What's Wrong with Economics and how can it be Fixed

by Dharma Deva

Traditionally economics is the study of how scarce resources are or

should be allocated. In particular, it has involved themes such as
choices, trade-offs, markets, prices, information, needs, behaviour,
satisfaction, business, government, growth and poverty, and more
recently the environment and sustainability. Conventional economics
focuses mostly on the following
themes:

. Choices and opportunity costs

. Power of the market

. Making decisions at the margin

. Distribution of income and wealth

. Private choices vs public choices

. Risk and uncertainty

This demonstrates that most economists today only understand something

of the principles of general economy and something of commercial
economy. The inequitable distribution of wealth and resources seen in
the world today must demonstrate that even these parts are still in an
undeveloped state. The study of people's economy and psycho-economy are
totally unknown to modern economists, and as such find no place in the
present mode of economic thinking.

A brief outline of what conventional economists focus on is given

below. The potential scope of what could be considered under these
heading is also discussed, should economists seek to broaden their
worldview. Immediately one can see that the scope of what is presently
considered in economics is very limited, although it certainly is
fundamental to economics. However, the application of a narrow outlook
has had diabolical impacts on many cultures and people of the world. To
remedy this shortcoming economics needs to find a set of foundation
principles that are universal in character and allow economics to be
applied for the happiness and all-round welfare of all of society's
members.

. Choices and opportunity costs

In conventional economics, choices and trade-offs are thrust to the

centre of analysis. Associated with all choices are trade-offs. It is
true that trade-offs involve considering and choosing between
alternatives in producing goods and services, in marketing, in
investment and savings, in economic management and in the consumption
of goods and services.

However, it is not the case that people have a real option to consider
between alternatives. Where there is no economic democracy, the
potential opportunities (or opportunity cost of what is forgone by a
limited choice) cannot bear fruition and cannot be known or
ascertained. Generally, in economics, the opportunity cost of any
option is the amount of other goods and services which could have been
obtained instead of any particular good or service. Practically, it is
the benefits foregone from an alternative.

Capitalism, being materialistically oriented, prevents and creates

hindrances for people understanding subtle aspects of life. As
capitalism focuses only on material increases in living as determined
by how much individuals can accumulate (given that capitalism is
concerned with private property and private enterprise), society will
miss out on, or forego, maximum utilization of metaphysical and
spiritual potentialities or these will take on a degraded meaning for
further material accumulation and exploitation. In this regard there
will also be loss of physical potentialities. Many choices are being
made unavailable to the people as a result.

. Power of the market

A market is supposed to help coordinate decisions and act to allocate

goods and services amongst buyers. Efficient markets are supposed to
convey information and send signals to producers, traders and
consumers. Today, markets pervade every person's life on this planet.
Historically, many markets were established through colonial
exploitation in which exploiters first captured a new market area and
then gained control of all the raw materials available in that area
through monopoly rights. They then exported raw materials and produced
finished goods out of the raw materials in their own factories at home
within their own region, only to sell the finished goods back to the
people in the occupied market. Accordingly, this exploitation results
in getting double opportunities to misappropriate wealth - the
exploiters deceive the local population while procuring their raw
materials at cheap rates, and then they sell their finished products in
the same markets at exorbitant prices.

The affects of such colonialism has never been properly or fully

addressed for indigenous cultures around the world and in those
countries where attempts at recompense, rectification or reconciliation
have been made, it has largely resulted in thrusting the indigenous
cultures into the capitalist market place in which limited social and
cultural choices are available. By capturing the local market, colonial
exploiters succeeded in totally destroying the local industrial system.
This legacy persists today and as a consequence many local economies
have not been able to develop wholistically or self-sufficiently. The
only development open to them is to export their raw materials and, in
any case, this is all controlled, managed and owned by multinational
corporations who, in essence, adopt the same approach as the colonial
exploiters. Often, these raw materials will be exported to other
countries in which indigenous cultures have also suffered and as a
result of which there are cheap and easily exploited labour forces.

Essentially, today the players in market places are powerful

corporations. Such markets lack proper equipoise and equilibrium with
the social and cultural needs of the people, let alone people's needs
in many areas of the world for basic minimum necessities (eg, food,
clothing, medical treatment, housing and education). To obtain
equipoise and equilibrium at the physical level requires that markets
be incorporated as part of local or block level or regional planning in
a decentralized economic democracy.

Demand and supply are important factors in the functioning of markets.

Proper planning requires that the physical demand of the day and
physical demands of the foreseeable future are to be assessed and
organised. As well, the physical supply of the day and the physical
supply of the foreseeable future are to be organised and ensured. The
demand function relates to people's purchasing power (or consumer
income), price level and prices of other goods, family circumstances
and natural conditions such as weather conditions. The supply function
or factors which determine level of supply relates to price of goods,
cost of labour, prices of other services and intermediate products
required for production of goods, the number of firms engaged in
producing a product, and levels of capital equipment or technology.

Where outside controllers such as multinational corporations are in

charge of making assessments of demand and supply in a local economy,
the local economy will always becomes uncertain in such circumstances.
Many factors intrinsic to, or human aspects of, that economy will be
ignored. Further, the foreseeable future of the local economy and
community remains doubtful of consideration and, as stated above, it is
both the immediate and foreseeable future demand and supply which must
be assessed, organised or ensured. The best judge of that is the local
community provided it does not have resources, knowledge or
decision-making denied to it. Equity for future generations of that
community will not then fail and the society will be able to build its
culture, rather than be at the whims of economic decision makers in far
away corporate offices.

Capitalism, does not allow for the local community to make the required
assessments of demand, to organise the demand and supply or to ensure
the supply of goods and services to the local community. Democracy is
lost in such circumstances. To grant economic democracy, supply has to
be through local/regional consumer cooperatives and other cooperative
structures for commodities or factors of production. It is essential
that money be circulated within the local markets and that local
capital is not extracted at the whims of global financiers who have no
regard to local needs but only to profiteering for themselves or
wealthy clients. For the demand function to operate properly in the
local economy people's income will have an upward trend for the local
people and not be stifled by income going to outside multinational
corporations to lift their global profits. Purchasing power is only
capable of continuously increase for all people under a system of
economic democracy involving local decision-making, local planning and
local cooperative structures and ownership through which to carry out
commercial activity. No economic system in the world has been able to
continuously increase the purchasing power of the people, because
economic power is concentrated in the hands of a few.

. Making decisions at the margin

Economics often is concerned with making decisions at the margin. This

involves considering incremental change and assessing strategies
accordingly - that is, reformist change. In macroeconomic management,
generally, the questions for policy makers are when and how to tinker
with various policies and instruments at the margin. Capitalism has not
allowed for fundamental revolutions to occur in economic thinking and
in economic management. Generally, decisions are based on incremental
change or marginal analysis.

The reformist approach is to go slowly but in reality it is intended to

allow the process of exploitation to continue. The welfare of the
society is not what counts. What matters to these reformists is that
they only want to perpetuate the capitalist system and to temporarily
satisfy people's frustrations by bringing about incremental patchwork
improvements.

While marginal analysis remains relevant to both micro and macro

economics, there should first be a fundamental rethink about what
economics is about. The economy and its principles should first be
founded on a solid base. Essentially, this means that the minimum
requirements of an age should be guaranteed to all through adequate
purchasing capacity. One way that marginal analysis then becomes
important is in determining how that purchasing capacity can be ever
increasing and then how surplus wealth should be distributed amongst
meritorious persons according to the degree of their merit as assessed
by their social contributions, and their needs so as to allow them to
further contribute to society. Identical distribution to each person
can never be achieved. However, guaranteeing the minimum necessities to
all can be achieved. From there, increasing the minimum standard of
living of people must be and is an indication of the vitality of
society. Increasing wealth disparity for the many and accumulation and
hoarding by a few indicates the dysfunction of society and the mental
disease of the accumulators.

. Distribution of income and wealth

The social and economic objective should be to put an end to hoarding

excess wealth. This cannot be accomplished through reformist means.
Rather, society requires a mechanism by which local economies and
people, or the collective body, has a say in wealth accumulations and
approvals of distribution of wealth and income. This can only come
about through a cooperative decentralized economy. Economic activity
and control is currently centralized in the hands of powerful
multinationals and their controllers (which are certainly not the
ordinary shareholders).

The wealth of individuals affects their choices in all areas of life.

Inequity (the opposite of equity) strips people of control,
decision-making and input into their community. A dynamic economy
should operate so as to lead people from a base or crude everyday
existence to one which is subtle, expansive and elevating. Then will
the aspirations of people be satisfied. For that to occur there must
be: psycho-spiritual education and understanding (otherwise society
will be balkanised or divided and antagonistic); rule by moralists
(ethical leadership based on universal outlook); a balanced
socio-economic structure (integration of economic, social and cultural
aspirations through decentralized economic democracy); and
ever-increasing purchasing power (so as to guarantee minimum
requirements of life and ensure equity in wealth distribution)..
The truth of the matter today, is that the world can be divided into
two
groups: the `haves' and the `have nots'. To say that 80 percent of the
people of the world have only 20 percent of the resources is a
reasonable approximation to reality. Indeed it is probably the case
that closer to 10 percent of the world owns 90 percent of the resources
and earns 90 percent of the income. If you are in the group of `haves'
you tend not to worry about the other 90 percent. This situation
actually results in underproduction and unemployment, eg, 80 percent of
production may only be for 20 percent of the people so that the
capacity to satisfy the needs of the other 80 percent of people remains
idle as does labour, human capital and other inputs.

It is the crude attributes or propensities of humans that leaves people

destitute. Accordingly, it is vital that in an omni-dynamic social
philosophy and socio-economic movement there be utilization of
psycho-spiritual potentialities and understanding supported by an
integral moral outlook and ethical leadership. However, economics as it
is known today has not dealt with social, moral and ethical questions.
Economics today lacks the concept of people's economy and
psycho-economy which would deal with social, moral and ethical issues.
The sub-discipline of people's economy which is directly concerned
(amongst other things) with the guaranteed provision of minimum
requirements like food, clothes, housing, medical care, education,
transportation, energy supply and water needs to be developed by
economists as does the sub-discipline of psycho-economy which deals
with tendencies of mind which affect economic activity and behaviour
such as greed, insecurity, tastes, compassion and subtle values, as
well as consciousness raising. Once the level of consciousness and
awareness, in not only the socio-economic and ethical affairs of
society, is raised but also spiritual awareness is increased this will
have a profound effect on foreseeable future production and demand and
supply of types of goods and services.

Simply guaranteeing freedom in the socio-economic sphere does not

necessarily mean that there will be liberty in the psycho-economic
sphere. The intellectual ability of the people and awakening of
conscience has to be attained through the liberation of their intellect
which is fundamentally a psycho-spiritual pursuit moving from the crude
to the subtle and elevating aspects of life. If the hunger of the human
mind does not seek mental and spiritual elevation it becomes engaged in
accumulating more wealth than what it requires in the mundane world,
thereby depriving others of their share of wealth. Those who exploit
human beings to serve their own self-interests do not want
socio-economic freedom to be granted to people, let alone
psycho-economic freedom. Not only do they exploit people in the social
and economic spheres but also in the psycho-economic sphere so that
people are totally unaware of it, and members of society are unable to
develop their constructive efforts to raise their consciousness.
Manipulation of the mass media such as the radio, television and
newspapers is a typical example.

For there to be full utilization of every resource in this universe,

economics must develop universal principles and practices to enable
maximum utilization and rational distribution of all mundane,
supramundane and spiritual potentialities of the universe and maximum
utilization of physical, metaphysical and spiritual potentialities of
the unit/individual and collective bodies of human society.

. Private choices vs public choices

An integral economic outlook leads to the understanding that the wealth

of the universe is the common property or patrimony of all, though no
two things can ever be absolutely equal. The question then turns to the
appropriate usufructuary rights to be granted to members of society or
to be approved by the collective decision making bodies of society. A
theme that runs through conventional economics is that there is a
distinction between private choices and public choices or the private
sector and the public sector. Much of this is an artificial divide.

If you are deciding how best to spend your weekly income, then that is
a private choice. If the government is deciding how best to raise taxes
and to support the management of national parks, then that is a public
choice. However, we know that individual businesses and private
operators may do things which spill over and hurt the public at large.
When colonisers of last century and early this century hunted wildlife
to extinction, they were making private choices which affected all the
people or the public of the area or country, and the opportunity of
placing value on seeing rare wildlife in its natural habitat or
retaining wildlife, even if only for its existential value was lost,
and this affected the public interest. For this reason governments had
to intervene. This is just one example, but there are many instances
where it is necessary to have some government intervention so that
externalities (eg external social costs or diseconomies that damage
other people or the environment and which are not paid for or remedied
by those carrying on the activity) do not arise or are properly dealt
with.

Much of what goes on now in terms of policy and law to solve this tends
to be reactive. No proper system has been put in place to inherently
thwart private choices taking precedence over public or collective
good. Rather society is demarcated into the private sector and public
sector and in some instances the two are at odds with each other, or
business and capitalist interests feels it has to contend with, or out
manoeuvre, public regulators. Furthermore, even the private sector is
demarcated into the owners of capital or enterprise and the workers
(whether manual or intellectual) who have little say in their workplace
roles (particularly when it comes to economic, social and cultural
matters).

A new paradigm in terms of industry and business structures is called

for. What is needed is a three-tiered economic structure which is
integrated and involves small scale privately owned businesses, medium
to significant scale cooperative enterprises and large scale key
industries managed by the immediate or local government. In such a
structure key industries remain in public control and small scale
businesses are allowed to exist for efficiency gains, while everything
else is carried out through cooperative enterprises in which workers
feel part of their working environment with a shareholding interest.
Such an economic structure should be based on the principles of
self-reliance, maximum utilization, rational distribution,
decentralization, and progressive increases in the standard of living
of all people.

Key industries comprise vital resources which every member of the

public has right of access to and utilization of. These must never be
put in the hands of capitalists. However, if the time comes or parts
can be operated on a cooperative basis, the cooperatization of such
industries or aspects of them may be possible. The management of key
industries is the direct responsibility of the local or most
immediately relevant government and appointees are basically stewards
or trustees of society's resources. Key industries should run on a
no-profit and no-loss basis (after taking into account costs such as
research and development, depreciation, repair, maintenance and any
other costs which may be amortised or involve replacement expenditure
or provision for contingencies such as disasters). The supply of water
is a good example as is the national electrical grid and main cables
for telephone networks.

If the key industry enterprise does make a profit this can always be
given back as a rebate or discount to consumers. Through proper
accounting and insurance arrangement (eg for disasters) it would be
unlikely that the key industry should have to radically raise prices in
case of unforeseen events. The type of electricity outages and
shortfalls as seen in California recently should not arise in a
publicly managed enterprise as everyone has a public interest in the
enterprise, so that there is greatly accountability and vigilance. It
is only when capitalists treat these enterprises as their own for
profit's sake, and create artificial shortages, that decisions against
that public interest are likely to arise.

In this sort of structure, the cooperative enterprises are also better

serviced. The dichotomy of worker vs owner, which is an unnecessary
inefficiency in business structuring is removed through the cooperative
model. The owner-worker polarity is divisive and imposes significant
costs on the community and consumers. If an objective of economic
activity is to create effective and efficient production, distribution
chains and markets, then any divisive or fissiparous tendencies should
be removed as these only add to costs at the end of the day.

Costs will be reduced, and effectiveness and efficiency will increase,

through the spirit of coordinated cooperation, for only that can ensure
the healthy, integrated progress of humanity. The cooperative system is
essential to establish such unity. Commodities which are essential
collective requirements, such as food (the most important commodity),
clothing, housing, education and medical care, should be cooperatively
produced. In this regard, a sharp distinction must be drawn between
cooperatives and communes. Communes involve centralized control of the
economy and without a sense of worker ownership. Cooperatives, on the
other hand, will be enterprises with worker ownership and bonuses. A
variety of participative forms can be envisaged, depending on the
nature of the cooperative, eg consumer cooperatives may function
differently to producer's cooperatives or banking cooperatives or
superannuation and pension funds. Whatever, the participative form may
take the sense of involvement and economic rights currently snatched
away in the capitalist system must take predominance. Generally, this
will be through allocation of shares in the cooperative.
Some commercial activities are too small to be run as a cooperative. In
such a case, small private business holdings are the preferred means of
production of goods and services. Of course, if businesses expand
involving more than the closest relatives or associates, for the sake
of ensuring the curbing of capitalist tendencies cooperatization is to
be followed.

Under this three-tiered structure, the notion of private ownership

assumes no real predominance or importance. Today, private ownership is
generally a myth as many small businesses are struggling and in debt
and the say in other economic enterprises is non-existent, even with
shareholdings. Often shareholdings are merely to allow for input of
funds to be controlled by others who have no association with the
immediate community, region or country and so place the livelihood of
the community at risk. The three-tiered structure instead allows people
to resume cooperative ownership which also gives them a sense of
personal ownership as they can prosper from dividend distributions
and/or returns from their labour. The cooperative can also assume
responsibility for their well-being at times of illness or retirement
by proper integration with other cooperatives specialising in these
functions. The key industries will also allow access by cooperatives to
relevant resources at appropriate prices rather than over-inflated
prices which is an immoral practice for something that is basically a
public resource or infrastructure.

Many antagonistic dichotomies or divisions can be removed by this

three-tiered structure, in particular that of private vs public and
owners vs workers, as well as the elimination of the haves and
have-nots.

. Risk and uncertainty

Risk and uncertainty will always be an element in life, both individual

and social and some element of risk arises from any choices, markets,
and the economy. Ordinarily risk is seen as a hazard or a chance of a
loss. Unscrupulous people will also place society's well being at risk
through selfish activity.

Economics catering for the welfare of all reduces the risk of

insecurity considerably.

Lack of security in society leads to the disintegration of society

itself. Economics bears a responsibility for minimizing or eliminating
the risk of social disintegration. If security in society is to be
maintained there must be no economic injustice. Economic injustice is
usually the result of lack of appreciation of the dignity of labour.
This is solved through the implementation of a cooperative system.
Occupational distinctions in society also lead to economic injustice
where one occupation is used to set itself against others, eg
management dictated by corporate ideologues inconsiderate of the
financial situations of its workers. Again the cooperative system can
remedy this by allowing for election of managers by those having shares
in the cooperative. It will solve the principal-agent problem which
involves how management can be motivated to act for the benefit of the
cooperative or firm (and therefore cooperative members) rather than for
management's own interests.

Economic injustices also come about because of the hording instincts of

human beings. People want property only for themselves and confine
their mental proclivities and horizons in such a way that it is
detrimental to their spiritual elevation. The cooperative system
ensures appropriate sharing and equitable wealth distribution. In all
countries where democracy is in vogue people have been deceived into
believing that capitalism is an efficient and effective allocator of
resources, while in reality the right of economic and social equality
has been snatched away. Consequently, there is gross economic disparity
between the rich and the poor, irrational distribution of wealth,
immense inequality in the purchasing power of the people, unemployment,
chronic food shortages, poverty and insecurity in society.

A progressive approach to economics will seek to minimize the risk of

social disintegration, instead of merely looking at risk taking in
terms of profit outcomes or the pursuit of accumulation of wealth.
Through a proper focus, an understanding of the consequences of social
risk must be gained by economists.

Naturally, ongoing adjustments are necessary in any economy and society

and in use of resources at all levels, and the method of utilization
will vary as per changes in circumstances. What is important is that
these be progressive in nature. By progressive is meant that universal
principles can adjust and establish parallelism in accordance with the
changes in time, space and person. This is to be judged by whether
changes and adjustments achieve a positive psychic flow in the
collective psychology. For example, has there been a progressive
availability of the maximum amenities of life and minimum necessities
to all to satisfy physical needs, so that the satisfied physical needs
lessen the physical obstacles which inhibit human progress and so that
human beings can experience all-round development, especially in the
intellectual stratum, as well as the spiritual.

Conventional economics may attempt to answer questions such as how

changing transport and communications technologies alter the optimal
location of homes, work and optimal routes for commuters in a
neighbourhood (where optimal is considered as providing the best
results relative to costs), but does not have the tools to consider all
round social welfare. This is because of a lack of a sound foundation
or intuitive principles and an appreciation of what is happiness.

Intuitive economic principles for the good and happiness of all

Corruption has by no means ceased in free markets. Instead in many

instances it has become legitimised. Examples abound of large business
interests receiving the corporate dole through subsidies and relocation
incentives while unwilling to act by their own stamina. Or of chief
executive officers receiving tens of millions of dollars in salary each
year as a reward completely disproportionate to effort and at the same
time the corporation, that the CEO is responsible for, seeks the lowest
wages it can pay to workers in third world countries. Economists do not
agree amongst themselves about the foundations of their discipline.
There are those economists in the 'Chicago school of thought' who
believe that the unfettered market place is the best means of resolving
important private and public choices. An opposite view is that of the
'neo-Keynesians' who believe that considerable intervention in markets
by government is required to counter the power of large corporations
and to provide appropriate safety nets in society because without the
preservation of a base the private sector will fail to appreciate the
broader needs of society and will only be profit-oriented.

Most countries in the world - whether capitalist or communist - have

adopted the policy of economic centralization. The economies of the
capitalist countries are centralized in the hands of a few capitalists
or a few capitalist institutions. The economies of the communist
countries are centralized in the hands of the party. To assess the
standard of living of a country, the main issue is whether or not
economic exploitation has been eradicated and the common people have
been guaranteed ever-increasing purchasing capacity. The fact is that
in a centralized economy there is no possibility that economic
exploitation can ever be eradicated or that the economic problems of
the common people can ever be permanently solved.

Furthermore, history reveals that in the past economies have declined

because of environmental damage, eg rivers drying up or changing
course, deforestation and desertification. Also, the decline in
small-scale, rural or local industries has destroyed the balance of
economies of many regions. In addition, a defective educational and
social system can destroy economic equilibrium by giving free scope to
capitalists.

A developed economy should consist of four parts: people's economy,

psycho-economy, commercial economy and general economy. This
quadro-division of economics is a vast expansion on contemporary
conceptions of economic activity. This involves planning on a devolved
basis starting at the block or local level. Such an economy aims to
achieve all-round development and welfare of the human society in a
progressive manner. In a balanced economy there is a close relationship
between the economic prosperity of people and their psychic and
cultural development. Improving individual and collective life depends
upon the all-round welfare of people. In capitalist economies local
people do not develop a sense of self-confidence in their economic
activities, and through this mental weakness the community becomes an
easy victim of economic and psycho-economic exploitation by vested
interests. Capitalists also degrade themselves by their materialistic
orientation and mental obsession with objects that are finite and which
can never provide them with an inner sense of happiness and psychic
well-being

The overall well-being of society is to be achieved by a decentralized

economy which will bring about economic prosperity as well as ensure
greater opportunities for the psycho-spiritual elevation of all members
of society. In centralized economies there is no possibility for the
economic liberation of the people. To make democracy successful,
economic power must be vested in the hands of the local people and the
minimum requirements of life must be guaranteed to all through adequate
purchasing capacity.

For this, fundamental socio-economic principles must be adopted that

are immediately appealable to the human psyche and which satisfy the
aspirations of all people while elevating society so that the human
consciousness is capable of evolving to a higher level. This does not
mean that what economists currently focus on needs to be abandoned.
What is does mean is that a deep intuitive understanding is required
which is developed through a deeper knowledge of the human mind and
spirit. The PROgressive Utilization Theory or PROUT as propounded by P
R Sarkar is such a theory and part of it formulates socio-economic
principles upon which policies and practices may be developed in a
progressive way so that the all-round welfare of all people is attained
and fortified in any age or era.

The relevant socio-economic principles of PROUT that must be adhered to

in this regard (and which have formed the basis of the above
discussion) are as
follows:

. Diversity, not identity, is the law of nature.

. The minimum requirements of an age should be guaranteed to all.

. The surplus wealth should be distributed among meritorious people

according to the degree of their merit.

. Increasing the minimum standard of living of the people is the

indication of the vitality of society.

. No individual should be allowed to accumulate any physical wealth

without the clear permission or approval of the collective body.

. There should be maximum utilization and rational distribution of all

mundane, supramundane and spiritual potentialities of the universe.

. There should be maximum utilization of the physical, metaphysical

and spiritual potentialities of unit and collective bodies of human
society.

. There should be a proper adjustment amongst these physical,

metaphysical, mundane, supramundane and spiritual utilizations.

. The method of utilization should vary in accordance with changes in

time, space and person, and the utilization should be of progressive
nature.

Progressive thinkers and activists need to consider the practical

implications of these principles. Good people of the world cannot fail
to ignore them. Any step, no matter how small, towards their
implementation in the short, medium or long run can surely cause no
harm to any person or society, but will only elevate the human
condition.