Financing Research in a non-profit Economy - a distributed solution.

For a long time now, I have been thinking about ways to finance research in a non-profit economy like the Ryaki Economic Network. The only method I could find was a centralized one. Here I will propose a decentralized one. Since this is a new idea , I except it to be revised in the future.

Let me first define how a non-profit economy functions. In a non-profit economy, the revenue from the sales of a commodity is distributed to the workers that participated in the production process of that commodity.
  In contrast, in capitalism , a percentage is kept by the firm which constitutes its profits.


Thus, in a non-profit economy, two problems arise.

A. How do you finance new capital expenditures?
B. How do you finance research?

The solutions we find need to distribute the decision making to as many people as possible. Thus, they need to be distributively democratic.

The first problem has been solved by Ryaki. New capital expenditures are financed by workers because they are the only way of storing value in the system. The value  is retrieved back in the future as production uses the capital to produce goods.
  This solution works because identifying the processes that took part in production is easy, Secondly, the risk of investment is low enough to attract investors.

Can the same be done with research? No it can't.

Scientific research is characterized by the search into the unknown. Predicting the outcome of a research inquiry is most of the times impossible.
Many fail to produce any results at all, while others do not produce anything other than new knowledge that has no applicability to production. The usefulness of a research project can be found after many years when a composition of scientific results creates a new method of production, or a new product.

Any financing of research needs to take into account that research failures and practically useless new knowledge are important in the long run They need to be financed.

Here lies the problem. In a non-profit economy, workers are compensated the total amount of revenue. At the same time , we cannot use ryaki, because the risk of investment is too high.

Let us look at one solution. One solution to this problem is to have people democratically decide on the percentage (per) of value that is to be spent on Research. For any product bought at price (p),
per * p is to be spent on research. One could then say that this amount is kept in an special account that belongs to the consumer. The consumer can only use the money to finance research.

This solution depends on the centralized democratic choice of the people with regards to the percentage. At the same time, the decision might not be optimal. Which percentage is the optimal one? If we don't spend money on research, then we reduce our current costs as a society. At the same time, we abandon the probability of future reduction in production costs due to automation.

Is there a way to remove the centralized part from above and find a somehow optimal way to spend money on Research?

Let us assume that the optimal ratio of total research to productive research  is (rs).

Then let us suppose that we have a productive research of value (vr).
The change in production cost of a commodity due to this research is (d).

old price =  op
new price = np
 d = op - np

(Our research here decreases the production costs.)

Then one could finance research by increasing the price by (fr) such that

fr < d

for an amount of products (q) such that

fr * q = rs * vr .

Given that research is unpredictable, productive results can not be guaranteed to arrive when we need them, One could create a buffer of financing of new research. Secondly, if the reduction of costs is higher than
the cost of research we need to increase research. We do both by adding a multiplier (bf).

fr *  q = rs * vr * bf


The outcome of this equation is that research increases when it reduces costs. Financing is constant for many years and it allows researchers to fail, or in other words try to solve difficult problems.


I think that one more question needs to be addressed here. How is this different from the capitalist firm that extracts value in the form of profit?


The difference is that firms extract value through exclusion. They maintain exclusive control over resources and research results is one such thing. The patent system is used to maintain that dominance. On the other hand, the wages of researchers is determined by the labor market. Given that they cannot produce research on their own, it requires laboratories and numbers, their wages do not reflect the value that they create for the firm.

Given that in an open value network, resources are democratically shared as long as they are used to produce useful things, anyone can be a researcher if he has the qualifications. Anyone can use a lab and form research teams.
The customers decide on the direction of the research but not on the individuals that will perform it, individuals will be selected purely on effectiveness.

Thus, the income of researchers will not vary substantially from other professions. Their income is independent from the total reduction of costs in production due to their work. (though the total reduction of costs consitutes an upper limit).


I have described a distributed democratic method of research financing that determines both the intensity and the type of research. At the same time, the model is dynamic because it reacts to the effectiveness of research to reduce production costs. This is just an initial version which will eventually need to be improved upon.

A reverse ripple network that links the right to Work with Consumption.

One of the tenets of Keynesian Economics is that the current crisis is the result of Under-consumption. I disagree. I think that the problem is low profitability.

The basic idea can though be repurposed in an economy that does not allow profits to be an incentive of production, such as in my proposed Ryaki Economic Network .

The main idea behind under-consumption is that because income equals expenditure in the macroeconomic level, reducing the expenditure leads to a reduction of income. It is for this reason that Keynesians propose to increase public spending during crises.

  

In this video, Varoufakis tells the audience that austerity in the scope of a household works because if you spend money on a beer , you will not have money to spend on other things.

The reason is that workers do not control the amount of work that they can do to replenish the money they have. Even though, Workers have the right to work , someone needs to offer them work. Thus individually, they can do little to increase their income. Thus the income can be considered as a constant constrain that determines economic choices.

If I = Income , and bc = beer consumption , then the remaining income is

I - bc.

 In the ryaki network, or in general an open value network, openness means that anyone has an equal right to participate to the network and thus create value for himself.

In other words, each worker has an equal right to work, assuming he is fit for the job. All created value is returned to the workers themselves, there is no extraction mechanism as in capitalism.

Even though this system is egalitarian, the resources of the system remain finite and thus the amount of income will remain relatively constant and constitute a constrain to economic choice as before.

The reverse ripple network tries to change that. Let us modify our Ryaki system a bit.

Before : Everyone has an equal right to work.

Now : The person who has consumed commodities of value x has priority over someone that has consumed y if x > y. 

After someone has worked z hours, then this is removed from the value of consumed commodities. (x - z).

Now let us look at the constrains of a household income.

 If C = consumption, and I = Income , then I = C.

This means that a person has no restrictions on expenditure. The outcome for the economy will be profound. Work that was before done by household members to save money will now be done by external services. (ex . Cooking, Cleaning) . Given that the external services have  much higher productivity due to the investment in tools, this will decrease the total amount of work performed in Society.

Now, one might correctly ask how the network will provide so much work to compensate for the lost income. The trick here is that one's income is the others expenditure. In other words, when someone spends money in the economy, he creates work for himself.

Here , though, lies a problem. The transformation of expenditure to Income in the macroeconomic level is not automatic. Moreover, there are economic imbalances between geographic regions that do not permit such a transformation from happening.

Let us take two geographic regions (like Greece and Germany) that have different capital intensity and where one has a trade surplus over the other,  (Gemany). Will our naive new rule allow greek workers to work more to compensate for their consumption? Obviously not, their expenditure creates work for the German population. The only option is to immigrate to Germany.

The reverse ripple networks solves this problem by giving an incentive to spend only to products that create Work for the Spender. 

Let us consider 3 different productions. a fishery (F), a brewery (B) and a carpentry (C) . 

When a carpenter buys x fish, a fisherman works x to catch the fish. In a reverse ripple network, the carpenter is awarded x for his consumption and the fisherman (-x). Now the fisherman buys a beer for y. The network now is like this.

c -----> f ------>  b

  x    (-x)  y    (-y)

If a worker at the brewery buys a wood table of value z, then the fisherman has indirectly provided work to the carpenter of value , assuming y > z , z.

The network after the purchase of the table:

 Assuming (x < z)

c -----> f ----------->     b    ------------> c

  0    0  y - x   (-y + x)  (z - x)     - z + x

(Negative values can only exist at the places of work, and positive values can only exist at consumption.)

Now, let us propose our new rule. The workers that want to participate in production are ordered based on the negative value that they have acquired. If they have a lot of negative value, they have less priority.

In our example, considering that we have a computer application that helps the carpenter in his consumption, each consumption choice is associated with an amount of value that will reduce his negative value. In other words, each consumption choice is associated with the amount of new work that he creates for himself.

 The carpenter has (- z + x) negative value. If he buys fish, or a beer, he could create a maximum of (z - x) work for himself. 

In our example with Germany and Greece, Greek workers will select local products for their consumption over cheaper German ones because this is the only way to guarantee their income. Similarly German workers will be incentivized to buy Greek Products. Eventually, it will be beneficial for all if new capital investments occurred in Greece. It would reduce economic immigration and increase the trade between the two countries. An increase in Greek exports will enable an increase in Greek imports as well. 

 To summarize, I have tried to solve two problems here. First the fact that income constrains determine expenditure and secondly, that unequal capital intensity and productivity levels between countries tend to 

create a permanent trade imbalance that leads to increased Debts and bankruptcy by the weaker country.

My proposal can dramatically increase the efficiency of the network.

update : 

 I do believe that this idea can become better. Workers can decide which jobs they want and accumulate points with their consumption through the use of the ripple network. Then , when they work , they spend those points. This is a much better version.