The Sovereign Economic Model. A manifesto for rising nations - Stefan Demetz

The Sovereign Economic Model

A manifesto for rising nations

Stefan Demetz

© Stefan Demetz, 2022

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Preface

This book was born as a manifesto for changes to the liberal capitalist economic model.

I have tried to write this book in the simplest way conceivable to describe as many concepts as possible in the simplest viable form. The aim is to achieve the largest attainable reach among economics professionals and, more so, among less-well-versed decision-makers in economic matters. Another portion of the intended audience is people who do not speak English as their mother tongue. This book should be more dogmatic, philosophical, and, I hope, disruptive than plain economic numbers. To some it might sound revolutionary, to others evolutionary, and to still others plain wrong or crazy. I will try to back up my theories with real-world examples of countries economic policies and market mechanisms. These theories have proven themselves in the field, both in different geographies and in different political and social contexts.

As the author of this work, I do not write simply as an economist. My background is in engineering and entrepreneurship, not in economics. That has pros and cons. It means I was not constrained by classic liberal macroeconomic «faith» theories and the cult of «free markets» as taught in universities and business schools. My approach to economics is like that of an engineer to a high-performance Formula 1 or 24 Hours of Le Mans endurance racing engine. I view the economy as a complex engine comprising innumerable parts and many inputs and outputs. It needs to be high-revving to produce a high output. An engine also needs mechanisms to lubricate the various processes and let off excessive pressure as well as enough cooling to disperse excessive heat. An engine, which speeds up, decelerates, and runs under high stress, can fail if some weak parts break. A motor engine, like an economic «engine,» requires a delicate balancing act among all its components. Some components may be reliable, while others are less sturdy. Some may perform at the top of the range, while others underperform. The underperforming units hamper overall performance, limiting the highest-performing units or making their additional efforts useless. The most crucial factor is that all components are finely tuned to always give the most consistent output. Single performance indicators are less important than harmony and consistency of all indicators. Top speed does not mean much if the engine is overheating after a short while and a slowdown is necessary to bring it into an acceptable temperature range. The construction of an engine, like that of an economy, also requires some fail-safe mechanisms: failure of one part cannot be allowed to bring the system down. Last but not least, efficiency promotes competitiveness: if the inputs must be much higher to achieve similar output compared to others, it means the system is inefficient and thus uncompetitive.

I am also intrigued by countries, mainly China and Russia but also others, that use this engineering approach to their economy. They are constantly changing and tweaking mechanisms to make their economies more efficient and shock resistant  reconfiguring, fixing, upgrading, or removing the weak parts. These countries are racing ahead in economic growth and accumulation of foreign exchange reserves while growing the real economy and high-tech sector.

In this book, I also want to provide a more neutral, detailed view of some economics topics. Most academic literature seems to simply dismiss and skip them; some studies detail the historic path of specific countries, but most only skim the surface and do not consider the practical implementations and subtleties.

Further, as this is a manifesto, I felt the need to baptize this new paradigm with the concept and name of the Sovereign Economic Model to bring several concepts under one branded umbrella. I strive to propose a vision and ideas for how to apply changes to the current economic model under which a country operates.

Introduction

Is the current liberal capitalist economic model suitable for sustainable future use? No. The debt-fueled liberal (or rather anarchic) capitalist economic system imposed by the common international consensus is not fit for the purpose anymore. It does not produce real, sustainable economic growth and wealth for both the state and its citizens. Instead, it permeates the economy with the instability of unsustainable, toxic levels of debt and speculative bubbles accompanied by a misallocation of money.

This book will demonstrate the Sovereign Economic Model as a reasonable, sustainable economic growth model based on sovereign decision-making processes and the creation of real wealth. It tries to propose changes to the contemporary capitalist economic model to make it more stable and prosperous. Countries need to change their perception and understanding of economic wealth creation by means of production in order to create wealth. The Sovereign Economic Model urges changes in industrialization, trade, taxation, finance, and education policies.

In this book, I will try to lay out the central precepts of the Sovereign Economic Model as a theory and as the foundation of a sovereign wealth-creating real economy. Further, I will explore in its political and economic perspectives the increased role of the state in the national economy, economic strategies and policies, and market sectors in different stages of economic development with ideas, examples, and action plans.

The sovereign economic model

What is the Sovereign Economic Model?

The Sovereign Economic Model is a variant of capitalism with better checks and balances than current liberal capitalism. It is more sustainable, better balanced, and fairer, and it should provide further benefits for people and the state. It tries to remove the instability caused by unproductive, toxic, and inefficient economic activities. Not only that, it is centered around a development model that favors creation of wealth, employment, and growth over an anarchic hunt for profits. Furthermore, it is not an entirely novel concept, as many countries have practiced or are currently practicing one or more of its tenets. It tries to aggregate all best practices that have contributed to the positive development of many countries in the last century. The author of this book merely attempts to baptize these concepts under the same nominal umbrella. This economic model is based on sovereignty, as a country shall itself contemplate which development path to choose without the hackles of status quo, ingrained liberal economic theories or external pressures.

The Sovereign Economic Model includes the following tenets to achieve the stated purposes:

 State capitalism: to control the most strategic sectors of the economy

Wealth creation: to create shared wealth for its people and the state

Industrialization: to drive a countrys progress in technical and technological production, investments, and forward advancement

Import substitution: to replace most imported goods while driving industrialization in the country

Diversification: to produce as many goods and variants thereof as possible

Small and medium enterprises: to allow small businesses to fill as many niche industries as possible and drive large socioeconomic improvements of their specific business type

Trade/export: to improve trade balances by letting businesses expand into foreign markets

Taxation: to tax in a way that suits real economic development

Market regulations: to stifle de facto monopolies and cartels by limiting market share, lowering the cost of entry, and fostering competition

Education and research and development (R&D): to position the country for technical and technological breakthroughs by aligning the education and research sectors to the needs of the economy in a way that produces highly skilled human resources.

Why is the Sovereign Economic Model needed? Why sovereignty? Sovereignty is needed to let each country decide on the best economic development model for its citizens. This implies severe political 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.