Imagining State-Capitalism

People from all ideological angles will agree that we don’t live with truly free markets in the West, or anything close to it. “Capitalist” societies, or ones regarded as driven by “markets” are actually mixed economies where sectors of industry and economic activity are either overtly planned and directed by the state, or at least guided and protected by it — in other words, it’s more accurate to understand these systems as state-capitalist ones.

Yet, when proponents of free markets take others (who claim to also be) to task for lacking strong criticism for the status quo of modern state-capitalism, there’s often friction in the conversation, and a threshold they can’t get others to cross. Of course we live in an imperfect world, the so-called “pro-market” capitalist apologists will say. But the idea that the government and other centers of power like mega-corporations ultimately “guide” or “steer” economies through deliberate social and economic policies and decisions doesn’t seem to be right. That’s what we’re supposed to understand happens in other systems and societies — specifically, those of our geopolitical rivals. The farthest some self-proclaimed capitalists will go is to point to specific instances of corruption, wrongdoing, or interference by the state as troubling hurdles and interruptions in an otherwise decent market system.

That some can’t wrap their heads around the idea that the current state-capitalist order radically violates market principles in crucial ways that produce injustices is sometimes a failure of their own understanding, or a refusal to seriously look at the facts — but not always. It is  many times a failure on the part of those who bring this idea and conclusion to their attention, and how they do it.

The trouble often starts with a tip-of-the-iceberg-then-down approach. Hardcore market anarchists, for example, will make observations of instances of state investment and planning, corporate cronyism, or large-scale meddling from the political sphere. They then start sticking other political ideas onto that, and try to build a picture of the world they can use to draw conclusions about the whole system to their listeners. People using this approach know that critiquing state-capitalism is about more than throwing out certain examples, but they feel this is a good place to start discussing the broader point about the realities of concentrated state and corporate power steering the economic and social systems we live under.

However, because so many are convinced that the economic systems we live in are largely market-based, this route may be the worst possible approach. Bringing up certain examples of corruption, wrongdoing, or state overreach here and there won’t change the fundamental assumptions some operate under. They will agree with the observations and points being made in this case or that, but draw different conclusions about the overarching order from them.

A more productive way to help someone understand the realities of state-capitalism (and, incidentally, one to keep yourself disciplined and sharp with) is to go from the bottom-up. Start from the first principles of what an imagined state-capitalist society would look like, and build from there. In other words, if we take a tour of what the basic tenets of a state-capitalist order would look like in our imagination, we can then see how, if at all, these kinds of tendencies and orders manifest themselves in the world we live with today — but as a second exercise and thought process. At that point, the question for defenders and apologists of the current capitalist order would be to explain if the world aligns itself more or less with the idea of free markets (save for some problems here and there), or the one of state-capitalism and all of its tendencies and incentive structures as outlined.

Where to start with the first step of this approach? There are many things one could say about a world of state-capitalism in principle, but let‘s explore two major pillars: major state involvement, investment, and guidance of the economy; and the creation and maintenance of protections and privilege for certain private players and entities.

The State: Occasional Referee or Active Player?

If we’re creating the “ideal” state-capitalist society in our minds, even one where we could assume the absolute best intentions of those at the helm, we have to understand how a central political authority would coexist with (or oversee) the sphere of private ownership of the means of production, property, and so on.

There are different degrees to which a state can be involved in a capitalist society. One could imagine this involvement being a mix and match of many roles at different levels, but when it comes to their involvement in the economy, a simple way to categorize levels of involvement is to think of the state as either a) an enforcer of a framework of laws and rules that operates courts and other systems to mediate or arbitrate civil disputes, b) a provider of a welfare/safety net system that aims to ensure no one falls below a certain level of wellbeing, c) an active industrial planner, regulator, and investor (in the name of the good of the economy and all within it), or d) some combination of all of the above.

What would give us the most breadth of state involvement in an economy or society would of course be d), so we will continue with that assumption for the purposes of imagining a state-capitalist society here.

Working through the mental experiment, one quickly realizes that the state would necessarily become a key player, and sometimes a major driving force, in certain industries — especially those that provide the backbone for other ones (e.g. telecommunications infrastructure). Smaller merchants and private trading might only be lightly regulated, but as certain industries become larger or recognized as key economic centers, they will receive state attention as support — for the greater good, of course. The result is that many sections of a country’s economy would be not as robust without state gasoline on the fire, and perhaps might not exist at all. The state would also play an active role in trying to manage the effect of various economic trends (like job loss or other forms of economic suffering).

Now, to the real world. After such an exploration of first principles and getting someone to agree to the basics outlined, it would be interesting to see how, or if, they could argue that the richest Western economies are mostly being refereed, rather than steered.

In the United States, for example, many focus on nascent industries and economic disruptions to illustrate the world of glorious market principles we all mostly enjoy, (e.g. the newest runaway unicorn Silicon Valley tech company on a new trend). To be sure, examples like this are certainly often the results of free market tendencies, but they are falsely said to be examples and accurate indicators of the character of the larger sandbox everyone plays in, rather than an interesting occurrence in a certain corner. One should also keep in mind that a length of time should be observed as a company or industry grows in importance — these things have a tendency to become supported, regulated, or coopted by the state.

Furthermore, there are many other industries responsible for vast amounts of economic activity where the state is not simply a supporter or meddler, but the main cause of the activity: the defense industry, telecommunications structures, and (perhaps most importantly) all of their often-forgotten suppliers, ecosystems, and offshoot industries — certain industries of subcontractors, or even certain companies, that would completely disappear without a constant flow of state cash and support, or purposeful direction of resources.

The Capitalists: Challenged By The Market, Or Successfully Suppressing It? 

In our imagined state-capitalist society, what would large businesses or centers of industrial activity benefit from (or see more of) once they are established? Will the state eagerly invest in, depend on, or cooperate with certain sectors and industries without protecting that investment? Will the business class eagerly and dutifully subscribe to the idea that their interest should be one of multiple left to compete to do better for their consumers, or that their interest specifically better serves the public interest and should be supported or protected? To both, will competition, and the unintended dispersed benefits that come with it (including lower prices of goods and services on the market), be viewed as forces disciplining firms for good, or destructive tendencies that create instability and uncertainty for the best-laid plans and routines?

It would be hard to imagine a situation where the state brings a legislative and legal system and an active role to capitalism that is not seized upon or influenced by various industries and businesses (with the cooperation and involvement of political operators) to protect itself from disruptive market forces — more than just an instance of corruption, but ongoing intervention on a systematic basis. More than likely (again, even assuming the best intentions), the larger, incumbent players of industry will view themselves as job providers and bringers of economic health, growth, and stability. Competition, to these players, is not a feature of the system, but a bug, best removed as soon as possible.

The desire would be to protect business and industry from the dynamic and distracting effects of serious competition, and to see industry supported when other circumstances beyond its control (say, a supply shortage) may disrupt regular affairs. Additionally, the idea that someone could copy an invention or product and undercut the price of another’s final product would be regarded as not only a disruptive infringement of effort previously conducted, but also a robbery of revenue and profits that are more naturally and rightfully the property of certain players.

Furthermore, the business class would have a hard time imagining the economy growing, if the people running the business world don’t feel that they can take risks or manage investments that aren’t directly tied to their personal liability. For the supposed good of the economy, there would be some sort of mechanism allowing a decrease or limit in liability to free the people behind the curtains at business entities from worrying about their own houses or assets in the event of investment mistakes or other issues. Or, at the very least, when something does go drastically wrong, the state could be counted upon to rectify the issue.

Now, back to the real world.

What kind of systems and frameworks do businesses — especially large ones — enjoy, and how do they view their function and place in our current set of systems? Do we live with mechanisms and systems that function to increase business power and negate challenges to it, or is it actively checked by market forces? Are resources and the buying and selling thereof, for instance, moving from a multitude of relatively small buyers and sellers dispersed across different countries in a way that puts downward pressure on prices and encourages innovation? Or are they at the disposal of certain entities in key industries working to further entrench their positions, in ways that often have little (if nothing) to do with providing better products and services? Do many powerful centers of business enjoy different levels of privilege and mechanisms to prevent others from entering the market? We can go on comparing the imagined to the real and see what the final score is.

So, What About The Real World

If anyone is still unconvinced by the exercise, and doesn’t feel that the state, capitalism, and the dynamic in-between are as adequately represented in real life as they are in this mental exercise, the question then remains for them: Where do the first principles and the imaginary world described radically differ from the world we currently have, in character and results? Or, in other words, where are free market forces the general rule, rather than the exception?

There comes a point when it is impossible to avoid the fact that much of the world we live in does not merely exhibit tendencies of state-capitalism that necessarily violate market principles through the action of the state and entrenchment of business power, but is one where the system primarily operates in just that fashion. Ultimately, we live within systems of state-capitalism with small pockets of free market activity, rather than the reverse. One can more accurately — and powerfully — tell this story by building up from principles and matching examples to that, rather than starting in the reverse.

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About the Author: Alex Aragona

Alex is a business and marketing professional residing in Canada. He also hosts The Curious Task podcast. He is the founder of Speaking Liberally and a contributor.

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