Article 27 Humanomics and Budget

HUMANOMICS & OUR BUDGET

By M.L. Sondhi
Eugen Loebl, Humanomics Random House, New York

Mr. H.M. Patel is very much disappointed at the response to tax concessions announced by him in the two budgets presented by him and it appears he would like to blame those having superior managerial and organizational expertise for not understanding their social responsibility. Even if this were correct, does Mr. Patel think this presents the whole picture?

There are certain flaws in the Government's thinking which must be remedied if the Janata Government is to achieve a pace of economic development adequate to meet the bona fide expectations of the people. Most of this thinking in the economic sphere consists of projecting present trends into the future and this unfortunately implies a minimum of understanding of the new ways in which India should use its most important resources, that is, the human capital.

Sobering Result

If we are seriously looking for a correct diagnosis and wish to avoid sterile controversies, we would do well to look at the proposals advanced by Dr. Eugen Loebl, who has made perhaps the most bold and comprehensive investigation into the deficiencies of both the Marxist and the Keynesian approaches in the context of both empirical facts and abstract economic thinking. Dr. Loebl was deeply dissatisfied with both capitalist and socialist economics and worked out with great thoroughness and exactness an entirely new way of conceptualizing economic problems in his magnum opus "Humanomics". This remarkable reappraisal of both the competing economic systems took Dr. Loebl over a decade much of which was spent by him as a political prisoner in solitary confinement. This work is now being recognized as a pioneering approach to the study of advanced economics. I am inclined to think that it will also be a milestone in economic research on problems of the Third World if it has the sobering result of questioning the dogmatic application of Marxist and Keynesian models.

No Alternative

A "Humanomics" approach to Indian problems would take as the starting point the creation of additional employment opportunities by utilizing "human motivations" in the Indian economy. In preparing the next Budget of the Union Government, a Finance Minister who believed in the open-mindedness of Humanomics would seek above all to mobilize the entire Indian economy by "new tools, new systems, and new programmes" instead of the dehumanizing "graphs, curves and equations" which have persuaded Mr. H.M. Patel that there is no alternative to a high level of taxation.

Dr. Loebl rejects compartmentalization of economic policy and the post-Keynesian context of his policy recommendations are reflected in his proposals: flexible system of taxation to remove the burden on the average consumer; a massive system of low-interest Government-backed loans aimed at idle sections of the economy; making profits and wages dependent on higher efficiency and finally a point which may not go down well with those who follow Mr. Patel's line of thinking abolition of the income-tax.

The crux of the matter is that according to Dr. Loebl the "economic optimum" is more important than any economic plan, and, therefore, he emphasizes the importance of understanding the working of both the macro-economy and the micro-economy. To quote his well articulated position: "It is not the job of the central authority in the macro-sphere to interfere in the detailed operations of the micro-sphere. The job of the macro-sphere is to make decisions in its own field in such a way that industry can work more rationally, and to carry out tasks which are beyond the scope of the micro-sphere, but are necessary for economic development.

This would include maintaining a stable currency, ensuring the growth of real incomes and a stable fiscal policy, as well as keeping the market competitive."

Before the next Budget is presented in 1979, there should be a full and open debate on precisely these points: stable currency, real income growth, and a stable fiscal policy. If Mr. Patel is serious about discovering non-inflationary ways of financing Government expenditure he should be prepared to move from the entrenched positions of the fiscal bureaucracy and try to study the nature of alternative which can help in evolving towards "Humanomics."

Healthy Pressure

In the subsequent work, "Alternative to Communism and Capitalism" co-authored with the Canadian entrepreneur Stephen Roman, Dr. Eugen Loebl suggests a Skimming Tax which would vary from one commodity to another depending upon the level of luxury provided by the goods or services.

The idea of the "Skimming Tax is that the consumers would be aware of how much their taxes amount to, and the wider public would be educated into the extent of Government spending. There would thus be a "healthy pressure" to minimize the scope of Government activities and the proliferation of bureaucracy. Another aspect of this proposal which will have a salutary effect on efficiency is that less efficient companies will not be able to pass their anticipated taxes in the form of higher prices. To go to the root of the problem of economic democracy and social justice the "Skimming Tax" will result in higher real income for low-income groups and reduced real income for high-income groups.

Free Credits

If the Budget is to focus on the structure and process of economic policy, two other suggestions by Loebl and Roman should help in the definition of economic priorities. Under the new system, government's power to artificially control the economy through interest rates would be replaced by government offering free credits to the banking system which in turn would supply the economy with funds to be used for productive purposes and repaid in due course. The other important proposal is based on the feasibility of stable prices with which a system of profit sharing would be operated based on profits as a result of higher productivity and not because of price increases or reduction in the quality of products. Profit-sharing in this sense would help to avoid strikes and lock-outs since management and labour would be closely aligned to a common purpose.

It is not possible in this short space to give a full understanding of Dr. Loebl's conceptual framework. Is critical examination of Marxist and Keynesian perceptions may come as a wide shock to many faithful adherents of these two identical economic ideologies. Mr. H.M. Patel like Professor Samuelson believes that this task in the Indian economy is "the allocation of scarce resources". Dr. Loebl would challenge both of them and ask: "How can allocation of scare resources work without the necessary ingredient of human motivation and creativity?"