The Political Economy of Participatory Economics - by Michael Albert and Robin Hahnel
Valuative
Criteria First, we accept the traditional view that a desirable economy
should be equitable. However, we distinguish four mutually exclusive distributive
maxims that different schools of thought have used to define the meaning of
"equitable": 1. Payment according to personal contribution and the contribution of property
owned. 2. Payment according to personal contribution. 3. Payment according to effort. 4. Payment according to need. A variety of arguments indicate the desirability of attaining important goals
that most traditional economists ignore. Besides equity, selfmanagement (decision
making input in proportion to degree affected), solidarity (granting others
equal consideration in their endeavors), and variety (attaining a diversity
of outcomes) are desirable. For example, more self-management is desirable,
ceteris paribus, because we humans have the capacity to analyze and evaluate
the consequences of our actions and choose accordingly, and we garner considerable
satisfaction from doing so. Greater solidarity is desirable, ceteris paribus,
because social esteem is an important source of human fulfillment and achieving
it through invidious comparison is a zero or negative sum game, while achieving
it through solidarity is a positive sum game. Finally, a variety of life-styles
promotes sound ecology, assists in maximizing human well-being under conditions
of uncertainty, and increases opportunities for another important source of
human satisfaction, vicarious enjoyment. To add self-management, solidarity,
and variety to the traditional list of valuative norms does not require that
we argue that these goals can be maximized simultaneously any more than traditional
theory must argue that equity and efficiency can be maximized simultaneously
to include both as valuative norms. The point is only that self-management,
solidarity, and variety are all legitimate valuative criteria for judging economic
institutions. In short, human development characterized by self-management,
solidarity, and variety is preferable, ceteris paribus, just as efficient
allocations and equitable distributions are preferable, ceteris paribus.
Asking whether particular institutions help people attain self-management,
variety, and solidarity is sensible. We also accept the traditional view that a desirable economy should be efficient.
As long as resources are scarce relative to human needs and socially useful
labor has burdensome components, efficiency is preferable to wastefulness, ceteris
paribus. Moreover, we accept the concept Pareto optimality as a useful definition
of social efficiency for most purposes. But since people are conscious agents
whose characteristics and therefore preferences develop over time, to assess
long-term efficiency we must assess the impact of economic institutions on people's
development. In this regard, a series of theorems we have proved elsewhere usefully
highlights the importance of institutional biases without assuming one kind
of preference is "better" than another.
1 Welfare
Theorems with Endogenous Preferences 1. The degree of nonoptimality will be greater than indicated by traditional
welfare theory and the divergence from optimality will "snowball" over time. The logic behind these new welfare theorems is that to the extent people recognize
the "preference development" as well as "preference fulfillment" effects of
their economic choices, it is sensible for them to take both effects into account
when making decisions. If an economic institution is biased against some activity-that
is, if it systematically charges people more than the true social opportunity
cost of making the activity available to them-then rational people will choose
activities in part to develop a lower preference for that activity than if they
were charged the true social opportunity cost. It follows that the demand for
the activity will be less than had people not adjusted their preferences. But
this implies even less resources will be allocated to produce the activity than
had people not adjusted. The ensuing misallocation of resources will further
warp human characteristics, leading to further misallocation.3
The theorems summarized above indicate that if an economic institution systematically
biases the terms of availability of different economic options, the consequence
will be a snowballing divergence from efficient allocations. This implies that
a major factor in judging economic institutions should be determining whether
they exert any systematic biases on individual choice. In sum, to judge both traditional and new economic institutions, we will ask
whether they subvert or promote: 1. Efficiency (where human characteristics and preferences can develop over
time). 2. Equity (interpreted as payment according to effort). 3. Self-management (defined as decision making input in proportion to the
degree one is affected). We will also ask if economic institutions impose any biases on individual choice
that impede these five aims by charging people other than the true social opportunity
costs for activities. Allocation Institutions Elsewhere we have examined markets and central planning in detail according
to the above criteria.4 A summary of our findings
regarding markets is that the cybernetic, incentive, and allocative properties
of markets involve a pervasive bias against discovering, expressing, and developing
needs that require social rather than individual activity for their fulfillment.
Markets do not provide concrete information about how my decisions affect the
life prospects of others. They do not even provide accurate summaries of the
social benefits and costs associated with what I decide to do since they misevaluate
external effects, and external effects are the rule rather than the exception.
Actual market allocations undersupply social goods and activities and oversupply
individual goods and activities, thereby establishing incentives for individuals
to wean themselves of needs that require socially coordinated intercourse for
their fulfillment and accentuate needs that can be met individually. Moreover,
markets reward competitive behavior and penalize cooperative behavior. In sum,
markets not only erode solidarity, but systematically mischarge purchasers,
so that over time preferences that are "individually rational" for people to
develop combine with biases inherent in market allocations to yield outcomes
increasingly further from those that would have maximized human fulfillment.
In the end, the fears of "romantic" critics who decry the "socially
alienating" effects of markets prove more to the point than the assurances of
"scientific" economists that markets are ideal allocative institutions. However, studies (and history) have revealed that the best-known alternative
to markets is flawed as well. A summary of our case against central planning
is that it necessarily generates authoritarian dynamics, minimizes the information
that producers receive about their relations with others, and generates a monopoly
of technical knowledge in the Central Planning Bureau. Central planning's interunit
roles are command relationships that promote compatible hierarchies within production
units. No matter how democratic procedures for determining the social welfare
function planners attempt to maximize may be, central planning is ill suited
to providing workers greater say over their own activities than over the activities
of others. While traditional critics of central planning focus on information
and incentive problems, we argue that central planning's "tragic flaw" is its
bias against self-management and the authoritarian dynamics this entails. While it would take us too far afield to reproduce our full critique of markets
and central planning, since our conclusions diverge dramatically from traditional
conclusions we outline our logic here. Markets The traditional view celebrates markets as socially neutral efficiency machines.
In contrast, we discover a fatal antisocial bias that generates gross inefficiency.
Commodity Fetishism
Markets coordinate economic activity by providing separate units the
opportunity to offer their outputs in exchange for the outputs of others. In
any economy, the activity of any group would be impossible without inputs from
other groups and outputs from one group would have no purpose were they not
destined to be inputs for some other group. We easily understand that workers
at the beginning and end of a GM assembly line undertake the connected social
activity of making automobiles, but we have difficulty understanding that workers
at U.S. Steel and at GM are similarly related. This "comprehension differential"
arises because within local units we see that activities of different individuals
are consciously coordinated to achieve a goal, while between units markets obscure
our ability to see activities as joint endeavors. Outside each firm, relations
between people and things or things and things remain evident, but relations
between people and people are obscured. This, of course, has been termed "commodity
fetishism," and its corrosive ills are independent of ownership relations. For
workers to comprehensively evaluate their work they would have to know
the human and social as well as material factors that went into the inputs they
use as well as the human and social consequences their outputs make possible.
But the only information markets provide, with or without private property,
are the prices of the commodities people exchange. Even if these prices accurately
reflect all the human and social relationships lurking behind economic transactions,
they will not allow producers and consumers to adjust their activities in light
of a selfconscious understanding of their relations with other producers
or consumers. It follows that markets do not provide qualitative data necessary
for producers to judge how their activities affect consumers or vice versa.
The absence of information about the concrete effects of my activities on others
leaves me little choice but to consult my own situation exclusively. But the
individualism this leads to will impede solidarity and efficiency. Antagonistic Roles Lack of concrete qualitative information in market economies makes cooperation
difficult, but competitive pressures make it individually irrational. Neither
buyers nor sellers can afford to consider the situation of the other. Not only
is relevant information unavailable, solidarity would be self-defeating. Polluters
must try to hide their transgressions since paying a pollution tax or modernizing
their equipment would lower profits. Even if one producer in an industry does
not behave egocentrically, others will, and if the altruists persist in their
socially responsible behavior they will ultimately be driven out of business
for their trouble. In general, market competition militates against solidarity,
again, regardless of ownership relations. The information, incentive, and role characteristics of markets also subvert
the rationale for workers to take initiative in workplace decisions even
if they have the legal right to do so. Workers' councils in Yugoslavia have
the right to meet and make decisions, but why should they? Market competition
forces decision makers to maximize a bottom line. Any human effects unrepresented
in costs and revenues are ignored on pain of competitive failure. Workers' councils
motivated by qualitative, human considerations ultimately fail, eliminating
even their own information-limited generosity. Since competitive pressures militate against criteria such as workplace satisfaction,
it is perfectly sensible for workers' councils in market environments to hire
others to make their decisions for them. The pattern is simple. First, worker
desire for self-management erodes. Next, workers hire managers who in turn hire
engineers and administrators who transform job roles according to competitive
dictates. Even in the absence of private ownership, a process that begins with
workers choosing to delegate technical and alienated decisions to experts ends
by increasing the fragmentation of work, bloating managerial prerogatives, and
substituting managers' goals for those of workers. It is not too long before
a burgeoning managerial class of "coordinators" begins to maximize the size
of the surplus earmarked for themselves and to search for ways to preserve their
own social power. Antisocial Bias The last problem with markets is that they are biased against provision of
goods with greater than average positive external effects. The fact that markets
systematically overcharge users of goods with positive external effects and
undercharge users of goods with negative external effects is well known to traditional
economists. But what is not readily admitted is that external effects are the
rule, not the exception, because this implies that market prices generally misestimate
social benefits and costs and markets generally misallocate resources. Coupling
recognition of this bias with an understanding that consumers eventually bend
their preferences toward relatively less expensive offerings and away from relatively
more expensive offerings helps explain why markets inexorably produce egocentric
behavior and antisocial outcomes. Ironically, it turns out that once we account
for the endogeneity of preferences and recognize the pervasiveness of externalities,
markets not only impede solidarity, self-management, and equity, but generate
misleading price signals and inefficient allocations as well. In sum, theoretical analysis based on realistic assumptions about external
effects and endogenous preferences suggests that even if capitalist owners are
replaced by democratic workers' councils, market allocations disempower executionary
workers and empower conceptual workers. That this can lead to popular apathy,
egocentric personalities, and a new ruling class of coordinators is clear. And
nothing in the historical experience of Yugoslavia suggests otherwise. Markets
predictably generate pressures for class differentiation and intrinsically subvert
equality, participation, and collective selfmanagement. It is well known that central planning cannot be efficient unless central
planners: 1. Know the quantities of available resources and equipment. 2. Know the ratios in which production units can combine inputs to yield
desired outputs. 3. Are informed of the relative social worths of final goods. 4. Have sufficient computing facilities to carry out elaborate quantitative
manipulations. 5. Can impose incentives that will induce managers and workers to carry
out their assigned tasks. If we generously grant all these assumptions, central planners can calculate
an efficient production plan and then choose from a variety of options for how
to assign workers to jobs and distribute goods to consumers. But in all known
versions of central planning: 1. The famous down/up down/up process is down-go-questions up-come-answers;
down-go-orders up-comes-obedience. 2. Qualitative information essential to evaluating human outcomes is never
generated, much less disseminated. 3. Elite "conceptual workers" monopolize what information is required for
decision making. 4. The only management left to production units is to manage to fulfill centrally
planned targets using allotted inputs. Moreover, in real world central planning, planners can bias the "social welfare
function" in favor of their interests. But even if we assume that planners forswear
all opportunities to bias planning objectives, and even if goals are established
by democratic voting procedures, two important defects remain. 1. Since most actors would still be denied access to quantitative information,
and no one would have access to anything but the most cursory qualitative
information, no citizen could intelligently determine her or his preferences
in light of all social effects. 2. Since majority rule allocates the same influence over every decision to
every voter, even "best case" central planning would fail to provide self-management
since workers and consumers would not influence outcomes in proportion to
the extent they are affected. That is, even though my opinion about my workplace
should count more than someone else's opinion of my situation-just as their
opinion should count more than mine about their workplace-everyone
would have the same decision making input about production in every workplace
if decisions are made by democratic voting for the social welfare function
which planners translate into a production plan. Finally, as we discussed previously, in all economic systems individuals naturally
orient their preferences toward opportunities that will be relatively plentiful
And away from those that will be relatively scarce. If a bias arises in expected
future supply of particular roles or goods, people will contour their development
accordingly. In the case of central planning, the bias against providing self-managed
work opportunities militates against people developing greater desires and capacities
for self-management and promotes ever greater apathy instead. We have explained
these tendencies at great length elsewhere.5
But even the summary presented. here should suffice to explain why central planning
is likely to promote coordinator rule and skew economic outcomes. In sum, markets systematically destroy solidarity while central planning systematically
thwarts self-management. Both contain fundamental biases that generate increasingly
nonoptimal outcomes and social dynamics that promote coordinator class rule.
It follows that economies cannot employ either markets or central planning and
expect to achieve participatory, egalitarian outcomes. Instead, if these goals
are to be achieved, a new allocative procedure will have to be found. Production and Consumption Even if a participatory economy cannot use traditional allocative
procedures, must we search for new ways of organizing production and consumption
as well? Private Ownership For some, "freedom of enterprise" is a fundamental right as well
as the cornerstone of political liberty. In this view, if people are not
free to hire any who are willing to work for them under conditions the
employer specifies, people's fundamental economic freedoms are violated, and
other freedoms are threatened as well. While we agree that economic freedom
is a crucial valuative criterion and inextricably linked with political and
cultural freedom, we do not accept the equation of economic freedom with freedom
of enterprise, or the conclusion that private enterprise is compatible with
economic freedom. In our view, economic freedom is best defined as decision making
input in proportion to the degree one is affected by the outcome of an economic
choice, or as self-management. The problem with freedom of enterprise is that
the "freedom" of employers inevitably conflicts with the "freedom" of employees.
When stockholders exercise their freedom of enterprise to decide how their
company will operate, they violate their employees' right to decide how
their laboring capacities will be utilized. In other words, if production
is organized under private ownership, the "property" rights of employers (freedom
of enterprise) inevitably conflict with the "human" rights of employees (selfmanagement).
One way of explaining our position is that we accord human rights priority over
property rights. A more philosophically consistent way of putting it is that
we grant all the right of selfmanagement, which is the only formulation of "economic
freedom" that does not implicitly grant some people freedom at the expense of
others. The rebuttal of those who define economic freedom as freedom
of enterprise is, of course, that employees are always free not to work for
any particular employer, and free to become employers themselves if they wish.
There are three problems with this response. 1. Unequal ownership of property is inconsistent with "equality of opportunity"
to become an employer under the best of circumstances, and effectively limits
the majority to choosing which employer will infringe upon their right
of self-management in realistic settings. 2. Even if we started with equal ownership of property, maintaining equality
of ownership entails redistributing people's property which supporters of
freedom of enterprise oppose In any case, private ownership subverts self-management as we define it. It
also subverts equity, defined as payment according to effort, since this maxim
implies that income derived from ownership of property is unjustifiable, which
we discuss at length in chapter 3. Finally, there is a more
subtle argument against private enterprise. Unless there is 100 percent labor
turnover each time period, profit maximization under competitive conditions
implies that any kind of laboring activity that generates employee empowering
traits will have an actual market wage less than its socially optimal wage and
be undersupplied by private employers, while any kind of labor activity that
weakens employee empowering traits will be paid more than its socially optimal
wage and be oversupplied by private employers.
6 Various writers from a school of economic
analysis known as "the conflict theory of the firm" have argued plausibly, in
our opinion, that work conditions under participatory, cooperative, and fair
conditions constitute laboring activities of the first kind-which will be undersupplied
according to our theorem-whereas work under discriminatory conditions or in
situations with artificial hierarchies constitute laboring activities of the
second kind, and will, therefore, be oversupplied. So the common thread running
through the conflict school is that socially counterproductive and inefficient
practices such as wage and employment discrimination, exaggerating hierarchies,
and de-skilling the work force are part and parcel of profit maximization. Or,
put differently, profit maximization under private enterprise undermines rather
than promotes selfmanagement and solidarity, and misallocates human productive
potentials as well.
However, even if private enterprise is ruled out on efficiency
and equity grounds, as well as because it is inconsistent with selfmanagement,
it remains to assess traditional workplace structures that have existed in public
as well as private enterprise environments and are generally considered an inevitable
part of economic life. Hierarchical Production We leave to chapter 2 the question of whether production
can be organized in ways that are nonhierarchical, and if so, whether this necessarily
entails a loss of efficiency. Here we simply ask if hierarchical production
relations are consistent with the goals of a participatory, equitable economy.
The answer is "no" for reasons that are obvious to most workers but apparently
obscure to many economists. If someone's work is mechanical and mindless it
will diminish her or his self-esteem, confidence, and self-management skills.
On the other hand, if someone's work is exciting and challenging, it will enhance
her or his ability to analyze and evaluate economic alternatives. Hierarchical
work leaves a differential imprint on personalities. For those at the top it
yields an inquisitive, expansionist outlook. For those at the bottom it leaves
an aggrieved and self-deprecating view. People's confidence or self-doubts,
intelligence or ignorance, wisdom or foolishness all derive, in part, from the
kind of economic activities they engage in. If an economy segregates the work
force so that most people do rote work while only a few people engage in conceptual
tasks, these opposed classes will inevitably develop unequal capacities to participate
in economic decision making. Conversely, if we want to increase economic participation,
we must arrange job complexes to be equally empowering. Under hierarchical arrangements, many capable citizens enter industry only
to exert little influence and do boring work. Those few who advance to more
fulfilling and commanding jobs have freer workdays and greater "thinking" time
than those who remain at the bottom. Each promotion increases immediate power
and also the beneficiary's skill and information advantages for future competitions.
Not only will this lead to disparate opportunities for participation, but hierarchical
production relations will generate inegalitarian outcomes as well. People who
occupy favored positions in production hierarchies will appropriate more pleasant
work conditions and greater consumption opportunities than those afforded their
subordinates. And this will be the case whether the hierarchy is based on differential
ownership or on differential access to information and decision making opportunities.
Economists generally take consumption for granted and expend little energy
evaluating consumption institutions. Since we recognize the social aspects of
consumption activity obscured in the traditional economic paradigm and propose
social institutions to coordinate "social" consumption, we must address the
issue of the implications of hierarchical relations in consumption as well as
production. Not surprisingly, we find that hierarchical consumption relations
will create disproportionate input in decision making and inequality, so that
if participatory equitable economies exist they must have nonhierarchical consumption
relations. Since the case that hierarchical relations of consumption subvert equal access
to participation and equity is logically similar to the argument against hierarchical
production relations, what remains to establish is the relevance of the problem
in the case of consumption. Even in traditional economies that provide insufficient
means for expressing and organizing social consumption, many consumption decisions
are made by families and by various agencies of local, state, and federal government.
In a traditional, patriarchal family there is a hierarchy of influence over
consumption decisions in which the male head of household, wife, and children
have degrees of authority that are not in proportion to the degree they are
affected. Many traditional government procedures are far from democratic, and
even when decisions are subject to one person one vote, to suggest that 79,000
Americans who earned the minimum wage in 1987 had the same influence over public
consumption as Michael Milken, who "earned" as much as all of them combined,
is highly disingenuous. So in traditional economies there is social consumption
whose organization is hierarchical. And in participatory economies, where social
consumption will receive greater attention, it will be even more important to
ensure that consumption is not organized hierarchically. For hierarchy implies
disparate influence that is uncorrelated with the degree people are affected,
whether it be in context of production or consumption decision making. While hierarchical production is logically conceivable alongside participatory
and equitable consumption, and vice versa, there are good reasons to doubt that
any real social formation could maintain such combinations. A hierarchy, anywhere,
implies disparate influence over outcomes. Just as it is difficult to imagine
that those with greater influence overproduction decisions would not eventually
use their power to ensure themselves more pleasurable work situations, it is
difficult to believe that those with greater power in one area of social life
would not use their advantage to seek advantages elsewhere. Provided we remember
that such efforts do not always succeed and that self-management can "spread"
as well as disparate power can, we might refer to this logic as the "law" of
institutional accommodation. Just as economic hierarchies in capitalist economies
can subvert participatory politics, we should bear in mind that hierarchical
relations in any part of the economy can subvert participatory, equitable, relations
in the others. Not only must we rule out hierarchy in production, consumption,
or allocation as subversive of participation and equity in other sectors of
society, but as subversive of establishing and maintaining participation and
equity in other aspects of the economy as well. It follows that the arguments in this chapter, which we have presented elsewhere
at great length, leave us no choice but to search for new institutions and procedures
for organizing production, consumption, and allocation if we are to achieve
efficiency, equity, self-management, solidarity, and variety. This we do throughout
the rest of this book. 1. See chapter
6 in Hahnel and Albert, Quiet Revolution in Welfare Economics (Princeton,
N.J.: Princeton University Press, 1990), hereafter cited as
Welfare Economics. 2 See also our treatment
in
chapter 4
in Welfare
Economics 4. See chapters
7 and 9 in Welfare
Economics. 5. In chapter
10 of Welfare Economics we examined the theoretical properties
of central planning, and in Albert and Hahnel, Socialism Today and
Tomorrow (Boston: South End Press, 1981) we analyzed the historical experiences
of the Soviet Union, China, and Cuba. 6. See theorem
8.1 in Welfare Economics. 1
TRADITIONAL
ECONOMIES
Concepts which have proved useful for ordering things easily assume so great
an authority over us, that we forget their terrestrial origin and accept them
as unalterable facts. They then become labeled as 'conceptual necessities,' 'apriori
solutions,' etc. The road of scientific progress is frequently blocked for long
periods by such errors. It is therefore not just an idle game to exercise our
ability to analyze familiar concepts, and to demonstrate the conditions on which
this justification of their usefulness depend.
-Albert Einstein
In chapter 3 we debate the relative merits of these competing
maxims. In contrast to most traditional economists who opt for maxim 1 or 2, we
find that the only logically consistent and morally sound way to define equity
under current conditions is as maxim 3, payment according to effort. In the remainder
of this chapter we therefore ask whether traditional economic institutions yield
equitable outcomes in the sense of payment according to effort.
2. Individuals' human development patterns will be "warped" and the warping
will "snowball" over time.
3. The effects of the bias in the economy will be disguised to participants
who adjust unconsciously or forget they have adjusted after the fact.
4. Solidarity (defined as equal consideration for the well-being of others).
5. Variety (defined as a diversity of outcomes).
Markets and Workplace Hierarchy
Markets and Coordinatorism
Central Planning
Central planners issue "marching orders" and units obey. Each unit is subordinate
to the planning board and since any superior agent must have effective means for
holding subordinates accountable, methods of surveillance and verification are
needed to minimize malfeasance. Central planners will prefer to appoint managers
rather than establish complicated procedures to control rambunctious councils.
And, having done so, central planners will logically wish to grant the managers
they have appointed dictatorial powers over the workers in their employ.
as unjustifiable expropriation and a violation of people's right to dispose
of their wherewithal without interference.
3. Even if equal opportunity to become an employer could be maintained, this
merely grants all an equal chance to infringe on someone else's human right
of self-management rather than have their own right of self-management violated.
It is the logical equivalent of a fair lottery assigning people to be slave
owners or slaves.
Consumption Institutions
The Logic of Power
Notes to chapter 1