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The Economy Evolution Path

The economic evolution path is pretty simple, straightforward and comprises of the following consequent stages: resources economy, industrialized economy, technological economy and ruling economy. The economy builds up its layers during its advancement along the evolution path. The bedrock of any economy is formed by its natural resources and potential. Literally, the bedrock is formed by the nature: geographic location and land potential of the country is shaped up by the nature. The whole of the following economic evolution is determined by the geographic location of the country: what is the natural potential of the country?

Some of countries are rich in fertile lands. Some of countries are rich in mineral and carbon resources. The countries rich in fertile lands start forming agroeconomies. The countries rich in mineral and carbon resources start forming raw materials economies and do not forget about supplies. I leave alone countries deprived by the nature, because they generally end up by getting associated with the more powerful state, at or against own will. Thus in its very beginning the country’s economy is shaped as the agroeconomy or raw materials economy.

The next evolution stage is the industrialized economy. It is worth to make a remark that the inception of armaments rests upon this stage. The stage is characterized by formation of heavy machinery and manufacturing enterprises; advancements in agribusiness and raw materials processing; development of infrastructure objects, communications and logistics infrastructure. The energy sector and gradual development of rural areas are also among the key subjects at this stage, because they are important to strengthening of the economic position.

From the fiscal point of view, the stage is characterized by inception of the fiscal system and the banking system in particular. The banking system is a toolset which must not be treated as the business: banks do not create the capital value. They are used to accumulate and transfer the accounting value. They must serve the economy. By giving too much power to banks and financial institutions, by designating them as business units of the economy, rather than serving units of the fiscal system, we promote the money-making machine and put the economy under their control.

Simply speaking, we grant the power over the real economy to the banks. The driving force of any bank as business unit is the profit. Profits rule the game. Since the banks do not create the capital value: what do we try to achieve by creating hundreds and thousands of banks? Do we need all of them as serving units of the fiscal system to accumulate and transfer the value and to manage capital and cash flows, when the amount of money in the system is limited?

By breeding the banks, we get no capital value that advances the economy, but a lot of headache. What follows is a bunch of motley regulators and watchdogs to protect the fiscal system, to rein in bargain hunters and slow down the pace of the money-making machine in order to prevent different bubbles to grow.

We are talking about the competition? What competition we are talking about in the area that does not create the capital value and must be used to accumulate and transfer the value and to manage cash and capital flows? Such competition only increases the instability of the entire fiscal system. When it is easier to secure the safety of the fiscal system: when we have hundreds of mixed banks or when there are four-five serving banks in the state?

We are talking about the opportunity to let a bank fail. Why do we need to let it fail? Because it was not able to compete with other banks and has been hit by the tough environment? But again, it brings us back to the vision of the fiscal system as the money-making machine. The money-making machine is good when its output is used to facilitate the advancement of the economy, to finance the creation of the capital value in order to secure the organic economic growth, not bubbling and market foaming. The number of profitable opportunities in the fiscal system is unlimited. The same is true for the number of risks. By treating the fiscal system as the money-making machine, we let those risks to materialize sooner or later.  What we have to understand is that the fiscal system, the banking system in particular, must be subdued to the real economy – to serve well, but not the other way round.

Once the bedrocks of the economy are created, the serving fiscal system is established, it is time to think about the improvement of the economy and discover new opportunities in order to strengthen the state’s economic position. The strengthening is attained by the development of different technologies: telecommunications, biotechnologies, electronics, cybernetics, information technologies, etc. The technological development must be subdued to the goal of development of such the sectors as aerospace and aviation, homeland security and defense, healthcare and medicine, pharmacology, etc. The technological development is also required to secure the economic diversification.

The final stage of the economic evolution is defined as the ruling economy. The ruling economy can be characterized as the economy that guides and influences other world economies. The economy must pass through the entire evolution path in order to reach the ruling stage economically. Of course, there are approaches based on the force and compulsion, but such approaches are better to review separately, because they do not allow laying down the firm economic ground.

We have approached the point, when it is time to talk about the three key factors that drive the economy evolution. As the path itself, the factors are pretty simply. These are in the order of importance: (1) ideological leader, (2) governance system and (3) economy development approaches.

First of all, there must be the ideological leader who will have the idea of state development in his head, preferably his own idea and not implanted by someone else, though such an approach can also be used to span the power of one state which has more strong-willed leader. Exactly the strong will of the ideological leader allows him to promote his idea, to drive its implementation and overcome inevitable obstacles and clashes of interests.

It is important to say about the clash of interests. The leader will always meet the resistance, because he will look at the world through the prism of his own interests and it is impossible to meet interests of each and every. The interests of the leader and ones of his team must have attachment points in order for him to promote his idea and drive the development process seamlessly. Some leaders prefer to have like-minded persons and people of action in their teams. Others prefer to have “functionals” or dummy executors of their wills and commands. Others try to mix both approaches. Everything depends on the intelligence of the leader and his abilities to span his will. But exactly the strong will determines his success or failure.

I want to make a remark on the beloved approach of different politicians, when they promise to satisfy interests of each and every. It tells me about such a politician that he or she has no idea at all and that he or she will be perfect dummy-doll in the skilful hands. There is no way to satisfy the interests of each and every, if you really have the idea. All you can and must do is to find the attachment points between your interests and interests of other parties. And it is where your intelligence and strong will take the stage. That is why I want to get from the political leaders the coherent development strategy, not marketing bulletins.

I will not talk much about the governance system and economy development approaches. You can find a lot of this stuff in the relevant literature. With regard to this, I think, it will be better if I call two great economies: one is close to the ruling stage and another is still stalled at the industrialized stage, but have all chances to win as well, providing its ruling leadership will be able to promote the economy to the next stages by leveraging its resources base and implementing the sustainable economy development strategy.

The first is the economy of China and the second is the economy of Russia. China has all of the three key factors required to drive its economy to ruling one: strong-willed ideological leadership, effective and sustainable governance system and reasonable economic approaches. Providing they implement sustainable regions development strategy, effectively use the world money-making machine and lessen its effect on the own economy to prevent bubbles, we will get the true ruling economy soon.

With regard to Russia, they have strong-willed political and ideological leadership, but lack the effective governance system and efficient economic approaches to advance the economy to the next stages. Providing they re-create the effective governance system and develop the sustainable economy transition strategy, they have all chances to advance to the next stage. With regard to the political leadership, I have no doubts about abilities of existing ruling Russia’s leadership to sustain its position in the future.

To conclude this article with the practical example, here you can find the excerpt from the revised general business development strategy developed specifically for the Ukraine’s market from the investments standpoint. Unfortunately, current state of the Ukraine’s economy enforces me to conclude that it lacks all of three key factors required to evolve: no ideological leadership, no effective governance system and none of efficient economic development strategy so far.