Other Considerations

International Trade and Investment

The model of a participatory economy is a concrete and comprehensive proposal for how any national economy might be organized to best promote economic democracy, economic justice, solidarity, and environmental sustainability while using scarce productive resources and laboring capacities efficiently. Since we are under no illusion that this would be done in every country at the same time, we assume that any country practicing participatory economics would have to coexist in a global economy where many countries are still capitalist. We propose a guiding principle for how any participatory economy should interact with other economies we call the “50 percent rule.” International trade can be advantageous if there are truly differences in opportunity costs between countries. In which case, the terms of trade distribute the efficiency gain from international specialization between trading partners. Any participatory economy should trade if there are truly efficiency gains. However, to remain true to its commitment to economic justice, a participatory economy should fight to secure terms of trade that distribute more than 50 percent of the efficiency gain to the less developed country. If the participatory economy is less developed than a trading partner, this simply means fighting for the most favorable terms it can secure. But in cases where the participatory economy is more developed than a trading partner, this means agreeing to terms that distribute more of the benefit from trade to its trading partner. The 50 percent rule allows for mutual benefit, but also reduces global inequality.

The same logic applies to international financial investment, which can yield global efficiency gains when investment raises productivity more in the borrowing country than it would in the lending country. As long as the interest rate distributes more than 50 percent of the benefit to the less developed country, international financial investment is consistent with reducing global inequality. Of course, it goes without saying that a participatory economy would play a leading role in an international coalition to make the 50 percent rule a cornerstone of a “new international economic order.” But even before the global economic system is reformed to be fairer, there is no reason a participatory economy could not participate in international trade and investment to its own benefit without violating its fundamental commitment to economic justice as long as it abides by the 50 percent rule itself.

Economic Decentralization: How Much?

When there are differences in the social opportunity costs of producing goods in different countries, or in different regions within a country, specialization and trade can be mutually beneficial. However, a significant part of the present division of labor, both internationally and within countries, decreases rather than increases efficiency. Commercial prices systematically fail to account for external effects leading countries and regions to specialize in producing goods in which they actually have comparative disadvantages. Commercial costs of transportation significantly underestimate the full social cost of moving goods, leading to overspecialization. So it is understandable why many economic visionaries call for a significant decentralization of economic activity and a significant increase in local self-sufficiency. They do so in response to the dysfunctional overspecialization that characterizes today’s economies.

However, supporters of participatory economics differ from many who preach the virtues of localism in that we are agnostic with regard to how self-sufficient versus how integrated different geographical areas should be. There is no doubt that often more internal diversification and self-sufficiency would move us in the right direction. But the question is how much more self-sufficient should economies become? When push comes to shove, local visionaries invariably concede that local regions would be only semi-autonomous. But that leaves two crucial questions unanswered: (1) How large is semi? And (2) how do you propose that the semi part be coordinated? We believe that our participatory planning procedures are the best way to answer both questions. How self-sufficient and how integrated economies will turn out to be under our procedures is difficult to say in advance, or in general, which is what I mean when I say we are agnostic regarding how much decentralization is best. But we are confident that our procedures provide an appropriate way for finding the right mixture of self-sufficiency and integration, and that the participatory planning process is far superior to markets as a way for regions that are only semi-autonomous to arrange whatever degree of dependency they discover is mutually advantageous.[12]

Enterprises: How Big?

Supporters of participatory economics are also agnostic with regard to how large production units should be. While some visionaries cringe at the idea of any large-scale production units, we recognize that there are sometimes significant economies of scale, in which case worker councils with thousands of members may be appropriate. It is important to distinguish between true economies of scale in production and commercial, financial, and monopoly advantages that large producers enjoy in capitalist economies.

Many large corporations today are large not because of economies of scale in production, but instead because larger firms enjoy advantages over smaller firms in advertising, financing, and pricing. Since large worker councils in a participatory economy will not enjoy any of these advantages, and since devising participatory decision-making procedures for large groups is more difficult than for small groups, no doubt there will be fewer large production units and more small and medium-sized production units in a participatory economy than there are today.  But in principle we see nothing wrong with large organizations per se. And, as in the case of self-sufficiency vs. integration, we believe the participatory planning procedure is well suited to discovering when it is advantageous to have larger production units and when it is not.

Work Week: How Long?

Many visionaries emphasize how much shorter the work week will be when productivity is increased and what Herman Daly calls “uneconomic growth” is eliminated, explaining that this will give everyone more time for civic engagement and personal development. We believe a participatory economy will stimulate increases in productivity while eliminating pressures to engage in conspicuous consumption. However, we are agnostic regarding what choice people will make about their consumption leisure trade-off in a participatory economy. First of all, we expect this will depend on a country’s level of economic development. But even in the case of advanced economies, rather than try to identify some number of hours per week we deem will be appropriate, we leave the choice of a standard work week to be decided democratically by people living in any participatory economy. Moreover, we see no reason individuals should not be free to work more or fewer hours than whatever standard is set.

Growth: Good or Bad?

It is important to be very clear about what we are talking about “growing.” As long as we are talking about growth of economic well-being, we see no reason this cannot continue to grow indefinitely. In fact, we believe a participatory economy will not only distribute well-being far more equally, but should increase the rate of growth of well-being per capita as well. What cannot continue to grow “without limit” is what ecological economists call environmental throughput—natural “resources” used as inputs in production processes and material outputs of production stored in natural “sinks.” But material inputs taken from nature and material outputs deposited back in “nature” are not the same as economic well-being. Assuming a constant population and no change in hours worked, a sufficient condition for throughput to remain constant is that throughput efficiency increase as fast as labor productivity.[13]

This is not to say that taking more of our increases in labor productivity as leisure rather than consumption, and substituting less throughput-intensive consumption for more throughput-intensive consumption are not crucial to avoid further environmental degradation. But, as outlined above, a participatory economy promotes exactly these changes. In sum, we see no reason to believe that throughput in general cannot be prevented from increasing, and some kinds of throughput such as carbon emissions cannot be dramatically reduced, while labor productivity and economic well-being per capita continue to rise.

Time Frame and Theory of Social Change

A participatory economy requires replacing private corporations and markets with social ownership and participatory planning. And, a majority of the population must support making these changes for an intensely democratic economy to work. Therefore, we cannot expect to establish participatory economies in most countries in the near future. In most countries, a transition strategy spanning decades will be necessary. However, this is not true everywhere.

For example, in Venezuela the conditions for implementing major features of a participatory economy have been present for some time. A government pledged to build “twenty-first century socialism” enjoyed majority support from the electorate for more than a decade. Moreover, what Venezuelans call their “social economy” already contains many of the institutions necessary to build a participatory economy. What is lacking is a campaign to replace market relations with participatory planning among the cooperatives, assemblies, communal councils, community clinics, misiones, and people’s food stores, all which comprise the social economy sector. Then, once the social economy has been consolidated and integrated by participatory planning among its parts, and once it has proved its superiority, there is no reason a popular government in Venezuela could not soon extend the social economy to replace the dysfunctional private and state sectors. Likewise, the Cuban government could replace its system of authoritarian planning with participatory planning at any time, transforming existing Committees for Defense of the Revolution (CDRs) into neighborhood consumption councils—unleashing at long last the creative self-managing capabilities of Cuban workers and consumers. There is also no reason that progressive governments in other Latin American countries such as Bolivia, Ecuador, and Uruguay could not immediately take steps toward implementing various parts of a participatory economy.

Elsewhere, had the Syriza-led Greek government not submitted to the draconian neoliberal austerity plan, but instead had the courage to launch its own economic recovery plan, its economic program could have built worker and neighborhood councils and the beginnings of participatory planning. The same would be true for a Podemos-led government coming to power in Spain or a Left Bloc government coming to power in Portugal. However, in the US and most countries, popular support for replacing not only neoliberal capitalism, but capitalism itself, will take many decades to build.

Only when a majority are sufficiently disgusted by capitalism and confident that workers and consumers can manage and coordinate their own economic affairs will it be possible to leave capitalism in the dustbin of history where it belongs, moving on to launch an economic system supportive of sustainable, equitable cooperation. In most of the world, this will only happen when economic reform movements such as the labor movement, the anti-corporate movement, the environmental movement, the consumer movement, the poor people’s movement, and the global justice movement have all become much more powerful by earning the support of many more people than they have today. This will only be possible when there are many more successful experiments in equitable cooperation such as worker owned cooperatives, consumer owned cooperatives, community supported agriculture initiatives, egalitarian and sustainable intentional living communities, community land trusts, community development corporations, cities practicing participatory budgeting, B-corps, socially responsible investment funds, and enterprising municipalities that capture the new wealth created by city planning for the citizenry instead of allowing landlords and developers to seize it.

Without the example of successful experiments in equitable cooperation like these, people will never move beyond reform, which never fully solves problems and is always vulnerable to “roll back.” On the other hand, without much larger reform movements, experiments in equitable cooperation will remain isolated and never reach enough people. Broadly speaking, the answer is more powerful reform movements and campaigns, combined with more and larger experiments in equitable cooperation. Neither alone will prove successful, but fortunately each helps mitigate predictable pitfalls in the other.[14]

We needn’t fear for lack of crises in the future. Financialized capitalism, capitalism running on fossil fuels, plutocratic capitalism—in short, modern day neoliberal capitalism—can be counted on to consistently run roughshod over the interests of the vast majority and produce major economic and environmental crises in the process. But these crises will only help move us forward if they lead to larger reform movements and more experiments in equitable cooperation. Crises undermine confidence in ruling elites, but only if new progressive political leadership is ready will this lead forward rather than simply increase popular cynicism.

The goal is clear enough: We must convince a majority of people that ordinary people are perfectly capable of managing our own economic affairs without capitalist employers or commissars to tell us what to do. We must convince a majority of people that groups of self-managing workers and consumers are capable of coordinating their own division of labor through participatory, democratic planning, rather than abdicating this task to the market system or central planners. But how this goal will be achieved, and how people will be prepared to defend necessary changes from powerful, entrenched, minority interests who will predictably attempt to thwart the will of the majority, will vary greatly from place to place. All that can be said about it with any certainty is that in most places it will require a great deal of educational and organizing work of various kinds, given where we are today.

Endnotes

[1] With the help of funding from the Kresge and Compton Foundations, Economics for Equity and the Environment developed a framework for evaluating “future economy” projects and applied it to six very different case studies. The framework, case studies, and a summary of results can be found at “Future Economy,” http://www.futureecon.org.

[2] There are four websites that contain much more information about participatory economics and its relations to other post-capitalist proposals: http://www.participatoryeconomics.info in the UK, http://www.zcommunications.org in the US, http://www.osallisuustalous.fi in Finland, and http://www.parecon.se in Sweden. The most up-to-date book explaining the model is Robin Hahnel, Of the People, by the People (Auckland: Soapbox Press, 2012).

[3] For an in depth justification of these definitions, and reasons to prefer them to other conceptions, see Robin Hahnel, Economic Justice and Democracy: From Competition to Cooperation (London: Routledge, 2005), chapters 1 and 2; Robin Hahnel, “Economic Justice,” Review of Radical Political Economics 37, 2 (2005): 131-154; Robin Hahnel, Green Economics: Confronting the Ecological Crisis (Armonk, NY: M.E. Sharpe, 2011), chapter 3.

[4] For a fuller exposition and justification of this conception of social ownership, see Robin Hahnel, “Participatory Economics and the Commons,” Capitalism Nature Socialism 26, 1 (2015): 31-43.

[5] One could set equal caps for all worker councils. Or, alternatively, one could set the average effort rating for each council equal to 100 times the ratio of the social benefits of the outputs it delivered last year to the social costs of the inputs it used last year. A discussion of the advantages and disadvantages of these different rules for capping average effort ratings in worker councils can be found in Hahnel, Of the People, by the People, chapter 15. But as long as the average effort ratings of worker councils are capped, we need not fear workers will engage in “effort rating inflation,” because to balance higher than average effort ratings for some there must be lower than average ratings for others. For a response to various objections that have been raised about the desirability and practicality of our proposal to base reward on effort, or sacrifice, see Hahnel, Of the People, by the People, chapters 12 and 15.

[6] The annual planning procedure takes place in the context of an investment plan that has already decided what investment goods will be produced this year and how they will be distributed to increase the capacities of different industries and worker councils at year’s end. It also takes place when the stocks of all kinds of natural capital, produced capital, and human capital available for use during the year are known.

[7] In particular, the participatory planning procedure will yield an efficient outcome even when there are externalities and public goods, whereas it is well known that the general equilibrium of a competitive market economy will not. Readers interested in these and other technical issues should see Michael Albert, and Robin Hahnel, The Political Economy of Participatory Economics (Princeton, NJ: Princeton University Press, 1991), chapter 5; Michael Albert and Robin Hahnel, “Socialism As It Was Always Meant to Be,” Review of Radical Political Economics 24, 3&4 (1992): 46-66; Michael Albert and Robin Hahnel, “Participatory Planning,” Science & Society 56, 1 (1992): 39-59. With help from a grant from the Institute for Solidarity Economics in Oxford, England, a team of researchers in the System Science Department at Portland State University and the Computational Social Science Department at George Mason University is analyzing a computer simulation of the planning procedure. Among other things, they are studying how robust the participatory planning procedure is even when traditional “convexity” assumptions break down.

[8] Erik Olin Wright raises concerns about practicality, particularly regarding consumption planning in Robin Hahnel and Erik Olin Wright, Alternatives to Capitalism: Proposals for a Democratic Economy (New York: Verso Books, 2015), chapter 2, to which I respond in chapter 3. For a thorough discussion of “why not markets?” see Robin Hahnel, “The Case Against Markets,” Journal of Economic Issues 41, 4 (2007): 1139-1159; Robin Hahnel, “Why the Market Subverts Democracy,” American Behavioral Scientist 52, 7 (2009): 1006 – 1022; Hahnel and Wright, Alternatives to Capitalism: Proposals for a Democratic Economy chapter 5.

[9] See Robin Hahnel, “Wanted: A Pollution Damage Revealing Mechanism,” Review of Radical Political Economics (2016), http://rrp.sagepub.com; Robin Hahnel, “Environmental Sustainability in a Sraffian Framework,” Review of Radical Political Economics (2016), http://rrp.sagepub.com for an in-depth analysis of this procedure and demonstration that under traditional assumptions the procedure will: (1) reduce pollution to “efficient” levels, (2) satisfy the “polluter pays principle,” (3) compensate the actual victims of pollution for the damage they suffer, and (4) induce “communities of affected parties” to truthfully reveal the extent to which they are damaged by pollution–none of which market systems accomplish.

[10] For a discussion of how we propose that investment and long-run development planning be organized, see Hahnel, Of the People, by the People, chapter 16.

[11] Juliet Schor, The Overspent American (New York: Basic Books, 1998).

[12] For a sympathetic critique of eco-localist visions, see Robin Hahnel, “Eco-localism: A Constructive Critique,” Capitalism, Nature, Socialism 18, 2 (2007): 62-78.

[13] See Hahnel, “Environmental Sustainability in a Sraffian Framework” for a rigorous demonstration of this result in a Sraffian framework and an explanation of how it can help sort out the “sense” from the “nonsense” in the steady-state and de-growth literatures.

[14] For a more extensive discussion of ideas about theories of social change and transition strategy, see Hahnel, Economic Justice and Democracy: From Competition to Cooperation and Hahnel and Wright, Alternatives to Capitalism: Proposals for a Democratic Economy, part 2.