Of course it does. If the state privileges Joe Blow over John Doe because Blow serves its interests better, the state is at its root totalitarian, elevating itself above the people.
No, it is then simply a state giving on its own recognition things that belong to it. It would be socialist if it were giving away things that did not belong to the state but rather belonged to private citizens. It would be totalitarian if it prevented execution of individual rights altogether. None of that necessarily occurs when the state is giving a privilege of citizenship or adoption of a child who already is a ward of the state to whoever the state pleases.