The Principle of Non-Injury in Economics.
Value - Quality - Investment
The Principle of Non-Injury thus rests on a Presumption of Liberty, the presumption that the individual is free unless harming or injuring others.
In business and industry this corresponds to a presumption of Free Enterprise as the basis of Government economic policy.
While it is vital to allow citizens' enterprise and initiative to realize its full potential in the creation of prosperity, it is equally important to ensure that citizens do not create prosperity at the expense of one another through unfair or dishonest practices. A high standard of living and prosperity is already technologically within our grasp, and we have human talent in abundance which is constantly creating new ideas and new products; there is no need to obtain wealth through the disadvantagement of others.
Government should intervene promptly when necessary to ensure that business is not carried out in ways which are detrimental to co-workers, customers, or the environment.
But Government should be careful to intervene no further. Experience in the ex-Soviet bloc has shown that the State cannot operate industry successfully. The role of the Private Sector is creative and productive; the role of Government is regulatory. If Government does its essential job of making sure that business and industry conducts itself in a socially responsible manner there is no need for nationalization. Indeed, Government ownership and operation of business invalidates Government's ability to legislate without bias; to whom does the citizen complain about industrial pollution when the Government owns the polluting industry?
Law is brought into being to prevent those actions which are harmful or detrimental to others. But the law is limited to providing the protection of liberty from identifiable infringement, and should avoid oppressive or intrusive law which itself constitutes a prime erosion of liberty.
This gives us a policy approach, not of unregulated Free Enterprise on the one hand, nor of Socialistic takeover by the State or over-regulation on the other, but a policy falling between the two, a policy of Socially Responsible Free Enterprise. Under the guidance of this policy the role of Government in the area of the economy, business and commerce is clearly defined; its essential task is to identify those areas of potential commercial conflict in which the actions of some participants may be detrimental to others, then to prevent such actions through appropriate legislation.
Value
The major point of contact between the various participants in business and commerce - employees and employers, producers and consumers, as well as investors - is trade or exchange. And the main aspect of exchange is value, the value of an employee's work, the value of a product or service, as expressed in Pay, Profits and Prices.
When Pay, Profits and Prices are determined by disputation, employees dispute, often violently, with employers over pay, to the detriment of good industrial relations and productivity.
Prices are determined by "what the market will bear" and by overall economic conditions; the price, in other words, is as much as the producer can get.
When there are no political rules by which we can determine a just remuneration, a reasonable profit or a fair price, disputation is the only way open to us.
Its supporters call it the "Free Market".
Another view is that it is conflict without rules, and as such represents an aspect of anarchy. Its damaging effects on the economy and prosperity are substantial and far-reaching.
A policy of Socially Responsible Free Enterprise requires Government to replace anarchy, wherever it may exist, with fair rules.
And if Government were to be charged with providing a foundation of fair rules for industry and commerce, a first priority would have to be the provision of a system of fair rules whereby pay, profits and prices are determined by measure and consensus rather than by disputation.
Fair rules for pay and salary determination would remove one of the major elements of contention in industrial relations, paving the way for increased cooperation and productivity.
A further significant effect would be on unemployment and the level of overall economic activity. The current method of pay, profit and price evaluation by disputation creates an inherent instability and a strong upward pressure which if uncontrolled leads to inflation. It is universally recognized in economic circles, though rarely spelled out, that the current economic wisdom requires the economy to be maintained at substantially below its productive capacity with permanent unemployment in order to control inflation, though inflation must always remain at a minimum 2 or 3%.
A National Standard System setting guidelines for Pay, Profit and Price Evaluation would create the monetary stability necessary to permit economic expansion to full employment without inflation.
"Fair pay and prices" may sound like an ideal impossible to define or to attain; in fact experience and commonsense define it, and we have already attained it.
Pay is fair if it is an accurate reflection of work contributed. And it must also relate to the work and the pay of others: pay for one is fair if others doing similar jobs are paid the same. Fair pay is easily defined; but is it so easily attainable?
If pay is to be related to work done, this would require a system of Job Evaluation for measuring and evaluating work. If we can measure work, then the work amount or work value of each job can be reflected in the pay received for doing that job.
In fact, Job Evaluation is already a well established process in certain large companies and government agencies for defining, evaluating and measuring the different work characteristics demanded of a job, and expended in the fulfilment of that job. Though there are different approaches of detail, the basic principle is simple. It begins with work analysis.
Work means many different things; each and every kind of work, or work component, must be identified and quantified.
The list of work types or characteristics will include such basic elements as previous training, skill, concentration, responsibility, physical exertion, working conditions, job satisfaction (or boredom!), health and safety hazards, and so on. The list need not, indeed should not at any time be conclusive. New characteristics must be added as they are identified, developed, or called into being by new techniques. Technology does not stand still; new jobs are constantly being created, with new demands made upon human skills and effort.
Once identified, each work type or characteristic is given its own scale of measurement.
The common objective in any Job Evaluation system is that all jobs within a company using the system are evaluated fairly and consistently, giving each job a meaningful value in relation both to the work involved, and to other jobs within the company, through a common scale of definition and measurement.
The job-value thus established can then be related directly to remuneration. Job Evaluation becomes Pay Evaluation.
The application of a system of Job Evaluation throughout a company ensures that each individual's pay relates to work contributed, and to the pay which others in the organization receive for their work contributions.
Job Evaluation has been widely used for many years to bring system and consistency to the pay structures of major organizations and companies in both the public and private sectors.
At this stage we already have in existence a fair and stable measurement system for defining and evaluating pay. Indeed we have several competing systems. In one sense this is counter-productive, since it creates problems of inconsistency between companies using different systems. On the other hand it provides a wealth of experience and input which could form the basis for a single Standard System.
Indeed if the formulation of a Standard Evaluation System were to be conducted through the widest possible debate, participation and consensus, the very process itself would clarify issues and build mutual understanding between different occupations and skills.
Government would begin by establishing a fully representative Committee to formulate a Standard Job Evaluation System (subject to ongoing revision by a permanent Council). The Standard Job Evaluation System would be published in popular papers as a Do-It-Yourself form together with full explanation and sample completed form. This would enable everyone to become familiar with it, and to bring out any additional comments or criticisms.
The System must be comprehensive, simple to understand, and capable of application to all types of work at all levels, from boardroom through management to shopfloor.
With a single guideline System of Job and Remuneration Evaluation agreed, tested and established as a Universal Standard the ideal of a fair day's pay for a fair day's work could be achieved.
But even if we include pay at all levels, pay is only a part of the solution; for pay has value only in terms of purchasing power, or prices. So fair pay has full and real meaning only in terms of fair prices. This leads to a parallel question: what is a fair price?
A factory's, or a business's total costs consist of three elements: first, the cost of bought-in raw materials and components; second, the direct labour added in the factory; and third, the costs of capital write-off, overheads and finance. These are the costs of making a product, of supplying a service.
From these costs a Unit Production Cost can be calculated for each product or service supplied.
If this Unit Production Cost then becomes the Selling Price there would be a direct and fair relationship between cost and price, and therefore between pay and purchasing power.
But the Unit Production Cost is not normally equated with the Selling Price. The difference between the two is commonly referred to as the profit and will remain a matter of potential contention thus threatening or even invalidating any progress made in achieving pay stability.
Completion of the social and monetary stabilization process begun with a standard system of job evaluation would require some kind of consensus on the disposal of profits, for this is the only way we can achieve fair and stable prices.
There are several claims to a share in a company's profits.
Investors must be given a return on their capital; and increasingly, employees are being given a share in the profit as a form of remunerative recognition for extra effort and cost-savings.
Another major destination for the disposal of company profit is reinvestment, either in research and equipment or increased working capital, the advantage being that in-house or self-generated investment comes without future servicing cost or commitment to repay.
There is one more claimant to a share in the profits, and that is the customer. Indeed with the growing recognition of Pay and Price Evaluation the profit would increasingly be perceived as a "tax" on the price over and above its production content, and should therefore belong to the consumer as much as to anyone. With this view a substantial claim on profits would come from the consumer in the form of lower prices.
The objective should be the establishment of public policy for profit distribution.
This could take the practical form, first, of an overall profit ceiling. Britain's National Health Service already assesses prices for new drugs and services before certification; the ideal of a fair price resulting from a fair profit is hardly revolutionary.
Of the profit made, broad percentage bands could be established and gradually stabilized, distributing profit according to pre-set guidelines as between co-workers at all levels, investors, and the internal needs of capital for reserves and reinvestment. The dividend paid to those investment sources not negotiated in terms of fixed interest should be clearly and openly defined with average or upper limits.
As it does today, Government would continue to require that companies prepare in timely fashion properly audited annual accounts. But instead of assessing the total profit in order simply to "take a cut" for its own coffers, Government would be examining the profit in order to ensure that it is apportioned according to a consensus formula which respects the claims and contributions of consumers, investors, co-workers, and the future security of the business itself.
Under the Principle of Non-Injury, fair pay, profits and prices achieved through system and consensus is an important aim in its own right.
There are further significant implications affecting industrial relations and stability, economic growth, the level of national employment, productivity and prosperity.
Governments, and many economists, tend to speak of unemployment rather like the weather - unfortunate perhaps, though clearly unavoidable. But unemployment is not an Act of God, it is an Act of Man.
It begins with Governments which fail to provide fair rules for the evaluation of pay, profits and prices. People react to this aspect of anarchy in different ways. Some see the possibility of advantage, of making a gain at the expense of employees, or employers, or customers; while others understand realistically though often reluctantly that the gains go to those who fight for them. Either way, the fact remains that we can only settle pay and prices by doing battle. This produces a basic instability and continuing upward pressure which can only be held in check by maintaining a degree of permanent recession.
A secure foundation of Pay, Profit and Price Evaluation by measure and consensus would create a basis of fair reward for work and the real possibility of industrial peace and cooperation.
It would also establish a basis of monetary stability from which economic expansion could take place without inflation, leading steadily to sustainable full employment. And the degree of employment - or unemployment - in an economy has its own substantial effect on productivity and thus prosperity.
The socially damaging effects of unemployment, the cost to taxpayers of unemployment benefits and the loss to the economy of potential talents can readily be seen. A less obvious result of unemployment lies in its effect on productivity.
It should be remembered, first and foremost, that prosperity comes from productivity. We do not become prosperous by working harder, for this can bring higher wages, but at the expense of free time, family or even health. We become prosperous by working not harder but more efficiently, by continuously developing improvements in design, production and management techniques which allow us to produce more and better goods and services with less work.
Productivity, making better goods and offering better services tomorrow with less work than it took yesterday, is the motive power which drives economic development, produces prosperity, and advances civilization.
But productivity, by its very nature, means less work; so where does that leave the redundant workers? In a properly organized economy operating at full capacity, workers made redundant in one department by improved productivity would normally be transferred to another within the same company, with additional training as required. Even if an entire sector of industry becomes outdated, workers can always retrain and take up employment elsewhere.
But when the economy is under-utilized and there is substantial permanent unemployment, anyone who has a job is afraid of losing it. One simple and quite understandable result is that no-one will be looking very hard for productivity improvements; and when management proposes some productivity-enhancing modernization it will probably be opposed by workers fearful of redundancy.
The moral is simple: substantial permanent unemployment causes opposition to productivity improvements. And since productivity is the source of prosperity, we are effectively opposing prosperity.
But the opposite also holds true. With the economic and industrial stability which would come with universal guidelines on Pay, Profit and Price evaluation, the economy could be expanded steadily to sustainable full employment.
With full employment, productivity could also be increased without opposition, adding its own contribution to increased prosperity.
Quality
The policy of Socially Responsible Free Enterprise begins with free enterprise. It identifies areas in which unregulated or insufficiently regulated economic activity can be detrimental to other participants, then acts to limit or eliminate such practices.
A significant element in the concept of Fair Exchange is Quality and Productivity. The value of a product or service lies not only in the labour and materials it contains, but also in the quality and efficiency of its design, manufacture or presentation.
Is less-than-maximum quality, efficiency and productivity in business and industry detrimental to other participants, to suppliers, co-workers, investors, community and consumers? A case can be clearly be made in the affirmative.
The consumer is the ultimate recipient of the product or service; indeed, since we produce solely in order to consume, the consumer must be the most important element in the process. Good design, economical production, efficient and stable administration; all these factors have a direct bearing on the product or service as it is presented to the consumer. And it is the consumer who suffers when a product fails to perform as it should, when its quality and service fall below the standard of which current technology is capable, or when it is over-priced as a result of wasteful production methods.
When products are poorly designed and inefficiently or wastefully manufactured, when services are careless and slipshod, when quality is poor, the consumer suffers.
But so also do the investors if the firm concerned fails to gain its potential market share. And employees suffer both from inefficient working conditions, and from the insecurity and potential job losses inevitably incurred in a poorly run company. The maintenance of high standards in any business is clearly in the interests of all its co-workers and investors, as well as the host community that depends on it for employment and prosperity.
In the wider context, businesses and industries are highly dependent on one another, for the supply of materials and components, for subcontracted work, for marketing and distribution. So the quality and reliability of one business affects, and is affected by that of several others.
This total integration and inter-dependence of co-workers at all levels and in all departments, together with investors, suppliers, distributors, host community and consumers, clearly reflects the reality that avoidable incompetence in any part of the chain affects others adversely if not disastrously.
Suppliers and distributors, as well as co-workers at all levels and in all departments should have the right to expect from one another the highest standards of professional conduct.
And consumers should have the right to expect that products and services reflect and embody the highest currently available techniques and capabilities in efficiency, quality and reliability.
A policy of Socially Responsible Free Enterprise recognizes this interdependence, and the obligation which it places on all participants in economic activity to strive continuously for quality and productivity maximization.
Quality and productive efficiency can never be absolute targets, for standards are always being improved. But maximization of quality and productive efficiency within currently available knowledge and techniques must become the norm if the overall objective of fair exchange and socially responsible production is to be achieved.
Socially Responsible Free Enterprise obligates every business to designate an individual or a department with the duty to be conversant at all times with the latest Standards and techniques of design, production and management relevant to its particular field, and would further require that such Standards and practices should be applied at the earliest practicable opportunity. In case of persistent non-compliance, investors, consumers and co-workers at all levels should have ultimate recourse to law.
Successful businesses today already recognize the value of quality, and voluntarily adhere to standards such as ISO 9000 and promote Quality Assurance Programmes.
Maintaining the highest possible standards in management, quality and productivity will maximize job satisfaction and job security for suppliers and co-workers, while consumers will enjoy the use of products and services which reflect a continuous improvement in quality at progressively falling prices. And as the whole country becomes more efficient and more productive, so its international competitiveness is enhanced.
Investment
The money which Banks lend, or more accurately, the credit facility which Banks extend to borrowers, comes from two distinct sources.
One source is the money placed in term deposits with the Bank by its depositors. However, Banks do not confine themselves to lending out specific monies deposited with them and locked in for a guaranteed term.
The major part of Bank lending consists of what may be called system-generated credit, credit created by the Banking system to satisfy the demands of the economy for trade purposes and for industrial and consumer loans. This system-generated credit is a continuous flow; money is lent, repaid, and further loans are made.
The quantity of available credit flowing through the system at any given time is regulated by the Central Bank in conjunction with Government economic policy.
It is important that the quantity of credit available to the economy should at all times relate to the real needs of the economy in its actual, and potential productive capacity. Too little credit, and the wheels of production, trade and consumption will turn at less than the economy's capacity; potential employment and production capacity will be under-used, and consumer demand will fall short of goods currently or potentially available. Too much credit will result in demand for goods and service in excess of actual and potential production capacity. Thus regulation of the quantity of credit flow is the first priority of the Banking system.
It is equally important that selective criteria should be applied to the flow of credit: credit is a limited resource vital to economic growth and prosperity.
At present however, the actual transfer of credit into industrial and consumer loans is left to the discretion of the Commercial Banks, and no broad selective criteria are applied.
As a result, this system-generated credit is created and channelled by the Banking sector with little reference to productivity priorities and often with insufficient financial responsibility.
Credit expansion wisely used can be channelled into productive, prosperity-creating investment. But without due care it can be quickly dissipated with no tangible benefit; indeed when used for purely speculative purposes it may even produce economically harmful results.
Speculation in land and property does not create overall prosperity; indeed it does quite the opposite. There is very little we do which does not involve land, and as land prices go up so do the costs of everything, from industry and retailing to office space and homes. Property speculation actually reduces overall prosperity since it increases costs without increasing value.
Industry needs investment for productivity and prosperity; and it needs committed, longterm investment. At present there is no mechanism for ensuring that system-generated credit is directed into productive industry. This is not so much the fault of the Banking sector, but rather of a society which has never formally recognized the significance of this system-created credit as a National Resource, with the corresponding opportunity, the need, and indeed the obligation to use it wisely.
The productive use of investment gains importance in times of economic expansion. The monetary stability resulting from Pay, Profit and Price Evaluation would remove the danger of inflation, thus providing the basis for steady and sustained economic expansion to full employment.
But economic expansion is a potential only: it is powered and facilitated by an expansion in the quantity of the National Credit Base.
If the expansionary potential of Pay, Profit and Price Evaluation is to produce usable results in the form of full employment, increased productivity and prosperity, we would need to ensure from the outset that the nation's revolving credit base generated and expanded by the Banking system is productively invested in securely managed enterprises.
A policy of Socially Responsible Free Enterprise would require the Commercial Banks to apply more strictly defined selective criteria in their use of credit, with the specific object of channelling new credit into securely managed, prosperity-enhancing investment.
The fundamental justification for requiring the application of such selective criteria is that the flow of credit created by the Banking system is a National Resource, not a resource of any specific Bank or investment institution or individual saver.
It is a Resource having a substantial potential for the enhancement of prosperity, and it is moreover a scarce and finite resource. It is therefore appropriate that this Resource should be directed purposefully and publicly into projects which will improve employment, productivity and thus prosperity.
Government guidelines would require, for example, that investment be used to reinforce the move towards the maximization of product and management quality already discussed. This means that investment should be directed into companies complying with all appropriate Standards, beginning with a basis of Quality Assessment.
In reviewing investment options, the investing Bank would take into account an independent assessment of the design of the product, as well as the management, production and quality systems, industrial relations and other aspects of the companies concerned.
The Investment Banking Sector would thus be selecting investment "partnerships" in companies reflecting the highest standards in design, management, quality and industrial relations.
A National Standard accounting and general Performance Audit format would facilitate a follow-up monitoring process through which investment-banking institutions are provided continuously with performance data from recipient companies, thus ensuring the safety both of the investment loan, and of the recipient company.
Given the finite nature of investment credit, the Investment Banking Sector would also need to formulate a broad strategy and order of priorities - both geographically in terms of local/regional needs and across different industries - which would maximize its productive benefit.
But how can this be achieved without invoking the heavy hand of Central Government Planning which has proved so disastrous for the Socialist-bloc countries?
Beginning at local level, every city, town and village should be encouraged to develop channels for debate among business people, industrialists, chambers of commerce, educators, consumer groups and community development institutions, with assistance as needed from specialist professional planners, market researchers, industrial designers, and cost accountants, with a view to establishing as clearly as possible their own needs and priorities.
This bottom-up planning and coordination process can be taken through to National level and there coordinated with major industry associations and groupings. Through regional and industry-wide coordination a National Strategy can thus be developed as a thorough, on-going, Nation-wide assessment of capabilities, projects, priorities and investment needs.
The result is not a centrally imposed directive, but a guide to business, a reflection for business as to what business is doing and plans to do at Local and at National level, so that resources can be dynamically coordinated for overall prosperity.
The overall objective, as in other aspects of Socially Responsible Free Enterprise, is to try and ensure through debate and a modicum of intelligent forethought that the component factors of enterprise, investment, and market potentialities are drawn together to minimum mutual detriment and maximum possible advantage.
Full employment is one of the basic essentials of a civilized society, but it will not come about by chance. There is a tremendous potential for creativity in the world; most people want to do a useful job of work, and to do it well. Unemployment is not our natural or preferred condition. Once the value of money has been stabilized with Pay, Profit and Price Evaluation, investment-directed expansion of the National Credit Base can create full employment and prosperity, but only if it is channelled into efficient enterprises, and guided by overall priorities.
With proper guidance, the expansion of the National Credit Base can act as a main source of economic motive power, providing finance and subsequent ongoing supervision for industrial development.
Nor is industry the only area in which investment is vital to a Nation's total productivity and competitiveness; infrastructure and essential services must also be considered.
The totality of a Nation's infrastructure, its roads and bridges, water and sewage, its power supplies, telecommunications and railways, serves not only the convenience of its citizens, it also serves commerce and industry, and a well organized state-of-the-art infrastructure can make its own substantial contribution to productivity.
Here again, scarce investment must be carefully deployed and guided by openly established priorities.
It should be noted that the managements of individual infrastructure services, National Strategy, and the Investment Banking Sector are all working together, without the direct interference of Government.
Also significant is that full reliance on investment expansion through System-generated Credit provides a method of expanding and regulating economic activity which is totally independent of Government and Government accounts, thereby removing the temptation to resort to deficit spending as an impetus to economic recovery.
If the economy can be purposefully expanded to full capacity and full employment without risk of inflation, if expansion of the National Credit Base can be directed into safe and productive investments guided by nationally established priorities, and if standards of quality and productivity can be maximized and continuously improved throughout industry and services, the Nation's economy can become and remain among the world's most productive and rewarding, while at the same time satisfying the demands of Fair Exchange required under the Principle of Non-Injury.
these are three essential elements of Socially Responsible Free Enterprise.
And Socially Responsible Free Enterprise, the freedom of individual enterprise limited only by the requirement of fair and honest trade, is the commercial expression of the Principle of Non-Injury.
