President of the Editorial Board Ioan TALPOŞ

Editor-in-Chief Marilen PIRTEA

Assistant Editor-in-Chief Carmen BĂBĂIŢĂ

Senior Editor Alexandru JIVAN

Editors Costinel DOBRE Doina DĂNĂIAŢĂ Vasile DOGARU Camelia MARGEA

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Editorial Board

Robert W. ACKRILL Nottingham Trent University, United Kingdom

Vasile COCRIŞ “Alexandru Ioan Cuza” University, Iaşi, Romania

Maurice CHENEVOY Université d’Auvergne Clermont-1, France

François FULCONIS Université d’Avignon et des Pays de Vaucluse, France

Orio GIARINI L’Istituto del Rischio, Trieste – Milano – Ginevra Aurel IANCU National Institute of Economic Research, Bucharest, Romania

Vasile IŞAN “Alexandru Ioan Cuza” University, Iaşi, Romania

Nigel HEALEY University of Canterbury, Christchurch, New Zealand

Dinu MARIN Academy of Economic Studies, Bucharest, Romania

Dumitru MATIŞ “Babeş-Bolyai” University, Cluj-Napoca, Romania

Kozo MAYUMI University of Tokushima, Japan

Philippe ROLLET Université des Sciences et Technologies de Lille, France

Mihai ROMAN Academy of Economic Studies, Bucharest, Romania Guy SOLLE Institut d’Administration Economique de Metz, France

Ion STANCU Academy of Economic Studies, Bucharest, Romania

Nadine TOURNOIS Université de Nice Sophia Antipolis, France

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Key words: productivity,

parity, purchasing

power, equilibrium,

disequilibrium.

JEL classification: A13; C19; D03

The evolution, the development is based on the energies consumed in order to solve the disequilibrium that appear when systems get harmonized.

Evolution is a set of disequilibrium that has passed into a harmony zone. Still this does not mean that there is an absolute lack of disequili-brium.

Therefore, evolution is a result of the dise-quilibrium that has been solved.

Equilibrium is just an ideal to be reached. Equilibrium is just a temporary state. It is al-

ways followed by new disequilibrium that gene-rates new energies meant to solve them in order to reach a new harmony in which equilibrium dominates.

The continuous confrontation between equilibrium-disequilibrium is life and evolution, especially in the economy field.

A pure, absolute and continuous equilibri-um, at the same level means the death of evolution.

Still, a chronic, continuous disequilibrium means chaos and an auto destroyed system.1

* University Professor, PhD., West University of Timişoara, Faculty of Economics and Business

Administration

VECTORS

OF

ECONOMIC

HARMONY Horia CRISTEA *

INTRODUCTION Economy means lots of differentkinds of flows that express economicand social relations and reports. An economy is strong when the fun-damental proportions and ratios arereached and kept for a certain period oftime or until the disturbing factors de-stroy the reached equilibrium andtherefore alter the existing harmony. There are lots of different disturbingvectors. They have different intensitiesand of course the generated effects dif-fer as kind of effect, as size or intensity. Some vectors have a positive impacton the economy’s evolution. Othershave a negative impact and are thecause of new disequilibrium.

The equilibrium is a state of a sys-tem that is interested in a harmonizedevolution of its subsystems and of thewhole. Harmony doesn’t necessarymean only equilibrium. It also meansequilibrium combined with contradic-tions as seeds of disequilibrium. Equilibrium is just the dominantpart of harmony. 1. IMPORTANT VECTORS OF THE

ECONOMY’S EQUILIBRIUM A harmonious economy is an econ-omy that is dominated by equilibrium.Equilibrium is the result of the harmonybetween the vectors that influence it. Between these vectors we can findthe three „P”.

225

Horia CRISTEA

1.1. The Productivity Principle The productivity principle stipu-lates that at an increase of work prod-uctivity at industrial branch level should generate a proportional in-crease of the wages. It is also known as the proportionality principle: 0

101 = S

WWS ⋅ (1) where: S1 = current wage, S0 = reference wage, W1 = current productivity, W0 = reference productivity. Therefore: S = f(W) (2) where: f = function.

1.2. Parity Principle that Asks for Wages to be Equal at the Same Qualification Level This means that all employees that have the same qualification and work in a company from another industrial branch than the industrial branch that has registered the productivity increase would ask for an equal wage:

ijSc = wSci (3) where: ijSc = the wage of the i qualification from the j industrial branch,

wSci = the wage of the i qualification, from the industrial branch that has registered the W in-crease. This is a request that has implica-tions on the equilibrium.

Not all harmonizing actions can bring the equilibrium of the system. The harmonizing of an economic system’s subsystem doesn’t mean that the sys-tem is at equilibrium. It can generate new problems, new disequilibrium that need to be solved in order to obtain the equilibrium. 1.3. The Purchasing Power Principle It looks to compensate the increase of prices through increases of wages (not according to the increased produc-tivity). An increase in the nominal de-mand shall have as a result the increase of the monetary mass with negative ef-fects. Here we are talking about the wish to have a bigger wage according to the price index:

SΔ = f(Ip), (4) where: S = wage, f = function, p = price, I = index Δ = positive deviation. When prices increase, the purchase power decreases with at the same ex-tent. The economic and social position and status of the person is affected:

0010 pQpQ , (5) S1 = S0, (6) 1

1

pS

0

0

pS< , (7) where: p = price, 1,0 = current, reference, S = wage, Q = quantity of goods in the daily basket.

226

VECTORS OF ECONOMIC HARMONY

2. EFFECTS GENERATED BY THE UNHARMONIZED

EVOLUTION OF THE VECTORS The vectors’ movement can be a harmonious one and then it generates positive energies in the economy devel-opment or can be unharmonious. When the above mentioned vectors burden very much the system, the ef-fects are very negative ones. Each of the three principles has its importance (Figure 1). The first principle, that of the prod-uctivity is fundamental for a positive and harmonious evolution of the economy.

The other vectors, the other prin-ciples generate negative effects, of dis-harmonizing. They generate efforts needed in order to set a new equilibrium. If the parity principle, as well as that of the maintaining of the purchase power, is not supported by productiv-ity, they become centers of destroying the equilibrium and they generate and maintain the inflation spiral (Figure 1). The symbols used in Figure 1 are: S = wages, Q = production, M = masa monetară, C = monetary mass, Q = offer, Ip = price index.

Figure 1. Connections between Principles and Effects

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Horia CRISTEA

When: QS

ΔΔ > 1 (8)Then:

QM

ΔΔ >1 (9)generates: C> O, (10)and Ip >1, (11)The same goes for C= O (12)The employees’ demands start again.The inflation spiral is obvious. It isgenerated by the increased wages thatare not supported by an increasedproductivity. This aspect is even better hig-hlighted when the wages’ increase hasnothing to do with the productivity in-crease, as level. It is the case of the pub-lic sector, where the wages evolutiondepends on the evolution of productiv-ity in the sectors of teal economy. Any deviation from the productivity principle leads to artificial increases ofwages. Therefore to increased inflationthat generates a reduction of the pur-chase power and therefore to increasedpoverty. Instead of more middle classpersons, we’ll notice a bigger number ofpoor and very poor persons. The public services employees arealso important and their wages dependon the budget incomes that depend on the economy’s state. The economic development basedon productivity is a solid one, able toensure the general wellbeing. The wages’ increases, financed bythe budget, by sums that come frombudgetary chapters other than wages,and having no connection with an in-creased productivity, generate supple-mentary demand that lead to biggerprices and therefore to inflation.

When budgetary incomes increasedue to increased productivity of theeconomy, then the allocation for wagesincreases too and is economically sup-ported, respecting some conditions: 1. The productivity index should bebigger than the budgetary in-comes index due to fiscality. 2. The wages financed from thebudget index should be smalleror equal to the productivityindex. When proportions are not res-pected, the effects are always negativeones and have unexpected economicand social effects (as intensity, depthand consequences). 3. THE REACTION DEGREE.

POSSIBLE VALUES AND THEIR MEANING The economy is a system and func-tions like a system. It has inputs, transforming processes and outputs. The outputs are components of the gross internal product, with its ele-ments among which the added value and the net income are most important. The transforming processes refer to the processing and transforming of the inputs by the transforming factors. The inputs of the systems are many and very different, specific to different industry fields or sectors or to activity objectives (raw materials, merchandise, energy, information, work). The quality of inputs and transfor-mation processes gives the quality of the outputs. When the system’s parameters are not the normal, regular or standard ones, the feed-back cycle (component of the system) reacts in order to correct them. In order to start the reverse connec-tion, or regulatory connection, it is ne-

228

VECTORS OF ECONOMIC HARMONY

cessary to have standard values of the system or certain minimum or maxi-mum values to be set for the outputs. Any deviation starts the corrective pro-cedure of the system (Figure 2). The symbols used in Figure 2 are: Xi = input values, P/T= processing/ transforming, Yi = output value obtained, Yn = output standard value ∆ = deviation (value) R = regulatory process. The system reacts different to the found deviations that the interior or ex-terior disturbing factors generate in the system. In the corrective process and the system’s protection it is important the reaction or the reply degree of the sys-tem’s output value variation at the vari-ation of the independent value of the system:

gr = 0

01

0

01

xxx

yyy

−

− (13)

where: gr = reaction degree x = independent value, y = dependent value or resulting value. Y = f (x) (14) The values of the reaction’s degree can be positive or negative and have different meanings: gr > < 0 (15) according to the pair of values analyzed. The reaction’s degree expresses different behaviors of the dependent variable at different evolutions of the independent value. What happens if the independent variable has a positive evolution? If we refer to the productivity prin-ciple, then the variables are wages and productivity. The reaction’s degree measures the output’s reaction (S) at the increase of the independent value (W): S = f (W) (16)

Figure 2. The Corrective Reaction of the System

229

Horia CRISTEA

gr = 0

01

0

01 :W

WWS

SS −− , gr =

001

01 :WS

WWSS O

−− (17)

gr = s m : 0s (18) where: s m = marginal wage in respect to W,

0s = average wage (reference wage) in respect to Wo What can the reaction’s degree mean for an increasing W? Comment: Taking into account the values we can determine the dependent variable’s behavior and the generated effects. E = S0[gr(ix-1)] E = −

0S . W1 – S1 E = ⋅41 50 - 15 E = 12,50 – 15 – 2,50 E = S1 - ⋅0s W1 E = + 2,50 (the increase is not jus-tified) E = S0 ( )rg

xx

−

− 11

0

1 E = 10 (1,25 – 1)(1-2) + E = 10 · 0,25· (-1) = - 2,50 0 If: gr = s m : 0s > 0 (19) that means that the wages’ evolution, compared with the ascending evolution of productivity, is superior. This reflects a behavior that has negative effects: E = S0 ( )rgww

−

− 11

0

1 (20)

where: E = generated effect. Comments: When gr >1, as mathematic result, the economic effect is a negative one that has also negative social effects. Hat wages have evolved progres-sive in respect to the productivity posi-tive evolution. If: gr = 0 (21) then wages have stayed unchanged when productivity has increased: gr =

0

0

01

01 :WS

WWSS

−− , (22) S1 = S0, wages having a fix character(23)

Comment: The generated effect is mathemati-cally positive but it has negative social consequences: E = S0 ),1(10

1rg

WW

−

− (24) E = S0 (+) . (1-0)> 0, (25)

Comment: Between the moment when produc-tivity increases and the moment when wages increase, there is a difference. This period of time must be as short as possible because it keeps disequili-brium between the demand (power of absorbing the goods by the consumers) and offer. Otherwise there appears the phenomenon of over-stocking and all the set of un-harmonizing effects at economy level. If: gr = 1 (26) the wages’ behavior is proportional with the evolution of the dependent va-riable (W).

230

VECTORS OF ECONOMIC HARMONY

Comment: The mathematic effect is zero, but the economic effect is equilibrium, harmony one: E = S0 ),1(10

1rg

WW

−

− (27) E = S0·(+)· (1-1)> 0, (28) The wages increase is in the same proportion as the productivity one. If we admit that the budget incomes have grown at the same speed, we can say that there are the premises for in-creasing all the wages, including those that are financed by the state budget. If the reaction’s degree is a negative one: gr < 0 (29) that means that at an increase of the in-dependent variable (W), the dependent variable (S) decreases. This is possible in theory but hard to accept in real life. The same evolutions and effects are valid for the relation between wages and production (offer and demand). When analyzing the other two prin-ciples, the situations that we find are completely special. These principles are not based on productivity or produc-tion but on social factors and on ele-ments of the necessities pyramid. Employees equally qualified de-mand for equal wages without taking into account W. Also they ask for bigger wages when inflation is bigger without taking into account the evolution of W.

Comment: For the first ones, the reaction degree will be: gr = 0

01

0

01 :W

WWS

SS −− (30) But: W1 – W0 = 0 (31) It is obvious that the increased wages have nothing to do with produc-

tivity but with different vectors (politi-cal ones, social ones and so on). The effects cannot be calculated and they are hard to forecast, control and regulate. For those that demand wages in-creases in order to maintain their pur-chase capacity, the increase also has no connection with productivity. We face an increase of the existing monetary mass that is not followed by an increase of available goods on the market. In the first case we are at the point where inflation is about to appear and in the second case we are at the point where inflation exists and is main-tained. The wages increases are in-creases of the demand. Still, the offer is a fixed one and therefore it generates, keep and develop inflation with all the negative economic and social effects it has. The fundamental wages principle is: IS ≤ Iw (32) The wages’ index is smaller or equal with the productivity index: w

s

II ≤ 1 (33) and gr =

011

−−

w

s

II (34)

If we also take into account infla-tion, then, in order to keep the same purchase power: 1

1

1 iS+

= 0

0

1 iS+

(35) S1 = S0 + ∆S (36)

1i = i0 + ∆i (37) 231

Horia CRISTEA

Therefore: S1 = 0

10

1)1(

iiS

++ (38)

∆S = S1 – S0 (39) ∆S = 0

10

1)1(

iiS

++ -S0 (40)

∆S = 0

0010

1)1()1(

iiSiS

++−+ (41)

∆S = )1(

)1()1(

0

0010

iiSiS

++−+ (42)

∆S = )1(

)1(

0

00

iiS

++ (43)

Comment: The wages increase is a done at a level that depends on the reference in-flation index. If the offer is not able to absorb the increase of demand, then inflation is kept at the same level or even in-creased. What happens if the independent variable decreases? In our case W or Q. If productivity decreases, then wag-es in the different industry branches decrease also, but in time. But, the wag-es in the budgetary sectors stay un-changed and generate inflation. The reaction degree or the variabil-ity index can take the following values: gr < > 0 (44) gr = 01

01

WWSS

−− :

0

0

WS (45)

W1 < W0 (46) W1 – W0 < 0 (47) Comment: When S1> S0, gr < 0, and E = S0 (Iw-1)(1-gr) < 0 (48)

The mathematic negative effect is also negative from the economic point of view. We face wages increases when the productivity or production (offer) has decreased. When S1 = S0, gr = 0 the economic effect is a negative one. For S1< S0, the reaction degree has different values that depend upon the deviation between S1 and S0, namely the ratio between the wages index and the independent variable index: gr =

−

− 1:1

0

1

0

1

WW

SS

( ) )1(:1 −−= ws II (49) gr = 1−

−

w

s

IiI (50)

(Iw-1)< 0 (51) If S1< S0 and (Is -1)< 0, the reaction degree can take positive sub-unit or over-unit values, depending on the rela-tive decrease of the two values. When the relative reduction of the wages is smaller than the relative reduction of the independent variable, then the reac-tion degree is a positive under-unit value but the effect is a negative one. When the relative reduction is equal, the reaction degree is equal to one. The mathematic effect is zero and the eco-nomic effects are also zero. Therefore, the employees’ demands regarding the wages can become the cause of disequilibrium in the system if they are not connected to the factors that determine them (namely productivity and production). This disequilibrium is hard to solve or ameliorate and needs lot of efforts.

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VECTORS OF ECONOMIC HARMONY

CONCLUSIONS In the economy, flows and evolu-tions must not be subordinated in a subjective way to any kind of interests. Not only that they do not evolve in a normal, systemic way any longer, but they develop disequilibrium’s that are hard to manage and keep under control. The wages increases mustn’t be conducted according to subjective rules and criteria according to the position held by the employee in a hierarchy. Of course that wages (and therefore pensions) must be sized not only after the law of offer and demand and the production principle but also according to moral, ethic and law values of a state, nation or people. Beside the three principles already presented as vectors of equilibrium or disequilibrium, we could also include

other principles: of social equity, of universality, of decency. The big differences of wages be-tween the employees of the same sector cannot encourage a harmonious eco-nomic and social evolution. The Government must set a minimal sum for the values we’ve talked about. An indicator of the behavior and e-volution of the system’s output at chan-ges of the inputs is the reaction degree. The values took express the beha-vior nature of the dependent variable and the generated effect (Table 1).

Knowing the behavior and gener-ated effects supports the correction deci-sion in the system with the obvious pur-pose of reaching a new equilibrium in the economic evolution. Table 1

Behavior Evolutions and Generated Effects

a) Increase W/Q: W1>W10 Values of the reaction degree:

gr = 1−

−

w

s

IiI

Negative Pozitive under-unit Equal to one Over one

Behavior Regressive Digressive Proportional Progressive E = S0 (Iw-1)(1-gr) Positive

mathematic with implications in economy

Positive mathematic and economic if the inflation does not increase

Mathematic zero and economic positive

Economic negative and generates inflation (Iw-1)> 0; (1-gr) >< 0

b) Decrease W1<W0 or Q1<Q0

(Iw-1)< 0; (1-gr) >< 0 Reaction degree negative Positive under-unit Equal to one Over one

Behavior Wages grow while W decrease

Wages decrease slower than W (digressive)

Proportional decrease

Progressive decrease of the wages

E = S0(Iw-1)(1-gr) (Iw-1)<0;

Negative both mathematic and economic

Negative both mathematic and economic

Zero both mathematic and economic

Positive both mathematic and economic

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Horia CRISTEA

BIBLIOGRAPHY

1. Băbăiţă, Ilie; Grigore Silaşi, Alexandrina Duţă - Macroeconomia, Editura Orizonturi Universitare, Timişoara, 1999

2. Bremond, J.; A. Geledon - Dictionnaire economique et social, 100 Articles thematiques. 1200 Definitions, Ed.Haticr, Paris, 1981

3. Cristea, Horia; Miruna Lucia Năchescu - The estimation of the dependent variable to be reached, Proceedings of the 3rd International Conference „Economy and Transformation Management”, 5-6 Mai 2006, Timişoara, Editura Universităţii de Vest, Timişoara, 2006

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