THE DUALITY OF ECONOMY THE DUALITY OF ECONOMY CLOSED AND TRANSIT STRUCTURES CLOSED AND TRANSIT STRUCTURES

Valerian Popkov, Andrey Baturin Valerian Popkov, Andrey Baturin

International Alexander Bogdanov Instinute, International Alexander Bogdanov Instinute, Yekateriburg, Russia Yekateriburg, Russia

www.bogdinst.ruwww.bogdinst.ru

Closed structures – is a “blind Closed structures – is a “blind spot” of economic theoryspot” of economic theory

input-output –paradigm:input-output –paradigm: enterprises appear in these models in the form of enterprises appear in these models in the form of “black boxes”, converting inputs into outputs “black boxes”, converting inputs into outputs

These “black boxes” compete with each other for the access to limited 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 resources and the main argument in this struggle being the value of added cost they may provide. cost they may provide.

it results in chains of enterprises and production programs, providing the it results in chains of enterprises and production programs, providing the highest possible result within the «input-output» system under specified highest possible result within the «input-output» system under specified limits on initial resources.limits on initial resources.

The only thing they couldn’t do is to consume goods they produce The only thing they couldn’t do is to consume goods they produce themselves, even if such consumption were mediated by closed supply themselves, even if such consumption were mediated by closed supply chains. The optimal program of input-output model eliminated such cycleschains. The optimal program of input-output model eliminated such cycles

closed structures were left unconsidered, as irrational, non-economic ones. closed structures were left unconsidered, as irrational, non-economic ones. And this is not surprising, because they broke the fundamental philosophy And this is not surprising, because they broke the fundamental philosophy of commodity production.of commodity production.

Along with the closed structures any unproductive consumption as such Along with the closed structures any unproductive consumption as such was left out of considerationwas left out of consideration

For example, if rural population of an agrarian country eats a part of bread For example, if rural population of an agrarian country eats a part of bread it produces, this part is automatically omitted from the model.it produces, this part is automatically omitted from the model.

The phenomenon of domestic The phenomenon of domestic marketsmarkets

As far as they consume what they produce, it seems there is no As far as they consume what they produce, it seems there is no sense in searching any complex structures in domestic market sense in searching any complex structures in domestic market environment; isolation of domestic markets and their withdrawal environment; isolation of domestic markets and their withdrawal considered no more than an atavismconsidered no more than an atavism

there appeared a myth, that if power obstacles are removed and there appeared a myth, that if power obstacles are removed and transaction expenses are reduced, no one economic structure transaction expenses are reduced, no one economic structure would be able to exist long enough “against the market”would be able to exist long enough “against the market”

Meanwhile, domestic markets do not “disperse”, more than that, Meanwhile, domestic markets do not “disperse”, more than that, they multiplythey multiply

Reforms of Eastern Europe became a vivid illustration of this back Reforms of Eastern Europe became a vivid illustration of this back side of the marketside of the market

Half-closed production chains with their alternative surrogate Half-closed production chains with their alternative surrogate “money” kept on functioning in the depth of post-planned “money” kept on functioning in the depth of post-planned domestic economies of the former socialist countriesdomestic economies of the former socialist countries

Cyclic structures, “ring causality” underlie most synergy models, Cyclic structures, “ring causality” underlie most synergy models, since they naturally generate the so called “aggravation mode”since they naturally generate the so called “aggravation mode”

Cyclic and transit production structuresCyclic and transit production structuresLet’s take an arbitrary enterprise network. This may be a global, national, Let’s take an arbitrary enterprise network. This may be a global, national,

regional economy, a regional production complexregional economy, a regional production complexAny simple network analysis would reveal in this network some set of cycles Any simple network analysis would reveal in this network some set of cycles

and openand open (or transit) flows(or transit) flows

Open enterprise network is Open enterprise network is a “black box”, transforming a “black box”, transforming one set of products one set of products (resources) into another set, (resources) into another set, in accordance with in accordance with discharge coefficient – a discharge coefficient – a classical character of all classical character of all balance modelsbalance models

The only goal of such The only goal of such “transit” production “transit” production structures is acquisition of structures is acquisition of added cost, the difference added cost, the difference between input and output between input and output (unit) prices. (unit) prices.

But cyclic processes are But cyclic processes are absolutely different: the absolutely different: the closed flow means, that closed flow means, that there is no sense in there is no sense in comparing expenses and comparing expenses and production results in its production results in its every link – expenses and every link – expenses and results, inputs and outputs results, inputs and outputs are mutually cancelled in are mutually cancelled in final units, the cycle final units, the cycle contains no added cost, the contains no added cost, the balance is zero (that is why balance is zero (that is why balance models have no balance models have no cycles)cycles)

And it will remain zero And it will remain zero independently of market independently of market price conditionsprice conditions

The balance and balance-network The balance and balance-network models models

The balance model doesThe balance model does not examine the closed not examine the closed (cyclic) structures and uses open (transit) (cyclic) structures and uses open (transit) structures onlystructures only

The balance-network model not only considersThe balance-network model not only considers cyclic structurescyclic structures, , but allows to find conditionsbut allows to find conditions of of cycle existence and calculate their influence on cycle existence and calculate their influence on the transit processesthe transit processes

Divergent and convergent Divergent and convergent processes in economyprocesses in economy

The global closing of economic processes can be carried on only The global closing of economic processes can be carried on only thought overcoming of powerful and universal processes of their thought overcoming of powerful and universal processes of their opening. A spring, working for the opening of closed life support opening. A spring, working for the opening of closed life support systems, is set into the very foundation of modern economy, and systems, is set into the very foundation of modern economy, and this spring is nothing else than marketability of economythis spring is nothing else than marketability of economy

We would call this group of processes “commodity divergence” in We would call this group of processes “commodity divergence” in economy, on the analogy of the concept of divergence in physicseconomy, on the analogy of the concept of divergence in physics

Where in economy does convergence spring wings up? The Where in economy does convergence spring wings up? The answer is obvious – in those structures, where marketability answer is obvious – in those structures, where marketability eliminates, and a particular need comes to the foreground. We eliminates, and a particular need comes to the foreground. We believe such structures are either cyclic or closed onesbelieve such structures are either cyclic or closed ones

However, convergent processes in economy still have to get an However, convergent processes in economy still have to get an adequate institutional equipment, not to mention the theoretical adequate institutional equipment, not to mention the theoretical reasoning. Because cyclic processes and cyclic structures in reasoning. Because cyclic processes and cyclic structures in economy differ from transit ones in no smaller degree, that an economy differ from transit ones in no smaller degree, that an atmosphere cyclone differs from an anticycloneatmosphere cyclone differs from an anticyclone

Goods and servicesGoods and services Classical political economy, from A.Smith to K.Marx, use to Classical political economy, from A.Smith to K.Marx, use to

consider services “noneconomic” welfare, “nonproductive” consider services “noneconomic” welfare, “nonproductive” labourlabour

Modern analysts of service industries keep on consider the Modern analysts of service industries keep on consider the service to be a variety of goods (“goods – services”), whose service to be a variety of goods (“goods – services”), whose distinctive feature is “direct connection, interactive distinctive feature is “direct connection, interactive relations between the producer and the consumer”relations between the producer and the consumer”

The service is creation of object conditions, necessary for The service is creation of object conditions, necessary for successive activities of the clientsuccessive activities of the client

the service participates in the following consumption the service participates in the following consumption circuit: Activity – Product - Activity (A–P-A) circuit: Activity – Product - Activity (A–P-A)

While the production follow the sequence: Product – Activity While the production follow the sequence: Product – Activity – Product (P-A-P)– Product (P-A-P)

If in P-A-P sequence If in P-A-P sequence activityactivity may represent a “black box” may represent a “black box” and participate in balance modelsand participate in balance models

In A-P-A sequence a In A-P-A sequence a productproduct becomes a “black box” becomes a “black box”

As for the two interacting activities, they interact as “white” As for the two interacting activities, they interact as “white” boxes, initiating a shift of the partner’s internal parameters. boxes, initiating a shift of the partner’s internal parameters.

Excursus into topology of Excursus into topology of comprehensive wholescomprehensive wholes

A usual system is a bound aggregate of partsA usual system is a bound aggregate of parts while a wholeness is invariant to a certain degree, relatively while a wholeness is invariant to a certain degree, relatively

to partitionto partition Such property is characteristic of network models Such property is characteristic of network models

(generally, topological models), where enterprises do not (generally, topological models), where enterprises do not work singly, unlike well-known balance models, but join in work singly, unlike well-known balance models, but join in chains, and each individual business system represents an chains, and each individual business system represents an aggregate of such chainsaggregate of such chains

Allocation of independent chains in the network may be Allocation of independent chains in the network may be done in different ways, but the number of closed chains done in different ways, but the number of closed chains (cycles) in such partitions would keep permanent (cycles) in such partitions would keep permanent

It is cycles that represent the topological invariant of a It is cycles that represent the topological invariant of a comprehensive whole, - a characteristic number of cycles comprehensive whole, - a characteristic number of cycles remains within the comprehensive whole, despite its any remains within the comprehensive whole, despite its any deformation, aggregation, developmentdeformation, aggregation, development

Chains and CyclesChains and Cycles The comprehensive whole, as well as any other one, is made up of The comprehensive whole, as well as any other one, is made up of

processes, adjoining each other, of chains of such processes. processes, adjoining each other, of chains of such processes. Process chains form chain complexes, which are systematically Process chains form chain complexes, which are systematically analyzed by topologyanalyzed by topology

A special attention topology pays to closed chains, or cycles. The A special attention topology pays to closed chains, or cycles. The cycles, as opposed to opened chains, are able to feed themselves, cycles, as opposed to opened chains, are able to feed themselves, and therefore may exist relatively autonomously and stably. Thus, and therefore may exist relatively autonomously and stably. Thus, if there were no circulation of raw materials, power and money if there were no circulation of raw materials, power and money resources in gross production, no production would exist, - it resources in gross production, no production would exist, - it would become a single-shot phenomenonwould become a single-shot phenomenon

The algebraic topology (a hundred years ago such construction The algebraic topology (a hundred years ago such construction arose in the works by Henry Pointcare), distinguishes not only arose in the works by Henry Pointcare), distinguishes not only structures, but most important parameters of processes, taking structures, but most important parameters of processes, taking place within those structures. Here is meant a systematic place within those structures. Here is meant a systematic distinguishing of contravariant and covariant substances or flows distinguishing of contravariant and covariant substances or flows and potentialsand potentials..

ProcessesProcesses The unity in duality The unity in duality

FlowsFlows- are balanced in the are balanced in the

node node - (The law of (The law of

conservation mass) conservation mass)

PotentialsPotentialsof of adjadjaacent cent nodes nodes

are balanced on are balanced on

the branchesthe branches

(i1 – i2)

i2i1

(e1 – e2)

e2e1

Flows and PotentialsFlows and Potentials Generally, the Generally, the flowsflows

balance on structural balance on structural elements of lower elements of lower dimension, on their dimension, on their lower boundarieslower boundaries

The flow is The flow is characterized by some characterized by some variant of the principle variant of the principle of conservation of of conservation of mass, substance, mass, substance, volume, quantity – it is volume, quantity – it is an external motion an external motion (visible parameter) in (visible parameter) in general.general.

PotentialsPotentials, on the , on the contrary, spread to contrary, spread to their upper boundaries their upper boundaries and balance thereand balance there

This is how stress, This is how stress, force, pressure force, pressure distribute, how need is distribute, how need is produced, how produced, how subjectivity (invisible subjectivity (invisible or hidden parameter) or hidden parameter) is shown in general. is shown in general.

The world is a multi-dimensional The world is a multi-dimensional

processprocess It’s consisting of local processes, adjoining one It’s consisting of local processes, adjoining one

anotheranother for examplefor example – a river has 3-dimensions– a river has 3-dimensions a pilot of a plane see it as 2-dimensional water a pilot of a plane see it as 2-dimensional water

ribbonribbon a hydrograph examines one as 2-dimensional a hydrograph examines one as 2-dimensional

bottom topographybottom topography The top and the bottom meet, making up a costal The top and the bottom meet, making up a costal

line (1-demensional)line (1-demensional) there are also fish resourcesthere are also fish resources, , birds and animals birds and animals

populations in the highpopulations in the high--water bedwater bed There are also the goods and financial flows, There are also the goods and financial flows,

associated with the riverassociated with the river

The wholeness – the world from two points of The wholeness – the world from two points of viewview

Kinetic world (a Kinetic world (a flow)flow)

The streams are The streams are structured and structured and coordinated towards coordinated towards decrease of structural decrease of structural level dimensions: level dimensions:

from the general to from the general to the particular, from the particular, from the concrete to the the concrete to the abstract, from the abstract, from the depth to the surface. depth to the surface.

This is the direction This is the direction of differentiation of of differentiation of the wholenessthe wholeness

Stressed world (a Stressed world (a potential)potential)

PotentialsPotentials are are coordinated in the coordinated in the opposite direction: opposite direction:

with increase of with increase of dimension, through dimension, through structural elements of structural elements of higher dimensions. higher dimensions.

The world is The world is gathered, integrated, gathered, integrated, joined through joined through stressesstresses

This is the direction of This is the direction of integrity of the integrity of the wholenesswholeness

Types of networksTypes of networksopen (transit)open (transit) mixed mixed closedclosed

The generalized balance-network modelThe generalized balance-network modelIt has 5 nodes andIt has 5 nodes and 5 5 brunchesbrunches. . 2 nodes (oil and grain) have2 nodes (oil and grain) have external export external export potentialspotentials. . 2 brunches 2 brunches ((social and agriculture sectors) have internal potential social and agriculture sectors) have internal potential

sourcessources. . 2 nodes (migrants and land) have outside restrictions.2 nodes (migrants and land) have outside restrictions.

External and internal pricesExternal and internal prices

The external price: The external price: Concerns to grocery inputs Concerns to grocery inputs

and outputsand outputs

Stimulus of maximization Stimulus of maximization of profit of profit

It exists in the opened It exists in the opened circuit circuit

It is uniform for all It is uniform for all enterprises which are enterprises which are letting out the given letting out the given product product

Goods Goods

Opened (transit) structureOpened (transit) structure

The internal price: The internal price: Concerns to a branch, - to Concerns to a branch, - to

the enterprise or the group the enterprise or the group involved into a cycle involved into a cycle

Stimulus not giving Stimulus not giving enterprise to stop there enterprise to stop there

It exists in the closed It exists in the closed circuit circuit

Each enterprise has own Each enterprise has own internal priceinternal price

Needs Needs

Closed (cyclic) structureClosed (cyclic) structure

Рабочая сила

Нефть

Зерно

Бензин

Земля

Мигранты

Экспорт нефти

Экспорт зерна

3 cycles and 3 open paths3 cycles and 3 open paths

Е

Е

e

e

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

Results of calculations for three types Results of calculations for three types of economyof economy

Export – raw economy:Export – raw economy: all economy was reduced to oil extracting by hands of all economy was reduced to oil extracting by hands of

migrants and petro-export migrants and petro-export economy all as export-focused, but now the basic is the economy all as export-focused, but now the basic is the

export of agricultural industry. Contours are not closed. export of agricultural industry. Contours are not closed.

Agrarian:Agrarian: high efficiency of rural work and low norms of high efficiency of rural work and low norms of consumption of grain have provided high stability of an consumption of grain have provided high stability of an agrarian contour agrarian contour

Innovative:Innovative: two contours Compete: 1. The innovative two contours Compete: 1. The innovative contour focused on export of bio-oil to the detriment of contour focused on export of bio-oil to the detriment of society, society,

2. The аgri-social contour focused on internal demand. 2. The аgri-social contour focused on internal demand.

Solving in this dispute there is an intensity of solvent Solving in this dispute there is an intensity of solvent demand of society. In the balanced condition these two demand of society. In the balanced condition these two contours coexist, supporting each other.contours coexist, supporting each other.