Comment by kragen
4 months 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.
4 months 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.
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.
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.
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