Participatory economics, often abbreviated parecon, is an economic system proposed primarily by activist and political theorist Michael Albert and radical economist Robin Hahnel, among others. It 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, it is described as "an anarchistic economic vision",[1] and it could be considered a form of socialism as under parecon, the means of production are owned in common.
The underlying values that parecon seeks to implement are equity, solidarity, diversity, workers' self-management and efficiency. (Efficiency here means accomplishing goals without wasting valued assets.) 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 must be accompanied by equally important alternative visions in the fields of politics, culture and kinship. The authors have also discussed elements of anarchism in the field of politics, polyculturalism in the field of culture, and feminism in the field of family and gender relations as being possible foundations for future alternative visions in these other spheres of society. Stephen R. Shalom has begun work on a participatory political vision he calls "par polity". Both systems together make up the political philosophy of Participism.
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. 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 Albert and Hahnel argue that by its very vagueness has allowed it to be abused by capitalist ideologues.
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Workers in a Participatory Economy would make decisions about what to do in the workplace according to the above decision making principle, where workers have say in proportion to how much they are affected by a decision. Workplace decisions might be through majority vote, requiring 50% majority. Sometimes a higher percentage, such as a 2/3 majority, or 80%, or even consensus might be needed. For instance, upgrades to a plant that would require a great deal of time and effort for all workers might need greater than 50% vote, as workers would be affected adversely by the decision. Another example is when a decision might have advantages but involves some risk, such as raising a heavy beam while building a bridge that might endanger some workers, but will make the bridge be built faster. Such a decision would seem to require consensus among the affected workers, giving any one worker veto power due to the danger.
Personal decisions of any one worker, such as where to place pictures on their desk, do not require a vote at all, as they affect only one individual.
Some tasks and jobs are more comfortable than others, and some tasks and jobs are perceived as more empowering than others. So, to achieve an equitable division of labour, it is proposed that each individual do different tasks, which, taken together, bring an average comfort and an average level of empowerment. The main goals are to dissolve economic hierarchy and achieve one class of workers, and to empower all to make contributions to the workplace. Hahnel and Albert argue that without balanced job complexes, those with empowering jobs, such as accounting or management, would be able to formulate plans and ideas, while others, such as janitors, would not develop the capacity to do so, neither would they have the training. Without balanced job complexes, people without empowering jobs would most likely end up just ratifying the proposals of empowered workers, and would have little reason to be at a meeting.[2]
As an example of a balanced job complex, someone who works in a publishing house might have a mix of tasks including editing books (empowering), sweeping and cleaning (dis empowering) and even others like driving a truck to deliver books (somewhere in between). The time scale of when these tasks are performed is variable, one might do several different tasks in a week, or do a task like work on an oil rig for several months, then do more empowering work like astronomy for several months. A rough numeric rating system would be developed that would rate each task performed in the economy according to its estimated degree of empowerment.
Albert and Hahnel argue that it is inequitable and ineffective to compensate people on the basis of their birth or heredity, their property, or their innate intelligence. Therefore, the primary principle of participatory economics is to reward for effort and sacrifice.[3] For example, mining work — which is dangerous and uncomfortable — would be more highly paid than office work for the same amount of time, thus allowing the miner to work fewer hours for the same pay, and the burden of highly dangerous and strenuous jobs to be shared among the populace.
Additionally, participatory economics could provide a certain leeway for exemptions from the compensation for effort principle.[3] 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. However, every able adult has the obligation 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 various 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. From this point, incomes for personal 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 the level of danger and strenuousness of a job as assigned by their immediate peers.[3]
Albert and Hahnel proposed the creation and organization of consumer's and producers' councils to implement the decision making principle. Many individuals would participate in both types of councils. These would be similar to workers' councils. Consumers' councils act as decision-making bodies for consumption planning, and producers' councils - which are culminations of several workers' councils - act as decision-making bodies for production planning.
Geographically, consumers' councils would probably be nested within the same neighborhood councils, ward councils, city or regional councils and a country council used for political decision-making through parpolity - parecon's political counterpart. 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 through rotating delegates. 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.
Iteration Facilitation Boards (IFBs) act as management bodies for local consumers' and producers' councils and are the mechanism via which economic allocation is decided upon and ultimately implemented.
Facilitation boards first announce a set of indicative prices which workers and consumers use, individually and through their councils at each level, when deciding on their production and consumption proposals. Proposals could be done either collectively through a local consumer council, or individually on a computer; or any combination of the two. When the proposals are all in, the IFBs aggregate all the production and consumption proposals for the different categories of goods and services – inputs into all the production processes as well as consumer goods – to see if proposed supply and demand are equal. If they are not equal for every good and service the IFB revises the set of indicative prices and the process is repeated through successive rounds until a consistent set of production and consumption proposals is arrived at.
The facilitation boards then implement these final proposals by setting new prices and organizing production plans. In the event of unforeseen circumstances occurring in between planning procedures, the IFBs would adjust prices or production quotas accordingly within established guidelines.
The participatory planning procedure would be a regular (probably either annual, bi-annual or quarterly) event where citizens participate to determine which and how many goods to produce. Prices for goods and services before the onset of the planning procedure would have been determined by the previous planning procedure, modified by facilitation boards as unforeseen circumstances changed production quotas. After the participatory planning procedure is completed, prices will get new base values, likely to be changed again by the boards as unforeseen circumstances develop.
These prices would represent the estimated marginal social opportunity cost for all goods and services. During the planning procedure, not only do the prices reflect proposed supply and demand, but also the social and ecological cost of producing the good. For instance a product that produces pollution in its manufacture, or is especially dangerous for workers to produce, would have its price automatically inflated to discourage excess consumption.
Using new prices estimated by the facilitation boards as a guide, citizens would respond with their personal consumption proposals, and participate in the formulation of collective consumption proposals at the neighborhood, ward, municipal, provincial and national levels. Personal consumption proposals would be a prediction by each citizen of what goods and services they plan to consume the next year. For instance a couple expecting a new baby would request the appropriate goods, and a citizen who enjoys exotic fruit would put in her demand to make sure it is received. Collective consumption proposals would be created by citizens making proposals for a wider geographical area (e.g. a new recreation center at the community level or a new power plant at the provincial level) that are received by a facilitation board.
The facilitation board would work with the citizen(s) that originated the proposal to work it into a manageable proposition. Around the time of the planning procedure, interested parties within the region affected by the collective consumption proposal would be able to view the collective consumption proposals and vote them up or down. This could be done at large meetings or via computer. At the same time, worker's councils and producers councils would respond with production proposals outlining the outputs they propose to produce and the inputs they believe are required to produce them. Individual workers would indicate their proposed hours of work, and workers will be able to propose upgrades and innovations for their workplace, aided by a facilitation board.
Facilitation boards would then calculate excess proposed supply and demand based on the proposals, adjusting the indicative price for each final good or service according to its impact on society and the environment so that the social opportunity cost is reflected. Using the new indicative prices, consumer and workers' councils would revise and resubmit their proposals, as some goods would be more expensive, and others less expensive. Proposals deemed excessive by other parties would become very expensive, creating a disincentive to pursue them.
Iterations would continue according to some predefined method which is likely to converge within an acceptable time delay. For instance, proposals would only be changeable by a minimum percentage for the second round, and a lesser percentage for the third round, and so on, forcing convergence of a feasible plan.
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.
"Money" in a parecon would be more akin to a bookkeeping system than traditional currency. Money as it now exists would be abolished and instead replaced with a personal voucher system which would be non-transferable between consumers, and would be only usable at a store to purchase goods.
Electronic "credits" would be awarded to workers for their work, as a means of saying that this worker benefited society with their work. The more effort and sacrifice, the more credits are awarded. Credits would then be used to buy goods and services. Once used to purchase something, a credit would be deducted from the consumer's total; it "disappears" and does not go into a till or bank, it is simply deducted from the consumer's total. There would be no banks in the capitalist sense. Individuals would have to work more to get more credits. In this way, there would be no flow of money and no way to "make money off of money" as in a capitalist economy. People would be able to borrow credits if approved by an appropriate board, but no interest would be charged.
The non-transferability of parecon credits would make it impossible to bribe or even beg for money.[4] and would thus make monetary theft impossible. People would still be free to barter their individual goods with each other, e.g. exchange a couch for a stereo, but any attempt to create an exchangeable currency would likely be discouraged, as this might lead to attempts to reinstate money and capitalism. Credits might be shareable amongst family members, depending on how the parecon is set up. A lost or stolen "credit" card would not be usable by another person, as presumably there would be means to verify the identity of a citizen at shopping centers.
Albert and Hahnel did not clarify how a currency of this form would be used in international trading with non-parecon countries. If a capitalist country refuses to be paid for their bought goods in this way, it is likely that a parecon nation would use money for international trading, but keep its unique credit currency for internal purposes.
A potential criticism of parecon is that it would increase bureaucracy and reduce timely decision-making. However proponents of parecon argue that capitalist economies are hardly bureaucracy free, with massive administration in corporations and government. In a parecon there would be no banks, advertising, stock market, credit cards etc. This would free up many workers to do tasks associated with facilitation boards. Albert and Hahnel argue that is probable that a similar number of workers will be involved in a parecon bureaucracy as in a capitalist bureaucracy.[5]
Parecon appears to require all workers to attend too many meetings. In the workplace, workers that would not, or hardly ever, attend meetings in a capitalist society would be attending regular meetings. However, Hahnel and Albert argue that capitalist societies are hardly meeting free, with some workers doing little else but attend meetings.[6] Thus, while it would be the case that more people will attend workplace meetings, the total time spent in meetings as a whole might be similar to a capitalist society, as those workers that spend a lot of time attending meetings in a capitalist society are now spending less. Further, concerning meetings for participatory planning, the planning process would last a few weeks, with time off work to participate. Decisions for collective consumption do not require meetings, as voting proposals up or down can be done by computer. Also those not interested in the collective consumption proposals do not have to attend.[6]
There are several ways a parecon might lose efficiency in the workplace. For one, expert and exceptional workers (e.g. exceptional surgeons and scientists) would not be performing their tasks full time. This is most likely an efficiency loss, however, it should be offset by other efficiency gains, such as other workers being more motivated than in a capitalist economy to perform well, since everyone has empowering work.[7] Another possible efficiency loss is a loss of innovation, as an inventor would not profit from patents of their invention. This assumes that the only motivation for innovation is monetary, which is of course debatable. In a parecon, an inventor of a useful technology would benefit from social acclaim and gratitude. Further, in a parecon there would be no work wasted on advertising or banking, freeing the labor of many; another efficiency gain.[6]
Facilitation board members would do very important economic work running the economy, and thus one might think they would gradually take over a parecon. However, it is easy to block this from happening, as board members could be required never to handle proposals that pertain to their own region. It is impossible to bribe board members, due to parecon's unique currency.[4] Board members also work in a balanced job complex where they do disempowering tasks, and any Facilitation Board meeting would be transparent to the public.[8]
Human nature is often seen[9] as too backward and selfish to allow a parecon to work. An underlying philosophy behind parecon is that people are affected by their environment and do selfish things largely due to the institutions they live in. For example, in a capitalist society, a corporation that strives to protect the environment will most likely be out-competed by rival corporations; a corporation that rewards its workers too well will not profit as much as one who strives to cut wages. Simply removing these institutional factors should greatly reduce such antisocial behavior, argue Hahnel and Albert. It is further noted that despite the institutions of capitalism encouraging people to act selfishly, many still give to charity and do other positive ventures, something that should increase in a parecon.[9] The only route to monetary gain in a parecon (if there are people that have only that interest in a parecon) is to work hard and benefit society as a whole.[9]
The current ideas of Farmer's Market, Garage Sales, Flea Markets, or even the individual seated on the corner selling his belongings or art/craft creations would be untenable. Busking would vanish thus depriving the population of local culture. However, if people want buskers to liven up the city, then the service can be provided, they would be paid for their service, but not be able to accept coins or "credits" on the spot. If people want to get rid of excess belongings, they can record that their items were given to someone else and receive compensation for their lost good. The compensation would likely be less than or equal to what they originally paid for the item, thus making it impossible to make a profit. Direct barter for goods is also possible.
It has been debated whether parecon would be able to change prices as demand changes and other factors modify the results of the participatory planning procedure. Albert and Hahnel have argued that this would be done efficiently. Facilitation boards would continually modify prices as time goes on, finding reasons for production shortfalls, production overruns, changes in demand, environmental disasters, etc. and the facilitation boards would adjust prices accordingly. One way to do this would be to adjust prices within council guidelines on a monthly basis as events unfold. Hahnel and Albert note that markets themselves hardly adjust prices instantaneously[10] and contend that a participatory economy should be able to do just as well, or better.
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."[11] Hahnel has also written a detailed discussion of parecon's desirability compared to capitalism with respect to incentives to innovate.[12]
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."[13] 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."[14]
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."[15]
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, are manufactured, distributed and sold, others outside the transaction end up bearing costs in the form of pollution, and resource depletion. This 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 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. 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."[16]
Albert and Hahnel favour Pigovian taxes as long as 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."[17]
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.[18]
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. 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 who have the right to do as they please with it, because 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 through 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. Pareconists believe that the state is unlikely to interfere in the market for the benefit of the public, and advocates interpret economic history as demonstrating 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 plans for corporate-backed coups, such as the Business Plot. 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.
Although participatory economics is not in itself intended to provide a general political system, clearly its practical implementation would depend on an accompanying political system. 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 encourage friendly cooperation and mutual support. This avoidance of power hierarchies puts parecon in the anarchist political tradition. Stephen Shalom has produced a political system meant to complement parecon, called Parpolity
Although parecon falls under left-wing political tradition, it is designed to avoid the creation of powerful intellectual elites or the rule of a bureaucracy, which is perceived as the major problem of the economies of the communist states of the 20th century. Parecon advocates recognize that monopolization of empowering labor, in addition to private ownership, can be a source of class division. Thus, a three-class view of the economy (capitalists, coordinators, and workers) is stressed, in contrast to the traditional two-class view of Marxism. The coordinator class, emphasized in Parecon, refers to those who have a monopoly on empowering skills and knowledge, and corresponds to the doctors, lawyers, managers, engineers, and other professionals in present economies. Parecon advocates argue that, historically, Marxism ignored the ability of coordinators to become a new ruling class in a post-capitalist society[19].
The archetypal workplace democracy model, the Wobbly Shop was pioneered by the Industrial Workers of the World, in which the self-managing norms of grassroots democracy were applied.
While many types of production and consumption may 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:
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