Profits drive the economy. An efficient way to set a reasonable price — and hence the profit is to share it with customers by allowing them to benefit from future production. The dynamics of such a system are called feedforward, an effective control mechanism in social systems.
Producer A creates X value for customer B. A makes a profit P. B now becomes the part owner of the means of production of X and agrees to the profit P because B knows they will get some of the profit of future sales and hence agrees to the price.
It is a simple approach that enhances competition, increases the speed of money transfers and minimises the cost of finance. It costs little to introduce and allows for almost immediately adjusting the profit split to suit all parties in the event of disruption or unexpected events.
However, the important social factor is the increase in trust in society as it becomes difficult for wealthy people to benefit from the hard work of others without giving something in return. This increases productivity (less money for the same amount of goods) and reduces the gross inequalities in society.
What is FeedForward?
feed-ˈforward n. [after feedback n.] (a) the use of calculated or presumed future states of a process to provide criteria for its adjustment or control; anticipatory control; (b) the modification of the output signal of a circuit by a part of the input signal that has not passed through the circuit.
To understand feedforward, please read the paper referenced at the end.
This article discusses how feedforward can bring purpose into economics by modifying the current chance-based positive feedback wealth accumulation system that benefits the few at the expense of the majority.
Example of Bank Loans
Bank Loans can be made more productive by banks sharing the profits of a loan with borrowers. Instead of Banks making the loans more productive by dropping the interest rates, the bank shares the interest by subtracting some interest from the capital owed.
When a Bank makes a loan, it puts a balance of money in an account and sets an interest and time for the money to be repaid. When the money is repaid, the Bank destroys the balance. The borrower repays all the money from the profits from the loan, so the borrower does most of the work to create the money — not the Bank. The Bank is an agent of the government whose task is to keep the currency stable.
Bank loans differ from loans with existing money because the borrower does all the work of creating the money. The Bank pays if the borrower is not able to create the money. When a lender uses existing money, the lender has made the effort to earn the money; hence, the money is returned and not destroyed.
In both cases, the borrower does all the work to create the interest and does not get anything for the effort of making a profit. Hence, lowering the interest rate is not the same as increasing the interest rate and sharing.
Banks are acting immorally in taking all the interest, and as the Reserve Bank does it deliberately to control inflation, it could be argued that it is illegal as it likely breaks various consumer, conspiracy and disclosure laws. More compelling is it is unnecessary as repaying loans more quickly does not reduce the interest paid. It makes investment money more efficient by increasing the investments possible with limited money, increasing productivity, or investing more for the same amount.
Sharing Profits from Investments
All investment profits can be shared as an alternative to markets setting prices. If customers get a share of profits as equity, then the same arguments as sharing interest from loans apply. The customer shareholders will ensure the profits are fair. Sharing profits increases the speed of money transfer and increases productivity. It sets fair prices for goods and services and is easily adjusted for unknown and changing business environments.
Size of Markets
There is little advantage in having large markets with the sharing of profits because the profits are set by agreement. Economies of scale still happen, but markets are segmented and economically efficient. Smaller markets increase flexibility, innovation and investment. Allowing customers to move between markets easily preserves economies of scale.
Not-for-Profits
Not-for-profit organisations can use the approach as a negative profit specifying the activity's required subsidy.
Will it cause inflation?
Inflation will drop to zero because inflation is largely caused by too much money in the economy. Most smaller markets can set in place local rationing when supply is short and maintenance of prices when supply is abundant. The money in the economy will drop because it will move more quickly as investments replace debt to expand the economy through savings, not greater production.
Agent-based Modelling
Economic modelling of profit sharing is best done with agent-based modelling because the system rules can be adjusted dynamically to meet changing circumstances. Economic modelling becomes predictive, and communities will have much greater control over outcomes irrespective of what happens in the rest of the world. This fine control is needed for humankind to increase resilience and survive the coming changes caused by global warming.
Click here to see a short video using agent-based modelling.
Summary
Allowing customers to benefit from profits is a feedforward control method that dramatically affects economic productivity. When producers share profits with customers, it enhances competition, speeds up money transfers, and minimises finance costs. The approach also fosters trust in society and reduces gross inequalities. Its incremental implementation saves money without changing the activities of all types of enterprises — including not-for-profits.
Reference
Logan, Robert K. (2015) Feedforward, I. A. Richards, cybernetics and Marshall McLuhan. Systema: Connecting Matter, Life, Culture and Technology, 3 (1). pp. 177–185. ISSN 23056991 Available at http://openresearch.ocadu.ca/id/eprint/650/
