Notes on the Economy: State Control & Private Initiative

NEW – June 3, 2022

In the next 10-15 years, the world will go through a catastrophe and recovery, at first based on old and familiar principles. The capitalist global world-system will cease to exist, moving from the paradigm of constant expansion and division of labour to a closed system that develops through the division of knowledge/deepening of labour. The economy of the post-capitalist period is not something complex and incomprehensible, most of its approaches and solutions lie on the surface.

One of the most important criteria will again be to improve the overall efficiency of the economy, actualising the issues of planning, but in a new environment, within the framework of a post-capitalist society. A few days ago, I was asked to recommend good economists who can take a comprehensive look at the current state of the Russian economy and indicate the direction of work for a successful solution and development of the country. My answer turned out to be a free retelling of a monologue from N. V. Gogol’s “Marriage”, in which the merchant’s daughter talks about choosing a groom – if only the individual qualities of different people were combined in one person… Adding to the complexity is the fact that most of those who talk about economics are not/have ceased to be economists within the whole science/general profile who are able to solve complex problems. Some are confined to a narrow specialty, others are engaged in political science, corporate governance, fiction, the search for meaning in life – in short, anything but economics.

At the same time, there is nothing fundamentally complicated in building the required economic system, and today we will analyse its most significant aspect – the relationship between planning and private initiative.

Division of labour and division of knowledge

The topic of division and deepening of labour is present in so many works and underlies a large number of different theories and concepts. Most often, the authors take as a basis the description of a pin factory by Adam Smith and consider only the change in technological chains plus the specialisation of individual operations, i.e. the division of labour. Meanwhile, it is also necessary to take into account the division of knowledge/deepening of labour – the specialisation of knowledge and technology.

To understand processes, one should not limit oneself to a single production chain or industry – and here, as in general, when solving most important problems, one must know the “context”, i.e. consider the object as a whole, within the entire economy of a country, and sometimes the world. Only in this case does the obvious inadequacy of approaches limited to the emphasis on the division of labour become apparent. For example, if we consider changes within one industry, then replacing some turning and welding operations with punching and/or casting really allows us to stay in the logic of division of labour. On the scale of the economy as a whole, the picture is different: although the replacement of machines will be made without significant changes in their cost and complexity, but a number of operations will disappear in the production of final products, people, time, resources, etc. will be released – with the same or even better final result. This is already an example of the division of knowledge/deepening of labour.

There are many options for dividing knowledge/deepening labour by replacing materials that provide higher consumer properties of products compared to the original ones, while also being much easier to process and produce. Remember the Soviet household appliances with an abundance of metal in their cases, now replaced with plastic on an economic scale. It’s possible to also compare the materials from which old and current cars, planes, ships were made – this is not a division of labour, but rather a deepening, new knowledge. Successful discoveries allow to throw out entire links of technological chains. The Stalinist economy, with its demands to improve quality and reduce production costs, was aimed precisely at the division of knowledge (rationalisation, innovation, etc.), and its organisers consciously paid much attention to ensuring that they did not limit themselves locally to the horizontal growth of the number of workers and the principle of division of labour, which is customary for capitalism.

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Actually, the very effect of changing technological patterns when taking into account the division of labour alone is not clear, but it is quite another matter if you add the effect of knowledge division/deepening of labour to the model! A new way of life always means a qualitative breakthrough in the deepening of work/sharing of knowledge that opens up new horizons. The sixth order will be exactly like this thanks to additive technologies and robotic production complexes, and a huge number of the usual technological chains will simply disappear.

You can read more about the division of labour in the works of P. G. Shchedrovitsky. In my opinion, to understand and model economic processes, the two types of division mentioned above are quite sufficient, while the author himself writes about six, but in my opinion they can still be reduced to the above two.

As a rule, increasing the length of a specialised technological chain is easier and gives a greater effect at the initial stages of development. Where previously one craftsman worked, performing five consecutive operations, now five sit, each of which perfectly does its own. But as soon as a proposal for improving production methods/specialised knowledge is introduced, making three out of five operations unnecessary, this is already a deepening. The use of knowledge and technologies to deepen labour over time gives an increasing effect. Modern metallurgy is by no means reduced, as is known, to a sequence of separate operations of medieval blacksmiths and the growth of volumes.

A marker of the fact that the author does not take into account the importance of the knowledge sharing effect can be, for example, the reduction of the limits of human development to the size of the industrial, non-agricultural population. In theories with the division of knowledge/deepening of labour, even in a limited society, there is development and growth. It is clear that in the second case, the processes are slower, but they, nevertheless, do not stop.

In 2035-2040, humanity will open the transition to the sixth technological order (robotics, additive technologies). When up to 90% of the technological chains performed by people can be “deepened”, individual operations will simply disappear. The knowledge and experimental-industrial technologies for the transition are already largely available, if not for the ongoing catastrophe, the necessary mass technologies – in an attempt to save capitalism – would now be launched with might and main and destroy the usual world economy. In the current scenario, humanity will have to wait until several pan-regions with an industrial population of at least 300-500 million people are formed, which will be able to guarantee the mass introduction of sixth-order technologies.

And, yes, unfortunately, neither Oleg Grigoriev nor Mikhail Khazin – each, of course, in their own way – could/wanted to take into account the factor of dividing knowledge/deepening labour in their constructions, and therefore their theories described another “end of history”.

Thus, one gets the impression that references to Adam Smith’s pin factory limit the breadth of view, create the illusion of simplicity and the absence of the need to independently understand the main works of the founders of economic theory. This model is like a curse that restricts logic and does not allow to see the whole picture. A division of labour without a division of knowledge/deepening of labour does not allow to describe the existence and development of the economy in a closed system, which humanity seems to be slowly becoming, and therefore we do not have fully-fledged theories of post-capitalist economics.

By the way, the very change of technological structures/energy revolutions that marks the universal “upward movement”, from the point of view of the economy, is just a consistent ascent to ever-new levels in the division of knowledge/deepening of labour.

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Understanding the economy

Most often, the economy is divided into macroeconomics – a view from the position of the state down – and microeconomics – a view from the position of the company up. Economics is built from the bottom up and interprets the entire economy as a large company and/or a collection of companies. It is not surprising that under this model, socialism is a state corporation. In political economy, on the contrary, the principles and interests of the state are the basis on which everything else is built according to the residual principle. This juxtaposition does not fully reflect the situation; in addition to the “micro-macro” contradiction, there is another axis: “order-chaos” (see Figure 1), which is determined by the degree of guardianship and regulation on the part of the state. It’s possible to have a third axis, the “initiative level”, but this is unnecessary for this review.

Figure 1. X-axis labels bottom to top – “individual (micro level)“, “state (macro level)”; Y-axis labels left to right – “chaos (complete freedom of action)“, “order (control from the state’s side)“. Orange text – “Modern Western economics“; yellow text – “liberal economics for developing countries“; blue text – “Stalin economics“; black text (centre of bottom right square) – “planned soviet economy“; black text (next to circle in top right square) – “political economy (paradigm)“; black text (next to circle in bottom left square) – “Economism (paradigm)

The first approach leads to a reduction, simplification of systems, ignoring the complexity of general processes, the results of which we are all now seeing in the global economy. The second one leads to excessive mechanisticness, ignoring details and particular motives, and rationalisation. As a result, both approaches have large gaps with reality and are subject to suboptimal and quasi-theoretical deviations outside their areas of application.

In order to get an idea of the construction of economic policy, it’s necessary to move from the “micro-macro” contradiction to work on a plane with the “chaos-order” axis. The juxtaposition of the political-economic and economic-marxist views of the world becomes more complex, and one can even see an allusion to Roger Zelazny’s “The Chronicles of Amber”, which makes the answer about the correctness of theories and the optimality of construction not at all obvious.

The areas of location of the two basic paradigms (political economy and economism) are shown in Figure 1, which illustrates the contradictory and limited views and ideas of the economists who adhere to them. The lines on the graph show the principles of formation of various economic systems. As you can see, the late Stalinist economy, although it was based on strict planning, gave small businesses (artels) freedom, which was no longer the case in the USSR after the reforms of Khrushchev and Kosygin-Lieberman, and the latter moved away from orthodox views.

Figure 2. Red text – “Modern Russian economy“; orange text – “Post-capitalism economy“; black text (next to circle in bottom left square) – “Economism (paradigm)

The double line in Figure 2 shows the author’s assessment of the real state of affairs in Russia, starting with strict and excessive regulation of small businesses (supervisory and tax authorities). As the scale increases, companies have a little more freedom of manoeuvre, as well as the ability to cheat, despite the growing attention from the authorities. The largest companies are already doing what they want, while antitrust legislation lags far behind the capabilities and appetites of lobbyists. Let’s hope that the transition to a mobilisation economy will correct the situation.

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Separately, it is necessary to consider the bends/breaks of lines that show the places of tension formation and the increased level of corruption processes, social conflicts, etc.

In addition to this paradigm contradiction, there is also a division in the approaches, proposals and programs of, say, “people from science” and practitioners from the real sector. Only a few people try to combine them, and why should they, if everything is already good? So, for several years, almost the only balanced national program we have had was Sergey Glazyev’s proposals for the next 2-3 years.

Theorists from science and consulting who try to understand the problems of a particular industry and/or enterprises from the height of general words and ideas are a separate universal problem. The story is similar with the so-called people “walking on the ground”, when they begin to offer solutions to general economic problems in “everyday language”. As for pure micro- and macro-economists, they should not be allowed to create complex programs at any level at all: the former, plunging into details, lose the essence, the latter, ignoring human nature and social phenomena, persistently draw the same impractical plans.

What is the solution? Drive macroeconomists into large corporations for 5-7 years, so that they can walk around the earth, but do not let into planning people who are not able to abstract from the worldview of individual companies.

And, yes, we recognize that everything is quite simple at the concept level, but turning all this into practice requires long, painstaking calculations and assessments.

Thus, political economy is written on the basis of the logic of macro-level processes and a very high degree of order, and economics/modern Western economics lives in the paradigm of maximum freedom of private initiative. Moving away from the bipolar contradiction to the plane of “micro-macro”, “chaos-order” allows us to look at the problem more broadly. It is necessary, of course, to get rid of attempts to find a universal recipe for all levels, but the desire to simply combine concepts without understanding the principles is not the best option.

Résumé

Building an economic model of a post-capitalist society requires understanding the difference between the principles of division of labor and division of knowledge/deepening of labour. The first mechanism was dominant in the last four centuries and ensured the rapid growth of the metropolis/centre of the capitalist world system, allowing to plunder the non-capitalist periphery and exploit the capitalist (previously robbed and appended) one. When the non-capitalist periphery disappeared/shrank, a crisis (reversible process) usually began. If, however, it was possible to find a new non-capitalist periphery for stripping and fleecing, the resources received were used to compensate for imbalances and resume growth in the centre of the metropolis.

In the coming years, the global world is expected to disintegrate, followed by the restoration of several pan-regions and/or the emergence of a new version of the global world, although the latter is still unlikely. In any case, the economy of the future will be almost closed, and therefore non-capitalist, i.e. its development will require the use of mechanisms for sharing knowledge/deepening labour.

The principles of the Stalinist economy were as close as possible to the desired post-capitalism/economics in a closed system, they can and should be refined, giving greater freedom to individual initiative, offering regulations and guidelines for medium-sized businesses and strict directive planning for large and large ones.

Once again, state planning should be ensured while maintaining the individual’s freedom of action. The question of the ideal combination of these principles and the boundaries of approaches to them is not easy, but when searching for them, it’s necessary to remember that what worked in an intensively growing, expanding economic system can develop quite differently in a closed economy based on the division of knowledge/deepening of labour.

And, yes, in the economy of the future there is nothing complicated and fundamentally new, all the answers lie on the surface, they were not even interesting to look for…


Andrey Shkolnikov

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