Post-Plan Adjustments

Hey everyone, I wanted to make this forum to specifically address post plan adjustments in parecon. We had a bit of discussion about it in this forum but I think having a separate one for this topic specifically could be useful.

I have noticed that some people propose that adjustments to the annual participatory plan to balance supply and demand will in some ways have to be negotiated between councils. For example, in Democratic Economic Planning Robin provides an example of adjustments in the shoe industry and says these negotiations would have to be “between the shoe industry federation and the national consumer federation.”

In addition, I have noticed some people think that prices should not be adjusted much throughout the year, and that price adjustments should be a last resort.

I am not sure why negotiations would need to take place or why price adjustments should be a last resort. I think price adjustments would have to change a ton throughout the year, and maybe even be updated every week or so. This is because the annual plan gives extremely rough estimates of true costs and benefits of goods and services. If we want parecon to come anywhere close to making these accurate it seems prices would have to change based on supply and demand frequently.

The thing is, if this is true, then requiring all price adjustments to be negotiated seems like it could be approaching central planning. Especially if all negotiations on the consumption side have to happen via the national consumer federation.

However, I don’t think all of this is necessary. What if adjustments happened like this:

Prices throughout the year adjust based on supply and demand frequently, say every week. If a resource from the commons that a workplace has a user permit for is in excess supply (because less people end up buying the workplace’s products that use the commons resource than was predicted by the annual plan), the solution could be: after the resource, say a plot of land used to produce lumber for a workplace that produces chairs, has sat idle long enough, say one month to keep things simple, the workplace must put it back into the commons so others can use it if needed.

Now other workplaces that need the lumber, say a workplace that produces wooden cabinets, could get a user permit for the land. This is assuming they are experiencing more demand for their cabinets than was predicted during the annual plan.

The following question arises: would the workplace that produces cabinets need to “pay” for the user permit for the plot of land in the sense that their is a price for the user permit that gets added to their social cost? I think the answer is yes, so how do you arrive at this price?

I think that instead of having negotiations or having ad hoc instances of planning where all councils that are affected have to submit proposals (which is something I have heard suggested before), you could have the following system to achieve prices that accurately reflect the social cost of the land:

When the chair maker puts the land back into the commons a “bidding period” takes place. In this period that lasts say two weeks for all resources to keep things simple, all workplaces that want access to the land submit bids to get it. To get a clearer picture of how this could work: resources that are available in the commons could be listed on a site like Ebay. Producers would place bids and whoever wins at the end of the bidding period would get access to the resource for the final bid price. (And note that they would get the resource until the end of the year because at that time all resources are available to all workplaces in annual planning). Now, the winning workplace does not pay for the resource with their income; the price just gets added to their social cost.

Another question arises: Does the chair maker get back any of the social cost (SC) that they paid to get access to the plot of land at the beginning of the year (in other words, does their SC decrease since they gave up the resource)? Yes, it could work in the following way: say the cost, in terms of SC, was 100 at the beginning of the year to get access to the land, and the chair-maker put the resource back in the commons at the end of March. There are twelve months in a year, and March is the third month, so the chair maker would have a social cost for the plot of land for the year of 3/12 X 100 = 25. In other words, they would only “pay” the social cost of the resource for the time period in which they had access to it. (Note that I am simplifying, the society would likely want to make the calculations more specific by performing them in terms of days, say 90 days/365 X 100, rather than in terms of months).

I have been explaining how price adjustments could be made when their is excess supply, but by doing so I inadvertently explained what would happen in the case of excess demand, which is the case for the cabinet maker. The cabinet maker would place bids for the plot of land hoping to get it as to increase production. And if they cannot get access to any land to increase production that is okay. This is because if there is not lumber producing land available to them it means that other workplaces are using this type of land for socially beneficial purposes – because if these other workplaces weren’t using the land for social beneficial purposes (i.e., having their products that use the wood actually sell), then they would have been required to put the land back into the commons after a month (just like the chair maker had to). Robin suggests this in Democratic Economic Planning when he says, “The case of excess demand is more complicated. To raise shoe production, more resources will have to be drawn away from industries experiencing excess supply.” This implies that if workplaces are not experiencing excess supply to give to other workplaces, then the former must be using the resources in a socially beneficial way.

Another issue I want to address is the idea I have heard from people suggesting that adjusting the annual plan might be unfair to consumers in some cases. For example, if I put in my consumption proposal that I wanted 8 shirts throughout the year at 10 credits apiece, and then demand for the shirts goes far beyond what was in the plan making the shirts 20 credits, I am now sort of screwed over. Afterall, it isn’t my fault that demand for shirts went up so much.

I don’t think this is a serious issue. To me, the annual plan is something everyone does as their social responsibility to get the year started off on the right foot. It is not a promise that they will get all the goods and services they requested at the prices that the plan settled on. If they wanted it to be a promise then they would need to support making all consumers buy exactly what they put into their consumption proposals with no variation.

So, since the economy would be self-managed, you allow them to make this decision in a fair way. If they decide they don’t want this, and instead decide they want people to have the freedom to change their minds about consumption preferences throughout the year, then they have just agreed to the condition that they may not get everything they wanted in the consumption proposal at the prices settled on during the plan. In other words, the society has agreed, in a self-managed way, that they prefer efficiency over certainty.

They are therefore responsible for that choice and it is not unfair if demand goes up and they have to pay more than they wanted for something they had in their proposal, even though their demand (e.g., the amount of shirts they were going to buy) did not increase.

I want to also just note that it seems to me that adjusting the annual plan is just as important, if not more important, than the plan itself. If adjustments to prices and quantities of various things are occurring a lot, as it seems to me they would have to be, then adjusting plays a huge role in parecon.

Because of this, I think that it is important when explaining the system that we explain how adjustments would be made. The criticism I have noticed that some leftists have of parecon is that they don’t believe doing one plan at the beginning of the year could be detailed enough. This is based on a misunderstanding of parecon though as adjustments would be made throughout the year to refine the plan.

Explaining these adjustments to these leftists could get them to support it I think. Additionally, it is a good way to explain it to leftists who are sympathetic to some form of market socialism as the adjustment procedure is more “market-y” than annual planning.

In fact, I think we should develop a way to explain parecon by explaining it first in terms of adjustments. We would explain the system in terms of how it would be functioning throughout the year, and then after doing that add on that there would also be a annual participatory planning procedure that would help the year get started on the right foot. Having two different types of explanations would allow the message to resonate with a more diverse group of people I think.

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Dear Travis,

I’m glad that you continue to work on this critical issue.

I agree. Adjustments are actually more important because this is what provides the system dynamic stability, i.e. the ability to apply corrective feedback in the face of disturbances. Static optimisation is not particularly important. This is because of ineliminable uncertainty. The annual plan will always be immediately inappropriate because of errors in guesses when making proposals. The viability of a system has more to with its ability to quickly adapt than to globally optimise in a single moment.

I also agree about the problems with councils and federations negotiating plan adjustments during the year. My question is: if councils/federations can successfully negotiate plan adjustments like this, then why is the annual planning procedure necessary at all? How exactly do these negotiations take place? This is under-theorised.

About your counterproposal. How would we apply that to forks, trousers, potatoes, GPUs, or barrels of sulfuric acid?

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Hey Ferdia, thanks for the reply.

I will start with a situation in which there is an increase in demand for metal forks. In this situation workplaces that produce metal forks will want to increase production because doing so will increase their SB/SC ratios. A workplace that actually produces the forks needs to buy metal as an intermediate good from a workplace that actually mines metal and refines it. (Note that although the metal is an intermediate good and a part of the commons, the bidding procedure doesn’t apply to it. Instead, the workplace that buys it is just acting as a consumer. When they buy the intermediate good, the workplace that created it adds the price to their social benefit and the workplace that bought it adds that same price to their social cost. Mostly the bidding procedure applies to the natural commons: things like water access and land access. Although, as I will explain later when I get the GPU example, I think certain large item goods, like some machines and possibly large tools, which are a part of the produced commons should go through the bidding procedure.)

So in effect, the increase in demand for forks eventually comes down to an increase in demand for metal. The workplaces that mine and refine metal will want to increase their production of metal because doing so will increase their SB/SC ratio. (The extent to which they are motivated to do this depends on if workplaces get more income the following year for higher SB/SC ratios. I get why doing this with large workplaces would be in line with remuneration for effort and sacrifice, but that is a separate discussion. For now, the point is just that if workplaces do get remunerated in this way, then they will have more incentive to increase production. To me, it is not strictly necessary though because they have these incentives anyway, just to a lesser extent. Sorry about the tangent.)

Most likely, I think that what workplaces that mine and refine metal will need to increase production is more labor. They will use that labor to extract more metal from the land they already have access to in the commons. To do this, they will have to hire more people. Labor works a bit differently than other categories of resources in the commons. This is because people have the right to decide whether they want to work somewhere or not. This is unlike a plot of land, which doesn’t have a right to say whether it gets used or not. The bidding procedure doesn’t really apply here. Workplaces just put a job posting out so they can hire people.

Now I will move on to cotton trousers. They would most likely be handled very similarly to forks, but I will change the scenario to hit on some other points. In this situation, a workplace that produces the cotton trousers needs to buy cotton from a workplace (i.e., farm) that grows cotton. So an increase in demand for trousers translates to an increase in demand for cotton.

Say a farm wants to satisfy this increased demand and they need two things to do it: more labor and more land to farm. The labor is handled like before. To get more land to farm, the workplace would go onto the site to place bids on land. They would look for land that is available and place bids on it. If a piece of land that they can use to farm is available and no other workplaces bid on it, then they get to use the land for a specified period of time for free. In other words, they bid 0. This is a good thing because their social cost to use the land is indeed 0: if they weren’t using it then it would just be sitting idle. (For now I am ignoring social costs that come from pollution, which would be handled by having communities of affected parties, etc. I am essentially equating social cost with social opportunity cost, which I think is fine for the sake of explaining the key points relating this example.)

Most likely there would be other workplaces that farm cotton that want the land. They would all place bids over the bidding period and there would be a winner at the end. Whoever won would get the land and its cost would be added to their workplace’s social cost. The bidding period is there to get a more accurate measure of the true social opportunity costs of using the land.

Note that it is possible that multiple workplaces would get access to different pieces of land through the bidding procedure and this could result in overproduction of cotton. I don’t think this will be a big issue though. It will be prevented in the same way it is prevented during annual participatory planning (APP). In APP workplaces make educated guesses about what demand will be for products in subsequent rounds of planning and about how many other workplaces will try to meet that demand. This helps them create their production proposals for the current round of planning. Similarly, in relation to the cotton trousers example, workplaces trying to get access to land to use for cotton make these same educated guesses.

However, there are cases when you need to make sure that only one workplace is selected to produce something. For example, if the national consumer federation requests a huge and expensive telescope be created, we wouldn’t want multiple workplaces going ahead and trying to build it. We would need to select one. I think this technically falls under infrastructure planning which is a form of long-term planning, and Robin writes about how this could be done in Democratic Economic Planning, but this scenario can also apply for increasing production of things like expensive machines which don’t fall under infrastructure planning. I can’t remember if Robin wrote about how infrastructure planning would be handled as a post-plan adjustment: like if the national consumer federation decides to have the telescope built in the middle of the year. In any case, the adjustment mechanism that Michael Hicks has proposed would work well in situations like these I think. Here it is:

"1. A computer system detects a shortage for a particular product and signals the relevant worker councils responsible for making the product.

  1. Each workplace that was signaled then has an opportunity to submit a proposal that basically says “we commit to producing x more of these products if we can get access to these inputs”.

  2. If an input they require is an intermediete good, the computer system will signal the worker councils responsible for it so they can submit revision proposals too.

  3. Once all relevant workplaces have had a chance to submit revision proposals, all federations will take a vote on which proposals should be approved to meet the demand increase. This is similar to how everyone has the right to give a thumbs up or thumbs down to production and consumption proposals during the annual planning procedure."

I like point 1 in general. That should always be the case. However, I would say that this information should be public and easily accessible in case people want to create a new workplace during the year. They would need to see this information.

The other points I think are a great solution for making sure there is no excess supply created in response to increased demand throughout the year. This could be used for expensive large items. My problem with this proposal as a means to handle all increases in demand is that I just think it is not efficient enough. I think there will be so many adjustments necessary that it will not be efficient to do this: “all federations will take a vote on which proposals should be approved to meet the demand increase.” That is why I think the bidding procedure is useful.

Getting back to the example, the workplace which wins the bid will end up producing the cotton to satisfy the increased demand for cotton trousers. They will most likely be the most efficient farm too, because they were the ones with the most bidding power. In other words, they could handle taking on more social cost because their social benefit was higher.

Potatoes are very similar to the cotton trousers because it involves farming. I am going to substitute it with insulin because it will provide new information. The point of discussing an increase in demand for insulin is that it is a good people need to survive. So, the idea that it is fine if a workplace producing it can’t get the resources they need from the commons because this means that the resource is being used by some other workplace for a socially beneficial purpose does not apply. The reason is because insulin is likely much more important than the other goods being produced using the resource needed to make more insulin. In this case, there needs to be a mechanism for the political system to step in and take the resource from another workplace and give it to workplaces producing insulin.

To handle an increase in demand for GPUs let’s imagine that the following resources are needed from the commons: more silicon, more engineers to design the GPU chips, and more of machines called Electrochemical Deposition (ECD) Systems, which ChatGPT says “deposit metal on wafers during the process of making interconnects between transistors.”

The silicon would be handled like the metal for the forks was handled. Getting more engineers would happen in the way I have described previously for getting more labor. The new addition is the machine (the ECD). Some of the main materials used to build a ECD are copper for the electrodes, stainless steel, and plastic. The workplace which produces ECD’s would need to buy these materials from workplaces that mine and refine them (the cost would just get added to their social cost). The workplaces that do this mining would have to go on the site and bid on land to use for mining. It would work in the ways I have described.

A workplace, or maybe multiple workplaces, which produce GPUs and would like to increase production would buy the newly created ECD(s) using the bidding procedure. Whatever price a ECD sells for is added to the social benefit of the workplace that produced it. (Note here that if what they needed was not an ECD and was instead an inexpensive tool like a hammer, or even a very small machine of some sort, they would just buy it from another workplace. In other words, it would be handled like the intermediate goods I have I have specified in previous examples would be handled).

In addition, I imagine a machine is probably used to make the ECD. The production of this machine would require resources from the commons. Let’s say this machine requires copper for the wires, rubber for wire insulation, metal, and plastic. The workplace that uses the machine would have to buy these materials from workplaces that mine and refine copper, rubber, metal, and petroleum. The workplaces that do these tasks would have to go on the site and bid on land to use for mining. It would work in the ways I have described.

I have simplified the GPU example extensively and it was still pretty complex. This is why I think a dynamic system like the bidding system I have proposed is necessary. There are just so many changes to quantities of things needed and prices that need to take place throughout the year, that it seems to me like we need to use a streamlined processes to handle it, and not rely on negotiations between councils.

Whether this bidding procedure is a market or not I don’t know. It depends on how you define markets I think. It is market-y in some respects for sure. But I think this is required. The good thing is that there is always the annual participatory planning procedure which gives the economy a sort of reset yearly.

Overall, the bidding procedure is a way for workplaces to keep up with changes in consumer demand throughout the year. In parecon, we allow consumers to completely change their minds and buy things that they did not propose in their plans. It seems to me that if this is the case, which I think it should be, that we need to give workplaces a mechanism to change what they are producing dynamically to meet consumer preferences.

The last example is barrels of sulfuric acid. I think it is similar to some other examples I have gave. The barrels are metal, say with a rubber lining to protect the metal from corrosion. I have already talked about metal and rubber. To make the sulfuric acid you would need sulfur, water, labor, and machines. I have talked about all of these already except sulfur and water. Sulfur would work like the other materials that need to be mined. But to add new information, let’s say there was a workplace which needed less sulfur than they got rights to in the annual participatory plan. They then made the sulfur available for other workplaces to buy. In my original post, I said,

“If a resource from the commons that a workplace has a user permit for is in excess supply (because less people end up buying the workplace’s products that use the commons resource than was predicted by the annual plan), the solution could be: after the resource, say a plot of land used to produce lumber for a workplace that produces chairs, has sat idle long enough, say one month to keep things simple, the workplace must put it back into the commons so others can use it if needed.”

It was a bit misleading when I said the workplace would put the land “back into the commons,” as productive resources are always a part of the commons. What I meant to say is they could put the land back into the available commons: they could give up the resource in a sense. (See the original post for how I propose this is done.)

In this scenario, the workplace that now needs sulfur to produce barrels of sulfuric acid could just buy the sulfur since it is an intermediate good and the bidding procedure doesn’t seem necessary. However, if the sulfur was instead a machine then maybe the bidding procedure would make sense. Or if it was a plot of land, then I think the bidding procedure would make a lot of sense. If the sulfur was an extremely expensive machine, like maybe an MRI machine, then Michael Hick’s proposal would probably make the most sense.

The other resource the workplace needs to produce the barrels of sulfuric acid, which I haven’t already written about, is water. It makes sense to me to have access to water be granted via the bidding process.

Thanks for the questions. I hope my answers help.

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I had this same question too. I started a forum called Removing Annual Participatory Planning from Parecon, or something like that, to address this issue. I have actually come around to thinking the annual planning procedure is quite important though.

It is because the plan provides a sort of needed reset for the economy. If you only had the adjustment procedures a workplace could do some intelligent maneuvering to make themselves get more income than they deserve from their effort and sacrifice. For example, a workplace could get access to a machine that makes their workplace more efficient. They could then use this advantage to get another machine, since they now are very efficient and therefore probably have a higher/better SB/SC ratio than other workplaces (i.e., either because they are selling more or need less labor now). In what I have proposed for adjustments, a higher SB/SC ratio gives a workplace more leverage to get more from the commons. This is because they can handle higher social costs, given that the requirement they need to satisfy is to have the SB/SC be 1 or greater.

As far as I can tell, this issue would also arise in Michael Hick’s proposal. A workplace could still maneuver to get advantages. However, his proposal does safeguard a bit more from it because all federations are voting on adjustments. The problem there is, as I have said, that I don’t think this mechanism is efficient enough.

This whole issue of maneuvering to gain advantage is not a big deal to me though. Put simply, in a system with a commons, self-management, balanced jobs, and the annual participatory planning procedure, this maneuvering is pretty difficult and the benefits from doing it are quite minimal. As one example, if you have APP, then you at least have a rough allocation of productive resources already given to workplaces. This gives you less flexibility to get resources that will unfairly get you more income.

APP is a good reset because if all resources are available to all workplaces in all iterations of planning, there is no way for a workplace to maneuver to get an unfair advantage. However, if you made it so that if a workplace gets something in one round of planning, and then can keep it in subsequent rounds so that no other workplace could propose to use it, then you would run into the same problems. The maneuvering would just being happening over rounds of planning at that point.

I imagine there will have to be some user rights for which certain workplaces have some sort of advantage to get in APP. Like if a workplace has been using a building for the past 10 years, maybe it makes sense that they should at least get like first dibs on the building or something. This would introduce opportunities for workplaces to cause unfairness, but I think they would be minimal.

Overall, the maneuvering that is possible basically stems from similar issues with markets, except in markets they are far greater. In markets, when you buy a productive resource, it is yours forever if you wish. You never have to give it up due to it being a part of the commons. This gives you a ton of flexibility to gain massive advantages based on which productive resources you buy. And there is no reset in a market, so your advantages can just compound indefinitely. At least in a system like parecon, even if it didn’t have APP, workplaces do not get access to resources forever. This alone prevents much of the issues. But still, a reset is needed eventually.

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