• Misalignment with the «common good»
If the current system is not reined in, long-term problems will render the situation worse and cause aВ collapse ofВ the financial and economic systems. Change is complex and is resisted byВ 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 toВ diversify inВ economic sectors that need capital or toВ transfer profits into investment funds toВ put toВ good use for economic development.
One example ofВ aВ problem caused byВ profiteering is that speculation leads toВ overexposure inВ some fields. When one economic sector becomes the rage, all investments rush into that field toВ reap as much profit as possible. This creates bubbles, and assets become overvalued. Over-allocation ofВ resources inВ fields like real estate raises the cost ofВ living toВ 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 achievement levels created inequalities in society and a great deal of unease in academia. China blocked these businesses, canceled their business licenses, and made the sector nonprofit by default.
Another problem is that unhealthy, addictive habits can lead to social-economic inefficiency. To mitigate this problem, China also recently introduced a one-hour limit on gaming for children. Its goal is to lessen children’s overexposure to an unhealthy addiction to online video games and screens to avoid social problems.
InВ inefficient industries, companies take the path ofВ least resistance and lowest cost rather than using the latest technologies or production methods, so inВ time they become outdated and lose out toВ competitors. That was the case for German carmakers. They did not progress the automotive sector into new technologies, so competitors overtook them and conquered the market. Russia, inВ its various state investment programs, is strict on this issue and requires efficient production methods using the latest technologies. One example inВ Russia is fishing quotas, which depend on fishing vessels with high functionality and efficiency levels. Many fishing companies had toВ order completely new vessels toВ receive sufficient quotas.
Yet another issue inВ capitalism is inefficient capital allocation for investments. As the capitalist model has evolved with its limitations, moments ofВ wrong and inefficient allocation ofВ resources persist. AВ case inВ point is when aВ company produces extremely large profits but does not invest inВ R&D for new products, increased production, or higher quality. Instead, it reinvests them toВ make even higher profits and returns for shareholders. Boeing provides an example ofВ preferring share buybacks toВ product innovation. Without R&D, its new 737В MAX suffered two crashes and production had toВ stop toВ fix the issues and redo its aviation certifications. The perception and reputation hits were huge, and sales ofВ all Boeing airplanes are lagging.
Also, on the consumer side, the common good and the free market do not align. Thus, the government must intervene. Usually there are laws and regulating interventions toВ minimize the most common issues, like these:
• Price fixing
• Minimum wage
• Pollution control
• Protection of financial systems
• Workers’ rights
• Competition and antitrust laws
• Consumer rights (privacy laws)
• Restriction of products (tobacco, alcohol, junk food) for health reasons
• Restriction of services leading to dependency or addiction (gaming, gambling)
China is currently at the forefront of economic optimization and is severely curtailing and restricting unproductive and inefficient allocation of investments that have negative consequences for its economic and social well-being. While in the short-term there might be losses in GDP, the long-term benefit will be a healthier economy as investments are forced into more productive business activities. I hope that most countries follow China’s lead in this endeavor.
Short-Term vs. Long-Term Financial Allocation
Generally, private businesses prefer short-term investments, i.e., financial allocations have the best potential return on investment (ROI). But they also use KPIs such as return on assets (ROA), return on equity (ROE), or similar indicators toВ reap profits as quickly as possible. R&D and long-term investments are frowned upon because risk, long holding times, and uncertainties might reduce profits or even turn potential profits into losses.
Conversely, aВ government has longer-term strategic industry-wide or countrywide perspectives. So aВ government has the duty toВ reconcile the short-term views ofВ private players with the long-term perspectives ofВ government. Using carrot and stick, aВ government can require an industry toВ upgrade and become increasingly future-proof. Carrots are generous government support for development inВ new market sectors; sticks are strict regulation. AВ solid sovereign government can usually get its way even without imposing regulations. AВ compromise and aВ win-win situation are always the best paths forward for both government and investors.
Wealth Distribution Is Profit Sharing
The idea ofВ distributing wealth comes up often inВ the Sovereign Economic Model. One significant occurrence is that state capitalism, through the profits ofВ state-owned enterprises (SOEs), indirectly distributes wealth. ByВ channeling profits toВ the state, the model uses the money toВ lower taxes, improve services, or support business. It lowers both the cost ofВ living for citizens and the cost ofВ doing business.
AВ balance between the owner ofВ production and the workers is needed. Both Karl Marx and Friedrich Engels discussed this topic broadly, advocating for the workers toВ own the means ofВ production as practiced inВ communism. The following might be aВ betterВ way:
• Assign 20—30 percent of profits to workers.
• Assign 10—15 percent of stock as company remuneration or for voluntary purchase by employees.
Such aВ scheme could create aВ stabler balance inВ the economy.
Politics ofВ the sovereign economic model
Politics and the Sovereign Economic Model
The Sovereign Economic Model focuses only on economic theories for strengthening the economy. It is byВ itself apolitical. It is strongly driven byВ an attempt toВ fix the excesses and imbalances ofВ liberal capitalism. The Sovereign Economic Model is not aВ rejection ofВ capitalism, but an endeavor toВ improve its efficiency. It implicitly contains many political elements, not because ofВ political inclinations but because economic control also implies political influence. As with any form ofВ sovereignty, it means the country controls processes within its borders. InВ economic terms, economic sovereignty means aВ country controls the currency flow within its borders. When someone outside aВ country controls food, medicines, electronics, industrial production, energy, media, military hardware, land ownership, and other major businesses inВ that country, it means the country is not inВ charge ofВ itself or is not sovereign. Therefore, the Sovereign Economic Model implicitly tries toВ reverse such external control. Through state capitalism, import substitution, market regulation, and industrialization, it tries toВ move the economic control levers back into the hands ofВ the country and its people.
The Sovereign Economic Model also has aВ preponderant long-term view ofВ economic well-being inВ terms ofВ independence, self-sufficiency, and stability. Simultaneously, it tries toВ capture and keep the wealth created inВ the country. Increased competition is not aВ welcome concept for many ofВ the largest international industry players and for countries with such industries. Thus, aВ country that follows this path faces very intense pressure. It is therefore criticized, despised, and ostracized inВ both the media and academia byВ most economic experts and stakeholders. It is sad toВ see that only aВ few countries, such as China, Russia, India (partially), and Iran, have sovereign economic policies. Others, willingly or unwillingly, have given up economic control ofВ their country. This negatively affects their economies inВ the longer term.
The political implications ofВ the Sovereign Economic Model also have an unintended political angle for countries that want toВ retake the reins ofВ their economies toВ organize amended mechanisms suitable for local conditions. Some countries have more В«socialistВ» inclinations. Russian President Vladimir Putin has several times mentioned the В«social obligationsВ» ofВ businesses; inВ China, President Xi Jinping and the Chinese Communist Party created the concept ofВ В«common prosperityВ» inВ 2021. Both ofВ these leaders want toВ remove their economies from the В«liberal orderВ» -defined status quo and its economic modus operandi. Both want toВ create their own flavor that is more beneficial toВ their own country and its citizens.
InВ countries like the US, economic nationalism, with mottoes such as В«Made inВ USA,В» В«Buy American,В» and В«American jobsВ» still stir up aВ sort ofВ nationalistic, patriotic sentiment inВ some people. It is comparable toВ the Palestinian Boycott, Divestment, and Sanctions (BDS) Movement, but generalized against any foreign brands or goods.
Many think that import substitution is economic isolation, that it means blocking off all imports and becoming an economic hermit. This is not true unless complete sanctions or an embargo are involved. Sometimes there are sectoral sanctions, inВ which case that delimited part ofВ the economy struggles. The import substitution relies on established supply chains and slowly starts toВ В«indigenizeВ» the supply chains into domestic ones. So, an industry begins with low-level economic activity and assembly ofВ parts and only slowly, at aВ later stage, replaces the entire stack ofВ suppliers with local companies. Also, usually imports are still allowed, but with high custom excises.
For some countries, especially those inВ Africa, aВ sovereign economy with import substitution was part ofВ the plan toВ gain economic independence inВ the 1960s. So, after they achieved independence, political emancipation gave way toВ certain policies. These were decided upon and implemented, but without planning and foreign interference, they produced little progress.
AВ political will toВ improve the national economy is needed, and many reasons and slogans are declared, but generally no real changes occur because the status quo is convenient toВ most. That needs toВ change.
What Is Economic Sovereignty?
InВ aВ business context, sovereignty is the concept that aВ state or country is fully inВ charge ofВ its largest businesses and business policies. ToВ be sovereign, it needs toВ be free ofВ resistance or interference from external (or externally controlled) actors who act for ideological or geopolitical reasons or sabotage business processes out ofВ В«pure greed.В» Consequently, aВ country must firmly control its largest companies, its economic infrastructure, and its main economic driving mechanisms. With that said, often the participation ofВ several market actors and external minority shareholders is useful for governance. It acts as aВ counterweight toВ the bureaucratic and political nature ofВ state companies and as aВ benchmark for quality and product innovation.
The sovereignty, including the economic sovereignty, ofВ aВ country is equivalent toВ the human rights that belong toВ aВ human being. It is the right ofВ aВ country toВ have equal standing with other countries, toВ choose aВ certain path, and toВ make independent decisions for smoother economic growth.
Socioeconomic Implications and Influences
Several countries are trying to put forward unique visions of different variants of capitalism • trying to smooth the edges, remove the poor traits, and make it increasingly sustainable. Their visions are strikingly similar, but with different terminology coming from different perspectives and ideologies. China and Russia are ahead in implementing parts of this vision, while the West is sorely lacking.
Western stakeholder capitalism is aВ form ofВ capitalism that considers the interests and needs ofВ employers, suppliers, the local community, and others. Its goal is toВ create long-term value for all stakeholders. It is an idea for aВ gentler kind ofВ capitalism. Some, like McKinsey & Company, strongly endorse it, while others strongly criticize it. This vision is much like the Chinese and Russian views ofВ the role ofВ business inВ society, albeit using different terminology.
InВ 2021, China introduced and began preaching the concept ofВ В«common prosperity.В» It is derived both from communist ideology and from Confucian and East Asian philosophies. It aims toВ remove all В«imbalancesВ» and В«excessesВ» from the economy, specifically the poor habits ofВ liberal capitalism: speculation, asset bubbles, profiteering, and over-intrusion byВ tech companies into government business. This new philosophy will provide stronger stability inВ financial markets and aВ wider distribution ofВ investments into more В«suitableВ» forms ofВ business. It reestablishes the sovereignty and primacy ofВ the state inВ the economy.
Putin, inВ his speeches, has often said the primary priority ofВ business is toВ create jobs, the second is toВ contribute toВ state coffers, and only if both ofВ the first two conditions are satisfied can businesses enjoy their profits. InВ Russia, businesses are required toВ be team players contributing toВ the overall system, or they are not welcome. It makes sense inВ that every business must give aВ proportional В«cutВ» toВ the larger community.
InВ summary, the socioeconomic implications ofВ the Sovereign Economic Model are that aВ country and its people must get aВ more significant share ofВ wealth from business.
Hidden Power Struggles
Economic conquest is aВ game the Big Powers have always practiced through their trading companies, and so it continues today. Money is power; therefore, the control ofВ business and money translates into the political sphere ofВ aВ country inВ the following ways.
WTO and trade agreements. The World Trade Organization (WTO) is an international organization that regulates trade between nations. It provides aВ framework toВ reconcile trading rules for countries with disparate types and levels ofВ economic activity. While it should be independent and neutral, it is not impartial. It is strongly biased toward wealthier nations and their large transnational organizations. It favors them over developing countries byВ reducing access toВ technologies (intellectual property, IP), food, and pharmaceuticals. Since its inception, it has been highly negative for poor countries because it allows richer nations toВ use non-tariff barriers toВ block imports from developing nations. Infant industries inВ developing countries are affected particularly byВ WTO policies and politics. Similar toВ the global WTO, other regional trade agreements, especially where major differences exist between participant countries, are similarly tilted toward the wealthiest nations, who impose their rules on smaller, weaker countries.
International division ofВ labor is aВ concept ofВ globalization. Labor is carried out inВ the most В«convenientВ» places. Some countries are В«assignedВ» many industries, and others are excluded. It is aВ sort ofВ modern feudalistic vassalage system not inВ the interest ofВ aВ sovereign country, aВ theory and modus operandi pushed byВ international companies. They are interested inВ profitability due toВ reduced labor costs, taxes, and manufacturing and transport costs.
IMF, World Bank, and other international institutions. International financial institutions like the International Monetary Fund (IMF) and World Bank were created toВ help smaller, poorer countries bridge the gap toВ the richer countries. They were intended toВ finance these countries toВ increase their economic growth and standard ofВ living. InВ fact, however, both ofВ these organizations use finance toВ hinder, block, and destroy competitors ofВ large multinational corporations inВ developing countries. It is well known that countries from the Eastern European post-Soviet bloc were forced toВ shutter business and power plants toВ receive financial help. This has increased the economic and political dependence ofВ these countries on the institutions themselves while lowering their chance toВ implement locally suitable economic policies with existing market sectors.
Measurements ofВ economic sovereignty. The economic sovereignty ofВ aВ country is measured using different indicators:
• Political sovereignty to decide economic development model and policies
• Control of strategic sectors and business ecosystems
• Independence of food, energy, and technologies
• Ability to produce most strategically important goods and services
Often, poor countries or those inВ trouble due toВ war, natural disasters, or other factors are offered generous financial aid. This ostensible help from outside is always tied toВ political and economic conditions. Such covenants include adherence toВ disadvantageous terms often inВ the form ofВ trade treaties, forced privatizations, forced closure ofВ competitors, market access, political concessions, or military access toВ the territory.
Economic colonialism for developing and emerging markets. InВ developing and emerging countries, many people complain ofВ economic colonialism base on money, finance, trade and technology. Stronger and richer countries use financial tools toВ impose colonialism on smaller and weaker countries, creating resentment. These tools might be any ofВ the following:
• Currency exchange pegging to the US dollar
• Payment systems
• Credit cards
• Financial standards
• Financial education
Many large TNCs have colonized smaller or weaker countries using tools ofВ commercial colonialism. ByВ using their vast array ofВ brands and goods, their financial power, and the political force ofВ their home countries, they have pushed the door down and taken over the markets. The host countries could not impede this colonization due toВ their lack ofВ economic defenses and their inherently weak economies. It is noticeable inВ many countries that fast-moving consumer goods (FMCGs) made byВ companies inВ only aВ 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 aВ power lever against smaller countries. ToВ some countries, the developed nations deny the right toВ buy certain technologies byВ making excuses or imposing sanctions. They do so toВ put pressure on the smaller countries or toВ slow their development or progress.
Use ofВ economic instruments byВ leading nations is aВ means ofВ geopolitical primacy. It always has been and always willВ be.
The Competitive Advantages ofВ Nations
InВ the past, cities, trading posts, fortifications, and ports were built inВ strategic geographic locations for trading, security, safety, and easy access toВ 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 inВ defensible bays with quiet, protected waters. These strategic locations are constantly contested byВ many countries for military and trading advantages. Many countries still enjoy competitive advantages given byВ geography and have adapted their economies toВ take advantage ofВ that. Therefore, most countries have some sort ofВ advantage over others inВ certain categories ofВ goods. Most times, this advantage has been built upon toВ create extensive economic activity and even advanced industries. Some industries have ended for various reasons, such as replacement byВ newer technologies or simply finite resources. It is inВ the interest ofВ countries toВ 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 ofВ an economy. Catalysts toВ 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 inВ aВ federal political system are granted aВ certain autonomy inВ economic matters. Taxation might be different, and local laws might have precedence over federal and other autonomous prerogatives. Therefore, even aВ semi-independent region ofВ aВ country might mold its economy quasi-independently ofВ the central government. For example, aВ regional legislature can certainly use the Sovereign Economic Model as an inspiration. Regional administrations have leeway given their partial autonomy toВ create local economic plans and investment opportunities, which are ideal for small and mid-sized companies with aВ large local presence and local interests. Thus, even local administrations can make smart, independent choices and apply economic policies for the benefit ofВ both businesses and residents.
Economics ofВ the sovereign economic model
Wealth Creation as the Economic Ideal ofВ the Sovereign Economic Model
AВ long-forgotten basic tenet ofВ economics is that wealth is created byВ raw resources and labor with the manufacture ofВ physical goods. InВ the modern era, that concept is partly extended toВ goods built with non-physical, intellectual labor. Capital allows businesses toВ increase their production byВ utilizing more labor, more resources, and more capital goods. Money, if not used inВ the production process, is merely aВ convention for the exchange or accumulation ofВ wealth, aВ measurement tool. Money is used toВ buy goods, which requires aВ producer toВ create even more goods toВ replace those sold. Until this arrangement ends, money does not equal wealth. This is why the Sovereign Economic Model prefers aВ widespread and large distribution ofВ money instead ofВ an enormous concentration ofВ wealth inВ aВ 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, aВ strong distinction will be drawn between different wealth operators:
