State capitalism is a political ideology-based economic system wherein the capitalist industry is a part of the state bureaucracy and the receiver of capitalist carry-over is the government itself. In other words, the term state capitalism may refer to an environment where the agents of production are both privately and state-owned but the state has abundant control over the apportionment of credit and investment. It is a flavour of capitalism where the government controls a good share of the economy and behaves like a huge corporation empowered by their unique stock market system.
The word 'state capitalism ' was first generated by Wilhelm Liebknecht, a German sociologist and the principal founder of Social Democratic Party of Germany in 1896 by stating, " Nobody has combated State Socialism more than we German sociologists; nobody has shown more distinctively than I that State Socialism is really State Capitalism."
An American political scientist and the founder of Eurasia Group, Ian Bremmer highlighted the most important tools of state capitalism in his book, 'The End of the Free Market: Who Wins the War Between States and Corporations ' which include natural resource corporations, State Owned Enterprises(SOEs), privately-owned national companies and sovereign wealth funds. In the 21st century, state capitalism is being practised by China, Norway, Russia, Singapore, Brazil and Taiwan who have gone through several changes which transformed their systems into a dynamic one. A survey published by 'The Economist ' in 2012 which appeared in the book 'State Capitalism in Eurasia' illustrates that state capitalism changed its structure and effectiveness compared to its initial concept and formation.
The major distinction between genuine socialism and state capitalism lies in the existence of private corporations alongside SOEs and the distribution of products as well as resources. In a socialist economy, private firms do not exist unlike in a state capitalist economy where they exist as a minority while SOEs dominate the market. Considering the characteristics of socialism and the economy of the former Soviet Union, it is clear that the USSR was running state capitalism labelled as socialism. State capitalism and the capitalist free market economy differs regarding the control over the market by government or private corporations.
The upheaval of China has pulled state capitalism topic from graveyard even though Norway has been the most successful state capitalist economy globally. State capitalism was favoured previously by Imperial Japan and later adopted among the Four Asian Tigers excluding Hong Kong. Between 1961 and 1993, South Korea was governed by a succession of military regimes established by Park Chung-hee. That time, the state decided what kind of private factories could be built and where. In exchange, the state provided those private corporations with continuous support. After the fall of the military regime, the South Korean economy was metamorphosed into a neoliberal capitalist economy which resulted in greater economic turmoil and discrimination.
In Singapore, the SOEs have played the most vital role in building the dedicated infrastructure and other major foundations of the country's economy since the 1980s. Throughout the 1980s and 1990s, the SOEs of Singapore expanded at an unprecedented rate which caused serious tensions among the private corporations. Therefore, the government took the matter into their own hands at the beginning of the 21st century. As a result, the Singaporean government made Singapore the second most "economically free" country in the world according to Heritage Foundation's Index on Economic Freedom by corporatising, enacting public listings and divesting a large number of SOEs. Despite being recognised for such economic freedom, the state owns 90 percent of the country's land and a huge amount of the means of production, according to the People's Policy Project data.
Norway practises state capitalism using the Nordic Model which has laid the foundation for welfare states in the Nordic region. This makes Norway exceptional in the region. This Scandinavian nation has presented itself as the role model of state capitalism with the world's largest sovereign wealth fund or as its officially known, the Government Pension Fund of Norway which is worth more than $1 trillion and controlled by the Norwegian Central Bank. This oil-rich country embraced the state's influence in the economy after establishing Equinor ASA (formerly STATOIL), a Norwegian SOE based on the crude oil that was discovered under the Nord Sea in 1959. Equinor was the 26th largest company in the world in terms of profit according to Forbes in 2013. Similarly, the Norwegian government fully owns Statkraft, Europe's largest renewable energy and the third-largest conventional energy-producing company which owns 67 percent share of Equinor.
The sovereign wealth fund of Norway has invested in more than nine thousand companies globally among which are the biggest corporations in the world such as Apple, Facebook and Tesla since 1990. It gives Norway incredible spheres of influence inside major international corporations.
China is the second-largest economy in the world and may become number one around 2028 as predicted by the UK-based Centre for Economic and Business Research(CEBR) as COVID-19 bolstered China and battered the US. However, Chinese state capitalism or party-state capitalism started its journey in 1978 when Deng Xiaoping launched China's economic reforms. Since then, the SOEs have dominated the country's economy and contributed to its extraordinary economic growth. After Xi Jinping's arrival in 2013, the SOEs have gone one step further by receiving 83 percent of loans in 2016 compared relative to the 35 percent it got in 2013. Regarding Chinese SOEs, Sherman Katz wrote on Financial Times,"...the 100,000 state-owned enterprises that produce one-third of China's gross domestic products and provides one-fifth of all its jobs." Authoritarianism and party-state capitalism in China is not unusual because the Chinese Communist Party owns roughly 80 percent of the shares in the Chinese stock market.
This type of state capitalism can be a phenomenal economic strategy for emerging and least developed economies although existing corruption may be the key hurdle to successful outcomes after adoption. Still, the mixture of dictatorship or authoritarianism with state capitalism has tarnished the system's reputation as state capitalism is utterly an economic system, not a variant of governing a country. Norway's democracy rank shows us that no economic system should be conflated with democracy or any other type of government such as monarchy and totalitarianism.
State capitalism promotes economic globalisation under nationalism. Every state capitalist economy had to transform from one system to another just like Russia transformed to state capitalism from socialism. In this regard, American journalist Joshua Kurlantzick wrote,"...state capitalism presents a real potential alternative to the free-market model and as alternative it presents serious threats to political and economic stability around the world " in his book 'State Capitalism: How the Return of Statism is Transforming the World'.
In the ever-changing world, no economic system lasts forever. The long-lasting battle of economic systems between free-market capitalism and state capitalism will come to head as SOEs compete head-to-head with multinational private corporations. So, in the near future, although there might be a lot of capitalists, not all will be from free-market economies.
The author is a student at the Department of Criminology, University of Dhaka. He can be reached at [email protected]
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.