State capitalism has various different meanings, but is usually described as a society wherein the productive forces are controlled and directed by the state in a capitalist way, even if such a state calls itself socialist. Within Marxist literature, state capitalism is usually defined in this sense: as a social system combining capitalism — the wage system of producing and appropriating surplus value — with ownership or control by a state apparatus. By that definition, a state capitalist country is one where the government controls the economy and essentially acts like a single giant corporation. There are various theories and critiques of state capitalism, some of which have been around since the October Revolution or even before. The common themes among them are to identify that the workers do not meaningfully control the means of production and that commodity relations and production for profit still occur within state capitalism. Other socialists use the term state capitalism to refer to an economic system whereby it is nominally capitalist, where business and private owners reap profits from an economy largely subsidized, developed and promoted by the state sector and public cost.
This term is also used by some advocates of laissez-faire capitalism to mean a private capitalist economy under state control, often meaning a privately-owned economy that is under economic planning. Some even use it to refer to capitalist economies where the state provides substantial public services and regulation over business activity. In the 1930s, Italian Fascist leader Benito Mussolini described Italian Fascism's economic system of corporatism as "state socialism turned on its head." This term was often used to describe the controlled economies of the great powers in the First World War. In more modern sense, state capitalism is a term that is used (sometimes interchangeably with state monopoly capitalism) to describe a system where the state is intervening in the markets to protect and advance interests of Big Business. This practice is in sharp contrast with the ideals of both socialism and laissez-faire capitalism.
The term itself was in use within the socialist movement from the late nineteenth century onwards. Wilhelm Liebknecht in 1896 said: "Nobody has combatted State Socialism more than we German Socialists; nobody has shown more distinctively than I, that State Socialism is really State capitalism!" 
It has been suggested that the concept of state capitalism can be traced back to Mikhail Bakunin's critique within the First International of the potential for state exploitation under Marxism, or to Jan Waclav Machajski's argument in The Intellectual Worker (1905) that socialism was a movement of the intelligentsia as a class, leading to a new type of society he called state capitalism. For anarchists, state socialism is just state capitalism, hence oppressive and merely a shift from private capitalists to the state being the sole employer and capitalist. 
During World War I, taking as his cue Vladimir Lenin's idea that Tsarism was taking a "Prussian path" to capitalism, the Bolshevik Nikolai Bukharin identified a new stage in the development of capitalism, in which all sectors of national production and all important social institutions had come under state management; he termed this new stage 'state capitalism.' 
After the October Revolution, Lenin used the term in a positive way. In spring 1918, during a short period of economic liberalism prior to the introduction of war communism, and again during the New Economic Policy (NEP) of 1921, Lenin justified the introduction of state capitalism under the political control of the dictatorship of the proletariat to further central control and develop the productive forces:
Reality tells us that state capitalism would be a step forward. If in a small space of time we could achieve state capitalism, that would be a victory. (Lenin 1918)
The earliest critique of the USSR as state-capitalist was formulated by various groups adhering to left communism. One major tendency of the 1918 Russian communist left criticised the re-employment of authoritarian capitalist relations and methods within production. As Ossinsky in particular argued, one-man management and the other impositions of capitalist discipline would stifle the active participation of workers in the organisation of production; Taylorism turned workers into the appendages of machines, and piece-wages imposed individualist rather than collective rewards in production so instilling petty bourgeois values into workers. In sum these measures were seen as the re-transformation of proletarians within production from collective subject back into the atomised objects of capital. The working class, it was argued, had to consciously participate in economic as well as political administration. This tendency within the 1918 left communists emphasized that the problem with capitalist production was that it turned workers into objects. Its transcendence lay in the workers' conscious creativity and participation, which is reminiscent of Marx's critique of alienation.
These criticisms were revived on the left of the Russian Communist Party after the 10th Congress in 1921, which introduced the New Economic Policy. Many members of the Workers' Opposition and the Decists (both later banned) and two new underground Left Communist groups, Gavril Myasnikov's Workers' Group and the Workers' Truth group, developed the idea that Russia was becoming a state capitalist society ruled by a new bureaucratic class. The most developed version of this idea was in a 1931 booklet by Myasnikov.
Leon Trotsky said the term state capitalism "originally arose to designate the phenomena which arise when a bourgeois state takes direct charge of the means of transport or of industrial enterprises" and is therefore a "partial negation" of capitalism . However, Trotsky rejected that description of the USSR claiming instead that it was a degenerated workers' state. After World War II, most in the Trotskyist movement accepted an analysis of the Soviet block countries as being deformed workers' states. However, alternative currents within the Trotskyist tradition have developed the theory of state capitalism as a New Class theory to explain of what they regard as the essentially non-socialist nature of the USSR, Cuba, China, and other self-proclaimed socialist states.
The discussion goes back to internal debates in the Left Opposition in the late 1920s and early 1930s. Ante Ciliga, a member of the Left Opposition imprisoned in the 1930s at Verkhen-Uralske, described the evolution of many Left Opposition members to a theory of state capitalism under the influence of members of Gavril Myasnikov's Workers Group and other Left Communist factions. On release, and returning to activity in the International Left Opposition, Ciliga "was one of the first, after 1936,to raise the theory [of state capitalism] in Trotskyist circles". George Orwell, who moved in similar anti-Stalinist left circles to Ciliga, used the term in his Homage to Catalonia (1938).
After 1940, dissident Trotskyist currents developed more theoretically sophisticated accounts of state capitalism. One influential formulation has been that of the Johnson-Forest Tendency of CLR James and Raya Dunayevskaya who formulated her theory in the early 1940s on the basis of a study of the first three Five Year Plans alongside readings of Marx's early humanist writings. Their political evolution would lead them away from Trotskyism. Another is that of Tony Cliff, associated with the International Socialist Tendency and the British Socialist Workers Party (SWP), dating back to the late 1940s. Unlike Johnson-Forest, Cliff formulated a theory of state capitalism that would enable his group to remain within the Trotskyist fold, albeit in a heterodox way. A relatively recent text by Stephen Resnick and Richard D. Wolff, Class Theory and History, explores what they call state capitalism in the former Soviet Union, continuing a theme that has been debated within Trotskyist theory for most of the past century.
Compare with other left-wing theories regarding Soviet-style societies: deformed workers' states, degenerated workers' states, new class, state socialism, bureaucratic collectivism and coordinatorism.
The left communist council communist traditions outside Russia see the Soviet system as state capitalist. Otto Rühle, a key figure in German left communism, developed this view from the 1920s, and it was later articulated by Dutch council communist Anton Pannekoek, for instance in "State Capitalism and Dictatorship" (1936).
From 1956 to the early 1980s, the Communist Party of China and their Maoist or ‘anti-revisionist’ adherents around the world often described the Soviet Union as state-capitalist, essentially using the accepted Marxist definition, albeit on a different basis and in reference to a different span of time from either the Trotskyists or the left-communists. Specifically, the Maoists and their descendants use the term state capitalism as part of their description of the style and politics of Khrushchev and his successors, as well as to similar leaders and policies in other self-styled ‘socialist’ states. This was involved in the ideological break of the Sino-Soviet Split.
After Mao's death, amidst the supporters of the Cultural Revolution and the exploits of the 'Gang of Four', most extended the state capitalist formulation to China itself, and ceased to support the Communist Party of China, which likewise distanced itself from these former fraternal groups. Another group appeared out of this movement in 1978, aligned with Albania and its leader Enver Hoxha, who insisted that Mao himself had pursued state capitalist and revisionist economic policies.
Most current Communist groups descended from the Maoist ideological tradition still hold to the description of both China and the Soviet Union as being ‘state-capitalist’ from a certain point in their history onwards — most commonly, the Soviet Union from 1956 to its collapse in 1991, and China from 1976 to the present day. Maoists and ‘anti-revisionists’ also sometimes employ the term ‘Social-imperialism’ to describe socialist states that they consider to actually be capitalist in essence — their phrase, "socialist in words, imperialist in deeds" denotes this.
Murray Rothbard, a laissez-faire capitalist thinker, uses the term interchangeably with the term state monopoly capitalism, and uses it to describe a partnership of government and big business where the state is intervening on behalf of large capitalists against the interests of consumers. He distinguishes this from laissez-faire capitalism where big business is not protected from market forces. This usage dates from the 1960s, when Harry Elmer Barnes described the post-New Deal economy in the United States as "state capitalism." More recently, Andrei Illarionov, former economic advisor to Russian President Vladimir Putin, resigned in December 2005, protesting Russia's "embracement of state capitalism."
The term is not used by the classical liberals to describe the public ownership of the means of production. The economist Ludwig von Mises explains the reason: "The socialist movement takes great pains to circulate frequently new labels for its ideally constructed state. Each worn-out label is replaced by another which raises hopes of an ultimate solution of the insoluble basic problem of Socialism—until it becomes obvious that nothing has been changed but the name. The most recent slogan is "State Capitalism." It is not commonly realized that this covers nothing more than what used to be called Planned Economy and State Socialism, and that State Capitalism, Planned Economy, and State Socialism diverge only in non-essentials from the "classic" ideal of egalitarian Socialism."
On economic issues, Italian Fascist leader Benito Mussolini in 1933 claimed that fascism's "path would lead inexorably into state capitalism, which is nothing more nor less than state socialism turned on its head. In either event, [whether the outcome be state capitalism or state socialism] the result is the bureaucratization of the economic activities of the nation." Mussolini claimed that capitalism had degenerated in three stages, starting with dynamic or heroic capitalism (1830–1870) followed by static capitalism (1870–1914) and then reaching its final form of decadent capitalism, also known as supercapitalism beginning in 1914. Mussolini denounced supercapitalism for causing the "standardization of humankind" and for causing excessive consumption. Mussolini claimed that at this stage of supercapitalism "[it] is then that a capitalist enterprise, when dificultires arise, throws itself like a dead weight into the state's arms. It is then that state intervention begins and becomes more necessary. It is then that those who once ignored the state now seek it out anxiously."[31 ] Due to the inability of businesses to operate properly when facing economic difficulties, Mussolini claimed that this proved that state intervention into the economy was necessary to stabilize the economy.[31 ] Mussolini claimed that dynamic or heroic capitalism and the bourgeoisie could be prevented from degenerating into static capitalism and then supercapitalism if the concept of economic individualism were abandoned and if state supervision of the economy was introduced. Private enterprise would control production but it would be supervised by the state. Italian Fascism presented the economic system of corporatism as the solution that would preserve private enterprise and property while allowing the state to intervene in the economy when private enterprise failed.
An alternate definition is that state capitalism is a close relationship between the government and private capitalism, such as one in which the private capitalists produce for a guaranteed market. An example of this would be the military-industrial complex where autonomous entrepreneurial firms produce for lucrative government contracts and are not subject to the discipline of competitive markets. Many see this as part of a continuum characterizing the modern world economy with "normal" capitalism at one extreme and complete state capitalism like that of the former USSR at the other. This continuum has narrowed somewhat since the 1980s with the collapse of the USSR and its satellites and with large-scale privatization in Eastern Europe and most of the third world.
Both the Trotskyist definition and this one flow from discussion among Marxists at the beginning of the twentieth century, most notably Nikolai Bukharin who, in his book Imperialism and the world economy thought that advanced, 'imperialist' countries exhibited the latter definition and considered (and rejected) the possibility that they could arrive at the former.
State capitalism is practised by a variety of Western countries with respect to certain strategic resources important for national security. These may involve private investment as well. For example, a government may own or even monopolize oil production or transport infrastructure to ensure availability in the case of war. Examples include Neste, Statoil and OMV.
Several European scholars and political economists have been increasingly using the term to describe one of the three major varieties of capitalism that prevail in the modern context of the European Union. This approach is mainly influenced by Schmidt's (2002) article on The Futures of European Capitalism, in which he divides modern European capitalism in three groups: Market, Managed and State. Here, state capitalism refers to a system where high coordination between the state, large firms and labour unions ensures economic growth and development in a quasi-corporatist model. The author cites France and, to a lesser extent, Italy as the prime examples of modern European State capitalism.