The Sovereign Economic Model. A manifesto for rising nations. Stefan Demetz
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lack of economic defenses and their inherently weak economies. It is noticeable in many countries that fast-moving consumer goods (FMCGs) made by companies in only a few countries are available. These goods come mainly from US and UK companies, while companies from other regions, such as Europe, are completely missing from the market.
Some economic commentators have pointed out that the developed nations establish and use technological colonialism as a power lever against smaller countries. To some countries, the developed nations deny the right to buy certain technologies by making excuses or imposing sanctions. They do so to put pressure on the smaller countries or to slow their development or progress.
Use of economic instruments by leading nations is a means of geopolitical primacy. It always has been and always will be.
The Competitive Advantages of Nations
In the past, cities, trading posts, fortifications, and ports were built in strategic geographic locations for trading, security, safety, and easy access to natural resources like water and fertile land. Cities were erected near rivers and cultivable land, fortifications on easily defensible hills and mountaintops, trading posts on bustling trading routes or near production areas, and ports in defensible bays with quiet, protected waters. These strategic locations are constantly contested by many countries for military and trading advantages. Many countries still enjoy competitive advantages given by geography and have adapted their economies to take advantage of that. Therefore, most countries have some sort of advantage over others in certain categories of goods. Most times, this advantage has been built upon to create extensive economic activity and even advanced industries. Some industries have ended for various reasons, such as replacement by newer technologies or simply finite resources. It is in the interest of countries to identify such competitive advantages and build on them. They may be simple things like water, large land surfaces, or natural resources. These sectors should constitute the foundation of an economy. Catalysts to economic development are categorized into two macro groups:
• Naturally occurring competitive advantages
• Evolutionary development from agriculture, natural resources, and infrastructure
Natural competitive advantages should be used for evolutionary economic development. Once competitive advantages have been identified, both historical and new ones, the focus should be to take advantage of them by progressing and innovating to achieve quick evolutionary developments. As a base, agriculture, natural resources, and infrastructure are used to improve the economy. Even at a basic level, because they require tremendous manual input, these sectors need automation and innovation by machines, tools, materials, and technologies. The footprint of such primary goods and activity is unusually large, and there are huge margins to start production of capital goods as a part of import substitution programs. This brings a considerable drive to upgrade a country’s skills and industrialization and affects many sectors. Agriculture and food production require a vast variety of machines and industrial processes to convert raw agricultural products into tradeable goods with added value. Natural resources require many large industrial machines to transport, filter, and process raw material extracted from underground. Infrastructure, beyond the construction stages, needs machines and vehicles to transport people and goods, so it is an excellent starting point for heavy industry.
Moreover, all three «basic» industries of agriculture, natural resources, and infrastructure impact other industries, such as the chemical industry, because they require hundreds or thousands of substances for processing. A key government task is to identify the most critical or convenient industries and goods to bet on by considering their benefits to the economy. A government must assess the nation’s industrial and technological capabilities and skills, internal demand, competitiveness, exportability, and a variety of other economic and strategic factors. Once this analysis is done, a country can plan the next steps of its economic development evolution.
Regional Raison d’être of the Sovereign Economic Model
Within countries, often regions or states in a federal political system are granted a certain autonomy in economic matters. Taxation might be different, and local laws might have precedence over federal and other autonomous prerogatives. Therefore, even a semi-independent region of a country might mold its economy quasi-independently of the central government. For example, a regional legislature can certainly use the Sovereign Economic Model as an inspiration. Regional administrations have leeway given their partial autonomy to create local economic plans and investment opportunities, which are ideal for small and mid-sized companies with a large local presence and local interests. Thus, even local administrations can make smart, independent choices and apply economic policies for the benefit of both businesses and residents.
Economics of the sovereign economic model
Wealth Creation as the Economic Ideal of the Sovereign Economic Model
A long-forgotten basic tenet of economics is that wealth is created by raw resources and labor with the manufacture of physical goods. In the modern era, that concept is partly extended to goods built with non-physical, intellectual labor. Capital allows businesses to increase their production by utilizing more labor, more resources, and more capital goods. Money, if not used in the production process, is merely a convention for the exchange or accumulation of wealth, a measurement tool. Money is used to buy goods, which requires a producer to create even more goods to replace those sold. Until this arrangement ends, money does not equal wealth. This is why the Sovereign Economic Model prefers a widespread and large distribution of money instead of an enormous concentration of wealth in a privileged few people.
Once the model has been implemented, only the real economy can create wealth. The primary and secondary sectors of an economy, agriculture and manufacturing, are the catalysts. The service sector adds services to a finished product and manages the surplus wealth. This sector includes sales, distribution, repairs, servicing, professional services, and finance • services that merely reuse and recycle money by shifting it in one or several directions while producing little or nothing. Perhaps incoming tourism is the only exception, as its geographic and cultural nature attract many people. This creates demand and thus the construction of infrastructure, real estate, and increased food production. The knowledge economy, as a quaternary sector, adds technologies like artificial intelligence (AI), Big Data, and robotics to automate mechanical and industrial processes by making finer use of data.
Under the Sovereign Economic Model, a strong distinction will be drawn between different wealth operators:
• Wealth creators produce a typically physical object using labor and raw resources.
• Wealth recyclers add services to a finished good or wealth by recycling wealth.
• Wealth consumers produce unproductive output that consumes wealth.
• Wealth destroyers render a physical object less valuable, e.g., natural disaster, wars, inefficient government, crime, over-taxation, misallocation of funds, and bankruptcies.
The concept of wealth is truly important as some business activities create real wealth, while others do not. A sovereign country creates the right conditions to make creation of wealth more convenient.
Sovereign Economic Margins
Let us suppose a carmaker in Country 1 that produces and sells a cool million units of $100,000 cars. It has produced $100 billion in products. As a finished good, this number will count toward GDP. Consider two scenarios:
1. All suppliers are building all of the vehicles’ parts in the country, but said business activity is not included in GDP calculations because it is the last stage of production.
2. All suppliers’ parts are built in another country, so the production of cars is counted in Country 1 as $100 billion of GDP and the suppliers’ business is counted as $70 billion of GDP in Country 2 because it is the last stage of production in that country.
In Scenario