“when there is a political will it is possible to modify the reigning equilibrium and thus tend toward a more secure peace and a greater economic wellbeing, and social justice and environmental sustainability in addition.

“But there is no country that can attain those world public goods on its own and neither can the world market. Therefore, our actions have to be centered now on that part of the equation which is absent: the world public goods”.

The existence of an area of basic Public Goods –education, health, public housing- implies a set of goods and services, fundamentally user goods which the economically active and passive citizenship lay their aspirations on.

The lack of commitment towards the necessary costs involved in the production of public goods eventually turns out to be a virtual profit or literally a quasi-rent for the dominant sectors in the market. How is it possible to obtain a profit though from an element that is absent from the market? Let us examine this apparent contradiction.

A superficial mention of such goods allows us to understand the scope and importance of the market we are referring to.

Let us start by pointing out that the prices at which such Public Goods are offered at prevent many people from having access to them, while all the rest, those high or medium income bracket people can consume these at market prices or even import them if they need to. Prices reflect the demand by those ones with higher incomes in the economy so as to justify a sustainable level of production.

Piggy-bank

Piggy bank | Image from Wall Street International.

An efficient demand level set as such will be maintained at the price of a poorer income distribution and wealth.

A listing, which includes other Public Goods asides from the basic ones already mentioned by way of being just an example reveal how important these goods and services are and how extended as well: retirement funds, science, technology, expenditures assigned for water supply and climate change, expenses in urban and rural infrastructure (water, energy, habitat, equipment…).

As a conclusion then an economic model that covers such goods and services in an unsatisfactory fashion will generate social inequalities and inevitably will bring about a social deficit.

When the total value of production is achieved by the market the actors’ earnings involved become a problem of distribution of the wealth that has been created. This classical theme was taken up by David Ricardo and is a distinctive mark throughout his overall work. We should not forget that he wrote that

“to determine the laws which regulates this distribution, is the principal problem in Political Economy”.

In our system the economy of the Public Goods is a determining factor for the effective demand in the macroeconomics involved and regarding the rules over those regulations that lend sustainability to progress.

The Public Goods recall situations such as those where the benefits are assumed for everybody which means that it is unavoidable that those who do not pay for that good may not also equally enjoy the benefit out of it (free riders), and therefore they are said to be nonexcludable.

If the enjoyment of that good is attained with no cost to others we would say that the Public Good is nonrivalrous. In all cases the recognition exists of a social right in the Public Good that is demanded. If this is not recognized by the market it represents (in the economist’s jargon) a market failure.

Saving

Saving | Image from Wall Street International.

The main evaluation out of this is one of an eminently political nature, that is the social costs of the economic activity are not assumed by the dominant actors in the system, and they generate an important Social Debt.

Without structural changes and effective regulations the Social Debt generated is not recovered. Such debt covers not only those who due to their incomes cannot satisfy a vital need but also others who become indebted in order to satisfy it, awaiting in a way some type of guarantee by the State, which even before it is offered remains only at the level of solely being an aspiration.

Generally the political urgency to resolve this is addressed by taxes and solidarity subsidies that represent a pis-aller which being insufficient demands a structural solution. This is precisely the call made by Kofi Annan when we take a look at markets that in absence of structural solutions maintain inaccessible artificial prices by the dominant groups in the economy.

This is a case of market failure, it represents a quasi-rent and our interpretation claims that this uncovers the true profit margin. It is a virtual profit since it is sustained in a type of cost that does not take place; that is, it is not covered by any accounting system in an enterprise.

Hence the political struggle when the State seeks to recover partially these real tax exemptions. Institutionally, exempted items are acknowledged by law in the so called tax expense when the income tax is calculated. Thus this is a structural change that ought to take place in order to recover part of the Public Goods and resolve the fundamental failure of the market model.

As a fact the salary established by the market pays no attention to the expenses incurred by the worker or the State on account of the training involved which is an important reason for the worker to be contracted. In the market system training is not a criterion which sets a standard over a salary. Neither is the result expected out of the salary that involves a social reproduction by the worker.

How-is-it-possible-to-obtain-a-profit-though-from-an-element-that-is-absent-from-the-market

How is it possible to obtain a profit though from an element that is absent from the market? | Image from Wall Street International.

What steps do we have to take to structurally resolve this situation?

As a first approach a new model, ought to figure out the way in which wages include basic public goods costs i.e., education, health, public housing, which represent mainly basic workers’ training. Such costs when covered by the so called social salary do not do other than fix both, the social worker’s status and his reproduction.

As a second approach the worker’s productivity is the trade-off factor between the social salary and relative market prices.

This means, that if productivity increases the worker’s salary ought to increase proportionately. Such rule is in need of changes within the institutional structures of the economy and also so that the State may have a preponderant role controlling this.

To approach the social salary as a result of training expenses and productivity involves the reinforcement of the Public Goods sector at least those mentioned as basic ones for the social reproduction of workers. In this case the social salary operates as an income distribution factor and thus as one that recovers the Social Debt and undoubtedly the Quasi-Rent.

The challenge posed by the fourth industrial revolution and the digital component is an additional difficulty for setting a social salary.

Nothing makes us certain that the real cost to the worker will be taken on according to the prices that prevail in the market. Neither the proportionality between productivity and salary can be assured as a certain effect in market relationships.

Inventions, innovations, progress by the fourth industrial revolution and its relation with the financial mechanisms of the enterprises sustain our reservations in this respect. Uncertainty hovers over transnational corporations which are bailed out by the markets increasingly ruled by monopolies or oligopolies.

The-right-to-education

The right to education | Image from Wall Street International.

The dynamics of those markets in permanent transformation place in jeopardy market agreements, stock market capitalizations, the channeling of forced savings by the workers from their pension funds, market openings, derivatives, types of exchanges….

The banking involvement by the population is the instrument to have the public become integrated into a model of permanent crisis, which does not make it a permanent solution. Once again we have a recurring pis-aller in moments of key changes.

It is not strange then that faced with unused challenges the flexibility of the labor market is made to be the deciding factor of the XXI Century where the Social Debt as a product of insufficient remunerations and inequalities in income tend to grow.

During the fourth industrial revolution the unceasing progress by science and technology activate constant innovations with massive displacements by hand labor within the sectors of material production and services. This generates income exclusions and greater labor flexibility as a proper mechanism for solving conflictive social situations.

The digital component in a global outsourced economy poses an unresolved problem for the central relationship between productivity, salaries, and the market when facing a point of no return in which mass production appears to have left with the signs of the times and of being replaced –as stated by Robert Reich– by “a future production which is almost unlimited and with a less number” ( of workers)…without having certainty about how many will be able to buy it.

Nevertheless, change is not only about unemployment, in addition it is related to replacements in knowledge. The area of basic Public Goods such as education, health, social dwelling, become mediated in its functioning and development by intelligent machines that rewrite their own algorithms or base learning on the basis of neural networks.

This development in artificial intelligence has expanded the management and recognition of great quantities of data (Big Data), algorithms that acknowledge patterns and neural networks, etc…everything which has caused a deep restructuring in modern society with impacts at a global level.

It is evident that we are in need of a new economic model which is capable of administering the effects in the present and in accordance with the future vision that is foretold.

If the type of employment has changed and the problem to start with, is income distribution and wealth, as we have pointed out at the beginning of this article, the market and the controls applied by the State appear to be directly involved. It is there that the cost of the worker’s training is definitely resolved together with the proportionality between remuneration and productivity.

The-right-to-health

The right to health | Image from Wall Street International.

When the political option for the State is to work towards for a society in solidarity, its’ role as a creator, as an articulating entity and on some cases as an administrator has to be translated into a set of activities, arbitrations amongst private institutions and of these latter ones with the State.

This State, a true hub of operations, defines what could be called the area or sector of Public Goods in the economy. This is precisely the sector where the worker in this new economy, acquires knowledge and gets trained. It is there where the State institutions apply their greatest control over the market.

We are living in a period of humanity where the time for fructifying investments and changes in technology rely upon other developments that rapidly abrogate the previous ones.

The demand and indebtedness by the households follow upon the technological developments and innovation which represents one of the greatest risks in the short term when there is no correspondence between productivity and salaries; this involves taking into account costs in worker’s training, without which the concept of the social salary remains neutralized.

The area of Public Goods in the economy will become articulated within the productive sectors, and the financial and commercial interrelated sectors. This is what will allow resolving the shock provoked by the effect of massive productions without any possibility of being consumed, costs which are not assumed causing severe effects over ecological imbalances, the global warming, contamination, the abusive commercial trading, etc…

Definitively the bases will have been laid out to insure workers’ social reproduction and defeat poverty. In this way a fundamental step will have been taken centering ourselves in the “absent term of the equation which does not involve the Public Goods”.

Expected results. In the public area of the economy the cost of training the worker and his productivity can be reflected in the market relationships and concretely in the prices that are sanctioned there.

We should not forget that free market financial capitalism has perfected the mechanisms of administration of the Debt. These mechanisms reproduce circles of poverty within a framework of massive productions under the power of a group of producers, managers and financial administrators which each time become more reduced.

It is from this public area of the economy that a new income distribution will arise coupled with new salary schemes which will allow the absorption of the Public Debt.

This is a permanent challenge to be resolved upon assuming the task towards an economy that is social and in solidarity, a situation which constitutes a global challenge and which is essentially political.