The Sovereign Economic Model. A manifesto for rising nations. Stefan Demetz

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СКАЧАТЬ the market share fairly, collaborating even with private businesses. In the second case, they compete aggressively and use government political power to introduce laws that benefit them, gain monopolistic positions, and push private business out of the market.

      Management and governance of SOEs is a sore point. In some oil and gas exporting countries, large SOEs are mainly concerned with managing the enormous wealth of this market sector. Most are run decently or well as they are critical to state budgets. In many other fields, SOEs were, and are, badly managed. Mainly they are subjected to political tussles, run by politically appointed leaders, and used as overweight cash cows until the business environment, through heightened competition or technological changes, reduces them to a burdensome money-losing enterprise that gets privatized quickly. Relevant examples are the post offices of various countries, which have been privatized or floated on stock markets, or have suffered gargantuan losses. For instance, consider the US Postal Service (USPS), which is technically not an SOE but a special government agency, and Amtrak, the US railway operator. In monocratic government systems in Asia, SOEs fare relatively well as the governments set strict rules that administrators must follow. Deviations or political fiefdom (corruption) are harshly punished, up to death sentence. Putin’s Russia has perhaps struck the perfect «golden middle.» Many of Russia’s large SOEs, such as Gazprom (gas), RosNeft (oil), and Sberbank (banking) are traded on the stock market; the state owns slightly over 50 percent, and the rest belongs to private and minority shareholders. Therefore, the state has achieved several goals: absolute control and money along with liquidity and partial privatization. The boards and management of these companies are stuffed with foreign executives. In this way, local politicians cannot defy the shareholders’ governance and run their fiefdoms, as would be expected to happen with only local governance.

      Competition or merges between SOEs is a point that needs to be analyzed. Some countries have multiple state-owned enterprises in one sector: multiple banks, multiple industries, or multiple utilities competing in a market. Sometimes it makes sense to completely merge them or to bring them under the roof of one holding group to manage them under one policy. In other instances, it is advisable to keep them separate because their core functions are different. Competition among multiple SOEs for the same customer does not make much sense because a large amount of time, financial resources, and political intrigue are spent on competition instead of on improving the offering. In these cases it is better to rationalize and merge these strikingly similar businesses. In addition, consolidation of SOEs can bring big cost savings, especially if they are large. Either a total merge or a common management as subsidiaries of a large conglomerate can make many processes and decisions much faster and highly efficient. A larger aggregated size likewise helps to fend off competition from private and foreign businesses. It also adds to the enterprise’s credibility for exporting goods and services abroad. Both China and Russia have merged and rationalized different SOEs into large conglomerates in the fields of energy and manufacturing. This makes them gain critical mass and reduces costs. Russia has merged hundreds of related firms into conglomerates in aviation, shipbuilding, engine and turbine manufacturing, and other sectors. This consolidation has allowed distributed single businesses to become increasingly productive as part of a conglomerate and work together under one umbrella to bring new products to life.

      In the final analysis, well-managed state-owned enterprises can provide a stable economy and can also create growth and prosperity no less efficiently and effectively than private businesses.

      State Capitalism Investment Models

      A sovereign country should primarily use its economic policies to create the right foundations for business. But it can also use various tools to fund its development. These tools can be funds, SOEs, or agencies.

      Sovereign wealth funds are special funds accumulated by a country, usually by oil-rich nations in the Middle East, Norway, and Russia. In most cases these funds are simply intended to optimize returns, that is, to make the most efficient investments anywhere around the globe, and thus operate just like an investor. Sometimes they are mixed. In addition, they invest internally, meaning they finance business in their home country. For example, in Russia, the sovereign wealth fund RDIF invests and co-invests mainly internally. The most prominent example of its investment is the Sputnik V vaccine for COVID-19.

      SOEs have historically been tied to energy, i.e., oil and utilities, probably because these industries are critical to state budgets. While in the West these have been mostly or partly privatized, in many countries state-owned utilities are the norm. In developed countries, few state-owned companies exist, while in emerging countries they are common. As a paradox, historically, the biggest growth seems to have happened while the state had a larger ownership of entire industries, both in Europe and in Asia.

      The state itself, through its government, can influence business with economic policies, taxation, regulation, and permits. In fully deregulated capitalist countries, the government does not pose many obstacles to business. It even supports the largest companies. Usually the government has to step in if a critical business suffers significant losses or faces bankruptcy. However, in state capitalism, the state heavily regulates some sectors of the economy, owns or controls extensive business, and effectively has a de facto monopoly on strategic industries.

      State capitalism allows a country to move a huge amount of resources to implement a plan. The state can move state-owned companies, sovereign funds, and internal funds to support an industry. This combination of finance, labor, and technological skills makes it easier to complete large-scale projects. Imagine a railroad infrastructure upgrade: the state provides financing, a sovereign fund attracts foreign co-investment, state and private companies provide the technology (fast trains, management systems), and state-owned or private construction firms manage the project.

      State capitalism has its own mechanism for investment. Investment strategies prioritize long-term improvement of the general economy. Infrastructure, employment, and internal development of industrial and technological market sectors and solutions are investment solutions that spend the money within the country. Comparatively, unbridled capitalism is not about raising the tide to lift all boats, as it is more self-centered and the benefits are restricted to each individual company.

      State capitalism is not a silver bullet for all sectors of the economy. These are the areas where state capitalism can best be applied to market sectors:

      • Power engineering (electric, nuclear)

      • Military-industrial complex

      • Banking

      • Chemicals (including fertilizers)

      • Pharmaceuticals (partial)

      • Public utilities

      • Mining and metallurgy

      • Ports and logistics

      • Railways

      The telecommunications sector should also be controlled by the state because a telecom network is a fundamental part of the infrastructure for the internet and data transmission. Here, state control of the physical grid network is of paramount importance. Besides promoting state security, it may help domestic companies that produce telecom equipment if such constraints are introduced. Private companies can, together, be minority shareholders of the physical infrastructure. On the business side, they operate as virtual operators and take charge of the service aspect for consumers.

      The sovereign economy described in the Sovereign Economic Model also controls the food-distribution system and, consequently, the largest supermarket chains. Such food distribution networks are controlled by the state, but with the participation of all food producers СКАЧАТЬ