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.