“State Capitalism” Is an Oxymoron

Capitalism as a social system rejects state interference in the economy.

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The Wall Street Journal recently published an article The U.S. Marches Toward State Capitalism With American Characteristics correctly claiming that “President Trump is imitating Chinese Communist Party by extending political control ever deeper into economy” but unfortunately filing it under “state capitalism.”

Let’s take a look at why the phrase has become more common in economic and political debates, and why it’s essential to dissect what it truly means—and why the label is fundamentally contradictory. “State capitalism” is not a form of capitalism at all, just a type of statism with a thin veneer of capitalist influences. At its heart, the concept is an oxymoron: properly defined, capitalism limits the state’s role to protecting individual rights; statism, on the other hand, violates those rights by subordinating economic life to the dictates of the state.

The conventional definition of “state capitalism” is an economic system in which the state participates actively in commercial activity, owns or controls productive enterprises, and orchestrates major economic decisions for statist political purposes. In authoritarian places like China and Russia, and in the United States and other welfare statist countries, governments operate or regulate vast sectors of the economy. What emerges is a system where the state, not private individuals, determines where, when, and how resources are allocated.

But capitalism, properly understood, is not merely “private ownership” or “markets” in some nominal sense—it is the only social system that consistently respects and protects individual rights; as such, it is the only moral social system. The state’s sole purpose under capitalism is to protect said individual rights: to enforce contracts, adjudicate disputes, safeguard property from force or fraud, and protect the country’s citizens from foreign enemies.

Capitalism is predicated on non-interference: the government does not manage businesses, pick winners and losers, restrain competition, or redistribute wealth. In a capitalist social system, legislation and regulation concern themselves only with maintaining a legal order where individuals are free to act according to their rational self-interest, while respecting other people’s rights to do the same.

Statism, on the other hand, is the social system that subordinates individual rights to the alleged “rights” of the collective, of the group, with the government as enforcer and arbiter of which group’s alleged “rights” should take precedence. In economic terms, statism consists of any system where government rather than markets, controls all or parts of the means or results of production—whether by outright ownership, regulation, subsidies, or any other meddlesome form of intervention. Under statism, the state allocates to itself the power to decide not just the limits of rightful action, but the ends to which society ought to labor.

“State capitalism” is the marriage of the state’s coercive authority to the superficial forms of capitalism. It often manifests as governments managing or owning “private” companies, directing investments, or controlling key industries. Examples include state-owned enterprises, government-guaranteed monopolies, and regimes where lobbyists and bureaucrats make decisions about credit, investment, innovation, and competition. One of the most recent examples in the U.S. is the Trump administration’s “golden share” arrangement as a condition for letting Nippon Steel buy U.S. Steel, and the proposed buying of 10% of Intel. Under “state capitalism,” consumers and entrepreneurs are no longer free agents—they are subjects of political directives.

Describing such a system as “capitalism” is misleading. The vital economic characteristic of capitalism is that production and trade are privately initiated, privately directed, and privately enjoyed—the market process is independent from government dictates, the state is separated from the economy.

Under “state capitalism,” the market is not free; it is subordinated to political interests. “Privatization” of state-owned enterprises—if it happens—is often nothing other than the transfer of ownership while retaining government regulatory control. “Competition” occurs only at the pleasure of regulators, and levels of “profits” influenced by government actions. To call this “capitalism,” as if state intervention were merely an extension of market activity, is akin to calling a dictatorship “democracy” because people still vote. The essence, not the form, is decisive.

Once the state becomes an economic actor—owning companies, directing resources, manipulating prices—it is practicing statism, pure and simple. This is true whether the controlling regime calls itself democratic or authoritarian. The state in “state capitalism” is not a night watchman limited to protecting individual rights; it is an active participant, shaping the economy to suit its own goals.

History is replete with examples:

• In China, the Communist Party supervises thousands of state-owned enterprises, appoints their directors, and determines their objectives. The market’s “freedom” is entirely secondary to state prerogatives.

• In Russia, most key industries, energy and banking among them, are controlled directly by the government, which uses these assets for geopolitical leverage and domestic control.

• In the United States and other welfare states, massive tariffs and subsidies, bailouts, and especially regulations have created a dense web of state-dependent private enterprise.

Labeling statism as capitalism blurs the most vital distinction in political economy—that between freedom and compulsion. When political interference replaces voluntary cooperation, the result is not economic advancement, but massive individual rights violations. The pretense of “state capitalism” allows regimes to claim legitimacy by associating themselves with market success, while maintaining and expanding control.

Calling statism “capitalism” confuses reformers and citizens alike: it encourages the belief that state intervention is harmless or even desirable, so long as it preserves some market forms. This leads to the rationalization of creeping authoritarianism, the erosion of individual rights, and the loss of personal autonomy.

“State capitalism” is a contradiction in terms. Capitalism as the only moral social system means total separation of state and the economy secured by the only valid role of government: the protection of individual rights. Statism, by contrast, puts economic life under the boot of government decree. When the state controls the economy—by whatever means or whatever pretense—the result is not capitalism, but statism. As you encounter its use in the media and private conversations, be sure to point out that to preserve a free, prosperous society, we must reject this oxymoron and see “state capitalism” for what it is: an immoral misnomer masking the march of statism.

PS. The Journal somewhat redeemed itself a few days after the first article in The Nationalization of Intel?, more appropriately characterizing as “corporate statism” the Trump administration’s proposed plan for more statist meddling in the economy by taking an ownership share in Intel.