Harmonious Economics or The New World Order. 2nd edition by supplemented

Indeed, the form of production means ownership is established by no other than the priorities that function in the society. If state priorities prevail and are mostly used to satisfy state needs, then the state will be recognized as the owner. If individual interests dominate, then private property will prevail. And, finally, if the property is used for the well-being of the entire society, then its forms are to assist this task and contribute to a better life for all.

Concerning private property, it is not as important to know who the owner is, as to understand to which extent it is productive from the point of view of social benefit. It is essential to assess to which point each owner can use productive forces better than hired managers can. At the same time, with the existing form of property of production means, too often it is not the talented and qualified individuals that manage it, but those who hold the legal title of ownership. For clarity, let us imagine a plant with 3 funnels. A person arrives to the plant and presents a paper certified by an official stamp; the document states that its holder is entitled to own the plant. But what can this legal deed change? Will the plant grow a fourth funnel? This is rather unlikely.

In fact, the following changes will take place. On the one hand, there appears the owner who is personally interested in the results of the enterprise. On the other hand, he gets the right to do to the plant whatever he chooses: appropriate circulating assets, sell the equipment in demand, or ruin the plant completely. All these actions will be deemed legally founded. Thus, this person could use his property not for work, for developing his own talents and skills, but for living a better life, for showing off, building a luxurious estate, buying yachts, and going on international cruises. This was the case after property privatization in post-Soviet Russia.

Here neither qualification, nor talents play any role. By consequence, the struggle for property (not competition – struggle) intensifies; property becomes desired, and everyone thinks themselves worthy of it. In such situation, personal interest of the owners in the production results would not be of much help, for such interest is very rare. In the end, there might be a form of labour remuneration that would make the worker personally interested in the results of production as the owner is (See more in Subsection 4.1.2). Then both the owners and the workers of plants would start collaborating and become partners, instead of competitors.

In reality, each type of property has its proper niche where it is more efficient than others. For instance, small businesses mostly live by the energy, enterprise, and simple luck of their owners. Therefore, for them, private property is preferable. Medium enterprises function better using the cooperative property form, because it best combines the entrepreneurial qualities of the owners with the collative benefit of the business. However, this would not be sufficient for the functioning of large businesses, as they demand a higher level of professionalism, organizational skills, a broad mind, and a respect of social interests. What they require is professionalism, management skills, and broad thinking. That is why such large organisations are usually run by specially hired managers, instead of the owners themselves. In this last case, the public property form is the most appropriate for big businesses, including strategic economic sectors and monopolies.

The above explains why the advanced economies have all types of property that prove their respective advantages in fair competition. And it is not the political forces, the selfishness of individuals, or the ideological dogmas that manage it, but the very nature of the coherent structure of the society and productive competition within it.

Countries with established capitalist traditions see their business and political elite formed through years-long natural selection process. They have a reliable legal framework; the culture of liability imbued to the society provides this framework with the said sources of income and power. However, post-Soviet states knew no selection of this kind, and the experience of civilized private management had been interrupted. As the result in most cases power and property were dished out in an emergency mode, that is, to whoever came by. And no requirements as to the social liabilities of these owners were imposed on them. On the contrary, the allocation of former social property often led to personal enrichment, instead of its employment for the benefit of all. That is why there should be no surprise that most of such liabilities have not been discharged. Liquid assets are sold and appropriated, premises are rented or abandoned. What could be the usefulness of such “private property’? !

What is more, while in other countries it is mostly unprofitable businesses that are privatized, in Russia the privatized ones are the most profitable and lucrative. While across the world natural rent is a significant addition to the state budget, in the Russian Federation it is mostly appropriated by private individuals. Thus, according to President Vladimir Putin, advanced economies allocate 80% of oil industry profits to the budget, and only 20% is receivable by the natural resources producers; in Russia this ratio equals 50% to 50%.

As the result, as academician A. S. Lvov has formulated it, more than 70% of all entrepreneurial class income in Russia is due to the rent, and only 30% – to productive activities. For the same reason, over 44% of the GDP in Russia is brought in by the rent. Thus, when during the discussion about the restructuring of Russian debt at the beginning of the twenty-first century, Paris Club Chair referred to the huge active foreign trade balance enjoyed by Russia, the former Prime Minister M. Kasyanov admitted that, in reality, the trade proceeds were owned by private individuals, and not by the state.

For what real merits have such people been allocated social property, do we actually need such “property owners’? This question is ever more topical today, when, in the modern Russian conditions of privatization, the ownership of public funds has often been passed over to those uncapable of using the property in a decent or efficient way. It is true that an increased income of private individuals can be considered fair and useful as long as it is compensated by an additional social benefit. But when such income grows at the expense of social benefit, then it cannot be deemed fairly earned, on the contrary, it has been appropriated and results from exploitation.

When the nominal GDP in Russia dropped by 35.6% between 1989 and 2005, the share of state budget in the GDP also decreased, from 47.3% in 1985 to 16.8% by 2013. This means that budget revenue got almost 5 times smaller. In other words, the income of the property owners in this period increased not through improved economics, but through legalized robbery of the state and society.

Table 1. Correlation between the actual GDP amount and the privatization rates in Russia 

.

Summing up, it may be admitted that in most cases privatization in Russia has no social benefits. So, the secret of market economy, if any, is not pinned to private property but to development of competition. To demonstrate this idea, let us use the statistics data on the dynamics of the actual GDP in Russia and of the number of enterprises privatized in the first five years after the privatization reform. This data is presented in Table 1. It should be pointed out that privatization was at the core of the 1990s reforms, and in that decade, most of the privatization transactions were passed.

Let us calculate the correlation coefficient between the two factors mentioned in the table to assess their influence upon each other. The resulting figure is negative, and it equals 0.992. This value is so close to 1, that it can be asserted that the more enterprises in the 1990s Russia went private, the worse the economics functioned. And this conclusion is not at all surprising, as “as long as there is any property, and while money is the standard of all other things, I cannot think that a nation can be governed either justly or happily’[42 - Cit. ex T. More, Utopia (Roubert Foulis, 1743), 39.] (Thomas More).

This signifies that the privatization model adopted by Russia was the major reason of the large-scale economic collapse of the country. By consequence, unless the interests of authorities and property owners coincide with those of the people and the state, such occurrences will be frequent. Unless private property is made productive, its further use is destructive. In the industrial development conditions, “Private property is less and less wholly private. Free enterprise has become progressively less free’ (P. Samuelson and W. Nordhaus

).

Such “state policy’ has driven Russian government into bankruptcy. It has lost the capacity to govern the country in the market conditions. That is why all state programmes are poorly financed, and the economics has got out of control. The salaries of civil servants, that is, the salaries assured through the budget, often drop below the living wage, and the population is exploited beyond imaginable. Its purchasing capacity has decreased, but on the other hand, the number of millionaires keeps growing. What is the sense of such politics, and why during the entire reform its course has not once been adjusted, like it was done in China, for instance? Does this mean that despite the lack of social benefit, some people find this situation satisfactory?

In summary, it is exploitation, that is, the parasitism of the few through appropriation of the values created by others, that constitutes the key reason of the accelerating economic degradation in Russia and across the world. Only the most naïve or cynical persons can see any progress in the insatiable egotism of certain people, deprived of any talent, morality, or knowledge, but craving for wealth at any expense. This phenomenon that is behind the majority of human troubles, all the wars, violence and crime, has become a scourge of the humanity.

In addition, it is reasonable to limit the middle class to those who are not exploited by others, but neither exploit anybody themselves. That is, these are the people who earn their living honestly and are not robbed by anybody. The middle class cannot be defined through the concept of the average income, for it is too vague. Thus, if 30% of the richest people and an equal share of the poorest people are excluded, the remaining 40% will constitute the middle class. But if 20% of each of the extremes is not included in the category, then the middle class embraces 60% of the entire population. However, a criterion varies with the statistics trickery is not appropriate for the assessment. Furthermore, the policy of middle class expansion should be given a completely different approach.

One more factor that leads to SLP suppression is usury. Without generating anything useful, it depresses the real economics, forces the producers to support the money owners, and sucks the resources out of production. The source of usury lies in the money deficit, which is inevitable in economics. In the past, when money was guaranteed by gold reserves, the valuable metals available were not sufficient for serving all the trade flows in the country. But even after this guarantee was withdrawn, the said deficit has been artificially maintained. The only reason for this is letting money generate more money, whatever the cost for production and society may be.

Besides, the foreign economic activity influences social performance, SLT and the population’s quality of life, too. If the foreign trade balance is positive, it means that the country exports convertible goods paid for in uncovered paper money. For certain years Russian import exceeded its export by almost three times. Thus, our country was selling its goods at foreign markets for one third of their nominal value. This made certain private individuals richer, but on the other hand, limited the usefulness of such trade. All other people suffer from it, the state is ruined, and social labour productivity decreases. In the end, the country becomes a donor for other states, whose balance of foreign trade with Russia is negative. However, the government makes of the positive trade balance a feather in its cap and does its best to increase it ever more.

1.3.4. Productive economic factors

Social labour productivity depends from many factors; however, it is most significantly influenced by human beings and their interest in the results of the labour. To be precise, it is human intelligence, education, qualifications, knowledge, physical strength and agility, and health that really impact labour productivity, as well as human energy, decisiveness, honesty, discretion, decency, common sense, tact, and communication skills. The desire to work, and the individual and social labour culture also play an important role in the SLP.

That is why everything that helps people develop the above-mentioned qualities, contributes to the SLP increase. Among these: fair wage distribution, efficient education and upbringing methods, the health both of the parents and the child, psychological and moral family, workplace and social environment, physical education and sports, ecology, and the entire infrastructure for life and leisure.

The works of W. Petty, A. Smith, A. Marshall, T. Schultz, G. Becker, and many others reflect the idea that the reproduction of high-quality work force is productive. Thanks to the contributions of these authors, the work of progressive managers to improve people has ceased to be seen as unproductive expenses, but has become the main source of flourishing for companies and the society, not less important than capital investments in the main funds. That is why, in the twentieth century, advanced economies accrued human capital faster than material capital. For instance, the US economic recovery is at least 15—30% due to the increased level of education among the work force.

Thus, in advanced economies human investment exceeds generously the investment in the main production means. Table 2 presents the correlation between the US investment in the so-called “social expenses’ and production investment, taken for 100% 

.

Table 2. Correlation between “social’ expenses and production investment in the US, %

The data provided above allows to see that the US allocates as much for healthcare and social security as for education. It is also evident that if these expenses did not pay back, they would not be so significant. The expenses for reproduction of work-force in the US in 1947—1989 alone increase 5.5 times, while those for reproduction of fixed capital – by 3.7 times only. As the UK Prime Minister Tony Blair said, “Knowledge-based economy has people as its main resource’. This idea was supported by Bill Clinton, who believed that “Sustained growth requires investment in human capital, education, healthcare, technology, infrastructure’[43 - Cit. ex J. Godwin, Clintonomics: How Bill Clinton Reengineered the Reagan Revolution (AMACOM Div American Mgmt Assn, 2009), 195.]. However, modern Russia would rather save on its people.

Social labour productivity is highly dependent on the labour and living conditions of workers. Therefore, all measures that improve the labour ergonomics increase its productivity, as well. But one of the biggest impacts on SLP is that of the extent of people’s satisfaction: the higher it is, the more significant their contribution in the production process.

Let us consider a specific example. To keep a worker idle – like a machine – about 2 Mcal of energy is needed. If the worker consumes 3 Mcal, he can use one 1 Mcal for useful work only, that is 33% of the energy received from the food he eats. Then, if the same worker consumes 4 Mcal of food, he can use 2 Mcal for work. This shows how the increase in the amount of food eaten every day by 25% lets the worker do twice the amount of work he did before. This is why academician S. G. Strumilin concludes that “the more we want to save on economy, on income and food norms, the bigger damage we will suffer’[44 - [Translator’s note: Translated by me.]]

.

Eminent entrepreneur Henry Ford believes the same: “Wages is more of a question for business than it is for labour. It is more important to business than it is to labour. Low wages will break business far more quickly than it will labour’[45 - [Translator’s note: The original incorrectly references these words, the quotation is cited from Today and Tomorrow by Henry Ford (Garden City Pub. Co., 1926), 151.]]

. Saving on people is, thus, a costly approach, however promising it may seem. That is why all unpopular measures are, in the end, regressive (sic).

SLP considerably depends on the technical equipment of labour, and this subject has often been brought up by authors. However, there is no definite answer here. In fact, machine production and maintenance require so much effort, that their use does not always help to save social labour. That is why the science that works out progressive principles, machines and technologies is believed to be one of the major production forces of the society. Plato wrote that “there is nothing more powerful than knowledge, it always and everywhere overpowers pleasure and all other things’. “Our economy is not based on natural resources, but on intelligence and application of scientific knowledge’ (Philip Handler, President of the US Academy of Sciences). And advanced economies do understand this.

As the result, American companies are the only to spend more than $15 billion on training and education of their personnel annually. For the implementation of the Equal Opportunity in Education Act adopted in the US in 2002 alone $26.5 billion was allocated. The total costs of education in advanced economies amounts to 5—6% of their GNP.

In Russia, however, they have never reached 1%, and in the years of crisis dropped further to 0.23% of the GDP. As the result, the salaries of professors employed at the Russia’s Higher education system were 1.5 times lower than the average for the country. The salaries of other academic workers are too shamefully low to quote here. Teachers in Russia do not earn enough to afford a minimal living standard. Doctors and nurses, however essential their work might be, are struggling to make both ends meet. It is evident that such stimulation neither stimulates the country’s development, nor creates proper conditions for the SLP increase or production acceleration.

Thus, the state as such, in order to assure its proper functioning, relies on quite specific expenses, just like a house or a complex piece of equipment require regular maintenance. Otherwise, they turn into a ruin. That is why a redistribution of the national income to private individuals beyond reasonable level turns out to be mortal for the country.

1.3.5. Labour differentiation and cooperation

The science of equilibrium is the key of occult science. Unbalanced forces perish in the void

    Eliphas Levi[46 - Cit. ex Manly P. Hall, The Secret Teachings of All Ages an Encyclopedic Outline Of Masonic, Hermetic, Qabbalistic And Rosicrucian Symbolical Philosophy Being an Interpretation of the Secret Teachings concealed within the Rituals, Allegories, and Mysteries of all Ages (H.S. Crocker Company, Incorporated, 1928).]

Still, one of the most efficient factors that increase SLP is improvement of labour organisation. It does not require as much time and money, however, it efficiency is superior to that of all other factors combined. Besides, notwithstanding all other conditions, only harmonious organisation is capable of shaping harmonious economics, and of creating conditions for the implementation of all highly-productive advances. This factor remains the backbone of any enterprise or economy restructuring. All the rest is nothing more than its result.

We are not considering here the factors related to the scientific labour organisation, such as specialization, and introduction of rational labour methods and techniques, because all of them have already been studied in great detail. This approach reduces organisation to building an optimal structure for production based on the combination of two dialectically different factors, i.e. labour differentiation and labour cooperation. Without providing an ample description of these phenomena, we will just point out some of their properties that would be interesting for the current analysis.

In the process of evolution, it has been remarked that professional labour differentiation in space and time increases significantly labour productivity. This tactic helps split human activity into specific functions and operations, none of which are meaningful on their own, by all of which when combined creating a completed product. Such organisation makes better use of the individual workers’ capacities, improves their qualification and instruments of production, and assures rational consumption of work time. As the result, among workers there are more and more experts in a narrow field of specialization.

This factor influences the formation of all social organisation structures (see Figure 1). Besides, the more complex and specialized production, the deeper labour differentiation. “How far the productive forces of a nation are developed is shown most manifestly by the degree to which the division of labour has been carried’ (K. Marx and F. Engels 

). Thus, the division of labour types according to their functions is one of the most powerful factors of progress.

On the other hand, labour differentiation leads to the need for agreement and unification of separate workers and worker groups within the common working process, for interaction of all levels of production from individual employees and teams to entire enterprises, subindustries and sectors of economy. This association and interaction between the separate specialized workers in the labour process bear the name of labour cooperation (from Latin cooperation). This phenomenon is one of the key factors of labour organisation.

Labour cooperation converts labour quantity into higher quality thanks to “the creation of a new power, namely, the collective power of masses’ (K. Marx

). Cooperation is followed by joining of the results of differentiated labour; as the result, labour productivity increases faster than aggregate labour consumption. It is this correlation that allows resolving global issues: developing science, education, culture, building defence from enemies, constructing canals, dams, roads, and other structures that serve a public purpose, and bring collective benefit.