Anna Klimina
Heterodox economists recognize that the state is central in establishing and modifying all market orders. Mainstream economists do not deny that markets cannot operate without the state’s provision of “the legal-institutional process through and within which markets function” (Medema 2003: 434). However, they typically do not allow a role for the state beyond the minimal functions of producing and enforcing the institutional framework that best protects a free market economy, viewed as an evolutionary end-point. In contrast, many heterodox economists believe that the state should direct economic evolution by designing and nurturing institutions that secure greater equality, social justice, and full employment, outcomes that might not emerge as a result of “unfettered operation of laissez-faire capitalism” (Petr 1987: 1453; see also Commons [1934] 1961; Galbraith 1973; Stanfield 1992; Mayhew 2001; Whalen 2008). Consequently, they argue for a profound reconceptualization of the mainstream vision of a minimal state with little remedial involvement in the economy.
Although heterodox economists offer several possible alternatives to the mainstream support of an unfettered market, this chapter discusses a new vision for the state within the framework of the evolutionary-institutionalist school of heterodox economics, which offers more room to imagine the positive roles that the state could play in democratic reformation of capitalist economies. In the first place, “from their American beginnings,” institutionalist scholars have been “proponents of an active state” (Mayhew 2001: 244) that “works for the betterment of [capitalist] society” (Commons [1934] 1961: 6). Furthermore, “as products of modern industrial culture, with its commitment to individual rights and democratic principles, institutionalists accept . . . tenets of liberalism” and celebrate Western values of individual freedom, human participation, pluralism, and respect for human rights (Waller 2006: 22). Their intention is to extend the remedial functions of government to enhance these values (Waller 2006: 22). Original institutional economics, then, draws on its democratic heritage and liberal values to reconceptualize the involvement of the state in market economies.
The broad overview of this reconceptualized state is presented in three stages. The first section demystifies prevailing assumptions about the state, which are centered on the expectation of an inevitable development of rent-seeking and corruption in government; and the desirability of a liberal market, with its minimal state, as the eventual end-point of economic evolution. The second section discusses key tenets of original institutional economics and its ensuing policies that will contribute most beneficially to the proposed new view of the state. The third section outlines the institutionalist concept of state control in state capitalist societies, in which a powerful state, as a large owner of society’s productive property, has a huge potential to improve market economies and move them, in the words of Clarence Ayres (1973: xi–xii), “beyond [existing] capitalism.”
The first and most typical mainstream myth about the state is that self-interest automatically guides the behavior of all state agents. Therefore, state activism, beyond securing the free market institutions, would necessarily promote rent-seeking and corruption (Todaro & Smith 2014: 137). Consequently, mainstream scholars argue that a minimally active government is the best government (Becker 1958: 109). Notably, in the first part of the twentieth century, many (albeit not all) neoclassical scholars acknowledged that state intervention is necessary to correct market failures, such as those caused by externalities and unrestricted market power, situations that distort a competitive market’s efficiency and create social losses (Pigou 1932: 174–183; Simons 1934: 4–5, 19–29). However, since the end of the 1950s, in response to developments in neoclassical theory of government intervention (Backhouse 2005: 358–360), most mainstream scholars began to see state involvement in correction of market failures as an inevitable promotion of corrupt behavior (Krueger 1974). In tandem with post-Second World War Chicago school scholars, public choice economics, which originated in the 1960s, is best known for its emphasis on government failures, belief in the efficiency of unregulated markets, and relentless advocacy for the abandonment of antitrust regulation (Director & Levi 1956; Buchanan & Tullock 1962; DiLorenzo & High 1988). Accordingly, “between 1970 and 2000 . . . an ideology favorable to [state] management of the economy gave way to one in which state action was seen as raising more problems than it solved” (Backhouse 2005: 355), and the conception of limited government has become dominant in mainstream anti-corruption discourse (Streeten 1993: 1292; Chang 1994: 297).
Thus rethinking the role of the state necessarily means dismissing this erroneous link between state activism and rent-seeking. It is unconvincing and inaccurate, based on an extreme distrust of government officials who are assumed to be universally motivated by egotistical ends and not at all by public purpose. We interpret this link, as suggested by Ha-Joon Chang, as “providing vision” for the future and “engineering”—through the “construction of new institutional vehicles for the realization of its vision”—socio-economic changes to national advantage (Chang 1994: 299, 300). As James Stanfield (1991: 775) observes, the “absence [in modern discourse] of a positive theory of the state is especially critical for institutionalists with their penchant for social democratic reform.”
Another closely related myth about the state rests on a teleological vision of humankind’s evolution, which considers societal progress as moving inevitably toward a single social construction (Lichtenstein 1996: 258). In mainstream economics, it means convergence on “an ideal limiting case” of a “liberal market order” (Evensky 2005: 12), regarded as a “civilization standard” (Cowen 2004: 71). From this perspective, mainstream scholars commonly view any increase in state control over the economy as an inefficient and therefore temporary phenomenon that will eventually give way to efficient free market capitalism, due to the forces of global competition and increased transparency (North 1990: 80–91; Boettke et al. 2008: 333–336). In this respect, the mainstream conception of “evolutionary convergence” is fundamentally anti-evolutionary and is similar to “the determinism of neoclassical equilibrium economics, with the equilibrium being a rut rather than a point” (Atkinson 1998: 886).
An equally anti-evolutionary conception of the state is rooted in an ideology of cultural determinism, which over-emphasizes the role of culture and history in defining the nature of the state. Cultural determinism is often used to justify non-democratic prospects for some societies around the globe. To illustrate, once obscure nationalist ideas of a ‘Russian special way,’ grounded in the belief that the country’s inherited non-democratic institutions and cultural attitudes are immutable, have been revived in modern Russia and officially endorsed by the political elite as the preferred ideology. Russia is thus historically and culturally predestined—so goes the argument— to follow the traditional authoritarian path of development, which will always be incompatible with Western values, especially Western respect for democracy, pluralism, individual freedom, and the rule of law (Surkov 2008; Rozov 2012).
Rethinking the role of the state should thus begin with the rejection of such simplistic views of evolutionary processes, and the recognition of the course of societal progress as a divergent rather than convergent process. As a result, it cannot be determined in advance, but remains subject to any deviation brought about by citizens, who can direct and redirect the evolution of the state, typically by changing the legal framework in which a nation state operates.
The importance of human agency in changing the state and consequently, the path of socioeconomic evolution, is a central premise of original institutional economics, whose “volitional, pragmatic and essentially democratic perspective on human societies” (Petr 1987: 1448) is foundational to the vision of the state developed in this chapter. The next section examines in detail the institutionalist perspectives on the state that we consider the most useful for outlining, in the section that follows, the institutionalist concept of state control in state capitalist societies.
All evolutionary-institutionalist scholars argue that a competitive market distributes goods in a socially unacceptable way and consequently support an active state. However, ‘volitional’ or ‘constructivist’ institutionalism offers a wider scope for this chapter’s vision of the state’s positive role in evolutionary restructuring of market economies “along more equitable and progressive lines” (Knoedler & Schneider 2010: 259). This strand of original institutional economics is based on John Commons’ (1931: 655) belief that economic evolution is primarily guided by purposeful human action rather than non-deliberative processes. Such state intervention in economic affairs, Commons believed, is necessary for “making Capitalism good” (Commons [1934] 1964: 143). Below are the key tenets of original institutional economics and the envisioned policies for an activist state, which are the most appropriate and useful for this chapter’s proposed new view of the state.
Unlike mainstream economists, John Commons ([1934] 1961: 6) argues that the deliberative selection of institutions by the authorities is not merely a way to commence and secure the institutions of free market, but also a means to “harmonize” the market, which he understood as “naturally” prone to conflicts “in the world of scarcity and private property.” The evolving market order, according to Commons, is largely premeditated by “the minds of men,” who, “by individual or collective action, control evolution according to their own ideas of fitness” (Commons [1934] 1961: 120), thus constructing “order out of conflict” (Commons [1934] 1961: 109). Consequently, he emphasizes the important role of human volition, especially that of “authoritative agency” (Commons [1934] 1961: 120), in adjusting social institutions through dispute resolution, a premeditated legal action that supports the interests of “certain businesses or classes . . . rather than others,” thus redesigning markets and guiding economic development (Commons [1924] 1968:137–138). Commons ([1934] 1961: 636) defines the outcome of volitional dispute resolution as “artificial” selection, an enforced “survival of good customs and punishment of bad customs,” and emphasizes that “artificial selection” signifies “Purpose, Futurity, Planning, injected into and greatly controlling the struggle for life.” Commons ([1934] 1961: 162) believes in the ameliorative nature of these “artificial selection” processes, and explains that “the visible hand of . . . courts” takes “over the customs of the time and place, in so far as deemed good” and enforces “these good customs on refractory individuals.”
As Yngve Ramstad (1994: 111) notes, through Commons’ metaphor of artificial selection, “it becomes evident that the market system is solely a human artifact, a set of arrangements purposefully selected to advance the well-being of the group (going concern) as a whole.” Along with emphasizing deliberative court decisions in the course of reforming markets, Commons also underlines the important role of political power of the state in guiding evolution by establishing “the laws of the land” that “proportion the factors over which [the state] has control,” “encourage certain businesses . . . rather than others,” “open up certain areas, localities or resources, instead of others” (Commons 1909: 79), and balance “inducements to individuals and associations of individuals to act in one direction rather than other directions”(Commons [1924] 1968: 387).
Institutionalist economists have adopted Commons’ perspective on the role of the state “as a creative entity” that provides “a sense of overall direction to the overall economic evolution” (Chang 1994: 307) and similarly acknowledge that it is through the “legislative, administrative and judicial decisions” of the state that the rights and freedoms in society get “their specific meaning” derived “from the clash of competing interests” (Samuels 1989: 426–428). Contemporary institutionalists go beyond Commons in their focus on the determining role of power relations in guiding the evolution of market economy; they view markets as essentially a product of perpetual interaction between economic and political forces that endlessly affect, reconstitute, and readjust the existing market design (Samuels & Schmid 1981; Mazzucato 2013). They acknowledge that the state’s strategic position within the economy as “the only agent which may represent the interest of the whole society” (Chang 1994: 299) gives the state more opportunities to intentionally restructure market economies for the good of all of society, provided that the state uses its power to design, select, and nurture institutions that compensate for free market deficiencies and promote just development (Pressman 2006: 134).
While institutionalists typically believe in remedial possibilities for the state, they are not idealists who see the state as an autonomous independent entity. Rather, they acknowledge that the state is “captured by powerful corporations” and, therefore, acts as both “the executive committee of the great corporation and its planning system” (Galbraith 1973: 11) and as an “agency of the ruling class” (Solo 1978: 829). However, they do not view the state “as a passive agency of private economic interests” and “as hives of rent-seekers” (Mayhew 2001: 244). They are convinced that for many agents of the state the motives of seeking the public purpose and of instituting fairness are of vital importance (Stanfield 1991: 765). That is why they base their hope for liberation from the hegemony of corporate power and for full comprehensive human development on the countervailing power of the state. As Galbraith (1973: 10) declares, while acknowledging the reality that the state “is captured,” necessary “remedial action”—that is, “the restriction of excessive resource use, organization to offset inadequate resource use, controls, actions to correct systemic inequality, protection of the environment, protection of the consumer”—“lies with the state.”
In contemporary institutionalist analysis, Commons’ metaphor of ‘artificial selection’ could thus be interpreted as an indication of both the state’s ability and obligation to design, impose, and nurture institutions that will correct economic injustices and produce socially desirable outcomes. However, the institutionalist support for the use of the state’s discretionary power to shape socio-economic development and thus guide economic evolution does not automatically indicate a belief in the teleological nature of social evolution or in the ability of the state to predict accurately the direction of movement in societal progress. It merely recognizes that active state control is necessary in order to secure socially just economic outcomes.
There is a well-established consensus among many institutionalists that the state should be seen “as endogenous to the economic system” (Cypher 2014: 252), and as evolving from each society’s “unique cultural, social and political history” (Waller 2006: 31). From this perspective, a country’s historical backwardness and lack of market institutions, particularly the absence of economic relations based on property and rule of law (for contract enforcement), is often considered the primary cultural-historic cause of corrupt and non-democratic states around the globe (Owen 1997; Klimina 2010).
On the other hand, while recognizing the role of history in influencing the form and character of the state, institutionalists also argue that the future of the state is not fully determined by its history (Atkinson 1998: 886). The nature of the state is also shaped by individuals who, singly and collectively, amend state institutions through rearranging power distribution. The institutionalist theory of human nature asserts that, “the individual with whom we are dealing is the Institutionalized Mind” (Commons [1924] 1968: 73), who is socially and culturally embedded and thus “cannot be comprehended outside the social whole” (Atkinson & Reed 1990: 1105). However, within the non-teleological conception of the state’s evolution outlined in the previous section, individuals are also learning agents. They are “always-changing ‘institutionalized personalities’, sentient and thinking personalities” (Mayhew 2001: 240), who can adapt their activities and expectations to “incorporate changes into the existing order” (Hodgson 2000: 327). As Dugger & Sherman (1994: 107) accurately observe, “the individual is not a cultural marionette because individuals can and do transform their culture through collective action and even through individual action,” while “culture itself is continually changing through myriad actions, inactions, and choices of individuals.” Anne Mayhew (2001: 243) explains that the “social goals of individuals and of groups of individuals are shaped by visions of what is possible and by new understanding.”
Consequently, many institutionalists argue that political change, the starting point for the desired economic change, does not originate exclusively from the state, but through a combination of pressure from citizenry and reforms from above. François Moreau (2004: 851) indicates that the state does not have “a priori privileged knowledge on the actions to be undertaken to increase social welfare.” Glen Atkinson (1998: 886) explains that under conditions of pervasive uncertainty, when “there is no extant future path” but “only imagined likely and possible paths,” “if the imagined likely future path is deemed undesirable then we [as active individuals] propose actions to create a possible alternative path.” Finally, Knoedler & Schneider (2010: 266) insist that it is only through active individuals who “demand change,” thus “reducing the power of elites to resist change,” that adjustment of power balance in society takes place, such that “evolutionary change comes about.”
The former Soviet Union’s perestroika (‘restructuring’) movement of 1985–1991, led by then-leader Mikhail Gorbachev, is a case in point. Perestroika represents an attempt by a constructivist state to bring about a politically pluralistic society and a social-democratic market through adjustments to the balance of power in a formerly totalitarian society so that democratic change could evolve. Although perestroika was initially premeditated, imposed, and nurtured by the state, it was the political power of the public, the “power from below,” that was intended to play a creative role in shaping the emerging democratic market order, whose overall design thus remained indeterminate. Of course, the Soviet Union did not have enough time to implement, let alone observe the long-term outcomes of constructivist perestroika policies. That renders premature any suggestion that those policies were unviable and idealistic.
Institutionalists differ on what constitutes an acceptable scope of state activism, despite their shared beliefs in both the necessity of state intervention to correct market deficiencies and the power of human agency to redirect the evolutionary development of national economies. Some institutionalist economists argue that changing the laws which grant more equitable protection to different interest groups, without direct “government intervention in a situation in which it has hitherto been absent,” would be sufficient to reduce the degree of state capture, improve competitiveness, and engineer social change for the better (Samuels 1989: 427–428). In contrast, the majority of contemporary institutionalist scholars believe that only “through scientifically guided” broad government intervention “in the public interest,” particularly through “social control of business,” via “regulation and the development of new working rules,” social “institutions can be reformed” for greater social benefit (Rutherford 1994a: 150–151).
In particular, this refers to the government regulation of private monopolies and oligopolies (Galbraith 1967; Eichner 1976). Furthermore, institutionalists and Post Keynesians argue that, in conditions of fundamental uncertainty, the state should act as an uncertainty-reducing institution (Pressman 2006: 133) and “as an entrepreneur whose task is to provide a vision for the society” and deliver the stable institutions “required to achieve the vision” (Chang 1994: 297). Accordingly, government policies should, first, decrease uncertainty by ensuring price stability, providing certain social safety nets, provisioning and diffusing information, guaranteeing public markets, and regulating industrial, environmental and technology policies; second, provide a level of public investment sufficient for achieving full employment; and third, equalize income distribution through progressive taxation and wide-ranging government spending programs (Pressman 2006; Holt 2013). Fiscal policy should be based on “functional finance” (Abba Lerner’s term) rather than balanced budget considerations. According to Nevile (2012: 224), functional finance implies:
that government expenditures and revenues should be determined so that total expenditure in an economy is at the rate which will produce full employment without inflation. This is to be done without any concern about whether the resulting budget is in surplus or deficit.
While in agreement with all the above policy proposals, some radical institutionalists push the argument for comprehensive government intervention even further. They call for an active progressive state to create or amend existing market institutions. Since such a state is in a better position to substantially improve equity distribution, it can use “economic surplus as a fund for social change” (Stanfield 1992: 130) to promote economic security, socially just amelioration, an end to alienation, and greater equality of wealth and resources through increase in opportunity and participation (Dugger 1987; Whalen 2008; Wrenn 2011). These scholars are also concerned with the distribution of the ownership of productive assets in society, arguing that property rights represent a fundamental form, and key source, of economic power (Neale 1991: 469). As Dowd (1974: 129) notes in reference to the US economy “the power of the ruling class in the country has come principally from its ownership and control of the nation’s productive wealth,” while workers, as Bowles et al. (1983: 27) point out, have “little or no control over production process” and they are “clearly separated from management by layers of hierarchical authority and by significant differentials in income and social status.” Radical institutionalists thus call for the state to encourage more equitable sharing of productive property, through various forms of collective ownership and worker participation in economic decision-making, as well as the initiation of new property in social investment, measures that should be aimed at advancing a “shared-prosperity” capitalism (Whalen 2008: 55).
Given these positions, it is logical to take the next step and envisage a progressivist agenda for the new form of economically powerful states that are emerging in some market economies. State capitalism can be an efficient means through which national economies are intentionally restructured along more democratic lines, provided that the state incorporates key institutionalist proposals for just development and uses its power to design and nurture institutions that compensate for market deficiencies and promote effective economic and political democracy. The next section discusses this issue in detail.
State capitalism is typically denoted as a condition under which a national state controls a substantial part of society’s capital, acts as a significant domestic investor and employer, and directs a considerable portion of international trade and investment (Pollard 2011: 4–5; Wooldridge 2012: 3–6). Defined this way, state capitalism is distinguishable from a merely interventionist state because here the state acts as the largest controller of the economy’s means of production and, thus, as the largest appropriator and distributor of economic surplus. Furthermore, this definition presumes that the state exercises considerable power over socio-economic decisions in state capitalist societies.
Heterodox economists have not ignored state capitalism; however, negative reactions have emanated from scholars ranging from original institutionalist economists to Western Marxians. Western Marxians in particular view state capitalism as similar to the bureaucratic statist economy established in the Soviet Union, despite acknowledging that Soviet ‘state capitalism’ was not actually a capitalist economy (Laibman 1978: 25). They argue that Soviet state officials “appropriated economic surpluses” (Wolff & Resnick 2012: 326) generated by worker-producers, thus retaining the core capitalist division between surplus producers and surplus appropriators (Oppenheimer 2009: 436). Western Marxians often highlight the undemocratic character “of surplus centralization” in Soviet-style economies (Gabriel et al. 2008: 545), the exploitative use of the means of production by state’s officials for the benefit of state elites (Cliff 1974: 159), perpetual worker alienation from control over surplus distribution (Bettelheim & Chavance 1981: 42), and the “hierarchical organization of a workplace” (Oppenheimer 2009: 436). In contrast, institutionalists associate state capitalism with mature capitalism, but their understanding of the term is similar to what Western Marxian scholars identify as “state monopoly capitalism,” a condition under which a conglomeration of powerful private corporations dominates the state to assure maximal conditions for profit generation (O’Connor 1973). Similar to Marxian scholars, evolutionary-institutionalist economists such as Elliot (1984) emphasize and comprehensively examine worker alienation under state monopoly capitalism.
The present rise of state capitalism in the “big emergent markets of China, Russia, India and Brazil” is correctly linked in development literature to a national government’s intention to “resist neoliberalism” (Wooldridge 2012: 3–4) and “gate globalization” (Ip 2013:16) in order to “control capital accumulation,” “protect national economies,” increase the “state’s power over national resources,” and advance the “state’s political ambitions” (Bremmer 2009: 48). This calls for a re-imaging of state capitalism in heterodox economic literature to acknowledge its inherent promise.
Development scholars commonly admit that the primary purpose of state capitalism is to ensure that “market forces” protect the “ruling elite’s political control” (Bremmer 2009: 50), rather than the maximization of wealth production. However, state capitalist governments still administer a core capitalist state, securing and promoting business interests of large state-run companies, which are typically sectoral monopolies or oligopolies. Governments “recognize that profitable state-owned enterprises make the state stronger” and thus stimulate, through financial support of large-scale enterprises in strategic sectors, the creation of “global champions” that enjoy “a special competitive advantage not possible for the private firms” (Musacchio & Lazzarini 2014: 8–9). Researchers also agree that under state capitalism, state-owned and state-controlled enterprises are often “more capital and knowledge-intensive, more productive and more profitable” than they were under state socialism (Vanteeva & Hickson 2012: 173–175).
State capitalism, this chapter argues, can accomplish more than just a successful nationalization of large-scale productive property to advance national strength. When pressured from below by citizens dissatisfied with excessive social inequality, non-democratic polity, non-transparent bureaucracy, and continuing worker alienation from power over surplus distribution (problems thoroughly documented in modern scholarly research on contemporary state capitalism), the state can, unlike private capitalist states, use its considerable power over socio-economic decisions to nurture the democratic fundamentals of the economy and promote a social-democratic welfare state. This is precisely the institutionalist vision for democratic state control in market-based societies that was outlined in the previous section.
The democratic promises inherent in state capitalism in emerging economies can be translated into the most mature capitalist economies as well. These economies are also characterized by a dominance of centralized and bureaucratically controlled large-scale corporations, but these corporations were not developed by design as in many developing and post-socialist economies. They emerged through concentration and centralization of capital, processes based on internal dynamics of competition and accumulation. Due to the nature of technology and market uncertainties, large companies and oligopolistic markets will remain a key part of any kind of market economy, whether private capitalist or state capitalist or any other variation. Furthermore, the existence of large-scale corporations is unavoidable, since large-scale corporations in mature economies, like corporations in emerging markets, are also driven by the demands of globalization, first of all, the globalization of corporate power. As a result, competition policies that merely attempt to control the size of modern corporations through forced division into smaller companies are counterproductive and “offer little to a progressive society eager to make good use of modern technology” and trends in globalization (Martin 1974: 772).
The most pressing issue when rethinking the role of the state in progressive transformation of modern capitalist economies, both mature and emerging, is how the state can conduct comprehensive democratic restructuring of an economy’s large-scale industrial enterprises without their fragmentation. State capitalist economies are certainly in a better position than a modern private capitalist state to make progressive changes, because the state owns most of the corporations. Nevertheless, a modern private capitalist state can pursue beneficial regulation in the public interest, either as controlling shareholder, or, depending upon corporation specificity, as minor shareholder in large corporations’ equity, using its influence and power to promote workplace democracy. Envisioning such a potentially benevolent state is aided through an analysis of one of the largest state capitalist countries, Russia, and the policy proposals, which are aimed at the democratic restructuring of highly concentrated state ownership of industrial assets.
The reform of large-scale state capitalist property proposed in this chapter entails, above all, a restructuring of large-scale state enterprises without also mandating large-scale private property rights. The necessity of such reform is clear from the persistent unsavory characteristics that still mark large-scale state capitalist property, including “lack of participatory democracy” (Xie et al. 2013: 445), “bureaucratic inefficiency” in management, and perpetual worker separation from power and resources (Schweickart 1992: 30–31). Arguably, the concept of multileveled state ownership, originally introduced during the Soviet Economic Reform of 1965 but developed thoroughly in the years of perestroika, can become a working template for democratic restructuring of large-scale state capitalist property. Undoubtedly inspired by progressive economists’ ideas of democratic economic planning and by the worker ownership/participation movement, this concept conceives of three interdependent levels of ownership: the state level, the enterprise (firm) level, and the worker (employee) level (Mereste 1987; Torkanovski 1989). Without being entirely transformed into the property of production collectives or turned over into private hands, this tripartite version of large-scale ownership offers possibilities for worker co-ownership and co-decision, envisioned as including shared ownership in the firm’s assets and participation in determining enterprise plans, allocation of resources, election of managers, and surplus-sharing, all of which would promote workplace democracy and end alienation. Since the oligopolistic industry remains the dominant form of state capitalist industrial structure, the democratization of state-owned large-scale enterprises will actually lead to “installing democratic and participatory processes” inside state enterprises by providing workers with significant control and decision-making rights. This would reinforce “serviceable aspects of their [state enterprise] performance,” a re-application of William Dugger’s (1987: 94–95) advice on reforms in the United States, and promote more equitable power distribution under state capitalism.
Furthermore, Russia’s current efforts at modernization, aimed at ensuring sustainable and broad-based economic growth, will depend not only on major investment in high-tech industry, but also, crucially, on enhancing participatory democracy and ending worker alienation. As a progressive scholar Schweickart (1992: 31) argues, regarding similar perestroika modernization problems, “workplace democracy is the most appropriate, on both moral and economic grounds,” to remedy “worker alienation and consequent low labour productivity,” since only “working people [who are] . . . aroused and motivated have the capability to unlock their creative potential and turn things around.”
Moreover, such a “tripartite power structure inside state ownership” that understands “ownership relations as essentially multileveled combines the advantages of participatory economics with the need for nationwide planning and coordination” (Emchenko 1987: 142–144). The state, functioning on behalf of the national economy as a whole, accomplishes that planning and coordination through economic means, especially through a “proper system of taxes” aimed at redistributing surplus to promote equality and at treating fairly “the external effects of property use” in a form of differential rents (Nekipelov 2009: 148–149). If the Russian state functions as a primary co-owner and an essential partner in the model of multileveled property ownership, the lack of informational transparency and necessary countrywide coordination that occurred under the much-criticized Yugoslavian system of worker-management, which privileged workers’ ownership and sectoral interests above national economic goals, will be avoided, since the state will be in charge of enforcing the democratically determined social priorities. Major investment projects will be conducted and employment security will be protected according to these priorities, all within the state-controlled economy. Moreover, given the oligopolistic positions of state-owned and state-controlled enterprises, the state as the supreme co-owner can more easily intervene in order to ensure that large-scale producers are not acting against the interests of society. As Chang (2007: 23) rightly asserts, to increase competition among large-scale state companies the state could, for example, establish another state-owned enterprise, “given that it is feasible and socially productive.”
Such power over productive assets would definitely give the state opportunity to strengthen social control in the public interest. While broad consensus regarding a market type of socialism does not yet exist in society, nor does the will to establish it (Sherman 2012: 496), there is an increasing readiness to gravitate to a strong social-democratic welfare state, a model which has been extensively discussed in progressive economic literature for decades. The time has come to use states’ control over large productive property in order to give a social-democratic welfare state in state capitalist economies a second chance, thus transforming the entire social edifice in these countries. Furthermore, to secure more equitable sharing of economic surplus, ‘new property’ (Reich 1964) by way of social investment (‘government-created wealth’) should be generated and secured through state-supported access to jobs, state-guaranteed income programs, and a state-funded, wide-ranging system of social benefits. Acting as a key facilitator of “collective action to improve the adjustment of instituted power and status to the fuller unfolding means and purposes of generic humanity” (Stanfield 1991: 778) in order to build a truly democratic economy, state capitalism can become the agent of both economic and political democratization, and social control.
Taken as a whole, such a proposal implies that a progressive societal transformation through state capitalism is possible. The proposed concept of multileveled restructuring of large-scale state property along fairly inclusive and collective lines in state capitalist societies deserves to be put into place in economies whose state is ready to go “beyond capitalism” (Ayres 1973: xi–xii). Graciously recalling original and essential principles, Ayres (1973: xi–xii) reminds us:
The values we seek are those of human life and well-being. The process by which we seek them is an experimental process, as it has always been. By pursuing this process we will go beyond capitalism, as our forebears went beyond the systems into which they were born. This is the message of institutionalism.
This chapter identifies key mainstream misperceptions about the state, including expectations of an inevitable development of rent-seeking and corruption in government, and a teleological assumption that humankind’s evolution will inevitably converge on a liberal market order. These misperceptions prevent mainstream economics from developing a positive vision for state activism beyond securing necessary free market institutions. Original institutional economics provides a wider, more hopeful perspective, including a view of economic evolution as a volitional process, a belief in remedial possibilities for the state rather than inevitable rent-seeking behavior, and a conviction that “through scientifically guided government intervention, social institutions can be reformed and the economy planned for the greater social benefit” (Rutherford 1994b: 553). These basic tenets are foundational to the proposal in this chapter that under state capitalism (viewed as a new form of modern capitalism), the state as chief owner of society’s productive property and principal controller of social surplus has both the capacity and opportunity to use its power over socio-economic decisions to nurture the democratic fundamentals of the economy and promote a social-democratic welfare state.
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