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

1.3.2. Social labour productivity (SLP) as key indicator of state functioning

In order to work out measures for increasing the productivity of human labour, it is necessary to select a single criterion for the functioning of the entire economic system presented in Figure 1 as a self-consistent whole. It would be the first step towards organizing efficient work of individual structures. Without such indicator, any human or enterprise activity would be subordinated to limited market objectives, and would lose its global direction. Only the existence of a criterion with all of the mentioned qualities, capable of bounding all economic sectors together, makes it easy to understand what is right and what is wrong in the society organisation; where progress is made and where it is substituted by regression; what should be done and what should be avoided. Thus, this criterion should serve as a compass to indicate the right direction and to warn about any deviations.

Unfortunately, not all modern economic macro indicators, such as GDP (gross domestic product), GNP (gross national product), or national income, possess to a sufficient extent the qualities discussed above, therefore, they cannot serve as valid criteria of total economic productivity. The reason is that these indicators are tightly related to money, the financial sector and income, they are all profitability-oriented. However, money is an ambiguous category.

In fact, GDP – general indicator of goods and services production – is based on the aggregate wages in a country, income and rent, profits and amortization payments, that is, a real mixture of different things. As the result, it depends both on sources of real values and on others that utilize them, such as interest rate, property and rent, – and generate nothing real at all.

In fact, it is estimated that in the past 1,000 years the GDP of some countries has grown 100- to 500-fold. Does this mean that their population has consumed equally more bread, meat, or milk, or worn as many times more clothes? And if this is not so, then what is the actual sense of this indicator? As academician S. G. Strumilin ^[37] wrote, 1,000 years ago a wage worker in Constantinople could buy a sheep with the daily wage; 500 years ago, he could buy but half a sheep; now he does not even earn enough in a day to buy a sheep leg. This is true for other similar indicators as well. Therefore, the real progress economics has made in this time remains quite unclear.

This should not come as a surprise, as these indicators are typical products of the liberal economic philosophy that is aimed at profit generation, and the way these indicators are achieved does not seem to be important. This conceals the real influence of economic factors on the indicator, and makes it more suitable for drawing comparisons than for actual assessment. An increase in the GDP does not always correspond to an equal improvement of the life quality of the population, or an increase in its real labour productivity.

There is no merchandise or service that would be fully manufactured by one producer. Even a farmer uses farming tools that have been manufactured by others. Besides, farming requires fuel and lubricants; managers, builders, and financial experts. The worker should be protected from the inner and outer aggression; legal framework should be worked out, etc. This is true for all other products of human labour, too. As the result, in reality, the entire society is engaged in the production of any goods or services. And only the result of works of all participants of the labour process can determine the efficiency of the production process.

A universal indicator of the functioning of the entire economics and organisation system as presented in Figure 1 – not tied to intermediary results – is the final effect of the system. This means the total number of commodities that are produced by the society, per one citizen. This indicator characterizes the efficiency factor of social labour, and serves as the result of all economic activities. All other products of labour – machines and equipment, raw materials and semi-ready goods, resources and scientific research, even finance, are intermediary; they are only necessary to the extent where they contribute to increasing the quantity and the quality of commodities produced. Current indicators reflect this criterion only to a certain limited extent, as much as they conform with it.

As a standard for measuring the actual efficiency of human labour we suggest using Social labour productivity (SLP), which depends on the quantity of commodities (whether tangible or intangible) produced in the entire state by one average (generalized) worker in a unit of time. It is important to remember that any labour that is required in the society is deemed productive.

This indicator is integral and directly related to the main purpose of economics – satisfaction of human needs. The social indicator ignores intermediary results that masque this purpose (quantity of coal mined, steel, machines or equipment produced, amount of profit, income, level of inflation, etc.). On the contrary, it is based on the objective of economic activity formulated above, i.e. satisfaction of human needs. Moreover, it does not depend solely on production but on distribution as well; on level of wage labour exploitation; on the economic and political doctrine implemented in the country; on the quality and intensity of labour differentiation and cooperation; on the functioning of all state structures and social institutes. This indicator bounds all of these factors into only coherent system.

The SLP is determined not only by the state of development of science and technology, of education and culture, of medicine and sport, but also by the social and national state policies, by their morality and humanity, by ecology and demography. It depends on the types of property existing in the country, on security and diplomacy, on economic relations and types of money used, too. In this light, let us elaborate on some features of this indicator.

Obviously, with SLP we are dealing with a qualitative indicator, not a quantitative one. Consequently, direct assessment of SLP is impossible, for it is impossible to assess quantitatively all human needs and to compare the commodities that satisfy these needs. However, this type of assessment is often used in everyday life, when we distinguish between “warm’ and “cold’, “good’ and “bad’, without saying exactly how warm or cold something is. Besides, almost all economic indicators cannot be measured precisely, be is labour, money, GDP, GNP, exchange, or consumer cost. This is quite logical, as economics is interested in the qualitative description of these factors, not their quantitative assessment. It is the dynamics, the dependence on various circumstances, and their impact on economic situation that matter, not the numerical result of their measurement.

At the same time, the SLP can be fairly precisely assessed right now. Suffice it to observe that the higher the SLP, the higher the quality of life in the country. Therefore, the closest similar indicator – one measurable from the point of view of quantity and dynamics – would be the nominal average income of a worker. This corresponds to the actual value of the consumer basket (including both its tangible and intangible contents) for an average worker.

Moreover, further we will provide a description of the method of calculating the social labour intensity of commodities (SLIC) to assess its value and dynamics, which can be implemented at any enterprise separately (Subsection 3.1.2). This value is directly related to SLP, as any decrease in the SLP, all other conditions being equal, leads to an automatic SLIC increase, and vice versa. This allows stimulating the dynamics of production development, as well as determining the factors that condition it.

The unit of time for which SLP is calculated may be equal to one hour, one year or the average life expectancy. Thus, one can consider hourly, daily, monthly, yearly or secular SLP. Each of the values provides different information. For instance, secular SLP allows assessing the total quantity of commodities that a person produces in a lifetime. Besides, it helps establish the impact on SLP of such factors as average life expectancy, quality of nutrition, daily schedule, and balance between labour and rest. It also depends on the length of work leaves, the functioning of sports, healthcare and wellness facilities, ecological situation, etc.

Yearly SLP may be used to assess the efficiency of social labour differentiation and cooperation, the impact of various reforms and reorganisations. Hourly SLP is more flexible and dynamic. It helps to study the influence of various small and big organisational measures, psychological factors, technical equipment and many other factors in the labour efficiency at enterprises. None of these indicators contradict the other, on the contrary, they form a single information data base useful for optimisation of social labour in general, as well as of specific parts of this system. Besides, they make it possible to assess the actual efficiency of economic and other structures.

SLP is significantly different from the industrial and other specific criteria of labour productivity which are used nowadays. Indeed, as the production of any item or service engages the entire society, and not just a part of it, specific criteria will not be able to correctly assess the real labour productivity of the society as a whole. Moreover, they often do more to conceal it, for many of these criteria are interdependent. For instance, income increase in financial or trade sector often entails suppression of other sectors of economics, etc.

It is obvious that a single social criterion is free of this drawback. This means that all kinds of technological and organisational novelties, property limits, and new state institutes are useful provided that they contribute to SLP growth. By consequence, economy has no place for selfishness, politics, ideological speculations, clan struggle, etc.

Thus, SLP is not solely an economic, but also partially a philosophic criterion related to the vision of the world. If any type of activity does not increase SLP, then it should be diminished or altogether abolished. If the social value of any type of labour is low, the share of income it produces should be limited. If the salaries of scientists, engineers, doctors, teachers, and the wages of workers are lower than the average in the country, this means their labour is in low demand. But when the income of government officials, businessmen, finance experts, tradesmen and criminals are much higher than the average, then these activities conform more with the nature of the existing state. Now is it realistic to expect, in such conditions, that the real production would be restored, the country – renewed and start developing to pass to the industrialized category?

The notion of SLP is based on the assumption that all saving of social labour is useful, and vice versa. Therefore, this indicator may be used to optimize the work of various services, to assess the efficiency of administration, the reliability of public transport; to adjust the salaries of various categories of workers, etc. For example, is a train carrying 1,000 passengers is half an hour late, is there an excuse for the circumstances that caused the loss of 500 pers./h of social labour? If production increase does not entail SLP increase, then production rates should be slowed down. If reorganisations, measures and reforms implemented cause SLP to drop, they are, without any doubt, too aggressive. If a nanny at the kindergarten helps save the efforts of dozens of parents, this is her actual labour productivity. And this has nothing to do with the work force cost, as it does now.

Another example: today advertising consumes the time of millions of people, as well as enormous material resources amounts, while it generates profit for an insignificant number of businessmen who want to sell their products, often foreign-made. Similarly, traffic congestions take huge time, increase the fuel consumption, and accelerate destruction of roads and vehicles. Besides, they increase the demand for these commodities, and by consequence – the income of certain individuals and the tax revenue for the budget. Products of low-quality foods and counterfeit drugs kills people, but then it also helps boost the income of their producers. Consumption of tobacco and alcohol ruins the nations’ health; however, it increases the profitability of their manufacturers, excise tax revenues for the state, etc.

1.3.3. SLP suppressing factors

The accelerating decrease in the social labour productivity in most countries as “world civilisation’ develops and establishes there, despite considerable scientific and technological progress, indicates the existence of some underlying phenomena that actively counteract progress. What are they?

In order to understand this situation, let us turn back to the labour differentiation scheme presented in Figure 1. Why does the performance of this industrial relations mechanism continuously get worse? What prevents this system from being properly efficient? What are the main drawbacks of the current economic doctrine, why is its ideology deformed?

This issue is difficult to understand not only because of its multifaceted nature, but also because its causes and consequences have intertwined into such a tight knot that untying it turns out extremely complicated. Moreover, should we even try to do that? To find out, let us start by drawing a simple list of the key SLP suppressing factors.

As it has already been mentioned, none of the structures present in Figure 1 is self-sufficient, and only united they have force. Nevertheless, the current economic model does not provide a clear order for distribution of jointly produced income, which further complicates the work of the forces that bind these structures together. Administration has failed to manage it, and the present-day monetary mechanism aimed at executing this function works poorly in the current conditions (for more details, see Subsection 3.2.2).

For this reason, each of the economic sectors pursues its proper interests, and does not care for the common benefit. This breaks the coordination of actions, and constructive cooperation is replaced by destructive competition. The desire to appropriate the bigger part of public income overpowers the task of increasing its aggregate value. Modern experts in the sphere of finance, energetics, trade, housing and utilities and others, with their absolute lack of restraint, are a vivid example of this tendency. For instance, the share of energy-related expenditures in the Russian enterprises price structure has already exceeded 50%, which does not correspond to the number of work force employed in the sector and, therefore, undermines the competitiveness of national economics.

If across the world the correlation between the income of producers and trade in the prices of items is about 70% to 30%, in Russia this proportion has literally been reversed. The profit from management, trade, and credit and financial services has become incommensurably higher than the income of science, education, awareness, light industries, or healthcare. It would be erroneous to assume that the most prosperous economic sectors employ the most intelligent, hardworking, experienced and qualified people. Besides, it seems too naïve to believe that such system better stimulates real values production.

Furthermore, the result of such confrontation is easily predictable. Russian fable writer I. A. Krylov described this situation in his fable: “A Crawfish, Swan and Pike combining | resolved to draw a cart and freight… However much they work, the load to stir refuses. | It seems to be perverse with selfwill vast endowed; | The swan makes upward for a cloud. | The crayfish falls behind, the pike the river uses…’. That is why “… the cart remains there, still’⁴¹. However, the ideologists of modern economics seem to be completely unaware of this; at least, they do their best to ignore the problem.

Another global factor suppressing SLP is the actual lack of interest on the part of all economic structures in seeing real (non-monetary) results of their activities. This applies not only to wage workers and administrators, but also to politicians and businessmen. The actual result of their work is concealed by financial success, personal benefits, fixed salary, profit, preferences, which belong to a different category. That is why the existing incentives for work organisation often fail to help social production to flourish, moreover, they end up suppressing and degrading it.

Indeed, money as a purpose of economic activity does not constitute a real value; it is nothing but a trade instrument. It is a generally accepted equivalent for exchange of commodities, a social convention, artificially enabled to substitute real goods. Unless backed by real things, money is empty, and at present no backing is provided for it. That is why the general acceptance of such “conventions’ cannot contribute to actual prosperity. For instance, various forms of rent, racketeering, crime, corruption, inflation, drugs, etc. generate significant income for some people, but is far from benefiting the society in general, rather, they destroy it.

Huge losses are also born by the humanity as the result of disharmony between production and Nature, i.e. as the result of the desire to use up the natural rent, to make momentary profit without taking global consequences into account. As the result, modern expanded production is by no means expanded. On the contrary, it shapes vital activity by way of destroying its very foundation, i.e. natural habitat. Thus, for the past several decades we have shamelessly live at the expense of Nature, squandering, like thoughtless barbarians, the wealth it has accumulated over millions of years. We now live at the cost of future generations.

Therefore, if the natural mark-up is included in the cost price of products, the profitability of the major part of modern enterprises will be negative! To quote an example, in order to return the Volga river to its pre-industrial state, to restore fisheries and farmed lands, to rebuild the houses and the infrastructure of all submerged territories, much more energy would be required than has been generated by the hydropower plants constructed on the river. One might wonder: what kind of economics are we dealing with, and what is the actual efficiency of its production relations?

And still, one of the most powerful influences on the structure, the ideology, and the very lifestyle of the society is exerted by exploitation, i.e. by unequal exchange of products of labour between economic actors and individuals. Born as simple cannibalism, this phenomenon has by now acquired most sophisticated forms; it is not only revered, it is universally desired. The market itself, in its current form, fully connives in this. As the result, a capitalist system has evolved, within which poverty is strongly tied to the excessive wealth of certain individuals.

The extent of exploitation is truly planetary, this phenomenon knows no borders. One finds it in the way economic structures and the state itself are organized, and in the ways the ruling elites are selected. It is behind the destructive wars, which break out or smoulder across the globe; behind the suicidal consumption of human and natural resources.

The existence of exploitation, as well as that of any complex phenomenon, can be explained by a number of reasons. Among these, physical violence: threats, burglary, gangsterism, theft, and indemnities. Besides, there is ideological pressure, through deception, fraud, ideologic and religious dogmas, and intellectual slavery. Moreover, one should not forget about administrative racketeering in the form of bribery, extortion, corruption, and distribution of privileges. Financial factors also enter into play here, among them, usury, speculations, monetary and price swindles, and stock exchange speculations. Even private property of production means often poorly stimulates production, but suppresses it rather effectively. Money capital is also engaged here: it represents the easiest to become dependent on, and the simplest scheme to deprive people of what they have earned.

In fact, neither power, nor property or capital on their own have a positive or a negative charge. They are like a sword, which can serve the good or the evil, depending on who holds it. All depends on who, where, and how acquires them, and the purpose they are used for. If their mission is to fulfil their natural function – increase the productive capacities of the society and improve life quality – then they are useful. And if they are only employed for personal enrichment, then they could be dangerous. Eventually, this is what determines the entire image of the society, the expedience of its existence of the administration itself, of private property, of labour, and capital as we know them today.

And this situation has always existed. Plato wrote, “Whenever they’ll possess private land, houses, and currency, they’ll be householders and farmers instead of guardians, and they’ll become masters and enemies instead of allies of the other citizens; hating and being hated, plotting and being plotted against, they’ll lead their whole lives far more afraid of the enemies within than those without. Then they themselves as well as the rest of the city are already rushing toward a destruction that lies very near’ ^[25].

In reality, private property is a complex phenomenon with lots of positive and negative qualities. However, it cannot be attributed any exceptional qualities, as modern ideologists do. Therefore, it would be erroneous to assume that everywhere where private property exists the society is prosperous, and stagnates in its absence. In fact, “The property theory is mostly a science about morality’ (Léon Walras). And the property phenomenon itself reflects a specific combination of rights and liabilities of the owners before the society that has created these production means (not to be confused with private property!).

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 ^[11].

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.