March 2021

STEM Education System, Industrialization and Industry 4.0


An interesting link on STEM and industrialization
https://www.brookings.edu/wp-content/uploads/2016/06/thehiddenstemeconomy610.pdf

It is generally accepted that industrialization and STEM education are strongly correlated. Many industries rely on strong education in technical and scientific subjects. Without this knowledge it is not possible to design new devices, machines, tools.

Some rich countries and rich companies have relied to "import" technical specialists and scientists from all over the world, attracting them with higher wages and more opportunities than in their home land. This resulted the fact that with abundance of foreign talent, those countries didn't invest enough effort and finance, to "breed" and graduate local STEM students.

Importing foreign specialists is a decent short term strategy, but as global competitors rise in their homeland, with equal pay and equal opportunities, many return home. This already happens in micro-processors where most of the manufacturing is done in Taiwan, and generically in East Asia. And specialists move there en masse.

By not having local technical specialists they soon will be short of enough people to advance progress in a number of areas. Using the past riches they still attract people, but as soon as these companies lose the top spot in technology, the most talented people will leave for new challenges to work with more advanced technologies.

There are mouthpieces for "Industry 4.0" and STEM, but in fact the education system is diluted with "Common Core" curricula, "SAT Tests" and various other initiatives to weak STEM education itself. That will lead to the current leading countries lose positions and money to more STEM focused education systems, especially Asia and Russia.

I am curious to see the next few years.

Sovereign Food Security and food self sufficiency


Many critics of the economic sovereignty argue of why build X ourselves if we can just buy X somewhere else, at cheaper prices. Then shortages happen,
and every country producing X hoards it and prices rise. Lately we have seen it with COVID; masks, ventilators and vaccines were hoarded by most countries, exports were blocked, some countries even blocked and confiscated transiting goods going to neighbours.

With basic food items the same is happening, albeit for different reasons. In the article below a set of circumstances converged, so that prices are rising and there will be some shortages.

For many emerging economies an additional reason for self sufficiency is that of national security. The Arab Spring protest, which led to changes of government in several Middle East countries happened because of sharp food prices rises, and the population blamed to local governments.

The Sovereign Economic Model advocates the self sufficiency of basic food types, both from an economic perspective, as it drives import substitution, industrialization and partially exports, but also for national security.

But countries which have a plan for food security and self-sufficiency will fare much better. In good times, they may forego extra profits, but in bad times they will definitely weather the crisis much better. It is stability versus profits.


A few article about Food Security and self sufficiency below:


Recent article about food crisis, price rises and possible shortages
https://www.zerohedge.com/markets/verge-global-food-crisis-one-bank-warns-biblical-rally-food-prices
Food security vs Self Sufficiency
https://www.fwi.co.uk/news/farm-policy/food-security-debate-balancing-imports-v-self-sufficiency

State capitalism and State monopolies


One of the topics of the Sovereign Economic Model where I consistently get comments and sometimes pushback, is State Capitalism.

State capitalism in form of monopoly is a very common in many countries.
Some Examples are:
Oil&gas
Utilities
Telco
Airlines
Transport(rail/coach)

There are some others too where goods are pre-taxed(duty stamps) and resellers are "licensed":
Tobacco
Alcohol
Lotteries

The Sovereign Economic Model advocates strong state capitalism in core and strategic sectors. But state capitalism could also be extended to Telco with a state ownership of the network and other businesses which do have a low level of innovation and purely resell third party products like E-commerce platforms or supermarkets.
State capitalism does not mean absolute 100% shares and running operations, but a controlling stake or at least a veto share ownership. In fact, having outsider minority shareholders and management helps a state owned company with governance, I.e. avoid political influence and corruption.

Competitive Advantages of small medium businesses


In the Sovereign Economic Model emphasizes very strong support for Mittelstand - small and medium businesses. SME -SMB have a lot of potential competitive advantages for a sovereign economy:

Potential for large employment
Requirement of less capital
Contribution to industrial output
Contribution to exports
Earning foreign exchange
Equitable distribution
Decentralization - regional development
Use of domestic resources
Opportunities for entrepreneurship
Cost efficiency
Suitable for non-standardized products
Flexibility in operation
Quick decisions
Adaptability to change
Small market size
Customization
Low social costs
Opportunity for talent
Lesser industrial disputes/unions
Personal contact with employees
Personal contact with customers
Self interest
Market niche saturation
Quick Investment and Production
Preservation of Inherited Skill
Easy flat Management
Community Involvement
More risk taking
More innovation
More efficiency/teamwork


In order to support small and medium business the Sovereign Economic Model proposes a de-taxation policy with 0% tax range for all manufacturing businesses.

Import substitution and sustainability of localized parochialist economy



One of the benefits of import substitution is that a country produces and consumes its own goods.

Even on a regional level within a country, import substitution leads to increase localization and sustainability as local consumers buy increasingly local products.
As large international players are removed from a  market, and thus competition, local companies can take over. For example, instead of buying a foreign brand of beer, a consumer can buy beer from a local brewer.
The local product, especially if it relies on local ingredient or historic local know-how, can be competitive in price as the transport costs are much lower,the product "fresher", more tailored to local tastes, than something sourced from far away or from abroad. This also makes the product and the business model more sustainable.
This leads to money flows remaining within a region and helps to the region's development. Therefore the regional authorities and businesses should push for "parochialism economics" to make consumers aware of local goods, and to send the message that by spending on locally produced goods, money will remain locally and their local communities will improve economically.
Within a country, healthy competition between neighbouring regions stimulate the overall efficiency of the economy. One example would be Irish vs Scottish whisky, which are neighbours,  if they are not strictly regions within the same state.

Another example of market share limitation of a sovereign country


China is restricting their own tech giants Alibaba, Ant, Tencent to spread out into financial services.

https://www.zerohedge.com/markets/tencent-censured-ant-group-head-forced-out-beijings-big-tech-crackdown-continues


In this situation, 2 concepts of the Sovereign Economic Model come into play: State capitalism and Market regulation. The Chinese state makes sure that it control a strategic business (payment systems and financial services) and because of the might of these social media corporations, restricts them into tight regulation so to not allow to translate their market share in social media into financial services. So they effectively prevent monopolies to be created.

India’s Cyber Sovereignty


This is another topics where developing nations are ahead. Social media sites have an enormous influence on whom to favour and whom to block, now they are even more powerful than many nation states.

Many countries want to be in charge of this influence themselves.


https://edition.cnn.com/2021/03/08/tech/india-internet-homegrown-apps/index.html

https://www.rt.com/op-ed/517647-india-china-cyber-sovereignty/

Strategies for industrialization: Export promotion


The are several keywords:
Export-oriented industrialization
export led industrialization
export-led growth

While import substitution is a necessity for sovereign economies, it can create a number of issues in market dynamics. By itself import substitution is not the most efficient way to strengthen an economy,. It needs to be combined to a strong export policy, not of raw resources, but of manufactured goods.
Prime examples of this are East Asian countries: Japan, South Korea, Taiwan and China.
The export-oriented industrialization allows goods, built with import substitution policies, to be exported abroad. This relieves the market of over production.
Export led industrialization, by combining both import substitution and push for export, leads to massive industrialization. These policies increase growth, trade balances and and many other benefits.

Market share cap limitations in a sovereign economy

 

Yet again, on this topic there is very little material on the net.
I only found this link where they are talking about market share cap limitations:
https://sensiblecentre.org.au/economicownership/

Besides anti-monopoly and competition laws, which limit market share from 60& to 40% in EU laws in relation to bundling or mergers, or abuse of monopoly position ,there is very little else. IN US there are very few applied laws, the only one I came across the the limitation on bank deposits, which should not be higher than 10%.

In my theory of the Sovereign Economic Model, I advocate extremely strong market share limitations, especially in the consumer markets in things like FMCG (processed foods, personal care products) set at 10%, and hypothetically and ideally, even down to 3-5%. Obviously, in many strategic sectors, state owned corporation would remain without any such limitations, as would other types of companies like cooperatives at national level.

Very low market share limitations on markets worth billions will allow easy access to many small companies, thus increase competition, choice, prices for the consumers. So instead of having a handful of companies share a big chunk of the market, there will be tens of companies.

I also believe that the very low market entry cost and the pressure of competition in a market will force the companies to rapidly diversify in related fields, both with vertical and horizontal diversification. Therefore the competition will expands to related markets, a bit like expanding foam used in DIY.

Probably one of the difficulties for lawmakers would be to define strict markets where a limitation is applicable, divesture obligations, eventual IP licensing to competitors, fines and other procedures for non-compliance. There should be also clauses for innovators and first market movers which could have higher limits or time based exemptions.

But having such a legal framework in place, would first of all inhibit companies to push further for market share and block mergers or acquisitions for greater market share.

In sovereign, developing countries restrictions of market share could also favour local companies, as large foreign companies could not gobble up the market with using their huge financial and political resources.