Balancing Benefits to Consumers and Producers

Is efficiency in marketing a good thing and something desirable in an improved socio-economic system? Or are there trade-offs that need to be carefully examined?

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This post is about one aspect of the trade-offs that exist in an economy between producers and consumers: retail size and the corresponding efficiencies. To develop some simple insights, consider an economy with only a few positions. The economy has a retail sector, and many other sectors, which we will lump together as non-retail, except for the suppliers sector, which makes and sells things to the retail sector.

The positions in the economy are retail workers, supply personnel, other workers, unemployed, retail managers, and retail owners. Let’s assume they are all distinct to keep things as understandable as possible. Consider two alternatives, one in which all retail is of some average size, non-chain, and local, and the other in which some retail is very large, chain, and regional or national. Outside of retail, things are mostly identical between the two alternatives. There are differences, and they go like this. The large retail has more low-level worker efficiency, and gets by with fewer workers. This means that in the first alternative, there are less unemployed people, and more retail workers, per item sold or per dollar in sales. It also means that, in the management hierarchy of the large retail, there are more managers, and the upper salaries are larger, since salaries tend to go upward, sometimes rapidly, in larger organizations. Furthermore, ownership may be more concentrated.

Besides the labor efficiency of the larger retail, it has supply efficiency, in that larger quantity buying may get discounts, justified by cost or motivated by competition. The discounts in part come from the supply sector workers and owners. It would be possibly to consider consolidation of supply firms, but that is an unnecessary complication.

Contrast the two. Prices would be lower in the large retail case, as there are efficiencies to be gained, so everyone’s earnings would go more into retail and less into other sectors. There would be more goods passing through the retail sector. Other sectors would suffer from the redistribution of spending. This has an effect on benefit allocation. There would be more unemployment in the large retail case, so more taxation would have to flow from the population in general to those who are unemployed and need some sort of assistance in order to maintain a tolerable standard of living. Taxation could come from anywhere, but if it is not very progressive, it hits a middle sector of the population, leaving the lower and higher ones with less effect.

So, in one simple situation, the benefits of society are distributed differently in a small-only retail case or a large retail case, and going from small-only to large means unemployment would be greater, more benefits would flow to higher pay managers and wealthy owners than to workers. Other sectors would lose some benefits, as lower prices in the large retail would draw more spending there.

To generalize from this simple example in a single sector, conglomeration tends to move benefits from the poorer portion of the population to the wealthier. Perhaps there are exceptions to this, but that seems to be the trend. Is this desirable in a Just Deserts economy? The question is a very basic one. How much of society’s benefits should be allocated to different classes or percentiles of the population? Government regulation, most likely taxation, can affect this, and can also affect the ability of large retail, or any large organizations in an economic sector, to exploit the potential advantages of size. What should be done?

This question needs to be set into the context of the whole Just Deserts economic system. One principle is the maximum income effect. This might be done with a Maximum Salary law plus a wealth tax, or tax rates similar to those in effect in the United States during the era around John Kennedy’s presidency, when the top rate was 90%. This change has as a side effect, the reduction of major corruption, meaning it would be possible to pass laws affecting large businesses without the expectation that they would be riddled with loopholes designed by those donating blocks of funds to politicians or otherwise arranging for them to be rewarded.

Another effect of this change would be that ownership of corporate organizations and private companies would be different, in that many or perhaps most would be employee owned; others might be stock companies, but ownership would be more widely distributed among individuals. Government agencies charged with amassing pension and other types of funding might be owners as well. Thus, when the two alternatives are compared, the wealthy that are benefited by the large retail are not the exceeding wealthy, but simply those who have arranged to have substantially higher wealth and income. Estimates might be that an asymptote for the upper salaries are five times average salary, but there are many ways in which this might be figured out.

Perhaps the largest of the differences between the large retail case and the small-only retail case is the change in the unemployment fraction. All other things being about the same, small-only is less labor-efficient, and therefore employs more people per dollar spent on retail consumption. To be able to judge what might be better or worse, it is necessary to determine how the situation of more or less large retail could be adjusted by government intervention.

Taxation is the common tool that governments use to affect such things. Consider a market share effect on a profits tax. Profits might be figured in some convenient way, but in general, they would be taxed at some rate. If there was also a mechanism by which market share of any particular retail organization could be measured, the profits tax rate could be increased for larger market share and reduced for smaller market share. This would favor non-chain individual retail organization, as well as local over regional and regional over national.

The tax rate increment relating to market share could be determined in different ways. One way would be to bundle all retail together, and simply look at sales fraction on a national or regional, or even international, scale. Then a table would have to be constructed, akin to the many tables of tax rates that are dependent on such things as income, which says how much bump up there would be for a market share of such and such. The table really would control the eventual outcome of the trade-offs between large and small retail. If the tax rates were much larger for bigger market share, then larger organizations would shrink, and small ones proliferate. If the tax rates were only slightly larger, they would only slow down the agglomeration of small retail into large retail. So, juggling the tax rate table is equivalent to determining what spectrum of organizational size is desired.

Only good data resources would allow this tax rate table to be set up. If the goal is to reduce employment, then it would be necessary to understand just what head counts were needed for different scales of businesses in the retail sector, as well as to understand the secondary effects that happen in other sectors and especially in the supply sector. If the goal were instead to affect the median wage, then a different set of data would need to be collected, being the employment data needed for the first option but also salary or wage and hours-worked information for all employees. Some combination of these goals might also be accomplished by just having these two sets of information.

One thing that has not been discussed adequately in Just Deserts economic system posts is how to do a transition from some other system to a Just Deserts system. Clearly, this can be done very gradually, to allow everyone affected by it to make necessary adjustments in their own personal plans, or it could be done rather quickly, to bring about the effects within a single generation or even less. The two aspects of this speed question relate to evasive possibilities. As is well-known, any type of change in a system of large wealth disparities that affects the upper tier wealth or income will be evaded, or politicized, or subject to lobbying. There does not seem to be any mechanism that can avoid this, and so, it may well be that some Just Deserts system can be theoretically designed, and it will look impressive on paper, but there will be no implementation path that is tolerable to those whom it would affect.

No one wants to go through a violent revolution, as it does not simply make some basic changes, it undermines an economy, disrupts all manner of commerce, causes migration, and leaves everyone full of uncertainty and foreboding. Short of such a revolution, there does not seem to be any way that those who might want to live under a Just Deserts economic system could get their hands on the levers of power. There is no educational miracle on the horizon. Cajoling and convincing is not likely to be effective. Some bright new ideas are needed related to transitioning from something else to a Just Deserts system, and these will take a lot of work to develop and refine.

Corruption and its Cures

There are three main categories of corruption: political coruption, accepted small corruption, and individual corruption. Each can be mitigated.

It seems like a nice courtesy to define clearly and explicitly what it is you are writing about, as words are so slippery and full of alternate meanings. When a reader comes upon something that appears interesting, he/she may be carrying some baggage in experience, so that the meanings of the words, especially the topic words, may have different nuances or even serious differences in meaning from what the author intended. This means there is wasted time on both the author’s and the reader’s part, and we all despise wasting time.

By corruption I mean an individual with a hierarchical job to do, a job in a hierarchy, where he/she has a specific task to accomplish, altering his behavior so that some personal benefit will accrue to him/her or some one or some group that he/she favors. Consider some examples:

Example 1: A politician has input into tax laws and can insert a special clause favoring some tiny subset of people if he chooses, and it will most likely pass due to the methods by which laws are checked before being passed. The politician, in return for a contribution to his favorite charitable foundation, will insert a tax clause as requested.

Example 2: A judge in criminal cases has to choose amounts for fines for guilty parties involved with financial crimes. The amount could be equal to the amount gained or more, or with the right inducement, somewhat less, leaving a surplus for the benefit of the convicted criminal or his family, partners, friends, or whoever else was the recipient of the largess of the criminal before he was caught.

Example 3: A bureaucrat is responsible for completing forms for the public, relating to some function, like driver’s licenses, or registering a deed, or any of the hundreds of things a citizen might have to do. The bureaucrat ordinarily finishes his task within a month, or within a day if there is a gift included, such as a box of candy or a bottle of vodka.

Example 4: A building inspector has a long list of technical points that can be used to hold up construction projects, some for a long time and some expensive to change. For a bit of work on the inspector’s friends’ property, or some materials for such work, these technical points might be waived as insignificant or not safety-related or discretionary.

Example 5: A mid-level manager in a supply department of a large corporation has a selection of which supplier to use for some large purchases, but they are comparable. With the provision of an arrangement for a free dinner for the manager’s family in a top-level restaurant, the choice becomes straightforward.

Example 6: A professor is on the board set up to review new students’ applications, and for many students, a favorable choice by him/her will make all the difference needed between acceptance and rejection. Instead of sticking to academic or other university-related issues, the professor tilts his/her rating based on personal biases.

Example 7: A professional athlete manages to miss some key shots in a championship game, losing the match, which is much to the delight of a gambling syndicate. The syndicate is very generous in their expressions of gratitude.

Example 8: A fireman, finding a shoebox-sized metal container filled with currency, manages to get it away from the scene of the fire while the building burns down. The contents are not returned to the building owner.

These examples are only a few of the hundreds of possibilities for what might be included under the label of corruption. In the process of trying to find a viable new socio-economic theory which has more elements of fairness while not losing the positive aspects of older theories, what should be done about corruption? Which types of corruption should the system be designed to minimize? How should this be done, and what might be the cost to the system of having anti-corruption measures installed within it?

The first level, in the first example, might be referred to as political corruption. The quid pro quo by which a politician might be influenced can range over a tremendous domain, involving third parties in a variety of ways. All would be legal in the absence of a specific agreement to take some political action in return for some other action. Specific laws might be written to control some particular one type of action, but since there are literally hundreds of options, these laws can easily be outflanked. Only by going to the common core can they be controlled as a body. There must be laws of just deserts which control the common core, which is excess inequity of wealth and income, which makes possible political corruption. If wealth of any household is no greater than, say, five or ten times the average, there is no surplus available for corruption. If the income of any household is no greater than a similar ratio from the average, there is no opportunity for the products of corruption to be realized by a household that is a beneficiary of some potential corrupt political act. If these two measures do not exist, then corruption will find a way around any existing structures to make the inequality greater, and the feedback effect will take over and lead to great inequality.

The solution, in fact the only solution, to political corruption is the same as the regulations or laws or what-have-you that relate to income outside of corruption. With investment following a Churchillian directive, and unearned profits being taxed and used for the good of those whose work earned the benefits, and human labor being recognized as impossible to vary in value by more than a factor of five or ten, then corruption would be intrinsically controlled.

Judicial corruption, as illustrated in the second example, is almost eliminated by the same cure as political corruption. When no party to any lawsuit has excess wealth or income to use for corruption, and no defendant in a criminal case has excess wealth or income for use like this, there is little opportunity for corruption to exist. A related question concerns corruption involving corporations. Would the legal counsels for a corporation have motivation to do judicial corruption? Perhaps if their income might be diminished by a factor of two if they did not, they would. A corruption corporation might arrange to have a judge get a delayed promotion in return for a favorable or slanted verdict, so the possibility does not disappear, but only diminishes in range.

Transparency is often described as a mitigation for corporate corruption, including that which occurs around a court case, but just as individual corruption in a world where extreme inequality exists can find clever ways to occur, so might clever ways to disguise payoffs be found. Having independent watchdog agencies to monitor corporate finances and behavior is often touted as another means of curing corporate corruption, but the response to this is to corrupt first the process of monitoring as well as influence the regulations for transparency, thus enabling further corruption to go forward. Perhaps layers upon layers of watchdog organizations, which monitor transparency as well as behavior, might be necessary.

The remaining six examples are simply illustrations of individuals doing small-scale corruption of differing varieties. No high-level formulation of a socio-economic system is going to eliminate the possibilities that exist here, but there is one essential and very important difference. Examples 3 through 6 can exist in small numbers, as exceptions to the general way that people in these positions behave, or they can be the more-or-less accepted way of behavior, that no one quibbles with but just lives with and works around. To have a society that operates efficiently, and in which people are supposed to receive benefits according to the effort they expend and the talent they accumulate, then the routine acceptance of corrupt behavior on a small scale cannot be accepted. This means that not only will there have to be laws regulating it, there needs to be public awareness that such behavior is not accepted. There has to be methods by which it can be reported, and there must be organizations that are held to high standards that investigate it and work to diminish the amount of it until it only exists by exception, not by routine. Once this is done, the socio-economic system will be largely free from corruption.

It is much more important that political corruption be ended, by instituting just deserts taxation of excess capital gains and income, including all devices used to hide it. This type of corruption, once it becomes well-known, is like a poison in society, and would be used to justify all other types of corruption. The role of high-level examples in society can be great, and if there was transparency in this area, so that all political figures were known to be operating with no corrupt payoffs, neither to themselves or to those they favor, then low-level corruption would be easier to have reported and ended. So, from a top-down fashion, corruption is at least viewable as a curable disease, as long as the just deserts medicine can be made to be tolerable.