Anarchist Planning: An Interview with Robin Hahnel by Chris Spannos

From ZNet

On April 22, ZNet posted a lecture Robin Hahnel was invited to deliver on April 10, 2010 at a Conference celebrating the 100th Anniversary of the founding of the Confederacion de Trabajadores, CNT, in Barcelona, Spain. The title of the Presentation was “Anarchist Planning for Twenty-first Century Economies: A Proposal.” Chris Spannos asked Robin Hahnel to respond to the following questions about the lecture, which concern whether or not participatory planning can really solve several important problems.

Spannos 1: First, you say that consumer councils and producer councils vote on the proposals of other councils - that they vote them up or down. I don't understand what that means. Surely each council doesn't vote yea or nay on tens or hundreds of thousands of producer proposals and on millions of consumer proposals, as that's impossible. But if it doesn't mean that, then what does it mean?

Hahnel 1: First of all, in a participatory economy the only people who vote on individual consumption proposals are other members of a person’s neighborhood consumption council – and presumably neighborhood councils will elect committees to review proposals from members and people will only serve on this committee from time to time. Individual consumers do not participate in the participatory planning procedure any more than individual workers do. Worker councils and neighborhood consumption councils, and federations of consumer councils participate in the participatory planning procedure by making “self-activity” proposals for their entire council or federation, and voting “yea” or “nay” on other council and federation “self-activity” proposals.

Who decides if a proposal is acceptable or not acceptable in any planning process? One possibility is that some central authority ultimately makes those decisions. That is how it is done in central planning. There may be much back and forth communication between the central planning authority and the production units in the economy, including proposals and counter proposals, but one answer to “who ultimately decides what is acceptable” is “the central planning authority.” Anarchists have long rejected this “solution” for political reasons. (1) It robs worker and consumer councils of autonomy over their own economic activities. And (2) it empowers a central authority to rule over them.

I believe these political reasons are sufficient reasons to reject the central authority “solution” to the “who decides” problem in planning for any libertarian socialist. However, it is worth considering the reasons advocates have always given for why a central authority must be given this power because, while some authoritarians see no political problem with allowing a central authority to make these decisions, other supporters of central planning have long defended this “solution” as a regrettable necessity. The standard reason given is that only a central authority can possess enough information and computing capability to be able to determine if a proposal about what a worker council will produce, and what a neighborhood consumer council will consume, are socially responsible, i.e. are efficient and fair. After all, when a group of workers propose to produce something in a particular way they are asking permission to use scarce productive resources belong to everyone, and unless one knows how valuable those resources would be if used by someone else, how is one to know if this group of workers would be using them as efficiently as they might be? And when a group of consumers propose to consume a long list of final goods and services, unless one knows how much it truly costs society to produce them, how is one to know if what they are asking permission to consume is fair? Advocates of central planning claim that this requires knowing a great deal about the overall economy, and only a central planning authority, and certainly not workers and consumers in their individual councils, can possibly collect and manipulate all the information necessary to make these judgments. Moreover, this argument has been generally accepted by all economists who favor comprehensive planning over market coordination.

I explained in the lecture why this rationale for why a central authority must decide what is acceptable is false. First, the central authority will not be able to gather accurate information about the true capabilities of the worker councils because there is a perverse incentive in central planning for production units to under estimate their true capabilities. Second, the participatory planning procedure, which is an entirely different planning procedure, not only eliminates the perverse incentive inherent in central planning to disguise one’s true capabilities (see my answer to your question below), it also provides all worker and consumer councils with sufficient information so that they can easily determine when any work or consumption proposal is socially responsible, i.e. fair and efficient. So, not only is a central planning authority not capable of making competent judgments about what is a socially responsible production or consumption proposal, it is possible for ordinary people to do so armed with the information generated by the participatory planning procedure.

Spannos 2: You often use the word efficient. I wonder how this word is different in participatory planning than in markets or central planning. For a lot of people that word has very bad connotations of getting as much as possible from workers regardless of effects on them, dropping costs by any means available including not cleaning up pollution, creating shoddy products if you can get away with it, and so on. Can you explain what you mean when you say proposals need to be efficient - presumably it doesn't mean they have to minimize material costs and maximize some kind of material payments while ignoring social, ecological, and even most personal implications for all concerned? But, if not, then what does it mean?

Hahnel 2: Because the word efficiency has been defined and used incorrectly by pro-capitalists many on the Left recoil when they hear it. As you say, Leftists associate “efficiency” with lowering costs by reducing the quality of products and using cheaper technologies even though they pollute more. But if the loss of product quality is greater than the cost saving, then what is efficient is to produce the more expensive but higher quality product! And if the pollution causes more damage than the cost saving from the cheaper but dirtier technology, what is efficient is to use the more expensive technology that pollutes less! Properly defined efficiency means maximizing net social benefits, i.e. any and all benefits to any and all people (present and future) minus any and all costs to any and all people (present and future). There are some important implications:

(a) The proper definition is a good definition. Moreover, Leftists are lucky it is the definition mainstream economics surprisingly has committed to! There are many bad mainstream economists – and tons of pro-capitalist non-economists -- who misuse the word efficiency. But the economics profession is committed to chastising them whenever they do, and we should always point out any who deserve to be chastised by the mainstream economics profession “efficiency police.” We on the Left should insist on a proper definition and proper usage and never let people get away with mis-defining or mis-applying the word efficiency.

(b) Efficiency properly defined is a good thing, and Leftists should favor efficiency. More efficient is better than less efficient, all other things being equal.

(c) But all other things are often not equal. Efficiency is NOT the only economic goal. Efficiency does not guarantee economic justice, or equity. Neither efficiency nor equity guarantees economic democracy or self-management. And neither efficiency, intra-generational equity, nor economic democracy guarantee sustainability. Where Leftists should often disagree with others is over the relative importance of advancing the cause of economic efficiency compared to advancing the cause of economic justice, democracy, or environmental sustainability when these goals conflict. But it is a mistake for Leftists to favor less efficiency over more efficiency if all other worthy goals are affected equally. I know that many on the Left do this, and given how often the word efficiency is abused this is understandable. But “understandable” does not mean “advisable.” Coming across as hostile to efficiency is one of the mistakes many on the Left make.

(d) There is not one definition for efficiency for capitalism, and a different definition for efficiency for participatory economics – any more than there are different definitions for economic justice or economic democracy for different economic systems. The whole point is to define worthy economic goals like efficiency, equity, and economic democracy independent of economic system, and then see to what extent they are achieved or not achieved by different economic systems. When we do this we will discover that capitalism is very inefficient compared to participatory economics, which is one reason, although not the main reason, that participatory economics is better than capitalism. The confusion arises when a capitalist talks about what is efficient for HIM. What is efficient for a capitalist is whatever maximizes his profits since that is his only goal. But whenever profit maximization does not maximize net social benefits then what is efficient for the capitalist is not efficient for the economy, and not efficient as the word is properly defined. I’m sure murders would say more lethal weapons are more efficient, but that does not mean that equipping murders with machine guns instead of pocket knives is more efficient for society!

Now, getting back to your first question which I have yet to answer: Just because every council can now easily determine if the proposals of other councils are socially responsible, just because we have created the objective conditions for allowing everyone to decide what is acceptable and what is not acceptable, does this mean we are really going to allow them all to vote on millions of proposals in every round of the planning procedure?

YES… because the only alternatives are unacceptable. And YES… because 99% of the voting can be done automatically, and 99% of the votes can be taken care of by federations rather than individual councils – so all this voting really takes up very little time.

If worker and consumer councils do not make these judgments either a central authority will, or each council will simply decide for itself. We have already reviewed why giving this power to a central authority is unacceptable – both politically and economically. Why can’t we simply let worker and consumer councils decide whether their own proposals are socially responsible themselves? If they have the information necessary to make this determination, which they will under the participatory planning procedure, why not let them decide about their own proposals? Because they would have perverse incentives to cheat. Worker councils would have a perverse incentive to propose to use resources that make their work easier or more pleasant even though they have information indicating that those resources would be more valuable if used elsewhere. Consumer councils would have a perverse incentive to propose to consume a more socially costly bundle of goods and services than is fair given how hard they worked, even though they have information indicating they would be doing something unfair to others. If they were socially responsible would they do this? No. But if they get to decide on their own proposals there is nothing to prevent them from doing this if they choose to behave in a socially irresponsible way, or more likely, figure out some way to rationalize why behaving irresponsibly isn’t REALLY irresponsible. Here is a useful analogy: Is it a good idea to have people leave open wallets with visible $20 bills on the seats of their cars, and then go off and leave their cars unlocked with the windows open in parking lots? Or is this tempting fate unnecessarily?

If we don’t want to tempt fate we need to give those who would be harmed by socially irresponsible proposals power to veto those proposals. And unless everyone trusts everyone else from the get go, we may discover that many are unwilling to participate in good faith if they do not believe others will do so, and if they have no means of protecting themselves from irresponsible behavior of others. Since we don’t want to give the authority to a central authority (even if the authority has the necessary, accurate information) then we must give it to everyone, i.e. to all the other councils.

But this does not mean every council must vote “yea” or “nay” on every proposal from every council, in every round of the planning procedure – although in theory, and in essence, that is what we are doing. Because 99% of the votes are “no brainers,” so to speak, this does not need to be a contentious, burdensome, and time consuming process. And because we have federations to handle this, for all councils that are members of the federation only councils within the federation need to vote on proposals of other councils within the federation. In other words councils don’t need to vote on 99% of other councils’ proposals – only on proposals of councils within their federation. (This is holds for federations of worker councils as well as federations of consumer councils.)

If a worker council proposal “costs out,” – if its social benefit to social cost ratio is one or higher -- then all the rest of us are better off if they are given permission to do what they have proposed, otherwise we are worse off. Only if one believes the numbers lie because there are special circumstances is there reason not to do an automatic default vote, “yea” if SB/SC > 1; “nay” if SB/SC < 1. There is a similar “no brainer” rule for how to vote on consumer council proposals. So when all those proposals from other councils come in for our approval or disapproval, they all come in with a clear signal as to how we should vote without even thinking about it. All we have to do is tag a few we have doubts about, and for all the rest we just hit the default vote key and we’re done. Only if and when we think there is reason to doubt the numbers do we need to “think” about how to vote, and then possibly vote contrary to the default option.

Nor do we have to do this for millions of different proposals from councils in distant cities and states. If there are 10 neighborhood consumer councils in a ward federation only the other nine neighborhood councils in that ward federation need to vote on each of their proposals. If there are 10 ward federations in a city federation, only the other nine wards in that city need to vote on each ward proposal. Wards will need to check on other ward averages, and cities will need to check on other city averages, but this still eliminates 99% of the proposals any single entity must vote on. In other words, most of the voting can be decentralized and taken care of within federations.

Spannos 3: I know “SB” is somehow social benefit, and “SC” is social cost - but there is no God or authority who provides a number representing each of these for us so that we may know their true value. So why should I, or anyone, think that the number is somehow accurate? And therefore why should I think that the ratio of Social Benefit to Social Cost that the system is reporting is somehow accurate? You say the only reason to doubt it is due to thinking the numbers lie - but doesn’t ignorance, error, and also willful fraud cause numbers to be inaccurate in those instances?

Hahnel 3: How are you, Chris Spannos, going to know whether to vote yea or nay on a work proposal from a worker council where you do not work? How will you know if they are proposing to use scarce productive resources that belong to you as much as them effectively? How will you know that it would not be better to allow some other worker council to use the resources they have asked for instead? How will you know if the work they are proposing to do is fair given how hard you and others have to work? Are you going to read a long letter from the other council about how excited they are about their idea? Are you going to pay them a personal visit? Not when you have to pass judgment on many such proposals, and also participate in preparing and revising your own worker council proposal, and then actually do some work!

You need a quick way to decide if what they have proposed passes muster. If the social benefits of the outputs they will produce exceed the social costs of the inputs they will use then you (and everyone else) will be at least no worse off if you allow them to go ahead. Which is fine and well, provided you have a reasonably accurate estimate of what those social benefits and costs will be. No, those estimates did not come from an omniscient God because there either is none, or She is too busy with other things to send us her list of opportunity and social costs for our economy the way God sent Moses commandments on tablets. But the participatory planning procedure is second best to God. It eliminates fraud because it eliminates perverse incentives present in other mechanisms to generate prices, like markets and central planning. Participants in the participatory planning procedure will harm themselves by providing fraudulent information. The participatory planning procedure is designed to give you the most accurate estimates of opportunity and social costs one could ever hope for short of divine intervention. Those are not market prices you are using to evaluate social benefits and costs. Those are not some arbitrary prices that a planning bureaucrat pulled out of his hat that bear no necessary relation to true opportunity and social costs. Those are the most accurate estimates of opportunity and social costs that humans can hope for because of how they are generated. That is why you will seldom go wrong if you trust them and vote yea or nay accordingly. However, not even the participatory planning procedure can pretend to the accuracy of an omniscient deity. To the extent that even when workers are trying as hard as they can to assess their true capabilities and reveal them in the planning process because to do so is in their personal best interests they make mistakes due to ignorance. So there will be times when the best estimates are inaccurate – when the numbers lie. That is why appeals procedures are needed. But fortunately, we only should need to use appeals procedure in a small percentage of cases.

Spannos 4: More generally, when my consumer and producer council makes a proposal, it sends it into the planning process. Okay, and others react, but what do we get back? And what do we do next? Mostly, how and why does the process come to a conclusion that everyone acts on? The worry here is that while it sounds great morally, socially, etc., maybe in practice it is just too cumbersome to work.

Hahnel 4: After you submit your own proposal, and after you vote “yea” or “nay” on everyone else’s proposals – which really means hitting the default key on 9 other proposals almost always, and voting contrary to the “indicated” response once in a blue moon – you are told if your proposal was voted up or down by others. (Here we have been deliberately vague about what percentage of “yea” votes are needed to approve a proposal. 100% is impractical. 50% seems way too low. People are going to have to figure out what they are comfortable with when the time comes, and this will be an important social decision.) You are also provided with a revised estimate of all the opportunity costs of primary resources and social costs of producing all goods and services that others will use to evaluate your next proposal for what you want to do that you will submit in the next round of planning.

You may be told your last proposal was not accepted when others voted. You may not be surprised because you knew it didn’t “cost out” when you submitted it. But you wanted to submit the proposal anyway as a strong statement about what you really want to do, if not yet, then some day when economic conditions are more favorable, or because you think the numbers lie and you explained that along with the submission. Or, you may be very surprised because you submitted a proposal that “costed out,” so if others did not accept it they must think the numbers are lying in some way or other.

Or you may be told that your last proposal was accepted when others voted. In this case you may still want to revise your proposal because others will judge it next time based on different estimates of opportunity and social costs. This could mean a proposal that was deemed acceptable last round will no longer be this round. Or, even if the same proposal would be deemed acceptable again, you may be able to change the proposal to be more to your liking and it will still be acceptable given the new cost signals. In any case, you make whatever revisions you want. Here is where autonomy is preserved for individual worker and consumer councils. They don’t have to get anyone else’s permission for whatever revisions they want to make or not make. And since there is no central authority who will say “yea” or “nay”-- there is only a vote by all others -- there is no superior political power that will decide if your choice was acceptable or not.

Spannos 5: Suppose the social cost to benefit ratio is one or better for some workplace, and I think the numbers are fair - BUT - I have some reason, or my group has some reason, for believing that while all that is true enough, there are still reasons this workplace should not be permitted to proceed - or, maybe I just want to hold the system hostage, demanding that my preferences pass too. In other words I refuse to vote yes unless others vote yes on mine, in which the ratio is actually less than one, etc. What then?

Hahnel 5: This is where rules for how much of a supermajority is required to approve a proposal come in. Only if consensus were required for approval could a single worker council veto a proposal from another council that all other worker councils had approved. On the other hand, if only 50.1% of all worker councils voted yea, that should not be sufficient. I think those who live in a participatory economy should choose what percentage is sufficient for passage. If enough other councils agreed with you that there was something fishy with the numbers, the the worker council proposal in question gets a more serious review in the appeals process.

BTW: You will not know if your proposal had or had not been approved when you had to vote on others’ proposals, nor will you know which other councils voted against your proposal unless and until your proposal went to an appeals procedure where you would have the right to “confront your accusers.”

Now back to your question 4: To explain why this process will lead to adjustments in proposals that eventually end with a set of proposals that form a feasible plan, and why that feasible plan will be efficient requires some economic theory. We proved this would be the case under specific assumptions in 1991. After 20 years no skeptical economist has claimed otherwise, even though economists presumed before we published the planning procedure in 1991 that such a procedure was impossible. One has to make some assumptions to prove the procedure will converge to a feasible plan, but none that are more restrictive than those needed to conclude that market economies will reach a general equilibrium. And the assumptions necessary to prove that the feasible plan will be efficient are much less restrictive (and more realistic) than the assumptions required to prove that the general equilibrium outcome of a market economy will be socially efficient. It is possible that mainstream economists have simply ignored our claim and proof, and if one of them takes the time some day they will demonstrate that our proof is flawed, but I don’t think that is going to happen.

Spannos 6: You say that participatory planning can arrive at a feasible plan based on assumptions at least as sound as conventional assumptions made about markets. And maybe these and their proofs are important for professional economists. But why is this important for myself and others who are not? Why does it matter and if it doesn’t than why make the comparison? Maybe it is important for reasons I don’t understand? Could you explain please?

Hahnel 6: If a planning procedure cannot be relied on to reach a feasible plan that matters to everyone, not just professional economists, because it means councils and federations could follow the procedure and never arrive at a plan they could then go ahead and carry out. A planning procedure that fails to yield a feasible plan is useless. I simply meant that Leftists who are not economists can leave this issue to economists to guarantee, not that it was not important to those who are not economists. The major assumption that is necessary for a market economy to achieve a general equilibrium that is socially efficient is the absence of all externalities and the non-existence of all public goods. From an efficiency perspective the major advantage of participatory planning over market economies is they will achieve a feasible plan that is socially efficient even when there are externalities and public goods. Since there are many externalities and public goods this is a very big advantage!

Now back to your question 5. Here is a brief explanation that provides the “intuition” for why the procedure will converge to an efficient and feasible plan: Essentially the planning process whittles down overly optimistic individual proposals – proposals that would only be socially responsible if the economy were more productive than it currently is – which are in the aggregate unfeasible because requests to use resources and goods outstrip their availabilities proposals, into a feasible plan where supplies match requests in two different ways: Consumers requesting more than their effort ratings warrant – which is a perfectly natural and unobjectionable thing to do in early rounds -- are forced to either reduce their requests, or shift their requests to less socially costly items if they expect to win the approval of other councils who have no reason to approve consumption requests whose social costs are not justified by the sacrifices of those making them. Similarly, worker councils are forced to either increase their efforts, shift toward producing a more desirable mix of outputs, or shift to a less costly mix of inputs to win approval for their proposals. It is natural and unobjectionable for worker councils to make proposals in early rounds that are neither efficient nor fair in light of today’s circumstances and opportunities. By doing so they express what they would like to be able to do when economic conditions are more favorable. But the procedure will force them to somehow whittle down overly ambitious proposals about how little they want to work and/or how much valuable equipment they would like to use. By multiplying outputs by their estimated use values and dividing by inputs multiplied by their estimated user costs it is possible to calculate the ratio of social benefits to social costs of any worker council proposal. Worker councils whose proposals have lower than average social benefit to social cost ratios will be forced to increase either their efforts or their efficiency to win approval from other worker councils. Efficiency is promoted as consumers and workers attempt to shift their proposals and avoid reductions in consumption or increases in work effort. Equity is promoted when further shifting is no longer productive and approval of fellow consumers and workers can only be achieved through consumption reduction or greater work effort. Each new round of revised proposals are responses to prices that are closer to the price that will equate overall supply (offers to produce) and demand (requests to use) for each good, which moves the overall plan closer to feasibility, and moves the indicative cost signals closer to true opportunity and social costs.

Spannos 7: When you talk about prices clearing supply and demand, many readers will think, “Oh hell, he is slipping markets in under the table. Efficiency, prices, supply and demand - it is just the same old thing.” I hope you understand the source of their doubts, and even if it is a bit repetitious, could you very specifically explain why this isn't the same thing as markets clearing...why it isn't like market prices, market competition, and so on.... You have made very clear participatory planning's difference from central planning allocation, but can you do that for the difference from market allocation too, please?

Hahnel 7: I understand the source of doubts. Many Leftists mistrust and dislike economists. So whenever they hear anyone talking like an economist they assume he or she is an enemy. “Price,” “efficiency,” “supply,” “demand” – must be an asshole. If Leftists want to discuss a post-capitalist economy they are going to have to learn how to think through economic problems that will arise. And that is going to require using some language that economists use. If someone cannot get over that “price” is not necessarily “market price,” then we can use a different word for it. Instead of “the indicative price of a scarce productive resource” we can call it “the estimate of the opportunity cost of using the scarce productive resource.” But then I’ve used another economics word – opportunity cost – which for some is just another turn off. As explained above, it is impossible for ordinary workers and consumers to be the ones who vote yea or nay on the self-activity proposals of others unless the planning procedure generates reasonably accurate estimates of opportunity costs. And for reasons explained above, Leftists should care about efficiency. If Leftists give the impression that they do not care if their post-capitalist economy provides reasonable accurate information that people will need, and use scarce productive resources and human labor that is not always pleasant to perform, sensible people should and will find that off-putting. As for “supply” and “demand,” these are not concepts that apply only to market systems, they must also be used to analyze planned economies. If the planned use of a scarce resource by all production units in a planned economy – i.e. demand for the resource – is larger than the amount of the scarce resource available, i.e. the supply of the resource – then the plan cannot be implemented and carried out. So part of any planning process is figuring out how to bring the demand (to use) and supply of different things into equality.

There are no markets in participatory planning. Instead there is a planning procedure. In a market system anyone can play the role of buyer or seller in any market. Only worker and consumer councils and federations play roles in the participatory planning procedure, and the roles they play are very carefully circumscribed. In a market a single buyer negotiates a deal with a single seller. In participatory planning worker and consumer councils do not negotiate deals one-on-one with one another. Instead, each council makes a self-activity proposal and all councils vote on whether to accept all self-activity proposals.

Spannos 8: A second perhaps related point that confuses me is why a producer council will be accurate in assessing its own assets. Why don't producer councils have an interest in giving a false impression - and therefore why won't they maliciously, or just subjectively, bias the information they provide to ensure their own incomes and conditions?

Hahnel 8: When central planners send cost signals to production units and ask them to respond with work proposals the units know that the more they offer to produce, and the less inputs they request to use, the more demanding will be the production proposal they will eventually be ordered to carry out by the central planning bureau. So naturally, they play a cat and mouse game with the planners. They send back proposals that would be very easy for them to achieve, hoping to trick the central planners, who do not know their true capabilities, into assigning them an production quota that will be easy for them to meet and more than enough inputs to produce it. Then, when they over-fulfill their easy quota, they get extra bonuses.

In participatory planning if a worker council tries to do this, if it proposes to produce less than they could, or asks to use more costly inputs than they really need, they run the risk that their proposal will be voted down because it won’t “cost out.” Their social benefit to social cost ratio will be lower than those of other workplaces because the offered to produce less than they are capable of and asked for more inputs than they truly need, so the other workplaces will be given the resources they request and they will not. The way to get your work proposal accepted in participatory planning is to send in a proposal with a high social benefit to social cost ratio, and you do that by stretching to your true capacities. The penalty for failure to have a work proposal accepted by the end of the planning process is your worker council is disbanded and your members must all look for work elsewhere – in a worker council with other works who know how to work efficiently. (Of course in any real world application of participatory planning there would surely be a preliminary period of “receivership” where worker councils that failed to make or live up to acceptable proposals work along with others sent from the industry federation to help them discover where they are going wrong.)

Spannos 9: For that matter while you don't talk much about wages in the talk, pareconers say that income is for socially valued labor, and is determined by duration, intensity, and onerousness. I get the morality of that, but now I am wondering about the procedure. What prevents me, or me and my workmates, from claiming to work longer than we do? I suspect it has to do with that phrase about socially valuable labor - because what we claim to be doing won't be socially valuable if we are lying...as there is no product from made up work - but, if that's the logic, how is it determined that the output falls short so that some of the claimed work wasn't socially valuable? Who determines what the output should be, for the work to have all been socially valuable? In addition to explaining in the abstract, in general, can you also give an example of an actual workplace, and how it might work out for it?

Hahnel 9: The bottom line is work proposals will not be accepted unless the social benefit (of outputs produced) divided by the social cost (of inputs used, including hours of labor time of different skill categories) is at least equal to one. And any ratio below the average ratio for all workplaces can come under suspicion. Once your workplace has an accepted proposal, then you also have a social benefit to social cost ratio for your proposal. Say it is 1.07. Then you and your co-workers can assign yourselves effort ratings any way you choose, but the average effort rating for all workers in your workplace cannot exceed 107% of the national average effort rating. Proponents of participatory economics recommend assignment based on effort, sacrifice, how onerous one’s work was, etc. because that is what is fair. But in the end workers in councils rate one another as they please given the constraint (in this case) that the average effort rating cannot exceed 107% of the national average. Suppose you all think comrade Joe really deserves a rating of 110% of the national average. You can do good old Joe a favor and give him an effort rating 180% of the national average. But then the rest of you are going to have to accept lower ratings than you would have been able to get if you had instead assigned Joe what you really thought he deserved, 110% of the average national effort rating.

Determination of what is socially valuable and what is not is all taken care of by whatever consumer councils and federations ask for and what they don’t ask for as part of the planning process. If you keep proposing to make things nobody else asks for they will end up with a low price and the social benefits of your proposed outputs will therefore be low. So what keeps workers from “scratching each others’ backs,” so to speak, in the rating process has nothing to do with some external evaluation of what was socially valuable. There is no external evaluation, and what keeps workers from lying to help their workmates is that what they give each other must come out of what the rest of them will get. Also, claiming you are all working more hours than you really are won’t do you any good. In the calculation of the social costs of your inputs you are charged for every hour of labor available to you given your list of council members. If you decide to let people not show up to work, or loaf when they do, that doesn’t reduce the estimate of how much you are costing society by tying up those hours of scarce productive labor resources, it just reduces output and therefore the social benefits of your outputs.

What it comes down to is this: The participatory planning procedure arms everyone else with the information they need to quickly determine if what you are proposing to do is socially responsible. Any work proposal that is socially responsible leaves everyone else better off when you do it, and therefore they have no reason to object if you do it. As long as a proposal is socially responsible it will be approved by others, and within that constraint all worker councils are free to do whatever they please.

Spannos 10: I hope I’m not being too picky…, but, when you say you and your co-workers can assign yourselves effort ratings any way you choose, but the average effort rating for all workers in your workplace cannot exceed the percentage above the national average effort rating that your workplace is above in its contribution to society - I get it. The workplace did, let's say, 110% of what the average for a similar group of workers was - so the total income due to the workers is up to 110% of the average income level - to reflect that they worked that extra 10% in intensity or duration, and then the workers themselves, in the workplace, can decide how to apportion it, taking into account local justice issues, etc. But two things confuse me. First, the average social benefit to social cost ratio can't be 1, because that is the minimum acceptable. No? And second, parecon says my income isn't a function of the value of what I produce, as long as what I produce is socially valued. I get that I and my workmates should get more if we produced more social value by working longer, or harder, or at worse conditions. But what if we did it by having a good idea, or better tools, or some kind of luck, or whatever. Then why is the total income for our plant higher - and if it is, why doesn't that conflict with your approach to determining workers' income?

Hahnel 10: The average SB/SC will be higher than 1.00 which is the minimum ratio that should get approval unless there are special circumstances discovered during an appeal. I was speaking loosely. If the average SB/SC ratio is 1.03, not 1.00, and your worker council SB/SC ratio is 1.10 then the average effort rating for your worker council cannot exceed 1.07 (not 1.10) of the national average effort rating. My bad.

Your second question raises an important choice. There are actually two proposals for how to cap average effort ratings for different worker councils that have been made by supporters of participatory economics, each of which has disadvantages as well as advantages. If the reason a worker council has a higher SB/SC than another is they are working harder or under worse conditions then, as you say, it is fair for their average effort rating to be higher. But if the reason is that they have better tools – or a stickier problem for many people, because their members have better “human capital” – then it would not be fair for them to get higher average effort ratings. The participatory planning process is designed to generate estimates of opportunity and social costs that will properly assess any and all differences in tools and skills. If it does so, then the SB/SC in one place cannot be higher than in another place for the reason you worry about. In effect, the planning procedure evens the playing field with regard to the quantity and quality of inputs different councils have to work with by estimating and assessing a higher opportunity cost for using more productive inputs. But what if the procedure fails to fully assess the differences in the qualities of inputs? Then capping average effort ratings in worker councils by their SB/SC ratios risks being unfair to workplaces where the quality of the inputs is lower but this is not reflected in lower estimates of the cost to society of using them.

The alternative rule is to impose the same cap on average effort ratings for all workplaces. This avoids any danger that that the planning procedure failed to level the playing field for all, but creates a new danger. Is it likely that the average effort rating in all workplaces really will be the same? If workplaces all had thousands of employees this is more plausible, but presumably there will be worker councils with small enough memberships so the “law of large numbers” would not help us out enough. Just as the first rule risks unfairly disadvantaging workplaces with poor quality inputs the participatory planning “pricing system” fails to account for, the second rule risks unfairly disadvantaging workplaces where the average effort really is higher than the national average. There…. I finally said it. Participatory economics is not perfect and not heaven.

Spannos 11: I have always been convinced of the need to get beyond markets, and beyond central planning too, for ecological reasons, among others. But I am not sure I understand just how participatory planning does better for the ecology. You talk about participatory planning using accurate measures of ecological and social effects - but where does the accurate measure come from and how does the accurate measure find its way into the process? How does the effect of using gasoline, say, on the air and health of distant people, affect the price of gasoline for my car, making the price way more accurate than if it was set by a central planner or by market competition?

Hahnel 11: A critical failing of market economies is they provide no quantitative information about how much damage pollution causes so we know how high to set corrective Pigovian taxes. But just because markets do not induce people to reveal how much they are damaged when the environment is permitted to deteriorate does not mean we cannot design a different economic system that generates accurate estimates of pollution damage as part of its normal procedures, and takes these damages into account when deciding what and how to produce. The participatory planning procedure is designed to induce participants to reveal truthfully how much worse off they truly believe they would be if the environment were degraded in different ways, and then charge any who damage the environment as a byproduct of producing socially valuable goods and services for the amount of damage caused.

In the participatory planning procedure used to allocate scarce productive resources and distribute consumption goods in a participatory economy, communities of all who are affected by a particular pollutant are given the right to restrict its emission. These “affected communities” will often coincide with neighborhood consumption councils or federations of consumption councils in geographical territories. These “victims” of pollution have the “property right” not to be polluted in a participatory economy. While an affected community may choose to ban emissions entirely, it can also permit as much emissions as it chooses for which the community will be compensated according to a quantitative estimate of the damages they incur based on the final estimate of the damage per unit of pollutant that emerges from the planning procedure.

In each iteration of the planning procedure the Iteration Facilitation Board, or IFB, quotes a current estimate of the damage caused by releasing a unit of each pollutant. Both enterprises proposing to emit the pollutant and the community of affected parties respond to this “signal.” Enterprises propose how much they want to emit knowing they will be charged for those emissions an amount equal to the current estimate of the damages per unit times the number of units they propose to emit. This means damage from emissions becomes part of production costs, implementing the “polluter pays principle.” The community of affected parties proposes how many units of the pollutant they are willing to allow to be released, taking into account that they will be compensated by an amount equal to the current estimate of the damages per unit times the number of units they allow to be released. In other words, the affected community has a right not to be polluted if they so choose. On the other hand, if they choose to permit a certain amount of pollution to occur they are compensated for the damage they choose to endure. This is important since often the benefits of permitting low levels of emission far outweigh the damages from low emission levels.

Why does the procedure yield an accurate estimate of the damage caused by pollutants, and lead to an efficient level of pollution? In most cases it is reasonable to assume that as emission levels increase the costs to victims of additional pollution rise and the benefits to producers and consumers of permitting additional pollution fall. In which case the efficient level of pollution is the level at which the cost of the last unit emitted is equal to the benefit from the last unit emitted. What will happen if the IFB quotes an estimate of damages that is less than the estimate at which the last unit of emissions causes damages equal to benefits? In this case the affected community will not find it in their interest to permit as much pollution as polluters would like, i.e. there will be excess demand for permission to pollute -- and the IFB will increase its estimate of the damage caused by the pollutant in the next round of planning. If the IFB quotes an estimate of damages that is higher than the estimate at which the last unit of emissions causes damage equal to benefits, the affected community will offer to permit more pollution than polluters will ask permission to emit, i.e. there will be an excess supply of permission to pollute, and the IFB will decrease its estimate of the damage caused by the pollutant in the next round.

There is no incentive for pollution victims to pretend they are damaged either more or less than they really are, or for polluters to pretend they benefit more or less than they really do from being allowed to pollute, because each would fare worse by responding untruthfully than by responding truthfully to the signals sent by the IFB. Consequently, when the IFB adjusts its estimate of the damages for all pollutants until the sum total of requests to pollute equal the permission to pollute, we end up with as accurate an estimate of the true damages caused by different pollutants as can be hoped for, and also the efficient level of pollution.

One might ask why participants won’t try to “game the system” by responding untruthfully in an attempt to influence what the final estimates of pollution damages will be. The short answer is that “polluters” and “victims” are not negotiating with one another directly where they could use “private information” to their advantage. Instead, they are each participating in a procedure where they respond to a “signal” from the IFB not knowing if this will be the final planning round or not. If they try to “game” the system in an attempt to influence the signal in the next round by responding untruthfully they run the risk of having not done the best they could for themselves if the signal in this round equates permission and requests for emissions, and therefore the current round is the last round.

Under traditional assumptions the above 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 polluters and victims to truthfully reveal the benefits and costs of pollution. In other words, the procedure is what economists call “incentive compatible.” Markets accomplish none of these four goals.

Burning gasoline affects everyone on the planet, so the affected parties are everyone on the planet which requires an international treaty to put a price on carbon to prevent climate change. So I want to answer a different specific example that is internal to a national economy. Let’s take emissions of particulate matter which causes regional air pollution. Those affected are represented by the federation of neighborhood consumption councils in the region. Any worker councils who want to release particulate matter in the region must list those emissions among its outputs, their negative value in each planning round is subtracted from the positive value of their other outputs as calculated by the pounds of particulate emissions they have proposed times the current estimate of the damage to all living in the region during that round of planning. The estimate of damages changes in each round, rising if total requests to emit particulate matter are greater than what the regional federation says it will tolerate at the current estimate of damages, and falling if the total requests to emit are less than what the regional federation has offered to permit at the current estimate of damages.

Spannos 12: Finally, your talk explains clearly why there is an issue with long term implications as compared to pretty immediate costs or implications. The latter, we can reasonably assess using current best prices. But long term affects will affect prices, so using current prices can give a distorted picture. Using prices we now have at our disposal will get short run costs right, but not long run benefits and other implications. Is that what you are saying? And if that implies that there needs to be some change away from pure participatory planning in how investments and long run planning occurs, well, okay, what is that change and how do we prevent it from corrupting any other parts of the parecon vision?

Hahnel 12: Investment planning and long-run development planning pose problems we don’t face in annual planning. For several reasons the estimates of what we might call the “social consequences” of individual proposals will be less accurate than the estimates of the social consequences of individual proposals during annual planning. In the case of annual planning “social consequences” boils down to opportunity and social costs – for which rounds of “self-activity” proposals by individual worker and consumer councils will generate accurate estimates. In the case of investment planning what we need to evaluate “social consequences” of different investment proposals are the social rates of return on investments. But rounds of “self-investment proposals” from individual worker councils will not generate nearly as accurate estimates of social rates of return on investments, and estimating the social consequences of long-run development proposals submitted by individual industries is even more difficult.

So what are the implications?

There is no issue of “corrupting other parts of the participatory economics vision.” And there is no reason to change how we conduct annual economic planning at all. As a matter of fact, there is even more reason to conduct annual planning using the participatory planning procedure, which was the major point I was trying to make. These problems do not corrupt the vision, they are simply practical problems with regard to investment and long-run development planning to be overcome as best we can.

What are the practical consequences for investment and long-run development planning?

First, more of investment planning and long-run development planning will have to be carried out by federations and less can be done through self-investment and self-development proposals from individual councils. I think that is unfortunate because it is harder to maintain ordinary worker and consumer interest in planning activity that they engage in through representatives. (Planning by federations is necessarily carried out by representatives from lower level councils to the federation).

Second, more of investment and long-run development planning will take the form of comparing packages of investment proposals from all industries, and development plans for all industries together, rather than investment and development proposals from a single industry, formulated and submitted by that industry as a “self-investment” or “self-development” proposal. I think that is unfortunate because industry representatives generally take more interest in investment options for their own industry than for other industries. But it will be less possible to always consider them in this way because they cannot be as accurately evaluated in this way.

And finally, whereas there is no need for referenda on annual plans -- except to save time and avoid a few rounds at the end of the planning procedure that are only changing things very slightly since the participatory planning procedure will yield a feasible plan without need to resort to referenda – after industry federations in consultation with one another have come up with a few alternative investment plans, and a few different development plans, I think referenda will play a larger role in choosing which development plan and which investment plan we finally adopt. In my opinion the problem with referenda is it gives voters too little information about the different consequences of voting one way or another -- it leads to “blind” voting. But in these cases I believe there is no remedy.

Spannos 13: I know that in a description it has to sound a bit mathematical, but obviously social relations aren't ever so precise as specific numbers and are in any case subject not only to errors, but to unpredictable changes and so on. So how does the annual planning process allow consumers and producers to alter from what the plan settled on - during the course of the year? What happens if there is an unexpected catastrophe, for one thing? But also, what happens if there is a discovery which changes possibilities, or tastes? I want to change my consumption plan because I get sick, or when I get well, or I just learn something I didn't know, or develop a new taste, or there is a new product that comes out, or whatever. How does what people produce and consume change, over the year, from the plan?

Hahnel 13: I don’t think it has anything to do with social relations being imprecise, but rather with uncertainty. People are not omniscient so things sometimes turn out differently than we think they will, and an important thing to ask about any economy is how well it will adjust to unanticipated circumstances.

As an individual consumer in a participatory economy you will simply go into your neighborhood distribution center and pick up what you want when you want it, and at checkout they will record what you have taken. If you take an item you didn’t order, or are consuming an item on a pace that will exceed your approved annual order for the item you will get prompted at checkout and asked if you want to increase your order for that item. You can answer then and there, or say you want to go home and think about it, in which case you will get prompted again the next time you come in. Until you say “yes” your neighborhood distribution center will assume that your initial consumption plan is still intact, and you will be slowing the pace at which you consume the item at some point during the year. If you say “yes,” the amount of the increase you now officially request will get added to your annual consumption order as a debt to society, above or beyond any debt you already took on when your annual consumption order was approved in the first place -- just as anything you pay for with a credit card today is recorded as a debt you own the bank that issued you the credit card in addition to anything you already owed the bank. When you consume less than you ordered of something you are prompted at checkout as well, and if you decide to officially decrease the amount of something in your annual consumption order during the year it will get recorded as a loan from you to society, above and beyond any savings that were part of your planned use of your effort rating. Pretty easy, right?

But how does the economy adjust to your changes? In 1991 when Michael Albert and I wrote Looking Forward continuous inventory planning connecting checkout machines, to store inventory data bases, to suppliers was more idea than reality. Today most stores have and use this technology. So my answer to this question is now different than it was then. Whereas in 1991 consumer federations would have had to serve as clearing houses for consumption changes to see how much one person’s increase was cancelled out by another person’s decrease, and consumer federations would have had to negotiate with industry federations how much production of any item should be increased or decreased compared to the plan when changes among consumers did not cancel each other out, now continuous inventory planning does all this more or less automatically. At the production end a worker council that increases production in response to increased demand beyond what their production plan called on them to do is credited for the increase, which raises their achieved SB/SC ratio above their approved SB/SC ratio, and the cap on their average effort rating. If decreased demand for a good leads to less production the achieved SB/SC ratio will fall below the approved SB/SC ratio and when worker effort ratings are adjusted they will either consume less or go farther into society’s debt if they stick with their own previous consumption plans. So there really is very little if any difference between how the rest of the economy, and the production sector in particular, would adjust to unforeseen changes in a participatory economy, which is planned, than in a market economy, which has no annual production plan to adjust, but makes changes in planned production schedules in light of unforeseen circumstances as well.

Many argue that market systems adjust better than planned economies, and that is an advantage of market economies over planned economies. This was never as true as critics of planning claimed, but it is far less true now than before in any case.

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