THE DUALITY OF ECONOMY CLOSED AND TRANSIT STRUCTURES

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THE DUALITY OF ECONOMY CLOSED AND TRANSIT
STRUCTURES

• Valerian Popkov, Andrey Baturin
• International Alexander Bogdanov Instinute,
  Yekateriburg, Russia
• www.bogdinst.ru

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Closed structures is a blind spot of economic
theory

• input-output paradigm enterprises appear in
  these models in the form of black boxes,
  converting inputs into outputs
• These black boxes compete with each other for
  the access to limited resources and the main
  argument in this struggle being the value of
  added cost they may provide.
• it results in chains of enterprises and
  production programs, providing the highest
  possible result within the input-output system
  under specified limits on initial resources.
• The only thing they couldnt do is to consume
  goods they produce themselves, even if such
  consumption were mediated by closed supply
  chains. The optimal program of input-output model
  eliminated such cycles
• closed structures were left unconsidered, as
  irrational, non-economic ones. And this is not
  surprising, because they broke the fundamental
  philosophy of commodity production.
• Along with the closed structures any unproductive
  consumption as such was left out of consideration
• For example, if rural population of an agrarian
  country eats a part of bread it produces, this
  part is automatically omitted from the model.

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The phenomenon of domestic markets

• As far as they consume what they produce, it
  seems there is no sense in searching any complex
  structures in domestic market environment
  isolation of domestic markets and their
  withdrawal considered no more than an atavism
• there appeared a myth, that if power obstacles
  are removed and transaction expenses are reduced,
  no one economic structure would be able to exist
  long enough against the market
• Meanwhile, domestic markets do not disperse,
  more than that, they multiply
• Reforms of Eastern Europe became a vivid
  illustration of this back side of the market
• Half-closed production chains with their
  alternative surrogate money kept on functioning
  in the depth of post-planned domestic economies
  of the former socialist countries
• Cyclic structures, ring causality underlie most
  synergy models, since they naturally generate the
  so called aggravation mode

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Cyclic and transit production structuresLets
take an arbitrary enterprise network. This may be
a global, national, regional economy, a regional
production complexAny simple network analysis
would reveal in this network some set of cycles
and open (or transit) flows

• Open enterprise network is a black box,
  transforming one set of products (resources) into
  another set, in accordance with discharge
  coefficient a classical character of all
  balance models
• The only goal of such transit production
  structures is acquisition of added cost, the
  difference between input and output (unit)
  prices.

• But cyclic processes are absolutely different
  the closed flow means, that there is no sense in
  comparing expenses and production results in its
  every link expenses and results, inputs and
  outputs are mutually cancelled in final units,
  the cycle contains no added cost, the balance is
  zero (that is why balance models have no cycles)
• And it will remain zero independently of market
  price conditions

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The balance and balance-network models

• The balance model does not examine the closed
  (cyclic) structures and uses open (transit)
  structures only
• The balance-network model not only considers
  cyclic structures, but allows to find conditions
  of cycle existence and calculate their influence
  on the transit processes

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Divergent and convergent processes in economy

• The global closing of economic processes can be
  carried on only thought overcoming of powerful
  and universal processes of their opening. A
  spring, working for the opening of closed life
  support systems, is set into the very foundation
  of modern economy, and this spring is nothing
  else than marketability of economy
• We would call this group of processes commodity
  divergence in economy, on the analogy of the
  concept of divergence in physics
• Where in economy does convergence spring wings
  up? The answer is obvious in those structures,
  where marketability eliminates, and a particular
  need comes to the foreground. We believe such
  structures are either cyclic or closed ones
• However, convergent processes in economy still
  have to get an adequate institutional equipment,
  not to mention the theoretical reasoning. Because
  cyclic processes and cyclic structures in economy
  differ from transit ones in no smaller degree,
  that an atmosphere cyclone differs from an
  anticyclone

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Goods and services

• Classical political economy, from A.Smith to
  K.Marx, use to consider services noneconomic
  welfare, nonproductive labour
• Modern analysts of service industries keep on
  consider the service to be a variety of goods
  (goods services), whose distinctive feature
  is direct connection, interactive relations
  between the producer and the consumer
• The service is creation of object conditions,
  necessary for successive activities of the client
  
• the service participates in the following
  consumption circuit Activity Product -
  Activity (AP-A)
• While the production follow the sequence Product
  Activity Product (P-A-P)
• If in P-A-P sequence activity may represent a
  black box and participate in balance models
• In A-P-A sequence a product becomes a black box
  
• As for the two interacting activities, they
  interact as white boxes, initiating a shift of
  the partners internal parameters.

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Excursus into topology of comprehensive wholes

• A usual system is a bound aggregate of parts
• while a wholeness is invariant to a certain
  degree, relatively to partition
• Such property is characteristic of network models
  (generally, topological models), where
  enterprises do not work singly, unlike well-known
  balance models, but join in chains, and each
  individual business system represents an
  aggregate of such chains
• Allocation of independent chains in the network
  may be done in different ways, but the number of
  closed chains (cycles) in such partitions would
  keep permanent
• It is cycles that represent the topological
  invariant of a comprehensive whole, - a
  characteristic number of cycles remains within
  the comprehensive whole, despite its any
  deformation, aggregation, development

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Chains and Cycles

• The comprehensive whole, as well as any other
  one, is made up of processes, adjoining each
  other, of chains of such processes. Process
  chains form chain complexes, which are
  systematically analyzed by topology
• A special attention topology pays to closed
  chains, or cycles. The cycles, as opposed to
  opened chains, are able to feed themselves, and
  therefore may exist relatively autonomously and
  stably. Thus, if there were no circulation of raw
  materials, power and money resources in gross
  production, no production would exist, - it would
  become a single-shot phenomenon
• The algebraic topology (a hundred years ago such
  construction arose in the works by Henry
  Pointcare), distinguishes not only structures,
  but most important parameters of processes,
  taking place within those structures. Here is
  meant a systematic distinguishing of
  contravariant and covariant substances or flows
  and potentials.

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Processes The unity in duality

• Potentials
• of adjacent nodes are balanced on
• the branches

• Flows
• are balanced in the node
• (The law of conservation mass)

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Flows and Potentials

• Generally, the flows balance on structural
  elements of lower dimension, on their lower
  boundaries
• The flow is characterized by some variant of the
  principle of conservation of mass, substance,
  volume, quantity it is an external motion
  (visible parameter) in general.

• Potentials, on the contrary, spread to their
  upper boundaries and balance there
• This is how stress, force, pressure distribute,
  how need is produced, how subjectivity (invisible
  or hidden parameter) is shown in general.

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The world is a multi-dimensional process

• Its consisting of local processes, adjoining one
  another
• for example a river has 3-dimensions
• a pilot of a plane see it as 2-dimensional water
  ribbon
• a hydrograph examines one as 2-dimensional bottom
  topography
• The top and the bottom meet, making up a costal
  line (1-demensional)
• there are also fish resources, birds and animals
  populations in the high-water bed
• There are also the goods and financial flows,
  associated with the river

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The wholeness the world from two points of view

• Kinetic world (a flow)
• The streams are structured and coordinated
  towards decrease of structural level dimensions
• from the general to the particular, from the
  concrete to the abstract, from the depth to the
  surface.
• This is the direction of differentiation of the
  wholeness

• Stressed world (a potential)
• Potentials are coordinated in the opposite
  direction
• with increase of dimension, through structural
  elements of higher dimensions.
• The world is gathered, integrated, joined through
  stresses
• This is the direction of integrity of the
  wholeness

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Types of networksopen (transit) mixed
closed
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The generalized balance-network modelIt has 5
nodes and 5 brunches. 2 nodes (oil and grain)
have external export potentials. 2 brunches
(social and agriculture sectors) have internal
potential sources. 2 nodes (migrants and land)
have outside restrictions.
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External and internal prices

• The external price
• Concerns to grocery inputs and outputs
• Stimulus of maximization of profit
• It exists in the opened circuit
• It is uniform for all enterprises which are
  letting out the given product
• Goods
• Opened (transit) structure

• The internal price
• Concerns to a branch, - to the enterprise or the
  group involved into a cycle
• Stimulus not giving enterprise to stop there
• It exists in the closed circuit
• Each enterprise has own internal price
• Needs
• Closed (cyclic) structure

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Cycles (red) and open (transit) paths (yellow)

• 3 cycles and 3 open paths

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Results of calculations for three types of
economy

• Export raw economy
• all economy was reduced to oil extracting by
  hands of migrants and petro-export
• economy all as export-focused, but now the basic
  is the export of agricultural industry. Contours
  are not closed.
• Agrarian high efficiency of rural work and low
  norms of consumption of grain have provided high
  stability of an agrarian contour
• Innovative two contours Compete 1. The
  innovative contour focused on export of bio-oil
  to the detriment of society,
• 2. The ?gri-social contour focused on internal
  demand.
• Solving in this dispute there is an intensity of
  solvent demand of society. In the balanced
  condition these two contours coexist, supporting
  each other.