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Participatory Economics

Michael Albert


According to most economists, the activities of separate groups of producers and consumers can be coordinated by markets or by authoritarian planning—but there is no "third way." Those who call for planning by producers and consumers themselves only delude themselves and others. Economic pundits claim it is impossible to democratically plan a complex modern economy. Alec Nove threw down the gauntlet in no uncertain terms in The Economics of Feasible Socialism (London: George Allen and Unwin, 1983):

I feel increasingly ill-disposed towards those who ... substitute for hard thinking an image of a world in which there would be no economic problems at all (or where any problems that might arise would be handled smoothly by the associated producers...). In a complex industrial economy the interrelation between its parts can be based in principle either on freely chosen negotiated contracts [i.e., markets], or on a system of binding instructions from planning offices [i.e., central planning.] There is no third way.

We disagree. The truth is that socialism as originally conceived has never been tried, but not because it is impossible. Council communists, syndicalists, anarchists, and guild socialists fell short of spelling out a coherent, theoretical model explaining how such a system could work. Our predecessors frequently provided stirring comparisons of the advantages of a libertarian, nonmarket, socialist alternative compared to capitalism and authoritarian planning. But all too often they failed to respond to difficult questions about how necessary decisions would be made, why their procedures would yield a coherent plan, or why the outcome would be efficient.

In two recent books we set out to rectify this intellectual deficiency by demonstrating that a non-hierarchical, egalitarian economy in which workers' and consumers' councils coordinate their joint endeavors themselves—consciously, democratically, equitably, and efficiently—was, indeed, possible. In The Political Economy of Participatory Economics (Princeton University Press, 1991), hereafter Participatory Economics, we presented a theoretical model of participatory planning and carried out a rigorous welfare-theoretic analysis of its properties. In Looking Forward: Participatory Economics for the Twenty First Century (South End Press, 1991), we examined the intricacies of participatory decision-making in a variety of realistic settings, described day-to-day behavior, and treated a number of practical issues conveniently ignored by theoretical models.

The most common argument against the participatory economic system–based on democratic workers and consumers councils, remuneration according to effort, balanced job complexes, and participatory planning—have heretofore been to insist that it is impossible. But recently the focus of criticism has changed. Recent critics have not challenged the technical feasibility of our model. None has argued that our planning procedure is incoherent, or incapable of yielding a feasible plan under assumptions traditionally granted other theoretical models. None has claimed that "participatory planning" as we spell it out would fail to generate reasonable estimates of social costs and benefits, even though there is no private ownership of productive resources and no market. Nobody has argued that we erred in concluding there are incentives for consumers to use relatively less costly goods and place socially responsible limits on their overall consumption requests in our system. None has challenged our conclusion that enterprises would have to make efficient use of resources and inputs they receive under the procedures of participatory planning. Instead of the old argument that such an economy is impossible, critics have turned to challenging the desirability of such a system. In other words, to all intents and purposes critics have dropped the claim that a non-hierarchical, egalitarian, libertarian, nonmarket economy is impossible, and begun to argue instead that it is not the kind of economy they and others would want to live in.


Objections to a Participatory Economy

There are too many meetings: First, we offer Pat Devine's response to this objection to his version of democratic planning:

In modern societies, a large and possibly increasing proportion of overall social time is already spent on administration, on negotiation, on organizing and running systems and people. This is partly due to the growing complexity of economic and social life and the tendency for people to seek more conscious control over their lives as material, educational and cultural standards rise. However, in existing societies much of this activity is also concerned with commercial rivalry and the management of the social conflict and consequences of alienation that stem from exploitation, oppression, inequality and subalternity. One recent estimate has suggested that as much as half the GNP of advanced Western countries may now be accounted for by transaction costs arising from increasing division of labor and the growth of alienation associated with it [D. North, "Transaction Costs, Institutions, and Economic History," in the Journal of Institutional and Theoretical Economics, 1984].

Thus, as Pat Devine points out in Democracy and Economic Planning (Boulder, Col: Westview Press):

There is no a priori reason to suppose that the aggregate time devoted to running a self-governing society ... would be greater than the time devoted to the administration of people and things in existing societies. However, aggregate time would be differently composed, differently focused and, of course, differently distributed among people.

Second, we quote from David Levy's review of Looking Forward in Dollars & Sense (November 1991):

Within manufacturing firms we find echelons of managers and staff whose job it is to try to forecast demand and supply. Indeed, only a small fraction of workers directly produce goods and services. The existing system requires millions of government employees, many of whom are in jobs created precisely because the market system provides massive incentives to engage in fraud, theft, environmental destruction, and abuse of workers' health and safety. And even during our `leisure time' we must fill in tax forms and pay bill. Critics of Looking Forward's complex planning process should examine the management of a large corporation. Large corporations are already planned economies; some have economies larger than those of small countries. These firms supplant the market for thousands of intermediate products. They coordinate vast amounts of information and intricate flows of goods and materials.

In sum, "meeting time" is far from zero in existing economies. But for a participatory economy we can break the issue down into meeting time in workers' councils, meeting time in consumers' councils, meeting time in federations, and meeting time in participatory planning.

Conception, coordination, and decision-making is part of the organization of production under any system. Under hierarchical organizations of production, relatively few employees spend most, if not all, of their time thinking and meeting, and most employees simply do as they're told. So it is true, most people would spend more time in workplace meetings in a participatory economy than a hierarchical one. But this is because most people are excluded from workplace decision-making under capitalism and authoritarian planning. It does not necessarily mean the total amount of time spent on thinking and meeting rather than doing would be greater in a participatory workplace. And while it might be that democratic decision-making requires more "meeting time" than autocratic decision-making, it should also be the case that less time is required to enforce democratic decisions than autocratic ones. It should also have been clear from our discussion of participatory workplaces in chapters two and seven of Looking Forward that meeting time is part of the normal work day, just as it is for managers and supervisors in existing economies, not an extra burden and infringement on their leisure.

Regarding the organization of consumption, we plead guilty to suggesting that these decisions be arrived at with more social interaction than in market economies. In our view, one of the great failures of market systems is that they do not provide a suitable vehicle through which people can express and coordinate their consumption desires. It is through a layered network of consumer federations that we propose overcoming alienation in public choice combined with isolated expression of individual choice that characterizes market systems. Whether this will take more time than the present organization of consumption depends on a number of trade-offs.

Presently economic and political elites dominate local, state, and national public choice. For the most part they operate free from restraint by the majority, but periodically time-consuming campaigns are mounted by popular organizations to rectify matters when they get grossly out of hand. In a participatory economy, people would vote directly on matters of public choice. But that doesn't require a great deal of time, or mean attending meetings. Expert testimony and differing opinions would be aired through a democratic media. Individuals with strong feelings on particular issues would presumably participate in such forms, but others would be free to pay as much or as little attention to these debates as they wished.

We also believe the amount of time and travel devoted to consumption decision-making in our model would be less than in market economies. Consumer federations could operate exhibits for people to visit before placing orders for goods that would be delivered directly to neighborhood outlets. And serious R&D units attached to consumer federations would not only provide better information about consumption options but a real vehicle for translating consumer desires into product innovation. While the prospect of proposing and revising consumption proposals within neighborhood councils might appear to require significant meeting time, we tried to explain in chapter four of Looking Forward why, with the aid of computer terminals and rather simple software packages, this needn't take more time than it takes people currently to prepare their tax returns and pay their bills. In any case, nobody would have to attend meetings or discuss their neighbors' opinions regarding consumption requests if they chose not to; the existence of greater opportunities for efficient social interaction prior to registering consumption preferences could be utilized or ignored as individuals chose; and time necessary for consumption decision- making would be treated like time necessary for production decision-making—as part of one's obligations in a participatory economy, not part of one's leisure time.

But how much meeting time is required by participatory planning? Contrary to critics' presumptions, we did not propose a model of democratic planning in which people, or their elected representatives, meet face-to-face to discuss and negotiate how to coordinate their activities. Instead we proposed a procedure in which individuals and councils submit proposals for their own activities, receive new information including new indicative prices, and submit revised proposals. Nor did we suggest meetings of constituents to define feasible options to be voted on. Instead we proposed that after a number of iterations had defined the major contours of the plan, the professional staffs of iteration facilitation boards would define a few feasible plans within those contours for constituents to vote on without ever meeting and debating with one another at all. Finally, we did not propose face-to-face meetings where different groups would plead their cases for consumption or production proposals that did not meet normal quantitative standards. Instead, we proposed that councils submit qualitative information as part of their proposals so that higher-level federations could grant exceptions should they choose to. Moreover, the procedure for disapproving proposals is a simple yes-or-no vote of federation members rather than a rancorous meeting.

But while we do not think the criticism of "too many meetings" is warranted, we do not want to be misleading. Informed, democratic decision-making is different than autocratic decision-making. And conscious, equitable coordination of the social division of labor is different than the impersonal law of supply and demand. We obviously think the former, in each case, is far preferable to the latter. But this is not to say we do not understand this requires, almost by definition, more meaningful social intercourse.

The system is too intrusive: In "A Roundtable on Participatory Economics," in Z (July/August 1991), Nancy Folbre referred to this problem as "tyranny of the busy-body" and "dictatorship of the sociable." In a class one of us taught, the issue came to be known as "the kinky underwear problem." Nancy Folbre also cautioned of the potential inefficiency of groups dominated by the sentiment, "Let's not piss anybody off." David Levy observed that while Looking Forward reminded him in some respects of Ursula LeGuin's novel, The Dispossessed, readers should be warned that LeGuin's subtitle was "An Ambiguous Utopia" because "reliance on social pressure rather than material incentives create a lack of initiative, claustrophobic conformity, and intrusiveness." In comradely private communication, Tom Weisskopf cautioned against "sacrificing too much individuality, specialization, diversity, and freedom of choice." What is the source of these misgivings, and how do we respond?

For us it is important to distinguish between misgivings that any and all participatory processes may be "too intrusive" and the criticism that some of our specific measures are more socially intrusive than need be. First, let us reiterate features of our model designed to protect the citizenry from tyrannical busy-bodies. Beside being free to move from one neighborhood to another, consumption proposals justified by one's effort rating cannot be vetoed. While there is nothing but a motion to close debate to prevent a busy-body from carrying on about someone else's consumption request, it is difficult to understand why people would choose to waste their time listening to views that had no practical consequence. Individuals can also make anonymous consumption requests if they do not wish their neighbors to know the particulars of their consumption habits. In workers' councils, balancing job complexes for empowerment should alleviate one important cause of differential influence over decision-making. Rotating assignments to committees also alleviates monopolization of authority. On the other hand we stopped short of calling for balancing "consumption" complexes for empowerment, and refused to endorse forcing people to attend or remain at meetings longer than they found useful. An apt analogy is the saying, "You can lead a horse to water, but you can't make it drink." We had every intention of leading people to participate, but no doubt, some will drink more deeply from the well of participation than others, and those who do will probably influence decisions disproportionately. Even so, those who are more sociable would have a difficult time benefiting materially from their efforts, and the anti-social should suffer no material penalty. In any case, better dictatorship of the sociable with no material privileges than dictatorship of the propertied, dictatorship of the bureaucrats and party members, or dictatorship of the better-educated.

We also fail to understand why our proposal is not seen as thoroughly libertarian. People are free to apply to live and work wherever they wish. People can ask for whatever consumption goods and services they desire and distribute their consumption over their lives however they see fit. People can apply to whatever educational and training programs they want. And any individual or group of individuals can start a new living unit, consumer council, or worker council with fewer "barriers" to overcome than in any traditional model. The only restriction is that the burdens and benefits of the division of labor be equitable. That is why people are not free to consume more than their sacrifice warrants. And that is why people are not free to work at job complexes that are more desirable or empowering than others enjoy. It may be that some chafe under these restrictions, or find them excessive. We certainly never suggested they be forced on a citizenry against their will. We simply believe the logic of justice requires these restrictions on "individual freedom," just as the logic of justice places restrictions on the freedom to profit from private ownership of productive property. As citizens in a participatory economy we would argue and vote for these restrictions until convinced otherwise.

The system misfocuses priorities: Pat Devine criticizes our model for overly concentrating on popular participation in small and local decisions at the expense of larger social issues. In private communication Peter Dorman put the issue somewhat differently: "Since democracy is not easy or costless to practice, we should economize on its use."

Obviously, we would be unhappy with a model that diverted people's participatory energies from more important issues to more trivial ones. And in retrospect, we can see how our exposition could lead people to conclude we attach too little importance to long-term development and investment decisions. In Participatory Economics we were anxious to demonstrate that participatory planning was more likely to achieve allocative efficiency than traditional alternatives. Accordingly, we concentrated on a static model without resorting to the typical artifice of pretending the conclusions apply to many time periods as well. In Looking Forward we wanted to explain what a participatory economy would "feel like" to ordinary citizens. So we mostly discussed day-to-day production and consumption concerns and how they would be handled.

But our intent was that the procedures of participatory planning should also be used to formulate long-run plans. Once again the options are: (1) relegate long-run planning to the vagaries of the market place, (2) entrust long-run planning to a political and technical elite, or (3) permit councils and federations of workers and consumers to propose, revise, and reconcile the different components of the long-run plan.

There is an extensive and compelling literature to the effect that laissez-faire market systems are least appropriate for long-run development decisions. Indeed, traditional socialist critics of capitalism such as Maurice Dobb and Paul Sweezy were most convincing when arguing the theoretical advantages of planning over markets to achieve growth and development. Even the terribly flawed Soviet version of planning demonstrated important advantages over market economies in this regard. Moreover, every historical case of successful development by a "late comer" has been an example of the efficacy of planning rather than laissez faire, ideological claims to the contrary notwithstanding.

Rejecting the vagaries of the marketplace, if the political and technocratic elite is not chosen democratically, the dangers and disadvantages are obvious. But even if those who are entrusted to conceive and negotiate the long-term plan are chosen democratically, as they are, for example, in Pat Devine's vision of "negotiated coordination," there would be less room for popular participation than under the procedures of participatory planning. Since we agree with Devine that choosing between transforming coal mining so as to dramatically improve health and safety, replacing highway travel with a high-speed rail system, or transforming agriculture to conform to ecological norms—not all of which can be done at once—has an important impact on people's lives, we are anxious that popular participation be maximized in these matters.

So, as always, the issue comes down to how can ordinary people become best involved in a particular kind of decision-making? In our view, the federation of coal miners, the federation of rail workers, the federation of automobile makers, the federation of agricultural workers, and the transportation, food, and environment departments of the national federation of consumers should all play a prominent role in formulating, analyzing, and comparing the above alternatives. In our view, even regarding major, long-term choices, people participate best in areas closest to their personal concerns, and participatory planning is designed to take advantage of this. This is not to deny that everyone would vote on major alternatives. Nor do we deny there is an important role for expertise. But besides the professional staffs of iteration facilitation boards, professionals in R&D units working directly for the above federation would play an active role in defining long-term options. And with the aid of relatively accurate indications of social costs and benefits, we believe workers and consumers through their councils and federations can play a prominent role in long-term planning just as they can in annual planning and managing their own work and consumption.

The system provides insufficient incentives: Our model of a participatory economy is designed to maximize the motivating potential of non-material incentives. There is some reason to hope jobs designed by workers will be more enjoyable than ones designed by capitalists or coordinators. There is every reason to believe people will be more willing to carry out tasks they themselves proposed and agreed to than assignments handed them by superiors. There is also every reason to believe people will be more willing to perform unpleasant duties conscientiously when they know the distribution of those duties as well as the rewards for people's efforts are equitable.

But all this is not to say there are no material incentives in our model. As we explained [in previous chapters], one's efforts will be rated by one's peers who have every interest in seeing that those they work with work up to their potentials. Moreover, one's effort ratings in work will affect one's consumption rights.

It is true we do not recommend paying more to those with more education and training since we believe it would be inequitable to do so. But that does not mean people would not seek to enhance their productivity. First of all, the cost of education and training would be born publicly, not privately. So there are no material disincentives to pursuing education and training. Secondly, since a participatory economy is not an "acquisitive" society, respect, esteem, and social recognition would be based largely on "social serviceability" which is enhanced precisely by developing one's most socially useful potentials through education and training.

The same logic applies to innovation. We do not support rewarding those who succeed in discovering productive innovations with vastly greater consumption rights than others who make equivalent personal sacrifices in work. Instead we recommend emphasizing direct social recognition of outstanding achievements for a variety of reasons. First, successful innovation is often the outcome of cumulative human creativity for which a single individual is rarely entirely responsible. Furthermore, an individual's contribution is often the product of genius and luck as much as diligence, persistence, and personal sacrifice, all of which implies that recognizing innovation through social esteem rather than material reward is superior on ethical grounds. Second, we are not convinced that social incentives will prove less powerful than material ones. It should be recognized that no economy ever has or could pay innovators the full social value of their innovations, which means that if material compensation is the only reward, innovation will be under-stimulated in any case. Moreover, too often material reward is merely a symbol, or imperfect substitute, for what is truly desired, social esteem. How else can one explain why those who already have more wealth than they can consume continue to strive to accumulate more? In any case, these are our opinions. Actual policy in a participatory economy would be settled democratically in light of results.

Nor do we see why critics believe there would be insufficient incentives for enterprises to seek and implement innovations, unless they measure a participatory economy against a mythical and misleading image of capitalism. Sometimes it is presumed that innovating capitalist enterprises capture the full benefits of their successes, while it is also assumed that innovations spread instantaneously to all enterprises in an industry. When made explicit it is obvious these assumptions are contradictory. Yet only if both assumptions hold can one conclude that capitalism provides maximum material stimulus to innovation and achieves technological efficiency throughout the economy. In reality innovative capitalist enterprises temporarily capture "super profits" (in Marxist terms) or "technological rents" (in neoclassical terms) which are competed away more or less rapidly depending on a host of circumstances. Which means that in reality there is a trade-off in capitalist economies between stimulus to innovation and the efficient use of innovation, or a trade-off between dynamic and static efficiency.

In a participatory economy, workers have a "material incentive," if you will, to implement innovations that improve the quality of their work life. This means they have an incentive to implement changes that increase the social benefits of the outputs they produce, or reduce the social costs of the inputs they consume, since anything that increases an enterprise's social benefit to social cost ratio will allow the workers to win approval for their proposal with less effort or sacrifice on their part. But just as in capitalism, adjustments will render any advantage they achieve temporary. As the innovation spreads to other enterprises, as indicative prices change, and as work complexes are re-balanced across enterprises and industries, the full social benefits of their innovation will be both realized and spread to all workers and consumers.

The faster the adjustments are made, the more efficient and equitable the outcome. On the other hand, the more rapid the adjustments, the less the "material incentive" to innovate and the greater the incentive to "ride for free" on others' innovations. While this is no different than under capitalism, a participatory economy enjoys important advantages. Most important, direct recognition of "social serviceability" is a more powerful incentive in a participatory economy, which reduces the magnitude of the trade-off. Second, a participatory economy is better suited to allocating resources efficiently to R&D because research and development is largely a public good that is predictably under-supplied in market economies but would not be in a participatory economy. Third, the only effective mechanism for providing material incentives for innovating enterprises in capitalism is to slow their spread, at the expense of efficiency. This is true because the transaction costs of registering patents and negotiating licenses from patent holders are very high. But while we would recommend it only as a last resort, the transaction costs of delaying the recalibration of work complexes for innovative work places, or even granting extra consumption allowances for a period of time would not be high in a participatory economy.

In general, we find much of what parades as scientific opinion about incentives plagued by unwarranted assumptions. We are neither as pessimistic about the motivational power of non-material incentives in an appropriate environment as many of our fellow radicals have become. Nor do we see any inappropriate obstacles to the deployment of material incentives in a participatory economy should its members decide they are warranted. In the end we are quite comfortable with the very traditional socialist view that a mixture of material and social incentives would be necessary during the process of creating an equitable and humane economy. But that social progress hinges, in part, on the diminishing reliance on material incentives.



The issue is simple: