PROUT Institute of Australia

In this presentation, we outline the features of a decentralised

economy. There are five main characteristics.

So far we have discussed how poverty is caused by the bleeding of wealth

from a community. Removal of poverty requires that an economy be
strongly linked to the whole of its community and environment. That is,
it must be a people's economy, which is the answer to poverty. This
requires socio-economic units to function as the smallest communities
that have potential to be economically self-sufficient.

An economy is a living system. In economic terminology, economic

planning attempts to maintain an internal balance in the form of
constant supply of essential goods and services at constant prices,
despite an external fluctuating global economy.

Economic power can be differentiated from political power. Indeed, one

of the most important concepts in Prout is the idea of the separation of
economic power from political power. This is similar to the notion of
the separation of powers in a political democracy. That is separation
of legislature, executive and judiciary. Better still, the audit office
should also be wholly independent.

Prout achieves separation of economic and political power by striving

for economic decentralisation at the same time as recognising a need for
political centralisation. Perhaps a good analogy is that of a football
match. The referee, like the politician, is responsible for setting the
rules and making sure that the rules are followed. However it is the
players who decide on their strategies and who play the game.

Economic decentralisation is Prout's strategy to achieve full employment

and to remove poverty. This is in stark contrast to the highly
centralised economies of the modern capitalist world and of communism.
One defect of centralised planning is that it allows unscrupulous
persons to divert wealth into their own pockets. Another is that the
planners are seldom sitting in the localities for which they are
planning.

The initial objective of a decentralised economy (a people's economy) is

the guarantee of minimum necessities for all persons. These include the
five basics of:
- food (including water);
- clothing;
- housing;
- medical care;
- education.
This is to be accomplished through increased purchasing capacity. This
is a fundamental human right. But it is also a collective necessity,
because the easy availability of minimum requirements (through adequate
purchasing capacity) will increase the all-round welfare of society.

The first feature or requirement for a decentralised economy is the

notion of local economy. The purpose of identifying a local community
and its local economy is to strive for economic self-reliance. Let us
assume that one type of local community is the nation of Venezuela.
However, in certain cases the principles of decentralisation can also
apply at the lowest level, the third tier of government, being local
government.

When contemplating economic self-sufficiency, the question arises about

foreign investment. According to the neo-liberal agenda, economic
development is not possible without foreign investment from wealthier
nations. It is necessary to distinguish two kinds of foreign investment.
The first kind is foreign portfolio investment (FPI) in the local stock
exchanges, bond markets and in foreign currency trading. This has an
element of speculation. The second kind is foreign direct investment
(FDI) in factories and productive activity.

Prout is opposed to the former (FPI) but would, on an interim as needed

basis, accept the latter (FDI) under certain conditions. That is, in the
current environment, if foreign multi-national companies want to invest
in productive activity within a host economy they would be able to get a
reasonable return on their investment. In Prout it is called a rational
profit. BUT the investment has to be in the interests of the host
nation. Also, it must be consistent with the local development plan and
should not allow local resources to be controlled by the investing
company. In particular the project should be accompanied by technology
transfer. This is how Japan and China developed into powerful economic
nations. The transistor was invented in the USA but the technology was
learned by Japan and developed with great success.

It is essential that an investment arrangement should have a fixed life

and fixed objectives and should not allow the investing company to
withdraw its capital, at will, to the detriment of the local economy.
When a person obtains a mortgage, and is not at fault, the bank is not
allowed to return the next week and demand its money back. The mortgage
contract specifies regular payments of both interest and principal. In
the same way, a FDI arrangement of a contractual nature should specify
appropriate allowable returns/earnings for a company and the original
investment amount.

The current practice is that multinational companies (MNCs) continue

extracting wealth from their investments indefinitely. Profit is sought
above consumer welfare. If MNCs must operate in a host country, then
like a bank loan, a FDI agreement would only permit, over a fixed number
of years, the return of the invested wealth (or its equivalent) and a
reasonable rate of return based on an acceptable interest rate.
Technology transfer and growth in the host economy should permit the
interest repayment without hardship.

It is easy to find negative examples of foreign direct investment that

exist due to the profit motive and not having a focus on consumer
welfare. There are few positive examples because in the capitalist world
all production is motivated purely by profit. The emphasis in a
decentralised economy is, however, on meeting local needs first.

The second feature of such a decentralised economy is that production

should be based on consumption demand, not the profit motive. It should
be noted that the profits obtained from the junk food industry are
obtained only because the external costs of declining public health are
not recognised or accepted by the private producers of junk food.
Instead they are borne later by taxpayer funded public health measures.
The same applies to tobacco industries.

Production focused around the consumption motive would, however, yield

benefits for the whole community. The development of urban agriculture
and green pharmacy crops in Cuba during the 1990s is a positive example.

The third feature of a decentralised economy concerns cooperatives. P R

Sarkar, the founder of Prout, says that a decentralised economy cannot
be achieved without cooperatives and cooperatives cannot be achieved
without a decentralised economy. Prout promotes cooperatives within its
'three tier industry' framework (i.e. small private businesses;
cooperatives as the norm; and key industries regulated and managed by
local government authorities where essential services are concerned).

The fourth feature of a decentralised economy has to do with local

employment. The question arises about who is a local person and who is
a foreigner. Prout answers this question by invoking the notion of a
person who has identified their personal 'socio-economic interest' with
that of their local community. Such an identification would be
demonstrated by a contribution to the local community, taking up
ordinary or permanent residence and, equally as important, the
application of one's money to primarily benefit the local community.
Sarkar draws attention to the problem of floating populations in some
communities. That is, the existence of large numbers of persons who earn
their money in one place but send it back to their families in their
place of birth. This practice is detrimental to both the local community
(which suffers a loss of financial capital) and the home community
(which suffers a loss of productive labour).

How local will local ultimately be? Local is a relative factor. In due
course, as socio-economic units reach parity with each other, then over
the course of time they will expand. When parity is achieved, the
socio-economic units merge. Eventually the whole world can be one
socio-economic unit and all persons could be considered 'local'.
However, parity must be reached, before this is achievable.

This fifth principle of economic decentralisation deals with trade

(imports and exports). Prout discourages the import of commodities that
can be made within a local community and in particular it discourages
the import of foreign raw materials to promote local economic
development. Rather Prout promotes the use of local resources to support
local development. The concept of food and medical sovereignty arises
here. When Argentina considered defaulting on its international debt, it
was informed that this would result in a trade embargo. On the list of
prohibited imports was insulin. How can a country adopt economic polices
in its own interests when subject to this kind of blackmail?

Sarkar advocates the use of tariffs (temporarily) to protect developing

local industries. What if locally produced goods are inferior or more
expensive to the imported ones? Then take immediate steps to improve
quality and reduce costs. This is where technology transfer becomes
important. Efficiency and quality will never improve if the industry is
not allowed to get off the ground.

Note: cornflakes made in Chile appears on Australian supermarket shelves

at the same price as those made in Australia. Assuming the same profit
margins, this is most likely possible because the workers and growers in
Chile are not getting a proper rate of return.

In a Proutist economy, the main exports are surplus commodities and

specialty items. However just as Prout discourages the import of raw
materials, it also discourages their export. Rather, every attempt
should be made to add value before export. The problem is that there is
a long-term downwards pressure on the prices of raw materials in
international markets due to technological advancement. The local
economy looses out. If secondary products processed out of raw
materials are, however, exported then the value added component benefits
the local economy.

In this regard, Prout encourages barter trade for processed products.

Barter trade can be multilateral or bilateral. Multilateral barter
trade occurs through international clearing houses. Barter is in
preference to use of financial instruments with its emphasis on monetary
gain. Barter also encourages trade between nations at a similar stage
of economic development.

Economic decentralisation does not reduce economic potential because

wealth is increased everywhere. Note that the concentration of wealth
into a few hands inevitably leads to poverty and unemployment. These
problems are themselves a tremendous waste of economic potential.

Under Prout maximum production in the local economy is achieved through

economic decentralisation. However the pursuit of both is subject to the
principle of economies of scale. It makes no sense for every local
community to have an international airport. Specialised features or
areas will exist. Decentralisation is to be pursued to the point
consistent with common sense, efficiency and community welfare.
Economies of scope, to help reduce costs, is also essential and in Prout
this is achieved through networking of cooperatives. Sarkar calls it
satellite cooperatives. What this does is to enable specialised labour,
equipment and ideas of one activity to be used in conjunction with other
related activities.