By Hema Senanayake –

Hema Senanayake

When a business makes profit, perhaps labor unions might define that the profit resulted from the exploitation of labor power. When a business makes losses, how do we define it? Here, I mean across the board loses made by most businesses. At least we cannot use the word “exploitation” when businesses make loses.

China is the largest steel producer in the world. Chinese steel industry accounted more than 50% of world’s steel production. This industry is in crisis now. The second largest manufacturer namely Baosteel has recently reported approximately $900 million loss only for the third quarter of 2015.

A few years ago especially in 2008 and 2009 the American Industrial production shrank by 13% while having physical capacity to produce more. Many American industries including auto industry made heavy losses. The U.S. government had to rescue them. During the same period, the situation in Europe was no different.

In economics we accept the failure of individual businesses. This is necessary for the progress of the economy because we must allow the inefficient businesses or industries to be replaced by more efficient and more productive businesses. Therefore, we agree that businesses should be allowed to fail and new businesses should be allowed to emerge based on efficiency and consumer preference (choice). As Karl Marx had explained consumer preference and choice is an important tool or mechanism in order to ensure that the labor expended in producing something is useful and necessary. But the above mentioned, across the board business failures, occur not due to any inefficiency or consumer preference. This is a global crisis happening due to one different reason.

This crisis cannot be explained simply as a problem of “exploitation” or capitalism or Chinese capitalism. None of the label such as liberalism or neo-liberalism or any other label to define economies has no validity any more. When this crisis erupted in 2008 in the United States, many leading economists including a few Nobel laureates tried to identify reasons for the crisis. They believed that global trade imbalance was one of the main reasons because by that time China, Japan and South Korea were amassing dollar reserves resulted from the trading with the United States. But they never explained as to why Japan went into a crisis mode in early 1990s while having enormous dollar reserves.

The true problem is beyond any economic model including any potential socialist model. We, honestly, sincerely and through a civilized discourse must explore the reasons and solutions for this devastating economic crisis of humanity.

The administration of modern economy is not without an economic theory. This theory is in turn is based on certain premises. If the premises are wrong then economics is at fault. Renowned economist John Maynard Keynes has explained this point accurately. He said that, “… if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” Hence, it is better to begin this discourse with an important premise upon which modern economics has been erected.

In modern economics we presume that man’s needs or requirements of goods and services were unlimited and the resources available to meet these needs are limited. We even do not question about this premise. Is this premise true? Let us just assume that this was not the case. Then, “the science of economics would have been far different from what it is today” (“This Confused Society” by H.N.S. Karunatilake, 1976). This is an interesting observation and statement.

In the same book Karunatilake suggests that, “a rational man with his thoughts properly oriented would not accept the view that needs are unlimited.” With this premise there is no problem in ensuring the economic use of resources. Also, there is no problem in designing a mechanism in order for the efficient allocation of productive resources among numerous productive processes.

So, what do you think? Forget about economics, which premise is more accurate? I think no rational man would agree that the first premise is accurate. But unfortunately, the superstructure of modern economic theory is based upon a wrong premise; but what is bad is that superstructure determines how we, the people should live. Isn’t it pathetic? That is what we should envision to change.

Therefore, the global economic revolution which we envision is nothing but upholding the accurate premise in “economic science.” This is the beginning. Then we must move into the construction of new “superstructure” with great care and logical consistency. That would be a theoretical superstructure that ensures the most efficient production and distribution of goods and services for the wellbeing of all human beings while upholding the true fundamental premise in economic science. Scarcity cannot be a thing in that society because our new premise is that human needs are limited and resources available to meet man’s needs is virtually unlimited. In such a society at least countries would not make direct or proxy wars for resources or for economic reasons so would be different ethnic groups living in a particular country.

By any means, the modern economic system is virtually a very inefficient system. Mostly, this system of economy is inefficient in the distribution of distributable (or consumable) output. It is the consumable output what matters in the wellbeing of human being. Perhaps you may think that I am referring to the poverty or inequality of the society. No, I am referring here to the continuing expansion of many services or industries which truly do not uplift the wellbeing of citizens. For an example, the extensive expansion of monetary system and vast number of employments provided under the financial industry shows inefficiency rather than efficiency. If a country has an extensive financial industry it intimates that something is wrong in that society in regard to the distribution of consumable output. Why I say so? Let me first give you an example from Casino “industry.”

A teacher teaches and he or she contributes to the wellbeing of citizens. A doctor treats a patient and by treating, the doctor contributes to the wellbeing of people. A farmer produces food for our wellbeing. An entertainer entertains the audience. Like that there are certain jobs in the economy which are essential and truly support the wellbeing of people. The people who involves in these jobs, act onetime, as a producer of useful goods or services and the next time they play the role of consumer of the same goods and services. Their consumable income is derived by engaging in the production of useful goods and services. In other words they get their part of consumable income (or profit) by engaging in an activity which supports our wellbeing.

So, what does the Casino operator does? You may judge it by yourself. Immaterial of your decision, the producers (owners and employees) of “gambling services” might get a certain amount of consumable income from the economic system. This industry failed big time in the United States after the Great Financial Crash of 2008. What happened next? The gambling businesses were bailed out. This was especially true for the state of New Jersey. If any economic system has to bail out a Casino “industry”, do you define that economy as an efficient system?

If any economic system derives more and more consumable income through the production of none-useful goods and services such an economy cannot be defined as an efficient economy. That is the kind of economy we have already inherited and we will continue to inherit in the future due to the acceptance of premise mentioned above. In an economic system we built upon such a premise, the improvement of productivity would be a curse not a blessing. Think about it. Let us continue this discussion in the next week.

(To be continued)