The Allocation of Capital Goods

Originally published at: https://participatoryeconomy.org/the-allocation-of-capital-goods/

In this article I explore the challenges of allocating and pricing access to existing capital goods in a Participatory Economy. Capital goods are long-term physical assets that a workplace uses in their production process to make finished products and services. For example: buildings, machinery, equipment, vehicles, and tools. In a Participatory Economy, capital goods, like…

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Anders, I think you have highlighted an important issue here about the unique characteristics of capital goods which poses challenges to treating the pricing and allocation of these assets which are already in use by worker councils, in the same way as we handle other types of inputs in the annual participatory planning procedure.

Is it correct that what you are saying is that because capital goods tend to be unique, tied to a fixed geographical location, and for other reasons you list in your article, they would need to be demanded as individual items, rather than as categories, as with other types of substitutable resources. Is that correct?

If so, thinking through a real-world example, if at my worker council we have a bicycle parts factory, it would be odd if the physical building and machines inside would be up for auction for others to ‘bid’ on in every year’s annual planning. Once our Worker Council has been granted the use of the factory and machines, I don’t think it would make sense for them to be available for others to demand access to and we should have the right to continue using them indefinitely - as long as we are consistently producing greater social benefits to costs (i.e using the resources efficiently), or unless we decided to close and make the physical assets available again for other groups to bid on to take over.

Is this how you see it? And with pricing do you see the usage fee of the factory being set to the annual depreciation? Do you see any possible drawbacks to this approach?

Thanks, Jason.

So, I don’t think that first access to a unique and fixed capital good, e.g a production facility, can or will be demanded in the same way as other goods in the annual planning. Instead, I believe that federations will have to play an active role in allocating the first access to many fixed capital goods to worker councils before the start of the annual planning. Once a worker council has been given access to a production facility, it can include it in the production proposal in the annual planning and it will be allowed to use it as long as the SB/SC ratio is positive, as you describe.

All this affects the pricing of individual, unique and fixed capital goods. Even in market economies, in which anything and everything is traded on a market and everything is supposed to have a market value, fixed capital goods have traditionally been valued at historic acquisition costs, not market values, because they are not traded in the same way as other goods. Any estimate of a market value of a fixed capital good would just be too uncertain and open up for manipulation, as well, if allowed.

Similarly, I assume that in a PE the user right fee for access to a fixed and unique capital good would have to be set to the annual depreciation cost based on the historic acquisition cost of the fixed good, or in some instances a replacement cost, i.e the cost for the last produced unit of the good.

Interesting, and thanks for clarifying.

Understood that you see that workplaces would be charged a user-right fee in the form of a fixed annual depreciation derived from the historic acquisition cost of the capital good. And how do you see the initial price (acquisition cost) for the capital good (e.g. a factory) being calculated?

At some point, every capital good including existing factory buildings was produced and delivered as part of an annual plan with its cost decided in and following from the annual planning. This is the historic acquisition cost. For more standardised fixed capital goods one could imagine using the cost for the latest produced unit of similar goods (the replacement cost) as the starting point for depreciation but for unique facilities, I think that one would have to settle with the historic cost. This is in analogy with how fixed assets are accounted for today.