Obligations of Production Capital

Obligations of Production Capital as One of 17 Principles of Regional Economic Order Under the Maxims Democracy and Market Economy.

An Article in the Compendium of Market-Based Social-Ecological Economics

Key issues in view of the neoliberal crisis:
How can we guarantee employment and fair income?
How can we protect the environment effectively?
How should we shape the economic globalization?
What should the economic sciences contribute?
What must be the vital tasks of economic policy?
How can we legitimize economic policy democratically?

Click here for the list of all articles: Compendium
Click here for the German-language version: Pflichtigkeiten des Produktionskapitals

Table of Contents

  1. Overview
  2. Preliminary Remarks
  3. The Place-Bound Obligations of Production Capital


regionaleordnung01In view of the threatening extent of the devastations caused by the neoliberal economic doctrine, the turning towards compatible economic principles becomes almost existential. But only when these principles are combined to form a model of sustainable regional and global economic order, can the urgently needed economic policy measures be derived.

All 6 global principles are summarized in the article Principles of Global Economic Order in the form of questions. The supplementary 17 regional principles are listed in the article Prinzipien regionaler Wirtschaftsordnung, also as questions.

In the context given here, the term »regional« refers to largely homogeneous entities, currently primarily nation states and supranational political and economic areas (unions), that meet all the requirements for political sovereignty and economic autonomy and are therefore in a position to form a viable foundation for the prosperous coalescence of the world. Hereafter, these entities are mostly referred to as economic areas.

The European Union (EU) and, in particular, the euro zone existing within the EU, can serve as a cautionary example here. Both are supranational entities that have emerged from the political and economic self-interest of powerful players, and whose inhomogeneity and centralism have since unfolded great destructive potential (as a supplement see the article Demokratie und europäische Integration).

Preliminary Remarks

In the course of the historical economic development in Europe and the USA democracy and market economy have emerged as useful and reliable Maximes of Economic Order. Both maxims have, however, been distorted by the neoliberal indoctrination since the 1990s to such an extent that the »natural principles« inherent in them are hardly perceived by the citizens any more. It is therefore essential to return to these principles and to combine them into a model of a sustainable regional and global economic order. See also the article Market and Market Economy.

In contrast to the centralistic structures produced by modern Neoliberalism, the model presented here is based on decentralized structures, or, better still: on subsidiary structures. Only if the citizens in as many countries as possible are recognizing democracy and market economy in their interaction again as convincing maxims, can a culture of political co-determination and economic self-determination return to society, politics and the economy and work towards social and ecological justice. Embedded in subsidiary structures, the citizens bear full responsibility for their actions and well-being, so that they are always brought to shape the conditions in their immediate environment in exchange with each other and at the same time create the preconditions and the foundation for global exchange.

Social and ecological justice, by the way, arise from a multitude of economic mechanisms: For example, the terms Efficiency and Productivity as well as specialization, which are wrongly defined in the neoliberal context, are redefined in the sense of social justice and ecological sustainability and are no longer subject to the arbitrariness of »liberalized« (unregulated) markets, but to economic policy control. The market thus regains the freedom it deserves, which enables it under meaningful and uniform framework conditions, rules and standards to allocate economic resources efficiently and equitably like no other mechanism.

Thus, the price is able to perform its original function again as the central information medium and control element of market transactions of individual economic players, because under the conditions of social and ecological justice and productivity it reflects all internal and external costs. By allowing the players to be guided by truthful prices resulting from the interplay of supply and demand, economic resources move – as if steered by an »invisible hand« – to where they provide the greatest benefit to individuals and, at the same time, to society as a whole. As a supplement see the article Economic Pricing.

Subsidiary structures ensure that prosperity and welfare are no longer at the mercy of the imponderables of a worldwide production quantity achieved under oligarchic rule and high capital concentration, but result automatically from the domestic production structure. The production structure alone is decisive for local and regional economic diversity and consequently for the level of employment, the performance-related equal distribution in society and the preservation of natural resources.

Unlike domestic competition, international competition can not, by its very nature, be granted the freedoms of regulated domestic markets. It must rather be based on bilateral trade agreements given the completely different traditions, standards and resources in the world. In these agreements the exchange rate must be set as the crucial trading link, supplemented by autonomous tariffs and trade quotas to balance out the differences and to grant trade profits to both sides. The primary objective of these agreements must be to ensure that imported products with their characteristics and prices are integrated into domestic competition in the most stimulating but harmless way possible.

The separation into regional and global order thus results quite naturally from the principle difference between domestic and foreign trade. Besides, this explains why there can be no superordinate, all-dominant, self-regulating and self-stabilizing world economic order in a desirably diverse and democratic world. For more details see the article Future-Proof Foreign Trade.

Among politically sovereign and economically autonomous nation-states and economic areas, the global order is reduced to agreements of norms of conduct, especially regarding norms of international trade and cooperation. By applying these norms, economic subsidiarity can be extended beyond national borders and find its perfection at the global level in the form of projects of global interest and scale.

With domestic and cross-border subsidiarity the doctrinal practice of transferring economic powers from lower to higher levels (especially nonstate) is overcome, of which neoliberal protagonists claim it would bring about »more appropriate« and »more efficient« decisions. Along with overcoming this practice, the justification is removed for a World Trade Organization, which is entrusted by its current 164 member states as the guardian of the Grail of global cut-throat competition based on dumping prices in lead currency (i.e. US dollar or euro). This is an unprecedented event in economic history, especially because the condition for membership is the (voluntary) renunciation of national economic autonomy.

It should be noted that the demarcation of the specific functions of the various economic levels, i.e. the subsidiary structure of autonomous nation-states and economic areas both domestically and beyond their borders, is absolutely crucial for the future viability of economically autonomous entities and for the global economy as a whole:

Functioning regionality is a prerequisite for sustainable globality. Globality is the complement of functional regionality.

In what follows, is the plea for the place-bound obligations of production capital as one of 17 principles of regional economic order:

3. The Place-Bound Obligations of Production Capital

pflichtigkapital01The production factor capital, which includes all human artifacts from the simplest tool to the most complex industrial plant, has its origin in human labor and natural resources.

The bond between production capital and the factors labour and natural resources is therefore indissoluble, and the bond remains indefinitely with respect to time and place, regardless of the ownership structure of the capital.

Although the ownership of productive capital is not evenly distributed among the population due to different personal motivations, all owners without distinction are nevertheless obliged to use their capital and let it work where it originated with the help of labour and natural resources. The ownership of capital thus includes a place-bound social obligation towards all people who helped create it, and it also includes a place-bound environmental obligation towards the economic community in which and with whose resources it was created.

Production capital can in principle only be discharged from its obligations with democratic legitimation and under strict conditions. Unlimited capital mobility, as practised under the current neoliberal economic doctrine, undermines this principle and is incompatible with a market economy structured in a subsidiary way and geared towards social and ecological productivity. Incidentally, the above obligations also apply without restriction to monetary capital, which results either from the sale of physical capital or from an increase in the credit volume of commercial banks as a result of an adjustment of the money supply by the central bank: The sales proceeds or the new loan must be reused or newly deployed for place-bound (local) productions; conversion into boundlessly free private capital is expressly precluded. But even owners who have generated their own real capital are not discharged from their obligations. Because the ecological commitment of capital results from the origin of the natural resources used, while the social commitment derives from the tax-financed social achievements previously provided to the owners, and superiorly from social solidarity.

Intangible production capital, which comprises proprietary knowledge and intellectual property, holds a special position: This capital can, for the sake of global progress, be freely traded for foreign exchange or exchanged for other intangible capital; the resulting direct and indirect trade proceeds, however, are again subject to the place-bound social and environmental obligations.

On the income structure: Specifically, the income from work is supplemented by an income from capital (return on capital), in that each employee is virtually allocated a share of the entrepreneurial capital corresponding to his or her activity for the period of employment with commencement of contract, from which his or her individual return on capital is calculated. The ownership structure of the capital is not affected by the virtual allocation.

As productivity rises, the return on capital and thus the income from capital usually increases on the one hand, while on the other hand either working hours are reduced or – if the markets can absorb the higher production output – wages are increased. This results in an extended calculation mode for dependent employees consisting of a proportionate return on capital, working hours and wages, which is to be negotiated between the social partners, taking into account statutory requirements.

The extended calculation mode ensures that the total share of national income attributable to dependent employees remains more or less the same over the long term and can be negotiated periodically according to overall performance. This leads to an optimally performance-based equal distribution of income, which is an important condition for functioning economic cycles and optimal social welfare.

The fact that prices of the factor natural resources also play their part in optimising welfare can be inferred from the environmental obligation of capital, analogous to the social obligation: The decentralized responsibility of economic players for their environment, which they have to grant to other regions in the same way, prohibits them (legally) to import artificially cheap resources and at the same time forces them to pay prices for local resources at a level that ensures their careful use and permanent availability, for example through recycling.

For a deeper introduction to the topic I recommend the articles Factors of ProductionEconomic SubsidiarityIntellectual Property and Neoliberalism and also Sustainable Social Welfare.

Note on the COVID-19 Pandemic

The pandemic has noticeably revealed the significant weaknesses of the neoliberal economic system for everyone, above all the shortage of medical, but also other products, caused by disruptions in the absurdly networked value and supply chains across the globe.

The analyses of the neoliberal system as well as the principles and practical procedures based on them for building a sustainable system, which are presented in this compendium, thereby obtain an unexpected topicality. Now is the time to seize the opportunity and build up economic policy pressure to enforce the development of an economic order that is sustainably oriented towards social and ecological welfare.

The following article refers to the targeted arguments contained in the Compendium: COVID-19 and Globalization

Click here for the German-language version: Pflichtigkeiten des Produktionskapitals.

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