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I'm writing a story about a government of a former colony who wants to industrialize the country and build its manufacturing base. However too many entrepreneurs prefer to invest into non-tradable sector such as retail, construction, catering, health care, hospitality, finance etc. While government wants them to invest into manufacturing. So far tariffs and subsidies for the manufacturers had limited effect.

How to make the non-tradable sector less attractive then the tradable sector? That is it could exist but nobody should be able to get rich from it.

The government doesn't like socialism so public ownership is out of question.

I'm thinking about taxing non-tradable sector at higher rate, or maybe using onerous regulation for firms in the non-tradable sector such us high minimum wage or obligatory worker councils. So even if Sam Walton is born in this country they won't be able to outcompete the mom-and-pop stores.

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    $\begingroup$ Usually this sort of problem solves itself as part of supply and demand $\endgroup$ – Trevor Jan 15 at 18:03
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    $\begingroup$ The question seems to teeter on the edge of "how can I have a planned economy without socialism?" Sectors that have a comparative advantage will thrive in international trade, sectors without won't. "Steering" foreign investment has two big problems - 1) it generally doesn't work as intended, and 2) it tends to breed corruption (see #1). You seem to be misusing the term "entrepreneur" - those folks start companies, usually in sectors they are already familiar with. You seem to be wanting "foreign investors," the folks who fund the efforts of many entrepreneurs. $\endgroup$ – user535733 Jan 15 at 18:34
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    $\begingroup$ "tariffs and subsidies for the manufacturers had limited effect" - did they try to tax real estate and services higher? $\endgroup$ – Alexander Jan 15 at 19:20
  • $\begingroup$ I don't understand. If "nobody can get rich" in the financial sector, this means that the only available source of capital is the state; which comes in direct contradiction with "public ownership is out of the question". The state can of course pour resources into manufacturing, but then, if "nobody can get rich" from construction and retail, who will buy the output of those factories? Where will those workers live? Welcome to the USSR, home of the largest number of tonnes of steel per head, land of the multi-family appartments and of the everlasting queues for bread. $\endgroup$ – AlexP Jan 16 at 0:34
  • $\begingroup$ Taxes and anti-monopoly laws will do wonders to keep the non-tradable sector not as profitable as the alternatives. If someone is becoming rich in the non-tradable sector you just split their company in four competing ones. $\endgroup$ – Rekesoft Jan 16 at 10:28
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China is a good example. China did not want to trade with Europe at first because Europe did not have things that China wanted en masse. Europe solved this problem with opium.

If we were to use opium as our example here, your motherland may begin to sell opium to the colony in small amounts, as demand for opium raises, a lack of sufficient trade goods would cause the price of opium AND trade goods to sky-rocket. This would incentivise the manufacture of trade goods so that the colony could continue to purchase the opium. The trick is that your trade good has to be something that your colony wants, but has difficulty making for itself.

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If increasing taxation has already failed, you can reguate so that any profession not tied to manufacturing requires a license. Then you control the amount of licenses given by the government so that you only get a certain influx of doctors, lawyers, hairstylists etc. per year into the job market, while still keeping businesses private. Make the licenses job-specific.

Anyone working on a non-tradable job without a license gets whatever body part they were using to work broken (i.e.: for a soccer player you pop their kneecaps). Then force-feed them a small piece of uranium publicly so that other people know to avoid coming close to the convicts. Banish them to outside cities where they can serve as live examples of what you do with enemies of the economy.

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A sense of national pride can work wonders. You don't NEED tariffs as a punitive measure if people would rather have the home grown items. Also, an export demand would make it profitable.

So, what you want is a two pronged approach.

  • Make manufacturing a thing of national pride
  • increase demand

to increase demand within your nation, make any products synonymous with what it means to be a member of your nation. In the 1980's Chevrolet had an ad campaign like that. which had a bunch of people singing "Baseball, hot dogs, apple pie, and Chevrolet". The propaganda arm of your government could do that.

To increase the appeal of your exports, market something your country does well, and make it sound exotic in foreign lands.

Back to the home front, praising industrialists, national recognition for manufacturers, and calling them true patriots would get the people behind them as well. Your venture capitalists would be able to tell which way the wind is blowing, and even the non-tradable enthusiasts would think very quickly on ways to diversify their portfolio to the manufacturing sector.

A Friendly rivalry with an allied nation would be a way to help with this as well, especially if your ally wanted to increase their market share of non-tradables and back off of their manufacturing economy.

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Guaranteed market.

Perhaps your citizens do not like doing business with foreigners, or those markets are too unpredictable to reliably make a profit. Your government establishes a public entity which acts as a amalgamator / middleman - this would be analogous to Fannie Mae or Freddie Mac which does something like this for mortgages. This entity attends to tariffs, transport, markets and so on. It guarantees a buyer for the products of your domestic manufacturing and then finds markets for their products.

This is nice in that a public entity deals with the hassle of exports. Your manufacturers only have to deal with one buyers. It is nice in that importers only have to worry about one supplier, and one that is not going to go out of business because it is a government agency.

A problem is that there is less direct market pressure from end consumers on manufacturers as regards quality. Your middleman will need to have standards it imposes - and that will be another benefit of your system as regards importers of your products.


Weaken your currency.

Services such as you describe are largely for domestic consumption. By weakening your currency you will make foreign currencies more attractive, and exports are the way to obtain these.

China keeps its currency weak and by doing so helps its export market.

https://www.globalfinanceschool.com/blog-post/how-china-keeps-yuan-undervalued

The cheap Yuan gives China an unfair advantage in the export market, encouraging the United States’ growing trade deficit with China and keeping goods in markets like India from competing locally.

The Chinese have got some way of doing this that does not cause inflation for them, and I don't understand it. Inflation is an easy way to do the same thing - print money, and then foreign currencies will be increasingly attractive / more valuable.


A fiction about these things does not really grab me and shake me. The interesting aspect of your fiction is the premise that if you want people to do A, but they are doing B, make B less attractive and then they will do A. In fact they will probably figure out a different way to do B, or they will do C and K. If you want people to do A you need to make A more attractive.

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