The question of wealth distribution requires a fundamental look at what forms a holistic economy. Sarkar states that a developed economy should consist of four parts: people’s economy, psycho-economy, commercial economy and general economy. It is the people’s economy that offers economic liberation and security for all. Its scope, implementation and invigoration of economic and human rights needs to be brought to the forefront as conventional economists are unable to come to grips with the failures in economies around the world.
Guaranteed Minimum Necessities
People’s economy deals with the essential needs of the people in general and with aspects such as production, distribution and marketing. In particular, it is directly concerned with the guaranteed provision of minimum requirements like food, clothes, housing, medical care, education, transportation, energy supply and supply of irrigational waters. The objective is continuous improvement and ready availability of these essentials.
In order for minimum requirements to be assured there must be guaranteed purchasing power. The time has come to recognise that the right to guaranteed purchasing power is a universal and fundamental human right and as such requires constitutional protection, ie there must be constitutional recognition of the benefits of economic prosperity for all people.
Grossly Unjust Wealth Distributions
Current laws emphasize property rights and give compensation for expropriation and misappropriation of property whether by governments or other individuals. However, in doing so there is disregard as to whether the distribution of such property rights can be or is justified, particularly in the case of over-accumulation. A highly skewed distributions of wealth ranging from some individuals amassing billions in assets while others struggle on a few cents a day represents an inefficient production, distribution and marketing system that does not serve the needs of a people’s economy. Despite capitalism being a relatively somewhat better system than communism in terms of the production of goods and the incentive to innovate, the large scale wealth inequalities evident in capitalism does, of itself, mean that there are many pernicious loopholes in such a free market system.
In terms of a comparison with investment theory, it is certainly arguable that if a particular investor can derive an abnormal return consistently distinct from what may be considered as being within a range of an average or normal return in the market, then the investor is probably privy to certain information that enables them to exploit arbitrage or speculative opportunities. Indeed the situation may be worse and involve, for example, favouritism, collusion, cronyism, bribery or other biased distribution mechanisms. Abnormal opportunities such as these represent inefficiency and unfairness in the economy if such loopholes are readily available and allowed to persist. A truly efficient economy would continuously marginalise and virtually eliminate the opportunity to make such abnormal gains or profits. This also includes the ability to amass unprecedented or abnormal levels of wealth.
Minimizing the gap – a sign of an efficient and rational economy
An efficient economy would, instead, minimize the gap between the minimum requirements needed generally by all people and the maximum amenities required by particular persons or groups so that they are capable of rendering more service and useful outputs for the benefit of society. For instance, ordinary people may be provided with motorcycles instead of bicycles. Here, there is some difference between a motorcycle and a car, but the gap that existed between a car and a bicycle has been partially reduced. In an economy that is efficient in what it distributes (ie marginalises and seeks to eliminate the ability to make abnormal gains in wealth accumulation), or in another sense is a rational distributor; the economic gap between ordinary people and meritorious people is constantly reduced as much as possible, but the gap will never vanish altogether. That is, the difference between the minimum requirements of all and the maximum or special amenities of the meritorious is never entirely eliminated. Even though the gap exists, there must nevertheless be efforts to continuously reduce the gap. An important reason for that is because if the gap increases disproportionally there is every likelihood of economic loopholes again arising to abnormally skew the distribution of wealth to irrational proportions. This affects the economic welfare of all members of society and the common people, such that the value of their labour and participation in the economy is not properly recognised, thereby giving scope for a large segment of society to become deprived – and exploitation will again re-emerge in society in the guise of special amenities. Accordingly, the provision of special or maximum amenities should not go against the common interest. This is the relationship between minimum requirements and maximum amenities.
It also, however, means the ordinary public will not and should not be deprived of maximum amenities – efforts must be there to give them as much of the maximum amenities as possible and available to society at the time, but without destroying the incentive of the more meritorious to produce better outputs and contributions for society in all spheres of endeavour. A close analysis reveals that such a system of production is based on consumption for the benefit of all members of society, rather than profit being the underlying motive in the field of production.
Naturally, with the marginalisation of profits and the elimination of the ability to make excess or abnormal profits, eg with the continual lessening of opportunities to make speculative gains, the economy is then in a better position to truly serve consumption needs rather than profiteering objectives.
Rational Distribution of Rational Profits
Profits, must of course be made, but these have to be rational or normal profits. What should be eliminated in an economy that rationally distributes resources and makes maximum utilization of resources is the ability to make abnormal or irrational profits. There is no scope for speculative gains in a people’s economy.
For example, in the market place the market price may be the cost of production plus a rational profit (Price = C + Y) where a rational profit is about 15%. To further the increased purchasing capacity of workers this amount or part of it will be rationally distributed amongst them and act as an incentive. As they get more incentive, workers will produce more goods and services. Incentives should encourage greater work and better quality work, and so they should be directly linked to production. This approach in a people’s economy increases purchasing capacity and, therefore, the per capita income and standard of living of workers increases. In such a system there is no economic exploitation involving the unrestricted plunder of physical and psychic labour of a particular community (or its natural resources in the local area). The surplus value created by labour and taking the form of profits is rationally distributed to labourers and/or shareholders in a co-operative manner and through co-operative business enterprises.
The object of production is then based on the consumption motive. Profits having been marginalised or minimised to normal or rational profits in an economy that is truly efficient and which rationally distributes resources, means also that speculative or profiteering opportunities or motives decline and, as there is little or no scope for them, the focus of production shifts to satisfying the minimum necessities and maximum amenities of the ordinary and also the meritorious people. It is the rational profits (including equitable remuneration in the form of salary or wages) derived that are used to guarantee and increase the purchasing capacity of labourers and/or shareholders (where labour includes all manner of utilization of physical, psychic or spiritual capability). Only a system that revolves around the consumption motive can increase the standard of living of all people. In such a system the value of wealth is measured in terms of its capacity to purchase commodities. It is the purchasing capacity of one’s wealth that is the real value of that wealth and that purchasing capacity is, of course, the real wealth. Accordingly, it is improper to define wealth as meaning only riches – that amounts to hoarding of wealth.
Hoarding of Wealth Leads to Economic Crisis
Given that wealth must be measured in terms of purchasing capacity, if there is hoarding of wealth then capital becomes concentrated in the hands of a few individuals (including corporations) or the State and its purchasing capacity is undermined. This concentration in the value of wealth (or what could be purchasing capacity and therefore what could be money rolling through the economy) is a fundamental cause of economic depressions. The second and related cause is when money in the possession of a few individuals, corporations or State capitalists stops rolling. The Asian crisis is symptomatic of this second cause.
When large amounts of money were withdrawn from economies such as Indonesia and Thailand, that money could no longer roll through those Asian economies.
Instead the money found its way into USA stock markets for the acquisition of corporate stocks, creating an unusual and unprecedented demand for shares traded through US stock exchanges (the prices of which are not truly reflective of the fundamental businesses or investments of those corporations). This usage of money essentially simply pushed up the value of stocks/shares, while remaining entirely inert or unutilised for real productive purposes. It has now caused inflation in the value of shares traded on US stock markets, while at the same time the withdrawal of wealth from Asia has resulted, or rather added to, the inability of those Asian economies to produce their minimum necessities and to provide for any special or maximum amenities, first to the more meritorious and secondly to the common people. At no time has the people’s economy been considered. For all intents and purposes innovation in Asia has been stifled, the original wealth that rolled in and was subsequently withdrawn was not used to increase the real purchasing capacity of the people because it was not first properly applied in building up the minimum necessities of all people, but rather focused more on providing special amenities for a limited segment of society or class of persons. In a nutshell, there was no rational distribution. The capitalist reasoning in withdrawing money from Asia was that they thought that if the money was allowed to roll freely in Asia then their profits will decrease (even though it would bring relief to the common masses). Consequently, they withdrew their money without any control on them by the local economy and local people.
The psychology of the capitalists is to make profit from the rolling of money, and as in Asia when they discover that the investment of money does not bring profit up to their expectations, then they stop rolling the money in that particular economy. It brings economies to it knees. The money is instead kept immobile or inert or channeled into unproductive purposes by, for example, the acquisition of US related stocks. While this may give a pretence of riches it is really a type of concentration of wealth away from where it could be better productively applied in the medium to long term so as to give greater opportunities for the all-round welfare of a greater number of people. Such pretence of riches also does nothing to increase the purchasing capacity of that wealth. In PROUTist terms the wealth is said to have lost its value because it is not assisting in increasing the purchasing capacity of most people.
Keep Money Rolling
Also, in Proutist terms the value of money depends on the extent of its circulation. The more frequently money changes hands, the greater its economic value. The greater the value of money, the greater the prosperity in individual and collective life, and the greater the opportunities for all-round welfare. The people’s economy then flourishes.
While money may well change hands through the US stock markets, that does not amount to true circulation of money in the productive parts of the economy which are concerned with the provision of minimum necessities for all and special or maximum amenities to first, the meritorious and secondly, to the common people. This contradiction in capitalism and its false claim to being an efficient allocator of wealth and distributor of resources arises due to the self-centered profit motivated psychology and the control and accumulation of wealth for the benefit of a few rather than for the welfare of all.
However, had the consumption motive been the motivating force for production there would have been a continual circulation of money through the productive parts of the economy centered around the needs of the people.
There would easily be a proper and equitable allocation of wealth, money would circulate readily and the standard of living of all would be capable of increasing.
The Consumption Motive
The advantage of the consumption motive is that it is essentially concerned with establishing adequate purchasing capacity and then increasing it. Furthermore, this can only be beneficial to sustaining business enterprises.
For example, while first class passengers already get special facilities and ordinary passengers do not, if the purchasing capacity of ordinary passengers is increased in greater proportion to that of first class passengers, then the ability of ordinary passengers to consume more (and to obtain at least some of the extra facilities available to first class passengers) has increased. That would result in an increase in production for the extra provision of some of the facilities previously available only to first class passengers and which are now made available to a greater population base of ordinary passengers through increased purchasing capacity. The production being for the consumption by ordinary passengers.
Therefore, that consumption motive has resulted in an increased standard of living for ordinary passengers. In a less advanced economy, it would of course be the minimum requirements of the common people that would be immediately increased through extra purchasing capacity. This again would result in increased production for consumption resulting in increased standards of living. It is worthwhile mentioning that what constitutes both the minimum requirements and the maximum amenities/facilities is ever increasing.
To ensure that there is citizen power in enforcement of a guarantee of minimum necessities to all persons, PROUT supports a constitutional right for citizens of a country to sue a government if their minimum requirements are not met. This is a check to ensure that proper policies are developed by governments to warrant that there must be rational distribution of resources and a system of minimum necessities for all and increasing maximum amenities as required. While the government should not be an economic controller per se through centralized economic power, it does have an obligation to ensure that there is no inequity in society and so can be taken to be the last avenue of recourse when there is a concern about any person’s minimum necessities being denied. It can always pass the necessary laws or take administrative action to ensure that the required equity is achieved across the board for all people.
Also, as people’s economy deals with minimum requirements and people’s subsistence problems, it must take precedence over other parts of the economy. For example, if people have no food and are starving, it may be necessary to establish short-term uneconomic industries to supply food.
In normal conditions such industries would violate the logic of general economic principles and the rules of supply and demand. But, in order to get an efficient and rational system of supply and demand working, the means for that must first be put in place. To this end people’s economy is also concerned with the development of small-scale industries, both private and cooperative. Private industries must, however, be limited in size and scope to prevent monopoly production and exploitation, and be required to function as cooperatives once they grow too large.
Cooperatives and Social Welfare
Cooperative industries are the best means of organising people in an independent manner so that they take collective responsibility for their livelihood. They are also the main means of ensuring rational distribution of profits to workers and/or shareholders in the local economy. It is the co-operative system that is capable of ensuring the social welfare of citizens in the local economy.
This is in contrast to the notion of the welfare state supported by capitalist and mixed economies. Does not the welfare state represent loopholes in the capitalist system, in that because the existing system of production, distribution and marketing cannot provide adequate purchasing capacity to all citizens at all times, the we lfare state must step in to solve the inefficiencies of the capitalist system. This is done primarily through transfer payments to welfare recipients. Is it not a contradiction in terms of efficiency? The only ’efficiency’ that exists in capitalism today is the scope it gives to hoarding of wealth for a few. The triggering of economic crises around the world reveals that capitalism is totally inefficient in all other respects. So much so that governments in countries such as Japan and areas such as Hong Kong have forced themselves into intervening in their stock markets with the expectation that they will be propped up through such intervention.
While, of course, special facilities in the form of welfare need to be made available in special cases such as birth deformities or being born intellectually handicapped or similar situations in which a person has no means of earning an income, in other cases such as unemployment benefits the provision of relief through the welfare state merely indicates the inadequacies of the capitalist system and its obsession with profit making.
Unemployment being a figment of an irrational structuring of the economy and its inefficiency in being able to distribute resources and wealth rationally so as to ensure that no one is denied adequate purchasing capacity.
Deficiency in Keynesian Thinking
It is worth mentioning here Keynes’ theory on the model of Circular Flow of Expenditure and Income. In brief, flow of expenditure on goods and services comes from consumers, investors and governments, which goes to firms, which produce outputs. The income from firms then flows to consumers (labour), after some is paid to the government as taxes and part of the income may then be replaced or income may be given to persons by transfer payments (eg social security payments to individuals).
There are some fundamental discrepancies in this model from a PROUTist perspective. Firstly, income taxes on wages and salary essentially reduce a person’s purchasing capacity. PROUT does not accept income taxes on individual labour. However, in order to support wealth ceilings and as a transitional measure income taxes may be used as a proxy for wealth taxes and therefore in support of a wealth ceiling so as to limit and help prevent the excess accumulation of wealth.
Traditionally in the Keynesian model the bulk of taxation is derived from income taxes. Although this has changed over the decades towards indirect taxes such as sales taxes and consumption taxes, these by no means solve wealth disparities if no wealth ceiling or limits on the accumulation of wealth are in place. Instead, PROUT support taxes at the point of production, which means that taxes must be imposed before income reaches individual workers as a result of that production. It is arguable that such a system imposes on firms an obligation to ensure that they prove themselves to be efficient (and not wasteful), because as part of their productive activity, they must contribute also to the collective welfare (eg for education facilities) through making allowance for taxes when they produce.
This is so even if the effect of those production taxes do flow through to prices to the end consumer (who in any case will have adequate purchasing capacity). The effect of production taxes is also likely to be minimal to any single consumer, eg a resource extraction tax relative to the scale of production is likely to have minimal effect on any single consumer. Further, the Keynesian model assumes the existence of a welfare state and expenditure through transfers in the form of welfare payments. PROUT, in general, does not support welfare state mentality. Rather, PROUT supports full employment, and by this is meant all forms of social contribution involving physical, psychic or spiritual capabilities. There is also no reason to exclude the bringing up of children, care of the elderly, etc. All these can be done through co-operative assistance and enterprises, and through rational distribution of profits to workers and/or shareholders (be it via wages, salary, bonus payments, dividends or contributions to superannuation funds, annuities, pensions or insurance co-ops for members), this will largely take care of the need for government transfers for contingencies such as are now covered by social security payments. Furthermore, money applied for these purposes would not fall directly into government hands thereby avoiding the concentration of economic power via centralised government management or control. Concentration of economic power in government hands has recently been demonstrated by the governments of Hong Kong and Japan investing large sums of money, either directly or indirectly through controlled entities, in the stock markets of those countries so as to artificially prop up those market indices. Such money would have been better utilised toward programs that increased real production in the country and so as to increase the minimum necessities and special amenities of the people as appropriate. This also demonstrates how far removed the ordinary person has become in having a local say in their local economy.
Welfare Economics Requires People’s Economic Power
Nobel prize winner, Amartya Sen has emphasized that what creates welfare is not goods as such, but the activity for which they are acquired. Sarkar goes further and asserts that excess accumulation of wealth reduces those activities and therefore the ability to enhance purchasing capacity across the economy. According to Sen, income is significant because of the opportunities it creates. But the actual opportunities – or capabilities, as Sen calls them – also depend on a number of other factors, such as health; these factors should also be considered when measuring welfare. Again, Sarkar goes further and provides a blueprint and economic model and intuitive principles that directly tackle the issue – even defying conservative economic thinking. In relation to health, Sarkar states that medical care and therefore health is a minimum or basic necessity which must be available to all people through adequate purchasing power. Without the guarantee of minimum necessities the capability of income or rather the value of wealth is not realised.
Sen has pointed out that all well-founded ethical principles presuppose equality among individuals in some respect. Sarkar, in this regard has formulated what in Neo-humanistic terms is called the Principle of Social Equality and contrasts that to the Principle of Selfish Pleasure. The former is beneficial individually and collectively, while the latter is not of real benefit to the collective interest and indeed leads to degradation of individual consciousness.
Sen recognises that the ability to exploit or claim equal opportunity varies across individuals, and concludes that the distribution problem can never be fully solved; equality in some dimensions necessarily implies inequality in others. This raises the tricky issue of, in which dimensions equality is to be advocated and in which dimensions inequality is to be accepted. Sarkar, with profound foresight, gives a solution to this issue by advocating that the guarantee of minimum necessities to all represents the baseline for economic equality and the Principle of Social Equality must not deny anyone access to social opportunities. In addition, Sarkar solves the inequality question through the principle of making available special amenities to meritorious persons making contributions to society, while also reducing the gap between minimum necessities and maximum or special amenities, but never closing the gap completely. In this way society is capable of pursuing a continual betterment and increase of available minimum necessities and additional or special amenities which in one way or another benefits all people. Sarkar’s position being that it is people’s economy that is the real welfare economics.
People’s Economy – The Way Forward
The conclusion that must be reached is that for there to be real economic welfare there must be proper economic organisation in society. Just as there is political organisation in society through representative structures, there must also be economic organisation having as its motive the economic well-being of all people and indeed all living things as well as the inanimate environment. Today economic power is owned by a handful of capitalists in the liberal economies or party leaders in State socialist countries. Sarkar’s message is that this supremacy must be terminated. Only then will there be economic liberation and economic democracy will be established so that the economic welfare of all people can be enhanced step by step.
The basis of people’s economy as propounded by Sarkar, without attachment to conservative economic thinking, and fully in accord with the human heart and intuition is the stepping stone and means to that economic welfare.
Copyright The author 2011