What is State Capitalism?

State capitalism is defined as capitalism in an environment wherein the capitalist enterprise is a component part of the state bureaucracy and the receivers of capitalist surplus value are state appointed bureaucrats.  Many social theorists have classified the Soviet Union and CMEA nations, in general, as state capitalist social formations because most of the GDP in those economies was generated by capitalist enterprises that were within the state bureaucracy and officials in the state bureaucracy were the appropriators of enterprise surplus value.  For the most recent and best developed analysis of state capitalism in the USSR, see Class Theory and History by Stephen A. Resnick and Richard D. Wolff.   For a similar discussion of state capitalism in China, see Gabriel, Chinese Capitalism and the Modernist Vision. Also, see the following online publication, as another example, State Capitalism by Peter Binns.
State capitalism is often confused with communism: the social system that prevailed in many pre-colonial indigenous communities in Africa and the Americas and which is the underlying economic process of the kibbutz system in Israel.  Although there are many variant forms of capitalism, state capitalism is given more weight in the social scientific literature because of the tendency to essentialize the state and state powers. 
Neither the logic of Marxian theory
nor research into concrete histories
of countries . . .
supports the collapsing of reform
and revolution
into one another . . .
Suppose that a state in capitalist society
is so changed that not only does it
extend its subsumed class position
to become the owner of all
formerly privately owned
means of production,
but it also takes over the
capitalist fundamental class process
of producing surplus labor.
The state would then be both the
direct receiver of produced surplus labor
(in state industrial enterprises)
and the subsumed class receiver
of distributed shares of that surplus labor
(in state nonindustrial enterprises).
Individuals located in such
different enterprises of the state
would then play the different
roles of industrial capitalists
and occupants of various
subsumed class positions.
Payments would flow among them
in ways perfectly analogous with
those among capitalist directors and managers
within and between private enterprises
in a United States-type capitalist society.

---Stephen A. Resnick and Richard D. Wolff, Knowledge and Class (1987)