Post
Region: The East Pacific
Hey, where might I get the numbers to plug into this economy guide?:
Part 1: Foundational Economic Nationbuilding
Actually understanding basic macroeconomics
By: Dormill and Stiura
Original Tutorial
Foreword
Hello all!
This is going to be a unique tutorial from me since it is a corollary to a previous tutorial written by one of TWI's own, Atnaia. Most of what I will be writing in this initial version (as of 7 Oct. 22) will derive from his original work as a springboard for new players to get a stronger grasp on authentic macroeconomics for modern tech nationbuilding and roleplay. There will be math involved as I include equations but everything I will be dealing with here is centered on ease of access.
That said, as with my government tutorial, questions, comments, and suggestions can be left with me via TGs.
All the best,
Preface: Rules and Realism Guidelines of The Western Isles
For all the people of my home region, this is for you especially!
To start this off, I'm going to specifically talk to the people who are in The Western Isles, since this is my home region and most of what I'm going to be using as a basis for my math is directed towards conformity with TWI rules.
As you may have been informed in the past, there are two strict rules when it comes to TWI macroeconomics, regulated by Office of the Interior Executive Order 3 and Office of Roleplay Executive Order 4. Together, they regulate that the Soft Caps for Population and Gross Domestic Product per Capita (GDPpC) are 30,000,000 (Thirty Million) and $50,000 (Fifty Thousand USD) each. The Hard Caps for Population and Gross Domestic Product per Capita (GDPpC) are 40,000,000 (Forty Million) and $60,000 (Sixty Thousand USD) each. Those that wish to have either of these two stats rest between the Soft and Hard Caps must appeal to the Secretary of Roleplay the reasons why the higher stats above the Soft Cap is an authentic part of your intended nation's roleplay and story. Typically, the nature of these claims is that one exchanges an increase in one stat above the Soft Cap for a reduction in the related stat (such as a higher population for a smaller GDPpc and vice versa).
In addition to these hard rules, as a community, TWI encourages its players to respect realistic authenticity with relation to these stats and the general macroeconomic trends explored below. This generally means that very high development (eg. USA, Scandinavia, Korea, Japan, Singapore) nations need to better justify the nature of their economic development to avoid perceptions of powergaming, that is using high stats for the sake of having a powerful country just because you the player want to have a powerful country. That's not to say we expect a highly in-depth economic examination, but that we ask for you, the player, to take an appropriate amount of effort in thought to develop your nation's economy in a way that reflects a desire to use more with it as a part of your nation's story within TWI.
Chapter 1: Definitions
It's all about determination and education ... but mostly determination!
Gross Domestic Product (GDP): In general, Gross Domestic Product is a measure of the total value of your nation's economy expressed as a dollar value. To be more specific, it is the total measure of national spending, investment, and net exports. An often used measure is through expenditure which expressed by the following equation:
Where Y is our final GDP, which comes from C (Consumption by the national population, everyday spending) plus I (investments, such as private spending on infrastructure or the means of production, but not necessarily stocks or bonds) plus G (government spending, which for our cases is the total government budget) plus Net Exports (X being Gross Exports and M Gross imports). For our purposes, most of the time, we will not be needing this equation but it is good to understand where the concept derives from. For our purposes, you will derive your GDP from other means.
Population/Capita: This is simply the amount of people that permanently reside in your nation, citizens or otherwise.
Gross Domestic Product per Capita (GDPpC): This is the measure of your nation's Gross Domestic Product divided by your Population by the given equation:
Where Yp is GDPpC. As mentioned earlier, this calculation relies on knowing a GDP which I said you don't need to calculate as above. Fortunately, by the transitive property, the actual equation we will be using at the center of this tutorial can be reconstructed as
Otherwise known as GDPpC times Population, which for my friends in TWI, is regulated by the figures back in the Preface.
Purchasing Power Parity (PPP): For the sake of more advanced macroeconomic design, this is necessary to understand. I also use this as a recommendation for your overview factbooks for your unit of measurement. Essentially, the Purchasing Power Parity reflects the general value of one unit of your currency against the United States (or NationStates, or Isles Accounting) Dollar ($, NSD, IAD). As mentioned by Atnaia, an effective framing for this is the Big Mac Index, which tracks the cost of a Big Mac sandwich between the Average Cost in USD and the Average Cost in your currency. Take for example if a Big Mac cost $1 USD in the United States, but it instead costs $2 in your nation. As a result, you can express that your currency is worth $0.50. More advanced design can highlight more details but the important aspect to understand from this is that
Tax Rate/Average Tax Burden: This expresses the average amount of GDP that is taxed by the national government in any given year, including Income, Sales/VAT, Tariffs, Duties, Excise, and others, as a percentage. In general, it is recommended to cite from an existing country but you may also generalize this as a value between 10-30% of GDP.
Government Budget: This expresses the amount of money (often in Dollars) your government has expressly budgeted for spending on various goods and services throughout a given year. As a rule of thumb, this is identical to the dollar value of your tax rate, though it may be higher if your government deigns to take on loans (which they often do).
Chapter 2: Building your Base
Getting started is the hardest part
Now that we have our most important definitions set for the time-being, it's time to start actually constructing an economy for your nation. For this, I will be citing the works of my good friend Alteran republics and his calculator of national macroeconomics to help you along the road of building out an economy alongside using a shorter version originally crafted by Atnaia which will require future alterations. For this tutorial, we will be focusing on the short way.
For the purposes of Atnaia's original tutorial, you can generalize the average wealth of your nation's population (GDPpC) by a combination of the four main Industrial Sectors:
- Primary: This is generally the industries that deal in raw resources and extraction. Ranging from mining to logging to oil drilling. Agriculture is also a Primary industry.
Secondary: This is generally the industries that deal in resource processing and manufacturing, the "traditional" industrialized work of heavy industry and manufacturing.
Tertiary: This is generally the industries that deal in the provision of Goods and Services, and are often at the center of consumption-driven economies.
Quaternary: This is generally the industries that deal in high-skill professional services, such as Education, R&D, and Healthcare.
In general, it is possible to generalize your economy by identifying which sector is the most developed and derive a range of GDPs per Capita that you can be sure is generally realistic. For the purposes of this tutorial, you can understand it through the following table
Industrial Style | Projected GDPpC Range (in $) |
Subsistence (Low Value Primary) | 0-5,000 |
Cash Crops or Common Ore Extraction (2 Low Value Primary + 1 High Value Primary or 1 Low Value Secondary) | 5,000-10,000 |
Common Ore Rent* (1 Low Value Primary + 2 High Value Primary or 2 Low Value Secondary) | 10,000-15,000 |
High Yield Crops, Rare Ore Extraction, or Oil/Gas Extraction (2 High Value Primary or Low Value Secondary + 1 High Value Secondary or Low Value Tertiary | 15,000 - 20,000 |
Manufacturing, Resource Processing, Heavy Industry (1 High Value Primary or Low Value Secondary, 2 High Value Secondary or Low Value Tertiary) | 20,000-25,000 |
Valuable Manufacturing | 25,000-30,000 |
Consumption-driven, Services, Rare Earth/Fossil Fuel Rent (2 High Value Secondary or Low Value Tertiary, 1 High Value Tertiary) | 30,000-35,000 |
Finance, Professional Services, High-skill labor (1 High Value Secondary or Low Value Tertiary, 2 High Value Tertiary) | 35,000-40,000 |
Highly Developed Tertiary plus developing Research (3 High Value Tertiary or 2 High Value Tertiary + 1 Quaternary) | 40,000-45,000 |
Highly Developed Tertiary plus developed Research (1 High Value Tertiary + 2 Quaternary) | 45,000-50,000 Soft Cap |
Highly Developed Tertiary plus Highly Developed Quaternary or High Oil Rent | 50,000-55,000 |
Very Highly Developed All Sectors or Very High Oil Rent | 55,000-60,000 Hard Cap |
Now to address that * from earlier, it's time to address...
- Access to Education
Access to Healthcare
Automobile Ownership
Consumerism
Productivity
Quality of Public Transportation
Digitization and Access to the Internet
Automation
Investment in Infrastructure
Trade Relationships
We will call this number the Productivity Index (PI) for the purposes of this tutorial. Next up is the strength and presence of your various industrial sectors.
For the purposes of this tutorial, Altera has identified several industrial sectors that are important to your national economy, organized by Primary, Secondary, Tertiary, and Quaternary sectors. In general, your Primary industries deal in raw resources, unprocessed and uncrafted; your Secondary industries deal in manufacturing, energy production, and construction among others, these are your typical "industrialized" industries; your Tertiary industries deal in the provisioning of finished goods and services, such as retail, professional services, telecom, arts and so on; the Quaternary industries deal in high-end professional services, including public sector, education, research, and education.
In general, non-developed economies tend to be driven by the Primary industries, especially agriculture, and does not see a particularly distinct presence in other sectors.
Developing or Industrializing economies are driven by the Secondary industries, particularly in the historical case, heavy manufacturing (such as steelworks and other large scale processed goods), the modern case is generalized as less-than-heavy manufacturing, especially automobiles now but it also includes electronics and electrical components.
Developed economies tend to be lead by Tertiary industries, such as retail, real estate, or professional services. Developed economies also tend to also be consumption driven, and thus no longer have a high proportion of exports (aside exceptions like Japan and Korea, which through state direction have continued to engage in high manufacturing exports, Germany to a lesser extent also fits this exception).
Highly Developed economies, though still mostly driven by the Tertiary sector, also has a very noticeable Quaternary sector, especially in high-level research and development such as biotechnology, spaceflight, and so on.
For the purposes of this tutorial, the main industries within these sectors are rated on a Scale of 1 to 10 (for the subsequent calculation to work, you are advised to only give a 10 to a single industry):
Primary
- Agriculture
Resource Extraction
Secondary
- Construction
Energy Production
Heavy Industry
Manufacturing
Utilities
Tertiary
- Professional Services
Finance
Hospitality and Tourism
Information Technology
Retail
Telecommunications
Arts and Entertainment
Real Estate
Transportation (eg. Planes, Trains, Busses, Ferries)
Quaternary
- Education
Public Sector
Healthcare
Research and Development
The sum of which is expressed as your Industrial Index (NI) for the purposes of this tutorial.
The next addition is your Average National Tax Rate, expressed as (T) for the purposes of this tutorial. We'll be using this later on.
Though in almost every other case, you can skip this part by using a simple rate from an existing country, you can also derive this rate more finely by taking the average of the following rates:
- Income
Sales/VAT
Import Duties
Others
Which you can build off of in other ways. Other taxes for this tutorial are all other methods of taxation your government engages in expressed as an average.
Finally, you'll need the average hours the average person works per week in your nation, expressed as (H). As a rule of thumb, the modern average in developed economies is 40 hours and trending downwards, though this is the most affected by national or subnational policies, so you are free to express this however you feel is most reasonable.
Now that you have all of this together, it's time to get your GDP, which is
The product of your Productivity Index times the product of your Industrial Index times 12, times 1,000,005 times the quotient of your Hours Worked divided by 36. The final number expressed is your GDP (Y) in terms of PPP, its value in USD.
In order to better express this process for the new reader, I am going to reflect the very same stats I used for D&S onto the process I showed earlier so you can understand the final result in context. First, the Productivity Index (PI), which is
- Access to Education = 81
Access to Healthcare = 73
Automobile Ownership = 68
Consumerism = 67
Productivity = 69
Quality of Public Transportation = 68
Digitization and Access to the Internet = 76
Automation = 56
Investment in Infrastructure = 73
Trade Relationships = 70
PI = 701
Next, my Industrial Index (NI), which is
Primary
- Agriculture = 3
Resource Extraction = 2
Secondary
- Construction = 5
Energy Production = 8
Heavy Industry = 3
Manufacturing = 9
Utilities = 7
Tertiary
- Professional Services = 10
Finance = 9
Hospitality and Tourism = 7
Information Technology = 8
Retail = 7
Telecommunications = 8
Arts and Entertainment = 6
Real Estate = 6
Transportation (eg. Planes, Trains, Busses, Ferries) = 6
Quaternary
- Education = 6
Public Sector = 5
Healthcare = 8
Research and Development = 7
NI = 130
Finally, Dormill-Stiuraians generally work 40 hour weeks, thus H = 40.
Putting it all together, we get
Which gives the indication that the GDP of The United Republics of Dormill and Stiura is worth $1,215,072,742,000. Divided by my current given population of 27,993,942, I can then derive from the original GDPpC equation
Which results in a GDPpC of $43,404.85.
Chapter 2.5: The Rentier State
Let's talk about the big black elephant in the room...
I will be brief. There are many times I have seen new people declare loudly and proudly something along the lines of "I have oil, therefore I am the richest nation!" To which I say, "But at what cost?"
See there is a hidden cost to having a high amount of oil, and that's related to being a Rentier State. To define, a Rentier State is a state that relies on income derived from the extraction, processing, and sale of its natural resources, normally obtained by Rent, that being foreign capital to facilitate said extraction and processing. In the nature of oil and other natural resources (such as common ores or rare earth ores), this generally means that your state is reliant on foreign capital both for the production and sale of your resources.
All of this is to say that by and large, your economy is not tied as closely to the productivity of your nation's citizens as other developed economies sharing your tier of wealth. The typical (though not exclusive) result of this relationship is that your nation's government has no incentive to invest in the well-being and future productivity of its citizens to maintain its income, and thus often doesn't. This has the tag-along effect of dis-incentivizing social programs and broader liberalization, meaning your government will trend towards the Authoritarian end of my Regime Types in the Government Tutorial. This can be counteracted by concerted government efforts to encourage productivity and redirect their resource rent into public funds or infrastructure (such is the case of Norway) but in a large number of cases, this does not happen because those in the government profit from this rent, and unchecked profit tends to produce greed which encourages corruption and the trend earlier described.
Additionally, being a rentier state for Oil and Rare Earths has an additional cost that your rent income is heavily reliant on market forces that at almost any moment can move wildly between highly profitable and a dead loss. This means that your government is likely to have a deeply vested interest in enforcing market stability, whether it's through international price-setting organizations (OPEC) or through enforcing their own control over the supply in the direction of establishing a monopoly (such as China's overwhelming command of certain Rare Earth markets), which may also encourage Authoritarian trends to suppress economic liberties in exchange for greater control over your rent prices.
So when you consider "Should I have an oil-dominant economy," next time, consider if you want your nation to be a Rentier state and start accounting for how those consequences affect your politics.
edit: originally asked what region it's attached to but answered that myself easily