WHAT IS STATE CAPITALISM?

by Dan La Botz

In recent history governments have nationalized banks when the pressures of internationalized financial markets and international competition have made it difficult for them to control and stabilize their finances and currency. During the last couple of decades, countries as different as Mexico, France, Sweden and Japan carried out partial or more or less complete bank nationalizations to regain control of the financial situation.

Japan's experience more than a decade ago was much like that of the United States in many ways. After a period of great productivity and prosperity in the 1980s, in the early 1990s, Japan's housing bubble burst, leaving Japanese banks holding sheaves of bad loans. The Japanese housing boom collapsed just as China began to become an export competitor.[1] After neglecting the problem for some time the Japanese government intervened, spending $440 billion dollars of its taxpayers' money to nationalize the weakest banks, infuse capital into the stronger banks, and to protect depositors.[2] Japanese banks were required to create a Business Revitalization Plan, at the center of which was a capital / asset ratio. Some economists and journalists have suggested that Japan's solution -- partial nationalization and partial financial support for private banks -- could provide a model for the United States in the current crisis.

Bank nationalization had a different character in an earlier era. During the 1930s a far more radical left than that of the 1980s had raised the slogan "Nationalize the Banks!" as part of a revolutionary, transitional or radical reformist program aiming at the establishment of socialism in a not too distant future. Socialist parties around the world had since the nineteenth century called for the nationalization of the banks, transportation and communication, industry and mining. The idea was that nationalization formed an integral part of socialization, of banks and industries which would be guided by a national economic plan elaborated democratically either by a kind of parliament or by national representatives of workers councils. For some the Soviet Union's experience -- a nationalized economy which brought about rapid industrialization and victory in World War II -- represented a confirmation of their notions of the value of centralized planning. Only later would the problems of Stalinism or bureaucratic Communism, that is, undemocratic centralized planning managed by a totalitarian dictatorship and forced labor, become clear to all.

In France, liberated at the end of World War II by a combination of Allied invasion and national resistance movement of the Maquis' guerrilla bands, there was a great revulsion against the Third Republic, the Vichy government, the French elite, and capitalism more generally. Socialist and Communist Party influence was great, and it was in this atmosphere and under this pressure that the French government nationalized the largest banks on December 2, 1945. This was a far more popular and democratic nationalization than those of the 1980s and 1990s, but it did not fundamentally change the character of French capitalism. Socialist, Communists and Christian Democrats then joined together in the Three-Party Alliance, and established the Fourth Republic.

During this first bank nationalization, the new French government established a Bank Control Commission with the power to oversee the running of both the nationalized banks and the remaining smaller, private banks. But there was also a National Credit Council appointed by the government played a key role in determining the policy of the banks. It was made up of seven members chosen for their expert financial knowledge (from the nationalized and private banks, from the foreign trade banks and from the stock exchange), seven representatives of the country's labor unions, including the bank workers, and ten representatives of various economic interests (agriculture, cooperatives, foreign trade, shipping, chambers of commerce, and craft organizations). A cabinet minister presided over the council and the governor of the Bank of France served as vice-president.[1]

France's nationalized banks worked with the government and private industry to fulfill the 470 billion franc Monnet plan for reconstruction and development. The nationalized banks were used in particular to finance other nationalized firms, such as the gas and electric company. Often the nationalized firms were less sound and less profitable than the private corporations, so the nationalized banks became a kind of government subsidy to state industry. Whatever the left parties had envisioned when they supported nationalizing the banks at the end of the war, and some no doubt saw nationalization as a step toward socialism, it became part of the process of reconstructing European capitalism. European social democracy gave up the struggle for socialism and undertook instead the management of capitalism along Keynesian lines. While the social democratic welfare state provided reforms, it could not ultimately escape the vicissitudes of capitalism, and like the American liberal welfare states, had to bend before neoliberal reforms in the 1980s.

The Question of State Capitalism

Nationalization of the banks has usually represented a recurring stage in the experience of modern capitalism, which is to say state capitalism. At its birth, capitalism shared the cradle with the modern state. The two grew up together, two brothers testing their strength against each other, and drawing strength from the tests. As they matured, they transformed capitalism into imperialism, and used their strength to extract wealth from the societies of Asia, Africa and Latin America.

Rudolf Hilferding, the Austrian-German economist wrote in his book Finance Capital published in 1910:

"Finance capital does not want freedom, but domination; it has no regard for the independence of the individual capitalist, but demands his allegiance. It detests the anarchy of competition and wants organization, though of course only in order to resume competition on a still higher level. But in order to achieve, and to maintain and enhance its predominant position, it needs the state which can guarantee its domestic market through a protective tariff policy and facilitate the conquest of foreign markets. It needs a politically powerful state which does not have to take account of the conflicting interests of other states in its commercial policy. It needs also a strong state which will ensure respect for the interests of capital abroad, and use its political power to extort advantageous supply contracts and trade agreements from smaller states; a state which can intervene in every corner of the globe and transform the whole world into a sphere of investment for its own finance capital."[2]

The Russian Bolshevik political leader and intellectual Nicolai I. Bukharin, following Hilferding, would argue in his book Economics of the Transformation Period published in 1920 that out of imperialism and war had arisen "a new model of state power, the classical model of the imperialist state, which relies on state capitalist relations of production."[9]

While many things have changed since 1910, the tendency of financial institutions to seek the protection of the state in a world of intense foreign competition remains. While Hilferding and Bukharin seem to have envisioned something like the literal fusion of the state and finance, what we have seen instead throughout the modern period is an oscillation of periods of quasi-fusion through nationalizations and of quasi-independence during periods of privatization. Whatever the exigencies of the moment, in the face of international competition, diplomatic rivalry, and foreign wars, financial institutions and the state will tend to seek out relationships of mutual benefit to the dominant bloc of finance capital. Nationalization of the banks tended to be a moment in this oscillating relationship, the moment of the salvation of the banks by the state.

The Role of Nationalization in the Program of the Left

Yet the socialist argument that banks controlled by a government of the people could be a step toward socialism does have merit. Left social movements and political parties should raise the idea of nationalization of industries and the banks propagandistically and educationally, but this notion only has socialist implications when linked with the idea of working class control of the state. The slogan "Nationalize the Banks!" as an agitational point makes sense only when there is a mass movement and a working class ascendant which has the power to use nationalization even under capitalism as a tool to weaken private capital. The left has usually called for the expropriation of the banks without compensation, though perhaps in some situations it might be possible to buy them and permanently retire the bankers. The slogan of nationalization becomes most meaningful as part of the program of the left when we make it clear that we mean the socialization of industry under democratic control and when combined with the notion of workers' control of production itself. The goal in the end is the most democratic control of the government and the economy.

The problem for the left today, however, is to organize to build labor and social movements, and to build a political party of the left which could put such a demand as "Nationalize the Banks!" on the agenda. Today the problem is to keep the government from simply using the taxpayers' money to save the banks and sending them back on their merry way. We have to be part of the struggle to make sure that that doesn't happen.

1. Margaret G. Myers, "The Nationalization of Banks in France," Political Science Quarterly, Vol. 64, No. 2 (June, 1949), pp. 189-210.

2. Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Development (London: Routledge & Kegan Paul, 1981), p. 234.