Robin Hahnel on Participatory Economics II

William S. Lear rael at
Tue Oct 27 10:37:19 PST 1998

Following my signature is the second part of Robin's response.


> o Justin claims that Albert and Hahnel "exalt[] 'democratic' form over
> democratic substance" because they see democracy "as a set of
> procedures, valuable for their own sake-indeed, more valuable than
> other things people might want to do with their time". Furthermore,
> according to Justin, ParEcon does not allow people to choose not "to
> spend all their time inputting their [preferences] into computers
> and debating which plans might maximize them".

Nobody has to spend any more time participating than they choose to. And if you do a sloppy job of estimating what you want to consume when you do your request, you will just make more adjustments afterwards with a slight probability that you might be told -- just can't make that adjustment at this late date. There are no "debates" in the planning procedures, just submissions of proposals, votes yea or nay on others proposals, and revisions of one's own proposals. There will be debates including cable TV information sessions [is that too high tech too?? If so, then there might have to be actual meetings, horror!] for members of neighborhoods, cities, etc. to discuss what all members of these collectivities want to request as their public good consumption. But as soon as someone tires of participating or even hearing the debate, just don't turn on the local public goods discussion channel, or don't go to the neighborhood meeting. But notice that these meetings are not discussing personal consumption, they are discussing the consumption of public goods appropriate to each level. What this more democratic and participatory process substitutes for in capitalism is electing politicians who vote at County and City Council meetings what they want to spend local taxes on. I think our proposal is clearly superior to present practice that leads to corruption, disproportionate power for developers and the wealthy who manipulate elected representatives through their control of the bulk of campaign financing, and "rational apathy" for a majority of the citizenry. You know, all the usual lefty critique of so called capitalist political life! And while all get to vote directly on public good proposals in a participatory economy, nobody has to go to any more meetings or listen to any more cable TV information and debating programs than they want to.

> o There seemed to be some relatively unarticulated concerns about
> "trade-offs" between democratic control and efficiency. Perhaps
> a comprehensive definition of what efficiency is and how markets are
> (in)efficient would be good.

I don't want to make general statements about the relationship between participation and efficiency except to point out that while there may be ways in which more participation reduces the efficiency of outcomes, there are also ways in which we know it enhances efficiency. Every study ever done has concluded that the more participation a group of workers have, the more productive they are. Usually even the pretense of giving workers participation raises worker productivity! Also, monitoring and enforcement is likely to be less costly the greater participation because you don't have to police people as much to get them to do things they agreed to do in the first place, and the more participation the more extensive the opportunity for high quality free monitoring by workmates.

I have argued that markets are far more inefficient than mainstream (and market socialists) are willing to admit elsewhere. (Chapter 7 of Quiet Revolution in Welfare Economics, Princeton University Press, 1990, or an article in process called "Listen Marketeer!" I would be happy to email any interested.) So I don't want to go into that here. As far as a definition of efficiency, while I have, and have expressed my reservations, for purposes of this debate I am more than willing to use the standard concept of pareto optimality for allocative efficiency, and the common sense definition of motivational efficiency. I don't think that is what causes any of the disagreements expressed here.

> o Justin Schwartz claims "The problem of accurate data collection is
> ... utterly fatal to the [ParEcon] project quite apart from the
> endless demands on our time that it would involve."

Justin is the only person who has made this charge that I am aware of. And there have been plenty who have stated their criticisms and doubts in writing. Parecon generates higher quality estimates of true social costs and benefits, more effortlessly than any economy ever designed! Most knowledgeable critics of participatory economics acknowledge this, [Herb Gintis, to name one, and he hates participatory economics! Tom Weisskopf to name another, and he respectfully prefers market socialism over participatory economics.] So until Justin can explain why he thinks the quality of the information -- I assume he primarily means the quality of our indicative prices -- is so inaccurate, I have no way to respond.

> o To Joseph Noonan, ParEcon "sounds an awful lot like Ross Perot's
> 'electronic democracy' with referenda on everything. Yuck."

I like referenda. There is a long tradition among democrats with a small "d" and progressive economists that is favorably disposed to referenda rather than electing representatives to make our decisions for us. So this is not one of my more peculiar tendencies. I hate Ross Perot and do not believe he has any serious commitment to democracy. As long as he's on the outs clamoring for democracy will suit his purpose. Once he's in power, I doubt he would have much use for referenda. I don't recall that he ran any of his companies as workers managed firms.

> o Justin Schwartz claims ParEcon would not "be able to generate accurate
> inputs of consumer demand without excessively burdening the consumers
> because people can't make accurate estimates".

I think I've answered this as best I can without giving the long version that I did send Bill Lear.

> o Justin Schwartz claims ParEcon "is rigid, since it requires approval
> and debate up and [down] the line for changes."

Participatory economics tries to require approval by all those affected by a decision, where approval means decision making input in the degree to which one is affected. But that is during the planning process. We do not require approval and debate up and down the line for changes in individual consumption! Most changes can be accommodated within consumer councils or federations. Only changes that require changes in production require consultation with those who have to produce more. Even this is nothing that individuals picking up different amounts than they ordered need concern themselves with -- it is handled by consumer and worker federations.

> Further, because of
> "transactions costs in getting to ... consensus .... [t]here will be
> tendency to avoid the debate and [to live] with a suboptimal set of
> choices."

We don't require concensus. That often does take too long, isn't worth it, and generates incentives to engage in strategic behavior. There are some decisions that will require varying degrees of supermajorities, but for most decisions a majority vote does the trick.

> o Justin Schwartz is worried about privacy when specifying consumption
> needs. He claims that "even if there is no individual identification,
> there will be an understandable reluctance to enter your preferences
> for things of which your community disapproves."

Submit your request to a geographically dispersed anonymous consumption council. By the way, my students when discussing this issue have taken to calling it "the kinky underwear problem." We have discussed it ad nauseum and now feel we have the problem licked.

Or, maybe Justin should either move or consider a little more struggle with his neighbors concerning their overly judgmental attitudes!

> o Justin Schwartz, discussing consumption requests, apparently
> believes that all requests must be approved at a local level before
> being sent "upward" (my term). He seems to believe that if a person
> desires a good that others at the local level do not want, it will be
> impossible for the person to purchase the good. He says "decisions
> about what is made have to be approved at the lower levels before
> being aggregated and sent on several times .... If my preferences for
> the works of Hayek never get past the local level, they will [not] be
> printed, and I will be unable to buy them with what I earn." This
> seems, to me, to confuse how consumption requests are made. I was not
> aware that particular consumption requests were approved, just the
> amount of "effort-money" that you had earned. Whether or not you get
> what you want depends only on your request being within the limits of
> your effort and a producer of the good you want able to supply it.

Bill correctly understands how consumption works. One's local consumption council [neighborhood or anonymous] can only disapprove a consumption request if its social cost is greater than that warranted by the individual's effort rating. They cannot disapprove particular items. If the request is not anonymous they can provide feed back and advice about particular items, but that is all. But once individual request are approved via this process, it is true that the local consumption council then sums the requests into an aggregate request for individual consumption from all those in the council, and forwards that aggregate on along with the average effort work effort rating of the members of the local council.

Whether Hayek will get published in a participatory economy depends on whether or not his work is approved for publication by the councils of writers and/or university councils. Of course they have to deal with consumer federations who provide information on what and who people want to read. Since this is an issue that transcends economics, I also would recommend special provisions to guarantee access to expression in the form of publication, radio, TV etc. for new and minority views. But once Hayek is in print, no council can keep someone from ordering copies.

> o Concerning rewards for work, Justin Schwartz claims Albert and
> Hahnel "do not explain their technique for determining what people
> have 'earned' in any plausible way. This leads back to the problem of
> abstract labor that Marx so unsatisfactorily finessed." Gar Lipow
> responded that Albert and Hahnel "explain exactly their technique:
> that is, "With variations ... they pay everyone exactly the same wage
> per hour". Schwartz replies that "this is hopeless implausible. It's
> exactly Marx's treatment of abstract labor. It's a hopeless irrational
> method of allocating labor, because it does[] not price labor according
> to its economic value or the value of producing it. Skilled machin[i]sts
> are just a lot more expensive than ordinary laborers, and [Albert and
> Hahnel] have no nonauthoritative method of allocating labor to where
> it's needed."

First of all, I am very familiar with the problem of abstract labor and its measurement. But we do not have this problem in a participatory economy.This is an important issue, so let me be very precise. Consumption is according to effort. Effort is whatever the effort rating committee in one's workplace says it is. The procedures effort rating committees go through to come up with their ratings are up to them and the workers council of the particular work place. Self evaluation, peer evaluation, observation, measures of output, changes in output from previous periods, grievance procedures, or tossing coins! -- all of that is up to each workers council to decide. Our idea is that effort is not the same as the value of contribution because people have different talents and educations, and what is fair is to reward effort, or sacrifice, and that's what the committees should do their best to accomplish. Will they get it perfect? No. Will there be complaining? Yes. But they'll estimate effort as best they can and those who are sufficiently dissatisfied will go somewhere else where they're more appreciated.

But this is key. When workers councils are assessed for the social cost of scarce productive resources they use -- to be compared against the social benefits of the outputs they propose to produce with those inputs -- they are "charged" for the work time of particular workers according to those workers' actual social opportunity costs [which for some will be higher than their "effort wage" and for others will be lower than their "effort wage" but this is of no particular consequence.] Where do the estimates of the true social opportunity costs of different categories of labor come from? From the same place the social opportunity costs of all productive inputs come from. They are just one of the indicative prices generated by the participatory planning procedure. To explain how that works I'd have to reproduce a whole welfare theoretic treatise that evaluates the participatory planning procedure [See chapter 5 in The Political Economy of Participatory Planning, Princeton University Press, 1991 -- one of the two books Justin Schwartz read "carefully."] But none have denied our claim that under assumptions much less restrictive than those needed for market economies, our procedure will generate indicative prices that more accurately reflect true social opportunity costs than market prices do. And that list of indicative prices includes "social opportunity cost wages" for every category of labor. THAT is what those who use the scarce productive labor resources are charged. But what workers in any and all labor categories get paid, effectively, depends only on their effort.

> o Justin Schwartz claims that because of the burden of a ParEcon system,
> people would resort to a Black Market.

Why buy something on a black market when you can get it through legal procedures for the same price or less? The problem is NOT with consumers resorting to black markets because they can't get something, or can't get it cheaply through their normal consumption request procedures. There is a potential problem with highly talented or skill individuals who might try to sell their particular labor services on a black market where they might get paid more than they would based on the effort rating their workers council would give them. I have discussed this problem at length elsewhere. In short, economies of scale eliminate this possibility of gain for most people, and a general commitment to economic justice on the part of the populace would reduce the number of buyers in a black market since buying in a black market is participating in economic injustice. Beyond that, anyone who wants should ask me or Bill for the long version of answers to these questions.

> o Justin Schwartz claims that in ParEcon "the big decisions
> would be made by central planners".

There are no central planners. The big decisions are precisely made by the social iterative participatory planning process which is designed to give everyone self-management -- decision making input to the degree they are affected. Iteration facilitation board members make minor adjustments to the plan that participatory planning yielded to fine tune its very last components to guarantee feasibility to save everyone a little time.

> o Justin Schwartz claims that "Coase and Williamson" argue "that at a
> certain point the transactions costs of planning make it more
> efficient to use market relations and vice versa."

I presume that would depend on exactly what kind of planning, no? Besides, those authors were thinking about market economies within which there were firms that made internal decisions by planning. In that context there is presumably an optimal size of the firm based on efficiency considerations alone. That was the tenor of their argument and point. They were not talking about comparing a whole economy based on some particular kind of planning with a market economy.

> o Justin Schwartz believes that the failure of Soviet planned is
> evidence that ParEcon planning will be, at best, difficult. My take on
> this is that to compare the Soviet system to ParEcon is to compare
> apples and oranges. ParEcon is first and foremost a democratic system,
> whereas the Soviet system was least of all a democratic system.

I agree with Bill Lear.

> In
> addition to this, Schwartz claims that "all the changes that [Albert
> and Hahnel] make from Soviet planning add layers of complexity and
> additiona[l] transaction costs. The Soviets system should work better
> than theirs." He claims, curiously, here that ParEcon is somehow
> derived from a Soviet-style system.

Our system is more democratic than the soviet system of central planning which served, by the way, as a negative example, or anti-model, not a positive model for participatory planning. I bet that means we have more transaction costs than the soviet system automatically according to Justin Schwartz and his interpretation of transaction costs. Is Justin saying anything beyond: democratic decision making has more transaction costs than autocratic decision making?

> o Gar Lipow claims that "you have 100% of the vote in your personal
> consumption, 1/tenth of the vote in your workplace team, 1/100th of
> the vote in your workplace." Justin Schwartz replies that "you don't
> have 100% of the vote in your personal consumption. You get to apply
> for what you want made and then you get to receive the next nearest
> thing to what you asked for that comes out of the planning process."

Gar is correct (for work teams of 10 and workers councils of 100). Justin is simply wrong. And consumers have powerful consumer councils and federations to go to bat for them regarding quality and delivery hassles in a participatory economy as well.

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