Chapter 14: National macro leadership management – Consumption and Management

14

National macro leadership management

All human activities are in the process of consuming and creating consumption. Human beings get consumption materials from nature and create consumption materials ceaselessly in order to meet their consumption demands, which have been increasing continuously and developing and improving. In the activity process, new productivity of the consumption society, new production relations, and the combinations among them are created continuously. Production comes into being in the combination of productivity and production relations. And then production creates products demanded in consumption, consumption pattern, and a new consumption level.

The process of capital commodity production and exchange explores and improves the exploitation of consumption commodity channels and socialized commodity exchange. In the modern period, the process of capital commodity production and exchange of the whole of human society yields narrow production relations, production relations of corporation behavior, generalized production relations of the whole society, relationships of the economic base and the superstructure, and the relationship of human consumption and nature. These relationships in activities create basic contradictions and dissipation structures of society. Multiple complex enterprises are the cells of the social economic base, and the non-productive organizations, such as social organizations, parties, religions and so on, combine in the three important consumptions process of the whole society. However, there is no individual, family, social organization, party, religion, or nation without activities of the three important consumptions, and there is no politics without consumption.

The process of three important consumptions gives birth to contradictions between the productivity of the consumption society and production relations, contradictions between the economic base and superstructure, and contradictions between the three important consumptions and nature. This creates social contradictions of a country, nation, and external nation (the contradiction between country and country). The core of all of these contradictions in one country is the creation and distribution mode of social consumption wealth, and the legal mode, in which individuals and organizations get the social consumption wealth and that the amount of social consumption wealth is gained. Can all of these be identified by people’s value system and be relatively equitable or seriously unequal? (Absolute equity does not exist forever.) The amount of people’s survival consumption and enjoyment consumption in the social consumption wealth determines purchasing power, consumption consciousness, consumption mode and behavior, and mode and behavior of social activities.

From this we conclude that all human activities are not separated from the three important consumptions. In the three important consumptions activities, the management of humans’ own consumption process, production consumption process, and demanding and creating process activities for materials of consumption for the three important consumptions demand that people create the best and most useful living consumption materials, social consumption materials, and spiritual and cultural consumption, with minimal research funding and production consumption, to achieve a more equitable distribution of total social consumption wealth.

It is a complicated and important mission to resolve the national internal contradiction and create a better solution to internal contradictions among the people and establish a happy, prosperous, and harmonious society, which is the responsibility of the national superstructure, of enterprises as the basic social economic gem, and of all the families as the most fundamental gems of a society. Individuals and non-producing organizations, parties, and religion need a scientific management method to exert positive effects to construct a harmonious society. However, all these activities are involved in the process of the three important consumptions, so scientific organization management should be adopted, and the management can be classified into two types: consumption and macro management, and consumption and micro management.

The macro management of consumption is an integrated management for the three important consumptions of national superstructure. Micro management of consumption is a corporation’s production consumption, sales service management, and the household living consumption management of the family. The goal of the macro management of consumption is to keep the national order of the three important consumptions, normal activities, and normal research to satisfy people’s ever increasing material and spiritual consumption needs, and to guarantee national security and stability and the harmony of society, and to make contributions to the harmony of the human world and the rapid and healthy development of the three important consumptions and national profits.

The goal of the micro management of consumption is to ensure an enterprise produces more and better valuable commodities with the lowest production cost, to get more business and social profits through satisfying consumers’ needs with high quality sales service, to maximize the productivity of the consumption society, and to take on social responsibility. Besides, it ensures that an enterprise properly resolves the contradiction between productivity and production relations, between the national interest and corporate interest, between the corporation and society, and between corporations’ production consumption and nature.

The management of household living consumption is the basic consumption target and management for human life. The goal of management is to increase the limited consumption fund and to properly arrange living consumption to improve its quality. Because the resources of the consumption fund and people’s ever increasing material and spiritual cultural consumption needs are complicated and inconstant, they influence general social economic activities and have some significance to the micro management of consumption.

It is important to clarify the elements of national conceptions, national management, and comprehensive national strength when discussing macro consumption and management.

Section 1 National factors

Territorial elements

A country is a certain terrain including domains, territorial seas, national airspace, and a boundary, which belong to all people who reside in this terrain. Territory is a consumption resource that all people rely on. Countries usually use boundaries that are established according to history or treaty with its neighboring countries.

People elements

All people are masters of the national territory; one or more nations that live on this land are the people of this land. People are possessors and dominators of this country territory. The benefit of a country is the people’s benefit. The power of a country is endowed by the people.

Legitimate national power system elements

Government is a power institution that represents the interests of the country and the people. Government keeps national security, ensures people’s benefits and rights, exerts power equitably, guarantees the stability of society, and constructs a harmonious society. It ensures people’s normal life, production, and social activities, and deals with people’s internal contradiction. It takes the responsibility of maintaining friendly interactions and equitably resolving contradictions between countries. It develops the productivity of the consumption society, the national economy, and international trade with other countries to satisfy people’s ever-increasing material and spiritual cultural consumption needs.

System elements of superstructure

The superstructure is a social ideology established on a certain economic basis and the summation of a political and legal system, organization, and facilities. The superstructure includes the political and ideological superstructure.

The political superstructure is the political and legal system established on a certain economic basis, and national machinery and political organizations such as the army, police, courtrooms, prisons, government departments, parties, and the organizations of social politics.

Ideological superstructure is social ideology with an economic basis including political ideology, law, moral, philosophy, and religion. Superstructure is a unification of ideology and political relationship in essence between people.

Legal system elements

The western capitalist society is a democratic political system, and the Chinese socialistic society is the people’s democratic political system. Both of them use laws to regulate civilians’ behavior in living consumption, social consumption, scientific research, and production consumption. The national constitution and the law system that takes the constitution as its parent law are established by the people’s congress in China and by the national congress in western countries. The national constitution and laws represent people’s benefits, and people’s rights are protected and restricted by them.

Section 2 National systematic and integral management functional factors

In national management law the nature and the scale of the national management determines the national management mode.

Consisting of management elements, national management is an overall management system, a comprehensive leading method of managing objects, purposes, methods, means and strategies, tactics, policy, law, and so on, and a systematic thinking method, so as to control the practical processes of the three important consumptions through:

• national political organizations, the country is organized and managed in and manage orderly, integral and organic way

• sovereignty of territory, territorial waters, and national airspace

• defense of people’s normal living, production, democratic power and morality, safety, stability of all social activities and the social harmony.

• tools, mechanism, facilities

• national superstructures

• development of the national economy to macro control the law of market economy (natural economy law of consumption)

• constitution, law, rules – the yardstick for people’s behavior and they regulate people’s behavior

• resource allocation

• social wealth allocation

• civil education and high scientific research education

• consumption of social security

• protection and construction of the human living environment

• national strategy, tactics, policy, and decision-making

• constituting and implementing national policies

• constructing harmonious society based on laws and social morality

• supervising and monitoring

• national diplomatic activities

• developing international trade.

Section 3 The comprehensive national power factor

Comprehensive national strength is spiritual power as well as the information system, and it is the evaluation standard between countries on an international level.

The general elements of comprehensive national strength include:

• national resources

• economic power

• cohesion of the people’s will

• level of productivity of consumption society

• military power

• level of social development and progress

• diplomatic power

• the integrated organic combination of the organization and the government’s ability to control.

Among these eight elements, the integrated organic combination of organization and control of the government system’s ability to control is the core, and no power can be brought into play without organization.

Section 4 Macro consumption, and social consumption and wealth distribution management

To ensure a relatively equitable allocation of the general national wealth there are seven requirements:

• to develop and create wealth to ensure the deserved consumption wealth of the nation

• to ensure the capital investment in national security and social stability consumption

• to ensure capital investment for development of social consumption wealth and revenue generation

• to ensure capital investment for the consumption of newly emerging forces that don’t create consumption wealth

• to ensure the consumption of those who have lost the ability to create consumption wealth because of old age, illness, or injury

• to ensure the minimum consumption level of the unemployed

• to ensure the minimum living consumption level because of laziness and the transformation of criminal groups.

The distribution and redistribution policy of national consumption wealth is made by the nation on behalf of the fundamental interests of all citizens, and, accordingly, national finance establishes revenue and expenditure budget plans and implements it. It is important:

• to manage national security consumption and judicial, social, and public security consumption

• to manage distribution principle and policy

• to manage whether the payment amount use decided by the fundamental policy is well funded

• to manage whether the beneficiary group receives the living consumption materials (or capital) it deserves

• to discuss the improvement, correction, and coordination of policy according to information feedback, and to establish and perfect a complete program

• to supervise and monitor systems.

Section 5 Living consumption-centered macro-market regulation and control under a state-led economy

The relationship between scientific research and production consumption of people’s living consumption and the scientific research and production consumption of social consumption

The scientific research and production consumption of people’s living consumption is fundamental. Food, clothing, shelter, and transportation are the most basic consumptions for people. During the development of people’s needs consumption for living, its own contradictions come into being – the natural contradiction of shortage of supply and over supply. Meanwhile, the contradiction between the development of social consumption (including people’s public living consumption and the consumption of the social superstructure itself) and the development of living consumption comes into being, because the development of people’s living consumption level cannot be separated from the development of the productivity of consumption society, and the development of the productivity of the consumption society should put the production consumption of the second industry in the primary position, which is the basis for the development of the productivity of the consumption society.

Only in this way can we make rapid development in the production consumption as the basis of people’s living consumption and social consumption, and meet the ever increasing needs of people’s living consumption and social consumption. The nation should implement macro control over market finance and the law of economy, in which the dominant economy takes living consumption as the center so as to exert the advantages of market finance and the natural law of economy and to avoid disadvantages at the same time.

Establish an information collection and research center at a nationwide, macro level for the three consumptions markets, to provide valuable and correct information to the national decision makers for reference

The information content (comprehensive information at home and abroad) should include:

• the proportional relationship between the categorized information and the information of scientific research and production investment and the consumption of living consumption

• the proportional relationship between high-grade living consumption for enjoyment and scientific research and production consumption as well as development forecast

• the current situation of R&D of new technologies and potential information

• combined information between basic scientific research and production

• technology property in the technical protection phase, expiration times, and market situation information

• the ratios between investment in scientific research and production consumption of the social basic industries, investment in scientific research and production consumption for social consumption, and investment in scientific research and production consumption for living consumption

• the current situation of the overall proportional relationship between direct living consumption and residential income; and the proportion between the investment in basic social construction and the investment in people’s living consumption and social consumption

• the proportion between the investment in basic social construction and the investment in basic raw materials of scientific research and production, and the effective rate to driven living consumption

• the proportion of import and export trade in the investment and production of three domestic important consumptions

• the categorized competition situation in the international market: demand situation on developed countries’ market; demand situation in developing countries; potential market hopes; strategies to enter the international market

• the configurable competition situation in the consumption resource market

• the development situation and future potential of high level of technology

• the market forecast of the supply–demand relations on the proportion between living consumption and scientific research and production consumption

• the market forecast of the supply–demand relations on the proportion between social consumption and scientific research and production consumption

• the balanced forecast on the improvement of people’s living consumption level and the consumption power of scientific research and production

• the forecast on the influences of the improvement of people’s living consumption level to social consumption

• the forecast on the living consumption influences of the excessive increase of national investment in scientific research and production consumption on the social consumption, and basic construction and production consumption to social consumption.

Guiding, controlling, and adjusting investment in production consumption from the macro perspective

Macro control and management instruments include:

• control by tax policy

• control of investment in production consumption by financial instruments

• control of investment in production consumption by administrative instruments

• control by resource distribution instruments

• market management and control

• legal management and control, for example, anti-monopoly laws.

Section 6 Macro consumption and financial management

During the time when monetary finance dominated commodity production, exchange, and consumption processes, the nation dominates and controls financial firms and market management, which is the bounden duty of the sovereign nations responsible for people’s living consumption rights and interests. During the process of joining together the three important consumptions of the world through the macro consumption chain, it is of great importance for countries in the world to combine together to manage the laws of world market finance and economy, which can guard against the serious harm of financial and economic crisis and promote the sound and rapid sustainable development of the world economy.

The national central bank and management of financial enterprises

The national central bank must strengthen the management of financial enterprises to play their roles, control financial enterprises, and implement absolute control over and absolute leadership of financial enterprises according to the following principles:

1. The state has the right to implement an absolute control of the leading national bank.

2. The state has the right to hold controlling shares in large security companies.

3. The state implements strict monitoring and regulation to operating enterprises in mutual fund, security, and warrant markets according to law.

4. The state monitors the operating conditions of all banks throughout the country and sets loan loss provisions standards for bank risks. When operating errors reach a certain poor standard, the right to operate will be rescinded and a designated bank which operates well will merge with it. The state will protect the depositors’ interests from harm and implement macro management of the three important consumptions by controlling the operating rights of financial enterprises by:

• managing economic operation through the supply amount of the monetary market

• adjusting the deposit amount of the depositors through interest rates

• stimulating market consumption through loans

• adjusting the investment direction of various trades and industries through loans

• implementing service to guide the investment direction of funds owned through a bank

• strengthening the management of financial instruments because the circulation of financial instruments instead of paper currency is directly related to the amount of money issued.

Financial enterprises

Banks carry out operations by special means and they are enterprises operating and managing through loans. The internal rule of the financial enterprise’s operation is the black box or black-box operation, which is a process of changing small and scattered golden eggs into big ones with deposits as the core and the safety of credit loans as the core of the benefits.

These are the levels of management in banks:

• The head office is the impersonal entity, the general operating and managing unit.

• The provincial sub branch is responsible for the leadership management of the bank’s lending and borrowing business.

• Municipal and regional subsidiary banks take responsibility for the detailed operation of the loan business.

• Branches in counties and districts (working offices) take charge of examining and approving specific operations of the loan business and the leadership and management of the deposit business.

• The savings agency is the specific unit for deposits and payments and is not in a position to release loans.

• Except for the function of managing the national economy, the operating purpose of the bank enterprise itself is to take profit from operating currency.

• The risk of operating lies in the possibility that loans once released may not be paid back, and thus be bad loans, and become the losses and deficits of the bank.

• The purpose of bank management is to ensure the need for the economic managerial function of the state, ensuring operating profit, avoiding operating losses from undesirable loans, avoiding waste and illegal violation in operations, and improving the bank’s working efficiency and operating efficiency of banks.

Black box operation

If A represents registered capital, B represents deposit taking, C represents loan releasing, D represents balance or surplus between debit and credit, E represents the negative:

A + B – C = D taking a deposit with a low interest, releasing loans with a high interest and taking profit from it.

A + B – C = E is called balance credit, which is a loan business in the form of payment promise or currency claim. Banks lend credit balance (amount of money above their own stock) and take the interest profit with no-cost payment interest.

To enhance the management purposes of the financial industry, in addition to the above-mentioned seven national macro-control effects, but also because of the non-transparency of bank operations with deep blackbox management, countries need to strengthen controls to prevent crisis, avoid jeopardizing the interests of depositors, and endangering social harmony and stability.

Consumption and stock market management

The stock market has a great impact on financial markets, and stock market management is responsible to shareholders:

1. Enterprise listings change the fixed capital and intangible capital of the assets not for circulation into capital commodities and push them out for exchange in the market. That changes the fixed and intangible assets of the enterprise into small stake commodities, and pushes them into a particular market and transaction as commodities.

2. Normally, when business efficiency and profit margins are announced in the market, the higher the profit margin the higher the profit amount, and the value of stocks will rise accordingly. It is the manifestation of the market value revaluation of the enterprise’s stock if stocks expand in a certain time, and the stock market value of the enterprise will decline or plunge when there is a loss or low profit in operational efficiency.

3. Enterprise equities are commodities of quantified enterprise capital (including fixed, liquid, and intangible capital) and the price in the transaction process is also affected by supply–demand relations.

4. The stock price is also affected by supply–demand relations in the international trade industry, as well as the impact of important events related to listed enterprises.

5. Enterprise capital changes into a tradable commodity through being listed on the stock market and then transacts on the stock market freely. There are business companies and individuals involved in the stock market trading business, trading freely. During the operating process, there are general shareholders who purchase shares to make investment based on the promising results of a business for the purpose of taking the enterprise’s profit revenues.

To sum up, you can draw the following conclusions:

1. The stock market is a special financial market.

2. The stock market is the operating market for buying and selling capital. The core of the ups and downs of stock prices is the enterprise’s operational efficiency, and normally the stock prices of the stock market fluctuate with the operational efficiencies of the enterprises as the core gauge, which can reflect economic development.

3. Now that the stock market is the commodity market and is directly affected by business-benefit ratio and profit amount, the stocks of the capital commodity are influenced by the supply–demand relations.

4. The ups and downs of the market price of the capital stock are affected by supply–demand relations and by the hype influences of securities companies operating stocks, so the country should manage stock and commodity transactions of capital strictly.

5. The capital stock of private enterprise coming on the market is a manifestation of progress.

6. It is also progress for the state-owned capital enterprises listed on the capital stock market.

7. The nation should implement scientific regulation of the stock market, the special trading market.

The need to strengthen financial management

Financial management must be strengthened:

• to prevent and reduce the impact of international financial crisis on domestic economic development ensuring that the living consumption of domestic consumers is relatively stable

• to ensure the country’s money is stable, thereby enhancing the financial credibility of currency in the process of international trade

• regulate supply–demand relations between domestic consumers and consumption commodity and regulate the export trade according to the domestic needs of consumption to ensure that the demand of domestic consumers is relatively balanced, which is helpful to the stability of prices

• to balance international payments and increase foreign exchange reserves (including gold and silver) to promote economic development in China.

It can be strengthened through foreign exchange controls and foreign exchange flows systematically, which can increase the country’s foreign exchange earnings and reserves. The country must have sufficient foreign exchange earnings, and procurement capacity in international trade thus increases.

Relatively adaptable financial control protects the capital investment security of the nation and prevents losses from major fluctuations of the stock and securities value. Use foreign exchange controls, encourage exports and limit imports, and adjust employment opportunities.

Section 7 Social security consumption and management

The government manages state affairs according to law. Legal boundaries are clearly defined for all behaviors of the nation, and going beyond the boundaries will be illegal or criminal. There is a strict limit between breaking the law and committing a crime. Breaking the law is not equal to committing a crime, but criminals break the law.

Management functions at all levels of public security systems: the courts, the military and other government institutions belong to the state machinery and superstructure, and all laws and regulations of the superstructure belong to the category of the social constitution. All of their spending belongs to social consumption costs. How to achieve the best result for the security of society with minimum consumption is the purpose of management. Comprehensive security management should be strengthened through professional law enforcement agencies, grassroots organizations of state power, and people combining to implement ‘network security’; by adding legal education courses from primary school to university; and by implementing a thorough social security system review to reduce the cost of social security.

Section 8 State security consumption and management

The purpose of a nation’s security consumption is to protect the territorial integrity of the country and prevent a split, protect the consumption resources of national territory from another country’s invasion and occupation, and protect national consumption wealth from another country’s plundering, which is in the supreme interest of all citizens: the national interest comes first. Therefore, it is not only the country’s affairs, but also the citizens’ responsibility to strengthen the construction of modern national defense and strengthen national military education and training.

The overall consumption of national defense construction and national security is national security consumption. The construction of modern national defense must be supported by advanced technology and strong economic power. If the nation’s productivity of consumption society falls behind because it has an underdeveloped economy, then a strong national defense force would not be established, and the nation would be bullied.

The management of a country’s security consumption investment is to use limited national defense spending on national security to improve the military’s fighting capacity to the largest extent; this is the purpose of a nation’s security consumption, which is extremely important:

• to ensure the scientific nature of the investment in national security consumption so as match war needs

• to advance the investment process

• to ensure the effectiveness of combat strength in the investment process.

The country must advance the kind and quality of weapons through reducing waste and frugal consumption because the excellent quality of a weapon is a soldier’s life.

The country should annually examine national security consumption and effectively enhance national defense power; improve the fighting force and the quality of its weapons; and avoid unnecessary consumption. Corruption and military expenditure waste are serious crimes committed against the nation and people’s life.

Section 9 State consumption and management

Reform national bureaucracy to cut consumption to reduce the country’s financial support for the population to reduce the nation’s own consumption.

It is very difficult to simplify and restructure a government. The success of such reforms lies in the top leadership’s determination and methods, and strategies and policies to carry out the reform. The broad public servants are the key to support understanding, policy, strategy, and method art.

Staff increases in national government and increases in consumable costs do not equal an overall increase in the productivity of the consumption society. The bureaucracy and corruption resulting from consumption costs do not have a positive impact on the development of the productivity of consumption society, but hinder it. Therefore it is necessary to decline financial payment for the nation’s own consumption.

It is necessary to carry out a hypothetical model analysis of a nation’s consumption management.

Section 10 Consumption and employment

It is important for society to solve the re-employment problem as the result of labor saving following advanced productivity of a consumption society. The following methods can be adopted:

• Develop tertiary industry and develop labor intensive industries with fine processing of commodities (with policy support).

• Develop small and medium enterprises on tight profit margins.

• Develop urbanization of small cities and towns, agricultural products and commodity processing and modernization, service industry and modernization, to absorb the surplus agricultural labor force.

• Develop production consumption in the fruit processing industry, in livestock breeding and aquaculture.

• Encourage individual entrepreneurship.

• Support the production consumption in labor intensive industries with fine export processing.

• Develop production consumption in exporting productions and develop general living consumption and high-tech industrial consumption, and so on.

• Support and develop the quality training for the surplus labor force. The key is to adjust the development of enterprises and individual entrepreneurships based on finance, taxes, administrative policies, and services so as to increase the employment rate.

Section 11 Education, scientific research consumption, and management

National education and scientific research are the driving forces to enhance comprehensive national quality and improve comprehensive national productivity of consumption society. This can be done by strengthening the management of education and research funding, curriculum design, and guiding ideology at all levels of education.

The guiding ideology of education is to cultivate patriotic workers with knowledge and self-esteem. National public servants should incessantly improve their practical experience and ability. We must select talents, train them, and make them become mature. We cannot simply select public servants from students without practical experience.

These are the ways and means of education:

• Strengthen patriotic education and social morality education from primary school. Strengthen physical training and geographic and fundamental knowledge.

• Strengthen philosophy and natural science education from junior high school, but the guiding ideology should be carried out from beginning to end during education and scientific research. Patriotic education and social morality education should be carried out from primary education to higher education.

• If higher education is not combined with scientific research, it is a kind deception and crime committed against the nation and people. Scientific research must be closely combined with university education. Strictly forbid investing in image projects, while the already-funded project should be converted into a science lab.

• higher education and scientific research; the professor should lead students to practice in firms. If professors of technology are not engaged in scientific research and lead students to conduct scientific research in the lab, their title of professor should be removed.

Reform the entrance examination method gradually, and we may refer to the educational mode of western developed countries, especially the credit system for graduation adopted by universities.

For education and scientific research consumption and management, a systematic and integrated scientific management should be implemented:

• Save funds to prevent wasteful expenditure.

• Ensure there is education and scientific research spending to achieve program objectives.

• Ensure the quality of teachers improves and clearly define and classify areas and disciplines for financial expenditure.

• Ensure the university is governed by a headmaster with relevant professional knowledge, to release control on one hand, and to strengthen evaluation on the other, to ensure that advanced talents and scientific research results boost the rapid development and progress of materialistic productivity.

Section 12 Consumption import and export trade management

International trade is the concentrated expression of economy and politics, and a concentrated expression of economic and political relations between a country and another nation or multi-nations. The commodity exchange in international trade is consumption. If there is no consumption demand, there is no trade. It is consumption that affects the commodity exchange and development of commodity channels. There are three differences between international trade and domestic trade:

1. Expanding trade opportunities. These are the main benefits of international trade. If we do not open up international trade, some countries and regions cannot have balanced development in living consumption, and materials and mental culture consumption because of differences in climate and resources, technology differences in scientific research and production consumption, and differences in culture and civilization.

2. The existence of sovereign states. Cross-border trade involves the citizens and manufacturers of different countries. Each country is a sovereign entity and carries out management control of the crossborder population, commodities, and capital flows, which is different from domestic trade.

3. Exchange rate. Every country has its own currency, and in trade transactions both parties need to establish a common international currency as the ruler of commodity exchange value – the exchange rate.

International trade

These are some factors relating to international trade:

1. Diversity of natural resources. Differences in consumption resources of various countries and differences in production conditions make it possible to trade among countries, which means the three important consumptions between countries need to complement each other.

2. Lifestyle preferences and consumption differences. Even if all the country’s consumption resources and production conditions are the same, if the commodity consumption habits and preferences differ among countries, then there is a need to trade in commodities among countries.

3. Cost differences.

4. ‘Comparative advantage theory’ held by Ricardo. In 1810, British economist David Ricardo revealed ‘the principle of comparative advantage’ – that the international division of labor was favorable to one nation. Ricardo proved that if both parties involved in any trade specialize in the production of commodities with comparative advantage, both would benefit from it. Under the condition of free trade, each nation shifts its production to the field with comparative advantage. Meanwhile, underdeveloped countries enhance their economic development through learning advanced technology from developed countries. The problem of overproduction is solved for developed countries that have discovered a new consumption market. To gain more comparative benefits, developed countries invest in the underdeveloped ones to make use of the power of cheap labor in the latter.

5. Comparative advantage. A surprising conclusion may be drawn that small countries benefit more from world trade. They can trade at a world market price much different from their domestic prices, because of their small influence on the world market price. This is why small nations benefit a lot from world trade, while big powers cannot benefit as much as they expected.

6. Equilibrium price ratio. Once trade is initiated, the world market must form a price system according to the needs of consumption and the supply in the market. The price ratio cannot be determined without further information. However, the intervals of the location of the prices can be settled. The prices are certain to be between those of the two countries. The specific ratio depends on the needs of consumption, in that consumption determines everything.

7. Multi-commodities. When two nations or regions produce a wide range of commodity at a constant cost, these commodities can be put in order according to the comparative advantage or cost.

8. Triangle and multilateral trades. It is beneficial to participate in triangle or multilateral trades where many countries are involved, because bilateral trades are generally unbalanced

9. Trade protectionism. Ever since Adam Smith, economists have held different views on trade protection. They argue that trades can facilitate the international labor division which is favorable to every country. Free and open trade can make it possible for each nation to increase its production and consumption, so living standards all over the world can be advanced. Nevertheless, trade protectionism gets in the way of comparative advantages.

Analysis of demand–supply relations of the trade and tariff

A tariff can raise commodity prices, reduce consumption and imports, and enhance domestic production. The impact of a quota is the same as that of a tariff in nature. A prohibitive quota (prohibiting all imports) is equivalent to a prohibitive tariff.

Though there is no fundamental distinction between tariff and quota, subtle differences exist. Tariffs can raise public revenues or make it possible to reduce some other taxes, which can make up for the losses that consumers of importing countries suffer. However, profits made through price variance resulting from the quota go to importers or exporters who are lucky enough to get the import permit.

Tariffs result in economic inefficiency. The economic losses of consumers surpass the total of the public revenues and the extra profits the manufacturers make in the process of imposing tariffs.

Tariff collection can:

• encourage domestic production of low efficiency

• raise prices so consumers’ purchasing taxed commodities is not efficient

• increase public revenues.

The first two add to economic costs because they are inefficient.

Under the guidance of Ricardo’s comparative advantage theory, free trade benefits consumers of the trading countries. Then why does every country want to set up international trade barriers? Economic theorists put forward these reasons for economic protection:

• the non-economic view – to sacrifice some economic welfare to support other aims of the country

• misunderstanding economic logic

• Analyses based on market power (the consumption attracting power of consumers) or the faultiness of the macro economy.

Be aware of the ‘millennium round’ of Seattle

The Seattle meeting may just be regarded as a respite on the long way to market access, but the Seattle meeting could become a turning point in ten years or so. It symbolized the termination of open policy market strategy in most countries. Some nations will set up new trade barriers, especially in the fields (such as financial services and e-business) where international laws are not established.

Develop market free trade and management

There are many elements affecting free world trade. In the process of consumer commodity exchange in the import and export trades between different countries and regions all over the world, it is inevitable to carry out trade management protection in the form of tariff policy.

Establish and follow the management of the legal system that is relatively fair in international trade. Each nation should fully understand the trade law of comparative advantage.

Section 13 Social security consumption and management

The establishment and development of the consumption security system in the world

Nowadays, only a few nations have established a social security system. Before October 1, 1949, there was no social security system at all in China. After the founding of the People’s Republic of China on October 1, 1949, national social security systems such as a retirement pension for workers, free medical care, immunoprophylaxis, and so on were gradually set up.

Consumption status quo of Chinese social security

The relationship between the development of the population and the beneficiaries of social security

Table 14.1 shows the life expectancy of some countries in 1997 and in China from 1940 to 2005.

Table 14.1

Life expectancy in some countries in 1997 and in China in 1940 to 2005

Country Year Life expectancy (years)
Australia 1997 78 and above
Canada 1997 78
France 1997 78 and above
Greece 1997 78
Israel 1997 78
Italy 1997 78
Japan 1997 66–79
Singapore 1997 78
Spain 1997 78
United States 1997 72
China 1940 35
China 1950 49
China 1980 70
China 2005 72

Population development and periodic law of social security in China

Most of the current beneficiaries of Chinese social security were born around 1940, and their baby boom was around 1963. Their children will retire in around 2023, which is the second peak of Chinese social security. The baby boom for those born in 1963 was around 1989. The third peak of Chinese social security is around 2050 for those born in 1989. The third retirement peak is around 2075.

The status quo of social security after 2000 in China

All those born around 1940 required social security period from around 2000, the first peak of social security in China since the establishment of the People’s Republic of China. There is no doubt that the large population of the old and aged constitutes a heavy burden to families and society. Social pressure increases daily because for some time, although there was a retirement system, a social security fund was not deposited into special accounts in advance to increase in value to ensure the fund’s use in the future. More often than not the social guarantee fund is collected from current production consumption and working expenses to be a guaranteed pension for current retirees, which increases current financial pressure.

There is much public debate over the most effective way to prevent a funding crisis. Two main solutions have been put forward: reform the current system or establish a new total accumulation system based on private personal accounts. Both ways have substantial support, but no decisions have yet been made.

Source of the social security fund and the management of consumer payments

Sources and direction of the national guarantee fund

Health care expenditure in the United States reached US$1.4 trillion in 2001, taking up 14.1% of the GDP. National health care expenditure is spent mainly on in-patient care (33%), doctor service (23%), prescription medications (10%) and home nursing (7%). The rest of the fund is spent on other personal health care services.

Since 1965 when Medicare for the old was initiated, the government has played a more and more important role in health-care financing, from 25% up to nearly 41% in 1990 and still soaring. In 2001, the government provided 45% of health-care expenses in the United States.

Sources of the social security fund and management of the consumer payment

In the days of China’s planned economy, the retirement fund for national public servants and workers and staff in corporations, medical care, and immunity funds all came from state revenues (including the housing fund). After the establishment of the market economy under the guidance of macro control, tax (retirement tax, health care tax, housing fund tax and so on) accounts, grant-in-aid, and insurance are all used in medical care. Part of personal social security is covered by social insurance. Fiscal revenue covers all the personal social security of well-to-do villagers in the countryside. Part of the third kind of funds (retirement, health care, and housing) is covered by the local group, part by personal funds, and part by children and other revenues. Public subsidies cover part of it. Cooperative medical service is fully implemented in the countryside in China. A certain amount of money is granted to each peasant as a medical guarantee from the central government.

Consumption and management of social security

In countries with backward education, children begin to participate in whatever labor they are capable of around 13 years old and create consumption wealth. In most countries, especially in developed countries and some developing countries, children at the ages of 10 to 18 are in the consuming period of receiving an education. In those countries, those at the ages of around 18 to 24 also belong to the consumer group by taking advanced education. In those underdeveloped countries and regions, there are still small parts of people in the same age group receiving advanced education. For the manual workers who receive little education, the best working time is from the age of 13 when they participate in whatever labor they are capable of to the prime working age of 52, which is also the best working period to create social consumption wealth. On the other hand, the best working time for those who mainly do mental work with supplementary manual labor increases by five years (to receive higher education) to the age of 57, and generally can extend to the ages of 62–65. Generally speaking, after the age of 52, it is unsuitable for manual workers to do any heavy physical labor. Light physical labor can still be undertaken by those aged 57–62. It is stipulated in Chinese labor law that one should retire at the age of 60; the retirement age in the United States is 65.

The life cycle of consumption

The round rule figure of life cycle consumption and consumption creation by humans is shown in Figure 14.1.

Figure 14.1 The life cycle of consumption and consumption creation for humans

Since we have known that the time for pure consumption wealth constitutes 40% of a human’s life time, while the time for creating consumption wealth (consumption at the same time) takes up 60 %, we should act as shown in Figure 14.1.

1. The nation adopts economic levers such as tax collection to accumulate funds so as to ensure the consumption of those who are either too young or too old to create consumption wealth.

2. Those who are capable of creating wealth with a relatively high income should accumulate funds for their later years and the education of children. The country and individuals should share the responsibility for social security.

Consumption of the social consumption wealth for the disabled

This can be done in the following ways:

1. Work hard to achieve prepotency. Prenatal examination must be undertaken to prevent the birth of a disabled fetus.

2. Increase social security and free care for infants and children, as far as an epidemic prevention system is concerned. Whatever hardship the economy may go through, the cost should be met to prevent disabilities.

3. Reinforce the management of the physically and mentally impaired, so as to reduce the number of people with non-disease disabilites.

Section 14 Consumption and resource allocation management

Protect, manage, and exploit natural resources

A nation’s natural resources are non-renewable, so the following actions are required:

• Prohibit short-run exploitation of natural underground minerals.

• Reduce wasting of resources and make comprehensive use of the resources as much as possible.

• Protect and foster resources.

• Use and management should be carried out for the development of seaports, and the protection and utility of running waters, out of consideration for the comprehensive overall configuration to avoid waste.

• The principle of saving and giving full play to the productivity of consumption society should be followed in the exploitation of all the other natural resources.

• Research, develop, and create new resources for consuming.

There should be mutual beneficial configuration and development of the management of domestic and overseas consuming resources. All human beings and nationalities of every country live in a certain place defined by legal boundaries, with the three important developing consumptions. All nations should develop the resources reasonably and mutually on the basis of mutual benefits.

Configuration and management of intellectual resources

Intellectual resources are mainly the protection, configuration, and management of intellects and scientific knowledge and technology (including intangible assets such as patents, brands, and so on). The advanced productivity of intellects and advanced science and technology, which is the motive power for the development of human civilization, is the most important element in creating consumer social wealth. The golden key to develop the three important consumptions is to develop education and scientific research, introduce intellect and technology to each other with proper care given to the talented persons, and protect, manage, and rationally allocate intellectual and technological resources.

Configuration and management of capital consuming resources

The government should carry out the configuration and management of capital consuming resources from the standpoint of the regulation of macro consumption. Under the guidance of national overall systematic management, let companies, trades and professions develop independently with all their strength instead of exploiting and developing companies in every field of work.

Section 15 Consumption and population management

The development of the three important consumptions is always closely interrelated with population growth, the needs of living consumption, and people’s increasing material, spiritual, and cultural needs. Without the needs of consumption, there would be no motive for the three important consumptions. Excessive growth of the population sets back the development of the three important consumptions.

Historical development of the human population

The population has been slow to develop in history. There have been humans for several thousand years. Until 1950 the world population was 2.486 billion, and the total output of grain was 689 million tons. It resulted from the extreme backwardness of the productivity of the consumption society and the exploitative private-ownership system.

Ever since the middle of the 20th century, especially after World War II, the three important consumptions and the world population have developed rapidly. The world population increased from 2.486 billion in 1950 to 5.8 billion in 1997. In about 50 years population growth surpassed the total of the population of several thousand years of human history. The grain output increased to 2.096 billion tons with a net increase of 1.407 billion tons compared with the output of 1950.

Consumption and population management in China

Table 14.2 shows how gross national income, population, and annual grain and meat outputs have risen between 1946 and 1997.

Table 14.2

Rise in gross national income, population, and annual grain and meat outputs in China, 1946–1997

The rapid population growth in China results from the superiority of the social system and the liberation and development of the productivity of a consumption society.

Population growth of the developed countries and developing countries

This is a summary of the population growth of some developed and developing countries:

1. Population in Britain. The preliminary data collected by the British statistics department show that the population was 60.21 million in Britain at the end of June 2005 following the wave of Eastern European immigrants. It was the first time that the population had surpassed 60 million in official estimates. The growth rate of the British population was at its highest level since the 1960s.

2. Population in Germany. The Wiesbaden Federal Statistical Office in Germany showed that the population of eastern Germany will go on decreasing: it is expected there will be 12 million there in 2020, while in 2001 the population was 13.7 million. The statistics department states that this reduction in population is due to emigration and a higher death rate than birth rate. It is expected that until 2020, the younger population of eastern Germany will decrease by 28%, twice that of western Germany.

3. The population in Europe has declined sharply, which is a time bomb threatening economic development. The European Commission is concerned about the decreasing population in European countries. The decline of abor forces and the aging population problem can hinder the economic development of European countries.

4. An aging population creates a burden on economic development. With the decreasing of the birth rate and the continuous extension of people’s lifespan thanks to medical development, the aging population undoubtedly brings about a certain pressure on the social economic development. Nowadays, the ratio of the active labor force to the pensioners is 100:35. However, if this tendency goes unchecked, the ratio will reach 100:75 around 2050. The pensions in Germany, France and Italy all come from taxes. As a result, national taxation will increase as the population of pension holders soars. Though the problem hasn’t caused conflicts in society, it will turn from bad to worse as time goes by.

5. Constant negative growth of Japanese population. In 2005, the Japanese population saw negative growth for the first time. The declining birth rate and the increasing rate of aging have induced a series of social problems. Many people expressed concern that labor force reduction could lead to revenue deficiency and society couldn’t bear the burden of the increasing aging population. Some analysis points out that the decline of the Japanese population is directly related to the decreasing birth rate. Problems such as late marriage, high housing and education costs are the main causes of the Japanese women not wanting to bear children. What Japan should really do now is to pay close attention to the wellbeing of the people, establish good-neighborly relationships, promote economic prosperity, and achieve peaceful development.

Growth and management of the world population

The United States

The US population grows at a high rate that is extraordinary in developed countries and holds the third place in world population after China and India.

American population growth owes much to the country’s immigrants. In recent years, the American population is increasing mainly because of the increase of immigrant population and their offspring.

The United States allows well-educated and highly qualified immigrants to enter the country, so college students in other countries, especially developing countries, can become qualified US immigrants with no cost to the USA. This increases the international competitiveness of the United States.

Spain

Among western European countries, Spain is one of the countries in which childbirth is encouraged. If a married couple gives birth to a child, the government grants a subsidy of €300 (about 3,000 Yuan). The more children a couple has, the more subsidies they get.

Japan

Japan is one of the few eastern countries that encourage childbirth. Since 2006, the Japanese population has decreased, one year earlier than was expected. This is because the costs of raising and educating a child are very high. Support payments include the human-capital investment in the child and losses the mother experiences in raising a child at the expense of sacrificing her job. The Japanese government made an ineffectual effort to promote childbirth.

Russia

Couples of child-bearing age are taxed for not giving birth in Russia. For historical and economic reasons, the Russian population grows slowly, with even negative growth occurring in recent years. For many years, the Russian government has taken various measures to promote childbirth. Recently, some people in Russia have suggested that couples of childbearing age who deliberately have no children should be fined or pay taxes.

India

Influenced by religion and traditional customs, the phenomena of early marriage, multiple births, and even child marriage are very popular in India. Family planning is thus difficult to implement, especially in remote areas and countries. In recent years, more and more people from all walks of life have realized that the unlimited increase of the population has seriously hindered India’s economic development and social advancement. The call for the government to take effective measures to restrict population growth is increasing.

China

According to its own national conditions, China has adopted family planning as a national policy. It turns out that the implementation of the policy is correct. Research reports show that the large number of people that China does not need to support from 1971 to 1998 as a result of the country’s family planning policy has saved 6.4 trillion Yuan as the potential upbringing cost for families, and 1 trillion Yuan for the country.

Thus the pace of population growth is directly related to the development of the productivity of consumption society, the three important consumptions, the wealth distribution policy of the social system, and fertility awareness. Its relation with nature is a unity of opposites. It is an inexorable law that humans and nature should be coordinated with each other and develop in a harmonious way, or humans will be punished by nature.