Regional socio-economic units would form on the basis of common cultural, geographic, social, and economic factors. Socio-economic units having a regional affinity would group into a federated political state. While the locus of administrative authority would lie with the federation, self-determination over social and economic aspects of life would lie with the socio-economic units, so they could create and control their own development policies.
The productive economy would be organized into three types of enterprises: cooperatives, key industries, and small private enterprises.
1. Cooperatives. Cooperative enterprises would form the core of the economy. Except for a few key industries and for small private enterprises dealing with nonessentials, all production and service activities would be organized under worker cooperatives that are owned and controlled by their workers. Cooperatives increase worker motivation and job satisfaction because they give workers control of their enterprise and a stake in its profits. Where cooperatives have access to the necessary inputs of production — capital, entrepreneurship, skilled labor, and competent management — they out-perform private enterprises. Worker cooperatives are controlled by their worker members on the basis of one member, one vote. All members would own a membership share in the cooperative, giving them a financial stake in the enterprise.
2. Key industries. Strategic, large-scale industries, such as utilities or industries producing important raw materials, would be designated as key industries. Key industries would be controlled either by governmental or autonomous boards, but their internal workings would be managed as in a cooperative. Key industries would operate on a no profit, no loss basis; that is, the state would not subsidize their operation, nor would it extract profits.
3. Small private enterprises. Small businesses would be privately owned. These private enterprises would not be involved with producing or distributing staple commodities.
Economic planning would take place at the central, regional, district, and local levels, but, so far as is practical, planning authority would reside mainly at the local level. The basic unit of planning for most purposes would be a local area called a block. Block boundaries would not be determined on the basis of political considerations, but on the basis of geographic factors, socio-economic requirements, common economic problems, and common aspirations of the people. If planning is undertaken primarily on the block level, it will have the following benefits: First, planners can understand the problems of the area. Second, local leadership can solve problems according to their own priorities. Third, planning will be more practical and give quicker results. Fourth, local grass roots groups can play an active role in mobilizing human and material resources. Fifth, unemployment can be more easily prevented. And, sixth, a balanced economy can be established more readily. Block level planning would be undertaken on the basis of the following five principles.
1. Cost of production. Unit costs of production would be carefully determined, and the cost of producing a particular commodity would not exceed its market value. Every economic enterprise must be economically viable, without need of state subsidy.
2. Purchasing capacity. A major objective of planning would be to increase the purchasing capacity of each person. For this, there must be: (a) availability of commodities according to local demand, (b) stable prices, (c) periodic increases in wages, and (d) steady increase in collective assets (such as roads, electrical supply, and communications system capacity).
3. Productivity. The economy would be organized in such a way that it continuously increases its productivity. There would be maximum production according to the collective need, and full utilization of the productive units. Money would be properly reinvested, and not hoarded or squandered in unproductive ways.
4. Collective necessity. Planners would determine the current and projected needs of the community and form their developmental plan accordingly.
5. Sustainability. Planners should assure sustainable development by assessing the current and future needs of the community and the current and future availability of its resource base, and on this basis regulating the use of resources.
PROUT’s model of development decentralizes economic power in local communities and regional socio-economic units. This fosters economic equity, produces ample consumer goods, guarantees basic necessities for all, and helps maintain sustainability. Decentralized development would follow five basic principles.
1. The resources of a region should be controlled and utilized by local people. Where practical, local people should process raw materials, using these processed materials to produce finished goods, rather than exporting unprocessed resources. The advantages of local control and use of resource include: First, a local economy based on locally-controlled industries that make use of local resources can be planned in a way that assures economic security. Second, excessive import of raw materials leads to drainage of capital that would have greater benefit were it to be circulated in the local economy. Third, economies that are dependent on the export of raw materials are vulnerable to price drops from commodity gluts, product substitution, and changing markets. Fourth, economies that export their raw materials, rather than first processing them, lose the added value that comes from manufacturing finished goods.
2. Production should be based on consumer need, not profit. The motive for economic activity should be to meet consumer needs, not maximize profits. In a consumption-based economy, not only will local people have their material needs better met, there will be more circulation of money in the local economy, stimulating production, jobs, and purchasing capacity. In a consumption-motivated economy goods and services are available, affordable, of good quality, and designed for local tastes and requirements so that human material needs are properly met.
3. Production and distribution should be organized primarily through cooperatives. Cooperatives, by their nature, equitably distribute wealth and decentralize economic power. Because cooperatives tend to serve local needs, there is less uncertainty about product demand. The economic stability created by cooperatives gives local people greater economic security.
4. Only local people should work in and control local economic enterprises. Local people are best qualified to guide the development of local enterprises; outside interests should not interfere with local economies. The local economy should provide employment for local people, not for workers from outside the region. And the economy should fully develop and use the skills and potentialities of local people.
5. Essential commodities should be produced by local enterprises. Local production of staple foods, standard building materials, basic medicines, common clothing, and everyday consumer goods prevents dependency on outside economies for essential commodities. And if goods are locally produced, the local economy will be stimulated, capital will remain circulating in the local economy, and economic self-determination will be strengthened.
Investment capitalization would be generated mainly at the local and regional levels. Capital for large-scale development can come primarily from development bank loans, worker shareholdings, and government grants. Smaller scale development can be capitalized through worker shareholdings, loans from cooperative banks, and bonds issued by cooperatives or cooperative federations.
Trade would be conducted in a manner that avoids large trade deficits and drainage of capital. If need be, locally produced basic commodities would be protected from competition with cheaper goods produced in other regions. Trade in raw materials should be avoided; only finished products should be sold outside a region. This will ensure that the value added during the processing of resources will go mainly to the local economy. Regional economies should be self-sufficient in the production of basic commodities. Except for basic commodities protected from foreign competition, there should be free trade. All local enterprises would be able to conduct international trade, so long as they follow the regulatory trade policies established by the government administration.
The primary sources of government revenue would be taxes on the profits of enterprises. Income taxes would not be used, as they encourage a black economy where earnings go unreported and are more expensive to administer. Nor should there be sales taxes on basic commodities, as such taxes have greater impact on those with less disposable income and therefore increase economic disparity.
For the prosperity of society, incentives are essential to motivate workers to develop and use their full productive capacities. At the same time, rewards should not be so large as to create unnecessary disparity in the society. Minimum and maximum income levels should be set. The minimum level should be adequate to assure purchase capabilities of basic necessities and common amenities according to the prevailing standard. The maximum income level should balance society's need to maintain high worker motivation with its need to distribute wealth equitably. Over time, the minimum and maximum income levels would rise with rising purchasing power, and the range between the minimum and maximum incomes would be dynamically adjusted so as to balance worker motivation on the one hand with economic equity on the other hand.
Currency should be backed by bullion. If the state is required to guarantee the value of money by issuing bullion upon demand, this will check its tendency to engage in excessive deficit spending, which will help prevent inflation. The value of money is in its use, so money should not be allowed to be hoarded or to remain stagnant. There should be global regulation of currencies so that they maintain standard values with respect to each other. of essential commodities would be done through consumer cooperatives, rather than through traders, middlemen, or the government. This reduces the possibility of manipulation of prices, hoarding, and bureaucratic inefficiency in the marketing of products that are necessary for consumers and producers. There should be a free flow of information about consumer products. The decentralization of production and marketing will reduce the opportunity for advertising campaigns designed to manipulate consumer demand.
Distribution of essential commodities would be done through consumer cooperatives, rather than through traders, middlemen, or the government. This reduces the possibility of manipulation of prices, hoarding, and bureaucratic inefficiency in the marketing of products that are necessary for consumers and producers. There should be a free flow of information about consumer products. The decentralization of production and marketing will reduce the opportunity for advertising campaigns designed to manipulate consumer demand.