Hi all,
I have been playing Democracy 4 for quite a long time, but I had always been hesitant to try some modding myself. Luckily it seems like with the new modding tool it would be easier than I had expected, but before trying to implement my ideas I would like to share some of these and get some feedbacks.
I always think that the economic simulation in Democracy 4 is not that dynamic. Sure, the feedback loops and interconnectedness of all simulation values make it incredibly vibrant than most other games, but it is too easy to reach a stable equilibrium in, say GDP. I have studied a little bit of Post-Keynesian economics and I find their model for explaining the fluctuations and business cycles of capitalist economies to be very convincing. I am certainly no expert in economics and I certainly do not pretend to incorporate all elements of PK models into this game, but I would still like to present them in a grossly simplified and distorted way:
Kaleckian economics believe that the most important determinant of any capitalist economy is the investment decisions of private capitalists. Capitalists do not invest in a hyper-rational way: they look at historical and current profitability to decide whether expand production or not. The profitability, in turn, is related to labor-capital struggle: if labor manages to advance their position, it will eat into the profitability of capitalists; they will either choose to pass that onto consumers through monopolistic pricing, leading to inflation; or they will choose decrease or even stop investing, leading to economic contraction. Thus the first new simulation value: Labor Bargaining Position, a value constantly floating between 10% to 90 % (all numbers are undecided) that depends on factors like labor law, unemployment, socioeconomic segregation, workersā productivity and education, etc, and roughly corresponds to how large the proportion of economic surplus would be attained by the workers.
While investment is the most volatile part of economic activity, consumption is the more stable part. Different social classes have different marginal propensities to consume, meaning that as wealth becomes more concentrated into the hands of the wealthy, the consumer demand will contract, meaning that the vitality of the economy depends even more on investment, either domestic or foreign. As I discussed above, domestic investment decisions depend primarily on how the capitalists expect the profitability of their investment will be, with the information of recent profitability in mind. However, it also involves an irrational factor that Keynes had dubbed āthe animal spiritā: spontaneous increasing or decreasing investment that cannot be explained by profitability alone is happening every time.
Foreign investment is also an important component of total investment, but it is even more volatile and tricky than domestic investment. Foreign investment can be done in portfolios, which would hardly lead to any significant real economy activities; it can be in extractive or menial manufacturing, in which domestic capitalists and workers will only receive a tiny proportion of profits, and it will not generate the multiplier effect if the export sectors do not have forward and backward linkages with other domestic industries. To simplify this situation, I propose another value similar to Labor Bargaining Position called Domestic Capital Bargaining Position, again between 10% to 90%, that depends on the countryās current GDP (thus how much you need to rely on foreign investment), technology, domestic or international policies and regulations concerning foreign investment, etc, that corresponds to how large a proportion of economic surplus generated by foreign investment would be retained as the profits of domestic capitalists. This value, combined with other stuff (such as concession policies to international investment, foreign relations, stability, global economy), will determine how much foreign investment you will receive. Again, like the Labor Bargaining Position, this is supposed to be a constantly floating value that will hardly reach an equilibrium.
There are many other aspects that I want to include (for example, I have not yet thought about how to incorporate the monetary side of the model), but this simplified model already provides some very intricate dilemmas. For example, sustaining welfare capitalism might lead to decrease of profitability, thus diminished investment (ācapital strikeā) or outsourcing. This might lead to economic contraction, unemployment and poverty, which might harm the bargaining position of labor and lead again to higher profitability. On the other hand, you can preside over a neoliberal wet dream with stark social inequality and thus diminished consumer demand, but your economy can still prosper if the profitability is high, leading to domestic or international capitalistsā investment. However, it might be very difficult to maintain such a situation, as business confidence and global economic can vary drastically than you had expected.
Here are some of the tentative formulas about how it would be implemented in-game wise. Again, all the numbers and exact formulas are tentative. I tried to let all values have varying degrees of latency as to prevent any stable equilibrium.
Labor Bargaining Power (0.1-0.9):
+Trade Unionist%, 2
+Education, 4
+GDP
-Unemployment
-Industrial Automation, 6
-Poverty, 2
Domestic Capital Bargaining Power (0.1-0.9):
+BusinessConfidence, 2
+GDP, 4
+Technology, 4
+Productivity, 8
Wages = GDP * LBP, 4
Profits = GDP * (1-LBP) - ForeignInvestment * (1-DCBP) , 4
//I want to make GDP an absolute or quasi-absolute value (that is, it has a great space for increasing or decreasing), since it will determine the absolute level of wages and profits
LowerIncome = Wages * LBP * 50% + Profits * (1% + LBP^3)
MiddleIncome = Wages * (1 - LBP *50%) + Profits * (2% + LBP^2)
HighIncome = Profits * (97%-LBP^3-LBP^2)
//I actually want to include another value called Labor Market Segmentation to simulate the uneven distribution of wages among different classes of workers. Here we will use Labor Bargaining Position as a proxy: it is reasonable to assume that as labor as a whole gains a more equitable position, the intra-working class differentiation might decrease somewhat.
//It is also reasonable to assume that, a better bargaining position for the workers will allow them to assume parts of the investment function of the capitalists. I am not sure how to implement this idea exactly. Here this is done in an indirect way: a proportion (ranging from negligible to significant) of profits will be added to their earnings, and parts of that extra earnings will be used for additional consumption. Another way of implementation is formally incorporating the part of investing done by non-capitalists.
Consumption = 80% * LowerIncome + 60% * MiddleIncome + 40% * HighIncome
//Values are tentative to show the different marginal propensity to consume. Specific values about different classesā MPC can be created, though that might be too complicated
BusinessConfidence = 50%* (GlobalEconomy + Profits) + 10% * Stability, 2
//BusinessConfidence measures the willingness of capitalists to invest. I use the GlobalEconomy value as a proxy for the part of the inherent randomness of investment decisions.
Investment = 50% * (1+BusinessConfidence) * Profits + ForeignInvestment, 2
//Correct me if Iām wrong, I donāt think the current game has any mechanisms for different classesā savings, so sadly we can only assume that proportion of profits not spent on investment simply disappears. Anyway, a percentage of profits will be used for expanding production; if the outlook is more optimistic, the percentage is larger. Foreign Investment should have a more sophisticated formula that sadly I donāt have time to think through now
GDP = Consumption + Investment * (1+Productivity), 2
//The 1+Productivity simulates the economic surplus in the classical Marxist term, and it allows for a simulation of sustained economic growth. However, with all the intervening mechanisms I think it will be very difficult to maintain either equilibrium or a perpetual growth of GDP.