Removing Annual Participatory Planning from Participatory Allocation?

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Thought experiment: What if the participatory economy did not have annual participatory planning and instead worked in the following way:

Producers submit bids, at any time, to use productive resources that become available and if they win they get a permit to use the resource for a specified amount of time. Maybe the amount of time could be worked out with their industry federation, and would be a little more dynamic than in annual participatory planning; for example, if the workplace only needs the resource, say a tool, for half the year, like could be the case for some farmers, then the permit would only be given for that length of time.

Their social cost is still measured in the same way as in participatory planning: whatever they paid for the resource through bidding is added to the workplace’s social cost. Their social benefit is as well: it is just the sum of all the prices of products they sell.

Acquiring labor would have to be a bit different than for other resources in the Commons. Workplaces wouldn’t get permits to use people. They would just hire who they need. Everyone would have balanced jobs of course. Worker’s incomes would still be based on effort and sacrifice. The total amount of income a workplace gets to split among its workers could happen in the same way as in participatory planning. In Democratic Economic Planning, Robin writes that, “It is last year’s actual social benefit-to-cost ratio that serves as a cap on average effort ratings worker councils can award members.” Labor would be added to the workplaces social cost as is so in participatory planning.

Workplaces are evaluated maybe on a yearly basis to determine if their social benefit is greater than or equal to their social cost. If this is not so, and they don’t have a good reason for it, like a natural disaster, maybe they get another year or two to turn things around. If they can’t turn things around then the workplace is closed. This is what annual participatory planning does already as I understand it: annual proposals are approved based on projections but workplaces are actually held accountable for the actual SB/SC ratios at the end of the year.

I understand that in participatory planning workplaces are still sort of bidding on productive resources, but what I am suggesting basically removes the need for the IFB in this process. The IFB would adjust prices for products on the consumer side with an algorithm that just adjusts prices up if demand is high and down if demand is low, but in real time and not through an iterative planning procedure.

I know this sounds a little like a market but it is not. This is because all productive resources are a part of the Commons still. When a workplace sells a product they do not get that money as income, just like in participatory planning. Social benefits and social costs are still being calculated and acted upon. Workplaces and consumers still have access to all of the information about social costs and benefits of their actions that they would in participatory annual planning. But while it is not a market, it is also not a plan because things are happening in real time in a market-like way.

The point I am making is that this way of doing things would be updating production based on consumption in real-time. The industry federation wouldn’t have to work with consumer federations to adjust a plan, which seems like it could get a little difficult for situations where demand for a product is increased.

I am not saying I don’t support participatory planning. I think the idea is great. Nor am I super confident about any of this. I am just brainstorming here. In any event, if I am wrong I will be able to learn more from the experience. My thought process was to make participatory allocation a bit more dynamic. I started thinking a bit about post-plan adjustments and the idea came that we might not need a participatory annual plan. Development planning would still be required.

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As I understand it, the participatory planning procedure primarily operates in terms of amounts… meaning, we will give a workplace access to x amount of inputs if they can commit to providing x amount of outputs with it.

Correct me if I’m wrong, but what you’re proposing sounds more time based… meaning, we will give a workplace an open permit to use however many resources they want for x amount of time if they win a bid?

In my mind, to “win a bid” you would need to make some kind of input commitment. If bakery A can commit to producing 100 loaves of bread using less wheat than bakery B then they should be favored.

Unless you mean something else by “winning a bid”, this is going to dissolve back into how the procedure already works. The planning procedure already grants people access to use certain resources for a certain length of time, but there’s a solid contract regarding how much they can use for that length of time.

It sounds like your post is primarily concerned with how the plan will adjust, and I agree it would be nice to see more details about how this would work.

The first step is to make sure workplaces are granted enough excess supply so they can easily adapt without going through some kind of procedure again. There are some threads here where we’ve talked about how this could be done. In short, each industry would have different thresholds for how much excess supply would be allowed during the annual plan. Industries that are more prone to “surprise demand” could be given a higher threshold.

Of course, there will be times when even the excess supply isn’t enough and things will have to be renegotiated. I’ve always imagined this working in a similar way to the annual planning procedure (meaning: people would ask for x number of inputs and commit to x number of outputs with it), but I’m sure other people have different ideas about it!

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Thank you for the reply! I was saying the bids would be for specific products that are available.
So for example, for The Size 6 Purple High-Heeled Shoe with a Yellow Toe Problem, if the workplace needs yellow material for the toe instead of the red material they currently have, they would bid on getting the yellow material. Bidding periods for small products like this could be quite short. Basically, workplaces would be in charge of placing bids to get the goods they need for production in a similar way they do now where they buy these goods. Except they don’t pay for them like in a market. The cost just gets added to their overall social cost, which has to of course be less than or equal to their social benefit when looking back over the year at the end of the year.

Workplaces that want to make the yellow material would know to produce it because they are monitoring demand for it from other workplaces and also could receive requests from workplaces just like how workplaces receive requests from consumer federations.

As far as the workplaces needing to specify what they will do with the yellow material, like how many shoes they will make, they wouldn’t have to. This is because they don’t need their internal plan for production approved. Instead, whether they are socially beneficial or not happens retrospectively. Like at the end of the year, their actual social costs for the year will be added up and their actual social benefits for the year will be added up and the SB/SC ratio will be calculated. This last part is how I understand it would happen in participatory planning, as workplaces are held accountable for their actual social costs and benefits throughout the year. The difference with what I am talking about is that they wouldn’t have to have their plan approved ahead of time.

And ya, I came up with these ideas when thinking about how a participatory plan would adjust. I am also interested in any proposals for possibilities of how the plan in participatory planning could adjust.

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Come to think of it, the IFB would not have to adjust prices for products bought by directly consumers either. Workplaces would just adjust their own prices. They would have an incentive to increase the price if the product is in high demand because if they sell that product it would contribute to their social benefit. Similarly, they would have incentive to decrease the price if it is not selling. This part is basically functions like a market. Except, as I have said, the workplaces don’t get money from selling products, their social benefit just increases.

Basically this system has a lot of market-like elements but instead of producers getting money from selling products, it just contributes to their social benefit, which just has to be greater than or equal to their social cost. So, like in participatory planning, there is still healthy competition, meaning there is no capital accumulation, etc. In addition, like in participatory planning, real social costs and benefits are being calculated and communicated to everyone through prices, which is what I find most exciting about participatory planning in general.

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I agree with your main point about the desirability of being able to dynamically submit your consumption and production requests in real time, however, in my understanding, this should be done in a way that does not cancel the decentralised planning, namely:

When submitting a new request for consumption or production, an economic agent may indicate or plan the period to which this application relates. And this planed period should be medium-term so that planning could create advantages for producers that the spontaneous market does not have.

The second question is about the reward system for effort and sacrifice. This is indeed a very reasonable criterion in conjunction with the current planning of supply and demand for economic goods. The higher the level of effort to satisfy the current demand - the higher the remuneration for labor. Everything is logical and the values ​​seem to be chosen correctly. But I do not accept this reward system in the context of long-term strategic planning, because in the long-term strategy it is important for us to direct the resource not just to the current needs of people and society, but to attract the best available capabilities the society have to maximize chosen long-term goals and values. Be thous goals are Parecon values, investment and development goals, or any other long term goals. So maximising capabilities and aligning them towards strategy is key criteria to reword here.

Also as for the strategic perspective of planning, it seems to me that not only the reward system for efforts is not suitable, but also the principle of supply and demand of participatory planning may not be suitable. Because any long strategy cannot be dictated by some current needs and wishes of people or society, and on the other hand, the strategy cannot be imposed on society from top to bottom. But the concept of “strategic alignment” is used in business, it allows businesses to align corporate or business strategy with current needs and resources, as well as the current needs and resources with the strategy following a certain methodology. And it seems to me that this method of strategic alignment could be suitable for the level of the economic system like Parecon too.

And final point: it seems to me that the planning of consumption by members of living units or consumer councils in a form similar to financial planning or Internet banking looks too boring. I would prefer something closer to the Sims 2 videogame. By adding goods at the level of their housing unit, members can see a 3D model of their neighborhood, yard, apartment, rooms, garage with personal vehicles, home repairs, goods classified by these rooms or spaces, wardrobe with clothes, shops around the housing unit with the requested goods, etc. And all housing units or consumer councils in the aggregated form create a 3D model of the city, country and globe. And this visualization of economic planning can be used by both consumers and producers.

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Hey everyone, I have summarized what I have been talking about. I think it is easier to understand now.

The potential problem in annual participatory planning is that it may not be as dynamic as we want. I am using the word dynamic to mean adaptable to change. Basically, post-plan adjustments could be a little difficult, particularly in cases where demand for a product is increased. I am not saying there are not ways to make these adjustments very efficient and would be happy to learn more about how they could be done. In addition, even if post-plan adjustments were a bit clunky, I still think participatory planning would work well. I am just brainstorming another way to make participatory allocation more dynamic. Mostly, to explore the model and learn more.

So here is the summary of what I am talking about:

Imagine an economy with participatory planning that functions in the way Michael and Robin describe, with all of the other core features of participatory economics (e.g., balanced jobs, equitable remuneration, the commons, etc.). Now, remove the IFB (I’ll explain later how it could play some role, but it is helpful for now to remove it). Remove having a planning period at the end of the year. In the IFB’s place, workplaces adjust their own prices, in real-time, meaning at any time they want, based on consumer demand. The workplace has an incentive to increase the price if demand is high and decrease if demand is low. This is because their social benefit is calculated just like in participatory planning. This is all just happening on an ongoing place, hence there is no need for an annual plan.

Now, what about when workplaces want to use productive resources from the commons. At all times, some institution is updating what is available from the commons which is publicly available to all workplaces. This institution is the same one that updates what productive resources are available at the end of the year in annual participatory planning. This task seems very doable.

Workplaces need to buy productive resources from the commons, intermediate goods, and capital goods, just like how consumers need to buy products from workplaces. Intermediate goods are handled in the exact same way as for consumer goods, except now a workplace is the consumer. What about capital goods and productive resources from the commons? We can just forget about bidding for now. Imagine workplaces just buy whatever productive resources and capital goods they need. This is added to their social cost in the same way as in annual participatory planning. At the end of the year we look back and make sure the workplace’s SB/SC ratio was greater than or equal to one, just like in annual participatory planning.

However, it will be helpful for some resources to have a time limit for use. This is not necessary, but helpful. For example, if a workplace buys rights to a machine, it would be helpful for it to have a limit for use, say one year. Then the workplace has to buy it again. Why? Because if the workplace just gets to keep the capital good forever, we are not estimating true social opportunity costs for that workplace using the product very accurately. This line of thinking is the same as in annual participatory planning; in it, workplaces have to make new proposals to use machines every year. Why? Cause if they didn’t opportunity costs for them using that product would not be very accurate.

Now, why are “bids” helpful (again not necessary but helpful)? Because they also more accurately measure social opportunity costs for using capital goods and productive resources from the commons. If workplaces just buy these things whenever they want, these products and resources are just being given out on a first come first serve basis: whoever buys it first gets it. But what if instead workplaces had to make bids over, say a small period of time, to use these resources? Then if a lot of workplaces want the product, the price will go up. This more accurately measures opportunity costs. We could have the IFB adjust the prices over a series of rounds of bidding, or just have the workplaces bid until there is a winner (i.e., the workplace willing to pay the highest price for the product).

One question is: who decides what price a productive resource from the commons starts at in the bidding procedure. This would have to be done using an educated guess and I think the IFB could do it. This is, I believe, how it is done in annual participatory planning as well.

Investment and development planning still need plans, so what I am talking about doesn’t concern them. I like the way Robin has proposed to do them in A Participatory Economy.

This system is not a market nor a planned system.

The total amount of income available in the society and how this would be distributed to people would occur in the same way as in regular participatory planning.

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Thanks for the reply!

If workplaces were free to adjust their own prices they could simply exaggerate the benefit they’re providing so they constantly have a SB/SC ratio >= 1. They could then manipulate the numbers to get access to whatever resources they wanted if the system worked in the way you describe.

It seems in principle you want something that operates like the participatory planning procedure, but you’re concerned it won’t be dynamic enough to adjust. I think this concern can be addressed without scrapping the entire planning procedure. If workplaces have enough excess supply they’ll be able to dynamically adjust to demand without going through any kind of procedure. If they need more inputs they can negotiate in a similar way to the planning procedure by committing to producing x number of outputs if they’re granted access to use x number of inputs.

I agree it would be nice to see proposals for an adjustment procedure that’s as detailed as the annual planning procedure, but there’s no reason it can’t be highly dynamic and responsive. And if for some reason this proves to be impossible, you could have adjustments operate with market logic while keeping the annual planning procedure.

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Hi tfroberg,

Only have time now for a brief comment.

I like that you are thinking flexibly about all this, and you raise some important issues. Namely, I agree that there are problems with annual planning being dynamic enough (broadly speaking) and especially in the case of updating the annual plan during the year (for which no process has been specified beyond ‘the federations will do it’). I think the latter is a big gap in the model. The 1-year time horizon is a challenge, and from my experience is a common socialist criticism of parecon (with some justification).

However, I don’t find your solution convincing. It is more or less just reintroducing a ‘market’. Enterprises buy and sell various inputs and outputs and set their own prices according to supply and demand. It is reminiscent of Pat Devine’s model of Negotiated Coordination in that ‘market exchange’ occurs within a framework of social ownership and plans cascading down from the national level (e.g. major investment), and negotiated coordination bodies ensuring that enterprises set their prices according to long run costs (vaguely similar to “SB / SC” = 1). A key difference as you mention is that wages are political determined as usual in parecon (for me, this is crucial). Although it seems you are suggesting that capital goods be allocated according to this market process, which in Devine’s terminology would be ‘market forces’ and something to be rejected (and I agree).

That isn’t necessarily ‘wrong’, ‘market exchange’ has its own pros and cons. But in terms of improving parecon, I don’t see going in a marketizing direction to be fruitful. That said, I will digest this and formulate a concrete argument one way or the other. Perhaps if you expanded on your notion of ‘bidding’? Do you mean bidding through the IFB, a bit like during Annual Planning but instead occuring many times during the year?

As to the the IFB making ‘educated guesses’ about baseline prices, this is highly non-trivial and you’d need to make the case for how this could be done both in terms of (1) social logic (how to decide?), and (2) computational feasibility (computing millions of interrelated prices). Again, not that it is necessarily ‘wrong’, but it is not straightforward. My understanding is that this is something like what David Laibman proposes in his MDIC (Multi-level Democratic Iterative Coordination).

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Thanks for the reply Ferdia.

I will be sure to check out both Pat Devine’s model and Laibmans.

I don’t see what I am talking about as a market because, to me, in a market, when a producer sells a product, the money they get from that exchange is now their property. They can then use it to get more money and property by investing it into their workplace, in the stock market, etc. The same idea applies to barter systems as well. If I trade some soap I have made with a hat you have made, the hat is now my property. I can then trade the hat for something else. I think I remember reading somewhere that some guy traded a paperclip, and then traded the good he received in return for some other good, and repeated that process until he was able to buy a house. I don’t know how true that is (sounds a little like capitalist propaganda), but you get the idea.

In what I am talking about, like in annual participatory planning, when a workplace sells something they do not receive that money that the consumer spent. Instead, like in annual participatory planning, the price of the product is simply added to their social benefit. There is no market. A workplace adjusts prices to improve their social benefit, so that, at the end of the year, when we look back the workplaces SB/SC ratio is greater than or equal to one. This is just like in annual participatory planning. In this system, as in participatory planning, income consumers receive function more like vouchers. Vouchers that can be spent on anything available. When a consumer buys a product, the workplace doesn’t get that money like in a market, the money just disappears. An institution similar to the IFB would keep track of how much consumers have spent on their products as to keep track of their social benefit. (I said before the workplaces would keep track, but as Michael Hicks pointed out, the workplace could exaggerate their SB, in other words, lie. I agree. Workplaces would adjust their own prices, but the another institution would keep track of their sales/SB).

As for bidding. To understand I think it is helpful to first imagine that it is not a part of the system. Imagine workplaces just rent (I said buy before, but rent is really what I meant because the workplace doesn’t own the resources) whatever productive resources and capital goods they need. This is added to their social cost in the same way as in annual participatory planning. Again, it is not a market because they don’t own the resource or capital good because they are a part of the socially owned commons. They are renting it. And when they “pay” society to use a productive resource or capital good, it is again like a voucher. At the end of the year we look back and make sure the workplace’s SB/SC ratio was greater than or equal to one, just like in annual participatory planning.

To talk about what I mean by bidding I will first sort of define a bid. You could imagine workplaces going on something similar to Ebay, where they place bids for productive resources and capital goods. But unlike buying off Ebay, the workplace rents the products they get from society, they don’t own them. Again, the cost of whatever they rent is added to the SC.

Now, why are “bids” helpful (not necessary but helpful)? Because they more accurately measure social opportunity costs for using capital goods and productive resources from the commons. If workplaces just buy these things whenever they want, these products and resources are just being given out on a first come first serve basis: whoever buys it first gets it. But what if instead workplaces had to make bids over, say a small period of time, to use these resources? Then if a lot of workplaces want the product, the price will go up. This more accurately measures opportunity costs. We could have the IFB adjust the prices over a series of rounds of bidding, or just have the workplaces bid until there is a winner (i.e., the workplace willing to pay the highest price to rent the product).

As for educated guesses by a group similar to the IFB (we can call it the IFB, but maybe that would be a bad name now since they wouldn’t be facilitating iterations ha) I think it could be done in the same way as in annual participatory planning (APP). When a newly invented product comes about in APP the IFB has to take an educated guess as to what it should cost in the first round of planning. They would do this by looking at similar products. I remember in Robin and Mitchell’s simulations that for the first round of planning in the first year of planning they just put all products at the same price. They then let the iterations come up with the correct price. In what I am talking about, the iterations don’t arrive at the best price, but the workplaces adjust their price to arrive at the best price based on consumer demand. Really, the workplaces, not an institution similar to the IFB, could come up with their educated guess about how much a newly invented product should cost at the outset. If they say it should cost 20 credits, but no one buys it, then they can just lower the price.

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Hey Michael,

So I answered one of your questions when responding to Ferdia. Here is the related content:

Responding to: “If workplaces were free to adjust their own prices they could simply exaggerate the benefit they’re providing so they constantly have a SB/SC ratio >= 1. They could then manipulate the numbers to get access to whatever resources they wanted if the system worked in the way you describe.”:

“An institution similar to the IFB would keep track of how much consumers have spent on their products as to keep track of their social benefit. (I said before the workplaces would keep track, but as Michael Hicks pointed out, the workplace could exaggerate their SB, in other words, lie. I agree. Workplaces would adjust their own prices, but another institution would keep track of their sales/SB).”

I agree that adjustments can be made in annual participatory planning (APP). I think that if APP was implemented tomorrow it would be an amazing system. I am just brainstorming how we could make things even better. I wouldn’t say I want what I am proposing. I am just brainstorming. I could be completely wrong. In any case, even if I am wrong, I think I will learn some very valuable information about the model.

It’s weird because the changes to participatory allocation I am suggesting seem to me to be quite small. It sounds big because what I am suggesting would no longer be primarily a planned economy. But really the change is simply that instead of having everyone plan production at the beginning of the year in rounds of proposals we just make it an ongoing process. Accurate social costs and benefits are still being measured, as far as I can tell. Workplaces are still required to be socially beneficial for society, or at least have a neutral effect if their SB/SC ratio = 1. It is avoiding the issues with markets still, etc.

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Again, if the workplaces are free to adjust their own prices it will allow them to manipulate the numbers. It doesn’t matter who keeps track of sales.

That’s why the forum is here! To help all of us flesh out our thoughts better :slight_smile:

Accurate social costs and benefits would not be measured with what you propose, and there’s no requirement to do what’s beneficial to society when they can manipulate numbers to do whatever they want. For something to accurately represent the benefit to society, it needs to take into account the demand side of what consumers want. When you give workplaces free reign to adjust prices however they want, there’s no reason they would take this into account even if they had perfect sales data in front of them. This is why we need the price adjuster to be an external third party that collects supply and demand data and adjusts prices purely off that.

In market economies, producers adjust prices in a way that maximizes profit… in other words, they get what they can take. What you propose would have similar issues. Producers would adjust prices as high as they could get away with so they could get access to whatever inputs they want.

Again, I think the participatory planning procedure does the job. Our time would be better spent discussing detailed adjustment procedures that could occur as the year progresses.

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I see what you mean by workplaces manipulating prices to their benefit, like creating artificial supply to jack up the price and increase their social benefit. In that case, an algorithm could simply adjust prices, just like in annual participatory planning. A group similar to the IFB could make the adjustments in prices on an ongoing basis (maybe prices are updated daily or weekly). This is actually what I had in mind in my first post where I said:

“The IFB would adjust prices for products on the consumer side with an algorithm that just adjusts prices up if demand is high and down if demand is low, but in real time and not through an iterative planning procedure.”

I changed my mind to having workplaces do it because I thought it would be better, but I get your point on why this isn’t a good idea.

We can move to talking about post-plan adjustments. That is actually what I was brainstorming when I got all of these ideas. Basically, what I have suggested can, I think, be the post-plan adjustments in annual participatory planning (APP). But it seemed to me that it would be efficient enough to not even have APP as a requirement for the system (it is helpful, but not required). In addition, I think explaining the model in the way I am describing could be easier for people to understand. After explaining it, you can then say that we could also do some planning once a year to help things along. There are ways to explain what I am suggesting that are very intuitive to someone living under capitalism. APP can be a little hard for people to grasp. I know from experience trying to explain it to people ha.

But what are your thoughts on post-plan adjusting?

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Yes, prices could either change or stay the same throughout the year. If people wanted the prices to update that would be the role of the IFB. I think in one of the Parecon books they touch on this a bit.

I think if the IFB does a good job calculating the excess supply threshold each industry can have, and the workplaces ask for enough inputs to cover surprise demand, they should be able to adjust to most of the changes throughout the year without much trouble.

When workplaces need access to more inputs, I think it could work something like this (copying from another post I made years ago):

Here are some extra things to note:

  1. An important part of these negotiations is that someone needs to provide sales data and prove that the supply is low enough to warrant some kind of change in the plan. I would prefer the IFB computer system to do this since they would have information regarding how much excess supply is appropriate and have all of the sales data.

  2. Only the workplaces who are signaled by the IFB should be allowed to participate, and they should only be allowed to submit proposals for the products that are relevant. For example, if there’s a banana pie shortage the workplaces should only be able to submit adjustments for banana pies, not apple pies. This will speed up the negotiations for urgent products.

  3. Workplaces could also initiate adjustment proposals for any product they want during the year, and these could not have all of the restrictions I’m talking about above. However, by default, I don’t think these should be treated as urgent. These are the types of adjustments that are going to be prone to prolonged debates because the other councils would need to agree that there’s some good reason for the adjustment. The IFB method I describe above is automated and would just immediately get people into sending proposals like during the annual planning process.

  4. I’m personally in favor of not adjusting prices during the annual plan, but if you wanted to do that you could easily incorporate that into the procedure I proposed. However, the prices shouldn’t be made public until the final plans are approved.

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Will reply more later but just wanted to say briefly I think this is a very useful and important discussion to be having.

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Michael, just to say that in general, I like your suggestions. There are more and other things that can be added to your suggestions but I basically agree with you. And I agree that adjustments of prices should be a last resort thing.

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Another quick comment:

If you’re not willing to change prices during the year (between Annual Planning periods) you need to deal with the fact that quantity changes can make enterprises go into the red. So there has to be an explanation of (1) why the workers in the enterprise would voluntarily harm their income statement, and (2) what will happen to enterprises which are in the red at the end of the year (having made changes ‘for the greater good’).

It’s worth pondering this question: if prices don’t need to change when circumstances change, then what are prices for?

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Just to be clear, I am not saying that prices should never change during the year. There are definitely situations when prices should change, for instance, to avoid the situations you bring up. I am saying that price changes should always be the result of deliberate negotiations on the federation level (not at the individual level) and only in situations of dramatically changed circumstances. And that other measures, such as working with safety margins in the annual planning should be used to avoid, to the extent possible, the need for price adjustments during the year.

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Plans with a benefit/cost ratio less than one can still be approved (assuming this is what you mean by go into the red), but I only see this happening in rare occurrences where there’s a good reason to do it. In regards to income, I think people should be paid an hourly income regardless of workplace performance. If that’s how it worked no one’s income would be harmed, they would receive more for working more.

I think there are four main reasons to adjust prices:

  1. To get the prices in a range where the costs of labor, natural resources, pollution etc are reasonably accurate so consumers can make rough assessments about what products are more costly.

  2. To ensure the more efficient workplaces are prioritized.

  3. To reduce or eliminate supply if it’s too high or there’s no demand.

  4. To reduce or eliminate demand if there’s no way it can be met.

Let’s think about how these things play out during the annual plan.

Each workplace has a price point where the benefit cost ratio of making a product is one. Let’s imagine there are a bunch of different bakeries that produce bread. The most inefficient bakery would need bread to be priced at 100 to have a benefit cost ratio >= 1, while the most efficient bakery would need a price of at least 10.

Ideally, assuming there’s demand for the product, we want the price to be somewhere within 10 – 100 depending on how many workplaces need “activated” to meet demand. Raising the price allows more of these workplaces to be seen as beneficial bread producers, whereas lowering the price “deactivates” the less efficient workplaces.

The only time it makes sense to lower the price beneath this range is when there’s no demand for the product.

The only time it makes sense to raise the price above this range is when activating every workplace still doesn’t provide enough supply to meet demand. At this point, we keep raising the price until either A) demand is reduced to a point where supply covers demand. Or B) all of the demand is eliminated.

Now, let’s return to the plan adjustments and how they relate to the four reasons I mentioned above.

1. To get the prices in a range where the costs of labor, natural resources, pollution etc are reasonably accurate so consumers can make rough assessments about what products are more costly.

In short, nothing needs to be done. The annual planning procedure results in prices that are reasonably accurate in regards to getting them within a range where consumers can make rough assessments of what’s more costly. We’ve used these prices to finalize our economic activities for the year, and we know that if the plan executes as planned everyone will receive the outcomes they expect (getting the products they need, working the hours they need to receive their income etc.)

At this point, the prices have served their purpose and we just need to execute the plan. There’s no reason to keep adjusting prices in real time other than the never ending theoretical quest of calculating the perfect price. In reality, adjusting the prices in real time is the equivalent of sabotaging the plan and could even needlessly harm people. The main issue is that price adjustments create a cascading effect where even more areas of the plan would need changed. For example, if the price of food goes up to a point where people can’t afford to eat they would want to work more hours, maybe switch to consuming something else causing new shortages, thus causing even more (potentially unnecessary) changes and so on.

And to be clear, by “in real time” I’m talking about scenarios where we’re constantly updating the prices based on recent sales data. This is the kind of thing I think Anders was referring to, and I’m opposed to it as well. If we’re going to adjust prices it needs to be done with extreme care and as a last resort.

2. To ensure the more efficient workplaces are prioritized.

The annual planning procedure takes care of this, but like Ferdia mentioned there may be cases where we need to bring in workplaces that were seen as inefficient during the planning procedure for a supply adjustment.

When the adjustments start, workplaces that were seen as beneficial during the annual planning are going to have an upper hand, and I think that’s a good thing. Ideally, we want to try and get more supply from the efficient workplaces and not the inefficient ones. If the efficient workplaces can’t produce enough and the inefficient workplaces are proposing to produce, we have two options:

A) Go ahead and approve the inefficient workplace proposals at the current price point, regardless of how the benefit cost ratio looks.

B) Increase the price so the inefficient workplaces a benefit cost ratio >= 1 and approve the proposals.

Honestly, if we’re going to adjust prices, this is the only time I would consider doing it. However, I would still prefer if we didn’t do it haha. Just because the product has a ratio less than one doesn’t mean it will give their entire plan a ratio less than one… so I think that should be taken into account before considering a price adjustment. And finally, if the price is adjusted I think it should be just enough to give the product a ratio equal to 1 and not anything higher so we can minimize the cascading effects this will have.

This strikes me as one of the rare cases where it makes sense to give thumbs up to a proposal that has a benefit cost ratio less than one.

3. To reduce or eliminate supply if it’s too high or there’s no demand.

This makes sense during the annual planning procedure, but I think it’s kind of silly to do while the plan executes. Workplaces have already been approved to produce a certain amount of the product and have been granted access to inputs, so I think it’s fair to let them produce what was agreed upon. It may seem tempting to lower the price if there’s a lot of excess supply, but this could cause a shortage and screw over the people who requested it. If worse comes to worse, the excess supply of some products could be taken into account during the next annual plan and the price could be lowered then.

4. To reduce or eliminate demand if there’s no way it can be met.

If we’ve went through the adjustment procedure and there’s still no way we can produce enough supply, then it would make sense to start raising the price of the product to cut off excess demand. However, I’m opposed to doing this because it screws over the people who included the product in their consumption plan and still plan to purchase it. This is basically like punishing people who did the right thing.

In this scenario, I would prefer a rationing system where only the people who included the product in their consumption plan can purchase the product. Once those people are taken care of, the rationing could be lifted and it could turn into a “free for all” at the current price point or a slightly raised price. At this point, I think it’s better to let people have whatever supply is left than to raise the price so high where no one can acquire it and it’s just sitting in the stores.

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Every economy worthy of support needs to be able to adjust its production in real time to account for changes in demand, especially unforeseen changes in demand that one might describe as a ‘crisis’ or ‘emergency’ (as one might have as a consequence of a natural disaster, or a war, or refugee crisis, a pandemic, or a food shortage, or an ecological tipping point that requires immediate attention.). Changes in demand that reflect predictable trends, like population growth itself, can for the most part be planned well in advance.

But even an annual plan can plan for emergencies and ‘buffers’ in terms of supply. I don’t think a participatory economy would EVER entertain the notion that food and medicines (and medical equipment), and emergency relief and housing / construction materials should be so stringently balanced with an annual expected demand that society would be constantly on the verge of running out. A participatory economy would have the economic equivalent of a “grain silo” (or supply buffer) for a LOT of things: not just food items and medicines, but other kinds of things too. Not just for emergencies, but for real-time shifts in production and consumption requests from worker and consumer councils.

A restaurant in a participatory economy can indeed plan for expected inputs (cooking ingredients, utensils, wine glasses, plates, staffing needs, etc.) they will need for the upcoming year. But day-to-day and week-to-week they will still run out of things for a number of different reasons (customer demand for a particular dish or drink, spoilage, crop failure). An economy that had neither built in a supply buffer, nor a means to adjust production in real-time, would constantly have shortages of food items. Now, of course, in a participatory economy workers would probably also understand that shortages of certain foods or limited availability in certain countries/climates/seasons, is to be expected, especially when talking about luxury items imported from elsewhere (say bananas or avocados). But overall, I think, the annual plan must plan for a supply buffer in terms of food and medicines in particular – but also for units of basic building and construction and manufacturing inputs (certain types of metal, wood, nails, concrete, whatever).

Beyond planning for these kinds of emergency and non-emergency buffers, I also think it’s possible to have more than one planning period in a given year. A participatory economy may find, over time, that it is easier to do the planning process twice a year, or even quarterly, for certain kinds of things – and annually for others. This, in itself, might resolve some of the concerns of the original poster. And supply buffers, in my mind, would be another built-in safety measure.

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But the question is, is there a supply buffer in central planning? If so, why do central planning create shortages?