Excerpt from the book:

Mirko Katic : Capitalism, noncapitalism and market economy

Note to the Readers

The concept non-capitalism is here used to designate a future form of market economy,

which in my strong opinion will sooner or later replace its today's form that we call capitalism.

Therefore, I wanted to distinguish between the concepts of capitalism and non-capitalism as the

two different market economy forms, one of which already exists (capitalism) while the other is

to be developed (non-capitalism). At the microeconomic level, the difference between capitalism

and non-capitalism is reflected in the manner of distributing company revenues among it, its

employees and its owners. At the macroeconomic level, this difference is reflected in the way the

money from the central bank flows into its domicile economy. There is no difference in the

ownership structure of the companies in capitalism and ownership structure of the companies in

non-capitalism. There is only a difference in the treatment of the company assets1 and the

treatment of the money.

Such interpretation of the concepts of capitalism and non-capitalism has resulted from

my research of general conditions of market economy functioning, described in detail in my

book Novi ekonomski modeli (New Economic Models).2 Looking for an appropriate name for the

market economy that significantly differs from its capitalist form; I considered several different

names, such as neo-socialism, anti-capitalism, post-industrial society, open society, new

economy, etc. However, all these names have already been used in the literature to designate

various forms of economic systems but not significantly different from my definition of

capitalism,3 and therefore the usage of these terms may confuse the readers as to what form of

economy is in question. Hence I decided to use the term non-capitalism because it is the least

disputable in this regard.

The above mentioned research points to the fact that the market economy development

from capitalism to non-capitalism, that is, transition from the capitalist to the non-capitalist

market economy, cannot be avoided. Bearing in mind that such a path of development of market

economy suits to objective interests of all stakeholders, that is, to objective interests of not only

workers, owners and managers but also the interest of the society as a whole, it could be

expected that the transition can be accomplished peacefully i.e. without any violence. However,

what should be pointed out is the fact that such peaceful transition cannot not be successfully

implemented in any country if the respective country’s parliament did not make necessary

changes of general economic conditions toward non-capitalism on time. As the parliament makes

its decisions by majority of votes, it may be therefore said that such peaceful transition from

1 The company here means a business organization directly engaged in the production and/or sale of material goods and services. If other forms of business organizations are to be implied under this term, it will be separately indicated in the text. 2 This book is not yet (year 2010) available in English, but only in Serbian/Croatian language. For available copies contact the author. 3 The term capitalism mean any form of market economy in which money and company’s asset have treated as capital, while in the non-capitalism neither company’s asset nor money have treatment as capital. Detailed explanations follow.

capitalism to non-capitalism depends on the timely decisions of the parliamentary majority.

Otherwise, violent transition will be unavoidable.

The purpose of this book is to inform the readers about the main changes of the general

conditions for economic activities, which should be implemented in order to achieve the

transition of market economy from capitalism to non-capitalism, and as well about the reasons

that will sooner or later force a parliamentary majority of the country in question to adopt these

changes. Postponement of adopting these changes leads the capitalism to the critical situation

from which there may be no peaceful way out anymore.

To be precise, there are essential differences between contemporary capitalism and its

past forms. Contemporary capitalism is not producing wealth of nations, but wealth of financial

capital owners with a strong support of government administrations, at the expense of its

taxpayers. This situation comes from the fact that the growth of state’s debt with the owners of

financial capital is the condition sine qua non of existence of modern capitalism. State has to pay

interest on its debts. Interest is payable from taxes collected. The bigger government debt means

higher interest payment obligations, and thus higher tax burden on its economy and citizens. It is

clear that such a trend can not be preserved in the long run.

In the past, the productivity of human work resulted in growing of the real value of wages

and salaries, and thus it resulted in the growth of the wealth of nations. Situation today is

significantly different. Statistical data in developed countries show that real value of average

wages and salaries are stagnant or slowly decreasing in spite of enormous growth of productivity

of human work during past 50 years owing to computerisation, robotisation and cybernetisation

of production processes and the human work in the whole. This is making social tensions inside

contemporary capitalist market economy. It is only the question of time when people will

understand that such destiny is not caused by market economy but by capitalism. Once it

happens, a form of social turbulence is inevitable unless the parliamentary majority of the

country in question reacts on time in favour of non-capitalism.

In addition to that, the separation of management from ownership is inevitable occurrence

in market development process. Manager, who is not an owner of the company, could not follow

the same business goals that follow the manager who is the owner. However, general business

regulations in capitalism neglect that fact and set a goal for managers who is not owner of the

company that an owner-manager could not rich at all.

Such a situation inevitably leads to the need to reconsider some basic economic doctrine

upon which the provisions governing general conditions for economic activities in the

contemporary capitalist economy are constituted. Paul Krugman, Nobel Prize in economics of

2008, is quite right when he wrote: "Some people say that our economic problem is structural,

with no quick cure available; but I believe that the only important structural obstacles to world

prosperity are the obsolete doctrines that clutter the mind of men".4 Indeed, today's current

economics doctrine are largely obsolete because they have lost or are about to lose the practical

basis on which they rest. Emerging new economic practice require a new economic theory. That

fact is of critical importance to the future development of economic theory and economic

practice. Because of that I see the current economic theory only as a partial case of a much wider

economic theory that has yet to be built, and this book is aimed to be a contribution to that

direction.

4 Paul Krugman: The return of depression economics and the crisis of 2008, 2009, USA, p. 191.

Preface

The readers need to be informed straight away that there is a difference should be made

between capitalism and market economy. Capitalism is not a synonym for market economy nor

is market economy a synonym for capitalism, because private property and freedom of

entrepreneurship are not essential determinants of capitalism, but are the determinants of the

market economy. Therefore, there is no sense to put an equal sign between capitalism and market

economy. Capitalism represents only a transitional form of the market economy that will

inevitably sooner or later be replaced by a more progressive form which I refer to as non-

capitalism. The non-capitalism enables a higher degree of human freedom in relation to

capitalism; it opens up wider opportunities to people in establishing their mutual relations, and it

represents new, broader framework for further development of productive forces of human

society.

It has been previously mentioned that the difference between capitalism and non-

capitalism at the microeconomic level is reflected in the manner how a company revenues are

distributed among the company, its employees and its owners. At the macroeconomic level, this

difference is reflected in the way the money from the central bank flows into its domicile

economy. Alterations of these allow non-capitalism to eliminate competition between revenues

from labor and revenues from ownership and, at the same time, to ensure full employment so that

everyone could always find a job with at least minimal hourly wage or minimal salary. The real

value of that minimal hourly wage or minimal salary would be many times higher than those

existing today, and they would constantly tend to achieve the highest possible level. Besides, in

non-capitalism it would be possible to ensure protection of the human environment so that each

generation could pass on its natural living environment to the next generation in better condition

than it was taken over from the previous generation.

I have come to these conclusions on the basis of my several-decade research on economic

system structures and functions. These researches are explained in detail in my book New

Economic Models. The first part of that book, entitled Economic System, I published in Toronto

in 2002,5 while the second part, entitled Commodity Production System, was published in 2006,

along with expanded and supplemented text of the first part.6 The explanations of all questions

and answers in these books were presented in the form of corresponding structural (graphical)

and mathematic models of economic processes and formations (economic systems) because

otherwise it was not possible to exactly define neither questions nor answers.7 These models

5 ISBN 0-9731266-0-4 6 ISBN 0-9731266-2-0 and ISBN 0-9731266-1-2 7 Firstly, I used corresponding graphical and mathematical symbols to build the models for the process of purchase and sale of commodities and the model of distributing company revenues among it, its workers and its owners. Thereafter I built the models for the accumulation process of commodities or money supplies, the model for the commodity production process, the models for production process of various services, the model for commodities consumption process, the model for production process of money and currencies, the model of interest bearing money savings process, the model of issue and payment of loans, etc. Using these models, I built graphical (structural) and mathematic models of various economic systems at micro-, mezzo- and macroeconomic levels. Functioning of these models may be subject to various rules and criteria, including those arising from the applicable legislation and accounting standards. Thus, by using these models with the appropriate computer software, it will be possible to perform various experiments for various scenarios and situations for which in the real

clearly show the structure of certain economic processes and formations (systems) so that they

leave no space for arbitrary explanations because it is always possible to verify their accuracy by

taking an insight into the structure and function of the real process or object whose model is in

question. Thus it is relatively simple to link the model to the real process or the object

represented by that model and to eliminate possible discrepancies between the model and the

object. In other words, the accuracy of these models can be verified in practice, and the readers

will be able to see it for themselves if they explore their own economic environment and own

economic practices by applying them

The mentioned research has shown that capitalism is only a transitional stage in the

development of market economy. The stage that follows after it is referred here as non-

capitalism. Here suggested transition from capitalism to non-capitalism does not require any

violent actions as to anybody's property or personal freedom. It only requires the change of some

general conditions for economic activities in the field of distribution of company revenues and in

the field of the central bank's monetary and fiscal policy. These changes were explained in detail

in the book New Economic Models. The objective of this book is to presents consistent

explanations about why capitalism has to go down from the economic scene and why non-

capitalism will prevail in the world economy. The readers may ask what was the point of writing

another book on the same subject. In this regard, I am obliged to provide the following

explanation:

In the book New Economic Models, the economic processes and systems were modeled

by means of corresponding graphical symbols. Each model is accompanied by corresponding

mathematic (algebraic) model describing its function. To understand what was written in the

book, the readers must previously learn the symbolism of these models and the basics of applied

algebra. I assumed it would not be too complicated to the readers to whom my book was

intended. However, I have changed my opinion in time. Therefore I decided to write a new book

on the same subject, mostly without graphical and mathematical models and with significantly

narrowed contents. The readers interested in details may always find them in my book New

Economic Models.

This book is reduced to the smallest possible size. It is loaded with facts that need

broader and more relaxed explanations. A text like this may be boring to read but a more relaxed

approach would require much more space. Then again, an experienced publisher warned me that

the readers reluctantly read thick books. This is why I have decided on smaller format. Whatever

the case may be, I will be glad to accept any critical comment about the book. For this purpose, I

would like to encourage the readers to contact me by e-mail at

mikatic@interlog.com.

economic system will be required a lot of time and money. In this respect, the models represent a novelty that has not been noted in the economy literature.

1. Salaries, wages and profits

In the contemporary capitalism, there is a constant competition between revenues from

labor (salaries and wages) and revenues from ownership (dividends). This competition has

emerged because the revenues from labor are part of the business costs, while the revenues from

ownership are paid from realized profit. A company will realize profit only if its revenues are

higher than business costs.8 Accordingly, the competition between revenues from labor and

revenues from ownership has resulted from the competition between business costs and profit,

not directly between workers and owners. With regard to that, there is a question how to

eliminate competitive relation between business costs and profit, that is, between revenues from

labor and revenues from ownership. It is possible to do it in only four ways, as follows:

1) limiting the profit growth,

2) excluding revenues from labor from business costs,

3) including revenues from ownership to business costs,

4) distributing company revenues among it, its workers and its owners in accordance

with pre-defined parameters.

The first way was applied in the Soviet Union (USSR) through the system of planned

prices. The prices of all commodities manufactured by the state-owned companies in the USSR

were established on the basis of Marx’s idea of production price representing the sum of real

production costs increased for minimal profit by application of certain defined planned rate of

profit. The goal was to manufacture and sell commodities at the lowest possible prices. This

experiment failed because it could not eliminate emergence and development of grey market of

scarce commodities sold at prices significantly above their planed prices, nor it could achieve

quick application of new technologies, all of which resulted in economic stagnation and growing

dissatisfaction of the Soviet citizens.

The second way was applied in self-managed economy of former Yugoslavia (SFRY).

The revenues from labor were excluded from business costs, while the positive difference

between the company revenues and its business costs was designated by a term dohodak

(company income). Thus a new target function was achieved: maximization of dohodak (read:

dou-kho-dak). Company assets were treated as a capital in the same way it was done in

capitalism, except it was state capital, not private capital. The dohodak were distributed among

company and its employees i.e. between company business fund (accumulation) and revenue of

labor (salaries and wages). The accumulation increased company assets (state capital) and

thereby created foundations for inevitable increase of future business costs, mostly through the

growth of depreciation and amortization of the company asset and its occasional revaluation.9

Thus the state capital endangered the existence of self-managed society.10

The third way has not been applied anywhere, but the number of its advocates is

increasing. Namely, there are more and more advocates of the idea that the profit will have to be

8 In this we mean that the total operating expenses include costs of amortization and depreciation. More detailed explanations follow. 9 The state issued mandatory minimum rates of depreciation (amortization) and revaluation by which companies were required to calculate their costs. 10 To make the picture of the State capital complete, it needs to be said that the money from the Central Bank was flowing into the economy through commercial banks by means of interest loans. Thus the money was treated as a capital already at its source.

divided to all stakeholders rather than belong only to the owners (employers). In the book Twenty

First Century Capitalism, Robert Heilbroner asks: "Why would not employers, too, be paid

wages, perhaps somewhat higher than those who worked with – surely not "for" – them, or why

would not profits, if there were any, divided equally among all?"11

This suggestion resolves the

problem of competition between revenues from labor and revenues from ownership, but not the

competition between business costs and profit.

Only the fourth way, if applied in practice, may resolve the problem in whole. It is based

on results of experiments with the economic system models that I described in detail in the book

New Economic Models. These experiments undoubtedly pointed to the fact that the competition

between business costs and profit has had adverse effects on the market economy development.

Therefore, to preserve market economy, it is necessary to present company's business success in

the form of its gross company product (GCP),12

not by the positive difference between total

revenues and total costs. In this case, the source of revenues from ownership may be created as a

certain percentage part of the gross company product. Here I use the term profitized rent for this

part. It allows distribution of company revenues among it, its workers and its owners in

accordance with pre-defined parameters. This is the only way to preserve the existence of market

economy and prevent growth of adverse trends immanent to capitalism. To implement that kind

of distribution in economic life, some necessarily changes of general conditions for economic

activities have to be made. Detailed explanation will follow.

11 Robert Heilbroner, Twenty-First Century Capitalism, ISBN 0887845347, © 1992, p. 106. 12 Gross Company Product (GCP) has the similar but not the same meaning as Value Added produced by the same company. Detailed explanations follow later.