Ownership of Corporations

Employee ownership is a key ingredient for a just deserts economic system. There are two other novel concepts that are related and needed here.

The same arguments that hold for ownership of real estate leading to unearned income also hold for ownership of other things, including shares of corporations or companies. Corporations sometimes have large changes in their valuation, leading to higher values. If a person purchases some share of the corporation, and the workers and those in close relation to it are successful in increasing its value, the person with the share would reap the benefits.

If this is thought to be a bad idea, there are two solutions, at least. One is to tax the capital gains resulting from the sale of a share of the corporation, so that the capital gain could be recovered, in part, and distributed to those whose efforts led to this gain. Another is to ban the sale of shares of corporations. Taxation is a well-known factor in almost any economy, and its advantages and disadvantages are known to some degree. However, if the sale of shares of corporations were not allowed or were restricted somehow, how would such an economy function?

Many corporations and companies are owned privately, and many were originally the property of the founders. This arrangement can be described, persuasively but not properly, as the owners reaping the gains of their efforts. This is quantitatively not true. Their effort may have certainly contributed to the increase in value of the corporation or company, but as the effort of a human is limited in value by the time spent and the value of the mental and physical labor contributed, the increase in value of the corporation can be many times the value of the labor hours. Founders also could be taking a salary, would be another recompense for their time and effort, meaning that the increase in value of the corporation would be duplicating that payment.

Corporations and companies which are privately owned by the founders are often passed via inheritance to the heirs of these founders, and they maintain ownership possibly without being involved at all in the corporation or company. This is the exact recipe for unearned income, and the just deserts socio-economic system is supposed to reduce this, while increasing earned income. Furthermore, the heirs might simply sell their shares, leading to another variant of unearned income.

One variant that partially alleviates this is the employee-owned corporation or company, where the employees all own shares of the entity. There can be many different ways in which employees share in the value of the company or corporation, but the core idea is that instead of extra salary or wages being given to the employees, shares of the entity are. They might be forced to sell them when leaving the company, or not, depending on the particular rules that the entity sets up. The contribution that the employees make toward the success of the entity can be considered some justification for any capital gains flowing to them. One nice point about employee-owned corporations and companies is that it provides additional motivation to the employees to do whatever they are capable of to increase that success and thereby increase their own total received value. Motivation is a key ingredient to any socio-economic system, as the system’s overall productivity is directly related to how industrious those who work are, including those who work on improving the various entities, networks, organizations and other features of the system.

There are many other factors which influence the value of a company or corporation, besides the contributions of those who work within it. Sometimes abrupt changes happen, such as the failure of a competitor, the new availability of a useful invention or resource, or a new appreciation of the value of its products by whoever is consuming them. These can result in a large capital gain, which does not appear to be the result of the effort of the employees. They should receive some of this capital gain, but the rest should be returned to those outside the entity, which by default are the various levels and agencies of government and public institutions. One concept which might be suggested is a progressive tax, amounting to zero for gains below some percentage and increasing as it exceeds this.

The other side of an abrupt increase in value is an abrupt decrease in value. This can happen for the same reasons as an increase, and more besides. If there was an inverse tax for these situations, a soft-landing could be provided for the corporation suffering the reduction in value. Sudden changes prevent individuals within such an entity from adapting. A company which was specialized in producing a product for which demand was rapidly diminishing, or which uses a resource which was rapidly depleted or became more costly, might need such a soft landing, so that it could downsize without the trauma of a collapse. The progressive tax, with both a positive and negative side, could accomplish that without eliminating the motivation for those in the entity to solve their problems by themselves. If the tax was fed into an insurance fund, it might be able to mitigate these situations.

Thus, two of the tools that might be used for a just deserts economic system are employee ownership and a two-sided progressive tax on the capital value of any business entity, corporation or company to be used for an insurance fund. There are very many ways in which these two concepts might be implemented, and a just deserts economic system might allow large numbers to be present, as long as they do no disservice to the concept of just deserts. Somehow there must be a balance between what might be called luck, meaning the sum total of outside factors, and successes due to the deliberate actions of the employee-owners. Luck cannot be eliminated, just kept from being disastrous or miraculous. Sometimes luck and internally-generated successes cannot be quantitatively separated, and so if the progressive levy could accommodate both, it might eliminate this discrimination problem.

Thus, the prescription for capital gains is that, whatever the cause, it is untaxed, negatively or positively, if the annual change is under some percentage, such as five percent, and then increases gradually at first and finally steeply. This does not discriminate between luck and success, and perhaps these two causes are too often mixed together. This also has the advantage of being fairly simple in its description and implementation.

Are there other aspects of employee-owned entities which might lead to some amendments to the very simple concept promoted here? One is that employee ownership might inhibit the inter-entity mobility of employees, which would mean that the best use of personnel would not be happening. If a person leaving one entity wound up with zero initial ownership of the new entity where he was now working, they might not make the transfer. One way to alleviate this is similar to that done with portable pensions. With a portable pension, there is some net value which is ascribed to each employee, and when they leave a company for another one, the value of the pension transfers over. As long as the company cannot make use of the pension amount for business uses, it would not matter to the departing or arrival company that this happens. This would happen with a pension system which covered more than one company, perhaps being regional or otherwise extensive. The ownership rights might also be somehow transferred from the departure company to the arrival company, but this must be a bit more carefully done so that there is not a great loss or gain.

If an amount equal to the transferee’s share of ownership was transferred to the arrival company from the departure company as well, then this amount might be used to reduce the debt held by the arrival company and increase that held by the departure company. This would change the value of the two companies by exactly this amount, in an accounting sense. There might be other schemes which also reduce any additional inhibition to transfer between companies or corporations. There will be many factors which affect a decision to transfer between entities, including uncertainty about the nature of the new position, other employees and their willingness to accept a new employee, change of locality and its affect on a family or relations, and many others. These are not the subject of a socio-economic system, at least not initially, but the financial incentives or disincentives can be reduced so that they do not form an additional feature.

Government organizations can have similar value associated with them, which would expedite the transfer of individuals between government agencies and private entities. One often-discussed fault of government organizations is that there is little motivation to improve and excel. If a value fund could be established for each government agency, which would increase if the agency was able to meet its goals or exceed them, then there would be some motivation for employees to work to accomplish that. This value fund could be transferred to the ownership fund of a private company or vice versa, so there would be less inhibition to transfers. Government agencies would become, to an extent, analogs of employee-owned private entities.

Categories of Libertarianisms

Just defining what a particular socio-economic theory includes is difficult, when history has continued to generate more and more variations of the concept.

One of the problems of making up a new socio-economic theory is that words often associated with such theories are almost undefined, or have such a spread of definitions that using them leads to confusion. While each author using the word may have a clear definition, it differs from what was used elsewhere, meaning that comparison is difficult, typically a tedious exercise in figuring out exactly what each author meant by it. When there are multiple words needing such a explanation, simply keeping the different definitions straight is onerous. There must be a better way to use language in expressing concepts.

If a word is used to label a complex socio-economic theory, it seems to be a common practice to re-use the word when a second similar theory is constructed, even if the similarities are rather partial. Then some adjectives might be used to divide up these two somewhat similar theories, with the single-word label chosen to represent those attributes which are in common. This gets messy as well, as such theories typically cover all aspects of society, or as many as the author felt important or had time to cover, and the second and deeper levels of adjectival modification can be used to represent any subset of them. Perhaps a better way would be to label the theory by the name of the author, and in situations where there are mutual authors, one descending from another, or one modifying the work of another, or one extracting key concepts from another, just to give up in despair.

Libertarianism is one such word. It has been used since the seventeenth century to label a wide, wide variety of socio-economic theories. Some put capitalism and communism both under the umbrella, or more specifically, some varieties of both capitalism and communism there, with others outside. There seems to be no way to clean up the concept and make something quite distinct out of it, as there is such a long history of ideas and theories to which it has been attached. Scholars like to dissect the writings of previous creators of such theories, and show similarities and flows of concepts and the like. For the purpose of the creation of a new theory, histories of ideas like this are amusing, but might be distracting or even obfuscating.

Typically, almost universally, the authors of tracts or books on some specific, particular variant of a socio-economic theory are proponents of the theory. Otherwise they might be writing their missives for the purpose of gaining favor with those to whom benefits would flow if it were adopted, or justifying such a flow within an existing social arrangement. One either works for emotional benefits to oneself, or tangible benefits. Scholars might be writing dissertations on them for neither of these benefits, but to a career advantage that comes within an academic or similar circle.

Perhaps regrettably, I have no such benefits or feelings, and simply am trying to understand the essence of a socio-economic theory, principally for the amusement of seeing how ideas fit together and how a theory might be constructed out of them. It is sort of like having a set of Lego blocks as a child, and trying to make something out of them.

Two of the themes which often attract the label of libertarianism are individual liberty and a lack of government. These obviously conflict with one another, which is one reason why there are so many variations of libertarianism. When one writes in favor of individual liberty, there is an implicit list of things which can be done and a complementary list of things which cannot be done. For each of these actions which can be done, there may be consequences, and how they are treated needs to be specified as well. Then comes the idea of community, and what types of community might be formed, and after formed, managed. How do communities interact with other communities and with individuals?

Just how little government is prescribed is another matter. Some government is necessary to ensure that whatever rules the author or authors of the socio-economic theory are prescribing to the population affected are enforced. Certain libertarian variations relabel government as private security, but this is simply another form of government. When we think about a modern government and the myriad rules they prescribe as to prohibited and mandatory actions, we can obtain an idea about how much detail needs to be included in a socio-economic theory. It has been the experience of virtually all governments that legal systems grow more and more complicated with time. This should be obvious. Laws that are written serve as the system that people interact within, and so loopholes and novelties are sought to obtain personal advantage, without violating the rules that have been established. This might offend some thinkers relating to abstract notions they espouse, and so the laws have to be increased to cover these offensive behaviors.

If we want to categorize socio-economic theories, or specifically the variations of libertarianisms, there should first be some thought about how to do that, and, as before any complex task, there should be some thought about what is the goal of the definitional exercise. It may well be that many of the scholarly distinctions and classifications of libertarianism are useless for some purposes, and unless we know the purpose of the definition activity, we could easily go down that path. Some erudite explanation of the variations could be done, but they would miss the point.

What components of a socio-economic theory rise up to be the top-level distinctions between variations? Recall that there are three essential parts to such a theory: that part relating to production, that relating to distribution of that which is produced, and that relating to consumption. Recall also that many labels are completely useless in defining such a theory. Ownership is one such label. Control of the use of something is what affects production, distribution and consumption. Ownership could reside in the whole population or in individuals, some group of nobility or some class like a wealthy elite, but those that control use are the ones who make decisions that affect the lives of the citizens.

Once a specification is given as to who makes controlling decisions for these three components of a socio-economic theory, there needs to be a span of control description. Things can be controlled so as to benefit a set of individuals, and exactly who are the ones to be benefited is a critical divisor of socio-economic theories. When we use the word benefits, there is also some clarity that is needed in this area. There are tangible benefits, such as shelter, nutrition, healthcare, education and so on, and there are intangible benefits, such as entertainment, praise, competitive awards and induced self-satisfaction. Benefits are dynamic, and can they be changed over the course of a citizen’s life through his own actions, and how much and what controls are in place to limit this? Inheritance of benefits is also a detail that might be needed for the top level categorization of a socio-economic theory. The use of one’s time is also a benefit. Who decides what a person will do with their own time, and what will be the consequences of that choice?

Two key ingredients in a socio-economic theory are motivation and corruption. Motivation is good and the theory should encourage it. Corruption is bad, and the theory should discourage it. Motivation in a libertarianism variant is tied to benefits, and one type of libertarianism is that individuals and communities should make decisions as to their own actions to receive benefits. In one extreme, all benefits might flow to individuals and communities made up of voluntary associations of individuals. In the other extreme, all tangible benefits might flow to the population, with only intangible benefits flowing to the individuals and communities.

Another dimension, not connected with the benefits one, is that of disposition of time. Who decides how a person might spend their time, and how much of it is under the control of the decision-maker, whoever he might be. One end of the spectrum has someone other than the individual or community deciding what they must be doing, or prescribing a boundary around the possible activities they can undertake. The other end of the spectrum has the individual or community deciding what they will do, within some boundary that has been set in advance. There is little difference between these two from one point of view, the real difference is the degree: is there much or little activity or time required by other than the individual or community?

There are four corners of this two-dimensional categorization. In one corner is the proletarian, who receives only benefits from communal activity but few from his own, and has their choice of activity strongly limited by some community of which he is a member. In another corner is the noble, to whom benefits flow from the society in general, and whose time is wholly their own, or all their own except for some obligations to higher levels of nobility. These are opposite corners. In the other corners are the entrepreneurial individual or community or the small land-holder, who receives all the benefits from his own work and is largely free from a draft of his labor but must devote himself or itself to gaining the benefits, and the prisoner, who receives only little benefits but has little demands on his time, although opportunities are negligible.

Libertarianism is the line from the entrepreneur to the proletarian. It relates to the motivation of production. Any set of theories as diverse as libertarianism cannot be condensed to a single line, but the two-dimensional spectrum provides perhaps the top-level view of the variations. Other dimensions are deemed here to be less important, but that might be considered somewhat arbitrary.

Goals in a Socio-Economic Theory

We don’t understand much of society’s workings, such as when economic collapse might occur, so how can a socio-economic theory be created which accomplishes this?

The universe does not give us goals or purposes or rules or anything else. They are chosen by man. Man chooses according to some preferences, and these preferences are not universal. In other words, there is no genetic programming for goals or anything that might be transformed into goals, except on the individual level. So when we look at entire societies, it is a severe challenge to turn anything, such as these individual goals, into rules for citizens in the society to follow.

This challenge has been overcome in every society, whether or not the rules are recorded somehow or just taught as custom. They vary tremendously, and since social and economic rules are part of the foundation of any socio-economic theory, making choices for them without any universal guidelines is also a severe challenge.

A consistent set of goals is desirable, to the extent allowed by the complexity of social life. Inconsistent goals lead to inconsistent rules for behavior, and this can be exploited by one faction, the one possessing power and force in the society, to be able to suppress all other factions, as there will be some rules that cannot be followed due to inconsistency. These can be used as a faux legitimization of punishment or levies imposed by the power faction on individuals from other factions. In general, however, consistent goals are desirable as it leads to all citizens in the society being able to follow whatever was determined to be in the best interests of the society.

Because there are such great differences between individuals in any society, the set of goals and the rules derived from them must apply differently to different categories of individuals. There are countless categorizations possible, by age, by sex, by caste, by origin, by accomplishments, by abilities, and certainly others. Rules would follow the template: a person in this category must do this and must not do this. Rule negatives can be expressed in the rules by a slightly different template: a person in this category may do this with no interference by governance. If the set of rules is logically created, each of them would relate to some goal, and would contribute to the achievement of that goal in some incremental way.

Goals are adopted because of some emotional connection within powerful individuals, or because of legacy considerations, in other words, at some time an individual or group makes up the rules, and then they stay in place until some other powerful group finds them in opposition with their internal interests and changes them. The goals can be completely opposite: one group may find conquest to their liking, and the society is organized to accomplish that; another group in another society might find that peace through defense is what they desire to organize their society around, and yet another might seek peace through any means including servitude or vassalage.

Categorization can exist via legacy divisions or can change, gradually or abruptly. Some specific caste can suffer an erosion of their perquisites, over a long period of time. Another caste might be freed from serfdom by a single order effective on a particular instant, which might be seen as abolishing a category arising from origin. A new category might be created by a draft order, affecting for example able-bodied males between the ages of 20 and 30, a new category not utilized before in the canon of laws. A schoolchild category can be created out of the larger category of children, consisting of those between 7 and 14, for example.
Most changes in goals, categories and rules affect the economics of interactions between individuals and between an individual and society as a whole, and thus have economic impacts as well as social ones. It would seem quite presumptuous to have a socio-economic theory specify all these details, but several have made attempts at it. The difficulty is getting started, and coming up with some goals, from which other aspects can be derived.

Goals can be chosen for a variety of sources, but underlying them is the desire of the creator of such a theory to have their own emotional framework justified. An author may have revenge as a covert emotion, and want to create a consistent, appealing system which eliminates the power and prestige of the targets of his emotion. Persuasion being what it is, this is certainly possible. Incremental changes would be easier to implement that a system-wide change, so this route might be easier to navigate than coming up with a whole system revision. Picking on the status or privileges of one group and persuading to change only that might be done with even a single book, or nowadays, a single e-book.

If an author does not have any revenge motive, or similar motive generated by their experiences in life or even their own vicarious experiences, what might substitute for that? Greed is one very strong motive, and an author of a new socio-economic system might be propagandising for his own benefit, or for the benefit of a group which will subsequently benefit him, after the new system begins to flourish and be adopted. This would work for an incremental change as well, and could serve as a legitimization of ongoing changes, ones which were not motivated by society being persuaded to change, but by some evolutionary alteration under way in the society to which the writing was addressed.

Besides hate and greed, behind whatever façade the author found convenient, their might be motivations more benign. An emotional desire to help others, or some specific others, without necessarily depriving others of their positions or privileges, might serve as well. Perhaps there is a way to make a non-zero sum game out of changes in a socio-economic theory, allowing this to happen, but likely there would be some collateral damage.

There could also be over-arching goals derived from abstract qualities and quantities, such as population, standard of living, trade, health, eugenics, and more. Consider the concept of progress in the technological sense; this could be used as a goal. As an example, if this latter goal were used, the categories that matter are those related to this pursuit. One category is that of scientists, another would be engineers, and a third would be technicians, all related to the continued progress of technology. Those involved with businesses which promulgate the technology across society would be yet another.

One choice that the rules could try to enforce could be continuous progress, meaning an absence of economic collapse, war, or other social catastrophes. It is true that war might accelerate the development of technology in certain areas, as has happened in our history already, but that only could take place if the development of technology were not already being emphasized and generally pushed forward as fast as possible, which is what a socio-economic system that was being built around this idea should achieve. War can divert resources into the progress or adoption of technology, but if resources are already being diverted in this direction, what more might be done by a wartime setting? Probably very little. Lackadaisical support for technology progress could be accelerated by the needs of war, but for this to exist, the socio-economic system would have had to almost fail in its principal objective.

For war to not occur, it would be necessary to understand the various causes of war, and try to establish the rules of society so that nothing leading to war would occur. Likewise, economic collapse would also have to be understood, and the predecessor conditions leading to it would have to be avoided in some manner. How exactly would some theory prevent these two scourges of society, when the processes that lead to them are not understood? The stability of society would have to be preserved, and this would have to happen even though the society was undergoing rapid change, due to the introduction, continuously, of newer and newer technology. Technology would have to be defined to be supported, but if it is deemed to be the application of scientific knowledge to any aspect of society, then the entire spectrum of science would be supported, and the trickle-down of scientific knowledge in every area of science, as applied to any appropriate aspect of society would also have to be supported. This sounds like a recipe for continuous transformation, and under such conditions, how would war and economic collapse, and any other social catastrophe, be avoided?

Another unknown is the best manner of governance. Take for example the governance of the principal objective, the expansion of scientific knowledge. How is the choice of subject chosen for any group of researchers? How is the allocation of funds to be best managed? How is education to be handled? How are all the aspects of society which contribute to having an educated, scientifically, population to be dealt with, or even determined and listed, much less directed in the useful manner?

This simple example of a goal-directed socio-economic system amply displays that we are far from having enough understanding of even simple-to-describe components of society to be able to even suggest how they might contribute to a social goal. There might be personal opinions about any of these components, as to how they work and how they might be bent to supporting a social goal, but there is certainly no scientific understanding of the various processes that occur within each of them. Perhaps the only conclusion that can be made is that science would need to be devoted to understanding these basic social processes as the very first step of the construction of a socio-economic system that supports a goal, such as technology progress. It could be that the prevalence of war in human history has pushed technology to examine offensive and defensive technologies, but not technologies in the larger part of society. It is likely time to remedy that situation.

Balancing Trade

Trade imbalances can produce many benefits to a nation or other entity, just not net over the entire nation.

Trade is often thought of as goods moving across borders, and that is convenient for many purposes. The obvious generalization is to anything that moves across borders, whether it is people, manufactured goods, agricultural goods, ideas, various financial objects, or whatever. The generalization is useful in that it allows one to contrast trade in goods to the exchange of anything else, and possible gain some insight.

Something is inside at least one of the borders, but there doesn’t necessarily have to be an equivalent entity on the other side of the border in question. Balance means there are two specific entities, typically geographic, but not necessarily. Equivalent entity trade would be between two hemispheres, two continents, two nations or groups of nations, two states or provinces or whatever is the next division below nation, two counties or parishes or whatever is the next below states, and even down to two boroughs, or regions of one city. Single entity trade is between any one of these entities and the rest of the world. There might be two entities involved in the balance, or a thousand; with multiple entities there is a network of trade and otherwise it is simply bipolar.

What might be the benefits of balanced trade, either in some single well-defined category, or some larger quantity lumping together some set of categories? The seemingly obvious flaw with unbalanced trade is that something must compensate for the imbalance. Either the entity with the deficit in exports is agreeing to pay for the difference in trade sometime in the future or with fixed assets in the country. If the imbalance is only temporary, the fluctuations in the direction of trade balancing out over time, then imbalance is only an accounting convenience, and disappears over a long enough duration. If instead it is chronic, and the total amount accumulates with each reporting period, then after some number of periods, the debt situation fails to work. The total debt becomes too large and there is either a default or a tendering of some assets of the country to the trade principals with net surpluses.

It might be possible to talk about the short-term aspect of trade imbalance separately from the long-term aspect. In the short term, a country with a shortage simply runs an arrears for the goods it imports in excess of the goods it exports. It might seem to be doing quite well, if the costs for the total of the excess do not grow too large. The country would have a standard of living, defined any which way as a measure of how much is consumed, and that standard of living would certainly be higher than if there were no trade. But debtors always live higher than those who live within their means. The argument that the debtor is therefore somehow better off can only be made by using a very restricted use of the term ‘better off’. A consumer debtor is not ‘better off’ if some long-term integrated measure is used.

This is a contrast with the producer debtor, who might be using near-term capital to become more productive and gain the amount needed to pay off his debt, while still producing more goods than this amount. The question of when a producer debtor is ‘better off’ is more complicated that for a consumer debtor, and depends on the use of the debt amounts, the repayment terms and any other obligations, what the expectation is of his current and future productivity and how much credibility there is in these estimates, and probably a half dozen or more other factors. But the question of the consumer debtor is simple, unless there are more than one.

If a country, or other entity, thinking of allowing a trade imbalance to exist in a chronic fashion, consists of multiple separate factions, with different powers and different assets, then the division into factions might influence the decision to allow the chronic trade imbalance. Who gains and who pays is the question. If there is a separation of these activities between factions, with one set of factions gaining the increased standard of living or some other benefit from imbalanced trade, and the other complementary set of factions being responsible for paying in the long term for them, then the decision might be taken in a somewhat non-holistic way. If the factions that benefit but do not carry the burden of long-term disadvantage also control the governance of the entity, then they would certainly have the motivation to allow chronic trade imbalance. Whether they could do this would depend on how the governance was organized, for example, if there was a constitutional or customary rule that trade must be balanced, then obviously they would be prevented from taking advantage of the separation into factions in this way, until the constitutional or customary rule could be bypassed or revoked.

There could be multiple other benefits that do not fall equally to the different factions within an entity, and multiple other disadvantages that also do not fall equally. Thus, to assess if the entity is likely to permit chronic trade imbalance two factors need to be addressed: the regulatory posture of the entity as a whole, as to whether it would permit trade imbalances, however they might be measured, and the net benefit less disadvantages of the factions which have control over the decision-making on allowing chronic trade imbalances. If there are no checks or barriers for this, for example, if there were sufficient public relations output promoting it and little opposing it and no historical custom to disallow chronic trade imbalances, and some net benefit would go to the factions making the decisions, then they might certainly consider it.

As to historical custom, if chronic trade imbalances were used for long periods by one set of factions, perhaps a changing set of factions, then the custom would be in this particular entity to allow it, despite the overall net disadvantage of it. Such a long period of use of chronic trade imbalances by one set of factions would also allow plenty of time for there to have been justifications, clever or absurd, created for it, even though a sufficiently high-altitude look at it shows the overall net disadvantage. The justifications could concentrate on the differential benefits, in the short-term, and ignore the integrative disadvantages, in the long-term, and if the justifications were sufficiently convincing, eloquent, erudite and obfuscating, then there would be little in the way of barriers to the use of chronic trade imbalances on the part of one set of factions to obtain a net benefit over both the short-term and the long-term.

Once constitutional regulations, historical custom, commonly held discourse and other potential obstacles are all removed or relegated to being inconsequential, the factions with decision-making authority or influence could simply go forward and make the necessary arrangements within and without the entity to induce chronic trade imbalances. Any objections to the arrangements could be dismissed as issuing from those who are uneducated as to the details of the processes that are about to take place, or rather, have been taking place for some extended duration. An even more solid buttress against objections can be constructed if one of the factions that receives net benefits from chronic trade imbalances is the one which generates the large body of discourse on the topic. With this additional impetus, the literature would continue to be amassed on the side of the differential benefits, and the integrative holistic disadvantages could continue to be ignored.

Perhaps the most serious concern the successful set of factions would have would be the constituent parts of the group, and any efforts by some of the factions to oust others, thereby possibly concentrating these net benefits into fewer hands and thus magnifying their amounts per individual. There would seem to be a minimal set of factions necessary to organize such a takeover of the trade situation, and any other faction might be a candidate for ousting, at some time. The minimal set would consist of those involved with regulatory matters relating to trade, imbalances or other aspects, those involved with the justification of the chronic imbalance and the publication of the justification together with the suppression or at least the ignoring of any counter-arguments, and those involved in the trade process. The trade process could be quite complicated, involving many moving parts, including shipping, outside-the-entity production, inside-the-entity distribution, financial arrangements for all of this, inter-entity transportation, plus governmental regulation of any and all of this. Finally, somehow the flow of benefits has to be arranged for, as there is not necessary flow between these factions comprising the minimal set. Some processes would have to be grafted onto the trade process itself to ensure that the necessary factions all receive some share in the factional benefits gained by chronic trade imbalances. But this type of flow would not have to be overt or else could be overt but disguised in any of a huge number of ways, most of which might be laudable under some rationalizations.

Thus, chronic trade imbalances between any two entities, or between one entity and the rest of the world, might induce significant advantages to a set of factions which somehow collect all the power necessary to organize it and keep it in place. This arrangement does not have to be thought up by some genius of chronic trade imbalances, but can grow over a long period of history, if this situation continues to exist.

Corruption and Governance

Corruption is hard to even bound and catalog, and even harder to eliminate. Here are some obvious alternatives.

One of the reasons for corruption being endemic almost everywhere is the huge number of ways it can be conducted. Virtually anyone in governance who makes decisions with some discretion or options can be subject to it. This means government of any level, and also large bureaucracies that have governance over some limited domains, such as purchasing agents. A list can be made that seems to go on forever: judges involved in deciding on evidence or sentencing including incarceration and fines, police with minor offenses or when scrutiny is not present, permit controllers and inspectors regarding both timing and details, license grantors, prosecutors with discretion to pass on cases or plea bargain or try, detectives with a choice of cases to attend to, contractor selectors and those who approve on change orders, infrastructure designers and approvers including eminent domain questions, materials specifiers, those establishing tariffs and taxes and fees, medical personnel deciding who will be treated and who will not, lawyers able to mount an effective defense or offense or simply go with an ineffective one, those who route traffic, those who bargain for wages and benefits, those who organize protests or do not, those who choose sites for expositions or conferences or major sports events, and many, many more. This is simply a partial list of those who might have the opportunity to seek out or respond to corrupt offers.

The mechanisms for corruption can be diverse as well: secret meetings between the parties or agents of them, communications via public means or private means, in code or unencrypted, with payoffs specified or left vague, basic understandings of how things work that do not require meetings, and certainly others. Guarantees might exist or not. Partial payments may happen or not.

Payoffs, that which the decision-maker receives, can be legal or illegal, which depends on the laws of the jurisdiction involved. Some almost humorous situations exist where the potential corruptee, to coin a word, is also responsible for anti-corruption law, and so can leave loopholes to avoid any illegality for his/her chosen method. Payoffs can be direct or disguised as something for services rendered, either around the time of the corrupt act or later, even much later. The payoff might be a promotion, such as a judge to a higher seat. The payoff might involve a friend or relative of the corruptee rather than the corruptee him/herself. The payoff could be a legitimate cover, such as a book advance for something that will be ghost-written as part of the payoff. The payoff could be in the form of donations to any cause at all, one which benefits the corruptee or his/her friends or relatives or anyone they favor.

Corruption can be done as a barter trade, where one decision-maker does something for another, who returns the favor. It could involve a triangular trade, where A makes a decision to benefit B, who makes a decision to benefit C, who makes a decision to benefit A. There is almost no limit to the ways that corruption can happen, who can be corrupted, how and when the benefits arrive for the corruptor and how and when the payoff arrives for the corruptee. It could be as simple as a bottle of vodka for a form being filed properly or a billion-dollar tax break. It could be an expenses-paid vacation at a tropical resort or a box seat for a sold-out sports event, all in exchange for simply purchasing something or causing something to be purchased. It could be a new home at half price in exchange for a permit to build a hundred homes in a restricted area. It could be a political donation in return for using one’s influence to mask something that might otherwise be objected to by the public. It could literally be anything.

In a socio-economic system that is being devised to be an improvement over existing systems, how should corruption be handled? First off, should it simply be ignored, and the socio-economic system be constructed to be as immune to it as possible? Alternatively, should it be a main focus of the design, which mechanisms employed to reduce it? Is it even possible to minimize it, given the variety and diversity of ways in which it can occur?

One aspect is that it does take some time to set up, if on a large scale. A new appointee or electee might not be ready to commit such acts, and time is needed to soften his/her resolve to remain free from such a taint. Others might be quite ready from their first day to compromise their position. Besides the readiness or unreadiness of new position-holders to commit to corrupt actions, there might be some time needed to develop the trust involved and to generally determine how to manage the corruption. New agreements would need to be set up. Thus, some partial amelioration might be obtained in a system which requires frequent change of individuals for any position which might be subject to corruption.

Short duration appointments also eliminate one motivation for corruption, which is to secure the position for long periods. If the socio-economic system forbids this, then there is no need to utilize corrupt means to preserve a position. Although a loss of efficiency is unavoidable, that loss needs to be traded off with the gains that less corruption provide.

What exactly are the losses caused by corruption? Possible losses are as diverse as the types of corrupt actions that could be taken. Consider first purchasing and contracting decisions. If there is simply a loss of some percent in costs, this would be almost not worth much effort to stop. If the corruption could lead to a doubling or tripling of costs, then there should be some efforts to catch it and stop it which might entail a cost of a tenth or so of the total cost involved. These efforts would involve verification of designs, testing of materials, and inspection, inspection and inspection.

The other side of this aspect of corruption is that of the consequences of being found out. If there are almost none, then corruption is being aided and abetted by the system. If they are severe, the opposite situation happens. One part of this puzzle involves specifying who can discover and investigate the corruption, which includes whistleblowers. A thoroughly corrupt governance apparatus will punish any attempt at whistleblowing, so there might to be said to be a critical mass factor in corruption. When it becomes too entrenched and widespread, it will act to preserve and protect those guilty of it.

This feature means that there might have to be anti-corruption actions that are very different in a situation where almost no one is corrupt as compared to one where almost everyone in governance decision-making is. For the low incidence situation, whistleblowing and the protection provided to those who do it should be a serious deterrent. But for the high incidence situation, something outside individual action will be the only course possible. A periodic review of all possible corruption situations by investigative teams with broad powers would seem to be the only way to clear up a network of corrupt individuals.

One typical slogan used for the battle against corruption is more transparency. Some types of payments leave trails, such as financial transfers or sales of items for less than they are worth. Other types of payments leave none whatsoever, such as the promise of a promotion within some number of years following a judge’s decision on some matter. Since promotions are largely a matter of some single or multiple individuals’ review of qualifications, they are not subject to any transparency checks. Nor are extraordinarily high payments for simple services, as the selection of the amount to pay for a service of any notable is subject to the whim of the payor, and who can decide if such amounts are reasonable. Thus, some corruption is beyond the reach of any agency, as it is wholly within the bounds of potentially non-corrupt transactions, and the intent might have been not recorded or if recorded, well hidden. The other side of this unassailable corruption is when the corruption is perfectly legal, there being no law against the particular type of arrangement made. It is particularly unassailable when the same group which uses a particular type of corruption is the group which writes the regulations or laws which define the boundaries of behavior that is acceptable or not.

This last problem can be remedied in a new socio-economic system by ensuring that anti-corruption laws are written by a specialized task force which does not have any other responsibilities that could lead to them being subject to anyone’s desire to corrupt. They simply take action when needed.

Thus, anti-corruption activities include: forced short duration of any position where corruption might arise; protection for whistleblowers; a periodic special task force for investigating corruption with no fixed agenda but the responsibility to look for it everywhere possible; a specialized legislative task force with no other responsibilities than to write laws to prevent corruption, including transparency requirements and also boundaries on acceptable behavior. One further step is to made the holding of such a corruption-prone position sufficiently worthwhile, in and of itself, so that anti-corruption measures will not severely diminish the cadre of applicants. It does no good to have a strong anti-corruption tenor if it means that there are hardly any capable people interested in undergoing the scrutiny necessary to hold such positions.

Whims and Time in Economics

Here is a simple way of categorizing possible socio-economic theories into lottery and non-lottery types, and how they use time in their selection of goals.

For any new socio-economic theory, the logical starting point is to choose the goals that the socio-economic system will try to achieve. Just like one designs a refrigerator with certain goals, or a bridge or any other man-made thing, a socio-economic system needs them as well. Without goals, the system would be built from the ground up instead of the top down. Ground-up designs serve to preserve the status quo, or to try and satisfy several competing constituencies. If the real purpose of some novel socio-economic theory is to curry favor of existing important clients or groups, ground-up is the way to go.

The ground-up approach does not run headlong into the problem that a top-down theory has: figuring out what goals to design to. There aren’t any that come from anywhere, except someone’s whims. So the choices in designing some new socio-economic theory are two-fold: find some favored group to design the system to prefer and reward more greatly, or come up with someone’s whims as to a rule or principle that the system should adhere to.

Most ground-up socio-economic systems just grow and evolve, without anyone ever trying to codify them into a set of simple principles that are coherent and serve as the driver for the entire theory. Instead, there are some slogans that are used, or perhaps exposited on, that are repeated as a sort of justification of some particular part of the mash-up that such a ground-up system usually represents. When one group grows more strong, the slogans are re-used in a different context, or a few different ones are chosen from the bag of nice-sounding slogans. These are used as justification for the modifications of the previous system.

Since these systems have functioned in most parts of the world for most of human history, why would there ever be a need for a top-down system? The difficulties in coming up with such a system are very great, as they have to take into account all manner of details of human psychology, civilizational development, technology and its changes, and more. Systems which are a mash-up of existing customs simply work because everyone knows how the system works and can follow it, and the means to modify it arise out of power of various sorts, such as political influence, financial pressure, military or police force or some other. Once some center of new power arises, the positive feedback loop starts to work and the power of the new center grows, modifying existing ways of organizing the economy and the society. Society evolves and the existing mass of economic customs evolves to match it.

Nice economic treatises can be written proclaiming that the existing system is the best of all possible systems, so that there can be a feeling of completeness and rationality among all those who care about such things. The treatises can be written for any particular system, as long as the system is more than just a hodge-podge of uncorrelated and inconsistent customs that are not stable. Having such justifications often means that some goal is chosen which will serve to justify, more or less rationally, the main contentions of the existing system. Choosing a goal for the purpose of validating some existing ground-up system does not accomplish the same as choosing a goal and then deriving from it a top-down system. They are of opposite natures.

For a novel top-down system, the most significant problem is the lack of acceptance. No matter how appealing the chosen set of goals are, nor how consistent they are implemented across the whole of society, there is little motivation on the part of those in power to make changes in more than a superficial way. The preservation of existing power is a very strong urge, and since power dictates what economic system will be used, typically something like the status quo, it would seem there is almost no point to developing a novel socio-economic system. Only if the existing power structure were near collapse, leading to a vacuum, would there be any chance that a new theory might be accepted. And even in this situation, a socio-economic theory that favors the new holders of power would be better than one which was created without reference to the existing order of things.

Putting the acceptance problem aside, one benefit of developing a socio-economic system from a clean slate is that the science of economics might actually be started, with some clear basis. This set of methodology might then be used to analyze and decompose some of the ground-up systems that have been or might be proposed. A whiff of science, as opposed to more development of details, could actually improve thinking in this area. In might even lead to a surprise, if some existing socio-economic theories prove to have a good fit with the more top-down approach, even if they have arisen as justifications of existing customs.

Where would a goal for a novel socio-economic theory come from? Anyone interested in creating such a theory could likely invent several, and they would each be no more than this: some random idea, which might be called a whim, that the mind of the individual thinker comes up with. In keeping with the previous discussion, such an idea would have to define who does the production, how is the distribution allocated, and what restrictions are there on consumption. They would not have anything to do with the details or mechanisms by which these three choices were brought into being, or what type of structures were invented to enforce or preserve them. Such structures might include ownership laws, social obligations, financial institutions, governance forms and obligations, police powers and so on. All these are details on the three main choices, and for any set of choices, there could be multiple ways of having written records, hierarchical political structures, tax laws, or whatever. The details are simply the details, and bothering to emphasize them just obscures the fundamentals of the theory, which are those three choices.

The selections of these three choices might be graduated on simplicity, with the simplest being that everybody has to do some fixed amount of work, with some measure as to what constitutes work; everybody gets an equal share of the production, and consumption is limited by the need to save x percent of the production whenever there is a surplus over some fixed threshold. The theory has to define the two ‘everybodies’ in these statements, and perhaps has to figure out how to vary x year-by-year. The fixed amount of work has to be defined as well, even after some equivalence has been created between different types of work. The total amount of production scales with this fixed amount selection, but pushing it too high would mean that there was the possibility of exhaustion of individuals. Most likely there would have to be some rules on the tradeoff between leisure time or non-productive time in general, and time devoted to production.

Another extremely simple theory has production being doled out by a lottery of some structure, and distribution given by exactly the same lottery, with either one draw for both or separate draws for production and distribution. There are no end to the lottery ideas that can be used. They could be based on attributes of the individual, such as some genetic traits or some learned traits, or on the parentage of the individual, or on the geographic location of the individual, or pure chance. A combination of these effects could be used.

These two classes of theories, the non-lottery ones and the lottery ones, cover a wide range of possibilities. There is no justification for choosing any one over any other, in the top-down point of view. They are all whims, in other words, just the selection of some individual designer of the theory, based in fact on his experience and education. The universe does not tell us what to do. The individual designer could delegate his choices to some historical sources, of which there are many, but this simply means that they are either some older whims of some person, or they were the result, covert possibly, of a need to justify the advantages of some particular power-holder or power-holder-to-be at some past era.

Time comes in at this point through the back door. A previous socio-economic system with a justification, or some previous whims of some possibly very convincing authors, might be used by some designer of a novel socio-economic theory to derive his new system. But there is another way that time should enter. Almost all theories, certainly the ones which are based on justifying some status quo, but also ones which are based on some individual system designer’s whims, are based on current time. They talk about selections based on what exists now. One alternative is to choose a goal with a long-term perspective, and then try to derive the rules for production, distribution and consumption from that. A long-term perspective might state that the chosen rules should be selected to maximize the length of time existing resources will last, or maximize the growth rate of technology over the next long duration, or support the improvement of the genetic stock of mankind, or preserve some ecological properties over some long period, or many others. Mankind has not devoted much theorization to long-term perspectives, in fact, almost none. Maybe this type of socio-economic theory would provide some insights that the short-term ones do not.

Balancing Productive Efficiency and Other Social Goals

Allowing larger firms to crush small ones might be good from one measure, but not from another. A socio-economic theory needs to determine what measures to endorse and which to relegate to second-order choices.

Typically a larger organization can be more efficient than a smaller organization with the same outputs. They might have larger factories, larger shipping quantities, larger supplier discounts, more political pull to obtain tax breaks, better and wider distribution networks, and more besides. In general, there can be a positive correlation between size and efficiency, meaning that their costs can be lower for the same goods. This typically implies that unless there are some compensating advantages, such as individual location, the larger organization can drive the smaller one out of business.

In the larger socio-economic picture, is this always desirable? Is production efficiency the single goal that needs to be always sought? The question harks back to the question about what should or could be the goals of any new socio-economic system. This has the same two answers: one is that the status quo is best because those who benefit from it have the power to change it, and the power to approve it, and since they are benefiting the most, they find innumerable reasons to preserve it. Perhaps the most powerful one is that no changes are necessary and no uncertainty arises. The other is that there are various normative goals that could be set, but they are somewhat arbitrary, and depend on the individual who is determining what is ‘best’. Each individual was raised with some implicit preferences, and these suborn their thinking so that some particular, but arbitrary, arrangement is the one they recommend. Neither of these has much to offer.

Perhaps one way to start considering alternatives to the ‘Wild West’ system in which the bigger company usually kills the smaller one is to make a list of possible goals. The Wild West system of the maximization of production efficiency ignores the other two components of a socio-economic system, as described previously. These are distribution and consumption. The same Wild West system can be applied to distribution, with the largest distributor crushing all smaller ones, or absorbing them. Consumption is different, although it could be slanted to use much of the same words. Via the many social mechanisms where disparity is promoted, especially the positive feedback ones, consumption could be restricted more and more to those on the top of the disparity pyramid, which could be called, almost as a joke, maximizing efficiency of consumption.

A basic idea of the Just Deserts socio-economic theory is that rewards from effort should be related to the quality and time of the effort, rather than from other effects, such as a lottery of results, corruption being involved, various feedback loops, and so on. If the reward-effort correlation is too little, motivation is damaged and one of the drivers of social improvement is lost. If the reward-effort correlation is too great, motivation is again damaged and replaced with different motivations, such as might involve some moral crimes or other distortion of agreed-upon social arrangements.

This goal involves rewards allocations, and does not talk about the milieu in which these rewards and the associated effort are embedded. It talks about how to compute rewards based on both instantaneous effort and past effort, such as was involved with training or otherwise preparing for the current bout of effort. But in some socio-economic arrangements, because of the presence of more productive capital or because of special social arrangements such as hierarchies of control, there would be more production on the average from the expense of some individual effort. That efficiency would relate to the individual, not to the aggregate of individuals. Let’s use a simplified example to illustrate and explore this feature.

Suppose there is a nation completely isolated from all others, having 100 citizens, all capable of work, and it lives on only one product. The product is made in a large factory or alternatively in a set of smaller ones. The large factory employs ten workers in production, and uses ten more workers to build and maintain it. It makes 100 units of product in one unit of time, which is just what the nation needs. The smaller factories employ fifty workers, and use fifty more to build and maintain them. Together they also make 100 units of product in one unit of time. Clearly the efficiency of the large factory, or more specifically, the average production efficiency of the individual workers in that factory, is five times that of the smaller ones. If production efficiency per individual was the goal chosen by this nation as the basis for its choices, the large factory would be preferred, and there would be twenty workers employed, and eighty without anything to do. On the other hand, if production efficiency on the average was the goal chosen by this nation, the smaller ones would be equivalent in this measure, as both produce one hundred units per unit of time, and the nation has one hundred workers.

This example is easy to interpret, as it discards all the details that obscure the problem, which is the usual distribution of talent among workers, the distribution of ability to work among citizens, and a multitude of other real complications. The example does show, however, that a seemingly small change in the measure of the goal makes a tremendous difference in what alternatives can be considered. Production efficiency in a plant versus production efficiency in a nation sound similar, but are actually quite different in effect.

One aspect of this situation is that there was also a hidden assumption that the desired consumption level was one unit of production per citizen per unit of time. For some production items that might be the case, and for others, not. If all one hundred workers worked at one of five large factories, then the nation would produce five hundred units of production per unit of time, and this surplus might be distributed one way or another. Perhaps the surplus would be beneficial and perhaps it would be harmful. There are also ways to implement a type of full employment, where workers rotated in and out of the large factories employ, having to do only 20% as much work but each one resulting in the same amount of production as if they worked 100% of their time in the smaller factories. Another aspect might be that two or more large factories produce surpluses which can be stored for use in bad times, and then shut down temporarily when inventory becomes saturated.

Even an example simplified in the extreme has complexities that need more details to be added in order to be able to develop any insights. If the national goals included maximizing production efficiency of the nation as a whole, with no surpluses needed or desired, there are two ways to do it and also combinations of them, where there could be one larger factory able to produce 50% of national production and several smaller ones together making the other 50%. What kind of criteria might be used to be able to judge which of these is desirable? If we are bent on developing a system based on the just deserts concept, then the case which employed all of the workers would have all of them receiving the same rewards, and the case which employed only part of them would have more rewards going to those who were employed and less to those who were not. We have in this example created a situation where all workers are equally capable and equally interested in working, but by some lottery, only a part of them have employment and the associated larger rewards. That might not seem to be in keeping with the just deserts socio-economic theory, but the theory does allow for lotteries to determine rewards, but only to some extent.

If the rule is to correlate effort and reward to a certain degree, then the theory must take into account the situation where there is no opportunity for effort. Perhaps other theories assume there is always opportunity for effort, and this may be their downfall. One insight might be that situations with lotteries being a large factor in determining effort or rather opportunity for effort to be expended, just as situations where lotteries are a large factor in determining productive efficiency per individual, some sort of rectification is needed. Lotteries are not necessarily efficient, nor do they have any other moral benefits.

One tentative concept for the socio-economic theory of just deserts is that opportunity lotteries should be restricted to some small change in reward, perhaps something in the ten to fifty percent level. This implies that there would be some way of measuring what effort might be applied if an individual won an opportunity lottery, but that is a discussion which needs much more time and thought. The question of how regulating or rectifying an opportunity lottery might affect motivation needs to be addressed, as well as how the rectification process worked and how it could be structured to avoid gaming. How could it be possible to tell who would work if they had opportunity, and who is simply hoping to avoid work by playing the opportunity lottery.