Laissez-Faire = Industrial Collapse?

[Hamza]

NATION: Chile

SCENARIO: Grand Campaign

YEAR: 1877

EXPERTISE LEVEL: Victoria II newbie (this is my first real game)

ISSUE: The unavoidable march towards free market liberalism is destroying the Chilean economy. There's nothing I seem to be able to do to avoid, or successfully transition to, Laissez-faire economic policy, without every industry collapsing and ~140,000 people becoming unemployed. My game is effectively at a standstill, and I need help.

Since the start, my Chile has been under the rule of CONSERVATIVE-INTERVENTIONISTS. Under my benign guidance, Chile has fully industrialized with several L10+ factories and numerous small firms. I'm the world's #1 producer of canned food! Additionally, all but my artillery factory are vastly profitable and unsubsidized (!). I have low (~10%) flat taxes and low (~19%) tariffs. I have $42.3k in savings and a daily income of ~$9. I have unemployment insurance and pensions. Chile is a paradise.

Yet my people are ungrateful, and seem determined to overthrow the government. Within ~6 months of the liberal takeover, most of my factories are shrinking or have collapsed. Is Laissez-faire broken? How do I prevent a takeover? Or how do I get Laissez-faire to work?

 

[unmerged(262687)]

LF's only good point is that it's marginally cheaper for capitalists to build something (I think). If money isn't a concern, then find a party with Interventionist as their policy.

Are you a democracy? If so, that sucks because you can't change parties. Try to encourage reactionary rebels to get a Presidential Dictatorship or Absolute Monarchy. It's probably too early for you to get socialist or communist rebels, but if they're available, they'll do too. If you're stuck with a democracy or booshwah dictatorship, I guess just try to research all the efficiency and railroad techs.

As for how your industry could collapse so quickly, did you have an anarcho-liberal or Jacobin revolution? Or did you just switch parties from the politics tab? If you had a revolution, you may have lost enough prestige to put you below some other country that is buying up all your industrial inputs. Additionally, there are some major market changes that occur in-game around 1880 that are very hard on industry.

 

[Hamza]

Chile is a fairly robust Democracy at game start and that hasn't changed, so I can't change parties. I wonder if I can manipulate things during elections to push back from Laissez-faire in a new game. What's fascinating in Vic2 is that in Vic1, speedboating to LF/Free Trade made your country an instant superpower. Vic2 is so different.

 

[unmerged(231331)]

I am always trying to get Laissez-Faire. I hate building and upgrading factories by myself. With LF industrialisation goes really slow in the beginning, but from the middle game capis are building and upgrading factories very fast and economy is booming.

 

[Mammoet]

Maybe it's due to your tariffs?? 19% is very high I think... I always try to set it as low as possible and only use it when I can't get enough money through regular taxes.

 

[Hamza]

19% is high?! That can't be true -- can it? The strategy guide I downloaded for Vic2 (written by the guy who wrote the manual, apparently) tells me that tariffs are a pretty good way to go; that in fact, many nations, the US included, financed the government through tariffs entirely, with 0% taxes.

 

[Vainglory]

19% is high?! That can't be true -- can it? The strategy guide I downloaded for Vic2 (written by the guy who wrote the manual, apparently) tells me that tariffs are a pretty good way to go; that in fact, many nations, the US included, financed the government through tariffs entirely, with 0% taxes.

Reality and Victoria 2 aren't on speaking terms right now.

For example, in the real economy we don't build far more goods than there is demand for, and when they don't sell by the end of the day, throw it into the sea and do it all again tomorrow.

Tariffs increase the cost of your factories' inputs. Hence they're less profitable.

I've had great success with L-F as Germany post 1900.

That said I think rather than cheaper factories, L-F should grant an efficiency bonus for factories and RGOs. In reality the free market is more efficient than the government.

 

[unmerged(247071)]

19% is high?! That can't be true -- can it? The strategy guide I downloaded for Vic2 (written by the guy who wrote the manual, apparently) tells me that tariffs are a pretty good way to go; that in fact, many nations, the US included, financed the government through tariffs entirely, with 0% taxes.

No, that's changed: 19% is now quite high (although I'm charging high tariffs in my current game because I want to make sure that my sphere will buy some of MY goods); If you're waiting for your capis to build/expand factories themselves, you probably want to be taking tariffs the other way, past zero into negative figures... a bit like subsidising poorer factories, in a way, although more of a "broad strokes" approach. Haven't heard of the tariff-only-no-taxes approach, though; It sounds fair enough in theory, but in the game you set the same duty on all externally-sourced goods, and would have little control of promotions between strata.

bloviator, factories are maybe 1/3 - 1/2 cheaper to build under L-F than with Interventionism. I think it does give a small-ish (+5%?) bonus to factory output as well, though. Still not enough to sway me from Interventionism or State Capitalism, though, given the sometimes outright idiocy of the AI when it comes to building and prioritising factories...

Tariffs increase the cost of your factories' inputs. Hence they're less profitable.

AFAIK, tariffs only affect the prices of goods bought on the world market. Anyway, if they didn't, since in the V2 economy you're primarily producing for your own pops (and potentially sphered nations) thanks to the massive surplus of just about every-god-damned-thing produced by the UK, for the most part your factory inputs costing 15% more shouldn't detract from the net profits of the outputs, which should sell at the same level of mark-up (to your own pops)

 

[Vainglory]

AFAIK, tariffs only affect the prices of goods bought on the world market. Anyway, if they didn't, since in the V2 economy you're primarily producing for your own pops (and potentially sphered nations) thanks to the massive surplus of just about every-god-damned-thing produced by the UK, for the most part your factory inputs costing 15% more shouldn't detract from the net profits of the outputs, which should sell at the same level of mark-up (to your own pops)

Sorry, my bad, was way too general with that statement. As you say, only when bought off world market does the tariff apply. Even imports from sphere aren't subject to tariff.

I have no idea what proportion of inputs are purchased on the world market for an average nation but for Chile I'd think quite a bit as compared to a late-game GP with colonies. It's important because the world market sets prices so if there's an oversupply from big producers the price will fall a fair bit. If you put a tariff on imported inputs then the profit margin will be lower, potentially no profit at all if the WM price is low enough. Having no tariff will result in a higher margin for the factory IF it is importing inputs. If you have reverse tariffs (don't call them subsidies causes confusion with factory subsidies) then you would increase the margin for input importing factories even more. Considering your POPs get first chance to buy items, before govt. and factories, there's a good chance many factories - particularly canneries - are importing their inputs unless your RGOs/Factories make heaps of them.

Furthermore, tariffs in V2 don't protect your industries at all and unless I'm much mistaken, even putting "reverse tariffs" on imports such that they're cheaper than domestic production doesn't hurt your industry. Again, unless I'm much mistaken your POPs buy their needs from your country first. Only if you don't make enough of their needs do they buy from WM. Basically the game already has perfect protectionism in that sense. It's only really undermined by a lack of demand and often a WM price below cost if you're behind on techs. Reverse tariffs would alleviate that (albeit drain your budget).

bloviator, factories are maybe 1/3 - 1/2 cheaper to build under L-F than with Interventionism. I think it does give a small-ish (+5%?) bonus to factory output as well, though. Still not enough to sway me from Interventionism or State Capitalism, though, given the sometimes outright idiocy of the AI when it comes to building and prioritising factories...

L-F grants +10% output to factories and capitalists only have to pay the base price for construction of factories. For interventionism and state capitalism they have to pay 50% and 100% more to build factories.

I kept appointing interventionist governments or even state capitalists until IIRC 1900 in my Germany game. I found L-F was excellent from that point on but of course I had guaranteed inputs as such a large nation I guess, plus lots of techs to make my production competitive with the most advanced nations, and dedicated customers in a big sphere. I didn't have to micro anything, that was great.

I think L-F comes into its own with big nations, late game, by eliminating monstrous micromanagement. With small nations and particularly early game it's broken. Late game the capitalists have many options to pick only profitable factory types instead of picking ones that go bankrupt. Rarely, if ever, had factories go bankrupt in my post 1900 Germany with L-F.

 

[Seek75]

The only time I've found laissez-faire to be very effective was when I took India from GB as Germany, in which case...well, ya. 'Nuff said.

 

[Hamza]

Thank you so much for the quality feedback. The problem has been me screwing with tariffs all along. I thought 19% was extremely low, but apparently it's not. Yes, as Chile, I'm mostly buying raw goods off the world market and selling back finished goods -- classic "free trade". Except, free trade limits the tariff modifer to 25%. So naturally, I thought 19% good governance! I'll try my next game taxing, not tarifing.

That seems incredibly ahistorical. When's the next Victoria Improvement Pack coming out, OHGamer? ;-)

 

[unmerged(266307)]

To the OP, I've had huge success with L-F. As Germany, and predominantly with L-F, I got my IP to around 400, with little help (except for here and there, and maybe at the begginning, I can't remember). It then stagnated and needed a bit of encouragement, but I was the 4th (and at one point 2nd) largest industrial power in the World. I used encouragement for Craftsmen, so I don't know if Chile has enough NF to do that, or even enough pop (to become craftsmen). I did have, well, rampant, unemployment (Why are there craftsmen in colonies? They can't have factories!) but it wasn't too bad, and I surpassed Britain as the most powerful (militarily) nation. So no, L-F does not kill your economy. What I want to know is, how does a factory get pass T-5? I thought that was the limit?

 

[Hamza]

No idea. My capitalists keep expanding them in Santiago State. I've got a L12 canned food factory and a L9 beer factory, among many other smaller firms, about 40% founded by Capitalists.

Maybe it's because Chilean capitalists all live in the Andes. They're used to stacking things on top of other things, like mountains do.

 

[unmerged(262687)]

You're right that LF is a viable economic policy late game, large country with a sphere, but even then I haven't found that the added efficiency is worth anything. If you're big enough to persistently be a GP with a sphere, you should have no trouble getting all the efficiency techs while still maintaining military parity.

Interventionism is still the better choice here. Even as GP, large sphere Scandinavia I still had to subsidize new factories for at least a week or so before they would turn a profit. Under LF, they would lose money the first few days and then close. That might be a unforeseen problem on the part of the developers. On the other hand, interventionism also allows you subsidize a military industry that might otherwise never come about. I discovered tanks very early, and the only way to actually build one was to keep a few factories under constant subsidy. Additionally, interventionism will allow you to de-clutter your production tab by trashing all those closed clothes/fabric/clipper/fertilizer factories, and to cancel construction of new ones.

I imagine that LF would be useful for massive countries, like China or Russia or the UK, and perhaps in certain games that have lots and lots of economic development the efficiency and build bonuses can be decisive, but I haven't encountered that.

 

[unmerged(262687)]

No idea. My capitalists keep expanding them in Santiago State. I've got a L12 canned food factory and a L9 beer factory, among many other smaller firms, about 40% founded by Capitalists.

Maybe it's because Chilean capitalists all live in the Andes. They're used to stacking things on top of other things, like mountains do.

I think capitalists are hardcoded to prefer expansion over new factories, because by the time they become useful, many states already hit the 8-factory limit.

 

[keynes2.0]

NEVER have tarrifs as LF. Have negative tarrifs and raise taxes to pay for them (or run a deficit until you get a new government.) Tarrifs absolutely kill industry while taxes dont (unless you tax enough to make your people stop buying). Still, to make LF work you need to prioritize output efficiency increasing techs (not just throughput like railroads). Also keep in mind that some industries just wont be viable in LF because there isn't enough demand.

It also helps to sphere large countries to get them to buy from you.

 

[Talq]

The particular problem with tariffs in your situation is that you are probably importing most of the raw materials for your factories. So you are paying 19% more for your inputs, which shrinks the profit margins on your outputs. One doesn't want to delve too deeply into the 'unhistorical' argument but put simply the situation of a large economy (like the US or Germany) using largely their own raw materials and a small economy (like an industrial Chile) importing (and taxing) large chunks of what it needs is... not likely to be similar.

 

[Patton509]

No, that's changed: 19% is now quite high (although I'm charging high tariffs in my current game because I want to make sure that my sphere will buy some of MY goods); If you're waiting for your capis to build/expand factories themselves, you probably want to be taking tariffs the other way, past zero into negative figures... a bit like subsidising poorer factories, in a way, although more of a "broad strokes" approach.

Tariffs are completely broken in my opinion. They do not promote home industrial growth because there is no competition. Home products sell at world price not world price + tariff so the tariff does not give home products extra profit. This is particularly bad under laisez-faire because as has been pointed out tariffs raise input prices, which they should not apply to raw materials. Pops can only save if luxury good needs are met. So tariffs make it harder for capitalist to save because luxury goods are more expensive. Furthermore increased input prices mean less income for capitalist than they otherwise would have because you are paying say 19% more for imported inputs. Less savings = less new factories and railroads. Higher input prices might actually cause factories to close.

Histrorically, tariffs may have brought about development in home countries because home factories could charge higher prices and make up for the demand that was once met by the world market. In the game it just shoots the country in the foot because tariffs=less factory profits and less savings to capitalist. So your investment is actually less than what it would be without tariffs. Whereas there are schools of economic thought that argue the nation as a whole is better off without tariffs I don't know of any who argue tariffs actually decreased domestic investment and production as they do in the game other than through nations raising retallitory tariffs.

Tariffs are just plain broken as it is. At the very least they should apply only to industrial outputs. In a more perfect model they would allow the home price for industrial goods to rise to something close to world price + tariff and give extra profits and therefore incentive to invest in home industry.

 

[Patton509]

NEVER have tarrifs as LF. Have negative tarrifs and raise taxes to pay for them (or run a deficit until you get a new government.) Tarrifs absolutely kill industry while taxes dont (unless you tax enough to make your people stop buying). Still, to make LF work you need to prioritize output efficiency increasing techs (not just throughput like railroads). Also keep in mind that some industries just wont be viable in LF because there isn't enough demand.

It also helps to sphere large countries to get them to buy from you.

The game should have tariffs work, with tradeoffs, for laissez faire. It needs some incentive for tariffs to cause factory expansion. In RL, the higher domestic price of foreign goods does that. At least in ideal, a fairly LF government like the US could place tariffs to give incentive for domestic industry to grow. Since foreign goods can never directly compete with foreign goods the tariffs does not do this in the game. The US does not buy British goods because they are cheaper. The US only buys British goods when there are not enough US goods to meet demands. So a tariff gives no incentive to produce more. Tariffs also cause less production due to input prices rising, cp. Tariffs should not apply to raw materials there is no reason to do. Almost every nation has to input some materials and few nations can provide for large industries with just the resources in their empire. At least that way, if you have a large nation like China you can use tariffs as a weapon to decrease profits of the world powers and therefore slow their industrialization without hurting your industrialization, other than through possible retaliatory tariffs, if you are civilized.

Although the system may not be completely broken, if the UK is far ahead enough in tech and industry they can put US industry out of business by flooding the market and lowering prices world wide. Tariffs can help stop because at least in for instance British exports will be less than otherwise so the lack of sales due to tariffs and the dropping of prices should hurt British profits and provide a counter to the incentive for industry expansion. It should if supply responds to prices well enough slow down the British ability to flood markets if enough nations or large enough nations use tariffs. Whether or the game mechanism effectively does this depends on how well supply and demand respond to price. So far the amount, particularly of raw resources, that are thrown in the sea is indicating something is wrong somewhere. It could be as simple as the fact price is not allowed to move enough.

 

[Patton509]

A little OT for this thread but do we have any data for multi-player games where a human plays GB and we have enough humans to control most of the economy through the GPs? I am just curious to see if the economy "works" quite differently. If the problems are uniquely single player then it is not so much pricing systems that are a problem as it is the AI is doing a horrible job with things like tariffs, taxes, subsidies, and perhaps what industries to build.