Бесплатный фрагмент - The Sovereign Economic Model

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

A nation that cannot control its borders is not a nation.

— Ronald Reagan

A nation that cannot control its economy is not a nation.

— Stefan Demetz

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 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 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.

Politicians can sometimes use ideological clubs to rally consent for one economic direction. Or, in other cases, they rally support for defensive measures against foreign aggression, sanctions, trade wars in developing or emerging countries, or even trade wars in developed countries with perceived rivals that are «winning» by offering cheaper goods. On a 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 of a 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. In that, only sovereignty can lead to stable functioning of the economic system and reduce negative external factors. Sovereignty, without external conditioning, enables governments and economic leaders to make the best decisions for the economy, country, and people. The Sovereign Economic Model prioritizes market sectors that yield the highest return of wealth (ROW). Wealth creation is the most important economic 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

• Misalignment with the «common good»

If the current system is not reined in, long-term problems will render the situation worse and cause a collapse of the financial and economic systems. Change is complex and is resisted by 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 to diversify in economic sectors that need capital or to transfer profits into investment funds to put to good use for economic development.

One example of a problem caused by profiteering is that speculation leads to overexposure in some fields. When one economic sector becomes the rage, all investments rush into that field to reap as much profit as possible. This creates bubbles, and assets become overvalued. Over-allocation of resources in fields like real estate raises the cost of living to 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.

In inefficient industries, companies take the path of least resistance and lowest cost rather than using the latest technologies or production methods, so in time they become outdated and lose out to 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, in its various state investment programs, is strict on this issue and requires efficient production methods using the latest technologies. One example in Russia is fishing quotas, which depend on fishing vessels with high functionality and efficiency levels. Many fishing companies had to order completely new vessels to receive sufficient quotas.

Yet another issue in capitalism is inefficient capital allocation for investments. As the capitalist model has evolved with its limitations, moments of wrong and inefficient allocation of resources persist. A case in point is when a company produces extremely large profits but does not invest in R&D for new products, increased production, or higher quality. Instead, it reinvests them to make even higher profits and returns for shareholders. Boeing provides an example of preferring share buybacks to product innovation. Without R&D, its new 737 MAX suffered two crashes and production had to stop to fix the issues and redo its aviation certifications. The perception and reputation hits were huge, and sales of 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 to 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 to 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, a government has longer-term strategic industry-wide or countrywide perspectives. So a government has the duty to reconcile the short-term views of private players with the long-term perspectives of government. Using carrot and stick, a government can require an industry to upgrade and become increasingly future-proof. Carrots are generous government support for development in new market sectors; sticks are strict regulation. A solid sovereign government can usually get its way even without imposing regulations. A compromise and a win-win situation are always the best paths forward for both government and investors.

Wealth Distribution Is Profit Sharing

The idea of distributing wealth comes up often in the Sovereign Economic Model. One significant occurrence is that state capitalism, through the profits of state-owned enterprises (SOEs), indirectly distributes wealth. By channeling profits to the state, the model uses the money to lower taxes, improve services, or support business. It lowers both the cost of living for citizens and the cost of doing business.

A balance between the owner of production and the workers is needed. Both Karl Marx and Friedrich Engels discussed this topic broadly, advocating for the workers to own the means of production as practiced in communism. The following might be a better 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 a scheme could create a stabler balance in the economy.

Politics of 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 by itself apolitical. It is strongly driven by an attempt to fix the excesses and imbalances of liberal capitalism. The Sovereign Economic Model is not a rejection of capitalism, but an endeavor to improve its efficiency. It implicitly contains many political elements, not because of political inclinations but because economic control also implies political influence. As with any form of sovereignty, it means the country controls processes within its borders. In economic terms, economic sovereignty means a country controls the currency flow within its borders. When someone outside a country controls food, medicines, electronics, industrial production, energy, media, military hardware, land ownership, and other major businesses in that country, it means the country is not in charge of itself or is not sovereign. Therefore, the Sovereign Economic Model implicitly tries to reverse such external control. Through state capitalism, import substitution, market regulation, and industrialization, it tries to move the economic control levers back into the hands of the country and its people.

The Sovereign Economic Model also has a preponderant long-term view of economic well-being in terms of independence, self-sufficiency, and stability. Simultaneously, it tries to capture and keep the wealth created in the country. Increased competition is not a welcome concept for many of the largest international industry players and for countries with such industries. Thus, a country that follows this path faces very intense pressure. It is therefore criticized, despised, and ostracized in both the media and academia by most economic experts and stakeholders. It is sad to see that only a few countries, such as China, Russia, India (partially), and Iran, have sovereign economic policies. Others, willingly or unwillingly, have given up economic control of their country. This negatively affects their economies in the longer term.

The political implications of the Sovereign Economic Model also have an unintended political angle for countries that want to retake the reins of their economies to organize amended mechanisms suitable for local conditions. Some countries have more «socialist» inclinations. Russian President Vladimir Putin has several times mentioned the «social obligations» of businesses; in China, President Xi Jinping and the Chinese Communist Party created the concept of «common prosperity» in 2021. Both of these leaders want to remove their economies from the «liberal order» -defined status quo and its economic modus operandi. Both want to create their own flavor that is more beneficial to their own country and its citizens.

In countries like the US, economic nationalism, with mottoes such as «Made in USA,» «Buy American,» and «American jobs» still stir up a sort of nationalistic, patriotic sentiment in some people. It is comparable to 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, in which case that delimited part of the economy struggles. The import substitution relies on established supply chains and slowly starts to «indigenize» the supply chains into domestic ones. So, an industry begins with low-level economic activity and assembly of parts and only slowly, at a later stage, replaces the entire stack of suppliers with local companies. Also, usually imports are still allowed, but with high custom excises.

For some countries, especially those in Africa, a sovereign economy with import substitution was part of the plan to gain economic independence in the 1960s. So, after they achieved independence, political emancipation gave way to certain policies. These were decided upon and implemented, but without planning and foreign interference, they produced little progress.

A political will to 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 to most. That needs to change.

What Is Economic Sovereignty?

In a business context, sovereignty is the concept that a state or country is fully in charge of its largest businesses and business policies. To be sovereign, it needs to be free of resistance or interference from external (or externally controlled) actors who act for ideological or geopolitical reasons or sabotage business processes out of «pure greed.» Consequently, a country must firmly control its largest companies, its economic infrastructure, and its main economic driving mechanisms. With that said, often the participation of several market actors and external minority shareholders is useful for governance. It acts as a counterweight to the bureaucratic and political nature of state companies and as a benchmark for quality and product innovation.

The sovereignty, including the economic sovereignty, of a country is equivalent to the human rights that belong to a human being. It is the right of a country to have equal standing with other countries, to choose a certain path, and to 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 a form of capitalism that considers the interests and needs of employers, suppliers, the local community, and others. Its goal is to create long-term value for all stakeholders. It is an idea for a gentler kind of capitalism. Some, like McKinsey & Company, strongly endorse it, while others strongly criticize it. This vision is much like the Chinese and Russian views of the role of business in society, albeit using different terminology.

In 2021, China introduced and began preaching the concept of «common prosperity.» It is derived both from communist ideology and from Confucian and East Asian philosophies. It aims to remove all «imbalances» and «excesses» from the economy, specifically the poor habits of liberal capitalism: speculation, asset bubbles, profiteering, and over-intrusion by tech companies into government business. This new philosophy will provide stronger stability in financial markets and a wider distribution of investments into more «suitable» forms of business. It reestablishes the sovereignty and primacy of the state in the economy.

Putin, in his speeches, has often said the primary priority of business is to create jobs, the second is to contribute to state coffers, and only if both of the first two conditions are satisfied can businesses enjoy their profits. In Russia, businesses are required to be team players contributing to the overall system, or they are not welcome. It makes sense in that every business must give a proportional «cut» to the larger community.

In summary, the socioeconomic implications of the Sovereign Economic Model are that a country and its people must get a more significant share of wealth from business.

Hidden Power Struggles

Economic conquest is a game the Big Powers have always practiced through their trading companies, and so it continues today. Money is power; therefore, the control of business and money translates into the political sphere of a country in the following ways.

WTO and trade agreements. The World Trade Organization (WTO) is an international organization that regulates trade between nations. It provides a framework to reconcile trading rules for countries with disparate types and levels of 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 by reducing access to technologies (intellectual property, IP), food, and pharmaceuticals. Since its inception, it has been highly negative for poor countries because it allows richer nations to use non-tariff barriers to block imports from developing nations. Infant industries in developing countries are affected particularly by WTO policies and politics. Similar to 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 of labor is a concept of globalization. Labor is carried out in the most «convenient» places. Some countries are «assigned» many industries, and others are excluded. It is a sort of modern feudalistic vassalage system not in the interest of a sovereign country, a theory and modus operandi pushed by international companies. They are interested in profitability due to 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 to help smaller, poorer countries bridge the gap to the richer countries. They were intended to finance these countries to increase their economic growth and standard of living. In fact, however, both of these organizations use finance to hinder, block, and destroy competitors of large multinational corporations in developing countries. It is well known that countries from the Eastern European post-Soviet bloc were forced to shutter business and power plants to receive financial help. This has increased the economic and political dependence of these countries on the institutions themselves while lowering their chance to implement locally suitable economic policies with existing market sectors.

Measurements of economic sovereignty. The economic sovereignty of a 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 in trouble due to war, natural disasters, or other factors are offered generous financial aid. This ostensible help from outside is always tied to political and economic conditions. Such covenants include adherence to disadvantageous terms often in the form of trade treaties, forced privatizations, forced closure of competitors, market access, political concessions, or military access to the territory.

Economic colonialism for developing and emerging markets. In developing and emerging countries, many people complain of economic colonialism base on money, finance, trade and technology. Stronger and richer countries use financial tools to impose colonialism on smaller and weaker countries, creating resentment. These tools might be any of 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 of commercial colonialism. By using their vast array of brands and goods, their financial power, and the political force of their home countries, they have pushed the door down and taken over the markets. The host countries could not impede this colonization due to their lack of economic defenses and their inherently weak economies. It is noticeable in many countries that fast-moving consumer goods (FMCGs) made by companies in only a 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 a power lever against smaller countries. To some countries, the developed nations deny the right to buy certain technologies by making excuses or imposing sanctions. They do so to put pressure on the smaller countries or to slow their development or progress.

Use of economic instruments by leading nations is a means of geopolitical primacy. It always has been and always will be.

The Competitive Advantages of Nations

In the past, cities, trading posts, fortifications, and ports were built in strategic geographic locations for trading, security, safety, and easy access to 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 in defensible bays with quiet, protected waters. These strategic locations are constantly contested by many countries for military and trading advantages. Many countries still enjoy competitive advantages given by geography and have adapted their economies to take advantage of that. Therefore, most countries have some sort of advantage over others in certain categories of goods. Most times, this advantage has been built upon to create extensive economic activity and even advanced industries. Some industries have ended for various reasons, such as replacement by newer technologies or simply finite resources. It is in the interest of countries to 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 of an economy. Catalysts to 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