Here we discuss the economics of nation building; a stable basis is assumed, but with a huge amount of space for improvements. So a country that is a good place to live, just short on made investments and building things.
In the past, we have written about the relevance of city builder type video games, article 38 The value of city builder games may contain information that readers will find relevant for this one.
What is nation building
Nation building is the long term process of forging a single national identity, for a group of people. This typically start with a shared cultural system (often due to a shared geographically area, though not obligatory). This requires a massive investment in large institutional bodies, to govern the land and serve the people within it. Sectors that require institutions first are legal and security; to provide and enforce a clear legal framework, this is required for people to live and work in safety*.
Cases in which geographical areas are forced on differing groups, tend to require significantly more effort in turning them into a unified country, as the groups still have to learn how to co-exist in the same country. It is possible that old grievances and prejudices play a part. This tends to happen post war or in areas that were colonised.
Later on, we will get into resources and trade, the single biggest mistake that can be made is using short term proceeds, from finite resources, for even shorter term gains and cronyism. Instead build a body to manage money gained from selling resources and give it full independency from the regular government (changes should require a minimum two thirds of votes for example). This body should also have a maximum on how much of its funds could go towards the annual budget, such as 4% max, with another rule to make sure this does not exceed annual gains for more than a single year.
The process typically requires a few standardised items and concepts, such a flag and anthem. Joined with national teams in a few important sports. The importance and funding of these tend to move with the general economy. They also change over time; which is a good thing, as that means they move with the internal culture instead of being outdated.
Key economical institutions
Below we will describe a few important bodies, to support the economy.
Central bank
The primary purpose of a central bank is to regulate how much money is available and steer inflation:
- The amount of available money is managed in two ways, either buy buying or selling securities. In case of buying, they add money and vice versa. This is mostly done with government issued securities, private issues are possible, just not standard. Deciding how much banks must keep as reserve is also a tool, banks lend more than they have as deposits so less reserves means more money in the economy.
- Inflation is managed via setting the interest rate that banks get over their cash reserve, which indirectly determines how much lending costs; this cost influences demand for money and thereby inflation (more demand/money=higher inflation). Keep in mind that the interest rate is not directly copied: A bank pays/receives the set rate and bases the rate it charges/gives on it, by adding a margin for costs and profit. This is how banks are supposed to make money.
Ministry of Finance/Treasury
The main task of the Treasury is manage tax collection and spending. Its role is to make sure that everyone pays there legally obligated share, and checks if all government spending follows relevant legislation. Without it, government would break down as it would not be able to pay for its workers, or any project.
The checks and balances performed by the ministry are also vital, for without them corruption would run rampart.
Regulatory enforcers
These can be a semi independent part of the Finance Ministry, though only with very clear distinctions and guarantees, as the Ministry is responsible for making rules, so you need to separate the two branches. In the end, the exact same government will be held irrelevant of whether or not there is full independence.
Their task is to act when rules are broken, take appropriate action, etc. A set of these rules ought to be about people making a liveable wage, so getting paid enough to pay for all not optional bills, and still have a bit of savings left. This includes rooting out all corruption, and making healthcare available at a reasonable price level, otherwise people will fall ill without being able to afford a doctor, or access any other service without paying a varying amount to gain access.
Regulatory institutions that support trade
Stock exchange: A centralised place to buy and sell securities, such as bonds and equity. Not vital at first, certainly relevant to attract foreign funds, which could be vital early on.
Bank: Companies that take cash from people+companies and loan it back to them, at a fee. You need quite a few of these to prevent them teaming up in the name of profit.
Insurers: Corporations that collect money on a monthly basis, with the promise to return some in case of a predetermined event. Should be noted that they have many exceptions, please see 30 The insurance scam for further explanation.
General: Think of contract law/enforcement, plus legal rights to property and the profit made from it. These can be added to other organisation, such as those made for regulatory enforcement.
It is not uncommon for above mentioned organisations to merge, this is not a problem, as long as rules are put in place to prevent them from bankrupting each other with minor event. Unlike the previous paragraphs, they are not public but private, so can be bought or go bankrupt.
Foreign relations and trade
Foreign trade is the return on above made investments into institutions; the ability to receive money from other parties and pump it into your own system or buy what you need to progress even further.
General resources
Nothing really spectacular, just attempt to maximise profit in the long run; Become a specialised producer of the raw material and as many processed goods as you can produce. The goal is to become the global supplier of something, so that other parties have to buy from you.
Strategic resources
If you have an important resource, of such magnitude that several countries deem it a strategic resource, you are in luck as that gives you bargaining power. Not only will you be able to pick buyers, you can also demand guarantees from them that have little to do with trading. They might not have a choice but to comply, so look at the situation and think about what they have and you need.
Should be noted that, in the past, hostile actions have been taken to secure strategic resources, so make extra effort to maintain a positive relationship. Possibly create a group of countries that you sell to, so the potentially hostile buyer will have to deal with more than just you.
Multilateral institutions
These usually require less investment than fully own institutions, as some of the work is shared with others, still you get more out of them if you devote more man-hours to them: Diplomacy can yield more additional growth than a large mine, with less FTEs. It is important to start building positive relationships with states that are already friendly to you, or with which a shared history/geographical region exists. Now is the time to get real long lasting allies and trade agreements.
The formation of a free trade block is the main goal, trade agreements are the way to get there. By being a consistent partner, offering high quality goods at reasonable prices, you will become more important and accumulate goodwill over time. Just be mindful that others are not taking advantage of you, by flooding your markets or attempting to erode your production capacity.
In addition to earlier discussed key institutions, there are a few multilateral examples: A global trade body and global banking organisation. The purpose of them is to oversee fair trade, and international finance. To maintain a stable economy with honest trade profits.
Though not directly involved in nation building, being a part of international organisation can greatly increase economic activity, thereby reducing the likelihood that people start forming groups amongst themselves out of desperation. Increased wealth tends to reduce infighting as there is sufficient food and water to keep everyone happy.
*The concept of Pax Romana (Roman peace, internally for the Empire itself) was based on precisely that; a large empire that attempts to guarantee safe roads and protection via law, plus more physical protection when needed. This was greatly, in Europe, missed after the fall of the Western Roman Empire, and a possible reason why Charlemagne was named Emperor, in conjunction with and by the Roman Catholic Church. Though the church potentially did so to establish itself separately from the Eastern Roman Empire/Byzantium, and claim itself as the more important powerhouse. Should be noted that the Church was active in nation building whilst doing so.
