Авторский блог Елена Ведута 00:00 23 октября 2018

Rationalization

The cybereconomist, head of the department of strategic planning and economic policy of Lomonosov Moscow State University, Elena Veduta is speaking about the domestic model of the digital economy
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Andrey Fefelov. Starting from the end of the 1980s, there has only one type of economist in Russia – liberal monetarists – who monopolized all education, all economics, and it seems that there is no alternative. But an alternative exists! It was born in the Soviet Union. It grew out of the Marxist political economy, but the most important thing is that this alternative was based on a colossal Soviet economic experience, on a working national economy.  You, Elena Nikolaevna, a person who represents this trend not only intellectually, but also as a member of the family. Your father, Nikolai Ivanovich Veduta, created a model in the later years of the USSR, the model that described and moved the mechanisms of the planned socialist economy.

Elena Veduta, Doctor of Economics, Head of the Department of Strategic Planning and Economic Policy, Faculty of Public Administration, Moscow State University, head of the "Scientific School of Strategic Planning".

Yes, my father, in the true sense of the word, is a product of the Soviet system. He was born in 1913 in Starobelsk in the Lugansk region. He was educated at the Kharkov Polytechnic Institute, where every teacher, developed a systematic method of teaching. All subjects had been linked to a single entity. During all his life my father approached any problem systemically, researching all interconnections in order to understand how this system “breathes”, develops, what is its internal engine.

Andrey Fefelov. Did he study in the 1930s?

Elena Veduta. Yes, and then in the 1950s, at the request of the Central Committee of the CPSU, as one of the most talented production organizers (my father worked as the general designer at the Kharkov Tractor Plant) he was invited to Moscow to study at the postgraduate school of the Institute of Economics; in that period the Party  already knew the new problems of economic development starting from the time when we had been restoring the economy after the Second World War. No country in the world had such a difficult task - to develop a huge country according to the plan. Domestic economists had to find solutions themselves. The USSR had no working example to adopt.

My father was invited to the Committee and was offered two options: either to build a tractor factory in Romania, or to go to the post-graduate school in Moscow. He went to Moscow. He was a mechanical engineer and had the opportunity to study Marx’s “Capital”.

Andrey Fefelov. Nikolai Ivanovich was a practitioner?

Elena Veduta. Yes, he started his working career at the machine and tractor station, then he became the general designer at the Kharkov Tractor Plant, then worked as chief engineer at the Minsk Tractor Plant. Then­­ the head of the advanced planning department in the State Planning Committee of Belarus. Thus, he had the opportunity to study the "Capital" of Marx from the standpoint of the practical application of this knowledge. We’ve got three volumes of “Capital” at home with father’s notes. “Capital” was never taught in such way as my father, a mechanical engineer, studied it by himself. He used a systematic approach everywhere. Any definition was comprehended from the standpoint of its place in the system: what role it played in its movement, what the feedback was, what causes made the system stop, and what turned it on again and moved it forward.

While reading “Capital” my father, as a mechanical engineer, understood the objective laws and how they worked, and that it was necessary to involve mathematics to describe and study their effects. When he returned home after the graduate school, he told my mother: "If we do not create a real science of economic management, the country will be very bad." He said this in the 1950s, when our country was still very strong.

Andrey Fefelov. Nikolai Ivanovich created a back-log of a new science, the certain basic model. Tell us about it.

Elena Veduta. There was the objective need to create an effective system of economic management in the country. In 1958 there was a decision to create a laboratory of mathematical methods of economics analyzing.  They came to the conclusion that it was necessary to introduce mathematics into economics, or, as we say in modern language, to develop a digital economy. Academician Vasily Sergeevich Nemchinov headed this direction. My father had very good, close relations with him, but the trouble was that my father considered the development of this direction from the position of manager, production manager, and Nemchinov was a high-quality statistician, and he did not understand how practicing managers worked in the economy. He developed researches from the point of view of analytics and statistics, in order to study the results of the post factum activity of the national economy, and not in order to manage the economy. My father argued a lot, and even Nemchinov’s wife complained to my mother that when they had fished, my father had given a lot of arguments that he was right. After that, the wife of Nemchinov said that she would forbid her husband to go fishing to defend him from a heart attack. But, unfortunately, it happened so that the mathematical methods were used only for analytical purposes. And we can perfectly see it today in the work of the Institute of Forecasting of the Academy of Sciences, where they are also making the inter-sectoral balance, but they extrapolate already established trends without affecting the changes in these trends on the common wealth. It means they implement the econometric method in the economy model. At this institute they do not solve the problem of economic management.

Andrey Fefelov. You mean the modern economists (econometrics) make calculations only to evaluate the results?

Elena Veduta. That’s right. It is very bad that modern economists make calculations using false information and thereafter get some false results. The question arises: what is the purpose of your calculations, and why do you have orders for these calculations, isolated from the economy management? The answer is: to get plenty of money easily and to have no responsibility. You’ve got some kind of primitive econometric model and you feel good. You can get an order, for example, from Russian Railways or Gasprom, and you apply the same model based on false information for their needs, and show the results that in no way affect the improvement of economic management. But the leadership (both on the part of the customer and the implementer) feels happy and satisfied living on expensive contracts, and the state economy is in complete decline.

Andrey Fefelov. Yes, the jokes about consulting have already become a parable of the town during the last period of Russia's development. But I would like to recollect the activity of your father, Nikolai Ivanovich. He walked a long way when he was of mature age and created a model for the development of the state economy during the fall of Soviet project (although by that time we did not know about the fall).

Elena Veduta. My father created the Central Research Institute of Technical Management, which worked directly with the Ministry of Instrument Engineering. My father was a member of the ministry. His automated control systems (ACS) were used in many enterprises, for example, at the Moscow watch factories. He was also very well known in the defense industry.

My father always argued with K. N. Rudnev, the Minister of Instrument Engineering, who wanted to catch up and outdo America in ACS creation. My father answered him that there was no reason to catch up and outdo America: we had our own way. It was not normal to circulate unified methods of ACS to enterprises in different industries: the same as giving the method of creating tractors to the collective farms. First of all, there should be understanding of tasks of management of the particular economic system, country, industry, enterprise, etc. You cannot effectively implement new technologies on the base of the computer, if, as an organizer of production, you can’t set an economic task and define the algorithm to solve the problem. Only then you can use mathematics to describe the algorithm which solves the problem. ACS, IT specialist are the "last people on the list" of executors of the task, they translate the mathematical algorithms into IT language. In this case, computers and digital technologies become a valid ally of the production organizer, who increases the efficiency of his management at the expense of a significant acceleration of planned calculations of large amount of data.

The minister didn’t like such approach, he wanted to achieve quick results from the introduction of computers in enterprises, and it was not important what tasks would be solved with their help and how much money we would spend on their implementation. My father gave a notice of ending his employment, realizing that it was urgent to create the macroeconomic model that would unite all areas of computer implementation in order to become a reliable tool for ensuring effective economic management and improving the common wealth.

Andrey Fefelov. There was nobody who worked with such developments?

Elena Veduta. The staff of the Central Economics and Mathematics Institute (CEMI), who developed the mathematical branch in the economy, had chosen the way of copying Western theories and models that had nothing to do with our practice. They defended their D.'s dissertations, copying Samuelson, Allen, Baumol, published their translations and etc.  I was a student of the third year and admired how beautifully they wrote – such kind of mathematical game: consumers maximize utility, producers - profit, they need to find a balance, optimality, etc.

And today, in the game “Economics” is played by serious people, adults. They play the abstract concepts, completely ignoring the practical problems of the real economy. They are not interested in them. I like this game because there is a lot of mathematical models out there that creates a form of imagination: if there is maths in this game, everything is serious. And each of them demonstrates another: you know, here is the “optimality”, according to Pareto. Yes, it is not bad that, according to Pareto, I improve my optimum not at the expense of someone else. And it sounds humanely. And here's another “equilibrium point,” according to Nash. And let's prove that we really get convergence at the “point” of Nash or reach “optimum”, according to Pareto. It is abstract: playing the prerequisites, hypotheses, figures, graphics and schemes that has no relation to the real economy, production and the standard of living in the state

Andrey Fefelov. And what did your father think about it?

Elena Veduta. I like mathematics, and when I came to my father, I began to tell him about “Economics” admiringly. And my father said: “What kind of nonsense, what are they doing?” At the same time, he was very friendly with CEMI, because other institutes simply “drew the problems in empty talk”. In CEMI officials tried to put the economics on a mathematical basis. The most necessary and most important, practical direction — inter-branch inter-sectoral balance (IIB) —was replaced by activity in other directions, not for managing the national economy. They were engaged only in econometric models of inter-sectoral balance and other economic and mathematical models that had come from the West. Even today the Institute of Forecasting feels itself very good with econometric models, but the economics oriented to the needs of practice, sustainable economic growth in the direction of improvement of people's lives, ceased to exist.

Andrey Fefelov. But Nikolai Ivanovich continued to work with the inter-branch (inter-sectoral) balance and his other developments?

Elena Veduta. I often ask myself this question: why did my father do this? After all, he went against the stream. But he continued to work hard, realizing that if he didn’t create a dynamic model of inter-sectoral balance to improve the efficiency of public administration, the country would face tough times. He, like a real scientist, was an altruist. I wrote my thesis on his research, but my official academic advisor, academician Stanislav Sergeyevich Shatalin, did not understand my work. He respected my father, but he thought that my father had led me in an incomprehensible way. Only academician Nikolai Yakovlevich Petrakov understood my diploma work. He was a man of genius, although he was not a practitioner either; but he had a cybernetic flair, he understood perfectly well that the real study implied the identification of a direct and inverse connection in ensuring the movement of the system. When he knew the algorithms for constructing a model for my diploma, saw those connections, he realized that there was something new and important in that economic and mathematical model that he, Petrakov, had not yet studied. In those years I did not fully understand the model, but I just trusted my father and decided to develop this direction. After my father’s death, Petrakov founded a department at the Moscow State University for the development of these studies, which I headed after the death of Nikolai Yakovlevich.

 Today our life proves that such method of a “living” strategic planning of economics with feedback based on a dynamic model of inter-branch and inter-sectoral balance, that functions with the help of modern digital technologies — is the only scientific way to increase the efficiency of public administration. Only this method implements the ideas of the proportional (crisis-free) economy that serves the interests of the state and the whole society. Today, this method is perceived with great interest and considered as the method for the future in Europe, where I make reports at international forums.

Andrey Fefelov. Yes, of course, it is amazing.  What were the relationships of your father with academician Viktor Glushkov? We know that other areas of economics were developed in the same period and not only in the Soviet Union. How were the activities and developments of Nikolai Ivanovich connected with this general flow?

Elena Veduta. Not so long ago there was the Internet conference in Kiev and the organizers dedicated it to Viktor Mikhailovich Glushkov. And they invited me to participate, because they considered my father to be Ukrainian. By the way, Belarusians believe that Veduta is a Belarusian scientist. But my father called himself a citizen of the Soviet Union.

Viktor Glushkov was a brilliant scientist in the field of technical cybernetics. Once, on the channel "Russia-24" they said that he was the inventor of the Internet. I believe he was.

I remember 1968, when I entered the Moscow State University, my father took me to the Central Telegraph office, where it was possible to contact our family in Minsk automatically by phone. And he said to me: “The time will come, you will sit at home, watch TV and see me and my mother.” I wondered what he was saying!

But this time has come. And I think that Glushkov, of course, had serious developments in this direction. But Viktor Mikhailovich Glushkov was not an economist. We all have the same big misfortune: everyone thinks that he understands economics. But  economics is primarily associated with the organization of production, with the coordination of various types of production activities with the aim of improving people's lives. This is a complex task that has nothing to do with the direct management of equipment. But people with technical or mathematical background think that they understand the most complex issues of economics. Therefore, Glushkov, not possessing a deep knowledge of economics, had no doubts to create the National Automated System (OGAS). This resulted in failure. The country spent a lot of money for the introduction of computers, which occupied huge areas in enterprises. But, in fact, these computers were not used to improve the efficiency of production management in the country, in the economy. They carried out the following tasks: payroll, inventory accounting, etc.

This was the reason why the idea of creating OGAS had been discredited, unfortunately, it happened with the personal participation of its creator. But I have never heard anybody mention “Glushkov” in my family. This was strange for me. Apparently, my father was completely engaged in economics, and Glushkov had nothing to do with it. Unfortunately, today this mistake is made again – the specialists with technical or mathematical and even psychological education introduce a digital economy that has nothing to do with solving the country's most complicated economic problems, and the country spends huge financial resources on the allowance of these people.

Andrey Fefelov. How would you name  the direction that your father created?

Elena Veduta. Economic cybernetics - as the science of information management in the economy. This science allowed him to create a dynamic model of the IIB, which is a system of algorithms for calculating the cost / release plan using modern digital technologies. This model is based on the knowledge of the objective economic laws that are contained in “Capital”.  When you describe the behavior of the system with the help of mathematical algorithms based on the laws of economic development, you get in the virtual world a cyber-system — a reflection of a really functioning economy.

Andrey Fefelov. This is the main idea. Today the word combination "digital economy" is heard quite often, it has become fashionable, progressive. But what the digital economy is in terms of the theory – nobody talks about it. It turns out that the digital economy has nothing to be based on!

But now we see that this digital economy was born in the late Soviet Union, and your father formulated it. But for the last decades, Russia was trying to copy and to tail behind the western market monetarist civilization, the process called globalization. Today, these processes are ceased, the global market is “collapsing”, and capitalism is announced by the Club of Rome (a quintessence of Western intellectual thought) to be a thing of the past.  Our pseudo-economists, players of the monetarist model, continue to persist and argue that there is no alternative to such model. But the alternative exists in the texts, in the developments of your father and in your books. Russia has a real chance, relying on the colossal Soviet experience of planned economy, to stay in the vanguard of the whole world.

Of course, the direction of economic cybernetics was removed in the 1980s, and this was done consciously. Now we are facing a very difficult task of revivification of those developments. How can this direction work and be useful today in the national economy?

Elena Veduta. In fact, everything is much simpler than it seems to be. If we speak in popular language the model can be described very simply. Whom does the economy work for? For the final consumers. What are they? They are: households that spend their cash income at the consumer market and change it for the products offered; a state that finances the defense costs, health care, education, space exploration programs, etc. at the expense of its budget; exporters who supply products in accordance with international contracts.

In order to satisfy the needs of the final consumers, the production of the final product according to their orders and demands must be arranged. For example, the Ministry of Defense says that it needs a defense order: exact number of tanks, missiles, etc. Ministry of Health requires exact amount of materials, hospitals, etc. People need exact amount of milk, meat ... To optimize the structure of the final product for the consumer market, we use feedback information about the dynamics of equilibrium market prices, that provide the demand equal to supply. Thus, we have formed orders for the final product, which meets the needs of final consumers. Then the final product should be produced. How to produce it? To answer this question we need the calculation of production chains with possible adjustment of orders that takes into account the real production possibilities. It means that a plan is calculated for the proportional development of the economy in the direction of growth of public wealth. Production chains are consecutive in time and in space, producers’ interconnections (“input / output balance”) is used for the production of final product ordered. If Russia is a country that respects itself, it needs to rely on its production chains, rather than tail as a raw materials appendage of the global economy with an outstretched hand: please, give us money (foreign investment).

The method of calculation is very simple: to produce something, we calculate how much resources we needed for the production of the final product. These resources do not fall from the sky, they must be also produced. By taking consecutive steps from the final product to the calculations of resources for its production, taking into account the intermediate products, we are gradually approaching the final calculation of all costs necessary to produce the final product.

Since the production capacity (to produce all these products) may not be enough, we must provide in the calculations for the production of additional capacity (enterprises, infrastructure, etc.).

 

The “input / output balance” is calculated in the same information field. If there are inventions, new technologies at some enterprises, it is necessary to choose the most effective ones that will give the greatest return in terms of the movement of the whole economy of the country in the direction of growth of public wealth. To implement it a block that helps to choose effective technologies is put in this model.

Calculations in the model continue until the optimal balance between production and use of resources is obtained to fulfill the order dictated by the final consumers. We will actually produce the maximum of the desired final product, since we provide the introduction of new technologies that reduce the cost of producing a unit of the final product. Our needs, which we dictate by the final product, are linked to our production capabilities. In this model, the managing parameter is the state production investment, which is destined to the development of industries and the introduction of new technologies in accordance with the requirements of an optimal balance.These investments are not just money begged from foreign investors or from the Central Bank. In this case, the production investment is ensured by material and labor resources that rules out the start of inflation.

The participation of small and medium business is assumed in this cyber-economic model. If we introduce cyber-economy (economy managed with the help of digital technologies), we will get an impulse for development, because the economy will start the sustained development, inflation will stop.

This will turn to be opposite to the current situation, when our corporations are built into the global chains as a raw materials appendage, and today we don’t make any calculations because we don’t need them. We just agree that we can borrow the incidence of crisis development of the civil society.

Using economic cybernetics as the science of management of information processes in the economy, our government will get an effective tool for the economy and state management that moves it forward along the trajectory of the social benefit – the  growth of real incomes of citizens (the real solvency of national currency), the strengthening of national security and strengthening of the competitiveness of the state in the global community.

Andrey Fefelov. Is it true that the model of economic cybernetics is supported by digital capabilities of modern technology?

Elena Veduta. Yes, it is the material and technical basis for the functioning of cyber economics, knocking on all doors today – just the same way the machine had come to our life and had changed the system of feudalism into the system of capitalism. The invention of computer and digital technology shows similar process. Modern digital technologies, with their colossal possibilities for collecting, storing and processing information, make it possible to organize a national economy based on a dynamic model of IIB.

Andrey Fefelov. Recently, I have been constantly talking about digital socialism, digital science as a way of life. I mean the digital economy as a part of digital science in general, because it includes education, government, elections, and anything you like. By the way, the digital economy abolishes corruption completely, since it is a completely transparent system.

Elena Veduta. Of course, even if you concealed the reliable information, the cyber-economic model will reveal everything. However, it is necessary to agree on conditions: the model allows the multi-level access rights to data which is loaded, used, and obtained in the course of operation at different stages, depending on the rights of the user (an ordinary employee of a certain industry or enterprise, the head, the controlling bodies), legal or state secrecy, etc. All such characteristics of the cyber-economic model should be discussed with the leaders of the country, industries, business, security agencies, supervisory authorities ... and then given to programmers for implementation in the current model. At the same time, of course, the model is alive and can be updated and changed in the course of its operation.

Andrey Fefelov. Corruption is doomed, and capitalism is doomed as well. And by the way, the first to say this was the Club of Rome.

Elena Veduta. Right. The West already wants changes in capitalism, but does not know the ways and means. The scientific school of economics focused on the effective management of the economy — economic cybernetics — had being developed only in the USSR.

Andrey Fefelov. But what about the bankers?

Elena Veduta. Banking should perform their functions in accordance with the objectives of effective economic management.

Andrey Fefelov. We are now on the threshold of something new. And this new is rational; the Latin word “ratio” means “calculation”. By the way, there is such a great Soviet word - "rationalizer". It is the “implementer” of a new useful technology. In general, our life must be rationalized. The irrational moment plays for the benefit of crooks, for the benefit of speculators, for chaos and degradation.

However, what you are talking about - the ideas, knowledge and elaborations – are not demanded in Russia today.

Elena Veduta. Today, the whole world is going through a certain shock, and does not understand what to do with the dying economy. The governments of all countries are moving in the direction of management of the people, rather than management of the economy. They are trying to use digital technology to manipulate people and for total control in a collapsing economy. The governments do not use the enormous potential that is contained in IT technologies and in their intended use - to raise the economy for the sake of benefit of the people. The Soviet Union should be honored for its experiment called "socialist planned economy" – for the first time in the world history the task to manage production relations in order to increase the well-being of people was set. Yes, the USSR did not succeed in solving the task optimally, when this unique historical experiment took place. But thanks to the experience of the USSR in modern Russia there is a Scientific and Collective Strategic Planning, based on the principles of economic cybernetics, that teaches how to manage the economy in the direction of growth of the public wealth. Capitalism had been developing over the centuries, manipulating people by means of money, creating financial systems for redistribution of income generated in all countries of the world in order to centralize the world capital.  Now, as a result, the world stands on the edge of the abyss.

Andrey Fefelov. Capitalism is at least five hundred years old. It is much  older than the Soviet period.

Elena Veduta. Yes, we had a short-term experience. Nevertheless, a new science appeared - economic cybernetics. You may say – cybernetics appeared in the USA. Yes, it’s true, cybernetics, as the science of information processes in complex control systems (machines, living organisms or society) that determine the behavior of a system in its interaction with the external environment, came into existence in the United States. But the economic cybernetics – the scientific management of economics with the help of modern digital technologies was founded and developed in the USSR.

Russia should use a scientific school, the developed cyber-economic model, and to start to replace the vector of globalization. Today this vector is the establishment of a rigid digital order with the repression of individuality – the real cyber-slavery in the conditions of increasing economic chaos and deterioration in the quality of life. Managing people in such way means the end of the story that causes anxiety among those who consider themselves to be the European elite.

However, there should be another digital future based on the introduction of the ideas of economic and cybernetics, which was developed in the USSR and is being developed in Russia. Therefore, I believe that the analytical centers located in the northeastern United States, serving modern globalization, have lost to our economics science, that has the cultural and technical progress of civilization as its target. It would be not good of them to use the fruits of our science of economic cybernetics after the destruction of Russia, that bears the incidence of the global crisis.

Andrey Fefelov. Elena Nikolaevna, you and I – we understand this situation. I think our readers understand it as well. The question is that this understanding should come to our government, to those who use the already crumbling liberal postulates as a covenant, cut upon a tablet forever and ever. That's the whole problem.

Elena Veduta. Those who consider themselves to be elite, have no place to take the right ideas from, they know only the pseudo-science “Economics”. The true economics science was blocked in the whole world, and they still pay huge money for repeating the same technical calculations based on false information, and all analytic and consulting structures are only conducting analysis, but they are not engaged in solving problems of effective economic management.

Andrey Fefelov. The governmental structures say: "We have no other economists". By the way…

Elena Veduta. Moreover, I sympathize with our authorities, because Russia now is placed between two large world states. If the Soviet Union was the largest power in the world, our nowadays authorities have to look for its place in the world order. But I believe that we don’t need to chase either the United States nor China. It is stupid to catch up and overtake these states within their systems. Russia needs cyber-economics as the successor of the domestic experience (taking into account, mistakes of the past) that makes Russia the “engine of globalization” as a part of its humanizing, technical and cultural progress.

Andrey Fefelov. Elena Nikolaevna, thank you for a very interesting conversation!

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