6 Self-sufficiency - Proutist Economic Development

In this presentation, we outline the features of a decentralised economy.  There are five main characteristics.

So far we have discussed how poverty is caused by the bleeding of wealth from a community. Removal of poverty requires that an economy be strongly linked to the whole of its community and environment. That is, it must be a people‘s economy, which is the answer to poverty.  This requires socio-economic units to function as the smallest communities that have potential to be economically self-sufficient.

An economy is a living system. In economic terminology, economic planning attempts to maintain an internal balance in the form of constant supply of essential goods and services at constant prices, despite an external fluctuating global economy.  

Economic power can be differentiated from political power.  Indeed, one of the most important concepts in Prout is the idea of the separation of economic power from political power. This is similar to the notion of the separation of powers in a political democracy.  That is separation of legislature, executive and judiciary.  Better still, the audit office should also be wholly independent.  

Prout achieves separation of economic and political power by striving for economic decentralisation at the same time as recognising a need for political centralisation. Perhaps a good analogy is that of a football match. The referee, like the politician, is responsible for setting the rules and making sure that the rules are followed. However it is the players who decide on their strategies and who play the game. 

Economic decentralisation is Prout's strategy to achieve full employment and to remove poverty. This is in stark contrast to the highly centralised economies of the modern capitalist world and of communism. One defect of centralised planning is that it allows unscrupulous persons to divert wealth into their own pockets. Another is that the planners are seldom sitting in the localities for which they are planning.

The initial objective of a decentralised economy (a people's economy) is the guarantee of minimum necessities for all persons.  These include the five basics of:
- food (including water);
- clothing;
- housing;
- medical care;
- education.
This is to be accomplished through increased purchasing capacity.  This is a fundamental human right. But it is also a collective necessity, because the easy availability of minimum requirements (through adequate purchasing capacity) will increase the all-round welfare of society.

The first feature or requirement for a decentralised economy is the notion of local economy. The purpose of identifying a local community and its local economy is to strive for economic self-reliance. Let us assume that one type of local community is the nation of Venezuela.  However, in certain cases the principles of decentralisation can also apply at the lowest level, the third tier of government, being local government. 

When contemplating economic self-sufficiency, the question arises about foreign investment. According to the neo-liberal agenda, economic development is not possible without foreign investment from wealthier nations. It is necessary to distinguish two kinds of foreign investment. The first kind is foreign portfolio investment (FPI) in the local stock exchanges, bond markets and in foreign currency trading.  This has an element of speculation.  The second kind is foreign direct investment (FDI) in factories and productive activity. 

Prout is opposed to the former (FPI) but would, on an interim as needed basis, accept the latter (FDI) under certain conditions. That is, in the current environment, if foreign multi-national companies want to invest in productive activity within a host economy they would be able to get a reasonable return on their investment. In Prout it is called a rational profit.  BUT the investment has to be in the interests of the host nation. Also, it must be consistent with the local development plan and should not allow local resources to be controlled by the investing company. In particular the project should be accompanied by technology transfer. This is how Japan and China developed into powerful economic nations. The transistor was invented in the USA but the technology was learned by Japan and developed with great success.

It is essential that an investment arrangement should have a fixed life and fixed objectives and should not allow the investing company to withdraw its capital, at will, to the detriment of the local economy. When a person obtains a mortgage, and is not at fault, the bank is not allowed to return the next week and demand its money back. The mortgage contract specifies regular payments of both interest and principal. In the same way, a FDI arrangement of a contractual nature should specify appropriate allowable returns/earnings for a company and the original investment amount. 

The current practice is that multinational companies (MNCs) continue extracting wealth from their investments indefinitely.  Profit is sought above consumer welfare.  If MNCs must operate in a host country, then like a bank loan, a FDI agreement would only permit, over a fixed number of years, the return of the invested wealth (or its equivalent) and a reasonable rate of return based on an acceptable interest rate. Technology transfer and growth in the host economy should permit the interest repayment without hardship.

It is easy to find negative examples of foreign direct investment that exist due to the profit motive and not having a focus on consumer welfare. There are few positive examples because in the capitalist world all production is motivated purely by profit.  The emphasis in a decentralised economy is, however, on meeting local needs first.

The second feature of such a decentralised economy is that production should be based on consumption demand, not the profit motive.  It should be noted that the profits obtained from the junk food industry are obtained only because the external costs of declining public health are not recognised or accepted by the private producers of junk food. Instead they are borne later by taxpayer funded public health measures.  The same applies to tobacco industries.  

Production focused around the consumption motive would, however, yield benefits for the whole community.  The development of urban agriculture and green pharmacy crops in Cuba during the 1990s is a positive example.

The third feature of a decentralised economy concerns cooperatives. P R Sarkar, the founder of Prout, says that a decentralised economy cannot be achieved without cooperatives and cooperatives cannot be achieved without a decentralised economy. Prout promotes cooperatives within its 'three tier industry' framework (i.e. small private businesses; cooperatives as the norm; and key industries regulated and managed by local government authorities where essential services are concerned).

The fourth feature of a decentralised economy has to do with local employment.  The question arises about who is a local person and who is a foreigner. Prout answers this question by invoking the notion of a person who has identified their personal 'socio-economic interest' with that of their local community. Such an identification would be demonstrated by a contribution to the local community, taking up ordinary or permanent residence and, equally as important, the application of one's money to primarily benefit the local community.  Sarkar draws attention to the problem of floating populations in some communities. That is, the existence of large numbers of persons who earn their money in one place but send it back to their families in their place of birth. This practice is detrimental to both the local community (which suffers a loss of financial capital) and the home community (which suffers a loss of productive labour).  

How local will local ultimately be?  Local is a relative factor.  In due course, as socio-economic units reach parity with each other, then over the course of time they will expand.  When parity is achieved, the socio-economic units merge. Eventually the whole world can be one socio-economic unit and all persons could be considered 'local'.  However, parity must be reached, before this is achievable.

This fifth principle of economic decentralisation deals with trade (imports and exports). Prout discourages the import of commodities that can be made within a local community and in particular it discourages the import of foreign raw materials to promote local economic development. Rather Prout promotes the use of local resources to support local development. The concept of food and medical sovereignty arises here. When Argentina considered defaulting on its international debt, it was informed that this would result in a trade embargo. On the list of prohibited imports was insulin. How can a country adopt economic polices in its own interests when subject to this kind of blackmail?

Sarkar advocates the use of tariffs (temporarily) to protect developing local industries. What if locally produced goods are inferior or more expensive to the imported ones? Then take immediate steps to improve quality and reduce costs.  This is where technology transfer becomes important.  Efficiency and quality will never improve if the industry is not allowed to get off the ground. 

Note: cornflakes made in Chile appears on Australian supermarket shelves at the same price as those made in Australia. Assuming the same profit margins, this is most likely possible because the workers and growers in Chile are not getting a proper rate of return.

In a Proutist economy, the main exports are surplus commodities and specialty items. However just as Prout discourages the import of raw materials, it also discourages their export. Rather, every attempt should be made to add value before export. The problem is that there is a long-term downwards pressure on the prices of raw materials in international markets due to technological advancement.  The local economy looses out.  If secondary products processed out of raw materials are, however, exported then the value added component benefits the local economy.  

In this regard, Prout encourages barter trade for processed products.  Barter trade can be multilateral or bilateral.  Multilateral barter trade occurs through international clearing houses. Barter is in preference to use of financial instruments with its emphasis on monetary gain.  Barter also encourages trade between nations at a similar stage of economic development. 

Economic decentralisation does not reduce economic potential because wealth is increased everywhere. Note that the concentration of wealth into a few hands inevitably leads to poverty and unemployment. These problems are themselves a tremendous waste of economic potential. 

Under Prout maximum production in the local economy is achieved through economic decentralisation. However the pursuit of both is subject to the principle of economies of scale. It makes no sense for every local community to have an international airport.  Specialised features or areas will exist.  Decentralisation is to be pursued to the point consistent with common sense, efficiency and community welfare.  Economies of scope to help reduce costs is also essential and in Prout this is achieved through networking of cooperatives. Sarkar calls it satellite cooperatives.  What this does is to enable specialised labour, equipment and ideas of one activity to be used in conjunction with other related activities.