I sort of imagined it in the same way Liquid described it in MGS1 and a far less complicated version of the war economy in MGS4. It wasn't so much a nation as it is a world where soldiers would always be able to fight, and to that end the world would always be in perpetual war. I bring up the war economy because at the end of the day the proxy wars were tightly controlled and not actual conflicts. Think of the war economy without the control; it becomes a world where only the strong survive.
Outer Heaven is a nation, but I always saw Big Boss' plan as extending that to the entire world, which is why he needed Metal Gear to tear down the systems in place so that war could replace them. Things like trade and diplomatic relationships weren't important to him; all that mattered was that people would fight for what they believed in.
Of course, in practice none of this would work. Big Boss was extremely idealistic about a world in constant warfare, and the reality of such a world is sort of shown in MGS4.
You would think at SOME point someone smart within their ranks would stop and ask how he thinks Outer Heaven would work if it all goes as according to plan and the Patriots were out of the question. Maybe Kaz since he knew when to call the Boss out on his bullshit (especially when he began to add child soldiers and left everyone with a crazy decoy in charge while he went solo), the rest seemed too busy to lick his boots to actually question him. Or that Big Boss would know that the world cant survive on violence and war alone.
Or maybe that was the whole point, Big Boss is "cool" until you slowly realize he is just as insane as he was in MG 1 and 2, he just used to be far more likable.
Edit to avoid double posting.
Here is more to my thoughts.
Am I the only one who realizes what a scary ending MGS 5 has?
Its the reverse MGS 2 ending.
MGS 5- Turns out you arent big boss but a pawn that big boss managed to brainwash into being "him". Now he can sugar coat it, saying that you are him and he is you, that you are both big boss...but lets face the harsh truth, what he is basically saying that you are suppose to be his decoy incase one of you two has to die. So much for Big Boss's love for his men, right? He brainwashed one into taking a bullet for him when the time came, since I doubt Big Boss held his decoy on the same level of importance as himself, I dont see the real Big Boss facing Snake instead of his decoy. Big Boss imposed a new identity on a loyal man with a goal to use him in the future.
MGS 2- Solid Snake pretty much tells Raiden to go out there and build his own identity and that he chooses his own name and destiny. He freed him from the illusion set by the patriots and now Solidus was dead, he could set into the sunset with Rose, having no binds, no names to hold him down.
I guess this is one of the reasons I will always respect Solid Snake more than Big Boss.
It almost feel like the Big Boss trilogy (Snake Eater, Peace Walker and 5) were propaganda to make you think Big Boss was a misunderstood guy (its Kojima, of course there could be a hidden subtext in it) and MG 1/2 showed the true man (an old maniacal soldier that wants the world to suit his incapacity to live in the real world). Of course I could be wrong but still, that ending solidify his transition from John into Big Boss.