The Sovereign Economic Model. A manifesto for rising nations. Stefan Demetz
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consequences, as all anchors holding a country back from sailing along its most beneficial economic route must be cut loose. As big economics is invariably linked to big politics, immense struggles will take place. Why a new or different capitalist economic model is required is another question. The current commonly used economic system of neoliberal capitalism is not working. It is increasingly unstable and does not grow wealth. Nor does it produce good growth in gross domestic product (GDP) numbers. Significant changes in economic policies will require some adaptation by those who are now benefiting from the imbalanced economy by offering economically harmful products and services. The Sovereign Economic Model has many benefits over existing economic systems, such as these:
• Improved economic development model
• Less economic instability
• Increased wealth creation
• Distributed and shared wealth distribution
• Long-term sustainability
The Sovereign Economic Model does not throw the baby out with the bathwater but tries to fine-tune several features of capitalism. Some economic experts fiercely criticize such a «paternalistic» economic model by citing moral and ethical considerations. Their criticism includes the following:
• «Too communist/socialist»
• «Too nationalistic»
• «Too fascist»
• «Too ideological»
• «Too revolutionary»
• «Too paternalistic»
The Sovereign Economic Model does not have ideological components per se. It simply strives to give the fruits of labor to the state and the people and prefers to avoid the unnecessary accumulation of capital. If a considerable accumulation of capital is possible, such as through de facto monopolies or rent-seeking economic activities, then the companies that pursue it should be state-owned corporations (SOE). The excess profits they earn should go to the state itself, which can grant higher-quality services, lower taxes, and a higher standard of living to citizens of the country. Excess profits of a state can be used in a variety of ways, including to provide a better education system, better health care, higher pensions, or other subsidized services like cheap transport.
Politicians can sometimes use ideological clubs to rally consent for one economic direction. Or, in other cases, they rally support for defensive measures against foreign aggression, sanctions, trade wars in developing or emerging countries, or even trade wars in developed countries with perceived rivals that are «winning» by offering cheaper goods. On a purely economic theoretical level, such critiques are leveled with economic criticism considerations:
• «Too noncompliant with international rules»
• «Non-free markets»
• «Non-free competition»
• «Too many restrictions»
Such criticisms should be dismissed as competitive strutting because they stand on fragile ground. International «rules» are valid only between equal partners in ideal situations with no sanctions, trade wars, or political and economic blackmail. No other trade or supply shocks and no national security excuses can justify it. A country’s government is foremost responsible for its own economy and citizens, and treaties and trade agreements play second fiddle. That should be engraved in the national constitution and laws as an anchor of state sovereignty. «Non-free markets,» «non-free competition,» and «too many restrictions» are other feeble excuses as markets are always dictated by internal politics and forces in an economy. Even in developed markets, many sectors are occupied by monopolists and cartels that are backed by influential investors. Developed countries abhor competition, especially if it is foreign. But they crave «economic freedom» in developing countries’ markets because their established transnational corporations are much stronger than young local companies. Who needs such an economic model?
This book should not be read as a checklist, travel guide, or recipe book with prescriptive steps but as a base from which to reassess economics in general and a country’s economy in particular. It should be a generic approach, adapted and tailor-made to every single country. It is useful to all countries:
• For developing nations, it can show the way at the beginning of the journey to make the economy as efficient as possible with the limited resources available.
• For emerging nations, it is useful to optimize the current economic situation and re-orient it in better directions.
• For developed nations, it is needed to reassess and adjust failing economic development methods and refocus on the core KPI of economics.
The Sovereign Economic Model will benefit both the people and the government of a country, whatever its current development level. The model should provide economic security with stability and predictability for the government, people, and economic operators. It should avoid disrupting systemic events that create chaos and negative effects. In that, only sovereignty can lead to stable functioning of the economic system and reduce negative external factors. Sovereignty, without external conditioning, enables governments and economic leaders to make the best decisions for the economy, country, and people. The Sovereign Economic Model prioritizes market sectors that yield the highest return of wealth (ROW). Wealth creation is the most important economic KPI.
Problems and Solutions for Liberal Economics
Limitations, vices, and excesses are hallmarks of the current liberal capitalism; it has hit a brick wall. It is afflicted by huge excesses like boom-bust cycles, bubbles, extreme financialization, and enormous debt but offers limited or no improvement for most people. Most times, it even worsens wealth distribution, purchasing power, and employment and demands higher taxes. The Sovereign Economic Model looks at alternative ways to do business, to structure a country’s economy to improve the lives of its people, and to remove the undesirable traits of capitalism. It is not intended to apply communist or socialist economic theories, but proposes a new mindset to improve current economic models so that they more closely align with the common good. Currently capitalism has the following generic disadvantages (free market failures), but they are evolved and exasperated to the limit:
• Inequality
• Financial instability/economic cycle
• Monopolies and cartels
• Environmental costs and externalities
• Greed
• Materialism
• Over-financialization
• Undemocratic practices
• Inefficient allocation of resources
• Misalignment with the «common good»
If the current system is not reined in, long-term problems will render the situation worse and cause a collapse of the financial and economic systems. Change is complex and is resisted by those who thrive on and profit from the status quo. Both China and Russia consider profiteering and excessive profits absolutely negative for the economy. They are forcing companies to diversify in economic sectors that need capital or to transfer profits into investment funds to put to good use for economic development.
One example of a problem caused by profiteering is that speculation leads to overexposure in some fields. When one economic sector becomes the rage, all investments rush into that field to reap as much profit as possible. This creates bubbles, and assets become overvalued. Over-allocation of resources in fields like real estate raises the cost of living to unbearable levels for many people.
An example of how China has prioritized the common good over profits relates to the country’s redirection of social development. China experienced an explosion of edu-tech and private tuition for kids. This allowed prosperous citizens to buy extra tuition for their children to better compete with other students in education. The differences in student