Aleksandr Izraelevich
Khodakov,
Ph.D. (Education)
St.-Petersburg, Russia
How
to Save the Global Financial System:
A Methodological Essay
First of all, saving the global financial
system necessitates introduction of three types of money: consumer money
(C-money) for economic transactions (for buying and selling goods and
services), investment money (I-money) for investing to production development,
innovation projects, as well as specific money for financing transactions
(F-money).
It will make financial situation better
controlled, thereby providing for sustainable development of real economy.
Then it necessitates careful reorganization
of industrial relations based on principles of economic and corporate
democracy.
The very nature of socio-economic knowledge
and mindset should be revised, and fitted with dialectic logic.
The above statements warrant consistent
substantiation.
Crisis
as a problem situation
1. Growing financial and economic crisis is a
serious symptom: it is indicative of incompetence residing in the
science, business and governments. It is also indicative of inability to solve
vital issues, inherent in the existing bourgeois market-based model.
2. Our failure to overcome crisis means that we
do not know how to do it.
3. Crisis demonstrates shiftlessness of modern
society, which is perplexed as it faces the necessity to change according to
pressing dictates of time. It is the note of long overdue changes.
4. Our over-populated world (in 2011 the
population of the world reached 7 billion) desperately needs an economic
re-organization.
5. Alternatively, economical contradictions
which remain unsolved in a positive way, will be driven to extremes, and may
gradually evolve into civil wars and military conflicts between nuclear powers.
6. This crisis not only has financial and
economic aspect (inflation, budgetary deficit, government debts). It bespeaks
weakness and uncertainty of our current philosophy of life.
7. Attempts are made to use emergency coercive
measures to overcome the crisis, without changing fundamental economic
relationship (ownership relations, distribution system, principles of economic
power).
8. However, experience shows that packages of
direct, emergency and “drastic” measures do not work, because the ideology of
“taking measures" is faulty.
9. The point is, the existing systemic society
cannot be reformed (cured) piece by piece using some local remedies. The
current financial and economic crisis resulted from (came out of) the long-term
performance of an economic system having multiple deep-seated hidden defects.
10. Present is shaped in (results from) the past
history.
11. The current economic system continuously
operates, changes and develops regardless of whether we want/understand it or
not. This system is multidimensional and inconsistent; it is an event-driven
network formation. Parts of this system tend to interact with each other based
on the principle contained in a Buddhist wisdom “All-in-One and the
One-in-All”.
12. To improve one part (financial sphere) we
should improve or even renew the whole, i.e., the entire system.
13. Such economic reality necessitates a profound
dialectic re-evaluation. Habitual stereotypes are especially dangerous when
dealing with this matter.
14. The central methodological problem lies in
the fact that socio-economic and managerial mindset unwittingly imitates
technocratic mindset. And therefore it becomes inadequate to its subject and
multiplies our illusions.
15. Socio-economic reality which changes
following the self-determined laws is still an uncharted area for us. The
market is a mighty and whimsical Invisible One.
16. To help the world recover from financial and
economic crisis we need a well-thought-out updating of general socio-economic
structure, principles and rules of routine operation of the whole economic system.
17. To overcome this crisis, the society as such
should be get cured.
18. This being said while updating, and reforming
our society as a whole, we still need to steadfastly improve specific parts of
it (including the monetary and financial sphere).
Mysterious
nature of money
19. Everyone strives to raise money, while no one
actually knows what money is.
20. Money is dangerous: inadequate understanding
of money, inadequate attitude to the money introduces confusion into economic
life, which gradually and by insensible degrees leads to large-scale crises.
21. Our knowledge of the nature of money is in
arrears of changes which affect money in modern global economy.
22. Our notion of money and finances needs
updating.
23. Usually, several economic functions of money
are pointed out: standard of value, circulation medium, means of payment, store
of value.
24. Money should be backed by actual values,
otherwise they mean nothing.
25. Modern money is backed by quite diverse
things: material assets output products, services provided, ideas and
developments, projects, warranties, intentions etc. Many of them cannot be
assessed, or calculated.
26. Modern money exhibit self-expansion, which
makes them to some extent inadequate.
27. The money supply everywhere grows
notably faster than GDP (gross domestic product).
28. An excessive increase in the amount of money
leads to devastating inflation which results in persistent decrease in any
incomes.
29. Money belonging to the end consumer or
entity, and paid for real goods (products, services and works), are primary
(real) money. If the goods are equitably priced, money are adequate to cost
and utility of goods, created value.
30. Primary money arises in the course of
economic transactions, i.e. transactions involving sale and purchase of actual
values.
31. They may be labeled as consumer money
(C-money).
32. Money can perform stimulating function,
when they transform into the investments, and are used to develop real
production. They directly promote creation of value.
33. Such money may be labeled as investment
money (I-money).
34. Financing functions of money should
also be emphasized.
35. Finance includes monetary funds and
securities which are used to generate, distribute and redistribute value
created by other persons. That is, finances are generated by capital movement
as such; goods (products and services) do not directly participate in this
process, as if they stand on the sidelines.
36. Financial system is made of specific
institutions: banks, funds, lending institutions, investment companies, stock
exchanges, etc. There are lots of them. And each handles financial transactions
striving to derive profit.
37. No real value is generated in financial
transactions. Financial products generated in financial transactions are of
symbolic conventional nature.
38. When financial transactions are effected, a
specific type of money is converted to another type of money. Making money out
of money is quite profitable and many people find the process attractive.
Financial operations yield quick results in the form of ready money which is quite
tempting.
39. Financial transactions give rise to secondary
money which does not serve as the equivalent of goods. Secondary money is
deceptive and risky. They penetrate everywhere, form virtual (speculative)
capitals, and nurture economic illusions.
40. This money can be labeled as financial
money (F-money).
41. Today, money performs diverse functions.
Therefore, it would make good sense to have diverse types of money.
42. Money inevitably performs important social
functions as well.
43. Money has impact on the social fabric – there
are rich, well-off, budget-oriented, poor, and paupers.
44. In a society which is humane and fair,
reasonable and rational, socio-economic conditions are maintained which allow
hardworking persons to make good money by fair means.
45. In a society which is harsh and unfair, ill
advised and doomed, the distribution system condemns hard working persons to
poverty. Some of them are even unable to find a job.
46. In societies following the path of progress,
gap between rich and poor tends to decrease gradually (due to increase in
well-being of the poor). In degrading society gap between rich and poor tends
to remain the same and even widens, thereby increasing social strain.
47. Reasonable money system promotes strong
social solidarity worldwide. Faulty money system undermines foundations of
society and may result in global conflicts.
Real
economy and financial market: an unequal marriage
48. Investors and keepers of money, borrowers and
creditors, investors and beneficiaries, buyers and sellers of securities and
currency – all of them participate in financial activities. All of them are
players in the financial market.
49. Real economy and financial sphere can only
exist in interaction, they inevitably collide.
50. Together, real economy and financial system
represent a union of contrasts. The larger the amount of money circulating in
financial sphere, the less money remains in the real economy. The less money is
available to manufacturers and consumers.
51. Who is able to maintain an optimum balance?
Who will set optimum parameters for the interaction zone?
52. Real economy and financial system cooperate,
and, at the same time, fiercely compete for money resources.
53.
As
things stand now, financial transactions are more profitable than economic
ones. They tempt people with quick results. Nowadays, real economy loses the
competition battle to financial system.
54. There are repeated calls for
governments to introduce tax on large-scale financial operations (“Robin Hood
tax”), and for a good reason.
55. As will be shown hereafter, introduction of
diverse types of money will facilitate, to some degree, a decrease in
profitability of purely financial manipulations.
56. Currently, huge monetary means circulate
within financial system as such, without contacting with the real economy: bankers
grant credits to each other, brokers purchase and sell securities, manipulate
with derivative financial instruments, invent smart schemes to produce money
out of money, dodge and speculate. Doubtful transactions are numerous.
57. The general monetary stock contains mixed
primary and secondary money. Money backed by actual values cannot be
distinguished from those which arose out of financial manipulations, backed
only by “valuable” securities, collateral, guarantees, etc.
58. All the money which circulate in the global
financial markets and are meant to derive big and easy profits, might be used
to educate the illiterate people (they number hundred millions on the global
level), to provide jobs to all the unemployed (hundred millions) and to feed
all people dying of hunger (hundred
millions). This money might also be used to accommodate the majority of the
homeless (hundred millions) and to provide medical care to severely ill people,
which are currently left to their own devices (hundreds of millions). Many depressive
regions could be revitalized.
59. However, the above mentioned activities
cannot yield big profits. Private capital still tends to flow to areas with
higher profit ratio.
60. It is estimated that futures, options, other
“paper” virtual values, which currently circulate in the world markets are
worth about 1500 trillion dollars. This being said, the total cost of real
estate property of the world is about 75 trillion dollars. The annual GDP of
all the countries of the world is even lower.
61. 1500 trillion dollars is an astronomic amount
of money, and what values is it backed by? Heaven only knows!
62. Introduction of diverse types of money will
facilitate a new perspective of money supply. It also will facilitate partial
redistribution of money flows, by increasing the flow of monetary resources to
the real economy. It also will promote a more rational use of available money
resources.
63. Nowadays, the financial system (market)
begins to alienate from the real economy, manufacturing process, and mass
consumer needs. It begins to independently operate according to its intrinsic
laws which are unknown to us.
64. Financial system has a powerful stimulus for
self-expansion, by generating secondary money and imaginary profits. It becomes
extremely important and has great impact on social life, it subjugates the real
economy. Powerful financial empires emerged, which give their evil law to
everyone.
65. Current pervert financial market has formed a
speculative model of economy with no future.
66. Millions of financial operations are hourly
made within existing financial system. Their impact is tremendous. This system
becomes unsteady and unsustainable, uncertain and unpredictable for us.
67. Bankers strive to derive profit out of their
manipulative transactions, and do not care much about efficiency of real
production sector.
68. Significant efforts are made by governments
to put a bridle on financial “elements”. Heads of states, top managers,
specialized institutions try to regulate (on national and global level)
performance of financial system. They even try to improve it. However, all the
attempted reforms are cosmetic ones; they only affect details, and technical
procedures. The very core of the system remains unchanged.
The
way money is distributed and redistributed
69. A part of money is transferred to government
agencies which form budgets (in the centre and on local level), welfare funds,
non-budgetary fund s, and build up reserves. These monetary funds are meant to
maintain state-financed organizations, and to implement the social policy.
70. Government expenditures oftentimes exceed
revenues. As a result, budgetary deficit occurs. To compensate budgetary
deficit government is bound to borrow money. In some cases gradually
accumulated public debt makes a significant amount and significant even exceeds
the GDP of the country.
71. Budgetary deficit arises due to low
efficiency of real production. Archaic system of distribution promotes
embezzlement of a significant part of created value by small group of magnates.
This process is also facilitated by low paying capacity of the majority of
working citizens, irrational structure of budgets, lack of due social
supervision of public money, and by ….. many other factors.
72. Another part of money is controlled by
organizations and enterprises, after being derived out of business activity.
This is corporate money.
73. The third part of money is transferred to
financial sphere. These include resources owned by financial organizations, and
funds obtained from their clients, participants of financial transactions.
74. The fourth part of money consists of private
fortunes, savings made by major owners and businessmen, which were accumulated
out of profits derived by their companies. These riches are money actually
diverted from human activity.
75. Currently such elite riches amount to tens of
trillion dollars ($) worldwide. This amount exceeds aggregate public debts of
all the countries of the world.
76. This absurd, absurd, absurd world!
77. The rest of money includes funds of mass
customers and households (workers, professional staff, managers, students,
retired persons). They are generated by wages, incentives, grants, allowances,
retirement pensions.
78. Money is tight. Everyone strives to increase
their property. However, any increase of money in some area is only possible by
decreasing money allocated to other areas
79. Government agencies have many opportunities
to magnify their share of money (increase of taxes, duties, reduction of
payments, and subsidies). Financial institutions and corporations can increase
their profit by many ways. Major owners succeed in lining their pockets, as
they possess big money and easily augment it.
80. Only the ordinary people cannot increase
their part of money. Mass consumers (ordinary workers) only obtain sums left to
them by government, bankers, and businessmen.
81. In an emergency, government, bankers, and
businessmen tend to secure their economical well-being by reducing payments to
ordinary workers (salaries, pensions, grants, and social payments are
decreased). Austerity policies and belt-tightening are implemented at their
expense.
82. These are unwise moves. The point is,
economic stability necessitates sustainable mass demand, availability of money
in households and numerous consumers feeling confident about the future.
83. Aggressive redistribution of funds takes
place within each above mentioned sector. Money is distributed between public
agencies, enterprises and industries, businessmen,
bankers, diverse groups of population. Everyone for himself.
84. Financial system plays a specific role in
redistribution of available money. Mechanisms of financial market can exercise
guiding functions.
85. In today’s economy there is an excessive
concentration of money with relatively small number of economic entities.
86. In 2011, experts from the Zurich University
studied economic relations of over 37 million companies and investors
worldwide. They selected tens of thousands largest units which belong to
transnational corporations.
87. Researchers discovered a nucleus of 147
corporations-monsters (most of them were financial institutions!) which
control 40% of global corporate riches. It means that we live (without being
aware of it) under the dictatorship of financial magnates!
88. Any dictatorship is egoistic and indifferent
to humans; it is always devastating, since it undermines creative and
intellectual foundation of life.
89. Bankers’ dictate reinforces their camouflaged
despotism aimed to serve interests of this small clan.
90. The real economical power is held by those
who possess the greatest stock of money.
91. The greatest danger lies in extreme
instability of such structure of global economy, revealed by mathematic
analysis. We cannot eliminate internal contradictions, crises and social wars
without changing configuration of the whole system.
92. Introduction of diverse types of money can
make redistribution more rational and flexible. It will facilitate better
implementation of general strategic interests of the whole economic system. It
will promote more sustainable performance and development of the system.
Efficiency
of money triad
93. Technically, introduction of three types of
money does not necessitate issuing new money or replacing the existing. No
personal savings will be affected in the slightest degree. I am only referring
to the procedure of gradual labeling of existing money depending on their
origin and purpose.
94. Labeling procedure is enabled by establishing
three specific settlement accounts (or by dividing accounts into three
positions) for entities: C-accounts, I-accounts, and F-accounts.
95. Consumer money (C-money) serves to implement
economical transactions, to sell and purchase goods (products and services).
They are used to make diverse payments to individuals (salaries, incentives,
bonuses, dividends, grants, pensions, allowances, etc.).
96. People should use C-money when they buy
essential commodities.
97. Entities should receive C-money from their
buyers, customers, and clients when they charge them for goods, works, and
services. Enterprises should use the
same type of money to pay their suppliers and partners (for raw materials,
supplies, power resources, transportation and other services).
98. Sellers will be expected to set prices in
C-money.
99. P-money will dominate in wholesale and retail
trade.
100.
Banks will issue consumer credits to
individuals and entities in C-money. Organizations will be able to conduct
day-to-day business using consumer credit funds.
101.
Financial organizations will receive
C-money from citizens-investors, as well as from other persons (entities) which
place their C-money to deposit accounts or use it to pay off loans.
102.
In real economy, P-money will dominate.
The fact that they are backed by actual values will become evident and
compelling. Such money will become attractive.
103.
C-money will be used to buy stocks and
bonds of manufacturing companies in the primary security market. Therefore,
issuers will get consumer money for their securities. Issuers may also
use P-money to distribute profits.
104.
C-money can exist both in cash, and in
non-cash form. A hard rule should be adhered to: all the cash must be C-money.
105.
Banks shall give cash to entities only out
of amounts placed on C-accounts.
106.
Investment money (I-money) is meant for a
specific purpose. They serve to renew capital stock (to acquire fixed assets),
to expand, modernize and reconstruct production, to create new manufacturing
facilities, new construction. Money, allocated to development effort and
scientific research should also be ranked with I-money.
107.
Organizations will obtain I-money from
banks (investment credits), investment companies and funds, other
organizations, as well as from government structures: targeted loans or
subsidies, budget funds to be used in the approved innovation projects.
108.
I-money will exist only in non-cash form.
109.
Labeling of I-money will promote efficient
tracing and control of movement and usage of investment money, which is
especially important, when money is allocated by the state.
110.
It will be easy, when necessary, to
generate “electronic biography” indicative of step by step movement of
investment money (up to the moment where allocated funds are converted to
C-money).
111.
Key feature: an organization which
implements a specific project of development will compensate suppliers,
subcontractors, and partners with I-money. And this money can be promptly
entered to C-accounts, i.e., can be automatically labeled as C-money.
112.
Thereby businesses will be stimulated to
participate in implementation of innovation projects, and modernization of the
economy.
113.
Financial money (F-money) serve to carry
out financial transactions: buying and selling currency, and stock on secondary
security market, mutual lending, etc. Only such money will be used in any
transactions involving purely financial institutions and companies.
114.
Organizations shall not be authorized to
use money other than F-money in any transactions which do not involve real
goods, works and services.
115.
Financial institutions shall sell issued
stocks and bonds for F-money. Dividends shall be paid in F-money, too.
116.
F-money account for the bulk of money
circulated in the financial market and stock exchanges.
117.
F-money exists only in non-cash form.
118.
Such marking will allow one to better
understand the structure of money stock, to separate primary money (backed by
actual values) from money surrogates. Allows to single constructive capital
out of speculative (virtual) capital.
119.
Money owners should be able to mutually convert between all money
types. Conversion should be made quickly and easily, however, following an
established strict model and with some refraction indexes β.
120.
We’d like to suggest a system of
refraction indexes, as follows.
121.
C-money will be converted to I-money with
factor β /CI /=1. At the same time, C-money will be converted to F-money
with factor β /CF /<1. It will stimulate individuals and legal entities
to engage in investment activities, while keeping owners of real money from
participating in purely financial manipulations.
122.
I-money will be converted by owners to
C-money, and to F-money with factor β /IC /<1 and β /IF /<1.
Thus, investment money will not be easily spent on consumption and financial
transactions.
123.
In some cases conversion of specific
I-money to C-money or to F-money might be completely prohibited, which will
ensure preservation of investment money for specified purposes.
124.
F-money will be converted to C-money with
factor β / FC /<1, which, in an indirect way, decrease return on
financing activities as such, as compared with production activities. At the
same time, F-money are converted to I-money with factor β /FI / = 1. That
is, bankers will derive more profit from investment operations, than from just
spending money on consumption.
125.
According to this logic, financial
organizations will be motivated to invest spare money to development of the
real economy, innovation projects, and they will, in prospect, receive C-money
from borrowers (via payment on loans, or collection of dividends).
126.
According to this logic, the volume of
funds diverted to financial market will decrease. At the same time, investment
flow to constructive capital will increase. Credits for manufacturers should
become less costly.
127.
According to this logic the main way to
get the C-money involves direct or indirect participation in the real economic
development.
128.
According to this logic the structure of
personal wealth of financial, business and industrial magnates should alter:
the portion of F-money should decrease as a result of transfer to I-accounts.
129.
According to this logic money will serve
to create and advance manufacturing, and to create jobs. As a result,
employment and incomes of households and every earner will grow.
130.
Money will be converted without hindrance
by a bank (upon the instruction of money owner), by transfer of a specified
amount from one type of account to another, factoring the respective refraction
indexes β.
131.
It seems advisable that the regulatory
authority set a mandatory range for diminishing rations β, and values
within this range would change subject to market conditions.
Stages
of introduction of diverse money types
132.
The money triad can be introduced in an
easy and smooth manner.
133.
The first adaptation stage involves
setting every refraction index β as equal to 1. Thus, money shall, in the
process of movement, be labeled, and allocated to the three accounts as
follows: C-accounts, I-accounts and F-accounts. However, owners will be able to
alter the structure of their money at any time and without any losses.
134.
And only the second phase involves an
extremely carefully introduction of the whole system of factors β. It will
allow all businesses to adopt a more balanced and thoughtful approach to
handling their money resources and to generate an optimal money structure.
135.
Values of refraction indexes β may
vary depending on the region or industry specificities. Hence an opportunity
will arise to commit investment resources to depressive regions and to economy
segments deemed to be less attractive for private sector capital.
136.
Let’s repeat: the modern system society cannot be reformed
piece by piece. Therefore, should we only reorganize monetary and financial
system, we shall not gain too much from such reform. What we need is an
adequate general socio-economic model.
Alternative
socio-economic model
137.
Dialectical thinking perceives any existing socio-economic system
as a mere stage in historical process, a short-lived episode of social development.
All things must pass!
138.
We
cannot rescue the existing financial system without reasonably changing the
whole socio-economic system, based on principles of the new philosophy of life.
139.
There is a need for alternative economy.
140.
Alternative economy is a wise and necessary although challenging
step towards the future. It will grow from the existing reality, while
rejecting everything which is obsolete and inhibitive of socio-economic
progress and preserving everything that is
useful and promising. It establishes new economic principles and relationships,
renewed laws and morals, which meet the needs of the oncoming age.
141.
That is dialectical path of historical development.
142.
Till the present, reality was dominated by simple principle: economic
power belongs to the rich and powerful. It is the core idea of bourgeois,
elitist, and bureaucratic economy. The idea is past its sell-by date.
143.
Alternative model should be based on a different principle,
as follows: economic
power belongs to the able and competent.
144.
The said objective necessity is the imperative of our era.
The fact is, in the context of postindustrial innovative economy, and of
science absorbing industry, competence (whether it be creative, managerial, or
business skills) will become more important than money.
145.
Alternative economy is what everybody would benefit from! It
offers real opportunities for material well-being and enlargement of mind to
every smart and hard working person.
146.
This alternative model can also be named People’s Economy.
147.
The fundamental principles and values, which foster the People’s
Economy, are as follows: creation, fairness, co-operation, self-organization
and rationality.
148.
This economic model promotes fair constructive co-operation both
on particular national level, and on a global basis. That is an economy of
peace and well-being.
149.
The alternative model is based on economic and corporate
democracy.
Economic
democracy
150.
In
economic democracy, economic power is distributed among many owners, among
efficiently working businessmen, which are both able and competent. Under the
circumstances their ability to produce vital goods is of crucial
importance. Real capital and real production dominate.
151.
Devastating monopolism of magnates should be eliminated.
152.
In
economic democracy business activities shall become large-scale phenomena.
153.
Every smart, competent and pushful person shall have access to
corporate ownership; every worthy person shall be at liberty to start a private
business or to acquire ownership.
154.
Equal
rights of all categories of property owners shall be respected and upheld.
155.
Equal rights of all categories of salaried employers shall be
respected and upheld; trade unions shall play an active mediating role in
economic life.
156.
Freedom of enterprise (free choice of pattern
of ownership, activity profile, technologies, suppliers, partners, market
outlets, financing strategy, personnel policy) shall be secured.
157.
The principle of separation of authorities and business shall be
observed; the degree and nature of intervention into economic activities by
authorities shall be strictly regulated. Lobbying of specific companies’
interest by pubic officers shall be deemed a worst crime.
158.
Activity of local authorities shall be transparent, scope and
range of their economic rights shall be made regular by conformance to law;
Detailed rules of administrative decision-making shall apply; local government
bodies shall adopt proactive attitude.
159.
Reasonable and clear money and credit policy as well as fiscal
policy shall be pursued (equally accessible credits, no elective subsidy to
enterprises, inefficient manufacturers, tax exemptions shall be limited, equal
status of all players in the financial market); transparency of state
investment policy.
160.
Society shall be able to influence public expenditures; citizens
shall be able to participate in budgetary discussions. Budget transparency
shall be upheld. Public hearings on execution of budgetary performance shall be
conducted.
161.
Land and all the natural wealth, and resources shall be excluded from
the domain of purchase and sale, and shall remain the common national
patrimony. Clear and transparent rules shall be applied in the national
interest for using and managing land, natural wealth and resources; efficient
ecological inspections shall be carried out.
162.
Consumers shall have priority over manufacturers.
163.
Freedom and independence of business press shall be secured.
164.
Economic democracy involves reasonable balance between
centralization and decentralization of economy.
165.
Decentralization means expanding small and medium enterprise,
developing the economy in regions, on the periphery, at the local level, and
supporting creative activity of local population.
166.
People’s Economy should grow from below, being initiated
by common people themselves, by strong minded, pushful, and competent
individuals.
167.
Small
and medium-sized innovation businesses, which will independently arise at the
local level (regardless of the will of authorities and politicians' rhetoric),
will become growth points of economy, and secure well-being of all persons
willing and able to work.
Corporate
democracy
168.
Corporate democracy is aiming at increase of efficiency of
production and quality of management, at complex improvement of enterprise’s
activity, stimulation of its future progressive and steady development.
169.
Corporate democracy begins with more equitable and rational
distribution of corporate property.
170.
This property should be not concentrated in hands of a small group
of owners. The main part of property should be distributed among founding
members, top managers and key employers, professional staff with higher
competence.
171.
In
a really civilized society, property should belong to the able rather than to
the rich.
172.
The
concept of owner (of enterprise property) is should be replaced by the concept
of co-owner (of enterprise property).
173.
Growing number of workers-co-owners is a core trend of economic
evolution in accordance with historical development laws. Those who will
understand it before the rest will eliminate many problems.
174.
It
would be both irrationally and unreasonably to divide property into equal parts
and just give it away. Everyone should buy their share of assets.
175.
In
distribution of corporate property priority will be given to founding
co-owners.
176.
Individuals which exercised business and creative initiative will
have the advantage.
177.
Individuals which exercised initiative in
processes and technologies will have the advantage.
178.
It would be fair if resolutions concerning
allocation and personal selling of shares could be adopted at annual general
meetings of shareholders.
179.
Share fraction (size of stock) held by an
individual should be limited legislatively. None of present co-owners
should impose their will on other co-owners. A single individual should not
hold blocking stock or controlling block of shares in the enterprise.
180.
It will help eliminate owner
dictatorship. The mass (collective) owner will be formed.
181.
It would be quite democratic, if ordinary
employers and professional staff members could hold, in total, no less than
blocking stake in the enterprise. It would provide a backstop against hostile
takeovers, and an efficient tool to neutralize top management follies and
authoritarian ambitions.
182.
Corporate democracy involves a more
equitable and rational distribution of income (profits) gained by an
enterprise.
183.
The new structure of corporate property as
such will be promotive of more equitable distribution of revenue earned: key
staff will be remunerated proportionally to their professional output.
Incentives paid to founding co- owners, top managers, professional staff will
directly depend on the actual benefit they provide to the enterprise.
184.
In corporate democracy the most important
principle of People’s Economy will be exercised as follows: Individuals should be rewarded for their creative abilities and
competence, rather than for their wealth.
185.
Corporate democracy should not limit
co-owners as to the size of property, the ability to accrue property and to
commercialize it in a lawful manner – it might be facilitated by internal
crediting and internal leasing.
186.
Corporate democracy necessitates
transparency in defining the funds of co-owners. These may include the
following components: dividends (equal to actual stock of shares); interest on
credit granted to the enterprise; rental payments for property leased to the
enterprise; wages for performance of professional duties (for persons holding
specific positions at the enterprise).
187.
Distributed nature of corporate property,
and absence of personified controlling investor will facilitate an
alternative-based election process for the board of directors, so as to
introduce qualified people reflecting diverse interests of groups of
shareholders.
188.
This higher administrative body should
work more efficiently, as they are committed to long-term development of the
company. In this context the board of directors in general will become an independent
management body.
189.
Adoption of democratic principles by the
corporate governance system achieves the full potential of using collective
(team) competence to resolve current complex and interdisciplinary issues of
management. Promotes wider involvement of managers and professional staff in
the process of decision-making encourages them to participate more extensively
in realization of these decisions.
190.
Corporate democracy involves placing of
employees based on their expertise and business acumen, as well as rotating and
promoting employees. Only more able workers should be promoted.
191.
In corporate democracy, general
stockholders meeting will play a more important role. It would be useful to
admit, along with shareholders, some key professionals contributing to the
profit-making process with their efforts and knowledge.
192.
In the era of innovations, and
continuous growth of scientific knowledge, only talented, skillful, pushful and
motivated professionals will be able to efficiently dispose of property
193.
For complete concept of alternative
socio-economic model, see another monograph titled “People’s Economy”.
November, 2011
St-Petersburg
Aleksandr Izraelevich Khodakov,
Ph.D. (Education)
(812) 92 33 448
gib@ait.spb.ru