Computational Economics | Founders' Review Editorial

Computational economics simulation was a favorite. It was fascinating to see how individual decisions affect the product of the entire population.

Why is it important? Simulation models can actually predict the outcome of decisions. Sociology, psychology, media, and economics may even have bigger impact on industries than pure finance or some new technologies.

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Let's pick the seniority based management model. It is represented with an increasing income. People tend to spend years or decades in such a model with constant learning. The Western university system and the Eastern corporate system have similar traits. You must know your place in the hierarchy, and oftentimes title matters more than facts, accuracy, or written rules. Individuals sacrifice some of their freedom in this model in favor of the institution, or corporation. The length of service, and experience are more dominant in this model to specify compensation. Harmony, traditional value and community is favored over growth, individualism, and overall product.

The logarithmic numbers of managers or party members and the ones who are in the game, but were not promoted may become negligible with a large population count. This makes the system quite liberal, actually. This is why traditional democracies reserve strict hierarchies for the judicial branch only. It handles only the special and edge cases that do not have clear regulation and precedence.

The individual career path can be described as a growing curve in this model as a result. As high earner senior employees retire, low earner new employees enter the team, and costs stabilize. This rule strictly specifies the per capita GDP and its distribution in such societies. Income distribution follows the curve. Inequality will be higher, but it is a choice. Senior employees will try to set barriers to protect their income. Economies of this model may be less flexible. Stress may affect unemployment less, but it can suddenly spike up, if recessions cannot cover fixed costs anymore. Risks of unemployment and inequality will introduce more conglomerates. This may be one driver of the US Big Tech models. Bigger institutions handle the risk of fluctuating demand for products from people with different income levels.

Competition is important in an economy, as it lowers product prices and increases output. Economies that focus on racing individuals compared to competition of products may become unhealthy. Racing comes with the show business, but it is also stressful that can burn out the individual. Such societies may have a falling income by age as a result, the opposite of the seniority based model. Remember, voters favor programs, not individual people. The show is on the top, so there may be a sudden drop of income as industries get further away from the place where things are happening. This is a negative sum game and a dropping curve over time and age. Oftentimes authoritarian governments and countries at war have such a system. Scarcity is replaced with shaming, or blaming individuals instead of understanding the system. Racing is represented by constant comparison to others in terms other than clear monetary value. Tit-for-tat behavior is typical between communities or diplomats. Such an economy is usually very bureaucratic with eventually lower income levels in the long run.

Racing can be a positive short term goal like sports, or when choosing a partner to marry. Another example is olympics. Some countries have higher ratios of gold medals in the Olympic Games compared to silver. This trait of the United States, Italy, or Hungary suggests that they invest more in the top talent than the rest of the olympic village. Show business as a marketing tool fades at the third, fourth and lower positions of market shares. This explains the strength of the iPhone, Mac, and Windows ecosystems compared to Unix, Solaris, or even Linux desktops. Presentations of professors explaining Unix systems was less appealing to the general audience than the "I'am a PC - I'am a MAC" marketing message.

Strong equality is another model. Individuals earn about the same in this model represented by a strict tie between the per capita GDP and the income levels. Growth is very small, as it has to affect the entire population. Working in a team is easier. Growth and innovation might be hindered if talent does not meet support. Any special requirements of a project may result in bribery or corruption to get things done. Such societies may also prevent feedback to employees. Some hardworking employees may be exploited. Others may introduce alternatives like cryptocurrencies, perks, or titles that substitute monetary compensation for results. Such societies on the other hand can absorb new products easily with quick scaling of startups, and quick hype cycles due to the unified pattern of consumption.

Products targeting a more equal customer base may be very cheap, so that they can slide into the narrow savings gap represented by low growth economies. Many tech products are actually free services like GMail, Outlook.com, Google.com, and Facebook, so that they can spread quickly. They can then monetize on the attention and marketing to increase the productivity of users. This can only be done by products that actually save time for employees and students. It is also important that a third party pays the bill that may not be able to compete easily with similar products making the system complex. Oligopolies, syndicates, strong standardization, government influence can be the result of such a model.

The Scandinavian model is described by the respect to the individual. Responsibilities are shared, but the team can compensate individuals for great work. There is more dependence on the team and society, but less risk as well. Mittelstand sized companies become the norm with a certain level of acclimatization for new employees into the team, but some layoffs as well when the economy is bad. It is difficult to replace such an environment with smaller smartups due to the eventual reliance on standards, and complexity that can be managed with bigger teams easier. Also, focus on the individual may embrace efficiency more than overall work time or product.

Strong individualistic societies are represented by entrepreneurial freedom. There is some level of bureaucracy, but more efficient government services. Such societies cause extreme richness and poverty oftentimes within each individual's lifetime. Savings and investment are more important as a result. Basic services, food become cheaper to cover the fluctuation of demand. Many US states reflect such thinking. The system just thrives in opportunity. The unit of the individualistic company is the project or the startup series, with a fixed term, the community, and plenty of information how to carry out safely with low risks.

You decide when you choose the location of your business. Most countries have more of them in parallel.

You may choose hierarchies, but you need to deal with the narrower customer base, especially at higher priced products like game consoles. You may opt for lifelong racing instead of competition of products, but it may burn out the population giving less work to the elderly. You may focus on individual happiness and team cohesion, but you will need to rely on the workplace too much. You enter a one to zero game that may stop anytime and it is difficult to handle losing a job with attachment emotionally. You may opt for a utopistic equality that can scale products quickly, but you may lose out on the quality and variety of products. Eventually you may be driven by nothing else, but free markets and interest rates, but you need to become a lifelong learner to handle the uncertainty that comes with it.

This article was revised on May 11, 2024.