Saturday, September 29, 2007


It been a while since I have posted, but for my first post back I am going to do something a little different and talk about a purely economics issues, instead of political or political economy one. I am going to talk about a relatively new form of left wing economics, which has in particular shown up in the Green Party, Participatory economics(Parecon). The information that I am going to be using for this comes mainly from the wikipedia entry on participatory economics,

First here is the definition that wikipeida has for participatory economics. “often abbreviated parecon, is a proposed economic system that uses participatory decision making as an economic mechanism to guide the production, consumption and allocation of resources in a given society. Proposed as an alternative to contemporary capitalist market economies and also an alternative to centrally planned socialism or coordinatorism, it is described as "an anarchistic economic vision"[1]. It emerged from the work of activist and political theorist Michael Albert and that of radical economist Robin Hahnel, beginning in the 1980s and 1990s.”

First lets look how production decision are made under Parecon

“To implement the decision making principle, a parecon would be organized in consumers' and producers' councils. Many individuals would participate in both types of councils. These would be the respective equivalent of workers' councils. Geographically, these councils would probably be nested with neighborhood councils, ward councils, city or regional councils and a country council. Decisions would be achieved either through consensus decision-making, majority votes or through other means compatible with the principle. The most appropriate method would be decided on by each council. Local decisions like the construction of a playground might be made in the ward or city consumers' council, probably interacting with both city and countrywide producers' councils. Countrywide decisions, like the construction of a high-speed mass transportation system, would be discussed by the country consumers' council, possibly interacting with a city producers' council in the city where the materials are produced, or countrywide or international producers' councils. The producers' councils would probably correspond to workplace councils in each workplace and similar workplaces would group into nested councils on successively larger geographical and linguistic scales.”

The problem that this system has it the same that all command economic have in that they really on a relatively small group of people to decided what should be produced, how it should be produced and how much should be produced. Robin Hahnel on of the developers of Parecon has argued that since the decision making process is distributed among a number of decision making bodies that it is not central planned, and he is right that technically its not but the problems that face planned economics are the same regardless of whether or not they are centralized or decentralized, they still produce economically inefficient distributions of economic resources relative to market economics. In the market the distribution of resources is decided by the interaction of a large number of producers and consumers, in many case one individual or group is both a producer and consumer. While no single entity in the market has complete or perfect information, they do all have some information and the market combines that information and then produces a set of prices for goods and services and then consumer use this information to decide what they want to buy and how much and producers decide what to produce, how much to produce, and what inputs to use, worker decided how much they want to work, ect. The problem is that since no single group has complete information and the set of information is constantly in flux, centralized planners are unable to make economic efficient allocations of resource.

Next we will look at the problem with wages under Parecon:

“Promoters of participatory economics hold that it is inequitable, and also ineffective, to remunerate people on the basis of their birth or heredity, their property, or their innate intelligence. Therefore, participatory economics advocates as a primary principle reward for effort and sacrifice. Therefore someone who works in a mine — which is dangerous, uncomfortable, and confers no power whatsoever on the worker — would get a higher income than someone who works in an office the same time, thus allowing the miner to work fewer hours and the burden of highly dangerous and strenuous jobs to be shared among the populace. Additionally, participatory economics recognizes a certain leeway for exemptions from the remuneration for effort principle. It is suggested that people with disabilities who are unable to work, children, the elderly, the infirm and workers who are legitimately in transitional circumstances, can be remunerated according to need. This said, participatory economics posits an obligation for every able adult to perform some socially useful work as a requirement for receiving reward, albeit in the context of a society providing free health care, education, skills training, and the freedom to choose between democratically structured workplaces with jobs balanced for desirability and empowerment. The starting point for the income of all workers in participatory economics is an equal share of the social product in the form of equal consumption rights for private and public goods and services. From this point incomes for private expenditures and consumption rights for public goods can be expected to diverge by small degrees reflecting the choices that individual workers make in striking a balance between work and leisure time, and reflecting effort ratings assigned by their immediate peers”

The first problem with this is that assumes the value of good is derived from how much effort by labor goes into production, when in reality the value of all goods is subjective and derived from what consumer are willing to pay for good at each quantity that is produced, water while extremely important for life is relatively cheap because there is a lot in most areas and precious gems that often have limited uses are relatively expensive because they are rare. Labor like all other inputs derives it value from its share of the value of the good produces, ie it’s the value of labor or any other input comes from the role it plays in producing a good or service. The only role that danger plays in the value of labor is that a dangerous job will have to pay some kind of premium over jobs that require a similar skill set but are less dangerous in order to attract workers. For the example of the miner and the office worker, while the job of the miner is undoutably far more dangerous than that of the office worker, in many cases the value of the product produced by the office worker is more valuable than that of the miner, so the value of the labor of the office is worth more than that of the miner in this case.

The second problem that Parecon faces when it comes to wages is that ignores that wages play in producing an incentive for people to pursue higher levels of education. Education is costly, not just in money, but also in time, mental stress, ect, and the opportunity to gain higher wages is one of the reason that many people undertake additional education. Under the Parecon system there would be little incentive for people to pursue additional education since wages are linked to effort of labor, its danger and how uncomfortable it is, since highly educated jobs tend to be less physically strenuous and less dangerous they would not command the same wage premium that they do under market economics and the long run effect would be fewer people pursuing higher levels of education.

Now let’s look at how Parecon would destroy many of gains from the division of labor:

“Some tasks and jobs are more comfortable than others, and some tasks are more empowering than others. To achieve an equitable division of labour, it is therefore proposed that every person must do different tasks, which, taken together, bring an average comfort and an average empowerment. For instance, someone who works in a facilitation board for one year might then have to work in a steel plant, or in another uncomfortable workplace of his or her choice, for a year, or else would not get a higher salary than the standard for everyone. This assures that no class of coordinators can develop.”

The division of labor means that people specialize in one particular area of work, by doing so they gain expertise and experience in it and become more productive and people tend to be attracted to jobs in areas was that they are naturally good at. Historically the division of the labor has been one of the major factors that have driven economic growth and this economic growth has been the main reason that people now have a far higher standard of living than in the past, and the continued specialization of labor has helped to increase productivity in many industries, benefiting the economy and society in general. The Parecon system by forcing people to rotate jobs would eliminate many of the gains from the division of labor, people would have little incentive to gain expertise in a particular job since they are just going to be rotated to another one in a year or so and even if they wanted to gain expertise in one particular field by rotating people in and out of vastly different jobs it would be impossible to gain the experience necessary to increase their productivity.

Secondly it would discourage people from pursuing high levels of education since what is the reason to give up the time and energy to obtain a specialized level of education when you are just going to be rotated between jobs?

In conclusion Parecon face most if not all of the same problems that traditional forms of socialism/communism do, the inability of economic planners to produced a distribution of resources that is as economical efficient as the market economy, but also it feature serve to discourage people from pursuing higher levels of education.

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