Is parecon flexible enough to deal with changes that come up or does it need to incorporate quicker acting markets?
Some advocates of change reacting to this query will reply by attacking what they seek to replace. For example they might quote John DeLorean who was head of GM and noted that "when we should have been planning switches to smaller, more fuel efficient, lighter cars in the late 1960s, in response to a growing demand in the marketplace, GM refused because “we make more money on big cars.” It mattered not that customers wanted the smaller cars, or that a national balance of payments deficit was being built …. Refusal to enter the small car market when the profits were better on bigger cars, despite the needs of the public and the national economy, was not an isolated case of corporate insensitivity. It was typical." This can reveal that a questioner doesn’t really care about the concern, only about finding flaws, but for the questioner who really is concerned with the flaw, the reply falls short.
This critic may well accept that parecon is a fine idea. She may accept that markets and central planning are horribly flawed. She may accept the desirability of councils, balanced job complexes, self-management decision-making norms and procedures, and remuneration for effort and sacrifice. She may accept that participatory planning fosters all those features and has additional virtues as well, and she may support it for those reasons. But, even with all that celebration, she worries about it being too doctrinaire.
Exactly. Shouldn’t you incorporate quick acting markets at least in some places, so the system can respond to shocks flexibly?
Okay, markets for all our allocation is a horrible idea, but why not just for some of it? Why not try to capture the benefits markets have for those items where its benefits will be greatest and where we can curtail accompanying debits? The idea rest on the view that markets are responsive. They react to shocks quickly and they can update weekly, daily, or even hourly. Participatory planning cannot re-plan repeatedly, however, so can’t we therefore benefit by using markets to augment or along with or even in place of pareconish approaches, at least for the items where speed of reaction is needed?
Yes, can’t we have a slightly mixed economy? Can’t we take the essence of participatory economics and strengthen it by adding some limited attributes of other economies—in particular, some market mediation of exchange?
This critic may continue, you have some product that you know will have frequent innovation. When you plan it in the participatory planning process at the outset of the year, you get a very fine assessment of its true costs and benefits (or exchange value) at the start of your year. The procedures support the economy’s broad values. They respect and foster self- management, and so on. But what happens when innovations occur for the item in question well before the next planning period comes around, say only two or three months into the year?
I know the system handles modest typical preference changes fine, says the critic, including those arising from changes in the product, but what if there is a really large change because an innovation makes the product really much better or perhaps due to a massive fire destroying lots of production potential, and, as a result, many more people want the product than planned to get it (well beyond what slack planning can handle)? Wouldn’t it be good to let the consumers and producers of the item operate as they would via a market, so that the price would move quickly and in the correct direction, and so that demand would properly fall? Wouldn’t this improve on having to replan the whole economy?
Our answer to this very fair question comes in two parts.
First, if in such cases the only option was to persist with the plan as conceived in the initial planning period or to incorporate market features, we would favor the former. The loss in efficiency induced by having to wait to adjust until the next planning period would be quite modest compared to the debits of ushering market allocation back into the system. The short of it is that moving quickly by markets from wrong prices to still wrong prices by methods that subvert all the values we hold dear is not improving matters.
But, second, this is not the actual situation. There is no reason why parecon consumers should have to sit tight with the initially planned exchange rates and allocations, rather than correct for surprising innovations or calamities, even for large ones such as is hypothesized here. To compare, suppose an innovation or a calamitous destruction of productive potential occurs in a market economy. The conditions prevailing have changed. Old prices no longer clear markets properly. How do prices and material choices by actors respond?
With markets, buyers and sellers try to get as much benefit for themselves, regardless of the effect on others, in the new situation, just as in the old one. The market response, in other words, will likely go in the right direction, but the motive driving the correction, as at all times with markets, will be pursuit of profit/surplus and advance of competing actors via enlarging market share. The process will ignore the will of agents not directly involved in the exchange. It will impose antisocial motives, and other failings, as we have discussed at length about markets in general.
Additionally, the idea that markets respond well to shocks and changes is, in any event, only a mathematician’s assumption. In fact, the rippling changes percolating from an unexpected major change in demand or supply take time to unfold and the assertion that they will inevitably occur quickly and accurately (even if we set aside other reasons for market prices diverging from true costs and benefits and market outputs diverging from accurate repre- sentations of people’s unbiased preferences) conveniently ignores a host of disequilibrating dynamics that actually afflict market systems and that may mean that the initial markets affected by the shock do not re-equilibrate quickly, or at all; and/or that inter- actions between interconnected markets produce a disequilibrating dynamic that pushes all markets farther from a new equilibrium.
Thus re-equilibration in a market economy typically requires a change in some initial market affected by the unforeseen event followed by changes in any markets where supply or demand is affected by the change in the first market, followed by changes in other markets where supply and demand is affected by changes in the second tier affected, and so on. How much of this re-equilibration takes place how quickly is anybody’s guess. Market enthusiasts assume it all happens very quickly, and that market prices are good in the first place and good after re-equilibration as well. Of course in reality only some of it happens. None of it happens instantly. And worst, market prices diverge from accurate valuations of true social costs and benefits both before and after any shock. In sum, to the extent that re-equilibration does not reach all markets, and to the extent that markets which do eventually re-equilibrate do not do so instantaneously, market systems will perform inefficiently and inequitably in response to the unforeseen event even if its prices were efficient before and wound up efficient after the shock. Of course, when its prices aren’t efficient before and don’t wind up efficient afterward, things are that much worse.
For such reasons, we would not want to have some items handled by market processes in a parecon even if it were an otherwise plausible option, but more, we really could not sensibly do so even if we wanted to. Having a little markets in a parecon is a bit like having a little slavery in a democracy, though even less tenable. The logic of markets invalidates the logic of participatory planning and of the whole parecon, and it is also imperial, once it exists trying to spread as far and wide as it can. You cannot have some workplaces seeking market share, trying to induce purchases regardless of impact on consumers and society, ignoring external effects, trying to elevate remuneration according to power or output or surpluses, and expect those firms to interface congenially with the rest of the participatory economy. So, in contrast, if we have to live or die with it in full, what about participatory planning’s responsiveness?
Again an innovation occurs, this time in a parecon. The unforeseen event significantly affects demands and valuations so that the original plan—which was efficient and equitable before the shock—is no longer efficient and equitable. The optimal solution, at least regarding the choice of material inputs and outputs and their valuation and thus distribution, is to redo the entire planning process and arrive at a new plan perfectly efficient and equitable in light of the new conditions. Doing so is in that sense the analog of a market system jumping from allocations before the shock all the way to allocations after all of the interconnected markets re- equilibrate, without any misallocations in the interim. But wait says the critic, this answer won’t do because re-planning is impractical except in cases of huge unforeseen events with large enough impact to merit that big an undertaking, even if I will admit that in such cases nothing would prevent redoing the plan—which would be much simpler than planning from scratch. My point is, says the critic, most of the time deviations are important yet not worth cranking up the entire planning process involving all workers and consumers councils, federations, and IFBs. To appease me regarding parecon’s flexibility, you need to have something more convenient, even if a little less perfectly efficient and equitable, than entirely replanning the whole economy.
In short, when a shock requires significant adjustments, how do we tide over with appended alterations until the next scheduled planning period fixes things “perfectly”—never more than 12 months away? The answer is that different instances of parecon might have different approaches to doing this. Here is one.
Workers in a parecon industry notice markedly changed demand or valuations. Many more people than planned come to want some product. The easiest adjustment is if the original plan allowed for production of a certain amount extra of the good in question, so that unexpected increased demand can be met by actualizing this extra potential. The name for a plan with no extra potential built in is a “taut plan,” and the name for a plan with extra potential built in is a “slack plan,” with the amount of “slack” varying for the economy and its industries. This is exactly analogous to business inventories in a market system, whether kept on hand, or able to be generated.
But suppose workers notice that the increased demand will take them beyond the available slack. As a result, they begin to contact facilitation boards seeking extra workers and begin consulting suppliers for additional inputs. If this can be had to the extent needed, they report the results and the facilitation boards calculate the effect on final prices. The predictions are made available to all consumers. If assets for the desired production can’t be had, supply won’t rise sufficiently and, instead, decisions will have to be made regarding allocation of the limited available products. Of course all the usual methods and motives of parecon operate at each step, whatever specific approaches a particular parecon might employ.
Do a realisitic example, please?
Let’s pick a simple unforseen event. An unprecedented warm spell dramatically increases people’s desires for air conditioners beyond what was planned plus available slack.
An easy possibility is to ration the existing supply of air conditioners at the level set by the original plan. This could be done in a variety of ways. (1) Give everyone seeking air conditioners only X percent of the what they they asked for, where X equates demand with available supply. Of course, this is not possible for items that are not divisible. So (2) give air conditioners only to those who asked for one in the original plan and only in the quantity they asked for. Do not accommodate new demanders or increased demands. But another option is (3) raise the price of air conditioners until the excess demand disappears, i.e. employ increased prices to ration air conditioners. In this case we would have to have an IFB in place to adjust indicative prices during the year. Or we could have the national consumer federation and the national air conditioner industry federation make the price adjustments. If we adjust the price of air conditioners to eliminate the excess demand we have to charge users the higher price or their demand will not fall to the existing level of supply. Those who get the air conditioners and are charged the higher price now must either reduce the amount of some other goods they consume—not picking up all they ordered in their original plan—or they must increase borrowing which is monitored in a participatory economy by their consumer federation.
But of course as this example intentionally makes evident, a more desirable adjustment to the unforeseen event would be increasing production of air conditioners. We now know that more of society’s scarce productive resources should be devoted to air conditioners than the original plan called for, and therefore by implication, less of society’s scarce productive resources should be devoted to producing other goods and services. Adjusting production of air conditioners is in this event more complicated than simply rationing the existing supply in any of the above ways, but to do so also better meets real needs, and is therefore more efficient.
The simplest way to increase production is to ask the air conditioner federation to increase output via overtime. If the workers can produce more by working more hours without needing significantly more inputs, the only remaining issue is an equity matter—how much to compensate them for their extra sacrifice. They will re-rate themselves and presumably claim sacrifices equal to the extra hours plus extra sacrifice they consider the after hours nature of their work to be. They will produce more air conditioners credited to their firm’s social benefit to social cost ratio.
But what if more air conditioners cannot be produced without more non-labor inputs which must be obtained from other workers’ federations? Then a fuller and more efficient mid-plan adjustment requires renegotiation between the air conditioner federation and the workers’ federations who supply them. This is just the percolating and spreading implication of a shock in an entwined economy, the same as would occur were allocation handled by markets. But in all cases of all involved parecon firms the choices about (1) rationing and (2) adjusting production schedules, simply repeat themselves. How much mid-term adjusting to do—rather than just waiting for the new planning period to get inputs and outputs all “perfect” again; and then how much of that mid-term adjusting to do simply by rationing, i.e. adjusting consumption only; how much to by adjusting production of the initial item affected and/or of other items that are inputs, etc.; and which of the various options to use in any part of an adjustment, including whether or not to recalibrate prices, are all practical issues to be decided by those who work and consume in a participatory economy following general norms and procedures applicable in specific cases, though not via one single right norm or procedure that must be followed always in all cases and in all parecons, we would guess.
In any event, there is no reason to think that the proliferating adjustments in a participatory economy are any more difficult or cumbersome than in market economies—unless one makes the unrealistic assumption that markets adjust infinitely quickly to their new equilibria. And so the overall difference from a market system is increased rather than diminished flexibility, in that options can be consciously chosen, the elimination of various (competitive) causes of spiraling divergence from equilibrium, plus, of course, that the procedure’s guiding motives are social rather than profit seeking, the valuations are accurate rather than distorted, and the influence of actors is proportionate to the degree they are affected rather than enormous for ruling classes and minuscule for subordinate classes.
Thus, with a large change in desirability of a product or some other major shock in a parecon that goes beyond what slack can accommodate, everyone who wants some affected good could be supplied, or only those who originally placed orders could be, or only those willing to pay a new higher price could be. In any of these events, there would be some change in the real price, rising above or falling below the planning period’s indicative price. A parecon can handle all these matters in numerous ways.
What if things don’t come out, in light of the shock, as I intended, as a consumer, for the whole year?
Indeed that is another angle from which to think of the whole situation. Think in terms of the year’s end. Suppose you got everything you sought, exactly as you sought it. But suppose the total value assessed at year’s end was less than the total you allotted from your budget—final prices for the year changed from planned prices so that the total cost of all that you consumed was less in final fact than it was in your initial planning. Then you would be entitled to a refund, or else you would have unfairly lost out. Or suppose the total value of what you consumed in final prices turned out higher than originally indicated in planned prices. Then you would owe some, or would have received more than you deserved. But parecon has no trouble correcting in regard to either result. It can properly allot credit or debit to your account.
The only difficulty in the above trivially simple approach is that you would not have had a chance to reassess your choices based on the accurate prices. But a parecon can meet this problem too. It need only provide monthly updated price estimates based on the year’s unfolding patterns, so that you can, in fact, continually reassess your remaining choices against slightly altering price projections. With slack and the averaging of different consumers’ choices, the amount of replanning would likely be very modest.
The main point of all this, however, is that speed of response is not all that much of a virtue in the first place, nor do markets possess as much speed as people think, nor do they speedily arrive places where people should knowingly wish to go in any event—and certainly that speed of response should never be “bought” by incurring costs that are way more damning than the modest gains achieved.
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