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Usually there are three parties in these agreements. 1. State of Pakistan 2. Someone with dollars (the investors) 3. Local businessman who are willing run th

Usually there are three parties in these agreements. 1. State of Pakistan 2. Someone with dollars (the investors) 3. Local businessman who are willing run the power plant. The three parties come to an agreement on what the minimum returns should be on the investment. Say 10% annual. Then the investors give money to the businessman, who then import the power plant equipment and start operating it. The state-run electricity distribution companies buys from the power plant as needed and pays them the unit price set by the State of Pakistan. Part of this is converted into dollars at some pre-agreed rate and transferred to the investors. In all this, if the total returns to the investor are above 10%, then all is good. However, if the grid demand has fallen, and the distribution company didn't buy a lot of units from the power plant, then the State of Pakistan has to step in and give the investors the difference to make up the 10% returns. Yes, it is an insane system.

bofadeez 11mo ago
State capitalism like you described totally undermines the price system by replacing profit-and-loss–guided entrepreneurial calculation with political allocation of resources, thereby rendering economic calculation increasingly impossible and eroding the coordinating function of the market process.
- kragen 11mo ago
  Yes, but nobody has found a more effective way to build infrastructure in poor countries. State capitalism as described is how infrastructure development happened in Indonesia, Malaysia, Taiwan, Hong Kong, Korea, Japan, Vietnam, Thailand, etc.
  - bofadeez 11mo ago
    The fact that infrastructure was built under state capitalism does not demonstrate the superiority of central planning, only that capital accumulation occurred despite intervention, often financed by prior scarcity, foreign savings, or coerced transfers; absent market prices and entrepreneurial profit-and-loss, the state cannot know whether the infrastructure created was the most value-productive use of scarce resources, only that concrete and steel were poured.
    - kragen 11mo ago
      I think it demonstrates the increased variance of central planning. The Congo Free State was also centrally planned, and so was the Holocaust, the Holodomor, the Armenian Genocide, Suharto's mass murder of suspected PKI sympathizers, etc. But the expected outcome for poor countries is that they stay poor and don't develop into industrialized export giants the way my laundry list of countries did.
      - deleted 11mo ago
        [deleted]
      - bofadeez 11mo ago
        Higher variance isn’t a redeeming feature when the mechanism that generates it lacks rational calculation in the first place. Central direction can occasionally coincide with growth in poor countries because initial scarcity leaves many wasteful paths that still raise output, but that doesn’t establish a positive expected value
        kragen 11mo ago
        I have attempted to make sense of your comment several times, but I cannot figure out what the intended meaning is of most of it.
        bofadeez 11mo ago
        I’m not arguing that centralized or state-capitalist systems “never work” in the sense that nothing gets built, or that output can’t rise. Clearly roads, ports, power plants, and factories were constructed in many of the cases you listed. The narrower point I’m making is about economic rationality. Without market prices for capital goods generated through profit-and-loss entrepreneurship, there is no way to know whether those projects were the best use of scarce resources, or merely a use that happened to raise output from a very low baseline. In very poor countries, almost any large capital investment will increase measured output because there are so many unmet needs. That means growth can occur even under badly misallocated investment. The fact that development happened does not tell us whether it happened efficiently, or whether alternative decentralized uses of those same resources would have generated more value. That’s also why I don’t find higher variance persuasive as a defense. Occasional success doesn’t validate a mechanism that lacks systematic feedback. Without prices and profits, planners can’t distinguish luck from competence, or learning from error. Things such as malinvestment and moral hazard result. You only know concrete and steel were poured, not whether society is richer than it otherwise would have been. So my claim isn’t state capitalism always fails, nor is it a moral argument about atrocities. It’s that infrastructure success alone doesn’t answer the calculation problem. Growth from scarcity is compatible with irrational allocation, and therefore doesn’t establish a positive expected value for centralized direction as a general development strategy.
  - catlover76 11mo ago
    [dead]
  - kragen 11mo ago
    Catlover76 asks in a [dead]ed comment, "And China, right?" It's a reasonable question. It's debatable whether the infrastructure of the parts of China I didn't mention was built by state capitalism or by a straightforwardly Communist system of production, so I only mentioned the more clear-cut cases.

bofadeez 11mo ago

State capitalism like you described totally undermines the price system by replacing profit-and-loss–guided entrepreneurial calculation with political allocation of resources, thereby rendering economic calculation increasingly impossible and eroding the coordinating function of the market process.

kragen 11mo ago
Yes, but nobody has found a more effective way to build infrastructure in poor countries. State capitalism as described is how infrastructure development happened in Indonesia, Malaysia, Taiwan, Hong Kong, Korea, Japan, Vietnam, Thailand, etc.
- bofadeez 11mo ago
  The fact that infrastructure was built under state capitalism does not demonstrate the superiority of central planning, only that capital accumulation occurred despite intervention, often financed by prior scarcity, foreign savings, or coerced transfers; absent market prices and entrepreneurial profit-and-loss, the state cannot know whether the infrastructure created was the most value-productive use of scarce resources, only that concrete and steel were poured.
  - kragen 11mo ago
    I think it demonstrates the increased variance of central planning. The Congo Free State was also centrally planned, and so was the Holocaust, the Holodomor, the Armenian Genocide, Suharto's mass murder of suspected PKI sympathizers, etc. But the expected outcome for poor countries is that they stay poor and don't develop into industrialized export giants the way my laundry list of countries did.
    - deleted 11mo ago
      [deleted]
    - bofadeez 11mo ago
      Higher variance isn’t a redeeming feature when the mechanism that generates it lacks rational calculation in the first place. Central direction can occasionally coincide with growth in poor countries because initial scarcity leaves many wasteful paths that still raise output, but that doesn’t establish a positive expected value
      - kragen 11mo ago
        I have attempted to make sense of your comment several times, but I cannot figure out what the intended meaning is of most of it.
        bofadeez 11mo ago
        I’m not arguing that centralized or state-capitalist systems “never work” in the sense that nothing gets built, or that output can’t rise. Clearly roads, ports, power plants, and factories were constructed in many of the cases you listed. The narrower point I’m making is about economic rationality. Without market prices for capital goods generated through profit-and-loss entrepreneurship, there is no way to know whether those projects were the best use of scarce resources, or merely a use that happened to raise output from a very low baseline. In very poor countries, almost any large capital investment will increase measured output because there are so many unmet needs. That means growth can occur even under badly misallocated investment. The fact that development happened does not tell us whether it happened efficiently, or whether alternative decentralized uses of those same resources would have generated more value. That’s also why I don’t find higher variance persuasive as a defense. Occasional success doesn’t validate a mechanism that lacks systematic feedback. Without prices and profits, planners can’t distinguish luck from competence, or learning from error. Things such as malinvestment and moral hazard result. You only know concrete and steel were poured, not whether society is richer than it otherwise would have been. So my claim isn’t state capitalism always fails, nor is it a moral argument about atrocities. It’s that infrastructure success alone doesn’t answer the calculation problem. Growth from scarcity is compatible with irrational allocation, and therefore doesn’t establish a positive expected value for centralized direction as a general development strategy.
- catlover76 11mo ago
  [dead]
- kragen 11mo ago
  Catlover76 asks in a [dead]ed comment, "And China, right?" It's a reasonable question. It's debatable whether the infrastructure of the parts of China I didn't mention was built by state capitalism or by a straightforwardly Communist system of production, so I only mentioned the more clear-cut cases.