Remuneration in Parecon
Can you start by summarizing the meaning of parecon’s comittment…to remuneration for effort and sacrifice…how is it done, what does it mean?
The next institutional commitment is to remunerate for effort and sacrifice, not for property, power, or even output. But who decides how hard we have worked? Of course, by what we have already said if must be our workers councils in context of the broad economic setting established by all the economy’s institutions.
If you work longer, and you do it effectively of course, you are entitled to more of the social product. If you work more intensely, socially usefully, again you are entitled to more. If you work at more onerous or dangerous or boring but also socially warranted tasks, again, you are entitled to more.
But you aren’t entitled to more due to owning productive property because no one owns productive property – it is all socially owned. And you aren’t entitled to more due to working with better tools, or producing something more valued, or even having personal traits that make you more productive, because these attributes don’t involve effort or sacrifice, but luck and endowment.
Greater output is appreciated, of course, and it is important that means of accomplishing it are utilized, to be sure…but there is no extra pay for greater output. Yes, my working longer or harder yields more output, and greater output can even be a revealing indicator of greater effort, but while output is often relevant as an indicator of effort its absolute level is beside the point regarding remuneration.
Both morally and in terms of incentives, parecon does precisely what makes sense. The extra pay we get is for what we deserve to have rewarded, our sacrifice at work, and it elicits what we can contribute more of, which is our time and effort. As to how the economy elicits appropriate use of productive capacities, that is a matter of allocation, still to come.
How does “remuneration according to effort and sacrifice” fit in with “equity (in circumstance and income)?”
Remuneration according to effort and sacrifice (and in some cases need) is rather different than the usual left precept – which is remuneration according to contribution to the social product. The latter pays a large person and a small person cutting cane by the size of the piles they accumulate. The former pays a large person and a small person cutting cane by (assuming/establishing they are both working comparably hard) for the amount of time they are working. This also goes for a person who has learned how to cut better and one who doesn’t have the same competence – for the same hardship and effort even with different size piles cut, you get the same pay. Our claim is that this is equitable – pay depends only on hardship to the payee, which is what should be the case..
Now suppose you have a cushy job and I have a horribly onerous one. We both work a full day, at the rate the job calls for. I would be paid more because of more hardship (and probably more effort). Thus if there is no equity of circumstance but there is pay according to effort and sacrifice, pay makes up for inequity of circumstance. If there is real equity of circumstance, then pay will be a function of time worked, almost entirely.
Criticisms (among progressive and left people) of paying according to effort and sacrifice are rarely that it is in any sense unjust, but that it doesn’t provide a proper incentive system to get the best overall outcomes. We have justice in work and remuneration but the total produced drops so much that the loss there offsets the gain in justice. But this is just typical economic dogma that falls apart under even modest scrutiny…
Rewarding someone according to effort and sacrifice is still fundamentally an incentive to do something you don’t enjoy. What if I choose to sit at home and write poetry all day? What sort of income should I be guaranteed?
None, if the poetry is only for you.
That is, if you choose to do stuff that has no benefit for others, and are perfectly capable of work of many kinds, etc. then you are saying that society should carry you because you say it ought to. There is no moral reason for that to occur. It is called freeloading…
Think of fifty people marooned on an island. They have to make do by their labors. There is a lot of work to get done. There are also, however, fun things to do – from walks on the beach to swimming, to playing games, taking a nap, etc. Someone says, hold on, I don’t want to prepare meals, or deal with maintaining shelters, or anything else even a little onerous. Do you want to feed that person with your labors? Now suppose you are there by virtue of a shipwreck and one person was hurt badly and can’t work. Do you want to feed that person? These are the norms of parecon, trivially obvious human norms, it seems to me.
I understand that workers in parecon are paid according to effort, but what stops all the workers at a place to just agree to give each other A+ effort ratings, thus getting A+ wages?
The economy has to perform a somewhat delicate balancing act, to promote both productive efficiency and social justice (not that they are antagonistic under parecon). It has to maximize socially valuable production and at the same time assure that individual workers’ compensation is based on effort and sacrifice rather than innate talent, luck, good-looks, etc. It does this in what might best be understood as a two-step process:
Step 1: Within the workplace each worker’s degree of effort is assessed by those who are in the best position to know, and most fairly acknowledge, each worker’s effort. They would be given a rating – like a school grade of 0% – 100%, or F- through A+. This is done with the understanding that the real distribution of workers’ effort in the workplace is accurately reflected in the distribution of ratings. Different workplaces might approach the problem very differently, of course.
Step 2: Among workplaces – This step is intended to equilibrate the total compensation one workplace receives with what others receive. In effect, it sets an objective standard for the assignment of effort ratings. Let’s say for the sake of simplicity that two councils produce the same product – organic rolled oats. If the productive resources – unrolled oats, plant, machinery, human talent, etc. AND effort are the same, then the operative assumption is that output will be the same (within a tolerable margin of error). It is the job of some office or section of the economy to keep an accurate inventory of each council’s productive resources, including the relevant abilities of the workers themselves. Then, if council A has 20% better productive resources than council B, (holding effort level constant) A is expected to produce 20% more rolled oats. Similarly, each council has a quota to meet set by the overall planning process. If a council makes 80% of the average, then since differences in productive resources have already been accounted for after evaluating the firms, the under-performance is attributable to what’s left – effort – and each worker’s rating is multiplied by 0.8. If a council makes 120% of its adjusted expected output, the worker gets more pay – the rating is multiplied by 1.2.
I suppose there could be a lot of belly-aching when it came time to review a council’s productive resources and establish it’s output. But if the criteria for assigning these goals were determined by the people within a sector of the economy who knew it best – the workers themselves or their chosen rep’s, then it would be a democratic and defensible process.
Finally, the above is only one approach. A parecon might come up with others, as might different firms and sectors. Different workplaces might have more relaxed or more depending attitudes about trying to make remuneration precisely reflect a very detailed accounting, or might just have it accord with hours worked ignoring minor variations of in effort (in balanced job complexes).
Wouldn’t it be more fair to allow people to work less than the average amount if they want, or even not at all, and still get a living wage? I doubt that we’d have many people do so, with social pressures, and requiring work income brings to mind some kind of moralistic form of forced lablor.
There are some problems of communication, and then some real issues…..
First, nothing in parecon can be called “forced labor” in any sensible interpretation of these words, I think. And, likewise, there is no situation of people being paid by others to do work that the former do not want to do. In point of fact, what happens in parecon is much better described by “the taking turns basis” phrase, then the more pejorative ones.
Second, and more important because even after clarifying the above an issue still remains, the link between effort and sacrifice and income is a bit more subtle than folks are perceiving (likely due to my poor explanations) and sundering the link has diverse implications, I think.
In general: In any economy, parecon or capitalism or any other, if we look at a year’s outcomes retrospectively we can see that a certain total volume of stuff was produced (including all the by-products, etc.); the total output had a certain make up of so much of this and so much of that; it was distributed to the population with so much going here and so much going there; and it was produced in the first place by people doing so much labor, under such and such conditions of work, with so and so levels of impact on their circumstances. Okay – so, in any economy we can ask how from all the possibilities does this one that occurred get picked? It is always going to be some combination of the dynamics of the economy and the choices of whichever actors are, by virtue of their roles in the economy, able to impact outcomes.
The economic visionary, therefore, has to try to come up with economic institutions that yield desired outcomes – human, social, personal, material, etc. – in ways that persist over time and meet his or her moral and value requirements. Okay, this is what one tries for and what Hahnel and I tried for with parecon. Now – shortcutting to the issue in contention (viewed a bit narrowly for want of space) Supposing that we have for an economy (as with parecon) the following – among other – norms:
(1) Everyone receives a socially average income of items and services of their choosing, and those who have special needs for more (such as medicine, etc.) get that too – all by right, as citizens.
(2) Everyone who is able (but not those who aren’t, of course) has a responsibility to work at a socially average job complexes producing socially valued outputs of his or her choosing, for a socially average length of time each month. However, if one wishes to, and if one’s work situations allow for it, one can work some overtime for proportionately more than the socially average income, or somewhat less than the social average, for proportionately less than the social average income. (the above is what remuneration according to effort and sacrifice plus balanced job complexes comes out to…)
(3) The total volume produced, and its composition of different items, and the actual tasks and procedures undertaken, and so on and so forth, are decided via participatory planning.
Now, the question we are discussing arises, should we add another norm – for example:
(4) Anyone who wishes to can decide for whatever reason they might have to work less than the social average by any amount they might choose, but still receive the socially average income.
(4′) There is some income deemed living (which is less than the social average) and anyone who wishes to, and is able, can decide not to work at all and nonetheless receive this living income by right. And we might think of some other possibilities, as well.
Well, if we are going to decide whether to add (4) or (4′) or some other variant of the receive more than the effort and sacrifice you expend in work warrants sort despite that you are perfectly able to do an average job complex, we have to determine what are the gains and what are the losses of the proposed change.
And to do it right, we have to ask not only about one aspect or two – for example does the person who works less and gets the same amount as if they worked more feel better, for that – but about all sides of the situation including effects on others, on social relations, on the quality of choices made in participatory planning and their trajectory, etc…..
Thus, we have to indicate our values and ask if the proposed change, via the impact it has on all actors and on production, allocation, and consumption, and via its impact on the economy’s institutions, furthers them or not.
Now the values behind parecon (and someone might prefer some other ones, of course) are solidarity, equity (material and circumstantial), participatory self management, and diversity So the question becomes, does adding rule 4, 4′, or some related 4” on balance give us better results for one or more of these values via its impact on distribution, or consumption, or decision making, or the make up of the social product, etc.? And does it have any deleterious effects that offset the gains? And which “weighs” more?
I will tell you that when I think about this, I still think the answer is no, this kind of change not only doesn’t make things better, it makes things worse, on numerous counts. But I wonder if you guys would be willing to try to address the question in this more methodical way, to see what you come up with….. What are the implications of 4 or 4′ or 4” on equity, solidarity, participatory self management, and diversity (paying attention not only to its obvious immediate implications – some people don’t do work they prefer not to do but get some income for it anyhow – but also to impact on the planning process, etc.)?
Finally, one more point. We can think about adding a rule like 4′ at the outset, or we can think about doing it after parecon has been in existence, without the rule, for a few generations. This is not the same, by a long shot… In the former case, we have to ask the implications adding the rule has for the way that different existent constituencies/classes (in present society) would view the goal, and would try to adapt it as it is being created. In the latter case, these constituencies/classes no longer exist.
How would parecon reward “secondary labor” that women the world over are responsible for: the bearing and rearing of children, and the making of “home” or household?
If household functions are deemed work in a parecon, which they certainly can be if that is the choice, then they are part of the planning process. They are among all the tasks. They are allocated in balanced job complexes. And so on. Therefore, simply, all questions of equity, control, diversity, solidarity, etc. are handled as with any other kind of work.
On the other hand, if household functions were deemed, let’s say, kinship activity, or something, and not part of the economy per se, in a society with a parecon, then the determination of how they are done, in what relationships, etc., would depend on the values and structures of what I would call the kinship sphere of life (as opposed to the economy). However, just as the economy has to be compatible with the cultural/community sphere of life, the polity, and kinship, so vice versa. Thus, if kinship says male and female have very very limited implications for life choice, the economy cannot have a sexual division of labor. And if the economy says people must respect equity of circumstance and empowerment, the kinship sphere cannot allocate its kinship activities in a nonequitable fashion re fulfillment or empowerment. Thus, in the second case two – in which rearing children, etc., is not deemed first and foremost economic activity, still in a parecon it will have to be handled equitably if the kinship sphere and the economy are to be compatible.
The system you’ve designed doesn’t account for the fact that women are already underrepresented at work. Moving them into a participatory scheme would necessitate a radical restructuring of child care and home work as a prerequisite to their equal participation. How do you resolve this?
It isn’t that it doesn’t account for it, it is that a model of a vision isn’t a description or plan for how to attain and create the vision. It is just about the established good economy.
If home-work and child care isn’t deemed economic, then everyone has to do a full share of economic work, in a balanced job complex. The home and child care work would have to be equally shared or women would be exhausted, etc., as now in many instances. I agree. But it wouldn’t have to be planned in the same fashion as production in typical workplaces. It would be, instead, a part of consumption.
On the other hand, if home work and child care is part of the economy, then even just the dictates of parecon guarantee equitable and just allocations for men and women, and for all those involved. In any event, I agree with you that a parecon requires a different kinship sphere than we have – one that doesn’t produce patriarchy, for example, or commercial class attitudes either.
But isn’t in true that to move women into a participatory system, you would have to move child care and home-based work into the parecon system, to free up enough time for them to begin to participate?
This I don’t quite follow. It is perhaps one way to proceed but by saying that it is the only way, it seems to assume that however much child care and home-based work occurs, it must inevitably occupy women more. Why is that? It seems much more likely to me that it will be shared, handled collectively, etc., in various kinds of new living arrangements. Indeed, it seems to me that our vision for kinship relations will probably require this for reasons that have to do with eliminating hierarchies of power and other unjust phenomena among men and women.
There is also a good case to be made that home based work is a rather private and personal affair the volume of which is to a considerable extent a matter of one’s own choosing, not an economic plan, and the output of which is for oneself, not for others in the economy. This is what makes consideration of it a bit complex.
For example, suppose you and another person live together and opt for a very fancy house arrangement that takes a whole lot of work because you like the elaborate layout and floor plan and floral arrangements and whatnot, which entails all this work. Should all the work that you do on this stuff count toward your economic contribution to society and should all the inputs not go against your incomes, even though you and your partner are virtually the only beneficiaries of the excess household labors? It may well be more just, in fact, to say that we are all responsible for our own living arrangements, cleanliness, and so on, using our incomes and energies as we choose, in addition to whatever is the average workload that society has settled on for the economy (presumably much reduced from now). This seems true to me, at any rate. But I think good values and insights on these issues depend, in considerable degree, on a powerful, compelling, and liberatory vision (broadly) for kinship institutions in general – which is why we don’t get into it in the parecon books, too much, feeling we don’t have the insight to do so.
Here is an excerpt from the book Parecon: Life After Capitalism…with some additional points…
Private enterprise market (capitalist) economies distribute consumption opportunities according to personal contribution to social output plus the contribution of property owned, with large allowance, in practice, for the impact of bargaining power. Public enterprise market economies (market socialist or what we call “market coordinatorist” economies) distribute consumption opportunities according to personal contribution only, having removed ownership of productive property from the equation, but with allowance, again, for the impact of bargaining power.
We claim these approaches are inequitable in that they reward people for what does not deserve reward (such as a deed in one’s pocket, advantageous circumstances, or special genetic endowment); mis-reward people for things that do deserve reward if they are onerous (such as training and education); and do not properly reward people for what they have control over, are responsible for, and do merit compensation for—that is, the pain and loss they undergo while contributing to the social product. Contrary to these familiar norms of remuneration, we propose that desirable economies ought to distribute consumption opportunities only according to effort or sacrifice.
Whereas differences in contribution to output will derive from differences in talent, training, job assignment, tools, luck, and effort, if we define effort as personal sacrifice for the sake of the social endeavor, only effort merits compensation. Of course effort can take many forms. It may be longer work hours, less pleasant work, or more intense, dangerous, or unhealthy work. It may consist of training that is less gratifying than the training experiences others undergo or than the work others do during the same period.
The implications of rewarding property as compared to output or effort are pretty much self-evident. Bill Gates prospers tomorrow whether he does anything in the form of work, and he prospers to a degree that bears no relation whatever to what he (or any thousand humans) could personally produce. But how can we more concretely understand the difference between rewarding people for their actual personal contributions to output, which is the lynchpin remunerative proposal of most non-capitalist market models, and rewarding people only for their effort/sacrifice, which is the lynchpin remunerative proposal for parecon?
By all accounts, the musician Salieri was a dedicated, hard- working, but plodding composer at the same time and in the same city as Mozart, who was a frivolous, irresponsible, genius. Assume these accounts are accurate. Assume also that both Mozart and Salieri could best serve the social interest by working as composers. If we reward output Mozart deserved to be paid thousands of times as much as Salieri. If we reward effort/sacrifice, Salieri likely deserved more pay than Mozart.
So here we have a possible test of ethical inclinations. Ignore questions of incentives (a matter we will address shortly) and assume that amount and quality of output would not vary whatever your answer is. Also realize that you can listen to whomever you want, whatever your answer is, and assume that both composers do work that is socially valued enough for them to be paid for their musical pursuits. Would you pay Mozart or Salieri more? Do you monetarily reward Mozart on top of his fantastic luck in being born genetically endowed with special talent? Or do you just pay him for effort, enjoying the fantastic bounty it provides but not materially enriching him in accord with it? Do you punish Salieri (relative to Mozart) because he has to work longer and harder to produce a creditable composition? Or do you pay him for his effort too, like everyone else, then enjoy the product—although not nearly as much as you enjoy Mozart? We confront these options and opt for remunerating effort/sacrifice, not output, for all the reasons that we have offered in prior chapters. But how?
If in a parecon we had jobs more or less like the ones that exist now, those doing the most onerous, harmful work would be highest paid; those doing the most pleasant and intrinsically uplifting work would be lowest paid—the opposite of the current condition. To achieve this goal we would have to assess each job’s characteristics for the effort or sacrifice per hour expended at an average level of exertion, plus have some means of oversight to keep track of which workers are expending effort at levels above or below average.
But, a participatory economy wouldn’t have jobs like now. Instead it would have balanced job complexes and if we assume balance for empowerment (which we must have, by the arguments of the last chapter) and balance for quality of life effects as well, then each worker has a job complex for their standard work week—let’s say thirty-hours—that is comparable to every other worker’s. How much claim on consumption does each worker then have?
Let’s call the amount a worker earns for working at an average intensity for him or her at a balanced job complex for thirty hours, the base income. With everyone having balanced job complexes, each worker will earn either the base income or some higher amount due to having worked longer or more intensely, or some lower amount due to having worked fewer hours or at below average intensity. Counting the hours a person works is easy; more difficult will be measuring effort expended.
The precise methodology for doing this need not be the same from workplace to workplace. Adherence to the norm is what should be universal, not a particular specific approach to the nuts and bolts of implementation. Here is a general approach, however, that many workplaces might opt for. Imagine each worker receives a kind of “evaluation report” from their workplace that determines their income to be used for consumption expenditures. This evaluation report would indicate hours worked at a balanced job complex and intensity of work, yielding an “effort rating” in the form of a percentage multiplier. If the rating was one, the person’s remuneration would be the social average. If the rating was 1.1, a tenth more, if .9, a tenth less. What explains a person getting higher or lower remuneration is having worked more or less hours or at a higher or lower intensity of effort.
But who judges these differentials, and by what form of evaluation? This would be the zone of variation from workplace to workplace. The assessment could be a highly precise numeric rating system where people are graded to two decimal places above or below average, for example. Or it might simply read “superior,” “average,” or “below average,” with the designation meaning average income, or a tenth above or a tenth below (that having been agreed in the workplace to be the only variation permitted). Similarly, the judgment could be made by a workplace committee (all members of which, of course, have balanced job complexes) or instead by a vote of whole councils, or by whatever other means the workplace opted for. (For those wondering what prevents a whole workplace from exaggerating their effort, regrettably, the full picture of parecon, as we warned at the outset, depends on all institutions and their interactions. In this case, allocation is also an essential factor, so the question must wait for next chapter.)
One choice that might be prevalent is for a workplace to assume that everyone works at an average intensity level so that for the most part income will vary only with hours worked. The only exception to that, a workplace could decide, is by petition to the council—either by a person claiming to deserve more, or by workmates who are convinced some person deserves less, each of which would, in this model, occur only infrequently.
Another quite different choice many might make is to implement a much tighter rating system that would yield a significant number of employees getting various amounts more or less than average.
But the main point is that since circumstances and opinions will differ regarding the best and most accurate means to calibrate effort and how closely to do so, different workers’ councils will likely opt for different systems. And assuming different workplaces do opt for different methods of work evaluation, workers would presumably make this one of the factors to consider in selecting a job in the first place. And, most important, however different various procedures might be, they would surely not lead to extreme income differentials, since there can only be so much variation in time worked and in intensity, even if workplaces are very accommodating of different preferences on this score.
Finally, we should clarify how a parecon will handle “free consumption.” Even in contemporary economies where there is little solidarity, the public sometimes allows individuals to consume at public expense on the basis of need. Since we believe one of the merits of an equitable economy is that it creates the necessary conditions for attaining humane economic outcomes, and since we incorporate features designed to build solidarity in our allocative procedures, we expect considerable consumption on the basis of need. This will occur in two different ways.
First, particular consumption activities such as health care or public parks will be free to all. This does not mean that they have no social cost, or that they should be produced beyond the point where their social costs outweigh their social benefits. But individuals will not be expected to reduce their requests for other consumption activities because they consume more of these free goods. On the other hand, of course the average consumption per person will drop if society as a whole consumes more free goods. For example, if we produce more health care overall, we have less productive potential left for everything else. Basically, everyone pays for free goods equally (in the reduction of other output available), regardless of their direct participation in consuming the free goods. This occurs on the assumption that the benefits of the consumption are generalized, or that (with medicine, say) the costs ought to be socialized rather than penalizing those in need. What items should be on the free list is something that will have to be debated in consumer federations, but medical care is an obvious example.
Second, people will also be able to make particular requests for need-based consumption to be addressed case by case by others in the economy. Frequently, for example, individuals or collectives might propose a consumption request above the level warranted by effort ratings accompanied by an explanation of what they regard as a justifiable special need. These requests are considered by relevant consumer councils and either approved or rejected. If approved, the costs would be spread over the population of the council approving.
Note that the above discussion of remuneration only describes how parecon could remunerate in a just and equitable way. It does not provide evidence or logic that doing so will elicit desired quality and output or foster the values we favor, nor that there won’t be negative side effects mitigating benefits. In this chapter, the point was only to present the option we favor. Later we shall assess it, and test it against possible concerns.
Can we really, in practice, accurately remunerate for duration, intensity, and onerousness? Since we can’t get it perfect, does that mean the whole thing collapses?
If not getting it perfect meant the whole thing would collapse, everything social that you know would collapse. There is no such thing as mathematical precision in soical interactions. What there can be, and all that we need, is for workers in workplaces to agree that they are implementing their remuneration scheme consistent with their values, within the limits that their knowledge permits, and that their desire requires – given the cost of trying for more precision.
It is the same as seeking self managemnet. The workers and consumers settle on whatever methods they locally want, and pursue them to whatever degree of day to day precision they want, likely in all cases seeking very accurate balance over time, on average – that is, seeking for deviations from perfection to be random, not always in one direction. That is the key thing. That is what ensures that the norms picked, in our case self management and remuneration for effort and sacrficie, are implented rationally (given the costs of seeking excessive precision) and justly (given that there will be deviations from perfect accuracy).
Can you just defend the idea of consumters councils and equitable remuneration, briefly?
Every individual, family, or living unit would belong to a neighborhood consumption council. Each neighborhood council would belong to a federation of neighborhood councils representing an area the size of a ward or rural county. Each ward would belong to a city consumption council, each city and county council would belong to a state council, and each state council would belong to the national consumption council. The major purpose for this nesting of consumer councils is to allow for the fact that different kinds of consumption affect different numbers of people. Failure to arrange for all those affected by consumption activities to participate in choosing them not only implies a loss of self-management, but, if the preferences of some are disregarded or misrepresented, a loss of accurate, appropriate accounting of preferences as well. One of the serious liabilities of markets is their systematic failure to allow for the expression of desires for social consumption on an equal footing with the expression of desires for private consumption. Having the different levels of federations participate on an equal footing in the participatory planning procedure prevents such a bias from occurring in a participatory economy.
Members of neighborhood councils present consumption requests accompanied by effort ratings done by their workplace peers in accord with norms established there. Using indicative prices the social burden of each proposal is calculated. While no consumption request justified by an effort rating is denied by a neighborhood consumption council without very good reason (as in, for example, a request for machine guns or large quantities of poison, etc.), neighbors could express an opinion that a request was unwise, and neighborhood councils could also approve requests on the basis of need in addition to effort. Individuals could “borrow” or “save” by consuming more or less than warranted by their effort level for the year, and anyone wishing to submit an anonymous request for collective consumption could do so.
The major questions are whether “to each according to effort” is fair, and whether this distributive maxim is consistent with efficiency.
Capitalist economies embody the distributive maxim: “to each according to the value of his or her personal contribution and the contribution of property owned.” Public enterprise market economies operate according to the maxim: “to each according to the value of his or her personal contribution.” In a participatory economy the only reason people would have different levels of consumption would be differences in work effort or differences in need in the event of special circumstances. By effort we mean anything that constitutes a personal sacrifice for the purpose of providing socially useful goods and services. If work complexes were truly balanced for desirability, and if everyone worked at the same intensity, then effort could be measured in terms of the number of hours worked. For variation in intensity, there is reward. In other circumstances, effort could take the form of working at a less pleasant or more dangerous job, or undergoing training that was less agreeable than the average training process.
Socialists have long argued that consumption rights derived from the ownership of productive property are unjustified. Beside the simple fact that they generate grossly unequal consumption opportunities, the usual rationale is that those who receive the extra income did little, if anything, to deserve it. They neither contributed more to the value of social production through their own labor than others, nor underwent any greater personal sacrifice than others. But in Capitalism and Freedom, the right-wing Nobel Prize-winning economist Milton Friedman pointed out the hypocrisy of denouncing income differentials due to differences in ownership of property while tolerating differentials due to differences in talent. “Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property?” Friedman asked. Friedman, of course, was arguing in favor of both genetic and financial inheritance. But his challenge is still a legitimate one. In our view, the honest answer to Friedman’s challenge is “no.” Despite the historical fact that private ownership of productive property has generated considerably more economic injustice than differential talent has, there is nothing more fair about the birth lottery than the inheritance lottery. Greater personal sacrifice made in the production of socially beneficial goods and services is legitimate grounds for greater access to those goods and services. But neither ownership of property nor possession of talent that makes it possible to produce more valuable goods and services carries any moral weight, in our view.
As stated earlier, we believe this creates an ethical dilemma for those who support public enterprise market systems. If wages are determined via the market some will earn more than others who work longer and harder. But if wages are set according to effort by a dynamic overriding market wage determinations, markets will assign prices that deviate from the true social opportunity costs of goods, yielding a price system that systematically misjudges social costs and benefits (even worse than other market failures cause it to). There is no way around this dilemma in an economy with a free labor market.
In contrast, in a participatory economy, while individuals consume according to their work effort, users of scarce labor resources are accounted according to the actual value of those resources, their opportunity costs, via the mechanisms of participatory planning. This avoids the contradiction between equity and allocative efficiency intrinsic to a market economy.
But what about the common view that rewarding according to the value of one’s personal contribution provides efficient incentives while rewarding according to effort does not?
Differences in the value of people’s contributions arise from differences in talent, training, job placement, luck, and effort. Once we clarify that “effort” includes personal sacrifices incurred in training, the only factor influencing performance over which an individual has any control is effort. By definition, neither talent nor luck can be induced by reward. Rewarding the occupant of a job for the contribution inherent in the job itself does not enhance performance. And if training is undertaken at public rather than private expense, no reward is required to induce people to seek training. In sum, if we include a training component in our definition of effort, the only discretionary factor influencing performance is effort, and the only factor we should reward to enhance performance is effort. Not only is rewarding effort consistent with efficiency, but rewarding the combined effects of talent, training incurred at public not private expense, job placement, luck, and effort, is not.