Chapter III

Lenin’s concept  of  State  capitalism in a country on the way to socialism

1. Lenin’s study about the essence and inevitability of State Capitalism in a country on the way to socialism.

One can not say that from the very beginning Lenin’s study on State Capitalism (SC) was perfect and was successfully applied in the practice – it passed some stages of development and corrections. The ideas of Lenin about SC had been already formed before of power was taken, long before the victory of the October revolution in Russia. In his work «The threatening catastrophe and how to fight with it» [7,258] Lenin announces his idea about the necessity to apply different methods of accounting and control to counteract the enriching of capitalist oligarchs and the top of monopolistic capital in a capitalist economy. In this work Lenin developed a lot of important ideas about the State monopolist capitalism and inevitability of socialist revolution.
In 1918, after the victory of October revolution, Lenin thought that the state capitalism is only a result of political fight, a concession by working class and labour people to the class of bourgeoisie, in the time when the workers-peasant State does not destroy bourgeois, but uses them as specialists in economics, technique and management, paying them a tuition-fee for education of the working class and labour people.
After three years of the «military communism policy», in the war-time situation, to rescue the country from economic crash, Lenin concluded that this policy did not already correspond to the new period, as it had been just a temporary measure for the rescue of the Soviet state. Therefore, in the spring of 1921,  Lenin promoted a new economic policy (NEP), meaning a transition from the method of direct state control over production and distribution of products of «policy of military communism» to the market commodity economy, to the strengthening of close economic union of working class and peasantry through the wide use of commodity and monetary market relations and realization of the State capitalism. At this time, Lenin’s picture of SC already strongly differs from the former one. Lenin considers that SC is an actual economic system during the proletariat dictatorship. Therefore in politics Lenin admitted the existence of kulak class in the countryside and of bourgeois class in towns,  he also admitted free flow of the agriculture products rest  after the peasants had paid state budget taxes.
By 1922, Lenin already thought that the State capitalism is a strategic course of economical development in a transitional period to socialism, as:
– Foremost, the initial level of economy in a transitional period is yet low, that does not allow a successful pass to socialist production relations  as a main economic mode.
– Secondly, in the conditions of small-scale economy the development of capitalism is a «inevitable necessity», «this capitalism is worse than socialism, but better than Middle Ages, than production, than bureaucratism generated by separate small producers. As we do not have possibility to pass straight from a small-scale production to a socialist one, then, to a certain extent,  a capitalism is inevitable. Therefore we must use capitalism (especially by aiming it to be State capitalism) as intermediate between a small-scale production and socialism: to make it being a way, a mean, a method for increasing the productive forces» [9,276]. When power is in the hands of working class and labour people, when they unite with masses of working small proprietors (foremost, peasants), it is possible to achieve socialism via the State capitalism (state here means the Socialist state). Lenin supposed that a «state-monopolistic capitalism is the most complete financial preparation for socialism, a historical step, there are no other steps between it and a step called socialism» [7,258].
Lenin announced his conception that the State capitalism is favorable condition to increase a level of management under the Soviet power. Lenin appealed to all the communists to study methods, forms which capitalist trusts apply to unite millions of people around big-size economic units. We can study these methods in any capitalist country. If we will be able to «adopt everything»,  we will be able to organize national economy.
Lenin writes: «Without a high-industrial capitalist technique basing on the latest scientific discoveries, without a state organization having a program of stimulation the millions of people to strictly follow common criteria in production and distribution of products we can not speak about socialism.» [9,253].
A purpose of concession in favour of the bourgeoisie in economics is to conclude an economic union with them and at the same time to get a lot of benefits for workers’ power. To save capital goods and the existing structure of production management, to use the capabilities of bourgeois specialists. In a country where small-scale production is prevailing, the greatest benefit should be if basing on private property interest to develop fast a big-scale and centralized production under the control of the state which fights against a petty-bourgeois chaos.
A preliminary organizational condition of the State capitalism is the system of national accounting and control after production and distribution of products. Without this accounting and control, the State capitalism will transfer into an ordinary capitalism, that, speculative capitalism which longs for a profit of any possible kind. Lenin writes: «Without accounting and control  in production and distribution of products, the germs of socialism will be liquidated» [8,225].
Practical politics of State capitalism also means the necessity to strictly suppress any capital not complying with state control, to liquidate any speculative, thievish, knavish capital, at the same time to support any civilized, «disciplined» bourgeoisie, «earning justly», that, to support the capital accordant with state control. Lenin also underlined that in entrepreneurship it is impossible to distinguish speculation and  «legal» trade. Therefore, in this question a proletarian state must stand on the points of law. «It is necessary to revise and correct all the laws in relation to speculation, it is necessary to declare that any stealing, any direct or indirect intention to openly or secretly avoid state control and accounting will be punished… Just stating the problem in this way … we will direct the development of capitalism – the inevitable and necessary to any extent development – to the State capitalism» [9,285].
A state capitalism is a form of solving a basic contradiction of transitional economy – between a new forming system of production and the old production relations which are losing their previous dominating position but are not finally defeated yet. On the one side, State capitalism is an economic form satisfying the private interests of commodity producers, is a powerful engine of economy; on the other side, State capitalism also serves other economic modes of production. Thus, State capitalism is a preparation to expand the planned system of economy and so it is a form of coexistence of different modes of production.
In addition, in the conditions of low-developed economy, the creation of State capitalism is a method to decide contradictions between the forming system of socialist production relations and its material base, i.e., a small-scale production which does not correspond to it. Only big-scale industry can be a material base for organization of the planned production for the whole society. While there is no big-scale industry yet, there are no conditions for confluence of separate production processes into a common public process of production, and then a planned administration of economy carries a formal, forced character.
Lenin supposed that to immediately develop the social productive forces it is possible to use even private capitalism in addition to State capitalism: the payments into state budget grow and so do the direct accumulations for development of socialist material base.
Lenin asserted: «State capitalism is a big step forward, though we must pay expensively now… A tuition-fee is worth-doing … as our victory over economic chaos and devastation and disorganization is most important job, as any prolongation of anarchy of still existing small proprietors is the greatest threat, …it will destroy us, if we do not win in the most decisive manner; and as for the State capitalism, it will not bring us to ruin but, vice versa, will bring us to socialism by the most reliable manner» [9,251-252].
The development of capitalism under the control and administration of the socialist State can push the growth of productive forces in agriculture, this  will stabilize society and will strengthen the trust of peasants to the Soviet power.
State capitalism is also an instrument of fight against bureaucratism and bureaucratic deviations. Lenin analysed the economic roots of bureaucratism in Russia: scatterness of small producers, their poverty and ignorance, the absence of railways, the illiteracy, the absence of exchange between industry and agriculture.
Through State capitalism the working class and a labour people can learn to organize a large-scale state-capitalist production due to the loan of capital from abroad. State capitalism revives the modern working class. If the State capitalism have an advantage, then industrial production will also increase and correspondingly the working class will grow in number, too.
In short: Lenin’s conception is the following: State capitalism is a necessary way for the countries with a backward economy, in transition to socialism. Also: 1/ State capitalism in its higher form is a waiting room on the way to socialism; 2/ State capitalism in a state with working class and labour peasantry at power is an intermediate for transition to a commodity economy of small producers on the way to socialism, it is the method of development of market economy at a civilized level; 3/ State capitalism  is a policy of development the large-scale industry and the strengthening of workers-peasants’ union on a new basis; 4/ It is an effective method of accounting and control of the socialistic State in relation to the economy of small-scale production; 5/ It is a bright display of ability to learn the lessons of capitalism, to understand the methods of effective management in a capitalist economy and to apply them creatively in a socialistic economy.

2. Forms of the State capitalism in Lenin’s conception

V.I. Lenin supposed that a purpose of practice is to find different forms of realization of the State capitalism into life, he did not bind it to only some existent forms set once forever. The general understanding of Lenin was the following: «… where there are elements of free trade and on the whole any elements of capitalism – there is the state capitalism in one or another form, to one or another extent» [9,268]. Thus, in conditions of a State of proletariat dictatorship, if the production modes of «free trade» or any ones of capitalist type, guided by the Socialistic state, are used, then they all are the forms of display the state capitalism. Practice will show real creative, lifelike forms which are not invented by ideologists. So, monitoring the situation, Lenin generalized and specified some forms of state capitalism passed through practice, including the followings:
1. Concession
In his work «About food tax» of V.I. Lenin often mentioned a concession, explained the term, its necessity and also specified its positive and negative aspects, the terms of application which should make the people not to be afraid of concession.
What is the concession? To Lenin, it is an agreement between a State and a capitalist when the last is obliged to organize or to improve any production (for example, logging, mining, oil and minerals exploration and developing, etc.) and to return to the State a part of the products he made out and to acquire another part as his interest. Lenin also clearly explained: «If we view the aspect of socio-economic structure and also relations between these structures, then what a concession will mean under the Soviet system? It is an agreement, an association, a union between Soviet administration, meaning Proletarian state, and the capitalism against private capitalist spontaneous elements (of patriarchal and petty-bourgeois character)» [9,269].
The capitalist is engaged in the business as one of the parties of the agreement, as a leaseholder of socialist means of production, he gets income on his investment, then he brings a part of the concession products to the State – this is a mutually beneficial economic form. Capitalist businessmen work in capitalist manner for getting their super-profit or for getting raw material which they unable to get otherwise. The Soviet state gets its benefit, too. Foremost, the state will get products brought by  capitalists. Secondly, Soviet state uses capitalists’ capitals and modern equipment to develop its productive forces. Speaking on concession’ character, Lenin thought: «As compared to other forms, a concession is possibly the simplest form, the most clear, the most understandable, the most strictly expressed form. Meaning that we have a direct, an official agreement on a paper with the European capitalism, the most civilized, the most developed capitalism. We know exactly our benefits and losses, our rights and duties, we know the exact term of concession, we know exactly the terms of redemption right ahead of schedule, if it is mentioned in the agreement. We pay a contribution to the world capitalism, in a sence, we pay them some redemption, but we immediately have certain facilities to strengthen the Soviet state and to improve our work conditions» [9,270-271].
The strategic idea of the concession politics, to Lenin, is not the improvement of workers’ life, but the growth of productive forces, this is a deal in which we must sacrifice a lot to increase the  products amount. As the essence of capitalism is the profit, we need an investment stimulating politics. Lenin wrote: «I don’t underestimate these sacrifices at all, but I go on saying that we possibly will have to allow the capitalists to get not only a few percents but also thousands of percents of interest: and this is the essence of the issue» [9,222].
A concession is the «borrowing» of capitalism from outside. This task is difficult – we need to weigh all the terms before to sign an agreement of concession, in particular, the best way to divide percents. Lenin proposed very bold percents – 1/3, 1/4. Then we have to be able to follow and check: how the agreement is being fulfilled?
Lenin highly estimated the role of concession, this form is considered as the most widespread. However Lenin also warned of the following:
To implement the state capitalism in the form of concession, we need to get rid of “local” patriotism of those who considers that we can do everything. Lenin clearly showed we should be ready to even overcome deprivations and loss of benefit for the sake of the important progress of the economy in the key industries. We can foresee that at first it won’t avoid mistakes, but it is still necessary to reach our targets.
2. Co-operation
At first, Lenin thought that all the forms of co-operation are the forms of state capitalism. Afterwards, basing on practice of Russia, he  differentiated the distinctions of this economic form under different systems. That, there practically exist two co-operative modes: a capitalist and a socialistic ones. The capitalist co-operative mode inside the Soviet system is considered to be a form of state capitalism.
Lenin said: «We should be able to apply theoretical base analogue to the policy of «concession» (meaning, as well as the state capitalism in «concession»,  the co-operation also requires the capitalism, the freedom of trade, of exchange everywhere, etc.).
Lenin considers: «Co-operatives are also the form of state capitalism, but it is simplier, not so clear, and so they put the Soviet administration in front of even greater difficulties» [9,271].
Co-operatives here in fact are the «co-operative» capitalism, the co-operatives of small-scale capitalists, owners of millions of small business units. Under the Soviet state a «co-operative» capitalism differs from a private capitalism, it is a form of state capitalism and it itself is useful to us to a certain extent. Co-operation is exceptionally important for driving millions of small owners into the orbit of socialism step by step.
However, a concession and a cooperative differ very much in composition and level of productive forces, in their relations, in method and terms of realization. To Lenin, a concession bases on a large-scale mechanized production, while co-operatives even base on patriarchal elements. Every agreement of concession involves one capitalist or one company, syndicate, cartel or trust, while a cooperative includes thousands, even millions of small owners.
A concession must have one exact agreement and one exact term. But co-operation has no agreement and also has no any really exact term. It is easier to recall a concession agreement than a co-operation law. Meaning that it is possible to suddenly and simply tear any practical economic ties or any economical «coexistence» with any capitalist; but, vice versa, neither annulation of cooperative law nor any law can immediately put an end to real «coexistence» of Soviet state with small-scale capitalists. To «control» one concessionaire is easy, but to control cooperative members is difficult.
To pass from concession system to socialism means to pass from one form of large-scale production to another form of large-scale production. To pass from the co-operative system of small producers to socialism means to pass from a small-scale production to a large-scale production, this is a more difficult transitional process, but if succeeded, it can involve wide masses, to root out old relations, sometimes even pre-capitalist ones, the relations which furiously rebuff any «renovation».
In favorable conditions, the policy of concession will give us some exemplary big enterprises. Exemplary as compared to our present enterprises, equal to level of modern advanced capitalism. In some dozens of years, these enterprises will totally be in our ownship. The success of co-operation policy will help small business to develop and will create favourable terms for a large-scale production on the basis of voluntary association.
3. Entrusted representative
Lenin considered this form as the third one. This form means that the State involves capitalists as wholesalers, pays them a commission for selling state products and buying the products of small producers.
4. Leasing enterprises, mines, forests, lots of land to the capitalists of the country
This form is similar to concession, but the object of concession is not a foreign capital, but domestic capital. This form is separate, different from a concession to foreign capital.
5. Leasing small mines to the peasants
The reality of Donbass coal mines showed another form of state capitalism, as Lenin said: leasing some mines to peasants. Lenin  supposed: the mines leased  to peasants can work better than the former largest capitalist enterprises of the country, work as well as capitalist enterprises of Western Europe. This form  develops state capitalism relations. Peasants worked and paid the rent to the state (in the amount of 30% of produced coal). This form is also one of leasing forms, but the object of lease was a small capital, as Lenin said.
6. Joint venture
On the IV Congress of Communist International, Lenin reported about successful realization of the State-Capitalist policy, about trade, about experience the Soviet administration’s experience in creating joint ventures formed partly by private capital, foreign capital and the Soviet State.
Lenin declared: «As for trade, we must especially stress that we strive for creating joint ventures and we have already created them: they are the companies where money is put partly by private capital, foreign capital and the other part is ours. Thus we are studying trading…» [10,336].
7. Another form of state capitalism

To Lenin’s opinion, a socialist state applies accounting and control over activities of private economic organizations according to the following indexes:
–    Amount and assortment of products;
–    Price and quality of commodities;
–   Products consumption market; material and technical supplies;
–    Profit and profit distribution;
–    Relations between capital and hired labour.

Accounting and control in above named spheres is most effective when there are used economic instruments of the Socialist state: finance, trade, credit, banks, market, prices, etc.

3. Some conclusions about theory of State capitalism and its practical realization in the Soviet Union in the epoch of Lenin

1. In a year after the State capitalism started, Lenin formulated the first lessons of this first stage (starting from the spring of 1921). He found that the State capitalism of a new type started to develop, and some success had been attained, but there were revealed some extraordinary contradictions never seen in practice. Lenin wrote that passing from socialism construction to the state capitalism, we saw that at present the state had to regulate the trade and money circulation. And it is necessary not only to acknowledge the existence of commodity-money relations, but also it is crucial to be able to apply them for the sake of socialist goals. The economical essence of the state control and accounting is to aquire the trade and money circulation. This is the job for proletariat to learn quickly.
2. The essence of state capitalism, according to Lenin, is the development of large-scale socialist industry, the socialization of production and labour as necessary objective conditions on the road  to socialism, the preparation of economic and social conditions for resolutive victory of socialism. It is a commodity economy which is organized and guided by state plan in the scale of whole society.
3. Basing on historical progress, Lenin formed his idea about the state capitalism: a state capitalism is an integral and basic political and economical essence of transitional period to socialism in the countries with a multi-modal small-scale economy. This idea is a sample for the application of materialistic and historical dialectics. This concept allows to apply the law of correspondance between the character of production relations and the level of development of productive forces, to realize the natural historical process, without any hasty cancelling its stages, through any non-economic compulsion. This definition helps to the socialist state to elaborate its policy without any violence to any non-socialist economic modes, but through economic measures, by orienting to the state capitalism, by state macro-control and by application of such instruments of commodity economy, as banking, finance, credit, pricing and other instruments to control and to orient entrepreneurial activity for different ecomomic sectors and modes of production. The understanding of authentic sense of state capitalism is a process of theoretical and practical experience, passing through a great number of stages, from the lowest to the highest ones. And by now, there exist many different understandings about state capitalism, which is easily explainable.
4. The application of state capitalism is also the development of external potential for the purpose to create conditions for awakening of internal potential which plays a decisive role. It is necessary to creatively apply the forms of state capitalism, to be decisive, but also careful.
The principle of state capitalism for working class’ state is that the «key positions in economy must belong to Soviet government». It is a principle that guarantees socialist orientation for economic development.
5. It is not necessary to pay any price for state capitalist development, but it is necessary to realize that the price is to be paid, but only if we pay for our major objective – to come to socialism through state capitalism. To pay less, the working class should vigorously study the capitalism, to get even and to outperform it.
6. State capitalism is one of the main methods of evolving to socialism, but not the unique one. Therefore, we do not absolutize state capitalism, but we should see its problems, should be able to overcome them for its successful application.

**    *

Through V.I. Lenin’s analysis of the theory of state capitalism, we can select some conceptual and essencial features of state capitalism, namely:
First, the state capitalism is the encouragement of capitalist elements, the use of capitalists’ force within certain limits, so that they should become an engine which pushes organization and development of economy on a way to socialism.
Second, the primary and most direct purpose of state capitalism is to develop productive forces, to build large-scale industry, to form material base for socialism, to transit from backward small-scale peasant economy to socialism, to make the first step to socialism.
Third, the state capitalism here exists under the Socialist government which applies accounting, control and management of a  socialist economy. The state capitalism is an instrument to unite small producers, to overcome fragmentation and to fight against petty-bourgeois spontaneity and capitalism.
It is possible to formulate in brief: state capitalism is the connection of the State with capitalists (domestic and foreign ones) with the purpose of the most complete, rational and effective use of their capitals, technique, production management experience. It is a form of economy developing under the State control and regulation.
The difference is only in the following: which is the purpose of this control and regulation, who benefits from it, what are its limitations, what is the method and what is the probability of control and regulation.
The state  capitalism is an intermediate transitional step from a small-scale production to a large-scale production in the direction of socialism. In the conditions of underdeveloped countries it is such an economy where many modes of production coexist under regulation of the State of proletarian dictatorship.
There is no capitalist class at this state capitalism, there only are separate capitalists who work under state administration, legislation, in reasonable limits, scopes and proportions.
According to a narrow or an ordinary definition, state  capitalism is only one of modes of production in a multimodal economic structure during transitional period to socialism. However, considering the state  capitalism as one of economic production modes, we should clearly see that it is a mixed mode, a very special mode where many economic forces participate, where many real economic forms exist, including those just generally mentioned by V.I. Lenin, meaning that some forms are temporary (they existed only at that time).
According to a broad definition, in a certain aspect, the State  capitalism is a policy, an instrument of the Socialist State to guide, to regulate, to control the business activity of the economic modes of production, especially of private production. Speaking more exactly, the State capitalism is a kind of transitional economy, a kind of organization of public production, it is a method and a direction of economical development in the conditions of transition from a small-scale production to the large-scale socialist production under the working class and workers’ rule, in the most different forms and by the most different methods.
The practical economic forms of state  capitalism include: 1) concessions; 2) cooperatives of small-scale owners; 3) entrusted trade missions; 4) leasing enterprises, mines, forest areas, land lots by domestic capitalists; 5) leasing small mines by peasants; 6) mixed societies (mixed state-private firms); 7) application of such financial instruments as trade, banking, finance, credit, prices, market, etc., to control business activity, especially private business.



Aiming to come to socialism, where a man is not exploited by a man, where the economy is highly developed, each member of society is harmonically developed, level of life is high, and people are happy and equal in rights, the Socialistic state must concentrate its efforts on economics oriented to socialism. Many modes of production can be directed to socialism, including the state-capitalist one.
Unlike the State capitalism under of dictatorship of bourgeoisie in the developed capitalist countries and in the developing countries of capitalist orientation, the State  capitalism under the rule of working class and labour people is an economic union between the proletarian state and the bourgeoisie, it only is a kind of transitional economy, a «bridge» to socialism. It is the use of capitalism to serve the socialism, but not to serve the interests of capitalism.
First state  capitalism under the rule of working class and labour people was realized in the Soviet Union during Lenin’s epoch, starting from 1921. There were implemented  all of forms, offered by Lenin. However in the conditions of economic and political imperialist blockade, a concession – that is a basic form of state  capitalism – didn’t last long in Russia. By 1922 there was not any cost-effective concession in heavy industry.
Basing on data, by 1924, the State capitalism application on the whole brought some good to the Soviet Russia, helped to revive Russian economy after the war (1st World War 1914-1918 – The translator’s note.). Many important industries – especially oil production – developed due to foreign concessions; there was implemented frontline experience and modern enough technique and equipment of large-scale capitalist production. Concessions together with mixed societies contributed into development of commodity production, uncreased foreign currency flow into the country, supported economic integration and joint activity in production investments, new technologies transfer and developed the trade with the capitalist West. Through the mixed societies the Russian communists learned trading from capitalists. The activity of leased enterprises and  mixed enterprises supported current production, increased the quantity of products and of jobs. Trade missions and capitalist cooperatives in different industries, in credit and consumption helped a lot to the socialist| trade, strengthened the commodity and money circulation, revived small-scale production through reforming small land owners, establishing agricultural and industrial mutual connections between cities and vilages, etc.
Nevertheless, as compared to V.I. Lenin’s tasks, the practical results of the State capitalism were not satisfactory. The cooperation and investment of foreign capital into Soviet Union did not attain the desired level. During 1923-1924 (last years of Lenin’s life), the share of capitalist economy in the gross product of the country was only 1%. In 1923, the concession enterprises production cost was only 35б1 mln. roubles. Nevertheless, the most important success was that due to the new economic policy with the State capitalism as a hub, the Soviet government maintained its firm position in agriculture and was able to advance. Peasants were satisfied, industry and trade revived and started to develop [10,336].
After the second world war, many countries of people’s democracy applied the State capitalism as method of peaceful transformation of bourgeoisie, including Vietnam. We should especially stress the success of the former German Democratic Republic and the Chinese People’s Republic in the application of state capitalism, though its realization in these countries does not fully coincide.
Chinese People’s Republic conducted peaceful transformation of national bourgeoisie through different forms of State capitalism in 50-ies. Later this process was interrupted up to the second half of 70-s, when an «open-door and reforms» policy started, when the State capitalism was again revived and developed through many forms, quite different from the previous understanding. The state capitalism developed in the conditions of socialistic market economy with the Chinese specific, when the state utillizes market instruments for the macroeconomic regulation. Two most effective instruments in China are the money politics (including the politics of exchange rate) and structural politics (including regional one). And also reform of state economy in market direction. Creation of special economic zones and attracting a lot of foreign capital. The governing idea of the state is to create the strongest possible  breakthrough force for the development of the country thanks to foreign capital, andat the same time to control this development. To free the agrarian sector of economy through the family contract system and the «Huong Chan» enterprises movement.


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