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