Features of the PROUT Economy

PROUT (Progressive Utilization Theory) is based on values and social objectives that enhance the welfare of all. The PROUT economic system aims to bring about equilibrium and equipoise in all aspects of socio-economic life, and so advance the integrated progress of human society. Summarized below are some distinguishing features of the PROUT economy.

Socio-economic Units

Regional socio-economic units should be formed on the basis of common geographic, cultural, social and economic factors. Socio-economic units having an affinity across regions can be grouped into a federated political state. While the political administration of government would lie with the federation and its departments and agencies, self-determination over cultural, social and economic aspects of life would lie within the socio-economic units. This results in decentralised management of the economy in which regional and block level planning boards are responsible for development projects and programs based on economic priorities and analysis relevant to the area, and carried out by enterprises in the socio-economic unit.

Three-tiered Economy

The economy is to be organized into three types of enterprises: key industries, cooperatives and small private businesses. Except for a few key industries and for small private businesses, production and distribution activities, and supply of goods and services to consumers, are to be organized under cooperatives as the main form of economic enterprise.

Cooperatives

Cooperative enterprises will form the core of the economy. Various forms of cooperatives would deal with production activities, distribution logistics, and point of supply of goods and services to consumers. These cooperatives would be organized, owned, managed and controlled by their workers and shareholders. Cooperatives increase worker motivation and job satisfaction because they give workers control of their enterprise, a sense of community and a stake in its profits. Here workers refers to all human inputs, such as labour that engages directly in production, entrepreneurial, management and advisory abilities, and skills required to ensure compliance with accepted standards and health and safety regulations.

Where cooperatives have access to the necessary inputs of production — skilled labour and technical advisers, capital, entrepreneurship and competent management, and have safe work practices and places — they out-perform private enterprises. Cooperatives are controlled by their worker and/or shareholder members on the basis of one member, one vote. All members would hold a voting interest in the cooperative, in turn giving them a financial stake in the enterprise.

Key industries

Strategic or large-scale industries, such as critical infrastructure and networks, utilities, industries extracting important raw materials, natural resources and the like, would be designated as key industries. Key industries would be managed by appointed boards of the immediate government of the area or as local government autonomous entities, acting in the public interest, but their internal workings can be managed similar to a cooperative.

Key industries would operate on a no profit, no loss basis. The state would not subsidize their operation, and the cost of all inputs required should not be greater than the price to be charged for outputs. Nor would the state extract profits or dividends, as key industries are holders of public resources which already belong collectively to the citizens. The intent being that the true cost of production by key industries is known and minimized, with the downstream effect that costs of inputs to cooperative enterprises have a proper basis. In turn, prices of goods and services to consumers are affordable. With improved efficiencies over time prices become less so that the purchasing capacity of the people is increased.

Small private businesses

Small businesses can be privately owned. These private enterprises would not be involved with producing or distributing staple or essential commodities. They must maintain adjustment with the cooperative sector to ensure a balanced economy, so that if they become too large they should be converted into cooperative enterprises. Small private businesses may deal with non-essential goods and services, luxuries, as well as everyday activities such as cafes, repairs, maintenance, hairdressing, etc.

Economic Planning

Economic planning and coordination may take place at various levels, e.g. local/block, regional, state and federal government levels; but, so far as is practical, planning authority should reside mainly at the local level. The basic unit of planning for most purposes would be a local area called a block. Block boundaries would not be determined on the basis of political considerations, but on the basis of geographic factors, socio-economic requirements, common economic problems, and common aspirations of the people.

If planning is undertaken primarily on the block level, it will have the following benefits:

  • 1st, planners can understand the problems of the area.
  • 2nd, local leadership can solve problems according to their own priorities.
  • 3rd, planning will be more practical and give quicker results.
  • 4th, local enterprises and associations can play an active role in mobilizing human and material resources.
  • 5th, unemployment can be more easily prevented.
  • 6th, a balanced economy can be established more readily.

Block level planning involves considering in particular the following four factors in relation to cooperatives, key industries, small private businesses and consumers of the area concerned:

  1. Cost of production. Unit costs of production need to be carefully determined, and the cost of producing a particular commodity should be minimized and not exceed its market value (the price at which it can be sold). Every economic enterprise must be economically viable.
  2. The economy should be organized in such a way that it continuously increases its productivity. There should be maximum production according to the collective need, full utilization of raw materials to develop commodities, and no under-utilization of any production unit (e.g. plant and equipment, facilities, biological and non-biological inputs). Capital needs be properly invested and reinvested (rolled over), and not hoarded or squandered in unproductive ways.
  3. Purchasing capacity. A major objective of planning is to increase the purchasing capacity of every person. For this, there must be:
  • (a) easy availability of the minimum requirements of life (food, clothes, housing, education, medical care) and other common goods and services according to local demand;

  • (b) stable prices (and control of inflation);

  • (c) periodic increases in wages and salaries (resulting from increased productivity); and

  • (d) steady increase in collective wealth, such as that comprised in common infrastructure like roads, electricity generation grids and back-bone communication systems.
  1. Collective necessity. Planners need to determine the current collective needs and projected future needs of communities in a socio-economic zone, as well as current and future availability of resources and environmental conditions, and form their development plans accordingly. Most importance should be given to production of the minimum requirements of life, but the requirements of both meritorious people and those with special needs should not be neglected. Additional common amenities, like transportation, communications, lighting, refrigeration, heating and so on should be maximized across society so that everyone can access them and be provided with the related goods and services.

Economic Decentralization

PROUT’s model of development decentralizes economic power in regional socio-economic units and the communities and enterprises that exist within them. This ensures the welfare of local people, who can be defined as those who have merged their individual socio-economic interests with the interests of the socio-economic unit in which they reside. This approach will foster economic equity, allow for production and provision of ample consumer goods and services, guarantee minimum necessities of life and common amenities for all, and help to nurture and protect the environment.

Decentralized economic development should follow five basic principles:

  1. Resources of a region should be controlled and utilized by local people. Where practical, local enterprises should process raw materials, using these processed materials to produce refined, secondary or finished products, rather than exporting unprocessed resources. The advantages of local control and use of resources include:
  • 1st, a local economy based on locally-controlled industries that make use of local resources can be planned in a way that assures economic security for its people, and through local production and trading the circulation of money remains in the local economy;
  • 2nd, excessive reliance on import of raw materials leads to drainage of capital, whereas there are greater benefits if capital is invested to extract the local area’s own raw materials or to produce synthetic equivalents (if there are insufficient natural raw materials) thereby reducing dependency on outside raw materials, and so create industries in the local area;
  • 3rd, local investment in extraction of raw materials, and their processing and refinement, means the economy is not dependent on export of raw materials which are vulnerable to price fluctuations from commodity gluts, changes in sourcing of raw materials, product substitution, and changing external markets;
  • 4th, local economies that process their raw materials (rather than export them) gain the added value that comes from the processing and refinement stages and from the manufacture of finished goods, as well as the service industries that support these stages of production.
  1. Production should be based on consumption needs, not profit motive. The motive for economic activity should be to meet consumer needs and consumption, not maximize profits. In a consumption-based economy, not only will local people have their material and other basic needs met, but there will be more circulation of money in the local economy, stimulating production, jobs, and purchasing capacity. In an economy motivated by consumption required goods and services are available, affordable, of good quality, and diversified in design for local requirements and tastes, so that human needs are properly met.
  2. Production and distribution should be organized primarily through cooperatives. By their nature, cooperatives equitably distribute wealth and decentralize economic power. Because cooperatives tend to serve local needs, there is less uncertainty about product supply and demand. For example, uncertainties of supply due to disruptions, capacity or lead-time and uncertainties of demand due to quantity, timing or product mix are minimized as local needs are more readily known and better analysed. The economic stability created by cooperatives gives local people greater economic security.
  3. Local people should be employed in and control local economic enterprises. Local people are best qualified to guide the development of local enterprises and determine their own economic well-being; outside interests should not interfere with local economies. Local enterprises should provide full employment for local people, train and develop their skills and expertise, and utilize them accordingly in cooperatives and economic and social activities.
  4. Essential commodities should be produced by local enterprises. Local production of staple foods and supply of water, standard building materials and housing, common clothing items, required educational books and materials as well as facilities, basic medicines and health care, and local supply of general everyday consumer goods and related services, prevents dependency on outside economies for essential commodities and needs. If essential commodities are locally produced and sold, the local economy will be stimulated and prosper, capital will remain circulating in the local economy, and economic self-determination will be strengthened. With the increasing demand for local commodities, large-scale, medium-scale and small-scale enterprises will all flourish.

Commerce

Producers of essential commodities should be formed into producer cooperatives, and should also arrange for the distribution and point of sale of these essential commodities through consumer cooperatives; rather than through commodity traders, middlemen or government agencies. This reduces the possibility of manipulation of supply and prices, speculation and bureaucratic inefficiency in the marketing of essential commodities that are necessary for all consumers to obtain.

There should be a free flow of information about consumer products. The decentralization of production, distribution and selling will also reduce the opportunity for mass advertising campaigns that are designed simply to manipulate consumer demand, such as those carried out today based on commodity hegemony by centralised corporate empires.

Money and Capitalization of Enterprises

The value of money is in its use, so its continual circulation is a necessary part of commerce and should not become stagnant. Currencies in use should be backed by bullion in sufficient proportion. This helps ensure price stability and prevents inflation arising from over expanding the money supply. It also acts as a check on excessive deficit spending by governments, again helping to prevent inflation.

Investment capital would be generated mainly at the local and regional levels. Banks should be structured as cooperatives and may provide loans to other cooperatives. Capital for large projects by cooperatives can come primarily from cooperative bank loans and cooperative shareholdings. New key industries can be financed from development bank loans and government loans. Smaller projects can be capitalized through cooperatives or by owners of small private businesses. Bonds may also be issued by cooperatives or cooperative federations.

Global Trade

Global (international) trade is to be conducted in a manner that avoids large trade deficits and drainage of capital. This can be accomplished through barter trade using international clearing houses for goods to facilitate barter trade. In this way, through mutual exchange of commodities in foreign trade, no net loss should occur between trading partners.

Foreign trade in raw materials should be avoided, unless there is a plentiful surplus in a region; otherwise, only locally processed products should be sold outside a region. This will ensure that the value added during the processing and refinement of resources will go mainly to the local economy. Local enterprises can conduct foreign trade on this basis, so long as they follow the regulatory trade policies established by the government administration.

Regional economies should be self-sufficient in the production of essential commodities. If need be, only locally produced essential commodities would be protected from competition against cheaper imported varieties produced in other regions, with protection reduced over time. Except for this type of protection from foreign competition, there should be free trade.

Incentives for Labour

For the prosperity of society, incentives are essential to motivate workers to develop and use their full productive capacities. At the same time, rewards should not be so large as to create unnecessary disparity in the society. Minimum and maximum income levels should be set.

The minimum level should be adequate to ensure purchase of the minimum necessities of life and common amenities according to the prevailing standard. The maximum income level should balance society’s need to maintain high worker motivation with its need to distribute wealth equitably. Over time, the minimum and maximum income levels would rise, giving greater purchasing capacity, and the range between the minimum and maximum incomes would be dynamically adjusted so as to balance worker motivation on the one hand with economic equity on the other hand.

Taxation

Significant sources of government revenue would be taxes at the point of production and taxes on profits. Production taxes will apply to all enterprises (key industries, cooperatives and small private businesses). Taxes on profits will apply to cooperatives and small private businesses, but not key industries because they operate on a no profit, no loss basis.

For key industries, production taxes can act as either a resource tax or an eco-tax when extracting natural resources. A resource tax captures the recognised price element of depletion or loss of the natural resource, and an eco-tax captures the recognised externalized costs of production brought about by the extraction (e.g. pollution and other forms of environmental disruption), factoring them into the true cost of production. The effect of such taxes on key industries are basically passed on to subsequent purchasers (namely cooperatives) in prices charged for processed or refined raw materials, and the tax element is then accounted for to the government administration. An appropriate percentage of the aggregate amount collected can be used for environmental restoration or similar work. This recognises that ecosystems and their resources belong to the earth and all its inhabitants (humans, animals and plants) and that industries have an obligation to take care of and restore the environment.

For cooperatives and small private businesses, production taxes can be imposed in connection with the use of factors of production, such as land and attached fixed assets, and use of other physical spaces such as on waters and rivers, in the atmosphere and the electromagnetic spectrum, as well as on labour and capital. Production taxes also include licence fees and payments for permission to perform some productive activity.

Another form is taxes on products which can be imposed proportionally to the quantity or value of goods produced and sold. The same applies to provision of services. Taxes on products can include value added taxes (also called goods and services taxes) and excises and duties (where necessary). However, there should not be taxes on essential commodities, as such taxes have greater impact on those with less disposable income and therefore increase economic disparity.

Income taxes imposed on individuals would not be used as they encourage a black economy where earnings go unreported and are more expensive to administer. However, to reign in excessive earnings that contravene the cap on maximum income, a wealth tax can be imposed.

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