The review of historical and contemporary case studies in Chapters 3 and 6 revealed some important lessons for Pakistan. An industrial policy is crucial to promote both domestic economic spillovers from infrastructure investment and local industrialisation from SEZs. An industrial policy can help ensure that spillovers remain within the domestic economy rather than leak out abroad. This chapter examines the economic theory regarding relevant market failures; reviews some historical and contemporary examples of industrial policy; studies the recent calls in Pakistan for an industrial policy to complement the CPEC investment; inspects whether the state in Pakistan has the capacity to implement developmental-type interventions; looks at the politics of infrastructure; and examines how the CPEC will be financed.

FROM MARKET FAILURES TO AN INDUSTRIAL POLICY

The economics of neoliberalism are structured around the assumption of an efficient, spontaneous and self-organising market economy. The state should preserve free markets from any inclinations towards monopoly, issue a currency and protect property rights according to clear rules rather than discretion. The government is likely to act according to political motivations and will lack the necessary information to intervene efficiently (Wade 2012). Neoliberal thinking does not pay particular attention to economic structure, such as the share of industry in the economy, which it argues will reflect the free functioning of efficient markets. The implicit view is that with macroeconomic stability and well-functioning markets, structural change will be governed by comparative advantage. When an economy is open to international trade, comparative advantage directs resources to where their contribution to national product is maximised and there is no rationale for a policy which favour some economic activities over others (Rodrik 2006).

Contrary to the assumptions of neoliberal economics, market imperfections are likely to be pervasive. Any entrepreneur who invests in a new area of manufacturing provides a demonstration of its success or failure to other potential entrepreneurs; the pioneer will generate learning in production and, with new technology, train workers and managers and provide inputs for other firms or retail outlets. The social value will exceed the private return of such investment (Rodrik 2006). The training labour needs to work in manufacturing (remember the shortages of skilled labour in Pakistan discussed in Chapter 5) is unlikely to be solved in a free market. If one expends time and energy in training labour, another firm can save training costs by poaching those workers.

Just a little more than 150 years after the publication of Das Kapital, by the eponymous Karl Marx, capitalism finds itself under scrutiny again. For a time the failures of Marxism, as a political ideology, and the failures of socialism, as a means of economic organization, were so globally apparent that there seemed no longer to be anything to argue about. Inequality has now rekindled the old debate over capitalism versus alternative forms of government or economic organization.

Differences in degree are masked by a simple capitalism-versus-socialism dichotomy. Nevertheless, this book takes up this debate on these simplified terms, and with respect to only one question, but one of existential importance to humankind: How will human civilization right its horribly, tragically errant relationship with the planet it inhabits?

The concept of exploitation is a central one in Marxism. A key claim of Marxism is that capitalism, like previous class-divided societies, rests on the exploitation of the class of direct producers. Just like the slave system was built on the exploitation of the slaves, the direct producers in a slave system, and the feudal system rested on the exploitation of the serfs, who were the direct producers in feudalism, the capitalist system rests on the exploitation of the working class, the direct producers in capitalism. In Chapter 3, we had encountered the concept of exploitation when we were discussing Marx's argument about the origins of surplus value. In this chapter, we revisit the issue and discuss it in greater detail. We will also discuss two important issues related to the question of exploitation. First, we will study the Analytical Marxist (AM) critique of the labour theory of value (and exploitation of labour) that can be called a commodity theory of value (and exploitation of commodities). Second, we will study the relationship between exploitation and oppression, and the related question of the relationship between exploitation and distributive injustice.

Recall that Marx's labour theory of value rests on the argument that labour is the substance of value (Marx, 1992, Chapter 1). In the first volume of Capital, Marx refined and extended the classical labour theory of value (LTV) and used it to demonstrate that capitalism rests on the exploitation of the working class. An influential strand of AM thinking has challenged this basic argument with what I would like to call a commodity theory of value (CTV). There are two key claims of the CTV: first, that any basic commodity can be used to construct a consistent value theory, where a basic commodity is one which is used directly or indirectly to produce all other commodities; and second, that the rate of profit is positive if and only if the basic commodity is exploited. This means that there is nothing special in labour so far as it can be considered the substance of value. Basic commodities can as well function as a substance of value. Moreover, just like labour is exploited if we choose to use Marx's LTV, it can also be demonstrated that when a basic commodity is chosen as the candidate substance of value, it is also necessarily exploited in a capitalist economy.

There is excitement in Pakistan, the academic and political equivalent of winning the cricket world cup. After years of failing to meet short-term International Monetary Fund (IMF) programmes, Pakistan has been promised a well-financed, long-term developmental partnership. This is the China–Pakistan Economic Corridor, or the CPEC. Between 1970 and 2001, a desultory $7 billion of FDI dribbled into Pakistan. China has promised to invest more than $60 billion in roads, railways, energy, industrial parks and other projects between 2015 and 2030. China promises this will not be driven by IMF-style conditionalities but that the CPEC will be tailored to Pakistan's domestic political and economic agenda. The Government of Pakistan has proclaimed in a succession of government plans that upgrading infrastructure is a priority to promote rapid and sustainable economic growth. Practical efforts to follow these goals through in practice continually failed in response to economic crisis, IMF-motivated budget cuts or the lack of sustained political will. Here is the political will. The Dragon from the Mountains. China has more than 40 years’ experience of fuelling its own rapid industrial and export-led growth, supported by massive investment in infrastructure. China is committed to the long-term. The US was ever fickle and committed less to Pakistan than to wider geopolitics in Afghanistan, Soviet Russia or Iran, in which Pakistan occasionally and accidentally proved useful. The CPEC can be told as part of a wider story, that of the end of the US-led world order and the creation of a new Eurasian supercontinent headed by China (Macaes 2018a, 2018b). What part will Pakistan play in this story?

Some CPEC supporters have daydreamed that the CPEC can help spur Pakistan into emulating the rapid economic growth of the Tiger or Dragon economies of the 1960s and 1970s and becoming, perhaps, a ‘Falcon Economy’. The detractors are equally adamant. They variously claim that the CPEC is an economic fig-leaf to cover the real geopolitical intentions of China, to access oil directly from the Middle East and to gain control of the deep-sea port at Gwadar in southwest Pakistan and near to the Gulf. Some have labelled the CPEC as ‘predatory lending’, intending to push Pakistan into a debt trap to increase Chinese leverage over Pakistan's domestic and foreign policy. Remember, say the detractors, the Suez Canal that tipped Egypt into a nineteenth-century debt crisis, and eventual colonisation by Britain.

What created the Asian Tiger or Dragon economies in the post-war era? Scholars have emphasised a range of factors, including those running from culture, to geography, to the successful policies implemented by a developmental state driven by the politics of catching up with the west. Littered among those explanations are external factors. Some have argued that the fear of communism (the proximity of South Korea to North Korea, of Hong Kong and Taiwan to China, of Japan to the USSR) drove a national mission to promote rapid economic growth to avoid the threat of being swallowed by aggressive neighbours. Others have suggested that the politics of the Cold War meant that the US facilitated the rise of those countries, through foreign aid, easy market access and not being overly concerned with violations of patents and copyrights. The US allowed these countries to free-ride on its own economic dominance in order to promote powerful and capitalist Cold War allies. We can draw on scholarship that emphasises the importance of external agency in the creation of the miracle economies. It is reasonable then to start here with the question: can Chinese efforts to build the New Silk Road generate a new miracle in Pakistan, a ‘Falcon Economy’?

The story of the CPEC is primarily a Chinese-dominated narrative, the most important aspect being China's transformation since the late 1970s— China's rise from a poor agrarian economy in desperate need of foreign exchange and advanced technology, to the need for raw materials for an industrialising economy and, finally, to the need to restructure and create national champions for a mature industrial economy. The generosity and size of the CPEC can be less explained by careful diplomacy by Pakistan and more by Pakistan's long-standing friendship with China and the luck of its geographical proximity to Western China, the Middle East and Afghanistan. This book was framed in terms of a debate. On the one side are the CPEC optimists who see the magnitude and long-term commitment of the CPEC as heralding a new opportunity for Pakistan to realise its innate potential and perhaps become that ‘Falcon Economy’. On the other side are the CPEC pessimists who see China as engaged in predatory lending, anxious to tip Pakistan into a deeper form of debt-dependency so as to leverage extra influence to gain control of Pakistan's resources, geography and policymaking.

The existing work on the CPEC tends to be structured around best guesses or aspirational hopes about the likely impact of the big transport infrastructure projects that are being planned and constructed. So far there is a complete absence of academic engagement with the voluminous existing academic literature of big infrastructure and the potential relevance of these results for the CPEC. Existing studies of big infrastructure offer useful results and research methodologies with which to think about analysing the impact of the CPEC. These include modest studies looking at the impact of a single piece of infrastructure, studies that aggregate numerous infrastructure projects to measure their total impact (or ‘social saving’), studies that focus on the macroeconomic impact of infrastructure projects and more recent studies that have used hugely impressive big data sets to study infrastructure.

MODEST STUDIES OF SINGLE INFRASTRUCTURE PROJECTS

The most widely used form of appraisal for a single road, rail or energy infrastructure project is that of a cost–benefit analysis (CBA). A CBA attempts to forecast the economic benefits to households and firms of infrastructure projects by calculating changes in travel costs, including time savings, reduced operating costs and improved safety. These direct transport impacts are applied both to existing users and to potential new users. New users are those travellers that shift to the now cheaper, faster or more reliable infrastructure by taking new routes or longer journeys. The flows of benefits over time are quantified in monetary terms, discounted to place a current value on the stream of future benefits and then compared to the capital and operating cost of the project. If the discounted benefits exceed the discounted costs, the project is profitable. There are well-known problems with CBA. These include how to place a monetary value on people's time and how to quantify safety improvements or reductions in the wear and tear on vehicles (Holl 2006). Conducting a CBA is standard practice when planning and financing new infrastructure. The academic literature on big infrastructure has used backward-looking CBA, not forecasting before, but evaluating after, the construction of big infrastructure. There are many such examples.

Gunasekara, Anderson and Lakshmanan (2008) examine the impact of the 1987 rehabilitation of two roads connecting Colombo in central Sri Lanka and the central city of Kandy with the north of the island.

While Adam Smith did not name it, he identified capitalism as something profoundly different, something that would break feudalism, and something that would generate wealth previously unimaginable. To argue that something so transformative could happen without royal edict or conscious purpose, driven only by self-interest, was heretical. But it is a big and consequential mistake to leap to the conclusion that capitalism is “natural” and self-executing. It became a canard that all capitalism needed was “free” markets, unspoiled by government interference. Markets depend upon rules and institutions for governance. Capitalism is more than markets alone, and requires more by way of governance. Even in Smith’s eighteenth-century England, there still had to be “tolerable administration of justice.” Capitalism was then, is now, and will always be dependent up the selective coercion of legal rules and institutions. For example, the enforcement of promises requires the coercion of courts, or at least norms broad enough to be institutional in nature.

Motivation

The global economic crisis that was triggered by the financial crisis in the United States in 2007 has revived political movements critical of many harmful aspects of the capitalist system, like income and wealth inequality, unjust burdens of student debt, disparity in access to housing and health care, racial oppression and discrimination of immigrants, unequal trade and investment treaties, and policies of economic austerity. Parallel with the growth of such political movements has been a growing interest – among activists, scholars and the general public – in currents of critical social and political thought that can make sense of such issues and offer alternatives to the unjust and exploitative capitalist-imperialist system. It is in this context that there has been a revival of interest in Marxism, one of the most consistently radical strands of critical social thought, one moreover, that offers a coherent and comprehensive framework for understanding the social world we live in.

Marxism is a creative synthesis of three strands of nineteenth-century European thought – classical German philosophy, British political economy and French socialism. It offers a theory of history, referred to as the materialist conception of history or historical materialism, which puts an understanding of the material conditions of life at the centre of historical analysis. To understand both the structure of society at a point in time and the logic of large-scale historical change, Marxism asks us to start from an understanding of how the production and reproduction of material life is organized. In studying the production and reproduction of material life, Marxism pays attention to both technology, what it calls the forces of production, and the relationships people enter into during the process of production, which it calls the relations of production. Starting from the relations of production, it explains the structure of political and legal institutions of modern, bourgeois society; and, starting from the contradiction between the forces and relations of production, which is expressed through and in the conflicts of fundamental social classes, it explains large-scale historical change in the political and social domains of life.

Guided by this powerful theory of history, which he had developed in the first phase of his studies in the mid-nineteenth century, Marx spent the rest of his life developing a detailed analysis of the production and reproduction of material life in capitalist economies.

In the previous chapter, we studied what Marx had termed the ‘process of production of capital’. Using the key concept of surplus value, we saw that the process of production of capital involved two aspects (or steps): the generation of surplus value by capital in the first step, and, in the next, the accumulation of surplus value to create capital. This argument was developed by Marx in Volume 1 of Capital, and that had been the main object of our study in the previous chapter. We had also noted that in developing this argument, Marx had abstracted from two important issues: (a) how did the commodities find a market? and (b) how did the material underpinnings of the capital accumulation process get recreated over and over again?

The fact that Marx had abstracted from these two questions was consistent with his method of presentation – of moving from the abstract to the concrete. Once the analysis of the process of production of capital was completed in Volume I, Marx returned to these questions in Volume II and took up the issue of realization of surplus value. Since surplus value is realized only through sale of commodities, and since sale of commodities occur in what Marx calls the ‘sphere of circulation’, the analysis in Volume II begins with an investigation of ‘formal and material changes undergone by capital in the circulation sphere’. Marx studies some general issues relating to the sphere of circulation and to the circulation of capital as a way to set-up the framework for the analysis of the problems of realization of surplus value – the main question investigated in Volume II of Capital.

There is much work to be done. This chapter sets out a list of five proposed environmental taxes. This is by no means a comprehensive list of worthwhile environmental taxes. What else don’t we know? These are five of the most important externalities to price. Some of these taxes have multiple effects. In fact, some of the effects overlap across different taxes. Some account can be made for overlap, so as not to double tax the same harmful activity, except of course for multiple harms. Each tax is described briefly, along with some discussion of the harms and the implementation and enforcement issues. Each proposed tax is worthy of a book-length discussion, but my purpose here is to introduce the need for the tax, and to lay out a roadmap for implementation, hoping the reader will forgive the omissions necessitated by considerations of space.

In the previous two chapters, we have studied

• • the processes of the generation and accumulation of surplus value that was analysed by Marx in Volume I of Capital (Chapter 3) and

• • the processes surrounding the realization of surplus value in the sphere of circulation that was analysed by Marx in Volume II of Capital (Chapter 4).

To complete the analysis of the capitalist system, we now need to understand how the surplus value that is generated in production of commodities and realized through sale of commodities is distributed through various channels to finally emerge as the income stream of various fractions of the ruling class – the trading capitalists (the merchants), the industrial capitalists, the money capitalists and the resource owners. It is the purpose of this chapter to study the processes of distribution and redistribution of surplus value by discussing the main threads of the argument that were developed in Volume III of Capital (Marx, 1993b).

The first thing to note is that the argument in Volume III of Capital proceeds in two analytically separate steps. In the first step of the argument, we understand how the already produced surplus value is distributed across different sectors of industrial capital, that is, capital that is involved in the process of capitalist production of commodities. We will see that the key mechanism that brings about this redistribution of surplus value, in the first step of the argument, is the competition between industrial capitals, the latter manifested in the mobility of capitals across sectors in search of higher rates of profit. This process redistributes the already generated surplus value across different sectors of the economy, giving rise to a uniform (average) rate of profit and a corresponding set of prices of commodities known as prices of production. This argument about the emergence of prices of production will also move through two levels of abstraction. In the higher level of abstraction, we will abstract from commercial capital. After developing the argument in this simplified set-up, we will return to the argument and incorporate commercial capital – capital that is only involved in trade (pure buying and selling), but not in production (broadly understood) – into the analysis to see that the competitive process leads to the total surplus value being divided between industrial and commercial capital in the form of industrial profit and commercial profit, respectively.