Comment by kragen | Hacker News Reader

Comment by kragen | Hacker News Reader

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They surely were not the best use of scarce resources. However, I don't know if you've ever tried to run a business in a poor country. It turns out that the decentralized economic systems they have are also not economically rational, systematically failing to provide functioning market mechanisms that support long-term investments such as highway systems, reliable electric grids, municipal water treatment, etc., even when those things would be highly efficient uses of scarce resources. Rather, generally speaking, they systematically squander their resources in order to stabilize the existing socioeconomic power structures.

Generally speaking, if you invest your money in a historically kleptocratic country, you can expect your investment to get confiscated if it's profitable, and possibly even if it's not, which is what happened to my retirement savings. Even if you make your investment at a time when the country is governed by non-kleptocrats, you will probably lose it after the next coup or election in which new kleptocrats come to power.

In that environment, where private investment in long-term infrastructure projects is irrational and languishing in poverty for many generations is the normal state of affairs, state capitalism frequently works.

I don't think moral arguments about atrocities are somehow orthogonal here. Power plants and electrical grids are often worthwhile investments, not because building monuments to Westinghouse is a pious sacrifice that pleases the electrical gods, but because they promote human welfare by providing material abundance. That's how we measure whether society is richer, not, as you say, by the amount of concrete poured. If human welfare is your yardstick, the possibility of economic catastrophes like the Holodomor greatly diminishing human welfare must necessarily weigh on the negative side of the balance. The inhabitants of Auschwitz and the Congo Free State were not enjoying even the material abundance they had enjoyed previously.

So we know that central planning carries risks to human welfare that decentralized systems do not. However, it also has opportunities to promote human welfare that decentralized systems do not. The variance is larger. I don't think we know enough to measure the expectation.

Sure, running a business in kleptocratic hellholes is a nightmare. Confiscation risks kill private investment, especially for big infrastructure that needs stable property rights and enforceable contracts to make sense.

But that's not a bug of decentralized markets; it's the poison of political interference and weak institutions, which state capitalism only doubles down on by swapping entrepreneurial discovery for bureaucratic fiat, still without solving the calculation problem or providing systematic feedback beyond "stuff got built."

Look at Hong Kong in your list: it boomed precisely because of its hands-off, free-market approach with top-tier economic freedom rankings, unlike more interventionist tigers that rode credit-fueled waves but crashed in '97 or stagnated like Japan post-bubble.

Atrocities are the dark side of concentrated power touted as enabling opportunities, jacking up variance with no way to gauge if human welfare gains beat the unseen costs of foregone innovations.

Without prices and profits guiding resources, we're left guessing expectations, but history shows freer systems deliver sustainable abundance when institutions let them, not coerced escapes that often loop back to poverty or worse.

This is the right way to think about the problem if you're faced with the problem of what country to start an electric power company in. But it's not very helpful if you're faced with the problem of how to govern Pakistan, which is certainly not a hellhole but does suffer major corruption problems. The political interference, weak institutions, concentrated power, and official corruption are largely givens; you can work to change them incrementally, but you can't just import the government of Hong Kong. Even if you could, you couldn't convince investors that the reforms would stick this time, for real.

Perhaps, if you could obtain political power that you could retain stably for decades, you could make pretty big changes there, but only at the cost of further concentrating power, creating opportunities for even greater corruption profits for whoever can wrest power away from you. Nobody has ever held power for decades in Pakistan's history. Even Nawaz Sharif didn't make it to 10 years in power over his three (non-consecutive!) terms. If you simply liberalize economically without eliminating the confiscation risks that kill private investment, private investment will not magically materialize without the private investors, who are sensibly investing their savings in a 7-11 franchise in Cleveland, Ohio.

So, what can you, hypothetically governing the country, do under these constraints?

A proven strategy is public investment, like Airbus, like the military contracts that sustain Boeing, like the Hoover Dam, like the Rural Electrification Administration, like federally guaranteed student loans, like the interstate highway system, like Volkswagen, like Tupolev, like Rosatom, like Industrias Aeronáuticas y Mecánicas del Estado, like the Apollo Program, like Huawei, like Westinghouse's nuclear power division, like the ARPANet and NSFNet. Certainly the money won't be invested as wisely as if savvy entrepreneurs like Warren Buffett were directing it, and neither Warren Buffett nor Juan Perón is going to do a good job at investing in unforeseen innovations; but, even if most of that investment is wasted like Project Huemul, it can still dramatically augment the economic productivity of the country, under circumstances when private investment is unavailable. Often such productive capacity will eventually make the country more appealing to private investors, but that can take a long time.

In this situation, you aren't faced with the choice between state capitalism and regular capitalism. You're faced with the choice between state capitalism and no capitalism.

Thus, state-guaranteed loans to build power stations.

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