either could not or would not use that power to go beyond varying mixtures of regulated private and state capitalism. Yet socialists and their enemies increasingly defined those mixtures as socialism (although some socialists always disagreed and promoted other formulations of what the key terms meant). Conceptual confusions set in about what exactly, if anything, separated state-regulated private capitalism from state capitalism from socialism.

For most of the last century those confusions proliferated across the statements of workers, capitalists, politicians, academics, media personalities and the broad general public. For example, the term “socialism” was often applied to almost anything done by or through state power (such as President Obama’s Affordable Care Act or the IRS’s efforts to increase tax collection). In much of Europe and beyond, socialism refers mostly to the broad social welfare results (national health insurance, pensions etc.) of using government power to regulate, control and tax what are still largely private capitalisms.

A similar concept of socialism is more or less embraced by US presidential candidate Bernie Sanders. Thus, he seeks higher mass consumption levels and better working conditions through state regulatory policies that redistribute power and wealth from corporations and the rich to the rest of the society. Yet Sanders’ celebration of worker cooperatives suggests some interest in going further toward a non-capitalist system. Definitions of socialism in places like China and the USSR specified socially dominant state capitalist sectors with only marginal allowances for heavily regulated private capitalism.

The Limitations of State Capitalism and Regulated Private Capitalism

Many socialists struggled and eventually succeeded, often at great costs, to construct regulated private capitalisms that delivered public services, wealth and income redistribution, and social welfare far beyond what less regulated private capitalisms had done. Other socialists went further to implement state capitalisms that prevailed in their countries. Those could and often did deliver public services and social welfare beyond what even worker-friendly regulated private capitalisms did.

Yet socialists in power who presided over combinations of regulated private capitalisms and state capitalisms suffered two severe limitations. First, they could not prevent capitalist crises with profound social consequences. Second, they could not build sufficient confidence in or loyalty to the systems they constructed to prevent those crises from provoking reversions from state to private capitalism and from more to less regulated private capitalism. The capitalist crises of the 1970s thus led to neoliberalism and the crises of the late 1980s, to the implosions in Eastern Europe. Even the deep global crisis since 2008 could not stop that reversion as many socialists and socialist parties embraced austerity policies while failing seriously to reregulate. Because the mixtures of highly regulated private and state capitalisms were often run by socialists and called socialism, their decline over recent decades has been widely and mistakenly understood as the “end” of socialism.

The workers in state capitalisms that were defined as socialism (the USSR, China etc.) almost never themselves collectively and democratically directed state capitalist enterprises. That key function was reserved for state officials who had replaced the corporate boards of directors. In state capitalist enterprises, the workers did not have command of and responsibility for their enterprises’ performances. In the aftermath of their crises, the “actually existing socialisms” of the late 20th century exhausted the political and historical possibilities of such state capitalisms.

Similarly, the welfare-state-regulated private capitalisms have shown, through their periods of neoliberalism since the 1970s and then post-2008 austerity policies, that they were fundamentally insecure and thus temporary. The New Deal in the US and social democracies in Europe proved unable to reproduce the political alliances that once forced their states to enable and facilitate their emergence. They were rolled back in a determined counterattack by corporations and the rich.

Securing social democratic reforms of the sort won in the 1930s (such as taxation of corporations and the rich to support mass social services and jobs) requires much more than mere state regulation of private capitalism. The forces behind private capitalism mobilized to retake full control of the state in ways designed to preclude any repeat of New Deal or social democratic responses to crises. Socialist parties and movements failed to preserve the New Deal and social democracy, and failed to prevent or destroy austerity policies after 2008. They thereby exhausted the political appeal and foundation of socialisms based on state regulation of private capitalism as utterly as the experiences of the USSR and China largely exhausted the socialisms based on state capitalism.

Does Socialism Have a Future?

If socialism is to have a future, it will likely have to cut its residual ties to both state-regulated private capitalism and state capitalism. It will have to come full circle in the 21st century to rediscover and update its 19th century differentiation from capitalism as a fundamentally different mode of organizing the production and distribution of goods and services.

Self-criticism by socialists must account for the decline of socialist parties in Western Europe as well as the collapse of state capitalisms (“actually existing socialisms”). Doing so culminates in new definitions of socialism for the 21st century focused increasingly on democratizing the workplace – at the micro-level. That is the key change that was missing from previous socialisms. It must be added to old definitions that were over-focused on substituting socialized for privately owned means of production and substituting planning for markets. This is the significance of the remarkable recent Cuban policy decision to refocus its economic development strategy relatively more on worker cooperatives and relatively less on state enterprises. This is likewise the significance of the remarkable surge of interest in workers’ self-directed enterprises among anti-capitalist social movements and social critics.

Capitalism is relocating from its old centers in Western Europe, North America and Japan, to new centers in China, India, Brazil and so on. This relocation is also generating a vast new global criticism of the private capitalism that proclaimed its absolute victory in the aftermath of the USSR’s implosion in 1989. Workers in the old centers are slowly grasping that capitalism’s relocation will no longer offset their rising exploitation with rising consumption. They are feeling abandoned by capitalism and raising increasingly critical voices. They do not want a socialism defined in terms of Soviet or other state capitalisms that had serious problems and imploded. They do not want a private capitalism whose regulations proved reversible and whose qualities of decline they deeply resent. A new socialism built around democratized workplaces appeals to them in ways old socialisms no longer can.

Socialism in and for the 21st century must now define itself in clear distinction from both regulated private capitalism and state capitalism. Only then can we begin our strategic debates over precisely which socialist goal to set and pursue.