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What Is State Capitalism?

A statue of Deng Xiaoping, the Chinese politician who introduced the idea of the socialist market economy, sometimes considered state capitalism.
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  • Written By: Greg Caramenico
  • Edited By: Daniel Lindley
  • Last Modified Date: 19 March 2014
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State capitalism is the ownership and control of corporations by a sovereign government. It occurs frequently in energy, natural resource, and military technology markets. Common examples include the national oil companies of Russia and Venezuela. In some forms, the state operates publicly traded corporations, while other varieties involve businesses funded and administered entirely through government channels. As a hybrid form of public and private business, the proper role and benefits of state capitalism remain controversial.

Corporations are directed by the government itself in state capitalism. They frequently operate in the energy sector, where state control of essential mineral or petroleum resources leads to a single national corporation like Russia's Gazprom or Saudi Arabia's Aramco. This makes the government a major market participant, not merely its regulator. The state uses markets to create wealth and enhance political power, and then implements economic and legal control of industry to inhibit competition. Socialist states that control production or sale of goods on the global market, or which own majority shares of publicly traded corporations, are practicing capitalism.

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By trading in global markets and competing with multinational private corporations, state-held businesses participate in the world economy. But unlike their free-market competitors, they are not always subject to internal competition and can sometimes become monopolies. State capitalism may involve the use of government regulation, policing, and even military protection to enhance profits and to prevent individuals from private competition in the same market sector. In less authoritarian countries, particularly developing ones like India, state-run industry extends only to sectors deemed necessary for defense or domestic growth and stability.

Marxist theorists like Leon Trotsky and his followers argued that state capitalism was an evolution away from the free market. Some economists instead defined it to include dependence of a private market sector relying on a government to buy its products and subsidize its industries. Monarchies like Saudi Arabia, presidential systems like the Russian Federation, and communist regimes like the People's Republic of China all share a certain level of economic interventionism. In China's socialist market economy, the state views itself as a part of the market.

Advocates of state capitalism sometimes argue it is necessary in developing countries, where profits from national assets like oil reserves must be directed toward domestic growth and employment, and only the government can ensure this. For instance, in post-colonial nations during the first few decades after the World War II, nationalizing industries was a means of reducing foreign control of domestic economies. Critics have called these arrangements monopolistic and "crony capitalism," noting how often authoritarian regimes have such firms, and the ease with which friends of rulers and members of the governing class profit from and direct these businesses. The analyst Ian Bremmer has written that state-run corporations present challenges to global free markets.

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