When a subset of libertarians say they are socialists, they are not talking about state-socialism. They are talking about workers control of the means of production, which does not have to exist by force (see: independent contractors and cooperatives in our current society.) In the absence of the state or with a minimum state, it makes sense that corporations would benefit less from economies of scale, and therefore corporations would remain small and decentralized. This allows for a wider diversity of organization structures. One type of structure would be democratic decision making in the workplace (where all workers decide how things are controlled.) There is nothing wrong with this, in so much as nobody is forcing anything on others.
Most libertarian socialists don't wish to abolish capitalism through violence, but rather think that they can outcompete it in a fair and free market, where the state is not subsidizing large corporations and diseconomies of scales outrun economies of scales. They often think of capitalism as something which would just be displaced like feudalism and mercantilism were. People would just move away from employer/employee relationships, renting homes rather than owning them, paying high interest rates, etc and would rather work for themselves or in cooperatives with others when state privileged monopolies no longer exist.
The individualist anarchist Benjamin Tucker described his idea of libertarian socialism and how it is different from state socialism in a pretty unique way. The bolded sections describe libertarian socialism. The underlined sections describe state-socialism.
http://praxeology.net/BT-SSA.htm
“There are two Socialisms.
One is communistic, the other solidaritarian.
One is dictatorial, the other libertarian.
One is metaphysical, the other positive.
One is dogmatic, the other scientific.
One is emotional, the other reflective.
One is destructive, the other constructive.
Both are in pursuit of the greatest possible welfare for all.
One aims to establish happiness for all, the other to enable each to be happy in his own way.
The first regards the State as a society sui generis, of an especial essence, the product of a sort of divine right outside of and above all society, with special rights and able to exact special obediences; the second considers the State as an association like any other, generally managed worse than others.
The first proclaims the sovereignty of the State, the second recognizes no sort of sovereign.
One wishes all monopolies to be held by the State; the other wishes the abolition of all monopolies.
One wishes the governed class to become the governing class; the other wishes the disappearance of classes.
Both declare that the existing state of things cannot last.
The first considers revolutions as the indispensable agent of evolutions; the second teaches that repression alone turns evolutions into revolution.
The first has faith in a cataclysm.
The second knows that social progress will result from the free play of individual efforts.
Both understand that we are entering upon a new historic phase.
One wishes that there should be none but proletaires.
The other wishes that there should be no more proletaires.
The first wishes to take everything away from everybody.
The second wishes to leave each in possession of its own.
The one wishes to expropriate everybody.
The other wishes everybody to be a proprietor.
The first says: ‘Do as the government wishes.’
The second says: ‘Do as you wish yourself.’
The former threatens with despotism.
The latter promises liberty.
The former makes the citizen the subject of the State.
The latter makes the State the employee of the citizen.
One proclaims that labor pains will be necessary to the birth of a new world.
The other declares that real progress will not cause suffering to any one.
The first has confidence in social war.
The other believes only in the works of peace.
One aspires to command, to regulate, to legislate.
The other wishes to attain the minimum of command, of regulation, of legislation.
One would be followed by the most atrocious of reactions.
The other opens unlimited horizons to progress.
The first will fail; the other will succeed.
Both desire equality.
One by lowering heads that are too high.
The other by raising heads that are too low.
One sees equality under a common yoke.
The other will secure equality in complete liberty.
One is intolerant, the other tolerant.
One frightens, the other reassures.
The first wishes to instruct everybody.
The second wishes to enable everybody to instruct himself.
The first wishes to support everybody.
The second wishes to enable everybody to support himself.
One says:
The land to the State.
The mine to the State.
The tool to the State.
The product to the State.
The other says:
The land to the cultivator.
The mine to the miner.
The tool to the laborer.
The product to the producer.
There are only these two Socialisms.
One is the infancy of Socialism; the other is its manhood.
One is already the past; the other is the future.
One will give place to the other.
Today each of us must choose for the one or the other of these two Socialisms, or else confess that he is not a Socialist.”
As you can probably tell, Tucker was very skeptical of violent action, revolution, and central planning. He was skeptical of communism, as he saw a violent and authoritarian element in the communist movements, well before the Soviet Union. His socialism was what Marx called "socialist of the petit-bourgeois", but Tucker would have seen it as much closer to classlessness than Marx's "dictatorship of the proleteriat."
