Game Design, Programming and running a one-man games business…

Democracy 3 and Nationalised / privatised industries.

Democracy 3 has *some* support for different stances on what should be a nationalized/privatized industry, but I’d say not enough. Right now you can have State Schools, State Prisons, State Health Care and State pensions, or you can provide none of those and the private sector provides them instead (except to the very poor, who generally cannot afford them).

This is probably just a reaction to the situation where I live, in the UK. We have a national health system but optional private health care, and the same with all those other options, although AFAIK the prisons are all state run, at least in terms of overall management.

During my lifetime, a lot of old state enterprises in the UK got privatized. British Rail, British Gas, British telecom. They are now talking about the Royal Mail going the same way. I’m not going to argue the merits of the case here, that’s too partisan :D, although I will say that the ‘older’ you are, the less likely you are to have a rosy view of the old nationalized rail and telecoms businesses. BT used to take MONTHS to set up a new phone line for you, and you had no other option. they even owned your physical phone, which was rented, and you had no options there either. It sucked.

Not that I can make much of a case for rail privatization being a resounding success, but YMMV. ANYWAY….

How can I incorporate more of this stuff into Democracy 3? Lets take an example of the banking industry. Assume you are playing the UK. Should ‘nationalize the banks‘ be an option?  If so, what should the implications be? We could argue all day. Off the top of my head:

Protesters at Bank of America shareholders meeting in Charlotte

Reduction in poverty. As an instrument of the state, the bank can cut out punishing overdraft rates and fees for the poorest, whilst also ensuring everyone is approved for a basic bank account, whilst also out-competing loan-sharks and providing banking to the poor at a loss.

Reduction in GDP? (ooh -controversial). Traditionally, state-owned banks have a bad track-record of ‘picking winners’ when it comes to financing business loans. There would be a tendency to support failing businesses because they employ lots of voters in marginal voting areas, or are politically sensitive. The lack of a profit motive will skew the bank to make worse decisions and thus reduce the effective access to finance for private enterprise, reducing overall competitiveness?

Fury by capitalists. Suddenly the government controls access to finance. that must scare the hell out of hardcore capitalists, who might fear the next step is *their* business being taken over by the government?

Joy by Socialists. The reverse of above, Happiness that the financial sector now has a social element.

Unhappiness (maybe) of self-employed. Government departments are well known for their bureaucracy. they like dealing with big multinationals, not someone who works as a plumber. The sheer incompetence of the UK tax office is already evidence of this. the idea of them being the sole provider of banking should upset small business surely?

Huge Cost. Presumably existing bank shareholders will be the subject of compensation (I’m thinking consensus politics here, not a revolution with guns), which means the government pays out a good few hundred billion pounds (or trillion dollars) to buy up the banks. I’m thinking the net GDP impact here is negligible, as money people previously held in banking shares suddenly becomes cash, which presumably gets invested elsewhere on the stock market, meaning so sudden retail windfall?

The problem with Democracy 3 is you need to come up with policies and systems that are balanced, fun, understandable and also areas where there is at least some broad agreement as to the effects (if not the desirability). So I throw this out there. Does that sound like a reasonable reaction to nationalizing the banking system?

If I was to add this to the game, it would involve some coding, as it effectively means having a policy with a one-off implementation cost, and one-off cancellation income (privatize!), which the system doesn’t currently support, but is certainly do-able…

12 thoughts on Democracy 3 and Nationalised / privatised industries.

  1. about the GDP since their would be lower rates i would argue that the GDP would in fact rise or at least cancel out the betting on wrong businesses since more people could take out loans for their cars and houses, and that leads to my second point there would probably be more cars on the roads and more people would own houses

    but hey the betting on wrong businesses it depends on the government you have

  2. Bullet one and two seem contradictory. While a reduction in fees may be of partial benefit to some of the more consistently irresponsible people, a reduction in GDP would have a far greater impact on poverty then a few bank fees.

    Your happiness decisions are probably correct, but as you can imagine it’s always more complicated when all the messy details are factored. I’m fairly pro free market and pro capitalism, but I have no love of the banking industry over here in the States. Not sure how your banks have been operating, but “our” banks have managed to pull off a legendary heist. If another option was nationalizing them as opposed to accumulating trillions in debt to save them, not sure I would have been all that apposed.

  3. Here, in Brazil, we have one full state owned bank (Caixa Econômica Federal) and one where the government is the major shareholder (Banco do Brasil). (and a state owned investment bank, BNDES, and a minor bank without nacional expression, Banco do Nordeste)
    Booth majors are very profitable banks and a major source of resources to the government.
    In 2012, the Banco do Brasil had a profit of 12,2 billions of BRL and the Caixa Econômica Federal of 6,1 billions of BRL.
    Here are a article (in portuguese) about this profits going to the government

    Also, these banks are here for a long time… Banco do Brasil have 202 years and Caixa 152, then maybe you can add nationalized banks as a politic from start in some countries.

  4. Another effect would probably be a drop in high earnings as bank execs on big salaries would be a big chunk of the top earners, so if those salaries where cut (or consolidated) you’d definitely notice the effect.

    Think for small businesses in a simulation sense that they’ll just be quicker to blame certain things on the government if the banks are nationalised. If small businesses can’t get credit with private banks they are mad at the banks initially before thinking about the government.

  5. I think it’s very difficult to say, because the effects would depend so heavily on a) how you did it and b) when you did it. Something on this scale would need to be executed very well to be successful, and if it wasn’t you could total the economy. Additionally, I think the government buying up banks when they’re struggling (which we saw some of during the financial crisis) is very different to a government with a healthy economy and banking sector suddenly turning around and nationalizing their banks. I think the former is more likely to boost confidence in the economy, because the government is clearly reacting and taking measures to a problem, whereas the latter could easily destroy confidence, because the government is fundamentally changing a system that was working. They produce very different effects because people have different reactions to them.

    This is why I would actually say that I don’t necessarily think that something like this should be in the game, because I can’t see how it could be done well within the context that the game currently exists in. The game works well where the outcomes of any particular decision are substantial but they don’t change the entire game, and the outcomes are relatively well known and agreed upon. Within the kind of countries currently simulated, nationalising all the banks would fundamentally change how their economies work and is completely unprecedented.

    It’s not like the government raising taxes or cancelling Free School Meals, where you could make a good, reliable estimate of the effects of that. If the government turned around tomorrow and announced the banks were to be nationalised, I don’t know what would happen, in the short term or the long term, and I don’t think anyone without serious qualifications could tell you (and being economists, ask three of them and you’d get 5 opinions).

  6. “I don’t think anyone without serious qualifications could tell you (and being economists, ask three of them and you’d get 5 opinions)”

    Oh the truth in that. Yeah I’m half way through a BEcon and the effects could be good or bad (though most economists would lean that it would do more harm than good) it’s still a very populist thing for the poor, socialist and possibly even middle income(?). The wealthy and capitalist would hate it and there’s no doubt it would probably create a “brain drain”.

  7. I would love nationalisation to be included, just so I can take my slowly failing socialist experiment to the next level!

    For the effects that could go either way depending on how the nationalised sector is run, could you give the player options? Or have it determined by the competency of the minister? Perhaps throw things up as events that require a response?

    With regards to the effects that you’re not certain of, would the benefits/costs balance one another out, like banking affecting GDP for example?

    Like I said, would love for this to be added in an update :D

  8. There are “medium” options which don’t require nationalising the banks.

    For example, the government could nationalise the payment system, and possibly people’s basic current accounts. This means that even if the banks went bust, the man on the street would still be able to get paid and make purchases with their credit card. A big part of the reason banks are “too big to fail” would have disappeared.

    There are some obvious drawbacks to this, though. Firstly, it would require a massive IT project, and governments seem to struggle with these. Secondly, it would be really expensive to set up. And thirdly, you might encounter the same service problems you mentioned with BT.

    For more public/private choices – there should be an option to ban private schools. Many people believe that as these attract the best teachers and pupils, the state system must be worse off. They argue that banning all private schools would reduce standards for the privileged few (perhaps reducing the country’s technological edge, and annoying both the wealthy and the self-employed), but raise standards for the rest of the country (perhaps improving general literacy and the government’s popularity with socialists).

    Another option might be the privatisation – or just the shutdown – of the BBC.

    Finally, how about the option to create a national house-builder? This would increase the supply of housing, and increase employment, but annoy capitalists and home-owners (and of course cost money, at least if the new builds were used for social and affordable housing).

  9. Cliff! I think one-time policies would add greatly to the game and it makes me think of all the stimulus packages many countries launched during the final crisis; one time expenditures to try to goose GDP. I think all the effects of nationalization you mentioned are correct but I’m not sure about GDP because economic output is just so complicated. I remember when I played around modding Democracy 2, I changed GDP so that no policy would directly impact it – rather policies would affect peoples incomes, business activity / confidence (capitalists morale) and government spending level etc…which in turn would affect GDP. With that model, I, as a coder, never had to worry about whether, a designed policy would be good or bad for GDP, I’d would just put in the equations for all the different effects and then see what would happen. Also, have you considered incorporating randomneess? eg. Higher science funding doesn’t necessarily mean GDP will definitely increase by 10% 5 years from now, but it does increase the chance that some tech breakthrough will increase GDP in the future as a one off case, or boost literacy etc. Bank privatization would increase the chance of a financial crash somewhat…Democracy 3 looks great so far.

  10. As you note, banking is tricky, as many economists would recommend that even a private banking system should have a degree of regulation and the effects would vary widely depending on what interest rates were, what consumer confidence was, whether or not there was an asset bubble, how the Federal Reserve is behaving, how do you model investor behavior when it comes to complex derivatives, etc., etc.

    I would be more curious on how sophisticated you model externalities of things like education and pollution, the non-rivalry and non-excludability of public goods, and the information asymmetry in insurance markets. These tend to be tricky concepts to get across to laypeople, but their effects are more broadly agreed upon within the field.a

  11. Hi,

    Maybe the balance could be achieved via an “evolution vs creationism” type slider on the level of control government takes into banks : it would range from total free market where banks are allowed to do whatever they want to very strict regulations where credit rates would be fixed by the government and stock exchange severely monitored.

    It could fuel two negative situations : “speculative bubble” would have a short term positive effect on the GDP with a delayed very negative effect on GDP (potentially raising poverty or homelessness) and “credit shortage” would reduce GDP, productivity and piss self-employed/capitalists.

    But I guess if you really wanted to add state control in the economy, the best would be through blue boxes : one for privately held businesses, another for state-controlled ones with the same kind of feedback that exists between both types of education or health services. Different policies could fuel up or down each box and the effects would be somewhat more indirect.

    That would allow pushing further the limits of the game and offering the opportunity to create a real communist state or a completely privatised one. What do you think of it ?

  12. The only problem with that is I have already partly gone down the road of separate nationalized industries for stuff like prisons and education etc, so it would be a bit of an anomaly. I guess I could replace stuff like rail subsidies with a discrete private vs publicly owned rail option…
    And for example, the monorail and space programs are ill defined when it comes to the split there between public and private ownership…

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