Community Economics: Principles

by Manfred Davidmann

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CONTENTS

SUMMARY
PURPOSE OF ANY ENTERPRISE
PROFIT MOTIVATION
REAL-WORLD PROBLEMS
SOCIAL RESPONSIBILITY
SOCIAL COSTS
SOCIAL ACCOUNTABILITY
NOTES <..> and REFERENCES {..}

Relevant Current and Associated Works

Relevant Subject Index Pages and Site Overview



SUMMARY

This statement of fundamental principles allows for basic causes of real-world problems and global needs.

There are sections on problems and their causes, on profit motivation, on social responsibility, social costs and social accountability.

The roles of owners, directors and managers are described and discussed, as are their social responsibilities and the consequences of irresponsible behaviour.

Also discussed are actual rewards and differentials from top to bottom and from young to old. The National Remuneration Pattern is a precise pictorial record of the actual value placed on different kinds of work within the whole community.

Manfred Davidmann also lists what is required to make the system work, as well as the controls required to prevent misuse of the system and to protect people.



PURPOSE OF ANY ENTERPRISE

The purpose of any enterprise is to satisfy the community's needs by providing high quality goods and services at reasonable prices.

The community attempts to ensure that its needs are satisfied by persuading those who can satisfy its needs to do so. It does so by providing reward.

Those who can satisfy its needs are motivated by the community towards doing so by the reward, that is by the resulting profit. We refer to this process as 'profit motivation'.



PROFIT MOTIVATION

The way in which profit motivation is intended to function is straightforward, as follows:

Someone sees a need for a certain product or service, sees that there is a demand for it, and that a profit can be made by providing it. He then provides the product or service and as he is the sole provider he makes a good profit as a result.

Then other people see that a good profit can be made from providing the same goods or services. They do so and this process continues until the supply of these goods or services exceeds the demand at the prices being charged.

Unhindered competition between suppliers then results in prices being reduced which in turn results in demand increasing at the new lower price.

Lower prices mean lower profit margins but the increase in demand can maintain and even improve profits by increasing the sales volume.

At the same time enterprises which may be badly managed or which offer inferior products, would become uncompetitive and cease to trade in this product or service.

In this way the community attempts to ensure that its needs are satisfied at reasonable prices, that it gets good value for money.


Different kinds of enterprises are thus formed for satisfying the needs of the community by providing high quality goods and services at reasonable prices.

What matters is the value of the service to the community. The measure of success is not the 'profit' or financial gain taken by owners, no matter whether private or state, but is the 'gain to the community'. The real profit or gain any enterprise achieves is the gain which the community obtains as a result of the enterprise's operations. Thus the social costs, that is the costs to the community of any operation, have to be taken into account. {1}



REAL-WORLD PROBLEMS

For the free-market economic system to work, it is essential that prices are allowed to float unhindered according to the unhindered natural balance between supply and demand, within limits set to protect the community.

This means that there must be free unhindered competition.

It also means that profit margins and prices need to be controlled effectively so as to protect the community from exploitation.


But enterprises are not only formed by people who care for other people and who are motivated by the intensity of the need, but also by those who care only for personal gain in wealth and power over others and who are motivated by this.

So we have enterprises being formed which are generally managed by directors who are appointed by the owners. It is the directors who generally take the key decisions on behalf of the owners. At times owners may appoint themselves as directors.


Problems arise when owners, directors or managers are either unaware of, or ignore, their purpose which is to satisfy the needs of the community with profit resulting from giving good value for money.

To them profit then becomes an overriding and sole objective and they concentrate on maximising profits regardless of the cost to others, regardless of the cost and consequences to the community.

Profits can be increased by reducing labour costs, for example. Those wishing to increase profits regardless of the cost to others, will thus aim to reduce the standard of living of the working population, will aim to increase the needs of the working population so that people will work for less. {1}


The National Remuneration Pattern {3} is a precise pictorial record of the differentials within a country, from top to bottom, from young to old. It shows the relative value placed on different kinds of work. At the top are the owners or those who work directly for them, at the bottom is the mass of wage-earners.

The pattern of differentials shows that what is rewarded is service to the owners and their establishment rather than ability and service to the community.

Putting the interests of the owners and of their representatives before that of the community is the main cause of our deteriorating environment and of our deteriorating quality of life.


People should be rewarded in accordance with the benefits which result to the community. When it comes to incomes and wealth one should limit differentials.

To make sure that people do not harm and exploit each other one has to ensure that nobody can profit or gain from manipulation or from harming people.


A hidden process is taking place by which purchasing power is being transferred from the bottom to the top. It is being transferred from those who can least afford to reduce their standard of living, to those at the other end to whom the extra purchasing power means greater luxury. Poverty and differentials increase even when there is full employment in an affluent society.

This process is undermining the internal strength of our society and those who see themselves in real and in relative poverty complain, demonstrate, organise and disrupt.

We need to become aware of processes which redistribute income. We need to see what is actually happening, the extent to which it is taking place, and what the effects are.

It follows beyond doubt that loyalty to those who put profit above other considerations is harming the community. {1}

Confrontation then results between those who own or control enterprises on the one hand, and the community on the other.

An intense struggle then develops. Pressure exerted by concerned groups results in legal restraint or in compensation having to be paid.

The aim of the struggle is to ensure that profits are made only from serving the community, that profits are not extracted at the expense of the community. The aim is to ensure that socially irresponsible behaviour does not pay.

The consequences of socially irresponsible behaviour are now such that they threaten the survival of people as people. Hence the vital importance of pressure groups and of means which enable them to make their opinions felt.


Responsible leadership aims to eliminate need so as to eliminate exploitation through need, wants the highest possible standard of living and social security for the people. {1}



SOCIAL RESPONSIBILITY

A comprehensive and relevant survey and discussion of Social Responsibility was published some time ago under the title 'Social Responsibility, Profits and Social Accountability' {1}. Much of what now follows has been reproduced from this.

Incidents and case-studies in fields such as chemical and radioactive pollution, side-effects of drugs, industrial and nuclear accidents, were studied together to find the pattern of events and basic causes. The report showed that we are faced with a sequence of incidents, disasters and catastrophes which are increasing in frequency and in severity, affecting more and more people. It isolated and described the basic causes and showed how the problem could be overcome.

This was the first time that anyone had been able to discern, describe and prove the trend of events, isolate causes and provide remedies. The report became widely accepted and had considerable impact.

It showed that decisions taken by directors and managers affect the community, affect the quality of life, and indeed affect peoples' health and safety over a widening area.

When a person is given work to do, then he is responsible for doing it and for the way in which he does it. This means that he is held accountable and held to account for what he does or fails to do and for the way in which he does it. This is the meaning of 'responsibility'.

Hence when we are talking about the 'social responsibilities of directors and managers' then we are talking about their responsibilities towards society, that is towards the community. The purpose of enterprises is to satisfy the needs of the community so that in the end directors and managers are working for the community and are accountable to the community for the way in which this work is done.

In other words, directors and managers are responsible to the community for what they do, are accountable to the community for the results of their work and for the way in which such results are achieved.

In practice directors are generally required by man-made laws to act first and foremost in the interests of the owners, so that it is profit which is maximised. Short-term and long-term profits can be and are being maximised regardless of the cost to others, that is regardless of the cost to the community.

Profits are maximised regardless of the cost to the community, limited only by the likelihood of unpleasant consequences. <1> {1}

It follows that the work of directors and managers has to be assessed from the point of view of the extent to which their work either serves or harms the community.


We are here considering the high cost of putting profits first. What we see are the effects of speeding on in the search for profits either negligently unaware of the dangers or else without concern about likely or possible consequences to the community.



SOCIAL COSTS

Managers continually assess the reliability of their information and the likely consequences arising from alternative courses of action. Managers tend to err on the side of safety and their promotion generally depends on this.

In other words, 'responsible' managers err on the side of safety from the point of view of those to whom they are accountable. That is they act to protect and advance the interests of the owners who pay their salaries instead of first and foremost protecting and advancing the interests of the community.

Here is an example: Purifying a harmful effluent increases costs and so reduces profits. Hence discharging unpurified effluent is more profitable to the producer but the community has to suffer the consequences.

It is the community which would have to pay for cleaning up the pollution, for undoing the damage done. Cleaning up pollution costs money, but failing to do so has costly consequences.

In other words, by discharging an untreated harmful effluent the enterprise is making a profit from passing on to the community part of its operating costs.

Social costs have been defined {2} as:

'The costs of an action by an individual or firm that are not borne by that individual or firm, but by society as a whole. ... the ... social costs will be the damage caused by any ... pollution which is generated, such as effluent in the rivers, smog, etc.'

'The producer has to be held responsible for the social costs, so that they enter his calculations when deciding output.'

Just how is the balance drawn, to what extent are social costs actually included in the economic analysis of alternative proposals or schemes? As said before, the social costs, that is the costs to the community of any operation, have to be taken into account. {1}



SOCIAL ACCOUNTABILITY

If the government only acts to protect the community as a result of pressure from the community, then there have to be ways and means for creating such pressure, there have to be ways and means for all to have access to the mass media and to the people. The facts have to become known.

But how can one ensure that those in important positions become aware that they are accountable to the community and how can one make them accountable to the community?

The phrase 'the polluter pays' sums up popular feeling about how to right past wrongs, about how to hold to account those whose profits are made at the expense of the community and those who benefit from antisocial activities.

In reality, it is the customer who is made to pay because enterprises recover any cleaning-up costs and compensation payments by increasing their prices.

The owners appoint directors to take decisions on behalf of the owners, with the directors in turn appointing senior managers to have the decisions carried out. Hence it would seem to be the owners and/or directors who should be held accountable, who should pay, and they should not be permitted to pass cleaning-up costs and compensation payments on to their customers.

We are here considering antisocial activities, antisocial incidents, and the taking of antisocial decisions.

It would be up to the owners to hold to account their directors and senior managers for the extent to which the enterprises' antisocial activities were contrary to the declared wishes of the owners. However, directors are often owners and if directors and senior managers are not held to account by owners, then they and the owners need to be held to account by the community applying full legal sanctions.

The community would also need to consider disqualifying from holding office or employment those responsible for antisocial activities, for antisocial incidents, for taking antisocial decisions.

One method is to publicise the names of those who made the relevant decisions, who condoned the decisions and resulting actions, who carried them out, who failed to stop them from being carried out.

We have known for some time {1} that we are now facing an increasing number of disasters and catastrophes which are increasing in frequency and in severity, affecting more and more people. The interests of the whole community are at stake to an increasing extent.

There is thus the daily increasing need for those who work to be responsible to, that is accountable to, the community for the way in which they do their work and for the resulting consequences.


The rising incidence of leukaemia caused by nuclear weapons testing showed that there is a point at which the interests of the community must and do take precedence over the politics of power and the interests of the owners. But this only happens when people act and co-operate with each other by using the courts, by forming pressure groups to impress the leadership with the strength of the feeling of the people locally or countrywide, by demonstrating if necessary to get the required legislation where it does not exist already.

Such considerations point to the need for access to publicity by all groups and shades of opinion and there have to be recognised channels which make this available to everyone.

After all, if one does not evaluate performance then how can good and outstanding performance be rewarded appropriately? {1}



NOTES AND REFERENCES


NOTES

<1> When first written {1}, this note read 'At present exercised only through the courts'.

Now the 'consequences' include not only 'being held accountable in the courts' but also 'being found out'. Community awareness has increased to the extent that publicity about antisocial decisions and activities can and does severely affect an enterprise's market share or a political party's prospects.

Since the publication of the Social Responsibility report {1} we have seen a worldwide struggle towards more open management, government and decision-taking. Socially responsible individuals are 'leaking' documents about socially irresponsible decisions and actions as the legal system and the courts lag far behind the needs of the day.

A bitter struggle is going on aimed at holding directors and managers accountable for damage caused by antisocial decisions and actions. Some maintain that it is 'the enterprise' which is to be blamed. If this were so, then fines could be passed on to customers through higher prices. Even 'Corporate manslaughter' has been suggested.

Those who took the decisions which caused the damage, or who failed to take decisions which could have prevented damage, should surely suffer the consequences. It is they who need to be exposed and punished for the decisions they took or failed to take.


REFERENCES

{1} Social Responsibility, Profits and Social Accountability
Manfred Davidmann
http://www.solhaam.org/

{2} Dictionary of Economics and Business
S E Stiegeler (Editor)
Pan Books, 1986

{3} Work and Pay, Incomes and Differentials: Employer, Employee, Community
Manfred Davidmann
http://www.solhaam.org/



Relevant Current and Associated Works

A list of other relevant current and associated reports by Manfred Davidmann:
     
     
Title   Description
     
Style of Management and Leadership     Major review and analysis of the style of management and its effect on management effectiveness, decision taking and standard of living. Measures of style of management and government. Overcoming problems of size. Management effectiveness can be increased by 20-30 percent.
     
Role of Managers Under Different Styles of Management     Short summary of the role of managers under authoritarian and participative styles of management. Also covers decision making and the basic characteristics of each style.
     
Directing and Managing Change     How to plan ahead, find best strategies, decide and implement, agree targets and objectives, monitor and control progress, evaluate performance, carry out appraisal and target-setting interviews. Describes proved, practical and effective techniques.
     
Motivation Summary   Reviews and summarises past work in Motivation. Provides a clear definition of 'motivation', of the factors which motivate and of what people are striving to achieve.
     
The Will to Work: What People Struggle to Achieve   Major review, analysis and report about motivation and motivating. Covers remuneration and job satisfaction as well as the factors which motivate. Develops a clear definition of 'motivation'. Lists what people are striving and struggling to achieve, and progress made, in corporations, communities, countries.
     
Work and Pay   Major review and analysis of work and pay in relation to employer, employee and community. Provides the underlying knowledge and understanding for scientific determination and prediction of rates of pay, remuneration and differentials, of National Remuneration Scales and of the National Remuneration Pattern of pay and differentials.
     
Work and Pay: Summary   Concise summary review of whole subject of work and pay, in clear language. Covers pay, incomes and differentials and the interests and requirements of owners and employers, of the individual and his family, and of the community.
     
Exporting and Importing of Employment and Unemployment   Discusses exporting and importing of employment and unemployment, underlying principles, effect of trade, how to reduce unemployment, social costs of unemployment, community objectives, support for enterprises, socially irresponsible enterprise behaviour.
     
Transfer Pricing and Taxation   One of the most controversial operations of multinationals, transfer pricing, is clearly described and defined. An easily-followed illustration shows how transfer pricing can be used by multinationals to maximise their profits by tax avoidance and by obtaining tax rebates. Also discussed is the effect of transfer pricing on the tax burden carried by other tax payers.
     
Inflation, Balance of Payments and Currency Exchange Rates     Reviews the relationships, how inflation affects currency exchange rates and trade, the effect of changing interest rates on share prices and pensions. Discusses multinational operations such as transfer pricing, inflation's burdens and worldwide inequality.
     
Organising   Comprehensive review. Outstanding is the section on functional relationships. Shows how to improve co-ordination, teamwork and co-operation. Discusses the role and responsibilities of managers in different circumstances.
     
Social Responsibility, Profits and Social Accountability   Incidents, disasters and catastrophes are here put together as individual case studies and reviewed as a whole. We are facing a sequence of events which are increasing in frequency, severity and extent. There are sections about what can be done about this, on community aims and community leadership, on the world-wide struggle for social accountability.
     
Social Responsibility and Accountability: Summary   Outlines basic causes of socially irresponsible behaviour and ways of solving the problem. Statement of aims. Public demonstrations and protests as essential survival mechanisms. Whistle-blowing. Worldwide struggle to achieve social accountability.
     
Co-operatives and Co-operation: Causes of Failure, Guidelines for Success   Based on eight studies of co-operatives and mutual societies, the report's conclusions and recommendations cover fundamental and practical problems of co-ops and mutual societies, of members, of direction, of management and control. There are extensive sections on Style of Management, decision-taking, management motivation and performance, on General Management principles and their application in practice.
     
Using Words to Communicate Effectively   Shows how to communicate more effectively, covering aspects of thinking, writing, speaking and listening as well as formal and informal communications. Consists of guidelines found useful by university students and practising middle and senior managers.
     
Community and Public Ownership   This report objectively evaluates community ownership and reviews the reasons both for nationalising and for privatising. Performance, control and accountability of community-owned enterprises and industries are discussed. Points made are illustrated by a number of striking case-studies.
     
Ownership and Limited Liability   Discusses different types of enterprises and the extent to which owners are responsible for repaying the debts of their enterprise. Also discussed are disadvantages, difficulties and abuses associated with the system of Limited Liability, and their implications for customers, suppliers and employees.
     
Ownership and Deciding Policy: Companies, Shareholders, Directors and Community   A short statement which describes the system by which a company's majority shareholders decide policy and control the company.
     
Creating, Patenting and Marketing of New Forms of Life     Evaluates problems in genetic manipulation, and consequences of private ownership of new life-forms by multinationals. Lists conclusions and recommendations about man-made forms of life, their ownership and patenting, about improving the trend of events.
     
The Right to Strike   Discusses and defines the right to strike, the extent to which people can strike and what this implies. Also discussed are aspects of current problems such as part-time work and home working, Works Councils, uses and misuses of linking pay to a cost-of-living index, participation in decision-taking, upward redistribution of income and wealth.
     
What People are Struggling Against: How Society is Organised for Controlling and Exploiting People   Report of study undertaken to find out why people have to struggle throughout their adult lives, in all countries, organisations and levels, to maintain and improve their standard of living and quality of life. Reviews what people are struggling against.
     
Corrupted Economics and Misleading Experts   Shows how 'Economics' is used to misinform and mislead the general public. Clearly states underlying considerations of specific important economic relationships and comments on misleading political interpretations and on role of independent experts.
     
Taxing the Population for Private Profit   Shows how taxpayers' moneys are used in different ways to enlarge the profits of companies (corporations). These are in effect allowed to tax the population and to pass large parts of their operating costs to taxpayers and so to competitors.
     
Democracy Under Attack: Top-level Leadership and Decision-taking   Discusses and illustrates the internal struggles taking place in political parties and all other organisations, for achieving greater democracy and against those wishing to overpower democratic processes of decision-taking.
     
Understanding How Society is Organised for Controlling and Exploiting People   Describes how corporations (companies) accumulate their capital and reserves from moneys taken from customers. Enterprises are allowed to collect, take over and control such moneys. Cooperatives also take over moneys from their members. And much more.
     
Reorganising the National Health Service:
An Evaluation of the Griffiths Report
  1984 report which has become a classic study of the application and effect of General Management principles and of ignoring them.

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Relevant Subject Index Pages and Site Overview


The Site Overview page has links to all individual Subject Index Pages which between them list the works by Manfred Davidmann which are available on the Internet, with short descriptions and links for downloading.

To see the Site Overview page, click Overview

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Copyright    ©    1992, 1996    Manfred Davidmann
All rights reserved worldwide.

History
02/02/96 To Website
02/06/02 Added 'Relevant Current and Associated Works'