The Sovereign Economic Model. A manifesto for rising nations. Stefan Demetz
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both strategic sectors with SOEs and the main business infrastructure systems. It influences the general economy because the state operates the main rudder and decides the direction of most industries.
Is state capitalism a semi-hybrid planned economy? China’s and Russia’s planned economic management models can probably be called hybrids. The reason is that those countries do not control all business activities, only specific strategic economic sectors. For other sectors, they might impose certain regulations and use taxation to steer vast parts of the economy in one direction in compliance with economic policies. Government economic policies in these countries sometimes clash with private business, but they always find a reasonably positive compromise for both sides: economic direction for the government and business opportunities for companies.
Planned economy five-year plans: are they a vintage model that still can work? Old 5-year plans are being revived from the communist past. In the Soviet Union, China, and other satellites, the economy was managed using 5-year plans. Are they truly so bad? Is a (partially) planned economy that bad? In non-market economies, they were highly inefficient. They mostly decided the output of products from factories regardless of market needs, quality, or other useful parameters. Thus, items were produced but often had no buyers. Plant managers and workers received awards and incentives for wasteful production. These economic models were based on political and ideological assumptions, often with fixed prices and without considering market demand. Therefore, complex goods like cars took 10 years to be produced and delivered, while other goods categories were available in surplus. In the past, such data had to be collected, recorded, and compiled manually, which was tedious and time-consuming. By the time the data collection was completed, the facts on the ground were already different. It was almost impossible to monitor progress, but times are changing.
Currently, 5-year plans still have a bad reputation, but in fact many private companies and multinational corporations use a similar method with so-called strategic business plans for 3, 5, and 10 years. This method of planning is better adapted and is close to the market conditions studied by external consultants and internal market research. Nowadays, such plans are run with software, AI and Big Data. It is believed that a country with a sovereign economy should continue to use 5-year plans to plan and drive both political and economic forces in the right direction. This gives the country a straight path to certain goals and objectives. Therefore, financial planners can offer investors safe investment options. More so than in the past, 5-year plans are useful, relevant, and market-oriented.
Some countries have approached the «planned economics» topic with a new perspective. Compared to the past, it is now possible to apply supercomputing and software to real-time data refreshed every few minutes. An interesting software-based approach is «enterprise portfolio management,» in which software manages the construction of large infrastructure or industrial sites. The software manages the project’s timing and labor, but also its costs and materials • in short, all input and all output. Efforts are on the way, especially in Russia, to apply such theories and practices to the whole of the economy. Special economic planning software on supercomputers is being prepared and tested to monitor such economic activities. It would essentially automate the economy through AI and large computing power in real time and eliminate the inefficiencies and mistakes that come with manual calculations and management as done in previous eras.
Special Economic Zones (SEZs) are geographically designated areas set aside for specifically targeted economic activities. They usually benefit from lenient regulations compared to standards applied to the rest of the economy. They are often specific to some business sectors such as high tech, pharma, IT, and start-ups and are strongly oriented to welcome international collaboration and industries with robust growth potential. Moreover, they are touted as islands of excellence.
Can a government act as a technology driver of a planned economy? It is generally accepted that the private sector is more innovative than a stale central government, but this perception is not always correct. Often private sector actors have settled into their own procedures, processes, and inefficiencies. A government can issue edicts to elevate standards and technologies so that the private sector must follow. Often a technology push by the government is opposed and rejected by the private sector, which sees only short-term costs instead of long-term savings. Let’s consider the health care industry: often, to get a recurring prescription, patients must make a phone call for an appointment and prepare documents of previous visits. Then they must drive to the clinic, find and pay for a parking space, sit in a waiting room, and participate in the doctor’s visit. The doctor types data into the clinic’s software and voilà, finally a prescription for the pharmacy. But to streamline this process, government can impose a unified system to make appointments online, with storage of clinical records and treatments history and a chat or messaging system with doctors to request prescriptions and several other services. The private sector needs to adapt and upgrade its modus operandi and procedures to connect to the new system. Besides the health care example, such pushes can be made in the legal field and several other government-related services.
A government has a more precise overview of an economy than a single business or industry, so it is able to direct and distribute efforts and resources where they are more beneficial for the whole industry. In the same way, a highly diversified conglomerate corporation must coordinate different businesses internally to get the best financial results for the conglomerate as a whole.
The Putin Doctrine: 51 Percent State Ownership, 49 Percent to Investors
Russian President Putin has implemented one of the most clever state capitalism ownership structures. Partial privatization lets the state control most of the shares while ceding 49 percent of them to investors. Such a structure applies to several of the largest Russian companies: Gazprom (gas), RosNeft (oil), Aeroflot (airline), Sberbank (banking), and several others. This creates several advantages:
• Attracts private markets, investors, and specialists with best practices
• Removes unstable political parties bickering about company matters
• Removes the risk of political fiefdoms
• Reduces government outlay of money for full ownership
This hybrid model, as a de facto public-private partnership in running business operations, is probably one of the most efficient economic models for an SOE.
Economic infrastructure
Sovereign Strategic Business Infrastructure
Business infrastructure includes all the companies that enable the country and economy to function and that drive the main economic activities. Business infrastructure comprises both government agencies and privately run core systemic companies. The core economic sectorial companies needed to run an economy are energy, telecom, transport, and banking. Additionally, the health care and food industries are vital to a country’s citizens. The same might apply to other industries, which provide large-scale employment to the local population. It lies therefore, in the interests of a country to control such companies. Types of economic infrastructure facilities are the following:
• Utilities
• Energy
• Telecom
• Financial
• Financial institutions and payment systems
• Transport and logistics for people and goods
• Media
Utilities are most often monopolies, as building distinct instances of infrastructure is almost impossible from a financial point of view. So the base infrastructure, such as the electric grid and gas and water networks should belong to the state. Market actors can provide a variety of connectivity services as well as last-mile sales and services to end consumers. Utilities are massive companies with billions in revenue and can often generate large profits. They additionally require significant investment for upkeep and new infrastructure. They require underlying technologies with medium to high