Seymour Melman

State Capitalism

(1985)

 


 

Note

Source: Seymour Melman, The Permanant War Economy, Chapter III, 1985.

 


 

STATE CAPITALISM is a business economy whose top directorate is located in government. The state-capitalist part dominates the entire economy even though private business may still operate within it. With respect to decision-making on production, the enterprises and the top management of state capitalism retain the essential characteristics of private-business capitalism. These features include separation of decision-making from producing; income linked to decision-making role; organization of decision-making on a hierarchical basis; a professional-occupational imperative among the decision-makers to extend their decision power individually and in competition with other management groups. These features continue under state capitalism even as the forms of control are different from private-business capitalism. In the classic business economy, the chiefs of the larger industrial and financial units usually had substantial political influence. In state capitalism the chiefs of the economy are also the political chiefs of government. Hence, state capitalism joins ,peak political and economic decision power. This is visible in the mainly civilian-oriented state capitalism of Western Europe and Japan. In the United States and in the U.S.S.R., with their permanent war economies, military power is added to this concentration. At the enterprise level, state capitalism involves substantial changes for the management of individual firms. Typically, the management of an enterprise cannot be autonomous as under private capitalism, where a business may be small but still independent, controlled by its managers or manager-owners. Owing to the location of the chiefs of state capitalism in government, political considerations are introduced into the relationships among local-enterprise managers. In dealing with higher authority they do not confront senior managers, as in private capitalism, but top managers who also wield political power.

Since the top management of state capitalism spans the whole economy in its sphere of control, its enterprise planning takes the effective form of national planning, even affecting enterprises that may be privately owned and controlled. At once this opens up opportunities for stability for the individual state-capitalist enterprise insofar as it is relieved of at least a part of the uncertainties stemming from dependence on unpredictable market behaviors. Thus a state-capitalist top management can, if it so wishes, guarantee the market for its subordinate firms. This is notably the case under the military form of state capitalism, where the government is the only legal purchaser of the product.

However, instability (as in unresolved class and race antagonisms, prices, production levels and relative value of national currency) remains a feature of state capitalism. The sustained competition for extension of managerial control among the submanagers, competition among the state managers of nations with state-capitalist economies, and the effects of the parasitic qualities of military economy all contribute to instability.

Under both private and state capitalism, access to capital is a crucial consideration. The state-capitalist enterprise manager (civilian-oriented) must compete for his share of capital by political- economic methods. The position is changed for the state-capitalist enterprise manager in military economy. He is assured of priority in capital allocation, since the military economy is given first place in the attention of government decision-makers.

In place of the self-correcting mechanisms of private capitalism, state-capitalist economy, especially in its military form, is more typically regulated by a system of subsidies. Such payments from government appear under private capitalism when government moves in to regulate parts of the economy. But subsidy systems flourish to their fullest under state capitalism, where the chiefs of the economy use their political decision power to enforce their economic priorities. Subsidies appear in civilian-oriented state capitalism, but they take on special characteristics where military economy is the priority state activity. In the latter case the subsidy is rendered on behalf of economically parasitic activity, thereby yielding no economic return to the society for the subsidy grant.

In the Marxist school of economics in particular, attention has been focused on inequality of income under capitalism, associated with occupational (class) position. From this standpoint, military economy introduces a new factor; relatively higher pay, job for job, in the military economy encourages loyalty to that system, thus blurring class and other interest-group conflicts. Thereby, state capitalism, in its military form, cuts through conflict of class versus class and introduces income inequality based upon type of industry and even geographical location, rather than upon occupation. Classic conditions of exploitation are thus revised in accordance with the military priorities of the state-capitalist rulers.

The military economy is more than a collection of enterprises and assorted research organizations that maximize costs and subsidies. On a macroeconomic or system level it is the core of a specifically American form of state capitalism.

 


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