State Socialism Versus State Capitalism

In comparative economic systems — to some extent a dying field — a distinction is often drawn between state capitalism and state socialism. Both are capitalistic at heart, but under each system the government owns industries such as railroads and the post office.

State socialists run these enterprises to maximize social good, e.g. the post office might be forced to deliver to unprofitable areas if the social good from doing so is large enough. Thus, profit maximization is not necessarily the main goal of state socialist governments.

State capitalists would operate these enterprises to maximize profit. A railroad would only go to areas where it is profitable, social considerations are off the table.

It seems to me that at least some aspects of the debate between Democrats and Republicans on how to run the government is really a debate over how the government should operate the enterprises it has control over (e.g. public goods). Should the government maximize profit, including outsourcing to the private sector whenever it might save a penny, or should social goals play a large role in how these entities are operated?

But this is, admittedly, a pretty unfamiliar area for me so I’m mostly fishing for comments and hoping to learn something from all of you …

This post originally appeared at Economist’s View and is posted with permission.

7 Responses to "State Socialism Versus State Capitalism"

  1. Edmundo   February 17, 2012 at 12:27 pm

    You don't need state capitalism – capitalism can and should take care of itself in the free market; it should not interfere with:

    State socialism – needed wherever the needs of society run counter to individual self interest. Obvious examples are national defense, public health, communications and universal standards of capability.

    This last carries the argument for social support of education and fitness for work.

    The state is also the best agent to discharge other social responsibilities where self interest implies a conflict of interest. So maintaining standards of honesty and decency are the province of the state, as is the provision of a secure means of saving for retirement.

  2. goldmundo   February 18, 2012 at 9:43 am

    Como dijo Mao.el gato no importa si es blanco o negro sino que cace ratones.El Estado debe controlar a todas las corporaciones: empresarias.sindicales,iglesias,militar, etc. y significa tener la vision equitativa final sobre los intereses que persiguen cada una de ellas.

  3. Sirousse Tabriztchi   February 18, 2012 at 2:59 pm

    The sythesis of state capitalism and socialism has been an ongoing two steps:

    1. Set up state capitalism: privatize and help the too big to fail.
    2. Set up state socialist supervisory organizations to watch the too big to trust.

  4. Ed Dolan
    EdDolan   February 19, 2012 at 10:31 am

    Fishing for ideas? As a long-time prof. of comparative economics systems, here's how I would define the variations of socialism and capitalism for my students:

    Free market capitalism: Private ownership, owners seek profits for themselves by producing goods that are more attractive to their customers in terms of price or quality than those of their competitors. Examples: Taggart Transcontinental, Ford (partially, at least by comparison with GM)

    State capitalism: Private ownership, owners seek profit for themselves by enlisting the power of the state to generate demand for goods, exclude competitors or subsidize losses. Examples: Gasprom, Krupp (Nazi era), GM, Bank of America

    State socialism: State ownership, state seeks profits, privileges, and other rents for members of the elites that control the state. Examples: USSR, N. Korea

    True socialism: Small groups create enterprises under cooperative or mutual ownership for the common good of group members. Works best when embedded in a larger free market capitalist system that provides necessary infrastructure and legal institutions. Examples: Mobile slaughter unit operated by local farmers in my community

  5. gzuckier   February 21, 2012 at 9:04 pm

    Well, look at health care. It seems obvious that a large sector of the population seems to have lost track of the concept that the purpose of health care is to keep people healthy and alive, not to cut costs and provide a profit for investors.

  6. Paulier   March 3, 2012 at 11:40 am

    How about thinking in terms of market failures? These exist, you know: monopoly, information asymmetries, public goods, commons. State socialism lets capitalism have sway where it will, but in areas where there are market failures, the state steps in an effort to bridge them. (Note the "effort" here: sometimes it screws up). Think Scandinavians. State capitalism doesn't care: the market is the market, and the state is as good a player in it (yes, for profit) as anyone. Let markets fail – that's where you really get the profits!

  7. ForrestSCS   May 21, 2013 at 4:35 pm

    Ugh, I'm so damn confused.
    Best I know the difference between Capitalism, Socialism, and Communism is all about Ownership in regards to property and production. State Capitalism disappoints me as a word, as it's contrary to Capitalism itself. It's no wonder that so much confusion resides around the world, as in this article itself in regards to State Capitalism, it redefines what capitalism means, no longer about Ownership, but rather motive.
    If capitalism is not an issue of ownership, then what is common about "State Capitalism" and "Free Market Capitalism" that makes it Capitalism as we define it alone? And furthermore, what makes that commonality so distinctly different from Market Socialism or Socialism for that matter when ownership is no longer relevant?

    Furthermore "maximizing profit vs social good." is completely subjective. It assumes Capitalism = maximized markets, and maximized = less able to determine social good vs a rigidly enforced market by the majority or elite. Hmm, I am about to blow my mind in discussing politics when terms that should be so basic like Socialism, Capitalism, and Communism are so convoluted that we can essentially call Socialists systems Capitalist only when the motive is merely proclaimed not in the interest of the "greater good" by someone.