State Capitalism and Its Forms

State capitalism mainly refers to a capitalist economy controlled and regulated by the state in combination with the state power. Its nature and function depend on the nature of the state. In capitalist countries, state capitalism is led and supervised by the state, benefits the bourgeoisie, and opposes the proletariat. In fact, it is a state monopoly capitalism, which serves bourgeois rule and private capitalism in a disguised manner.

During the period of socialist transformation of capitalist industry and commerce in China, state capitalism was conducted by the state led by the working class, connected with state-owned socialist economy in various forms and supervised by workers. Mao Zedong pointed out that state capitalism was “the only road for the transformation of capitalist industry and commerce and for the gradual completion of the transition to socialism.”

For Mao Zedong, in China, state capitalism was a transitional economic form during the socialist transformation of private capitalist industry and commerce, according to the degree of its connection and combination with capitalism and socialism, it could be divided as the primary and advanced form.

The primary form was that the state-owned economy and the relevant units of the state implemented the policies of processing, ordering, unified purchase and exclusive sale towards the private capitalists, while the private capitalists were allowed to distribute and sell goods as agents of the SOEs. In this primary form, in the distribution of profits, the capitalists' income from the profits was limited to about 1 / 5 of the enterprise's profits, and the capitalist industry and commerce were initially brought into the orbit of the state’s economic plan. At that time, it played a positive role in developing production and guaranteeing people’s livelihood needs, promoted the reform and combination of enterprises and the transformation of capitalists. However, in the primary form of state capitalism, the means of production were still owned by capitalists, and the management power in the enterprises was still in the hands of capitalists, therefore the contradictions between labor and capital, between public and private, and many contradictions in respect to enterprise management could not be effectively solved. With the establishment of Party's general line in the transitional period, and due to requirement of the planned development of the national economy, this primary form was raised to the advanced form.

The advanced form refers to the state's implementation of public-private partnership for capitalist enterprises, which was first implemented in a small number of enterprises, later spread to the whole industry. Since 1954, the Party and the state developed private-public joint ventures and transformed the privately enterprises in a planned way. The meaning of public-private joint venture was that the state invested in private capitalist enterprises and sent government cadres (i.e., public representatives) to these enterprises to jointly manage production and reform enterprises with the cooperation of workers and capitalists (i.e., private representatives) in accordance with the needs of national construction. This kind of public-private joint venture enterprises were already a semi-socialist enterprises. Apart from a small part of the profits of this enterprise from which dividends were paid to capitalists, the vast majority of the profits were used to develop production and improve the welfare of workers in accordance with the national construction plan; under the leadership and supervision of the government representatives (public representatives) and the masses of workers in the enterprise, the operation and management of these enterprises could facilitate reform according to the needs of the state. However, there were still contradictions between labor and capital and between the public and the private within this kind of public-private joint venture enterprises. In order to solve these contradictions, following policies were practiced: the boundaries of enterprises should be, implement unified management, further transform capitalist production relations, and spread public-private joint venture type of enterprises to the whole industry. At this advanced stage of public-private joint venture which was spread to the whole industry, the original data of capitalists were transferred to the state for use and unified management and allocation by the state; accor ding to the amount of private equity shares, a dividend of 5% was annually paid to capitalists during this stage.

At that time, the public-private joint venture was basically a part of socialist economy. State capitalism was an important transitional form of socialist transformation of capitalist industry and commerce, which played a positive role in completing the task of the general line in the transitional period.