China, the Entrepreneurial State and the Socialization of Production

Notes on Schumpeter, Marx and the State

My MA research focused on the relationship between the state and economy in capitalism, in particular developing further what the economic role of the capitalist state entails. Although I’m currently not doing a PhD and actively researching this (stay tuned for that), I was recently reading a paper by development economist Leonardo Burlamaqui entitled “Schumpeter, the entrepreneurial state and China”. I think the piece if relevant for contemporary discussions of the state’s economic role in the 21st century.

While the term 'entrepreneurial state' has existed for some time, it was popularized by economist Mariana Mazzucato in her 2013 book, which highlights the critical role the U.S. government played in driving the success of the U.S. economy

In essence, the theory positions the capitalist state as an active participant in shaping economies and driving their success. Rather than being viewed solely as a regulative entity that establishes laws, protects property, and acts at most as a market-supporter of last resort, the state is seen as a dynamic force that continually fosters economic development.

Burlamaqui focuses on the relationship between Schumpeter’s theorization of capitalist dynamics and his view of the state. Burlamaqui’s reconstruction of Schumpeter’s theory of the entrepreneurial state highlights several key elements:

…an institution [the state] that, through history, exercised the functions of market maker, macro-strategist, venture capitalist in chief (forging and funding industries, and crafting innovation and technology policies) and creative destruction manager (stimulating the creative part of the process in order to speed productivity enhancement and innovation diffusion and acting as a buffer to its destructive dimension). (Burlamaqui, 2020, pp.-)

The first half of the piece offers a fascinating intellectual history, revealing that Schumpeter himself was acutely aware of the growing necessity of state intervention and its potential for success. In contrast to the simplistic assumptions of neoclassical economics, Schumpeter recognized the constructive role the state could play in driving economic development:

In contradistinction, antitrust — or trust busting — policies aiming to chain them according to a neoclassical “perfectly competitive” normative standard could result, in a depression, and from an evolutionary perspective, in deepening market structure instabilities and even in discouraging future innovations. (5)

Nothing demonstrates his openness to state intervention in economic life more clearly than his response to the question of the feasibility of socialism:

“Can socialism work? Of course it can.”

Schumpeter had a specific definition of socialism in mind, which according to Burlamaqui, was closely tied to his theorization of the 'socialization of investment:

Schumpeter’s definition of socialism does not focus on state seizure of the means of production nor on the eradication of private property, but rather on their socialisation, which involves essentially redesigning the frontiers and modes of interaction between the private and public spheres.” (Burlamaqui, 2020, p. 8) [emphasize added]

Setting aside any debates over this definition, it is immediately clear that it aligns almost seamlessly with the current framework of socialism with Chinese characteristics. The success of the model has been in large part due to precisly this ‘redesigning’ of the boundaries between the public and private spheres. It’s allowed for the development of an incredibly dynamic economy.

While other states before broke any idea that development¹ must take place along the (mythical) free market lines, China has done so in a completely new manner. The speed, intensity, and scale at which China has not only surpassed other nations but also built its internal capacities for sustained development are truly remarkable. As the piece emphasizes:

By 2014, the country had become the second largest national economy, the largest exporter, the largest manufacturer, the possessor of the world’s largest current account surplus, the holder of the biggest amount of foreign reserves as well as the largest sovereign wealth fund (10)

The country also exhibits the fastest rate of growth of any nation over the past two decades, an extremely fast rate of technological upgrading (Zhou, Lazonick and Sun 2016; Keidel and Burlamaqui 2015; Keidel 2007 and 2011; Gallagher and Porzecanski 2010, chapter 4; Pettis 2013) and one of the most successful set of policies for poverty alleviation, which allows it to take millions above the poverty line every year (11)

China didn’t merely ‘catch up’; it leapfrogged. As Burlamaqui argues, these successes can be directly attributed to the entrepreneurial role played by the Chinese statem which includes:

The centrality of selective credit for innovation and development, the key role of the State in steering innovation and exercising leadership towards development, the strategic role of investment-development banks to provide the necessary funding, and the functionality of financial restraint to avoid the build-up of “financial casinos”. (11)

The concept of socialization is indeed crucial and often underexplored in Marxist discourse. Socialization of production, in its broadest sense, refers to the growing social interconnectedness and interdependence that characterize the human production process.

This goes beyond the immediate act of production (the focus of Capital Volume I) and encompasses the entirety of social production. It includes the networks of distribution, exchange, and consumption, as well as the broader social and institutional frameworks that facilitate and shape economic activity. Understanding the socialization of human (re)production requires an examination of the entire social formation, including, of course, its political forms of organization.

What’s particularly fascinating is the interplay between the process of socialization that Marx describes, Schumpeter’s theories of innovation and creative destruction, and the emergence of a more proactive ‘entrepreneurial state.’ These ideas collectively highlight different dimensions of the broader ‘socialization of production’ within the entire social formation.

Marx’s discussion of socialization focuses on the dynamics at the micro and macro level of the economy. In the Results of the Immediate Process of Production he highlights the main elements which further socialize the immediate production process:

The social productive forces of labour, or the productive forces of directly social, socialized (i.e. collective) labour come into being through co-operation, division of labour within the workshop, the use of machinery, and in general the transformation of production by the conscious use of the sciences, of mechanics, chemistry, etc. for specific ends, technology, etc. and similarly, through the enormous increase of scale corresponding to such developments (for it is only socialized labour that is capable of applying the general products of human development, such as mathematics, to the immediate processes of production ; and, conversely, progress in these sciences presupposes a certain level of material production).” (Marx, 1981, p. 1024)

Visiting a Nail Factory by Léonard Defrance (18th century)

These elements ‘socialize’ production in that they require the further mediation of productive activities between multiple people and make use of the universal gifts of human knowledge through the application of science. Marx highlights that while capital is defined by the private appropriation of social surplus, its powers are sourced from the powers of social labor:

This entire development of the productive forces of socialized labour (in contrast to the more or less isolated labour of individuals), and together with it the use of science (the general product of social development), in the immediate process of production, takes the form of the productive power of capital. It does not appear as the productive power of labour, or even of that part of it that is identical with capital. And least of all does it appear as the productive power either of the individual worker or of the workers joined together in the process of production. The mystification implicit in the relations of capital as a whole is greatly intensified here, far beyond the point it had reached or could have reached in the merely formal subsumption of labour under capital (Marx, 1981, p. 1024)

This leads to the confusion that it’s the corporation, the entrepreneur, or the managers that themselves contain this power, when capitalism is merely a historically specific form of the human organization of social production. This doesn’t mean that organiztion as a whole is bad, but rather the specific political and social form it takes. Marx further develops on these ideas in Volume 3 when he outlines the “cardinal facts about capitalist production” which include:

(1) The concentration of the means of production in a few hands, which means that they cease to appear as the property of the immediate workers and are transformed on the contrary into social powers of production. Even if this is at first as the private property of capitalists. The latter are trustees of bourgeois society, though they pocket all the fruits of this trusteeship.

(2) The organization of labour itself as social labour: through cooperation, division of labour and the association of labour with natural science.

On both these counts the capitalist mode of production abolishes private property and private labour, even if in antithetical forms.

(3) Establishment of the world market. The tremendous productive power, in proportion to the population, which is developed within the capitalist mode of production, and - even if not to the same degree - the growth in capital values (not only in their material substratum), these growing far more quickly than the population, contradicts the basis on behalf of which this immense productive power operates, since this basis becomes ever narrower in relation to the growth of wealth; and it also contradicts the conditions of valorization of this swelling capital. Hence crises. (V3, p. 368) [emphasize added]

Another interesting point here (in particular for the discussion of China) is the idea that the capitalist mode of production “abolishes private property and private labour, even if in antithetical forms”. The other space where Marx talks about the contradictory abolition of private property is in his short but informative Chapter 27: The Role of Credit in Capitalist Production.

Among other things, Marx theorizes the joint-stock company (the precursor to the modern corporation) as further socializing production in the sense that ownership becomes necessarily shared between many individuals:

Capital, which is inherently based on a social mode of production and presupposes a social concentration of means of production and labour-power, now receives the form of social capital (capital of directly associated individuals) in contrast to private capital, and its enterprises appear as social enterprises as opposed to private ones. This is the abolition of capital as private property within the confines of the capitalist mode of production itself (V3, 567).

Similar to Schumpeter then, Marx views the corporation as an evolution of capitalist development. What links this to Burlamaqui’s articulation of Schumpeter’s analysis is the necessary relationship that growing corporate power has with state (and thus political) intervention.² Marx further argues that if left unchecked by the state, the socialized corporation

…gives rise to monopoly in certain spheres and hence provokes state intervention. It reproduces a new financial aristocracy, a new kind of parasite in the guise of company promoters, speculators and merely nominal directors; an entire system of swindling and cheating with respect to the promotion of companies, issue of shares and share dealings. It is private production unchecked by private ownership. (V3, 568).

Part of outlining a proper theory of the capitalist state is thus theorizing the other side of socialization, that is, from the perspective of capitalism’s political institutions. As the corporation developed, it became a necessity that the state did so as well. Changes in state policy are spurred by changes in the dynamics and relations of accumulation. The difference, however, is how capitalist states engage with this, by either denying this reality politically and ideologically, or embracing it fully.

In this sense, China’s entrepreneurial state is dealing with the contradictions that Marx and Schumpeter identified with the further socialization of production. It is not a question of intervention or no intervention, but the form that state intervention takes. The Chinese state understands this, particularly because they are not politically wedded to the ideological opposition between state and market spheres. Since they are a type of Marxists, they don’t shy away from expressing the inherent unity between the public and private, the political and social.

What makes China particularly successful is in part that they have fewer political constraints to achieve policy objectives that liberal states simply cannot. This cannot be reduced to “they aren’t a democracy”. You can be a conservative dictatorship and still think there should be a staunch delineation between the public and private. Instead, the degree to which a regime can properly organize the economy above the arbitrary and idealist notions of the ‘public and private’ will be a huge marker of its success in pursuing development.

Sources:

Burlamaqui, Leonardo. “Schumpeter, the entrepreneurial state and China.” UCL Institute for Innovation and Public Purpose, Working Paper, 2020. https://lburlamaqui.com.br/wp-content/uploads/2021/02/02_Burlamaqui-2020b_Schumpeter-The-Entrepreneurial-State-and-China.IIPP-wp2020-15-1-1.pdf.

Marx, Karl. Capital Volume 1: a critique of political economy. Translated by Ben Fowkes and David Fernbach. v. 1: Penguin classics. London ; New York, N.Y: Penguin Books in association with New Left Review, 1981.

Marx, Karl, and Ernest Mandel. Capital Volume 3: a critique of political economy. Translated by David Fernbach. 3rd Revised ed. edition. New York, N.Y., U.S.A: Penguin Classics, 1993.

1. The term development itself is often loosely defined. I belive there’s need to make an extensive definition, which I believe can grow from a Marxian understanding of human social development. In general, the understanding of development as the control of humans over their external envioment provides the most general determination. However, this must be built together with historically specific (that is concrete) forms in which the control of the natural world takes place, which means outlining the specific social relations at play.

A side note. The question of development is a moral or ethical question. That is not because we cannot nor should not seek to morally or ethically judge a social formation. However, there is no positive linear connection between the abstract capacity for economic control and moral and ethical development. As Burlamaqui points out, Schumpeter praised the capacity of Nazi German to develop state institutions in order to spur economic development. Nonetheless, it would be ridiculous to argue that it was thus “morally” superior as well as a result.

2. See Stephen Maher’s book on Corporate Capitalism and the Integral State for more development on this point.