The Sovereign Economic Model. A manifesto for rising nations. Stefan Demetz
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the focus on agriculture, natural resources, and infrastructure.
• Increase focus on the high-value medium-high technology industry.
• Focus on at least one high-value high-tech industry as a national priority.
• Start focusing on the knowledge economy.
Even developed nations, as they stand, have not completed their evolution curve. Many argue that they have started a regression in the past decade, like a playground swing in a park hitting its peak below potential, then stopping and moving backwards. Over-financialization has crept in, and the focus on their core industries and wealth-creating economic sectors has been lost. Speculative investments and other unproductive allocations of money have created more industries of hype than ever. The valuation of assets is wrongly given a higher priority than production, employment, and profits. Government policies and national economic KPIs have changed to achieve quick Pyrrhic victories in perception, but not substance or progress. The toxic addiction to debt, especially long-term debt, is sapping wealth as government interest payments. Unfortunately, debt produces a near-zero percentage of GDP increase and no wealth. In many companies with legendary heritage, products have been watered down and their intrinsic quality and value characteristics flushed out to increase sales and maximize production. The management of developed countries and their business itself is being distracted by ever-increasing marginal issues and useless new fads. Actions of management are big announcements, costs, and time wasted, but without concrete changes or results moving the economic wagon forward. Inefficiencies have crept into the system through outdated infrastructure, outdated processes, and outdated systemic operators, both government and connected business. Bureaucracy and red tape in many countries still require people to transport paperwork in person. People need to visit five different agencies in five different offices during office hours instead of communicating through an online system, which can process such data in a few seconds or minutes at any time of day or night. Education systems have softened to adapt to these new realities instead of insisting on meritocracy and improving the academic curricula, and levels have been lowered by the Bologna Process and Common Core curricula. Rigorous academic tradition was thus demoted to let anyone take part instead of maintaining rigor through an academic selection process.
To roll back, most countries need to take stock and refocus on the core systemic issues of their economies. Cures for rotting economies are needed. It is hard to take stock of bad habits and reassess priorities, but it needs to be done. A list of action steps will need to be prepared and started to change the status quo and introduce new best practices. The following might be some of these steps:
• Increase speed and efficiency of government services for business and people.
• Remove inefficient and unproductive capital allocations from the market.
• Return to conservative economic policies with frugal use of debt.
• Change economic KPIs and steer government support toward them.
• Rebuild infrastructure to include the latest technologies.
• Keep the focus on wealth-generating economic sectors: agriculture, natural resources, infrastructure, industry, and the knowledge economy.
• Return the focus to high-value, high-wealth industry sectors.
• Focus on at least one high-tech industry as a national priority.
• Revert the education system to old-style meritocracy, but implement new-style curricula to support the wealth-creating industry sectors first.
Depending on the stage of development and structure of their economy, countries need to implement economic policies that benefit their real economic growth.
Clarity of Vision and Policies Is the Key
As changes occur, communication of such policies needs to occur in advance to spell out the vision, and the rules need to be clear and detailed. It should function similar to a car’s turn signals, which indicate the direction the car will take in the road and future ahead. A country doing just that is China. Its five-year plan programmatic document perfectly delineates the country’s vision, directions, and action plan in the years ahead. By taking this step, businesses can avoid being unprepared and may even ask for help to align themselves with the new rules. Clarity of vision and clear communication are essential to decrease criticisms and uncertainty.
State capitalism
That which is not good for the beehive cannot be good for the bees.
State Capitalism as Guided Capitalism
State capitalism is usually wrongly associated with communism. In that system, the state owns any type of business activity with central planning of labor and input/output. Communism has been shown as effective only in certain situations with heavy crises or a war economy. In that context, the state needed to direct all resources and lots of production in a predetermined direction, such as rearmament or postwar recovery and reconstruction. Mostly forgotten is the use of state capitalism in the post-war recovery of Europe and East Asia after World War II. Then, state-led development corporations and state-owned enterprises (SOEs) rebuilt economies ravaged by war.
Despite its supposed similarity to communism, all countries practice some form of state capitalism, or economic interventionism. Some openly admit and carry it as part of a national economic model. Such countries might be from the former Soviet or communist bloc, or countries formerly associated with the USSR. Some less advanced countries also favor employment over other economic factors. Self-declared liberal countries apply ad hoc economic interventions for corporations «too big to fail» or «too important to fail,» or they apply corporate welfare to please extremely powerful lobbies, which results in various forms of economic distortion. Here the state uses subsidies, regulations, and price controls to help national companies, erect non-tariff hurdles to ward off foreign competition, and fix prices to protect an industry or wages (minimum wage) that secure some social stability. Tax credits, tax incentives, and tax exemptions are used to support business sectors or regional areas or to help establish new industries. For example, in the green energy business, less environmentally friendly fuels and fossil fuels are penalized. Regulations can elevate local standards in ways that leave foreign companies struggling to keep up or require huge expenses to realign. Others, especially those with wealth created by natural resources like oil, gas, and mining, have created sovereign wealth funds to hoard profits from the extraction industries.
Another good reason for state capitalism is that the government can act similar to the spring in a car’s shock absorber and like a rudder on the economy to absorb economic shocks and volatility and to steer some business practices. For example, a government can require the use of certain national technologies to improve the economy instead of letting companies choose. This might not be efficient in the short term, and it may cost some private companies’ profits, but it can be a winning strategy in the long term because such policies ultimately build up domestic industries. It is a trick to effectively make some industries subsidize others.
Is state capitalism too top-down? One mistake of communism is its desire to control all business activity, down to individual small businesses. State capitalism instead wants to control the major strategic sectors of the economy and regulate some others. Instead, in non-strategic sectors, such as light industry and services, the sovereign state should make rules that foster innovation and competition. This can be accomplished through low taxes and regulations, strong competition, and antitrust law. Other measures, too, are implemented to allow business to flourish without interference.
Capital, the Real Economy, and Wealth Creation in State Capitalism
Capital is a required element for wealth creation. State capitalism, by ownership and control of strategic industries, makes sure