Participatory economics

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Participatory economics, often abbreviated parecon, is a proposed economic system that uses participatory decision making as an economic mechanism to guide the production, consumption and allocation of resources in a given society. Proposed as an alternative to contemporary capitalist market economies and also an alternative to centrally planned socialism or coordinatorism, it is self-described as "an anarchistic economic vision"[1]. It emerged from the work of activist and political theorist Michael Albert and that of radical economist Robin Hahnel, beginning in the 1980s and 1990s.

However the concept of participatory economics stretches back to classical Marxism.[2] As Marx believed that during the lower phase of communism (socialism), the entire working class would collectively manage the national economy.

The underlying values that parecon seeks to implement are equity, solidarity, diversity, and self-management. It proposes to attain these ends mainly through the following principles and institutions:

Albert and Hahnel stress that parecon is only meant to address an alternative economic theory and that it must be accompanied by equally important alternative visions in the fields of politics, culture and kinship. Stephen R. Shalom has begun work on a participatory political vision he calls "parpolity". Elements of anarchism in the field of politics, polyculturalism in the field of culture, and feminism in the field of family and gender relations are also discussed by the authors as being possible foundations for future alternative visions in these other spheres of society.

Organizational structure

The decision making principle

One of the primary propositions of Parecon is that all persons should have a say in each decision proportionate to the degree to which they are affected by it. For example, an individual who is the only one using a desk at work should have a practically complete control over the organization of his or her desk so long as such organization does not have significant adverse effects on others. The same logic implies that in more socially interactive contexts, decision-making power would be relatively more dispersed and inclusive, distributed in proportion to the degree which actors are impacted by decisions. Robin Hahnel explained the principle using the example of pollution,

"if only the residents of ward 2 of Washington, D.C. feel they are adversely affected by a pollutant released in ward 2, then ward 2 is the relevant region. But if the federation representing the residents of all wards of Washington, D.C. decides that a pollutant in ward 2 affects the residents of all wards, then the entire city of Washington is the relevant region […] However, the above procedure in the annual planning process protects the environment sufficiently only if present residents in the region of impact are the only ones who suffer adverse consequences. While this is the case for some pollutants, it is often the case that future generations bear a great cost of pollution today. The interests of future generations must be protected in the long-run participatory process and by an active environmental movement." [3]

This decision-making principle is often referred to as self-management. In Parecon, it constitutes a replacement for the mainstream economic conception of economic freedom, which the authors have argued is an inadequate and misleading concept, incapable of providing useful guidance for situations where people's freedoms conflict. They argue its very vagueness has allowed it to be abused by capitalist ideologues. In the "ABC's of Political Economy" and "Economic Justice and Democracy", Hahnel offered critiques of the mainstream concept as formulated by Milton Friedman in "Capitalism and Freedom." For example, Hahnel argues that "the first problem with Milton Friedman's way of conceptualizing the notion that people should control their own economic lives is that it merely begs the question and defers all problems to an unspecified property rights system. […] The second problem is that while Friedman and other champions of capitalism wax poetic on the subject of economic freedom, they have remarkably little to say about what is a better or worse property rights system. […] What is entirely lacking is any attempt to develop criteria for better and worse distributions of property rights." [4]

Consumers' and producers' councils

To implement the decision making principle, a parecon would be organized in consumers' and producers' councils. Many individuals would participate in both types of councils. These would be the respective equivalent of workers' councils.

Geographically, these councils would probably be nested with neighborhood councils, ward councils, city or regional councils and a country council. Decisions would be achieved either through consensus decision-making, majority votes or through other means compatible with the principle. The most appropriate method would be decided on by each council.

Local decisions like the construction of a playground might be made in the ward or city consumers' council, probably interacting with both city and countrywide producers' councils. Countrywide decisions, like the construction of a high-speed mass transportation system, would be discussed by the country consumers' council, possibly interacting with a city producers' council in the city where the materials are produced, or countrywide or international producers' councils.

The producers' councils would probably correspond to workplace councils in each workplace and similar workplaces would group into nested councils on successively larger geographical and linguistic scales.

Remuneration for effort and sacrifice

Promoters of participatory economics hold that it is inequitable, and also ineffective, to remunerate people on the basis of their birth or heredity, their property, or their innate intelligence. Therefore, participatory economics advocates as a primary principle reward for effort and sacrifice. Therefore someone who works in a mine — which is dangerous, uncomfortable, and confers no power whatsoever on the worker — would get a higher income than someone who works in an office the same time, thus allowing the miner to work fewer hours and the burden of highly dangerous and strenuous jobs to be shared among the populace.

Additionally, participatory economics recognizes a certain leeway for exemptions from the remuneration for effort principle. It is suggested that people with disabilities who are unable to work, children, the elderly, the infirm and workers who are legitimately in transitional circumstances, can be remunerated according to need. This said, participatory economics posits an obligation for every able adult to perform some socially useful work as a requirement for receiving reward, albeit in the context of a society providing free health care, education, skills training, and the freedom to choose between democratically structured workplaces with jobs balanced for desirability and empowerment.

The starting point for the income of all workers in participatory economics is an equal share of the social product in the form of equal consumption rights for private and public goods and services. From this point incomes for private expenditures and consumption rights for public goods can be expected to diverge by small degrees reflecting the choices that individual workers make in striking a balance between work and leisure time, and reflecting effort ratings assigned by their immediate peers.

Economic planning — feedbacks and successive iterations

Every planning period would begin with the Iteration Facilitation Board {IFB}, using last year's results as a guide, announcing "indicative prices" representing the estimated marginal social opportunity cost for all final goods and services, capital goods, natural resources, and categories of labor. Using these prices as a guide citizens would respond with their private consumption proposals, and participate in the formulation of collective consumption proposals at the neighborhood, ward, municipal, and federation levels. At the same time, worker's councils, industry councils and production federations would respond with production proposals outlining the outputs they propose to produce and the inputs they believe are required to produce them.

Facilitation boards would then calculate excess supply and demand based on the proposals, adjusting the indicative price for each final good or service, capital good, natural resource, or category of labour accordingly. Using the new indicative prices, consumer and worker's councils and federations would revise and resubmit their proposals. Individual worker and consumer councils would continue to revise proposals until they submit one that is accepted by the other councils.

Iterations would continue according to some predefined method which is likely to converge within an acceptable time delay. A feasible plan for the economy is attained when there is no longer any excess demand for any goods, any categories of labor, any primary inputs, or any capital stocks.

The facilitation boards should function according to a maximum level of radical transparency and only have very limited powers of mediation, subject to the discretion of the participating councils. The real decisions regarding the formulation and implementation of the plan are to be made in the consumers' and producers' councils.

Job complexes

Some tasks and jobs are more comfortable than others, and some tasks are more empowering than others. To achieve an equitable division of labour, it is therefore proposed that every person must do different tasks, which, taken together, bring an average comfort and an average empowerment.

For instance, someone who works in a facilitation board for one year might then have to work in a steel plant, or in another uncomfortable workplace of his or her choice, for a year, or else would not get a higher salary than the standard for everyone. This assures that no class of coordinators can develop.

Comparison with other economic systems

Opposition to market alternatives

Free market and rational choice theorists and others argue that any alternatives to the market economy will provide weak incentives. Milton Friedman, for example criticises such alternatives because he does not believe there is any incentive for innovation or production as time progresses. He has argued that it is very difficult and inefficient for planners to guess or approximate values and demand for goods and services and that it is better to let prices float freely by allowing the market to determine them. [5]

Participatory defense

On the notion of informational incentives, Robin Hahnel has argued that “participatory planning is not central planning.” “The procedures are completely different and the incentives are completely different. And one of the important ways in which it is different from central planning is that it is incentive compatible, that is, actors have an incentive to report truthfully rather than an incentive to misrepresent their capabilities or preferences.” [6] Hahnel has also written a detailed discussion of parecon’s desirability compared to capitalism with respect to incentives to innovate. [7] Notably, innovation is sometimes the outcome of cumulative creativity, which might not be legitimately attributed to individuals. In capitalism, patent laws, intellectual property rights, industry structures, and barriers to market entry are institutional features that reward individual innovators while limiting the use of new technologies. Hahnel notes that, in contrast, “in a participatory economy all innovations will immediately be made available to all enterprises, so there will never be any loss of static efficiency.” [8] This position concurs with the more empirically oriented work of Pat Devine, with whom Hahnel has worked as a visiting scholar at Manchester University, and whose work has demythologised Austrian and mainstream theories of entrepreneurship while highlighting the potential for participatory approaches.

Albert and Hahnel have voiced detailed critiques of centrally-planned economies in theory and practice. Yet they would argue that central planning’s dismal performance hardly lets capitalism off the hook. Hahnel further supposes, “the truth is capitalism aggravates prejudice, is the most inequitable economy ever devised, is grossly inefficient — even if highly energetic — and is incompatible with both economic and political democracy. In the present era of free-market triumphalism it is useful to organize a sober evaluation of capitalism responding to Friedman’s claims one by one.” [9]

One reason why proponents of parecon would consider the non-specific criticisms outlined above misplaced is that, unlike historical examples of central planning, the parecon proposal advocates the use and adjustment of price information reflecting marginal social opportunity costs and benefits as integral elements of the planning process. Hahnel has argued emphatically against Milton Friedman’s a priori tendency to deny the possibility of alternatives:

Friedman assumes away the best solution for coordinating economic activities. He simply asserts “there are only two ways of coordinating the economic activities of millions — central direction involving the use of coercion — and voluntary cooperation, the technique of the marketplace.” [...] a participatory economy can permit all to partake in economic decision making in proportion to the degree they are affected by outcomes. Since a participatory system uses a system of participatory planning instead of markets to coordinate economic activities, Friedman would have us believe that participatory planning must fall into the category of “central direction involving the use of coercion.” [10]

The critique of markets

A primary reason why advocates of participatory economics perceive markets to be unjust and inefficient is that only the interests of buyer and seller are considered in a typical market transaction, while others who are affected by the transaction have no voice in it. For instance, the sale of highly addictive drugs, like alcohol and tobacco, is in the interest of the seller and (at least in the short term) in the interest of the buyer, but others outside the transaction end up bearing costs in the form of social problems and medical treatment. When vehicles using fossil fuels, and manufactured, distributed and marketed by pollution-emitting processes, are sold, others outside the transaction end up bearing costs in the form of pollution, and resource depletion, of what may be considered under economics as a common pool good. The market price of such vehicles and drugs does not include these additional costs, which are referred to in economics as externalities. The implications of significant external effects invalidate market efficiency regardless of the economic calculations of market actors because in such cases prices will not accurately reflect opportunity costs.

In contrast to parecon, mainstream economics suggests that the problem of externalities can in large part be addressed by the use of Pigovian taxes — extra taxes on goods that have externalities. If the taxes are set so that the after-tax cost of the good is equal to the social cost of the good, the direct cost of production plus cost of externalities, then quantities produced will tend toward a socially optimal level, according to economic theory. Mainstream economists tend to downplay the prevalence of negative externalities. Hahnel observes, "more and more economists outside the mainstream are challenging this assumption, and a growing number of skeptics now dare to suggest that externalities are prevalent, and often substantial. Or, as E.K. Hunt put it externalities are the rule rather than the exception, and therefore markets often work as if they were guided by a "malevolent invisible foot" that keeps kicking us to produce more of some things, and less of others than is socially efficient." [11]

Albert and Hahnel favour Pigovian taxes as long a market economy is in place, which sometimes appear as green taxes, over other solutions to environmental problems such as command and control, or the issuance of marketable permits. However, Hahnel, who teaches ecological economics at American University, argues that in a market economy it would be predictable that businesses would try to avoid the "polluter pays principle" by shifting the burden of the costs for their polluting activities to consumers. In terms of incentives he argues this might be considered a positive development because it would penalize consumers for "dirty" consumption. However it also has regressive implications since tax incidence studies show that ultimately it would be poor people who would bear a great deal of the burden of many pollution taxes. "In other words, many pollution taxes would be highly regressive and therefore aggravate economic injustice." [12] Therefore, he recommends that pollution taxes be linked to cuts in regressive taxes such as social security taxes. In the end Hahnel argues that Pigovian taxes, along with associated corrective measures advanced by market economists, fall far short of adequately or fairly addressing externalities. He argues such methods are incapable of attaining accurate assessments of social costs:

"Markets corrected by pollution taxes only lead to the efficient amount of pollution and satisfy the polluter pays principle if the taxes are set equal to the magnitude of the damage victims suffer. But because markets are not incentive compatible for polluters and pollution victims, markets provide no reliable way to estimate the magnitudes of efficient taxes for pollutants. Ambiguity over who has the property right, polluters or pollution victims, free rider problems among multiple victims, and the transaction costs of forming and maintaining an effective coalition of pollution victims, each of whom is affected to a small but unequal degree, all combine to render market systems incapable of eliciting accurate information from pollution victims about the damages they suffer, or acting upon that information even if it were known. [13]

The critique of private ownership and corporations

Advocates of Parecon say the basis of capitalism is the concept of private ownership, which confers upon every owner the right to do with their property as they please, even though decisions relating to some property may have unwanted effects on other people.

This concept extends to private property belonging to corporations that are not human, cannot ever die (though they can become bankrupt, go out of business, acquired and merged and therefore cease to exist), and have the ability to pursue profit which may come through the acquisition of power and influence in political matters. In the course of the late nineteenth and early twentieth century, a stepwise juridical revolution made corporations into “juridical persons” with the rights of citizens under the concept of corporate personhood.

At the same time, every corporation has its own set of owners, human or otherwise, who have the right to do as they please with it, as people outside a corporation do not have any right to interfere with its activities while it abides by the law. Although market economists note that all consumers can influence corporations through their own market interactions, or the buying and selling of their goods, services, or even shares, advocates of parecon are unsatisfied with this as this influence has a limited extension, and organization of collective consumer action is difficult in a market economy. The theoretical possibility of the state interfering for the benefit of the public is unlikely, and advocates of parecon interpret economic history to demonstrate that it is more often the other way around, through means of plutocracy. Being huge agglomerations of economic power, large corporations tend to interfere with the decision-making of states by lobbying for legislation and policy that suits their interests or, in many cases, by bribery, or by financing huge propaganda campaigns for the success of some political candidate who would support the corporation’s interests. An example included the corporate slogan “what is good for General Motors is good for America.” In some cases, there have been corporate-backed coups. However, Milton Friedman believes that such corporate lobbying is only possible in states that allow for significant state interference within the economy.

Promoters of parecon hold that the pursuit of private profit and power by these kinds of corporations is not in the interest of the majority of citizens.

Comparison with other socialist movements

Advocates of Parecon say the intention is that the four main ingredients of parecon be implemented with a minimum of hierarchy and a maximum of transparency in all discussions and decision making. This model is designed to eliminate secrecy in economic decision making, and instead encouraging friendly cooperation and mutual support.

Although participatory economics falls under the left-wing political tradition as well as also under the anarchist political tradition, it is described as being specifically designed to avoid the creation of powerful intellectual elites or coordinatorism, which is perceived as the trap into which the economies of the communist states of the 20th century fell. The Industrial Workers of the World, however, pioneered the archetypal workplace democracy model, the Wobbly Shop, in which the self-managing norms of grassroots democracy were applied.

Participatory economics is not in itself intended to provide a general political system, though clearly its practical implementation would depend on the accompanying political system.

While many types of production and consumption might become more localised under participatory economics, the model does not exclude economies of scale.

A few workplaces have been established based on principles akin to parecon, particularly in Canada and the USA:

See also


  1. Albert, Michael Parecon: Life After Capitalism Chapter 19 Individuals / Society
  2. See in particular Marx and Engels, The Critique of the Gotha Programme
  3. Economic Justice And Democracy: From Competition To Cooperation pp. 198-200, Hahnel, Routledge, 2005
  4. Economic Justice And Democracy: From Competition To Cooperation pp. 49, Hahnel, Routledge, 2005
  5. See, Friedman, Milton. 1960. Capitalism and Freedom. See also, Friedman, Milton., and Rose Friedman. 1980. Free To Choose
  6. Economic Justice and Democracy: From Competition to Cooperation, p. 221, Hahnel, Routledge, 2005
  7. Economic Justice and Democracy: From Competition to Cooperation pp. 241, Hahnel, Routledge, 2005
  8. Economic Justice and Democracy: From Competition to Cooperation pp. 240, Hahnel, Routledge, 2005
  9. Economic Justice and Democracy: From Competition to Cooperation ch. 4, Hahnel, Routledge, 2005
  10. Economic Justice and Democracy: From Competition to Cooperation pp. 81, Hahnel, Routledge, 2005
  11. Economic Justice and Democracy: From Competition to Cooperation, 85
  12. Economic Justice and Democracy: From Competition to Cooperation, 274
  13. Robin Hahnel, (2004). "Protecting the Environment in a Participatory Economy". Accessed February 13, 2006.

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