ParEcon Questions & Answers

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ParEcon and Innovation?

This section is adapted from the book Parecon: Life After Capitalism.

dDoes parecon produce innovation consistent with human needs and potentials?  

A parecon does not reward those who succeed in discovering productive innovations with vastly greater consumption rights than others who make equivalent personal sacrifices in work but discover nothing. Instead a parecon emphasizes direct social recognition of outstanding achievements for a variety of reasons. First, successful innovation is often the outcome of cumulative human creativity so that a single individual is rarely entirely responsible. Furthermore, an individual’s contribution is often the product of genius and luck as much as diligence, persistence, and personal sacrifice, all of which implies that recognizing innovation through social esteem rather than material reward is ethically superior. Second, underneath the protestations, there is really no reason to believe that with changed institutional relations social incentives will prove less powerful than material ones. It should be recognized that no economy ever has paid or ever could pay its greatest innovators the full social value of their innovations, which means that if material com- pensation is the only reward, innovation will be under-stimulated in any case. Moreover, too often material reward is merely an imperfect substitute for what is truly desired: social esteem. How else can one explain why those who already have more wealth than they can ever use continue to accumulate more?

Nor do we see why critics believe there would be insufficient incentives for enterprises to seek and implement innovations, unless they measure a parecon against a mythical and misleading image of capitalism. Typically, in economic analyses of markets it is presumed that innovative capitalist enterprises capture the full benefits of their successes, while it is also assumed that innovations spread instantaneously to all enterprises in an industry. When made explicit, however, it is obvious that these assumptions are contradictory since in capitalism for a company to reap the full financial benefits of an innovation it must keep all rights to it, even secretly, yet for other companies to benefit they must have full access. Yet only if both assumptions hold can one conclude that capitalism provides maximum material stimulus to innovation and also achieves maximum technological efficiency throughout the economy. In reality, innovative capitalist enterprises temporarily capture “super profits” also called “technological rents” which are competed away more or less rapidly depending on a host of circumstances. This means that in reality there is a trade-off in market economies between stimulus to innovate and the efficient use of innovation, or a trade-off between dynamic and static efficiency. It can’t be that firms monopolize their innovations, on the one hand, and that all innovations are utilized as widely in the economy as is beneficial for output and operations, on the other hand. But the former needs to occur for maximum incentive and the latter for maximum efficiency, in a market system.

In a parecon, however, workers also have a “material incentive,” if you will, to implement innovations that improve the quality of their work life. This means they have an incentive to implement changes that increase the social benefits of the outputs they produce or that reduce the social costs of the inputs they consume, since anything that increases an enterprise’s social-benefit-to-social-cost ratio will allow the workers to win approval for their proposal with less effort, or sacrifice, on their part. But adjustments will render any local advantage they achieve temporary. As the innovation spreads to other enterprises, indicative prices change, and work complexes are re-balanced across enterprises and industries, the full social benefits of their innovation will spread equitably to all workers and consumers.

The faster these adjustments are made, the more efficient and equitable the outcome. On the other hand, the more rapidly the adjustments are made, the less the “material incentive” (other than that afforded to the effort/sacrifice involved) to innovate locally, and the greater the incentive to coast along on others’ innovations. While this is no different than under capitalism or any market arrangement, a parecon enjoys important advantages. Most important, direct recognition of social serviceability is a more powerful incentive in a participatory economy than a capitalist one, and this considerably reduces the magnitude of the trade-off. Second, a parecon is better suited to allocating resources efficiently to research and development because research and development is largely a public good which is predictably under-supplied in market economies but would not be in a parecon. Third, the only effective mechanism for providing material incentives for innovating enterprises in capitalism is to slow their spread at the expense of efficiency. This is true because the transaction costs of registering patents and negotiating licenses from patent holders are very high. Capitalist drug companies claim there is no incentive for them to develop new drugs unless they can reap vast profits by patenting their products. This may be true under market capitalism, but the patents that induce them to innovate also often keep the drugs out of the hands of those most in need, so this is hardly an efficient system. In a parecon, on the other hand, investment decisions are made democratically—so research and development will occur wherever there is a need, and no one has any incentive to keep innovations from being adopted by others—so there is maximum diffusion of new products and techniques.

Are the rules fixed in stone, and where do they come from?

Of course, in a parecon, the rules of the game are subject to democratic – self maanged – adjustment. If it were determined that there was inadequate incentive to innovate—which we doubt—various policies could be tweaked. For example, the recalibration of the work complexes for innovating workplaces could be delayed (to allow those workplaces to capture more of the benefit of the innovation, or extra consumption allowances could be granted to innovators for a limited period of time. Such measures would be (in our view) a last resort, but would in any event depart from equity and efficiency far less than in other economic systems, and in no systematic recurring fashion.

In general, much of what parades itself as scientific opinion about incentives is plagued by implicit and unwarranted assumptions predictable in an era of capitalist triumphalism. One should be neither as pessimistic about the motivational power of nonmaterial incentives in an appropriate environment as many people otherwise critical of injustice have become, nor should one see any obstacles to the deployment of limited material incentives specifically for innovation in a parecon should its members decide they are needed. In the end there is no reason to doubt the efficacy of a mixture of material and social incentives during the process of creating an equitable and humane economy, with the balance and mix chosen to further equity, diversity, solidarity, and self-management for all— rather than simply generating advantage for a few.

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