Socialist Worker

The state is the strong arm of capitalism

Despite the rhetoric about free markets, capitalism has always relied on state intervention to survive, writes Jacob Middleton

Issue No. 2125

Capitalism is a uniquely crisis prone system. It lurches from boom to bust and back again, and produces wars and revolutions with a regularity previously unknown in history.

The earliest commentators on the system, writing in the 1830s and 1840s, thought that it would simply tear itself apart at some point in the not too distant future.

They turned out to be wrong – and part of the explanation for capitalism’s survival lies in the ability of the ruling class to organise itself through the state.

Although capitalists compete ferociously against each other, they share some common interests. Karl Marx described them as “hostile brothers” that constantly squabble and fight. But they are still a family, and they close ranks when they see their common interests threatened.

Often this means closing ranks against the working class, but it can also be against other “families” – the ruling classes of other nations. And sometimes the family needs to restrain some of its wilder members.

The instrument for doing all this is the state. As well as providing essentials, such as a system of law and property rights, capitalists have always used the state to intervene in the economy in their common interests.


The first widespread state intervention was to cope with the worst of all crises – war. The First World War imposed immense strains on the warring nations. The demand for munitions was so great that entire national economies were turned over to war production.

In Britain this process gathered pace from 1915 with the creation of a ministry to oversee armaments production. By 1917 the government was controlling the majority of all export trade, producing guns and shells in state-owned factories.

The 1930s saw the Great Depression – the worst slump in history. One response was to use the state to intervene in the economy, compensating for the inability of private capital to organise itself.

This process went furthest in the Soviet Union under Joseph Stalin, who presided over a particularly brutal form of state capitalism. But the exceptional demands of the Second World War pushed ruling classes across the world towards total state control of the economy.

In Britain, for instance, an immense system of economic planning and regulation was established dedicated to meeting the colossal requirements of total warfare.

Serious efforts were made in the post-war years to bring in regulations and reforms. Governments followed so called “Keynesian” prescriptions, intervening in the peacetime economy on a scale never seen previously.

The government interventions could be more or less direct. Some countries offered their favoured industries protection from foreign competition, subsidised loans and tax breaks. Others, such as aeroplane manufacture in France, were directly nationalised.

Britain saw major industrial concerns such as coal mining and steel manufacture brought under state control. Bodies such as the National Economic Development Corporation were established in an effort to regulate capitalism.

State-led reconstruction and development after the war was also the norm in Japan and eastern Asia. The Japanese ministry of international trade and industry was created in 1949 to coordinate trade policy.

It established close links with giant conglomerates, known as keiretsu, that dominated Japan’s economy, helping to steer their investment decisions.

In South Korea, the chaebols – giant business concerns such as Samsung and Hyundai – were integral to the national plan adopted by Park Chung-Hee’s military government in the 1960s and 1970s.

Even in the US, supposedly the home of the free market, a vast, state machine grew up around the nation’s formidable military power, intervening in the economy and directing billions of dollars of resources.

The Small Business Administration was established in 1952 as a deliberate attempt to promote the interests of small businesses across the US economy through government intervention.


None of these cases involved “socialism” in any meaningful sense. This was an effort, on behalf of capitalists as a whole, to reform the system in their interests.

Workers in nationalised industries were subject to the same pressures on wages and conditions as those outside the state sector. A car worker at state-owned British Leyland had much the same experience as one at privately-owned Ford. The owners may have changed – the power relationships in the workplace did not.

But with the collapse of the post-war boom in the 1970s, governments across the world began to respond by “rolling back the frontiers of the state”. Led in the West by the governments of Margaret Thatcher and Ronald Reagan, a new “neoliberal” consensus against state intervention developed.

This reached a peak after the fall of the Berlin Wall in 1989 and the collapse of the state capitalist economies in Eastern Europe. It looked as though neoliberal capitalism had won a complete victory. But there was nothing permanent about this state of affairs.

Faced with the collapse of the international banking system, governments have intervened on a huge scale in the interests of preserving capitalism. This in turn has created an ideological crisis.

The latest bailouts have opened up serious arguments about the nature of the system – and socialists can seize these chances to push for a very different vision of the world.

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Tue 28 Oct 2008, 18:37 GMT
Issue No. 2125
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