Decentralisation of economic power

DECENTRALIZATION OF ECONOMIC POWER

 

People must be granted the fulfilment of their fundamental right to create sustainable communities and to control their own resources, economies, and means of livelihood. In turn, these rights are influenced by their choice of which cultural values they will embrace. A globalized economy in its present form denies these rights, by transferring the power to make the relevant choices to global corporations and financial institutions. It does not serve human interest.

The theories of both capitalism and communism accept the aphorism, “He who control the gold, rules.” Communist theory proposed worker control of the means of production but never cared to implement it. Adam Smith implicitly made the same assumption in his vision of an ideal market economy comprising small farmers and artisans – circumstances in which owner, manager, and worker were  supposed to have basically the same value. However, capitalism persistently transfers property rights to economic oligarchies and financial institutions that are largely unaccountable even to their owners. On the other hand, communism vested property rights in a distant state and denied the people any means of holding the state accountable for its exercise of those rights.

“Today with the euphoria of globalisation, the Bretton Woods institutions, the IMF (International Monetary Fund), the World Bank and the World Trade Organisation (WTO) are the administrative structures, the regulatory bodies that are operating within a capitalist system and responding to dominate economic and financial interests. What is at stake is the ability of this international bureaucracy to supervise national economies through the deliberate manipulation of the market forces.

As a result, national economies are interlocked, commercial banking and business ownership (controlled by some 750 corporations) transcend economic borders, international trade is integrated and financial markets around the world  are connected through instant computer link-up. The present crisis is far more complex than that of the inter war period; its social consequence and geo-political implications are far reaching in the uncertain aftermath of the Cold War.

The movement of global economy is regulated by a world-wide process of debt collection which constricts the institutions of the nation states and contributes to destroying employment and economic activity. In the developing world, the burden of external debt has reached two trillion dollars (World Bank, World Debt Tables 1994-95.): Entire countries have been destabilised as a consequence of the collapse of national currencies, often resulting in the outbreak of social strife, ethnic conflicts and civil war.”1

In this system of globalisation in its present form, the expansion of exports in developing countries is predicated on the contraction of internal purchasing power.  The purchasing power of the majority is decreasing. Emerging markets are opened up through the concurrent displacement of a pre-existing productive system, small and medium-sized enterprises are pushed into bankruptcy or obliged to produce for a global distributor, state enterprises are privatised or closed down, and independent agricultural producers are impoverished. The global economic system is thus characterised by two contradictory forces: the consolidation of global cheap labour economy on the one hand, and the search for new consumer markets on the other. The former undermines the latter. The extension of markets for global corporations requires fragmentation and destruction of the domestic economy. The barriers to movement of money and goods are removed, credit is deregulated, and land and state property are taken over by the international capital.

The current means of exploitation are either achieved through the  imposition of religious dogma and its associated values, as happened in Afro-Asian countries during the colonial era; or by the imposition of materialistic pseudo-culture, consumer psychology and hedonist beliefs. A complete change in the structural system is needed in order to dilute the centralisation of economic power and eradicate politico-economic, socio-economic and psycho-economic exploitation. Prout proposes the following alternative to decentralize economic power.

Socio-economic zones (Samaj)

In order to create a really free society, self-sufficient socio-economic zones need to be created.  These socio-economic zones should be drawn up on the basis of:

  • a. Cultural similarities
  • b. Ethnic similarities
  • c. Similarities in the economic potential for self sufficient.
  • d. Similarities in economic standard and problems

It has been mentioned earlier economic development is dependent on psychology, educational pattern, sentimental legacies and infrastructures. Take for example the Ewe people of Africa. As they are spread all over Ghana, Togo and Benin, they can be brought under one socio-economic zone. Similarly, Biafra or Eritrea should be separate economic zones.  Similar examples can be found in India, Europe, and South America. The whole earth can be divided into about 250 socio-economic zones (not necessarily separate political states). The suppression of language and culture is a tool for economic exploitation.

The formation of economic zones will ensure the following:

  • Free expression of the culture and sentimental legacy of the people.
  • A Guarantee of the minimum requirements of life to each member of society by creating full employment.
  • The facilitation of social justice.
  • The restoration of domestic enterprises by restricting the monopoly control by the MNC’s.

These self reliant economic zones must not necessarily be separate political units. It may be possible that many socio-economic units can be formed within a political unit as in the case of India, or many political units can unite to form a economic unit, as in central America and Southeast Asia.  Economic zones comprising unequal economic standards are bound to be disastrous for the poorer nations, and hence are opposed by Prout. NAFTA will cause an economic debacle for Mexico.

The boundaries of the socio-economic zones will expand on the basis of:

  • 1. Cultural blending
  • 2. Economic similarities
  • 3. Good communication links
  • 4. Strong and efficient administration

For example, in future the whole of Southeast Asia, or the whole of Central America may become distinct socio-economic zones. To be a self-sufficient socio-economic zone does not necessarily require that zone to be able to produce all the commodities for its basic requirements, although this should be the ideal. However, each zone must at least have the capacity for basic production, which will enable it to maintain its balance of payments. For example, Middle East countries may not be able to produce all their necessary food or technical goods, but they may earn sufficient revenue through oil. The interrelation between socio-economic zones should be of complementary nature.

This will facilitate:

  • a. The balanced growth of the economy
  • b. The uniform rate of employment for the local people
  • c. The ready availability of consumer goods
  • d. Eliminating the corruption of centralised control.
  • e. Checking the flow of people towards more developed areas
  • f. Ending economic dependence of one economic zone on another, facilitating more political stability.
  • g. Curtailing monopoly control of the economy.

 

Decentralised control of means of production

 

Essence of economic democracy

In his treatise, Marx elaborated on the alienation of labourers in the capitalist mode of production, which is quite evident even today. “Within the capitalist system all methods for raising the social productiveness of labour are bought at the cost of the individual labourer; all means for development of production transform themselves into means of domination over, and exploitation of, the producers; they mutilate, labourer into a fragment of man, degrade him to level of appendage of a machine, destroy every remnant of charm in his work, and turn into a hated toil; they estrange from him the intellectual potentialities of the labour process in the same proportion as science has incorporated into it as an independent power.” 2

       The whole system of alienation that has been enforced by the capitalist system, that defines the private control of means of production, acquisitiveness, the separation of labour, capital and land, exchange and competition, value and devaluation of humanity, monopoly and competition, and the fiscal system, needs total transformation. This change needs to come about in order to realize a socialistic society that contradicts the authoritative control of means of production introduced by communist states.

Socialism in the Proutistic sense is a process of the abolition of alienation by introducing social control of means of production. The capital or means of production should become social capital. This can be termed as humanistic socialism.

Industry

To diffuse centralised control and to introduce decentralisation or socialisation of economic power or control of the means of production, Prout proposes the following system of management in industries:

  1. Key and large-scale industries: Those industries producing basic raw materials which are subsequently used in other industries: steel and other metallurgical products, coal, oil and other forms of energies, heavy capital goods, etc., should be controlled by the provincial or local government. The Central government should remain free from economic control as far as possible. Industries for defence production and atomic and other highly risky industries may be controlled by the central government. Large scale industries need complex management systems which are not possible for a cooperative to provide, hence they should be government controlled.
  2. Medium scale industries: All industries for essential items must be run on a cooperative basis. This includes textiles, building materials, engineering, automobiles, and other consumer industries. These cooperative industries should develop as associated industries with key industries. For example, around the key industry of petrol, cooperatives of the petrochemical industry may grow. Similarly, around a yarn industry, textile cooperatives can flourish; various engineering industries may grow around steel and other related mineral products.
  3. Small scale industry: This sector will include cottage industries, small agricultural farms, restaurants, handicrafts, repair shops, and services. These will be under individual ownership, as here personal skill is an important factor. Such enterprises may be under single ownership or partnerships.

Cooperative system

The main purpose of the cooperative system is to abolish the distinction between labour and owner. In this system the means of production or capital become social capital, and each active member receives remuneration according to his or her labour. The net profit is shared by the members of the cooperative. This automatically eradicates alienation within an enterprise, but contradictions can still arise between the productive cooperative and the selling agent. To avoid this, sellers’ and consumers’ cooperatives should also be introduced.

A question may arise about the style of management of cooperative industries – especially that of big cooperatives. Take for example an automobile industry. One or more components of different manufacturing units can be developed as autonomous cooperative units. The cooperatives of each component part should grow around the assembly line, which will itself be a separate cooperative unit, so for different component parts there will be different cooperatives.  The assembly line can fix the quota of production, and there can be a quality control department to check the quality of production.  The prices of component parts will be determined and each unit will earn as per its quantity of production on a piecework basis. Each unit will contribute to maintain a research department

The administrative system of each cooperative will be as follows: certain members will be elected by members of the cooperative on the basis of ‘one member, one share, one vote’.  Apart from this, certain members will be selected by the management from the technical experts to form the board of management. There will be a social board outside the cooperative to supervise the constitutional functioning of the cooperative, without the power to intervene in day-to-day activities.

Profits should be divided proportionately among the following categories: for taxation and self-financing; as bonuses to its members; and also a portion should be allocated to compensate for social costs of the community.

In this way, the decentralisation of the locations of industry and management can be achieved.  The managing agency system should be abolished, as well as the centralised control of industries.  Through massive and systematic educational programmes, the proper psychological and technical aptitudes, initiative and entrepreneurship can be infused into the minds of millions. Only then can true socialisation of the means of production and economic democracy be achieved.

At this moment it may not be possible to introduce the cooperative system in developing and underdeveloped countries because of lack of cooperative consciousness. During the transition period it may not be feasible to include the workers in the management process, but for rational distribution of the profits, a bonus system or piece rate system should be introduced.

Agriculture

Agricultural systems throughout the world vary considerably in their method of application.  Land policy is not the same everywhere; rather it can be said that variations can be very wide. With the introduction of highly mechanised systems, agriculture may also be considered on the same par as industry.  While introducing any new system, the socio-psychological pattern of the society has to be taken into account. In developed countries, agricultural activities are carried out with highly sophisticated machinery, while underdeveloped countries are still staggering along in the age of primitive equipment. In some countries there is no restriction on  the acquisition of land, while in others, land is state property.

Considering all these variations, Prout presents the basic tenets of its agricultural policy. But it must be borne in mind that the method of introduction will definitely vary with the changes in time, place and person. As mentioned earlier, Prout supports socialisation of property.  This should be implemented in the agricultural sector also. Generally, people have a strong sentimental attachment to their land. Forcible seizure of land will definitely create disastrous results, as was evident in the Stalinist era of Soviet Russia. Prout does not support a government- controlled collective system as was introduced and practiced in Soviet Russia. China gradually deviated from this practice and implemented private control of farming.

The ownership of land should not be abolished, but farming should be brought under the cooperative system, and a land ceiling should be introduced considering the input and productivity of the land according to its varying fertility and the local climate. A minimum ceiling should be fixed according to the economic holding of a particular place and the criteria of minimum requirements.

Economic holding denotes that the output should be more than the input. There is no justification of creating big cooperative farming and registering a 15% loss, as was done in Russia. A maximum ceiling should be fixed considering the quality of the land, agricultural facilities, efficient management, and the social acceptability of the maximum income limit.

The distribution of land is only the first step; the cooperative method of farming should be introduced gradually. In the first phase, all uneconomic holdings should be included within the cooperative. The original ownership of the land will remain, but farming will be carried out jointly by the members of the cooperative. Demarcation of the land will disappear. Owners will enjoy their share according to their percentage of landed property, and labourers will get their share according to their labour. The landowners will get 25% and the labourers 75% of the profits.  In the first phase, economic holdings will be spared from joining the cooperatives.

In the second phase, everybody will be asked to join the cooperatives.  In this phase also, ownership will remain.  In the third phase, there will be redistribution of lands considering one’s minimum requirements and one’s capacity to produce.  In this phase, the distinction between owner and labour will disappear. Nobody will be allowed to own land unless labouring as a member of the cooperative.

In the fourth phase, all land will be the property of the cooperatives.  Ownership of land will become a theoretical proposition. Everybody will earn according to one’s labour alone. It will take time to introduce this fourth phase. Without creating an internal urge for such change, external pressure would create a disastrous result. Without considering the psychological aspects, Russian leaders tried to create collective farms by force, causing famine and civil war.

Agriculture is quite advanced and modernised in developed countries. The reorientation of policies may not be felt immediately except for their capitalist character. But underdeveloped countries need immediate reform of their land and agricultural policies as a first step for creating a sound economic foundation.

It should be remembered that the criterion of agricultural policy is not to enable someone to own a piece of land. The main criteria should be the economic development of rural areas and fulfilment of the minimum requirements of everybody. To decrease the pressure on the land, only 30 – 40% of the labour force should be engaged in farming.

Agricultural tax should be collected more in terms of materials produced than in actual of money. This will facilitate immediate collection of taxes without having to wait for the sale of products, and will also enable the creation of buffer stocks of grain in poorer countries.

 

State Participation in Economic affairs

 

State participation in production and maintenance

  • The State should manage all public utility services – railways, post,                                                       energy, the production of raw materials, power generation, water supply, sanitation, housing etc.
  • Service projects like educational institutions, hospitals, medical insurance,  construction of roads and bridges, docks, heavy industry, forestation, ecological matters, etc.
  • Defence and atomic energy
  • The State must control monopoly and speculation.

 

The responsibility of the State in consumption

  • Prevent the circulation of noxious articles such as drugs.
  • Protect consumers from fraudulent practice.
  • Ensure the proper supply of daily necessities.
  • Exchange and distribution.
  • Should control credit through a Central Bank that will remain responsible for the money supply and should develop a consumer cooperative system for the distribution of essential commodities.
  • Introduce a wage and price policy.
  • Introduce a sound taxation policy.

 

Demarcation of economic responsibilities of Central,

regional and local governments


Central government

Central bank, credit policy, currency, post and telecommunications, railways, international trade, defence production, atomic energy and macro-economic policy.

Regional government

Production of basic raw materials, power supply, irrigation projects, roads, bridges, docks, educational institutions, hospital, forestation, housing, micro-economy, insurance, agrico-industries, ecology, etc.

Local government

Water supply, sanitation, hospitals, primary schools, road repair, social welfare, small irrigation projects, ecology etc.

Private sector

Small-scale farming, small scale industry, cottage industry, agro-industry, hotels, small businesses like tailoring, salons, etc, industries for non-essential consumer goods, local transport.

Cooperative Sector

Medium industries for essential items, farming, agro industries, consumer cooperative, local transport etc.

All sectors – public, private, and cooperative should be complementary to each other. For example, textile and engineering cooperatives can be developed around a local government-controlled yarn or steel factory, respectively.

 

Banking

Functions of the Central Bank

  • ?          Controls the volume of currency and credit, pumping in more money when the market is dry of cash, and pumping out money when there is an excess of credit.
  • ?          Controls the issuing of bank notes.
  • ?          Is the banker of the government, and manages public debts and government accounts.
  • ?          It acts as the ‘banker’s bank’, as all commercial banks must have some deposits there.

Generally, central banks are government controlled. But in Germany, the Bundesbank was an autonomous body, and its function was to control the money supply so that inflation did not rise above 4%. After the introduction of the euro, the European Central Bank now controls the money supply, and is not under any government. No government under the European Union is allowed to make a budget deficit of more than 4%. The policies of all government banks of the EU are subordinate to the  European Central Bank. This is an example of centralisation of economic power, and is not supported by Prout. Each economic zone must have the freedom to pursue its own fiscal policy and monetary policy. The central banks in each country should be under government control, free from the influence of big corporations.

Commercial banks should be under social control, with civic society, government and the bank management forming the board for policy management – without the power to interfere in the day to day management – which would be the responsibility of the bank management.

World Bank

Prout proposes the formation of a World Bank, but this differs greatly from the present one in both structure and spirit.

The International Monetary Fund (IMF) and the World Bank were set up in 1944, at the end of  World War II, in Bretton  Woods, USA. After this war, the USA emerged as a successful victor in political and economic terms and was looking for new and growing markets and sources of raw materials. War-ravaged countries like Germany were in dire need of capital to revive their economies. The USA managed to force interest against rival industrial countries weakened by the war, and to anchor these interests in the structure of the new world monetary system, leading to the creation of the twin institutions, the IMF and the World Bank (WB). The IMF started its operation in 1947 and the WB in 1946.

The IMF and the WB does not follow the rule of ‘one country, one vote’; it operates on a system of weighted voting. Voters are allocated according to the quota that each country has paid to the fund. The lion’s share of votes is taken by the five industrial countries, led by the USA. The USA can block any major changes in policies because such a change would require 85% majority, and the USA has 19.3% votes.

The policies of the Proutistic World Bank will be more democratic, and will be designed to help the poorer countries in capital formation.

 

Trade and commerce

Today, the monopolistic control of markets both on international and domestic levels is clearly visible. Big market chains are influencing the market to counter pure competition and perfect competition.

  1. Pure competition: this exists when the following conditions are satisfied:
  1. Many Firms: The number of seller and buyers is so large that no individual can influence the market price.
  2. Homogenous products: The produce of all the sellers are identical.
  3. Free entry and exit: The no obstacle, legal or otherwise. To the entry of new firms into industry or selling market or the exit of any of the existing one. Viz:  vegetable markets.

Pure competition in the simple sense means when the competition is unalloyed
by monopolistic elements

  1. Perfect competition:  in addition to the above three conditions,  the following requirements must be met:
  1. Perfect knowledge on the part of buyers and sellers about the flow of the market.
  2. Absence of discrimination between buyers and sellers.
  3. Perfect mobility of the factors of production.
  4. Transport costs are ignored.
  5. There is little difference in impact on the market between competitors.
  1. Imperfect competition:  when large companies with all their money, power, fair and unfair means, try to destabilize the products of smaller indigenous firms. Due to imperfect or unequal competition, small enterprises everywhere are closing down.
  1. Monopolistic competition: this exists when there is a large group of firms producing commodities similar to each other but not identical. This is a situation between pure competition and pure monopoly, as in the production of different varieties of sweets, soap, and similar items.

All trade practices which create imperfect competition and unethical monopoly control, should be abolished. The following figures indicate the extent of such monopoly control:

  • Seventy percent of world trade  is now controlled by just 500 corporations, which also control 80 percent of foreign investment and 30 percent of world GDP.
  • Shell Oil’s gross yearly income around $120 to 130 billion is more than the total GDP of Tanzania, Ethiopia, Nepal, Bangladesh, Zaire, Uganda, Nigeria, Kenya and Pakistan combined. About 500 million people inhabit these countries.
  • Cargill, the Canadian grain giant, alone controls 60 percent of the world trade in cereals.
  • Just 13 corporations supply 80 percent of all automobiles; and five of them (General Motors, Ford, Toyota, Nissan, Peugeot) sell half of the vehicles produced each year.
  • The Economist reported that in 1989, global corporate spending for advertising totalled more than $240 billion. Another $380 billion was spent on packaging, design and sales promotions.  Together these amounted to the equivalent of $120  for every single person in the world. Advertising  expenditures have multiplied nearly sevenfold since then – one-third faster than the world economy.

 

Prout proposes the following:

  • All items of daily necessities should be produced within the economic zone and should be distributed through domestic trade. Food can be imported if it is not produced sufficiently within a economic zone, or if it does not jeopardize local farmers.
  • As far as possible, all items of daily necessities should be distributed through consumers’ cooperatives, especially wholesale markets. Retail shops can be individually owned.
  • Raw materials should not be exported or imported; only the finished product.
  • Within economic zones of similar economic standard, a free market can be allowed, but not between a rich country and a poorer country like the USA and Mexico. (The entry of ten East European countries to European Union (EU) is showing adverse effect in economic developement for those countries.)
  • Monopoly control on prices and supply by big corporations should be prohibited.
  • Product patents as proposed in TRIP (see previous chapter) should be annulled, and only process patents should be accepted.
  • Only when a parity in economic standard can be achieved worldwide, sufficient purchasing power attained, and a balance between production and supply achieved, can the whole earth be accepted as a free trade zone. In this case, there will be not only a free flow of goods and services, but also a free flow of people.  Naturally, multinational corporations will be diluted, if not dissolved by the time this scenario is realised.

The Cooperative system

There are four types of cooperatives: producers’ (both industrial and firming), consumers’, financial, and sellers’ cooperatives. Although it is difficult for producers’ cooperatives to succeed in a capitalist economic system, some experiments are going on in various European countries. To make producers’ cooperatives successful, changes in traditional laws are needed, as well some protective armour through legislation. Also, cooperative consciousness needs to be aroused for the success of this type of cooperative. It is essential to generate a moral consciousness to free the capital from corporate control and introduce social control of capital; to realize that to guarantee the minimum requirements for all is the responsibility of the society.

Trade and Cooperative system

Let me cite some examples of modern trade practices:

In India (Bengal), farmers produce jute and sell to the jute industries. These industries employ labourers to produce jute products, and export them. In this case, the farmers earn the minimum and the owners of the industry get the lion’s share. To change this unjust system, farmers should form farmers’ cooperatives and sell jute to the producers’ cooperatives with a clear contract on the distribution of the profit. The producers’ cooperatives in turn will sell to the sellers’ cooperatives, who in turn will sell to the retailers’ or consumers’ cooperatives. Relations between all cooperatives should be interlinked to ensure rational distribution of profit.

The following table (Table 1) shows the pattern of current distribution of earnings within a main Bangladeshi export industry – garments:

The distribution of earnings of one dozen shirts produced in Bangladesh Amount in US $    Percentage of sales price
Earnings accruing to Bangladesh

8.00

2.7

1.1 Wages

5.00

1.7

1.2 Net industrial profit

3.00

1.00

Gross commercial profit, rent, and other distributor income

210.00

71.8

Total retail price (including sales taxes)

292.00

100.0

Table 1: Distribution of Earnings in Bangladeshi Garments Export

 

Nike

Nike, a major footwear company, employs about 8,000 people in management design, sales and promotion. Production, however, is done by some 73,000 workers hired by independent contractors in Indonesia, where a pair of Nike shoes that sell for $73 – $135 in the US or Europe is produced for about $5.60 by girls and young women paid as little as fifteen cents an hour. The workers are housed in company barracks, there are no unions, overtime is mandatory, and if there is a strike, the military may be called in to break it up. Nike spends hundreds of millions of dollars on advertising.

This unjust distribution of income can only be eliminated if the shoes and garments are produced by workers’ cooperatives and sold through sellers’ cooperatives with a clear contract with the producers’ cooperatives on the rational distribution of the profit. It is the workers who produce the real value of any goods, not the market managers; hence the labourers should get enough remuneration to  guarantee their minimum requirements of life.

Share Market and Money

This comment appeared in Business Week on March 20, 1995:  “In this new market…billions can flow in or out of an economy in seconds. So powerful has this force of money become that some observers now see the hot money set becoming a sort of shadow government – one that is irretrievably eroding the concept of the sovereign power of a nation state.”

To understand what has happened to the global financial system, it is essential to understand the nature of money, which was created to meet an important need. The earliest market transactions were based on the direct exchange of things of basically equal value. This barter was carried out when two individuals met and agreed to trade each other for certain items which the other owned. This primitive method greatly constrained the expansion of commerce. Later came the medium exchanges such as decorative shells, blocks of salt, pieces of precious metal, etc. Eventually, metal coins came into use – generally gold, silver or copper. Later, the idea came to keep the precious metal safely in a vault and issue paper money that could be exchanged for the metal on demand.

Each of these innovations was, however, a step to distance money from its real value. In the historic conference of Bretton Woods, where the IMF and World Bank were created, it was decided to introduce a new financial system where each country must guarantee to exchange its own currency on demand for US dollars at a fixed rate. The US government in turn, guaranteed to exchange dollars on demand for gold at a rate of $35 per ounce. This effectively placed all the world’s currencies on the gold standard, backed by the gold stored at Fort Knox, USA. In this way, gold changed into dollars as the international foreign exchange reserve. This system worked without problems for twenty years. However, when the US started to manufacture more dollars to finance its massive military expansion, they decided to change the rule.

On August 15, 1971, President Nixon declared unilaterally that the US would no longer redeem dollars on demand for gold. Since that time, the dollar became a mere piece of paper with an expectation that others will accept it in exchange for real goods and services. Other currencies, naturally, in reality converted into a piece of paper which can be exchanged.

With the introduction of computers came the next step – i.e to eliminate paper currency and simply store the numbers in computers. Although coins and papers are still in circulation, the world’s monetary transactions happen through direct electronic transfers between computers.  Money has become an abstraction, as it does not create value of its own.

“The magnitude of money moves in share markets in a split second is much more than that involved in the productive sector of economy. In international currency market alone, some  $800 billion to $1 trillion change hands each day, whereas trade in goods and services cover  $20 – $25 billion daily.”3

According to Joel Kurtzman:  “Most of the $800 billion that is traded…goes for very short-term speculative investment – from a few hours to a few days to a maximum of few weeks… That money is mostly involved in nothing more than making money… It goes for options trading, stock speculation, and the trade in interest. It also goes for short term financial arbitrage transactions where an investor buys a product such as bonds or currencies on one exchange in the hopes of selling it at a profit on another exchange, sometimes simultaneously, by using electronics”4

This money is unassociated with any real value. It neither contributes to any increase in real goods and services, nor does it increase any employment. The computers are simply…trading mathematically precise descriptions of financial products (stocks, currencies, bonds, options, future) only.

Joel Kurtzman writes in his book, The Death of  Money, “If measured from the height of the fall of the market in August 1987, investors lost a little over one trillion on the New York stock exchange in little more than two months. That loss was equal to an eighth of the value of everything that is manmade in the USA, including all homes, factories, office buildings, roads, and improved real estate. It is a loss of such enormous magnitude that it boggles the mind. One trillion dollars could feed the entire world for two years; raise the Third World from abject poverty to the middle class. It could purchase one thousand nuclear aircraft carriers.”5

“It is the reality of  a world ruled by “free market” forces in the 1990’s. The global financial system has become a parasitic predator that lives off the flesh of its host – the productive economy.”6

 

Prout Policy on Stock Market

  • All forms of speculation should be banned. People can buy shares of companies directly with the clear understanding that the money will be used for productive purpose in the company for which they bought the share, and with the clear understanding of the dividend they will receive annually.
  • People should not be allowed to sell their shares within a year of buying them.
  • The fluctuation of share prices should be regulated by law.  As prices may fluctuate with demand, a basic minimum price for the shares should be fixed so that share holders do not lose money.
  • The main income of the share holders in the productive units should be dividends, not the speculative selling of shares.
  • In the case of saleable goods like petroleum, share holders will get a higher dividend if the price of oil rises. No speculative selling to enjoy extra returns should be allowed.

Following these policies will bring more stability to the market and regulate profits. Stock market gamblers will automatically be eliminated. Instead of market control of the economy, state and civic society should be involved in controlling it.

Fiscal Policy and Public Finance

Fiscal Policy is the policy of the government regarding the six fiscal instruments: taxation, government expenditure, borrowing, lending, buying and selling.

Income and wage tax

Taxes on fixed wages should be abolished. Taxes for other forms of incomes that is required to fulfil the basic requirements like food, clothes, shelter, medicine and education should be eliminated. Simultaneously,  graduated tax should be levied for excessive incomes till a stage is reached when ultimately a limit is fixed on highest incomes. After fixing a limit on highest income, income tax can be abolished altogether.  A personal expenditure tax, wealth and gift tax can also be levied on the high income group. Personal charitable contributions, including that of family foundation should be tax exempted.  Inheritance tax should be eliminated, if exists in any nation state. The exact policy on taxation should vary in accordance to time, place and person.

Company Tax

Besides normal company taxes, large companies must pay for the social cost of production.

Exercise and Customs Duty

Loss of revenue due to elimination of the wage and income tax can be compensated  by increasing exercise and customs duty. This is the main avenue of indirect taxation. Duties on essential items should be minimized or eliminated, especially in poorer countries. Taxes should be levied on non-essential luxury goods that are socially harmful or have a harmful effect on the environment.

Sales Tax or Value Added Tax

This is another form of indirect taxation. VAT already exists in Europe. Other countries are also switching over to VAT gradually. The idea of VAT is to avoid double taxation. In developed countries where everything is computerized and the  administrative system is strong and efficient, the collection of VAT poses no problem. However, in poorer countries with a lax administrative system, the collection of VAT may pose a problem. In such countries, VAT can be collected from the original sources, i.e. from manufacturers and whole sellers only.  This will also reduce the size of the tax collecting department and streamline the collection of taxes. The amount of tax can be adjusted according to the price of the goods. Value added tax on essential items like basic food, clothing, shelter, medicine, and educational items should be eliminated.

Property Tax

This system of taxation on fixed property already exists. Prout proposes to levy huge wealth taxes on the richest section of the people of the world, as these are mostly earned through unjust economic systems. According to Forbes Magazine (March 2006), the total wealth of the world’s 793 billionaires is worth $2.6 trillion ,  equalling the combined incomes of the poorest 45% of the world’s population – 2.3 billion people. According to Victor Keegan, this amounts to highway robbery by the super rich. This disparity of wealth should not be allowed.

Public Loans

To meet budget requirements, governments issue bonds and securities to generate loans. At present, the USA is the biggest borrower, with more than 800 billion loans on the market (it is increasing every year). Loans from the WB and IMF are loaded with conditions. They impose a Structural Adjustment Policy before granting loan to any country.

According to Prout, no country’s budget policy should be dictated by the World Bank or similar centralised financial institutions. Loans should be used for capital formation and not to buy consumer goods.

Monetary Policy

On a global level, the newly structured Proutistic World Bank should introduce a world currency similar to the Euro, and that currency should be based on gold value which can remain deposited in a safe place.  The monopoly of the dollar, which today is nothing but a piece of paper, should be eliminated. Simultaneously, each country should have their own currency; and its value in relation to the international currency should be determined with a clear policy, and not on the manipulation of speculators.

A sound monetary policy depends upon:

  • A reasonably stable price system.
  • A reasonably sound exchange rate.
  • Elasticity of money supply – that is, it can be increased or decreased according to the requirements of trade and industry.
  • A supply of money that is proportional to the country’s growth rate.

 

Planning

Prout does not support indicative planning as in the capitalist system. Neither does it endorse imperative planning like that of the communist system, or which existed in India and some other countries. To ensure decentralized control, Prout proposes block level(an area with about 100,000 people) planning. The following are the five criteria of planning:

1. Cost of Production

To find the cost of production in industry is simple, whereas in agriculture it is difficult. It is a traditional practice in rural poor and developing countries not to count the cost of labour in cultivation, even though all the family may render labour. As the farmer does not pay wages to family members, such expenses are not counted in evaluating prices. This is the reason they get low prices for their yield.  Prout wants to design agriculture in a similar way to industry, where the unit cost of production can be determined scientifically.  Only then can farmers get a legitimate price for their yields. As proper cost evaluation may increase basic food prices, the government can provide subsidies for irrigation, power, seeds and fertilizer to neutralise these increases. Almost all developed countries subsidise the farm sector. In the European Union, 52 billion Euro were allocated each year as a subsidy for the farm sector (this amount has now increased). The WTO wants to abolish all kinds of subsidy as a strategy to open the market for MNC’s. This should be contradicted.

2. Productivity

The aim should be to create economically viable units generating capital or producing consumer goods according to the natural demand of the society. A full employment policy should be the guideline while generating productivity.  Small-scale and labour-intensive industries should be encouraged to achieve the goal of full employment. This will enhance purchasing power, and hence demand.  Production should be encouraged on the basis of:

  1. Availability of raw materials
  2. Availability of technical know-how
  3. Employment potential of the production unit
  4. Generation of genuine capital

3. Purchasing Capacity

Growth of the standard of living depends upon the increase in the purchasing capacity of the people, and not merely on monetary terms of wage or per capita income.  The per capita income does not project the standard of living of the lower levels of society. To increase the purchasing capacity of the people, the following conditions must be fulfilled:

  1. Consumer goods must be produced according to the collective need of an economic unit.
  2. The condition of full employment must be reached
  3. Stability in price level and inflation
  4. Progressive increase in wages, adjusting with the price level of goods
  5. Collective wealth in terms of consumer goods and special amenities should increase progressively.

 

4. Collective Necessity

Planning should ensure balanced production, which will ultimately reduce social cost and increase social benefits. Meeting the target of zero unemployment while gradually increasing the standard of living, should be the goal of planning. Fulfilment of the five fundamental minimum requirements to all: food, clothes, medicine, shelter, and education, should be the priority of any planning.

To achieve self-reliance and uniform growth, the following planning criteria should be observed:

  1. Industry should be developed according to the indigenous availability of raw materials. The import and export of raw materials should be prohibited, and only finished product may be exported.
  2. Only capital goods needed to accelerate to develop the infrastructure for economic growth and other essential goods that can not be produced in the socio-economic unit, should be imported and exported.
  3. The proper development of flora and fauna and ecological balance should be maintained.
  4. The local language should be the medium of education on all levels.
  5. Labour-intensive industry should be encouraged, especially in developing and underdeveloped countries.
  6. Social Welfare for the weaker section of the society should exist until the stage of full employment is reached.

Preventive, developmental and rehabilitative services need to be provided by the society to children, women, the disabled and the aged. In third world countries, the problem of beggars has to be seriously considered.  Similarly, the rehabilitation and medical care of patients affected by leprosy, tuberculosis or aids have to be considered as special cases. Neglected tribal areas, victims of racial or caste discrimination, neglected women and orphans, should all be included in social welfare programmes.

Social and economic justice to all classes of people should be included in the developmental planning of the society. Prout proposes to materialise social welfare programmes in all areas where they do not already exist. Under the pressure of the free market, European countries which have strong social welfare systems are gradually diluting their benefit programmes, but this will be counterproductive.  Both education from primary to university level, and medical care should be free. It has been proved by experience that by raising workers’ education and standard of nutrition, productivity can be increased dramatically.

Planning Machinery

Planning boards should be formed at national, regional, district and block (county) levels. The boards at each level will have different functions and targets and should be complementary to each other. The demarcation of blocks will depend upon the physical features of the area, including the topographical and climactic conditions, nature of the soil, river valleys, and types of flora and fauna. The socio-economic problems and requirements of the people and their physico-psychic aspirations will also be taken into consideration. Around 100,000 people or about 100 villages will constitute a block in this planning system.

Block level planning will facilitate greater mobilisation of human and material resources and the participation of local people in economic development programmes.  This will eliminate economic exploitation by other economic zones and solve unemployment problems, so that the goals of economic balance, decentralisation and economic democracy can more easily be achieved.

Balanced Economy

Defective socio-economic systems around the world are the cause of economic degeneration and disparity.  Economic balance has been lost due to the following reasons:

  1. Civilisations have developed along the course of rivers from the hill stage to the plains, and down to the delta stage.  A river suddenly changing course or drying up may adversely affect a civilisation and its economic activity.
  2. A decline in small-scale, rural and cottage industries destroys the economic balance.
  3. A defective educational and social system in which human values and ecological balance are neglected is unlikely to maintain economic equilibrium.

A strong and balanced economic structure demands a proportionate representation of labour force in all strata of economic activities. Farming should absorb 30 – 40% of the labour force only – neither less than 30% nor more than 40%. More than 40% creates undue pressure on the agriculture sector. All over the third world, countries overly dependent on agriculture have taken a heavy toll on their land and created imbalanced economic structures. When less than 30% of the labour force is employed in agriculture, farming may be neglected. Twenty percent of the labour force should be engaged in agro- and agrico-industries. (Post-agricultural industries such as oil mills, textile mills, flour mills, food processing industries etc., are  agro industries.  Pre-agricultural industries like the manufacturing of tractors, fertiliser, etc., are agrico-industries.) Ten percent of the population should be engaged in commercial activities. and ten percent in non-productive services like administration, education, transport and other public services. Other industries should absorb 20% to 30% of the labour force. This proportion is dependent on the availability of agricultural land in any particular economic zone.

In developing countries, due to the destruction of cottage and other local industries, people flock towards farming.  Thus, in comparison to agriculture, industries do not develop in proper proportion. As a result, the number of educated unemployed increases. Only 20 – 30% of the labour force should be engaged in non-farming industries (steel, automobiles, house building, etc.).  If the number employed in these industries is less than 20%, the country is industrially underdeveloped and per capita income cannot increase; hence the standard of living will remain low.  Due to the low prices of their agricultural commodities, a trade deficit will remain, and these countries ultimately become the satellites of affluent countries. If the number employed in non-farming industries is more than 30%, the country becomes industrially developed. As the percentage increases, it becomes a highly developed industrial nation and will require some satellite countries to provide its agricultural products and on whom to dump its industrial goods.

For this reason highly developed industrial nations – communists as well as capitalists – build war machines to force their satellite nations to abide by their dictum.

Disproportionate industrial development also has its negative effect on social psychology. The impact of materialistic values escalates pseudo-culture, thus degenerating the mental health of the society.  Highly developed industrial societies are facing tremendous psychic crises which will ultimately cause the destabilisation of the mental and social health of the society.

To eradicate such over-concentration, the following measures should be taken:

  1. The whole world should be divided into self-sufficient socio-economic zones.
  2. Each economic zone should be allowed and helped to produce the minimum necessities of life for each member.
  3. Trade should be developed, as mentioned earlier.
  4. Speculative stock exchange should be abolished.
  5. Working hours should be gradually reduced to facilitate full employment.

 

Branches of the Economy

A scientific economic system and study should consist of four distinct branches:

  1. People’s economy
  2. Psycho-economy
  3. Commercial economy
  4. General economy

A people’s economy and psycho-economy are unknown to modern economists; whereas the other two branches are yet to develop to their fullest extent.

 

People’s Economy

This is the most essential part of the micro-economy, as it deals with the essential needs of the people such as food, clothes, housing, medical care, education, transport, energy supply, water supply for drinking and other household needs, and for irrigation.

Development of small-scale farming and industries, both private and cooperative will come under this category. It will also deal with employment for all, rural economy, increasing the standard of living, phase-wise socialisation of lands, training programmes, transportation, shipping, and loading and unloading of materials, etc. Supplies of power, water and energy and the development of relevant infrastructures will be important aspects of this branch. People’s economy will deal with economic decentralisation, cooperatives, block-level planning and ecological balance.

Psycho-Economy

Psycho-economy will assume much importance once the problem of minimum requirements for all members are solved. It will have two branches. The role of the first branch will be to counter the degenerating and dehumanising trends in society due to defective economic systems. In other words, to fight against psycho-economic exploitation.

The second branch will help in the psychic expansion of the individual as well as the collective mind. It will derive the process of utilisation of subtler potentialities to develope social and higher consciousness.. It will also develop the ideas and knowledge for the maximum utilisation, balanced utilisation and progressive utilisation of all crude, subtle and causal resources of the universe.

Psycho-economy includes- balanced economy, allocation decisions, economic democracy, economic independence for women, psychological and sociological dimensions of economic development, socio-economic justice, quality of life issues, business ethics, moral and psychological factors for effective management of cooperatives and the effective reduction of working hours with successive development of automation. It includes all the crude and subtle dimensions of economics pertaining to the progressive expansion of the unit and collective mind.

Commercial Economy

The main aim of the commercial economy is to ensure the maximum utilisation and rational distribution of all the resources of the universe.  The production and distribution of cash crops, trade policies, import-export policies, marketing systems, cost accounting and licensing policies form a part of the commercial economy. Also included are technology transfer, quality control, loan policy, banking systems, capital supply, barter systems, an international monetary system, the organisation of commerce and the extraction, production and distribution of industrial products.

General Economy

This will cover the general study of economic theory and the trends of socio-economic development in different eras. The general economy will also include the  economic infrastructure, coordination of economic planning at all levels, population policy, full employment policy, socialisation of the economy, development of cooperative structures, macro and micro-economic problems and tax systems. Urban and rural development, decentralisation, classification of private and public sectors, defence planning and expenditures, national and zonal budgeting and allocation of resources and revenue collection, fiscal and monetary policy will also be part of general economy.

The division and growth of economy along the above lines will enhance its harmonious progress and the realisation of neo-humanistic ideals.

Economic Decentralisation

Underdeveloped countries, due to lack of industrial growth, face too much pressure on land, trade and commerce. The effort to develop industries is also completely unbalanced. The standard of housing is hundreds of years out of date, e.g. using mud, bamboo and straw for roofing, but hanging modern electric lamps from the straw roofs The standard of food is very primitive, but it is being cooked on electric ranges. Millions of people are starving, but millions of dollars are spent to build shopping malls, television factories, satellites and war materials.

Economic imbalance cannot be removed within a capitalistic structure.  Socialisation does not mean economic adjustment alone.  The human aspects – balanced development of the personality and political freedom – are the criteria of socialism. Bureaucracy and the excessive power of managerial staff act as a stumbling block to eradicating income imbalances in communist countries.  There, trade union rights or freedom of expression are denied, and the “new class” enjoys more than the so-called proletarians.  The differences in income existed in greater proportion in erstwhile Soviet Russia than in West European countries.

It is worth mentioning here that the socio-economic system of Scandinavian countries is more socialist than that of communist countries in the past. The radical humanist system also advocates a decentralised economy and a mixture of state control, private sector and cooperatives. In this respect it reflects similar ideas to those of Prout. In England, some enterprises have carried out this socialisation of ownership with success. The economic system mentioned above may not be appreciated by sophisticated economists who believe in complex formulas, charts and data.  However, the realities of life and the changing pattern of social psychology will lead humanity to see the value of the above economic principles. I could not refrain from quoting the words of one of the staunch believers in the socialisation of ownership, who practically worked as a director of such an enterprise (the Scott Bader Company in England).  In his book Small is Beautiful, E. F. Schumacher wrote:

“In the excitement over the unfolding of his scientific and technical powers, modern man has built a system of production that ravishes nature, and a type of society that mutilates man. If only there were more and more wealth, everything else, it is thought, would fall into place. Money is considered to be all-powerful; if it could not actually buy non-material values, such as justice, harmony, beauty or even health, it could circumvent the need for them or compensate for their loss.  The development of production and the acquisition of wealth have thus become the highest goals of the modem world in relation to which all other goals, no matter how much lip service may still be paid to them, have come to take second place.  The highest goals require no justification; all secondary goals have finally to justify themselves in terms of the service their attainment renders to the attainment of the highest.

This is the philosophy of materialism, and it is this philosophy – or metaphysic – which is now being challenged by events. There has never been a time, in any society in any part of the world, without its sages and teachers to challenge materialism and plead for a different order of priorities. The languages have differed, the symbols have varied, yet the message has always been the same ‘Seek ye first the kingdom of God, and all these things (the material things which you also need) shall be added unto you.’  They shall be added, we are told, here on earth where we need them, not simply in an after-life beyond our imagination.  Today, however, this message reaches us not solely from the sages and saints but from the actual course of physical events. It speaks to us in the language of terrorism, genocide, breakdown, pollution, exhaustion. We live, it seems, in a unique period of convergence.  It is becoming apparent that there is not only a promise but also a threat in those astonishing words about the kingdom of God – the threat that ‘unless you seek first the kingdom, these other things, which you also need, will cease to be available to you’.7

Individual liberty should not jeopardise the collective interest. It must be accepted today that the fates of every individual are entwined together. Without a collective spirit, love for humanity and ‘the spirit of one human society’, economic injustice will never end. Every economic activity should be directed to secure the minimum necessities of every individual, and for social progress. Economic prosperity is not the goal, but the means for progress. Human life should not be subordinated to capital; rather, economic progress should enhance individual human progress so that human beings can march towards their eternal goal of freedom with a harmonious feeling of oneness. Without economic democracy, political democracy is a farce.

Bibliography

1.Chossodovosky, Michael—The Globalisation Of Poverty, Other India Press, Goa 1997
2.Fromm, Eric, — Marx’s Concept of Man, The Continuum Publishing Company, N.Y.1996
3.Mathews, Jay—Putting The Currency Trading on Trial, Washington Post, 22nd August 1993
4.Kurtzman, Joel—The Death Of Money, Simon and Schuster N.Y 1993
5.Ibid
6. Korten, David—When Corporation Rule The World, Kumarian Press &Brett Kohler Publisher U.S 1996
7C.Schumacher, E.F—Small is Beautiful, Harper & Row Publisher Inc. N.Y 1973     

One Response to Decentralisation of economic power

  1. Lavada says:

    Good post. Its realy good. More information help me.

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