The Sovereign Economic Model. A manifesto for rising nations
Stefan Demetz
The book is a manifesto of an improved economic model of capitalism and explores topics such as sovereign economy, state capitalism/hybrid plan and economy, wealth creation, industrialization/import substitution, trade policy, finance/taxation, market regulation, sovereign technologies, education system and R&D/intellectual property. He also offers some ideas in the main market sectors, from agriculture to the knowledge economy.
The Sovereign Economic Model
A manifesto for rising nations
Stefan Demetz
© Stefan Demetz, 2022
ISBNВ 978-5-0056-6647-5
Created with Ridero smart publishing system
Preface
This book was born as aВ manifesto for changes toВ 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 ofВ this work, IВ do not write simply as an economist. My background is inВ engineering and entrepreneurship, not inВ economics. That has pros and cons. It means IВ was not constrained byВ classic liberal macroeconomic В«faithВ» theories and the cult ofВ В«free marketsВ» as taught inВ universities and business schools. My approach toВ economics is like that ofВ an engineer toВ aВ high-performance Formula 1В or 24В Hours ofВ Le Mans endurance racing engine. IВ view the economy as aВ complex engine comprising innumerable parts and many inputs and outputs. It needs toВ be high-revving toВ produce aВ high output. An engine also needs mechanisms toВ lubricate the various processes and let off excessive pressure as well as enough cooling toВ disperse excessive heat. An engine, which speeds up, decelerates, and runs under high stress, can fail if some weak parts break. AВ motor engine, like an economic В«engine,В» requires aВ delicate balancing act among all its components. Some components may be reliable, while others are less sturdy. Some may perform at the top ofВ 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 toВ always give the most consistent output. Single performance indicators are less important than harmony and consistency ofВ all indicators. Top speed does not mean much if the engine is overheating after aВ short while and aВ slowdown is necessary toВ bring it into an acceptable temperature range. The construction ofВ an engine, like that ofВ an economy, also requires some fail-safe mechanisms: failure ofВ one part cannot be allowed toВ bring the system down. Last but not least, efficiency promotes competitiveness: if the inputs must be much higher toВ achieve similar output compared toВ 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.
InВ this book, IВ also want toВ provide aВ more neutral, detailed view ofВ some economics topics. Most academic literature seems toВ simply dismiss and skip them; some studies detail the historic path ofВ specific countries, but most only skim the surface and do not consider the practical implementations and subtleties.
Further, as this is aВ manifesto, IВ felt the need toВ baptize this new paradigm with the concept and name ofВ the Sovereign Economic Model toВ bring several concepts under one branded umbrella. IВ strive toВ propose aВ vision and ideas for how toВ apply changes toВ the current economic model under which aВ 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 byВ 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 ofВ unsustainable, toxic levels ofВ debt and speculative bubbles accompanied byВ aВ misallocation ofВ money.
This book will demonstrate the Sovereign Economic Model as aВ reasonable, sustainable economic growth model based on sovereign decision-making processes and the creation ofВ real wealth. It tries toВ propose changes toВ the contemporary capitalist economic model toВ make it more stable and prosperous. Countries need toВ change their perception and understanding ofВ economic wealth creation byВ means ofВ production inВ order toВ create wealth. The Sovereign Economic Model urges changes inВ industrialization, trade, taxation, finance, and education policies.
InВ this book, IВ will try toВ lay out the central precepts ofВ the Sovereign Economic Model as aВ theory and as the foundation ofВ aВ sovereign wealth-creating real economy. Further, IВ will explore inВ its political and economic perspectives the increased role ofВ the state inВ the national economy, economic strategies and policies, and market sectors inВ different stages ofВ economic development with ideas, examples, and action plans.
The sovereign economic model
AВ nation that cannot control its borders is not aВ nation.
    – Ronald Reagan
AВ nation that cannot control its economy is not aВ nation.
    – Stefan Demetz
What is the Sovereign Economic Model?
The Sovereign Economic Model is aВ variant ofВ 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 toВ remove the instability caused byВ unproductive, toxic, and inefficient economic activities. Not only that, it is centered around aВ development model that favors creation ofВ 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 ofВ its tenets. It tries toВ aggregate all best practices that have contributed toВ the positive development ofВ many countries inВ the last century. The author ofВ this book merely attempts toВ baptize these concepts under the same nominal umbrella. This economic model is based on sovereignty, as aВ country shall itself contemplate which development path toВ choose without the hackles ofВ status quo, ingrained liberal economic theories or external pressures.
The Sovereign Economic Model includes the following tenets toВ 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 country’s 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 toВ let each country decide on the best economic development model for its citizens. This implies severe political consequences, as all anchors holding aВ country back from sailing along its most beneficial economic route must be cut loose. As big economics is invariably linked toВ big politics, immense struggles will take place. Why aВ new or different capitalist economic model is required is another question. The current commonly used economic system ofВ neoliberal capitalism is not working. It is increasingly unstable and does not grow wealth. Nor does it produce good growth inВ gross domestic product (GDP) numbers. Significant changes inВ economic policies will require some adaptation byВ those who are now benefiting from the imbalanced economy byВ 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 toВ fine-tune several features ofВ capitalism. Some economic experts fiercely criticize such aВ В«paternalisticВ» economic model byВ 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 toВ give the fruits ofВ labor toВ the state and the people and prefers toВ avoid the unnecessary accumulation ofВ capital. If aВ considerable accumulation ofВ 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 toВ the state itself, which can grant higher-quality services, lower taxes, and aВ higher standard ofВ living toВ citizens ofВ the country. Excess profits ofВ aВ state can be used inВ aВ variety ofВ ways, including toВ provide aВ better education system, better health care, higher pensions, or other subsidized services like cheap transport.
Politicians can sometimes use ideological clubs toВ rally consent for one economic direction. Or, inВ other cases, they rally support for defensive measures against foreign aggression, sanctions, trade wars inВ developing or emerging countries, or even trade wars inВ developed countries with perceived rivals that are В«winningВ» byВ offering cheaper goods. On aВ 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 ofВ aВ 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. InВ that, only sovereignty can lead toВ stable functioning ofВ the economic system and reduce negative external factors. Sovereignty, without external conditioning, enables governments and economic leaders toВ make the best decisions for the economy, country, and people. The Sovereign Economic Model prioritizes market sectors that yield the highest return ofВ wealth (ROW). Wealth creation is the most important economicВ 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
