Economics of New Colonies

I often play in Jim Wallman’s hard SF games set in the universe he’s created. I’ve been thinking about how new colonies get set up and the sort of funding they need.

There is a lot of infrastructure required to build a viable colony on a new system. Firstly you need to survey it to find a good spot with a reasonable confluence of resources, mining sites, farming space, fresh water, building land and a suitable area for your drop zone and spaceport. Once you’ve done that some cheap housing, utilities, early resource processing plants and factories for essentials have to be built. Once you get to that point you might just start exporting valuable things, although you’ll still need to import lots of essentials, not to mention more people.

I reckon that it is a minimum of two years to get to the point where the exports cover the costs of the imports. At that point the colony investors are probably starting to think about seeing a return on their investment. Using the macro campaign rules as a guide a two year subsistence colony has probably racked up about 200 million credits in debt. The tax take of local government is no more that enough to service the interest and provide some basic leadership and policing. The overall economy of the colony is probably only a little bigger than the debt, perhaps 300 million credits a year. There are probably about 150,000 colonists on the planet (maybe more if there are many dependents with the workers).

So in the normal course of things one would expect the economy to grow with migration and in due course the extra tax revenue would pay back the capital and also provide the additional services that the colony’s people required. There may even be pump priming investment in infrastructure to keep things moving. That said, the people might not come, or the govt could make poor decisions, or there could be some natural disaster. If the colony collapses what happens then? In total failures the banks / investors will just need to write off the debt, while perhaps keeping a nominal ownership of the assets left behind in case a subsequent colonisation effort wants to take over.

There might not be a total failure, in which case a restructuring of debt would be required. Although depending on the reasons there might be difficulty getting more money.

Another thing that could happen is a conflict with another colony in the same planet, especially when better developed worlds realise that they would be better off as a large single entity in gaining access to trade agreements with other interstellar groups.

What happens to state debt when another state takes it over?

In the case of a hostile takeover (either a war or a share buyout) there will be an expectation that the structural debt will be taken on by the new management. The banks will insist on this, and if the new management doesn’t agree then they will treat it the same was as defaulting on the loan payments.

Refusing to make payments against a loan has serious consequences and it is to be avoided. If times are difficult it is expected that the colony management will talk to the banks and/or investors to either extend the payback time or raise sufficient funds through other means to ensure that they continue to properly service debt in an agreed fashion.

Any colony that defaults can expect the following to happen:

• no further lines of credit will be opened, so all capital expenditure will need to be paid for up front, also future interest rates will be higher to represent the increased risk of default
• imports may not be possible, except perhaps at black market rates for items
• prices on exports may be lower than expected (and indeed cargoes may be seized in lieu of debt interest and/or capital)
• Enforcement action may be taken to seize colonial assets, especially movable ones (although a colony with strong armed forces may find this won’t happen)
• Other colonies in the same system may come under pressure not to co-operate, similarly trade agreements may be suspended or even revoked.
• In extreme cases an interim management may be installed, possibly by a major polity if the colony is sufficiently well off to have attracted attention.
• Immigration is likely to slow down, and colonists are more likely to leave the colony