Overwiev

Systematic Approach
Structure of National Economy

National Planning

20 November 2012

Demographic System
Production System
System of Services
Noosphere

Planning as a function in management

Regulation
National Planning
Budgeting

The Elements of Strategic

Thinking

Strategic Thinking Elements

Thinking in time

Intent Focus
Systems
Perspective

Strategic
Thinking

Intelligent
Opportunism

Future has no where to come from but the past

What matters for the future in the present is departures
from the past, alterations, changes
continuous comparison, an almost constant oscillation
from the present to future to past and back

Thinking in
Time

Hypothesis
Driven

Hypothesis driven
Hypothesis generation poses the creative question
What if. . .?
Hypothesis testing follows up with the critical question
If . . . then.

Intelligent opportunism. The chain: Intended

unrealized, deliberated, emergent Realized
strategy
3

Peter Senge in The Fifth Discipline

Intent focus
A sense of direction.
A sense of discovery.
A sense of destiny.

A system

Systems perspective
"From a very early age, we are taught to break problems apart,
to fragment the world. This apparently makes complex tasks and
subjects more manageable, but we pay a hidden price. We can
no longer see the consequences of our actions; we lose our
intrinsic sense of connection to a larger whole. When we then try
to "see the big picture," we try to reassemble the fragments in
our minds, to list and organize all the pieces. But, as physicist
David Bohm says, the task is futilesimilar to trying to
reassemble the fragments of a broken mirror to see a true
reflection. Thus, after a while we give up trying to see the whole
altogether.
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Ludvig von Bertalanffy describes system

as elements in standing relationship.

All phenomena can be viewed as a web of

relationships among elements, or a system.
All systems, whether electrical, biological, or social,
have common patterns, behaviors, and properties
that can be understood and used to develop greater
insight into the behavior of complex phenomena and
to move closer toward a unity of science

Bella Banathy: System means a

configuration of parts connected and
joined together by a web of relationships.6

A system - definition

Qualities of Living Systems

Russell Ackoff: a set of two or more

elements that satisfies the following three
conditions:

The behaviour of each element has an effect on the

behaviour of the whole
The behaviour of the elements and their effects on
the whole system are interdependent
However subgroups of elements are formed all
have an affect on the behaviour of a whole but none
has an independent effect on it

Human body and economy as systems

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The presence of both structural and genetic

connections in the system
The presence of both coordination and
subordination in the system
The presence of a unique control mechanism (e.g.
central nervous system) working in a probabilistic
manner processing a certain number of degrees of
freedom in the system
The presence of processes which qualitatively
transform the parts together with the whole and
continuously renew the elements
Living systems in general are energy transducers
which use information to perform more efficiently,
converting one form of energy into another and
converting energy into information

Properties of a System

Thinking in the Machine Age

Systems are emergent. The properties and functions of the

elements are not equal to the properties and functions of the
system.

Water Vs. oxygen, hydrogen. Orchestra Vs. instruments.

When element is removed from a whole it loses its emergent
properties. Consider an organ removed from a human body.
Emergence is a creation of new organized wholes which forces
their subsystems to obey a set of critical boundary conditions.
In a hierarchy, emergent properties denote levels

Synergetic effects The system has a higher productivity

because of interaction between elements than an individual
part or the total system always represents more than a sum
of its parts. Concert Solo performance
Factors interaction.

Vary the factors one by one.

Complex and simple systems.
Most important are the interrelations between the solutions of
simple problems than the solutions themselves

Decomposition of a whole to its separated parts

Explanation of the behavior and attributes of each
element
Synthesis of the attributes of different elements to
explain the behaviour of a system as a whole

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Cybernetics and Purposeful

Systems

Studying the object as an element of a higher

level system

The reason explains fully the consequence

The researcher studies the processes and
phenomena in the laboratory separated
from the environment
An acorn an oak-tree. One needs to
consider the soil, humidity, climate.

System Thinking

Cybernetics deals with prediction of the behaviour of a

rational system before a certain response from it
occurs.
Information is regarded as an attribute of an interaction
rather than a commodity stored in a computer
Cybernetic control can be defined as purposive
influence toward a predetermined goal involving
continuous comparisons of current states to future
goals. Control is

Which is the higher level system the element

appertain to
Which are the qualities, functions, what is the
behaviour of a higher level system
Define the behaviour, properties, functions of the
object as a part of a higher level system

Analytical approach provides knowledge

synthetic (systemic) approach explanation.
Analysis is oriented to the structure of a
system, synthesis to the environment

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Information processing
Programming
Decision
Communication (reciprocal)
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General Control Problems in

Cybernetics

Programming in Cybernetics
A program is coded or prearranged
information that controls a process (or a
behaviour) leading it toward a given end
Four levels of programming

To maintain an internal structure (resist

enthropy)
BEING
To complete a goal (inspite of changing
conditions) BEHAVING
To remove bad goals and preserve good
ones
BECOMING
The system may be represented by three
boxes: the black, the grey and the white

DNA and genetical programming

The brain with its cultural programming
The organization with its formal decision
procedure
Mechanical and electronic artefacts with their
algorithms
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The system may be represented by three boxes: the black, the

grey and the white. They represent different degree of knowledge
of the internal working process
The purposeful action performed by the box is its function
Inside each box there are structural components, the static
parts, operating components which perform the processing,
and flow components the matter / energy or information being
processed
Relationships betwee the mutually dependent components are of:

Inputs

White Box

Outputs

Grey Box

First order vitally important cooperation symbiosis

Second order which adds to system performance in a synergetic
manner
Third order applies when seemingly redundant components exist
in order to secure a continued system function

Black Box

Each box contains processes of input, transformation and output

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16

Structure of the National

Economy

Five Elements of Knowledge

The set of inputs. These are the variable parameters
observed to affect the system behaviour
The set of outputs. These are the observed parameters
affecting the relationship between the system and its
environment. They include useful products and waste.
The set of states. These are internal parameters of the
system which determine the relationship between input and
output.
The state transition function. This will decide how the state
changes when various inputs are fed into the system
The output function. This will decide the resulting system
output with a given system input in a given state
The regulatory mechanisms are feedforward and feedback
Feedforward is an anticipatory control action, intended to
produce a predicted, desired state in the future
Feedback is a basic strategy which allows the system to
compensate for unexpected disturbancies

Increasing internet knowledge

Degrees of Internal
Understanding

Basic Terms

National Economic
System
Demographic
System

System of
Services

Noosphere

Production System
Nature
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18

Hierarchical Structure of
Demographic System

Demographic System

The human kind is part of the biosphere

Demographic system arises out of the activities of individuals
in a country committed to biological and social reproduction of
a human being
The exit of the demographic system defines what amount and
kind (educational level, training) of work force is provided to
the production system, to services and noosphere
The entrance of demographic system are the produced goods
an services.

Each satisfied need raises a new one

A satisfied need usually doesnt dye out it is the origin of a new one at a
higher level

Total amount of population,

structure by gender, age,
ethnic group, education,
training, migration,
Nations
stratification by income
Six regions for
planning purposes,
Villages, cities,
26 administrative
regions
districts

Sufficient condition:
mutual casuallity
between them
Environment
Organizations

Families, clans,
households

We have a two-way relationships between demographic and

production system

Necessary condition:
presence of elements

The required amount of goods is defined by standard of life

The possible amount is defined by technological development of
production processes

Groups

Individuals

Elements

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20

Sociological Implications in
Demographic System

Human Development Index

Human development a concept that, according to

the United Nations Development Program (UNDP),
refers to the process of widening the options of
persons, giving them greater opportunities for
education, health care, income, employment, etc.
Human Development Index (HDI) as an absolute index
of social welfare or as a measure of the impact of
economic policies on quality of life
The HDI combines normalized measures of

life expectancy,
literacy,
educational attainment, and
GDP per capita for countries worldwide

In general, to transform a raw variable, say x, into a unit-free

index between 0 and 1 (which allows different indices to be
added together), the following formula is used

X index

where min x and max x are the lowest and highest

values the variable x can attain, respectively
HDI is the average of the following three general indices
Life Expectancy Index (LEI)
Education Index (EI)
Adult Literacy Index (ALI)
Gross Enrolment Index (GEI)
GDP Index

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LE 25
85 25
2
Education Index (EI) EI 3 ALI 13 GEI
ALR 0
Adult Literacy Index (ALI) ALI
100 0
CGER 0
Gross Enrolment
GEI
100 0
Index (GEI)
log GDPpc log 100
GDP Index
GDPI
log 40000 log 100
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LEI

22

HDI Statistics

HDI - methodology
Life expectancy Index

x xmin
xmax xmin

Rank

Country

HDI 2006

Iceland

0.968

Norway

0.968

Canada

0.967

Australia

0.965

Ireland

0.960

Netherlands

0.958

Sweden

0.958

Japan

0.956

Luxembourg

0.956

10

Switzerland

0.955

56

Bulgaria

0.834

179

Siera Leone

0.329

Group

Countrys rank

HDI 2006

High

1 75

0.968 0.802

Middle

76 153

0.798 0.502

Low

153 179

0.499 0.329

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World map indicating Human

Development Index (2008 Update)

Production System
All the activities to exchange substances between
human beings and nature

0.950 and over

0.9000.949
0.8500.899
0.8000.849
0.7500.799

0.7000.749
0.6500.699
0.6000.649
0.5500.599
0.5000.549

0.4500.499
0.4000.449
0.3500.399
under 0.350
not available

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Hierarchical Structure of Production

System
Volume and rate of GDP,
export, import, investments,
consumption

ISIC 4.0
Manufacture of textiles
Manufacture of wearing
apparel
Manufacture of leather and
related products
Cotton, iron;
fabric, steel;
cloth, machine

Macro
Characteristics
Industries
Subindustries
Products

Environment

Organizations

Groups
Elements

Manufacturing is the use of machines, tools and labor to

make things for use or sale.
The term may refer to a range of human activity, from
handicraft to high tech, but is most commonly applied to
industrial production, in which raw materials are
transformed into finished goods on a large scale. Such
finished goods may be used for manufacturing other,
more complex products.

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Structure of Industries according to ISIC

International Standard Industrial Classification

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Subsystems with a criterial and a

crucial role

Active approach toward natural resources (ore production,

felling trees)
Impact on product (metal recovery, sawing logs)
Useful effect from action (forest fire)

A - Agriculture, forestry and fishing

B - Mining and quarrying
C - Manufacturing
D - Electricity, gas, steam and air conditioning supply
E - Water supply; sewerage, waste management and remediation activities
F - Construction
G - Wholesale and retail trade; repair of motor vehicles and motorcycles
H - Transportation and storage
I - Accommodation and food service activities
J - Information and communication
K - Financial and insurance activities
L - Real estate activities
M - Professional, scientific and technical activities
N - Administrative and support service activities
O - Public administration and defence; compulsory social security
P - Education
Q - Human health and social work activities
R - Arts, entertainment and recreation
S - Other service activities
T - Activities of households as employers; undifferentiated goods- and services-producing activities
of households for own use
U Activities of extraterritorial organizations and bodies

http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=27

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Hierarchical Structure of System

Services

Demographic system has a role of criterion.

It defines the social, economic and
ecological expedience
Production system has a crucial role. It
supplies the material inputs for the
existence of the other systems

Volume and rate of services,

export, import, invested capital,
structure of labour force

ISIC 4.0
Accommodation
Food and beverage
service activities

Filling of a tooth,
surgery, legal
advice, performance
in a theater
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Macro
Characteristics
Industries
Subindustries
Services
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4 Is of Services

4 Is of Services
Intangibility the service cannot be touched or
viewed, so it is difficult for clients to tell in
advance what they will be getting.

Inseparability of production and consumption. The

service is being produced at the same time that the client
is receiving it (e.g. during an online search, or a legal
consultation).

The buyer is unable to require the property transfer as in

usual deal of buying selling a good
The payment is to be able to use a facility or perform a
certain action
Airline ticket, payment through bank account

Inconsistency, Heterogeneity services involve

people, and people are all different. There is a
strong possibility that the same enquiry would be
answered slightly differently by different people
(or even by the same person at different times).
It is important to minimize the differences in performance
(through training, standard-setting and quality assurance).
Lawyer legal advice

The service is provided at the place of consumption.

The customer is present and plays a role when the service is
produced
No economies of scale.
Supplying services on scattered markets is an expensive deal.

Inventory, Perishability unused capacity cannot be

stored for future use.
Requires free capacity to meet the demand
Spare seats on one aircraft cannot be transferred to the next
flight

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Typology of Services
Types of
Attributes
Examples
services
The
client
participates
Education
People
in process
oriented
Health care
Require capacity,
physical evidence

Transport
Hotels
Material effect
Cars repairing
Objects
oriented
The object is availabl Installation of
but not the owner
equipment
Require local capacity Shipping
Laundry
Telecommunications
Information Gathering,
processing, transfer. banks, media,
Minimum tangibility
counseling, Internet
and custmer
participation

Noosphere

Standardization
possibilities
Low. Require
participation of
client and local
entity
Higher. The client
is not a participant.
Lower vulnerability
to cultural
differences
Excellent. Supply is
from single point,
virtually
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Properties of knowledge
Pricing and value depends heavily on context. The same
information or knowledge can have vastly different value to
different people, or even to the same person at different
times.
Knowledge when locked into systems or processes has
higher inherent value than when it can "walk out of the
door" in people's heads.
Human capital competencies are a key component of
value in a knowledge-based company, yet few companies
report competency levels in annual reports.
Communication is increasingly being seen as fundamental
to knowledge flows. Social structures, cultural context and
other factors influencing social relations are therefore of
fundamental importance to knowledge economies.
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Vladimir Vernadsky "sphere of human thought".

Activities to create new knowledge and its dissemination in
practice
Knowledge based economy. Unlike most resources that
deplete when used, information and knowledge can be
shared, and actually grow through application.
Laws, barriers, taxes and ways to measure are difficult to
apply on solely a national basis. Knowledge and
information "leak" to where demand is highest and the
barriers are lowest.
Knowledge enhanced products or services can command
price premiums over comparable products with low
embedded knowledge or knowledge intensity.
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The three surfaces of management

Complexes Surface
Vertical relationship
Copper ore, copper wire,
capacitor

Horizontal relationship
Products, services, scientific research
Copper, iron, lead ore

Industries Surface

Spatial Surface
Production of the same product in
different places

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Management in Economy

Functions of Management

Peter Drucker: Management - gives direction to

the organization by providing leadership and
deciding how to use organizational resources
Management is a liberal art it deals with
people, their values, their growth and
development, social structure, the community and
even the spiritual concerns.
Griffin: A set of activities directed at an
organizations resources (human, financial,
physical, and information) with the aim of
achieving organizational goals in an efficient and
effective manner. 1999

Planning
Organization
Motivation
Control
Innovation
Representation

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Social and Behavioural Aspects of

Management

Negative incentives

Stealing is punished. Waste of materials as a stealing.

Work hours. Compulsion

Positive motives

Material higher consumption

Moral higher status.

Competition - cooperation

Individualism.
From equality to competition

Students in their preparation for job seeking informal groups for

studying a specific subject
Runners: individual race relay trace team
Corporation profit centers.

Inside the system we observe the compettition, outside we see

the cooperation
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Planning Basic Principles

Planning Process in
Management
A planning is a process of establishing the
sequence of actions to lead the system to a
desired future state
We plan the exogenous factors, elements,
interrelations.
Planning could be defined as systematic and
longitudinal process of clarification the future
development of a system that involves: analysis of
the contemporary status and trends in
development of the environment, holistic
evaluation of its resources, setting up the goals
and how they could be achieved, aligning the
organization to realize the foreseen future and
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control of the achieved results

National Planning

Holism All the parts should be subordinated to the

whole.

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The government is able to influence

Factory, regional division, corporation

Complex (cluster), industry, region
In horizontal axis functional sections of the plan
In vertical axis between divisions and the company plans

Optimality. Selecting an alternative that approximates

the goal.
Selection of criteria: max: GDP rate, GDP per capita;
min: inflation, unemployment rate
Continuity. The plan have to reflect all the changes in
the environment and the internal factors which were
not considered during the development process
Participation. All the stakeholders should participate in
development of the plan. They should be motivated

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The local authorities

State owned enterprises
Private companies

There are activities independent of

government influence
Direct Orders
Substantial influence
Independent of ascendancy
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Planning and Systems

Properties

The Role of National Planning

To define the goals of development of the

country
Devoting substantial resources to planning
Implication of changes in legal framework
To ensure there is no collision of interests

It reveals the whole picture and the

interrelationship with the environment. Evaluation
of crucial connections. Emergence.
It creates fair field and no favor to realize the
potential of the system. Synergy effect.
It describes the changes, so the system is able to
adapt and survive.
It enhances the interrelationships between
elements, increases motivation based on
understanding of the final goal.
It creates possibilities to control by objective
indicators. Benchmarking. Norms, limits.

To reveal the policy of government and the

course it will be realized

Policy on macro, industrial, local level

Consistency in economic, social, ecological policy
Drawing the stages (horizons) in specific areas:
education, health care, technologies implementation

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44

Complicating Factors in National

Planning

Demerits of Planning

Requires additional resources: human,

material, financial, informational.
It might cause the delay in main
activities. Budget in Mtel.
Too much centralization kills the
enterprise.
Wrong forecasts. Mobile network of third
generation too expensive for
customers.

Liberalization of economic activities and

increasing importance of regulation
Expansion of self-government of local
authorities.
Intensification of connections on global
market arena: allies, organizations. It
influences the national policy.
Extension of uncertainty and risks based
on accelerated environmental changes.

45

Regulation and Planning

46

Regulation Theories
The public interest theory (Pigou 1938 .)
Holds that unregulated markets exhibit frequent failures, ranging
from monopoly power to externalities.
A government that pursues social efficiency counters these failures
and protects the public through regulation: barriers of entry.

Regulation is oriented toward: companies,

financial institutions, corporations from other
countries, non for profit organizations,
associations, people
Regulation of relationships

The public choice theory (Tullock 1967, Stigler 1971,

Peltzman 1976)

Effects of regulation
Relationships between regulators
Subordination of regulators separately and as a whole
to the goals of economic policy

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Sees the government as less benign and regulation as socially

inefficient
Two schools: they differ on the opinion who collects the rents from
regulation
Financing a road surface: either by toll payments or through general
taxes. In both cases collecting funds is meaningless if they are not
used to pave the road
In a political equilibrium, however, each town through which the
road passes might be able to erect its own tollbooth. Toll collectors
may also block alternative routes so as to force the traffic onto the
toll road. For both of these reasons, political toll collection is
48
inefficient

Two Schools in the Public Choice

Theory

Content of a National Plan

The theory of regulatory capture states that advantages

of regulation are for the benefit of industrial associations,
chambers of commerce
Regulation is acquired by the industry and is designed and
operated primarily for its benefit. Stigler
Industry incumbents typically face lower information and
organization costs than do the dispersed consumers.

Tollbooth theory
Regulation is pursued for the benefit of politicians and
bureaucrats
An important reason why many of these permits and regulations
exist is probably to give officials the power to deny them and to
collect bribes in return for providing the permits. (Shleifer and
Vishny, 1993)

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Analysis and forecast on international environment

Analysis and forecast on development of the
country
Creation of goals, objectives, priorities
Macroeconomic development
Development of main industries: manufacturing,
agriculture, electricity, scientific research and
technologies, education, health care, social
insurance
Foreign trade and partners
Space planning
Government and local administrations
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A Budget

Budget Development

State Budget
A budget of the republic
Budget of independent judiciary system
Budget of independent authorities

Sections of the budget

Functional section
Departmental section
Territorial section

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Preparation of a three years budget forecast

Defining the guidelines for composing a budget
Projects of governmental authorities budgets
Projects of budgets of the Supreme Judicial
Council, National Audit Office
Presentation of the project-budget in the Coucil of
Ministers
Presentation of the project-budget in the National
Assembly
Passing in NA of a law on budget
Passing in CM of a decree on budget
implementation
Distribution of budgets of governmental authorities
to their subdivisions
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Summary
System thinking requires planning
procedure as a coordination activity
between elements of a complex economic
system
National economy consists of subsystems:
production, services, noosphere. They are
based on nature and connected with
demographic subsystem.
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