State Capitalism - Essay Example

Capitalism Capitalism refers to an economical system in which production system is owned by private people for making profits.In a capitalist system, the owners or the capitalists get the profits whereas the workers get only their wages. State capitalism has several meanings and definitions; however, it can be generally defined as a society in which productive elements were controlled by the state in a capitalist manner. In other words, governments or governmental agencies controlling the shares of publicly-listed firms, in a state capitalized economy. Thus the government itself is acting as a capitalist in such state capitalist systems. Communist countries like China and Russia are examples of countries in which state capitalism prevails. State capitalism is a controversial subject in the world. The declared aim of an elected government is to implement socialism in a society. Both democratic and communist administrations have no second opinion about the necessities of socialism for reducing the gap between the rich and the poor. Income should be distributed equally in a society in order to achieve the objectives of socialism. Communism tries to achieve the socialism objectives by giving more benefits to the working class. They are trying to achieve a wealth balance by taking more wealth from the wealthiest areas and distributing it in the poorest areas. This is logical and easy to understand. However, the governments in capitalist countries are active capitalists and it is difficult to believe that these governments will distribute their profits to the poor people in order to raise their standards. “State-capitalism is in itself the total contradiction, absolute antagonism. In it are concentrated all the contradictions of revolution and counter-revolution” (James and Dunayevskaya). This paper analyses how state capitalism is a contradiction. Marx defined a society as capitalist, if most production is carried on by employees working with means of production (equipment and materials) belonging to their employer, producing commodities which belong to the employer” (Kilcullen). According to Karl Marx, capitalist societies suffered from two unresolvable problems whihc may prevent them from achieving social harmony and economic growth. He argued that the competitive processes of a capitalist market society will lead towards the accumulation of wealth towards one particular segment. In other words, the global wealth would come in the hands of few people in a capitalist economy. Marx explained capital as money and the services of the workers as a commodity. He argued that a person achieves capital or money at the expense of another person. In other words, he argued that the gain of one person would be the loss of another person. In order to avoid such gains and losses, Marx proposed the intervention of states in capital systems. According to Marx capitalism is the number one enemy of socialism. He argued that the intervention of states is necessary in preventing capitalism. For him the entire resources of a nation belong to the state and it is the duty of the state to distribute this wealth evenly among people. In other words, Marx dreamed about a society in which all the people enjoy equal power, wealth and rights. However, Marx’s beliefs are against the developments of current realities. Marx defined state capitalism as a social system just like other social systems in our community. He argued that in state capitalist countries, the government controls the economy and acts just like a single giant corporation. He also pointed out that capitalism would result in over production ultimately since there is no control over the production activities of capitalists. In European countries capitalism is currently working in three different forms; Market, Managed and State. In these countries, state capitalism means a system in which the state, large firms and labor unions work together to ensure the economic growth of the countries. France and Italy are examples for this modern model of state capitalism. In communist China and Soviet Union like countries, even though the communist leaders tried hard to bring socialism, they failed miserably. In fact, the gap between the rich and poor has widened in these countries which resulted in the collapse of communist administration in Soviet Union. China escaped from such collapses only because of its readiness in changing its economic policies and the massive economic reformation process undertaken by them in 70’s and 80’s under the leadership of Deng. Modern economists believe that state should stay away from controlling private capital in the market. They are of the view that a state cannot develop properly with the help of internal resources alone. In other words, foreign direct investment is necessary for the growth of a country. Foreign direct investment can be attracted properly if the government provides enough incentives to the private capitalists. In short, modern economic theories are exactly opposite to the principles of communism. It is proved beyond doubt that communist principles are better on papers only and in practice these principles are difficult to implement. It is not necessary that state capitalism exists only in communist countries. Democratic socialism is also another form of state capitalism. “The democratic socialism of the Scandinavian states, the consensus politics of Japan, and the state-sponsored rapid industrial growth of South Korea while under military dictatorship; all coexist with capitalism” (Does capitalism require a specific form of government?). One of the major differences of state capitalism in communist countries and in other countries is with respect to the authority of the government over the capital structure. For example, in America, privatization can be seen in majority of the business areas whereas in India public and private capitals are equally prominent. In other words, America is a capitalist economy whereas India follows mixed economic principles. In India, the critical sectors are operated solely by the government whereas noncritical sectors are mainly operated by the private capitalists. India is considered to be one of the rapidly growing countries in the world at present and some reports showed that India will become a super power within 20 years time. The recent economic crisis has not affected the Indian economy much. Indian economy is one of the rarest economies in the world which stood out among dipping economies in the world. On the other hand Pakistan’s economic growth is not good compared some other neighboring countries because of political instability, internal problems like conflicts between Muslim radical groups, war on terror at the Afghan frontier and increased terrorist’s activities. The above facts clearly indicate the relation between strength of democracy and political stability to the economical growth. The state capitalism in Pakistan or Saudi Arabia is dissimilar to that in India. Same way state capitalism in America is entirely different than that of India. In other words, state capitalism can be witnessed in many forms even in different democratic countries. Fascism is another form of state capitalism. Italian Fascist leader Benito Mussolini in 1933 introduced this model of state capitalism for the first time in the world. He claimed that fascism will lead the country towards sate capitalism which is superior to the state capitalism prevailing in communist countries or democratic countries. Many people are of the view that state capitalism will help the growth of a country very much and it can help the society in distributing the wealth equally. Because of the above belief communism has grown significantly at many parts of the world. However, at present most of the communist countries collapsed and the existing countries forced to make immense changes in their economic systems. For example, communism which once ruled the entire Eastern European region, is struggling to exist in this part of the world. No communist countries ever claimed that they succeeded in implementing complete socialism in their country. In fact the living standards of some of the communist countries were pathetic when compared to that of the capitalist countries. In other words, state capitalism failed to live up to its expectations whereas private capitalism succeeded in crossing all the expectations about it. China is the only communist country which succeeded in progressing rapidly and that also not because of the merits of state capitalism, but because of China’s readiness in redefining communist principles with respect to private capitalism. Venezuela is a country which still believes that communism may help them in their economic progress. Examples of state capitalism contradictions in real life Venezuela The shape of Venezuelan “21st century socialism” has become clearer since the election, with Hugo Chavez announcing plans to nationalize strategic industries and form a new ruling party. The direction is towards state capitalism, headed by a Bonapartist bureaucracy. On 8 January, 2007, in a speech quoted on the Venezuelanalysis website, Chavez announced plans to nationalize key industries that were privatised under previous governments, such as the telecommunications company CANTV and the electricity companies such as EdC. He said: “All of those sectors that are in an area as important and strategic for all of us, such as electricity, should be nationalized (Hampton) Chavez is currently making deliberate attempts to convert Venezuela into a communist country in which the government controls all the property. In other words, Chavez has plans to disallow private properties in Venezuela. He is nationalising the entire private companies in Venezuela in order to make the route clearer to the entry of communism in Venezuela. Chavez administration is not doing anything serious to give proper shelter to the refugees and the Venezuelan citizens. Invasion is a common problem everywhere in Venezuela. Nobody can have their private properties safe under the Chavez regime. President Chavez is trying to stick in power in an illegal manner. He was selected as the President in 1998 and then re-elected to another six years term in 2006. In short, he is trying to dictate Venezuela at present. Chavez is desperately trying every possible measure to make Venezuela a socialist country, amidst the protests from the public. Though United States has strong relationship with Venezuela, traditionally, the current Chavez regime is not much friendly with United States because of Venezuela’s attempt to convert the country into another socialist country like Cuba. Property encroachments are common in Venezuela. Government is doing nothing to stop property encroachments. In fact the government supports such intrusion since they were trying to transform Venezuela from to a communist country like Cuba. “If the owner of private property does not have the money it is then expected that the municipal council will decide that it goes against the general interests of the community to let slums proliferate randomly”(Permalink). People are not getting any legal support from any of the authorities in Venezuela against the encroachment they are facing. People have no rights in Venezuela and Chavez is slowly implementing his dictatorship in Venezuela. “As part of his continued campaign to assume complete authoritarian control over the country, President Chavez implemented a new intelligence law in May 2008, and replaced the country's old intelligence agencies (Venezuela) Chavez has come to power in 1998 and nobody knows what he had done with the revenue he obtained from the immense oil resources of Venezuela. Most of the other countries, especially the gulf countries which have oil resources like Venezuela, developed a lot; but the people of Venezuela are still under poverty and struggling for survival. Venezuela is slowly becoming a refugee centre at present. Nobody knows from where these refugees come and why they became refugees. In short, Chavez is trying to private capitalism into state capitalism in Venezuela and the people in Venezuela are struggling for survival. On the other hand, China is slowly converting state capitalism into private capitalism and reaping benefits out of it. China The renowned state owned capitalism in China is currently giving way for private capitalism as a result of the globalization policies. The People’s Republic of China’s (PRC) economy is currently the largest in Asia. But many people believe that China may become the largest economy in the world in near future itself. According to by Albert Keidel (2008), China’s economy will surpass that of the United States by 2035 and be twice its size by midcentury (Keidel). Even though the recent recession has created immense problems to the economic growths of many of the American and European countries, China seems to be unaffected by the recession problems. Many people believe that China will put an end to the US supremacy and may become the highly influential superpower in the world in the near future itself. Although, Globalization and liberalization policies were the brain child of the capitalist countries like U.S and UK, China seems to be the number one exploiter of globalization which helped them immensely in achieving tremendous economic growth. “During 1997–2005, the PRC’s average annual growth rate in real GDP was 8.9%. During the forecast period of 2005–2010, it was assumed that the PRC continued its historical growth trend of 8.9% per year” (Mai et al, p.5) China has rewritten some of the established economic principles. Another interesting tactics which helped the economic progress of China is the mass production of consumer goods. When most of the other nations tried to increase the profit by increasing the prices of their products, China did entirely the opposite thing. They reduced the prices of their commodities and succeeded in selling more goods in international markets than any other countries. Thus they were able to counter the negative effects of price reduction with the help of bulk production and selling. Mai et al (2010) have pointed out that “the PRC’s exports increase by about 46%and imports by about 45% relative to their respective baseline levels in 2010. Imports and exports of all commodities and services rise relative to their baseline levels” (Mai et al, p.7) Even though China is a communist country, they have realized that importance of private capital for further growth in their economy. Foreign investment helped China to polish their production technologies and management skills further. “The key benefit of foreign investment is improvement in productivity as other players in the host industry catch up with the performance standards set by foreign investors” (Mai et al, p.14). However, the above policies may not be easily digestible to the hardcore communists. Communism always criticizes private capital and they always think that private capital may exploit the public resources immensely and thereby causing more problems to the poor. Capitalism in any form is help monopolies and oligopolies according to Marx. Marx argued that capitalism will always result in accumulation of wealth at some particular regions and the poor people would be the sufferer always. However, many economic gurus are of the view that the globalization succeeded in tackling the global imbalances of wealth. Earlier, global wealth was accumulated in the moderately populated American and European regions whereas currently it is shifting towards the heavily populated Asian regions as a result of globalization. In other words, Marx’s views about capitalism have been lost its significance in today’s world. Currently, even without much struggle, the capital is flowing from richest regions to the poorest regions and that also as a result of the revolutionary principle of globalization introduced in this world by the capitalist countries. Mao era was a period in which China struggled to develop because of the strict adherence to the communist principles. Moa was adamant on the communist principles and did everything possible to make China an opaque entity to the external world. China followed an economic policy strictly in accordance with the Marxist’s views of economics during this period. Like most of the other socialistic countries, China was reluctant in opening their economies to capitalist countries during this period. Most of the trade activities of China were with Soviet Union and other socialist countries before during the Mao regime. Land reform, social reform, thought reform, economic planning etc were the major contributions of the Mao regime (Chinese Cultural Studies). Peasants got the lands from landlords for agricultural purposes during this period which brought welcome changes in this sector. Social reform resulted in avoiding segregations between landlords and peasants. He did everything to influence the minds of the people in order to make more favourable atmosphere for the communist regime. Under the Great Leap Forward program, Mao has constructed some five year plans in order to prioritize the economic growth. Mao’s contributions in the agricultural and industrial sectors were precious, but it was not enough for the heavily populated China. The rise of Deng as the supreme authority of China in the 70’s has completely re written the economic history of China. Deng succeeded in giving more humanitarian face to communism in China. Gao (2005) has mentioned that the agriculture sector transformed from collectivization to a system of household responsibility and the industry sector relieved from the complete dominance of the government. Moreover, lot of small scale industries under private ownership has been developed as part of Deng’s reformation process (Gao). Deng has realised the practical limitations of communist theories and made lot of changes in it in order to make it more acceptable to the public. Thus the concept of collective agriculture methods was given way for individual agriculture method. Deng has realized that China, the most heavily populated country in the world cannot develop properly, if they stay away from the global economic activities. He has realized that the Chinese market was not sufficient enough for selling their products and the western markets are essential for selling their products. Deng has opened the Chinese economy and made it more transparent than the Japanese economy at present. China never opened their critical sectors for private participation. At the same time they have encouraged privatization in most of the non-critical industrial sector. Before Deng, no organizations functioned in the private sector in China because of the strict adherence or observance of communist principles. But Deng, the Chinese leader who succeeded Mao, has rewritten many of the communist principles which gave momentum to the economic progress of China. Deng allowed privatization of business partly and gave more authority to the local officials and plant managers which helped these officials to take immediate decisions suitable for the company or organization without waiting for the governmental intervention. Business enterprises have been granted independence as part of economic reforms China is one among the few nations which escaped from the onslaughts of recent recession. When most of the capitalist countries like America and Britain struggled to tackle the current recession, China was succeeded in keeping their growth phase intact. Many prominent business organizations in capitalist countries collapsed while Chinese organizations stood tall among them. “China opposed the global economic order, political order and the major global institutions such as the IMF and the World Bank before the reforms started in China” (Overholt, p.3). Earlier, China interpreted globalization as a product of capitalist countries to exploit the wealth of other countries. China’s earlier reluctance in accepting globalization served as a blessing to them rather than curse. In other words, China’s hesitance in implementing globalization policies helped them to escape from the initial drawbacks of globalization. At the same time, when such drawbacks were sorted out, China started the economic reformation process immediately. In short, state capitalism has given way for private capitalism in countries like China which helped them immensely in keeping their progress intact. To conclude, state capitalism has lost its significance in the present word because of its inability in giving adequate living standards to the public. Private capital is necessary for the economic development of a country irrespective of the nature of administration (communist or democratic) prevailing in a country. States have limitations in stimulating the economic growth of country with the help of internal resources alone. External resources are necessary for the proper development of a country and for that purpose foreign direct investment or private capital is necessary. The myths about state capitalism have been evaporated from the current world which is evident from the fact that even China like adamant communist countries are running after private companies. Works Cited 1. “Does capitalism require a specific form of government?”. Web. 28 March 2011. 2. Gao,Tao. “Globalization and China: Impacts on the Economy and People's Quality of Life”. 2003. Web. 28 March 2011. 3. Hampton, Paul. “State Capitalism in Venezuela”. 2007. Web. 28 march 2011. 4. Kilcullen John. Marx on Capitalism. Web. 28 March 2011. 5. Keidel, A (2008). China’s Economic Rise—Fact and Fiction. 2008. Web. 28 March 2011. 6. Mai Y. H., Adams P., Dixon p., and Menon J. “The Awakening Chinese Economy: Macro and Terms of Trade Impacts on 10 Major Asia-Pacific Countries”. 2010. Asian Development Bank. ADB Working Paper Series on Regional Economic Integration. Web. 28 March 2011. 7. Overholt, W.H. China and Globaization.2005. Web. 28 March 2011. 8. Permalink, Daniel. 2008. “Venezuela News And Views”. Web. 28 March 2011. Read More