Category Archives: Industry

An Entire Key Industry In For Monumental Transformation

Since the 1960s, the semiconductor industry has been a driver of global economic growth and social change. All countries involved want a large, viable semiconductor industry that provides high paying jobs. The ongoing technical and managerial crises needs a detail analysis to examine the industry from a macroeconomic perspective, helping readers understand how global competitive advantage can be won or lost unless good macroeconomic policies are implemented, the competent study of which is highly relevant in today’s world and to the super-dynamic semiconductor industry, as things move so fast in this digital age.

Sustaining Moore’s Law; Uncertainty Leading to certainty of IoT Revolution by Apek Mulay argues that the global semiconductor industry is headed for a monumental transformation to usher in the Internet of Things (Iot) revolution. The IoT revolution would connect 50 billion devices by end of 2020. This revolution aims at transforming the entire retail sales industry, aerospace and defens, wholesale distribution, utilities, oil and gas, mining and metal, industrial machinery and component manufacturing, chemical industry, automotive industry, etc.

Every aspect of IoT seems to be revolutionary. There is also a good chance for the IoT revolution to improve the quality of life for the entire human society. While technology has an important role to play in creating ample job opportunities in the global economy, if care is not taken by policy makers IoT market growth would be restricted.

World renowned professor of Economics and author of six international best sellers, Professor Ravi Batra, has written the foreword to the book. Professor Batra considers the solutions presented in this book to be both monumental as well as practical to implement. In 1978, to the laughter of many and derision of a few, Professor Ravi Batra authored a book The Downfall of Capitalism and Communism: A New Study of History. While his forecasts about collapse of communism earned him a gold medal of honor from the PM of Italy, he thinks that unless US capitalism reforms towards a free market economy, US capitalism is going to meet the fate of Soviet communism due to huge concentration of wealth in the economy. Mulay's new work places the same argument in novel compelling light.

This fascinating book does not focus only on technological growth but offers solutions to make that growth sustainable by a sustainable macroeconomic growth. It is published by Morgan and Claypool Publishers and will be available as an e-book end of August 2015.

Read the whole presentation of the book

A Three-Tier Business Model for the Semiconductor Industry

By Apek Mulay, Sr. Analyst
Reproduced from SemiWiki.com

It is an open secret that, for a variety of reasons, the U.S. manufacturing base has sharply deteriorated over the past three decades, and the semiconductor industry is no exception. In fact, this industry may have suffered harder than some other American enterprises. The purpose of this paper is to explain the causes of this decline and offer some commonsense economic policies that may lead to the industry’s revival.

In the microelectronics area a semiconductor fabrication plant (also called a fab) is a factory where such devices as integrated circuits are manufactured. A business that operates a semiconductor fab for the purpose of fabricating the designs of other companies, such as fabless semiconductor companies, is known as a foundry. If a foundry does not produce its own designs, it is known as a pure-play foundry. As of today, the semiconductor industry follows multi-national corporations’ (MNCs) business model based on globalization, as shown in figure 1 below. Following WWII the United States pursued globalization, believing that American firms would be able to capture foreign markets, but the opposite happened. Other nations imported technology from gullible American companies, and, with their low real wages, out-competed U.S. firms all over the world. The rest is history. By now many American industries have disappeared, while most others have shrunk, resulting in a loss of jobs and stagnant wages.

When The Great Recession struck in 2007, the lingering weakness of the American economy, so far ignored by experts and the government, came to the surface. The present state of the US economy has been very discouraging to millions of Americans who are unemployed. This jobs crisis is a result of diminished purchasing capacity of consumers due to U.S. trade and macro-economic policies. With decreased exports and increased imports and the high cost of maintaining US war fronts abroad, the budget deficit has been increasing over the years, causing serious concerns and political tensions. Additionally, counterfeit electronics from abroad have raised national security issues.

fig1

Figure 1: Business Model of MNCs based on Globalization
As shown in this figure the MNCs have spread their semiconductor production operations across the globe when it comes to design engineering, test engineering, manufacturing, Sales and marketing, Packaging and Assembly, etc.

Since the 2007 recession, the semiconductor industry has observed flat growth in its revenue and many small businesses have experienced a slowdown. Such stagnation has been analyzed in my recently co-authored article ‘Revival of US Electronics and Semiconductor Industry and Mitigation of Counterfeit Electronics through Macro-Micro Economic Policies. Here I offer new ways to transform the entire semiconductor industry, enabling it to have high profits and steady growth. This model would help position this sector to break away from its usual boom-and-bust cycles and generate high profits in years to come.

The proposed business model is designed to (i) help restore a balanced economy without having to rely on overseas investment or foreign debt, (ii) establish a free-market economy where supply and demand of goods rise and fall automatically with minimal government intervention, (iii) solve the problem of unemployment and hence excessive government spending that leads to budget deficits, (iv) help the semiconductor business be at the leading edge of technology through sustainable capital investments, (v) ensure a competitive business environment which would stimulate the growth of small businesses, and so on.

A balanced economy is critical to take the global semiconductor industry to the next level of innovation and financial success. An economy is considered to be balanced when there are no trade deficits and no budget deficits. Such an economy would increase domestic consumer purchasing power by letting wages of workers to catch up with their productivity, thus establishing an Economic Democracy.[1] An economy is considered to be balanced when the supply of the goods from producers and their demand from consumers grow and fall in the same proportion. Such an economy does not lead to overproduction, nor does it lead to any underutilization of resources. The wages of the consumers contribute to their demand and the productivity of the workers contributes to their supply. A balanced economy ensures that wages catch-up with productivity, which results in demand to catch up with the supply. As workers in a balanced economy work hard by being productive at the jobs, the wages of these workers also grows and hence these workers as consumers can generate greater demand. This enables producers to manufacture more goods to meet the ever growing needs of the consumers due to higher consumer purchasing power. Here there are no economic downturns, because consumer demand is always sufficient to match producers’ supply.

In addition to a balanced economy we also need a decentralized supply chain, which increases co-operation among businesses, decreases wealth concentration in the economy, improves efficiency and customer satisfaction.[2] Macroeconomic reforms towards wholesome decentralization of Fabless business would boost the growth of several small fabless firms in an economic sub-system. Only with a decentralized supply chain does an individual player flourish.[2] Hence, the decentralized supply chain leads to smaller organizations and a lower probability for mergers and acquisitions. A decentralized supply chain leads to higher co-operation among entities in an industry. By placing a higher value on building a relationship with the end customer, decentralization leads not only to overall customer satisfaction, but also to healthier long-term relationships with end customers.[2]

A Three-Tier Model

I propose a three tier model for the robust growth of Fabless semiconductors based on Economic Democracy with Economic Decentralization.[3] The entire semiconductor Industry should be split into economic sub-systems. These sub-systems should be based on the availability of the necessary raw materials. This model is based on what is known as Progressive Utilization Theory or PROUT, which was put forth by Shri Prabhat Ranjan Sarkar in 1959; Prout has been further analyzed by the world famous economist Professor Ravi Batra.[6]

fig2

Figure 2: A Three Tier business Model for Semiconductor Industry
As shown in the figure the upper Tier is a top Notch Wafer Fab and Fabless small businesses are a lower tier. The middle and most important tier have neo-cooperative corporations which have exchange relationships in a decentralized supply chain. The Middle industrial tier connects the other two industrial tiers with rest of the economy.

Upper Tier – Semiconductor Manufacturing from Top Notch Wafer Fab

A top notch wafer fab needs an investment larger than a nuclear reactor. In 2013 the cost of building the next generation wafer fab was estimated at over $10 billion.[4] The location of wafer fab should be strategic to have ready availability of all necessary raw materials needed for manufacturing. The local government should build necessary infrastructure like domestic or international airport, good transportation facilities, good infrastructure, etc. for a smooth delivery of the goods to end customers. This would ensure the growth of smaller and medium size businesses, which would cater to that fab. Any infrastructure investment would be a long term investment to attract other businesses.

In order to have a balanced economy, the official monetary policy should be such that wages keep up with labor productivity.[1] Since workers’ wages contribute to consumer demand and workers’ productivity contributes to the supply of goods, when wages catch up with productivity, supply and demand grow and fall together.[1] Hence, it is important that company profits are first shared among the employees in proportion to their productive contributions and then later with outside investors. In order to ensure that wages catch up with productivity, there should be special incentives offered to highly productive employees. This portion of profits should be allocated to those employees who are much more innovative and productive than others. The remaining profits, if any, should be shared with the private investors as return on their investments. It is very important for an economy to first ensure that wages catch up with productivity to maintain a rational distribution of wages. This would also eliminate any economic imbalance which might result as a result of huge wage disparities.

While company profits should be shared across the board in proportion to productive contributions of employees, these fabs, although government backed, should have complete autonomy to lay off lazy and un-productive employees. This model would ensure that the wafer fab remains a top-notch fab and is also at the fore-front of innovation. Additionally, it would rectify the inefficiencies that may have existed in government run businesses. Similarly, by letting the employees’ wages catch up with their productivity, it would ensure a high consumer purchasing power in economy.

For the semiconductor industry to be financially successful, it is critical that money circulates in the economy and does not remain idle in bank vaults or other forms of valueless hoardings. To make this feasible, it would be best for a wafer fab to offer retirement schemes to its employees such that employees can invest some of their income towards the growth of their company by purchasing company shares. In this manner a wafer fab can raise much needed capital, while its employees become part-owners.

This model has two benefits. Since employees own some shares of the Wafer fab, they would work hard towards the success of the foundry. In economic downturns, these wafer fabs would prefer to share losses by taking across-the-board wage cuts or by cutting work hours of workers rather than laying them off. This would essentially maintain balance in the supply of goods to their demand. Additionally, since massive job losses due to layoffs could be minimized in economic downturns, it would also minimize government spending and hence budget deficits for offering unemployment benefits for laid off workers.[1]

In order to engender accountability and transparency in employees’ performance reviews, individual departments inside Wafer Fabs should be decentralized so that different engineering teams are grouped into smaller teams which elect their respective representatives onto the corporate management board in a democratic way. This would enable employees to voice their concerns directly to the management through their representatives. These employee representatives on management board would work with other members of the management board to ensure that majority of decisions are taken by board, in the best interest of employees and hence of the company, thereby engendering a healthy relationship between the employees and management.

A good wafer fab should also collaborate with local universities by offering co-operative internships to engineering students and technicians. This model would enable a foundry to offer challenging thesis projects to students pursuing Masters in Engineering through co-operative internships. The Wafer Fab should also offer doctoral research fellowships or internships so that these doctoral students would essentially work for the company at a fraction of the salary of regular research employees; this is the most economical way to fund R&D.

Local Universities and foundries can also collaborate to arrange a mechanism[5] by which:

  1. Doctoral students’ research can be sponsored by this ‘university-companies conglomerate’, and then the resulting technologies (developed by the doctoral students) are spun off into new companies which are partly owned by this ‘conglomerate’ and partly by the doctoral students and their supervisors. They would become future entrepreneurs of semiconductor industry and be a part of Lower Tier of this business model. Such conglomerates open up equal opportunity for material and intellectual advancement to all students.[8]
  2. The ‘doctoral students owners’ are then free to employ their master’s degree graduates in their companies, and implement a system of employee profit-sharing. This would not just help students with financial aid, but also help the semiconductor foundry get its R&D work done from by the doctoral students.

Lower Tier – The Fabless Semiconductor Businesses

An established top notch wafer fab would also create local businesses, which provide necessary tools, test equipment, engineering services, etc. for smooth functioning of wafer fab. These providers of different services, in addition to the fabless semiconductor businesses, would form Lower Tier of this 3-Tier business model.

In order to ensure sufficient job creation in the local economy, the fabless industry should undergo wholesome decentralization when it comes to offering these engineering services. Small Business Units (SBUs) should offer engineering services such as Circuit design engineering, Circuit layout engineering, test development engineering, Failure Analysis, Tool Manufacturing and Maintenance, etc.

Each engineering service provider should work as an independent SBU with a maximum of 30-50 employees in each business unit. These SBUs should comply with anti-trust laws which should be strictly enforced to avoid Mergers & Acquisitions (M&A). Some of the existing Fabless corporations are too big and they use their hefty profits to acquire small businesses. These M&As restrict competition, which has resulted in monopoly Capitalism instead of the free- market- capitalism in the semiconductor industry. To avoid this opportunistic behavior the existing shares of all major corporations should be given to the employees of these corporations in proportion to their productive contributions. The next step should be to decentralize the fabless companies and make each individual business unit function independently. This means the design engineering team would become an independent business; so would the product engineering team, customer quality engineering, reliability engineering and so on. The respective businesses would operate at either Lower tier or Middle tier depending on their operation as shown in Figure 2.

The Integrated Device Manufacturers (IDMs) which are currently privately owned and are not able to manufacture the latest technology should also split their fab and fabless businesses in accordance with the previously mentioned approach. The old fabs could function as Tier 1 wafer fabs for analog chips which do not need cutting edge transistor technology and the fabless businesses in these IDMs could be split into independent businesses to join either the Middle Tier or the Lower Tier, based on their business type. Similarly, large tool manufacturing corporations should be broken into SBUs so as to enable them to operate as independent small businesses. The wafer fab should give equal opportunities to all SBUs to compete for business to usher in a competitive free market economy. This would encourage new entrepreneurs to start their own businesses to provide various engineering services to the Principal Wafer Fab Company, and hence promote innovation. The Middle Tier of the 3-Tier model should act as a medium to offer these services to wafer fab and should also act as the most important sector, which links the end customer (or user of electronic products and services) to upper and lower tiers of the semiconductor industry.

All engineering departments involved at the pre-silicon and post-silicon stages should have a healthy competition with one another. This would enable the end customer to get products manufactured at significantly lower costs. Such a decentralization of the Fabless business would provide most innovative designs of new products and also eliminate any chance of large firms exercising their monopoly power.[2]

Although the quality of products within some of the economic sub-systems would be not as great as those of other economic sub-systems, by having bench marking and knowledge sharing through International Symposiums, Publications and discussion forums like Semiwiki, EBN, etc. it would be possible to gradually improve the quality of products and services for the entire global semiconductor industry in all subsystems. This is the only way that the global semiconductor industry could prosper along with the growth of regional semiconductor industry. In order to boost the development of more Fabless SBUs for new entrepreneurs, the local government should help set-up SBU associations all over the economy which could lease equipment and tools for setting up small businesses like Failure Analysis labs which require significant capital investment.

Middle Tier – The employee sponsored neo-cooperative Corporate Sector

The Middle tier should include those semiconductor businesses which work directly with end customers. This sector should include relatively mid-size corporations with a maximum of 500 employees. This sector would interface directly with end customers, the Upper business Tier and the Lower business Tier. It would consist of co-operatively managed semiconductor companies, where the majority of company assets are owned by company employees. All corporations in this tier should have exchange relationships as a decentralized supply chain. In a decentralized supply chain, individual units make decisions based on local information. In such a system, it becomes easy to incentivize players to act in co-operation, making entire supply chain efficient.[2]

The Sales and Marketing division would be able to get feedback on the demands from local customers and draft customer specifications to manufacture customized electronic gadgets based on the needs of the domestic economy. This Middle tier team would also interface with Lower tier SBUs, e.g. design engineering in order to develop customized electronic products as shown in Figure 2.

The packaging and assembly of chips would also be done in this tier. This tier would work on voluntary cooperation among corporations in the Middle. However, those corporations that follow the model of employee sponsored corporations should be given tax incentives in order to attract the other players in the middle tier to follow the model of employee owned corporations. Majority shares of mid-size corporations in the Middle tier would be owned by employees for them to have a stake in the success of their business. Since the middle tier interfaces with both Upper and Lower Tiers of economic sub-system, it would be managing Supply and Demand of consumer electronics to maintain a balanced economy.

There are many advantages of having the Middle Tier in the Semiconductor industry. If neo-cooperative corporations in this sector notice that customer demand is falling, then they would be able to communicate with the Wafer fab at Upper Tier and the fabless business unit at lower Tier to avoid overproduction of silicon. Both the upper and lower tier could utilize economic downturns to either cut work hours of their employees, to retrain their employees or to concentrate on R & D activities. In the present global economy, due to the absence of the middle tier, whenever there is a stock-piling of inventories in a wafer fab; the fab lays off its employees because of poor economic demand.

With this Middle tier, the neo- cooperative corporations would be able to adjust the Supply and Demand of electronics with a cooperative action of producers and consumers. Additionally, the Middle tier would provide an accurate real time estimate of consumer demand, thereby providing a feedback to upper and lower business tiers about customer requirements and demands in order to provide a better customer service.[2]

Another advantage of this 3-Tier Business model would be ‘Parallel Processing’ which is very much needed as the industry is progressing to adopt advanced transistor technology nodes. The Middle level corporate sector would be able to negotiate a good price for pre-silicon and post silicon services and get the work started simultaneously with shorter life cycles. This way manufacturing cycle time could be reduced and manufacturing costs would also decline significantly. Since the majority of corporate shares of this sector are owned by employees, there would be shared growth and prosperity, which would minimize concentration of wealth in the hands of the few.

When economy grows, the wages of all employees would also grow, leading to the growth of the overall economy. The growth of the overall economy would also grow stock values of the corporations and hence the year over year profits of all the employees in these corporations (and not just CEOs, CFOs and board of directors) would also grow steadily. When the economy slows down, the corporations would reduce work hours across the board to avoid job cuts due to layoffs. This way the problem of unemployment would be permanently solved. Additionally, since the Middle Tier is employee sponsored corporate sector, all majority corporate decisions are made democratically without any kind influence from non-employees.

A decentralized supply chain in Middle Tier would generate high growth and employment without large scale migration from rural to urban centers. This would avoid urban congestion and myriad related problems. Such supply chain also engenders better customer satisfaction by guaranteeing product delivery through an alternate route in cases where the regular supply chain is disrupted by unforeseen events like natural disasters and social or political instability.[2]

This 3 tier business model for global Semiconductor industry would wholeheartedly accept automation in the industrial sector. Due to the use of new machines labor productivity would grow exponentially because of which the supply of goods into the economy would also grow. In order to maintain the economic balance, consumer demand would have to match the growth in Supply. In such a scenario the co-operative sector would be able to meet the required production target with fewer work hours but pay its workforce a higher salary in proportion to their higher productivity resulting from the use of machines. This would give sufficient time for employees to pursue further education, vocational training and help the workforce to keep up-to-date with the desired skills needed to continue their careers in ever progressing and rapidly advancing semiconductor industry.

This business model would make contributions to completely automate production of semiconductor chips from the beginning to the end which is often referred to as “Lights-out-fab”.[9] Such a business model would not only lead the fabless semiconductor industry to the next level of innovation and financial success, but would also act as a model for other sectors in the economy leading to a vibrant growth of regional and national economies.

References

[1]See Ravi Batra, Common Sense Macro Economics, Liberty Press, Richardson, Texas, 2004 and 2012, for this definition. Also see A Mulay, A Failure Analysis of the US Economy, Truthout.org (2 March 2013). http://www.truth-out.org/news/item/1…the-us-economy
[2]Apek Mulay, Decentralize to Improve Supply Chain Efficiency, EBN (11 October 2013). http://www.ebnonline.com/author.asp?…c_id=268703&#!
[3] P R Sarkar, “Decentralized Economy”, PROUT in a Nutshell, Part 21, Pgs. 32-42, Ananda Marga Publications (1959).
[4] Wafer fabrication, From Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Wafer_fabrication
[5] Apek Mulay and Dhanjoo Ghista, “Globalization of Semiconductor Manufacturing Industry From Deception to Reformation Towards Recovering US Macro-Micro Economic Losses”, Electronics.ca Research Network (24 June 2013).http://www.electronics.ca/presscente…ses/Page1.html
[6] Ravi Batra, “Prout: The Alternative to Capitalism and Marxism”, University Press of America (January 1983) Also see his books, Greenspan’s Fraud and The New Golden Age, both published by Palgrave-Macmillan, for an analysis of economic democracy and the importance of narrowing the wage-productivity gap to maintain a balanced economy.
[7] Apek Mulay and Dhanjoo Ghista, “Revival of US Electronics and Semiconductor Industry and Mitigation of Counterfeit Electronics through Macro-Micro Economic Policies, towards (i) Recovery from Trade and Budget Deficits and National Debt, and (ii) Engendering US Economic Growth”, Electronics.ca Research Network (29 October 2013).http://www.electronics.ca/presscente…h/Page1.html#!
[8] Ulrich Naeher, Sakae Suzuki, and Bill Wiseman, “The evolution of business models in a disrupted value chain”, McKinsey and Company (Autumn 2011). http://www.mckinsey.com/client_servi…ed_value_chain
[9] Semiconductor fabrication plant, From Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Semicon…rication_plant

Industrial Decentralization

P.R. Sarkar
If a particular country or district is highly industrialized, that will not help in uplifting or changing the economic standard of other parts of the world or country. Hence industry should be decentralized, but key industries should be centralized. For example, the spinning industry should be centralized, and around it there should be a weaving industry run on [the basis of] decentralization principles. Even in areas where the climate is extreme, industries such as spinning can be established through artificial vaporization. This will help to create a self-supporting economic unit, which is badly needed. The area of self-supporting economic units will increase with the increase of transportation facilities. One day this world will become one economic unit. A day may come when the whole of the planetary world will become one economic unit.

Large-scale and small-scale industries should remain side by side. Key industries should be managed by the immediate government, because it is not possible to run them efficiently on a cooperative basis due to their complexities and hugeness. Small-scale industries should run on a cooperative basis, and the small industries which cannot be managed by cooperatives should be left to private enterprise. Thus:

  1. Small businesses should be left to individuals
  2. Big industries should be owned by the immediate government
  3. The industries in between the big and small industries should be run on a cooperative basis

The central government should not control large-scale industries because this may hamper the interests of local people. Where there is a federal system of government, these industries should be controlled by the immediate government, and where there is unitary government, they should be managed by local bodies.

Industrial decentralization is only possible in a collective economic structure. No profit motive will remain in such a structure. Capitalists start industries only where the following factors are available:

  1. Capital
  2. Labour
  3. Favourable economic climate
  4. A ready market for sales

They always try to lessen the cost of production, hence they will never support the principle of decentralization. In the collective economic structure the profit motive has no place – here industry is for consumption. In the collective economic structure, self-supporting economic units are to be strengthened.

It is an age of science. Science should be utilized for service and blessedness. There should be rationalization of industry – that is, an old machine should be replaced by a new and more scientific one. It is no use continuing with old and worn-out methods such as the spinning wheel in the age of nuclear energy and rockets.

It is incorrect to say that rationalization is the root cause of the unemployment problem. Such propaganda is carried out by leaders having little knowledge of socio-economic philosophy. The question of unemployment arises only in the capitalistic framework where industry is for profit. In the collective economic structure, where industry stands for consumption and not for profit, the question of unemployment does not arise. Here the number of labourers will not be lessened; rather the working hours will be reduced and the remaining hours will be used in mental and spiritual pursuits. The reduction in the working hours depends not only on yield, but on the demand for commodities and the availability of labour.

In industry labourers should be provided with incentives by starting and increasing the scope of piece-work and the bonus system of work. In the piece-work system labourers receive the profit or part of the profit from each item they produce. The more labourers produce, the greater their income.

In the bonus system the bonus is calculated on the basis of the time saved in the production of commodities. The money value of this calculation is given to the labourers. The right of management by labourers in factory affairs should be clearly accepted. These two factors will increase the out-turn of the factory, because under such circumstances labourers will feel an incentive to work sincerely. Only sermonizing high-sounding texts to increase output is not sufficient. Let labourers feel that the more the factory earns a profit by increased out-turn, the more profit they will share.

From: Discourses on PROUT – 3

Copyright Ananda Marga Publications 2011

Industrial Development

P.R. Sarkar
PROUT divides the industrial structure into three parts – key industries managed by the immediate or local government, cooperatives and private enterprises. This system will eliminate confusion regarding whether or not a particular industry should be managed privately or by the governnment, and will avoid duplication between the government and private enterprise.

In many undeveloped and developing countries of the world there is excessive population pressure on agriculture. It is improper if more than forty-five percent of the population is employed in agriculture. In villages and small towns a large number of agro-industries and agrico-industries should be developed to create new opportunities for employment. In addition, agriculture should be given the same status as industry so that agricultural workers will understand the importance and value of their labour.

According to the wages policy of PROUT, wages need not be accepted only in the form of money. They may be accepted in the form of essential goods or even services. It is advisable to gradually increase this component of wages in adjustment with the monetary component of wages.

PROUT supports maximum modernization in industry and agriculture by introducing the most appropriate scientific technology, yet modernization and rationalization should not lead to increased unemployment. In PROUT’s collective economic system, full employment will be maintained by progressively reducing working hours as the introduction of appropriate scientific technology increases production. This is not possible in capitalism.

From: Some Specialities of Prout’s Economic System

Copyright Ananda Marga Publications 2011

Shrii Prabhat Rainjan Sarkar on Industry

We cannot neglect a single creature, nor can we ignore any particular part of this world. Therefore it is desirable to pursue the policy of decentralization in the management of industry as much as possible. The promotion of industry in one part of the world cannot eradicate either poverty or unemployment in any other part. So it is desirable to form self-sufficient units one by one, to produce the essential commodities of life, at least in the fields of agriculture and industry. Otherwise, people may have to face tremendous hardship and misery during war and other abnormal circumstances. With the development of transport facilities, we can increase the scope of these units.
Problems of the Day

In the field of industry, we will have to accept the necessity of both small-scale and large-scale industries. For example, in a self-sufficient unit the requisite amount of yarn for the manufacture of cloth may be produced by many big textile mills. If the production of yarn came within the scope of large-scale industry, then with its cooperation a large number of satellite industries could flourish. We could form many weavers? cooperatives with every textile machine as the centre. There, weavers would be able to weave cloth in their own houses. They would no longer have to leave their homes at the distant call of a large-scale industry. Moreover, the weaving industry would no longer suffer even in war since textile machines would always be at hand.
Problems of the Day

Under a capitalistic framework, [mechanization] means more misery and unemployment for the common people. Doubling the yield by using a machine will decrease the required number of labourers by half; consequently, capitalists will lay off labourers mercilessly. The unemployed labourers are ruined, bit by bit, by poverty and hunger. A few of them try to keep their souls and bodies together by indulging in theft, corruption, and other antisocial activities. This situation is certainly not desirable. No such reaction is possible in a collective economic system. There, mechanization will mean less labour and more comforts. With a double increase in the productivity of machines, the working hours will be reduced by half.
Problems of the Day

The proper use of science under a collective economic system will only bring about human welfare. It may well be possible that due to mechanization no one will have to labour for more than five minutes a week! Being not always engrossed in anxiety about food and clothes, humanity will not misuse its mental and spiritual wealth. People will be able to devote more time to sports, literary discourses and spiritual pursuits.
Problems of the Day

In the present age, there are so many elements hostile to morality. In urban civilization, more people live in a small area; this is the enemy of individual morality. It is essential for the moral development of an individual to live a life of solitude for some time. The city serves as an asylum for antisocial elements, but this generally doesn?t happen in villages. In villages everyone knows everyone else, and the source of each others? livelihood is known to all. In the city, even after twenty years, a person doesn?t know his neighbours, who may be scoundrels. Thus we have to keep aloof from the barbarity of city life.

This will not be done merely by speaking slogans like, “Go back to the village!” Employment opportunities will have to be created in the villages for the intelligentsia. The availability of a power supply and the expansion of cottage industries in the villages are the paramount needs of the hour. By cottage industries, I do not mean old and outmoded, but rather rationalized and well mechanized industries. Hence, decentralization is an economic necessity.
The Opinion

Copyright Ananda Marga Publications 2011

FAQ: Industry

What is required for industrial revolution?
Areas must not depend on raw materials from outside their area. Raw materials must be locally produced. They should be indigenous. Those people who love the society must think in terms of an industrial revolution based on the raw materials available in that particular area.

What are the three parts of the PROUT industrial structure?
The three parts of PROUT’s industrial structure are:

  • Key industries, to be managed by the immediate or local government
  • Cooperatives
  • Private enterprises

This three-tiered system will remove confusion about whether any industry should be managed privately or by the government, and will avoid duplication between the government and private enterprise.

What is PROUT’s approach to production?
“Production for consumption, not production for profit!”

What is required to build a sound economy?
Thirty to forty percent of the people should depend directly on agriculture. If the percentage is smaller, agriculture is neglected. If the percentage is larger, there will be a heavy strain on agriculture. In addition to this percentage engaged in agriculture, about twenty percent of the people should depend on agro-industries, twenty percent on agrico-industries, ten percent on general trade and commerce, and ten percent on intellectual or white collar jobs. The percentage of people engaged in non-agricultural industries should be kept to within 20-30 percent of the population. This will lead to a balanced economy – a balanced socio-economic structure. (Agrico refers to production of agricultural equipment such as tractors. Agro refers to production of flour, cloth, herbal medicine factories – products made from agricultural produce.)

How are industries managed in a decentralized versus centralized economy?
In a centralized economy industries are managed as either private companies or state enterprises. In a decentralized economy, key industries, medium-scale industries and small-scale industries will be managed by different groups of people.

Who would manage the various industries?
The local government would manage key industries. However, they would be guided by the principle of ‘no profit, no loss.’ Medium-scale industries should be managed by cooperatives, but should not be guided by monopoly production and profit. The cooperative sector will be the main sector of the economy. Small-scale and cottage industries will be in the hands of individuals. Though privately owned, they must maintain adjustment with the cooperatives to ensure a balanced economy.

What is the goal of production in capitalist and communist economies?
In capitalist economies, production is for the profit of the capitalist. In socialist economies, the profit goes to the state and only a tiny amount goes to the producers, the laborers. Both systems are in fact capitalist systems.

What will happen in a PROUT economy?
Production will be solely for consumption. There will not be profit motive, hence there will be no inflation. In Proutist production, the value of money will remain constant, and full purchasing capacity as well as the minimum requirements of life will be guaranteed to the people. As time passes, both the purchasing power will increase and also the minimum requirements of life will increase. The standard of living will go on increasing for all the people.

According to PROUT agriculture is the most important part of the economy, how should the agricultural system be structured?
It should be structured as an industry. The prices of agricultural produce should be determined by considering basic factors such as agricultural income, expenses and necessities.

How would power be supplied in a decentralized economy?
Local administrators will have to arrange for the supply of sufficient power to facilitate industrial production. They will need to supply locally generated power such as solar energy, thermal energy, bio-gas, hydroelectricity, nuclear energy, pneumatic energy, electromagnetic energy, and tidal power, or any other power which is easily available locally. The generation of power is a key industry and hence should be run on a no profit, no loss basis. The immediate government or state government must be responsible for providing power to the people as a key industry.

What happens with over-industrialization?
If an area becomes industrially overdeveloped, or the more the percentage of people engaged in industry increases above 30-40 percent, they will not find a market for the consumer goods they produce, and they will suffer from economic depression and growing unemployment.

How does production inflation occur?
It occurs due to the application of scientific methods which causes a great increase in production in excess of demand and leads to the problem of what to do with the excess.

What measures can be taken to solve the problem of overproduction?
First, there should be a free trade system so that overproduction can be consumed by other countries or other socio-economic units having inadequate supplies of the particular product. For example, in most parts of India there is underproduction of milk. But in England, Germany and Sweden there is overproduction of milk. Hence there can be a barter system between these countries so that all benefit from the overproduction in other countries.

What is the second measure to solve the problem of overproduction?
Proper storage facilities should be constructed to house excess goods. Also processing factories should be established which can produce dried mango, mango candy, mango juice, sauce, jam, and so forth, so that fresh mango when converted like this can be stored for longer periods and used by the people. In the same way vegetable processing factories can be established to utilize the excess vegetables grown in the winter season in India, for example.

What is the third measure to solve the problem of overproduction?
New and diversified styles of consumption should be continually invented. Okra is presently used only as a vegetable. But, oil can be extracted from the okra seeds and processed and marketed as edible oil. Fine thread can be manufactured from the okra plant and good quality clothes made from that thread.

The PROUT Companion: Industrial policy

Q. What will be the Proutistic industrial policy?

PROUT propounds a system of decentralization of economic power. The centralization of economic power, whether it is in the hands of individuals or the state, such as under capitalism and communism respectively, leads to economic-political exploitation. Private capitalists venture to suck the vital juice from the social tree.

For decades the global trend has been towards the concentration of economic power into fewer and fewer hands. One estimate is that the current level of world inequality is equivalent to a situation where 66% of people have zero income, and 34% divide the entire income of the world among themselves equally!1 One high level study points out that while most of the world’s attention is currently focused on the GDP growth rates of China and India, the world’s wealth is heavily concentrated in North America, Europe and a handful of developed Pacific rim countries. With 2% of adults owning more than 50% of the world’s wealth.2

A study by the World Institute for Development Economics Research at the United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned 1% of global wealth. Another study found that the richest 2% own more than half of global household assets. The distribution has been changing rapidly in the direction of greater concentration of wealth. It means that in the world’s democracies there has long been a strong tendency toward a concentration of economic power in fewer hands irrespective of their social concerns.

PROUT advocates a decentralization of economic power through a well-defined system of:

  • Key industries
  • Large-scale industries
  • Small enterprises

The motivation behind economic enterprises will not be profit-earning but utilization. All economic activity is to be harnessed with utilization as their objective, not profit motivation. Profit is needed but not as a motive leading to the exploitation of consumers and undue capital formation.

a) Key industries are those industries whose products are used as raw materials for other industries or which act as the nervous system of the economic structure, i.e. steel, yarn, energy, means of communication, defence, etc.

These are to be managed by the immediate state government and will work on a no-profit, no-loss basis. The state will never behave as a commercial institution with profit motives.

b) Large-scale industries are those which need considerable capital, employ a significant number of workers, run by complex technical know-how, and are not small enough to be left to individual skill and endeavour. They will be controlled by cooperatives.

Such industries will have to follow broad rules of policy, i.e. percentage of profit, bonus policy, quantities of shares and dividend to be paid to each shareholder as stipulated by the Policy Planning Body. Normally the proportion of profit shared by labour and shareholders will be 40% and 60% respectively.

A successful cooperative systems necessitates:

  • Strong ethical governance
  • Ethical administration of the industry
  • Proper psycho-social environment

The lack of these essential factors has been the reason for the failure of the cooperative system in many countries. Under PROUT there will be no lack of any of these.

c) Small enterprises are those which depend on individual skills and are so small that they cannot be administered profitably in cooperation or are those which do not require a total capital beyond a certain limit to be stipulated by the Policy Planning Body, such as small convenience shops, stalls, grocery shops, restaurants, tailor shops, barber shops, service workshops and a wide range of similar small establishments and cottage industries like hand weaving, handicrafts, engineering goods manufacturing, etc. Steps will be taken to modernize and rationalize such ventures in order to ensure the maximum production of each unit.

Q. What is the structural setup of this industrial system?

Key industries will act as the nucleus around which large-scale industries will be encouraged to be established as satellites. Small enterprises will naturally crop up around large-scale industries beside towns and villages out of necessity or according to specific local conditions.

No overlapping will be allowed among the industries, i.e. commodities classified for key industries will not be produced by large-scale industries nor vice versa. There is no scope for private ownership or management in the sphere of key or large-scale industries; the former will act as a check on the large-scale industries by virtue of being the supplier of raw materials on a no-profit, no-loss basis.

Q. What will the structure and responsibility of the Policy Planning Body be?

The Policy Planning Body will consist of such persons of moral integrity who are experts in the technical know-how of the industrial and economic setup. The central Policy Planning Body may form its lower bodies for particular economic-administrative units. They will decide on and enact  the following points:

  1. The sphere of different industries (key, large-scale and small scale enterprises).
  2. Percentage of gross profit for large-scale and small enterprises, which may vary according to industry, time and place.
  3. The quantity of purchasing capacity necessary for minimum essentials.
  4. Quantity of rewards to be paid as special amenities to persons of merit and also for raising the standard of minimum necessities.
  5. Arrange for the establishment of key industries necessary for an area and encourage the establishment of large-scale industries.
  6. Endeavour to create such a psycho-social atmosphere in which the motivation behind economic growth will be utilization and not profit.
  7. Find ways and means by which a proutistic economic setup may be established properly and evolve progressively and materialize them.

Q. What is the system of incentives according to PROUT?

PROUT provides incentives in all the following three spheres: spiritual, psychic and economic.

  1. Spiritual: The entire Cosmic phenomenon including this social setup is the manifestation of my Supreme Father. In us lies a divine purpose to express and utilize the physical, metaphysical and spiritual potentialities in order to serve the Divine cause in the best progressive manner. This acts as the spiritual incentive.
  2. Psychic: Since the Supreme Father of the entire humanity is a singular Entity, in serving the society and evolving with it in a sublime social order we are serving our own family, our common patrimony is one and for all. This will be the inspiring psycho-social incentive.
  3. Physical: Progressively increasing the standard of minimum essentials for all, and also that of the special amenities for the few merited, will be the economic incentive.

All the three incentives will be applicable to all but the more the individual evolves psycho-spiritually, the subtler will be his or her incentive. A spiritually evolved person will be more inspired by a spiritual incentive than by psychic or economic, and the psychically evolved person more by psychic sentiment and less by economic, and so on.

Q. Will the rationalization of industry be affected under a PROUT economy?

PROUT as progressive social thinking would never advocate the retracing of the path of technological progress and its application in an economic-industrial endeavour. Instead it advocates more and more technological advancement and greater rationalization in all sections of the economy so that human and physical resources are utilized to their maximum.

Q. Will it not lead to unemployment?

Rationalization based on profit-motivation leads to unemployment and exploitation. But rationalization based on the principle of utilization has a different role to play. Progressive utilization of human potentiality means this human potentiality’s expression in subtler spheres such as in metaphysical and spiritual spheres. The accomplishment of this rationalization will cause the reduction of working hours (but no reduction in employment potential) so that the surplus time saved by workers is utilized in subtler pursuits (intellectual and spiritual).

Notes

1 The Economist, 26. Apr., 2001.
2 As reported by a study published by the Helsinki-based World Institute for Development Economics Research (part of the United Nations University). Source: www.marketoracle.co.uk, 5. Dec, 2006.

Copyright Proutist Universal 2011