This is a long answer. But since more people have summarily dismissed participatory economics for this reason, – it’s just impossible or impractical to do any kind of comprehensive, detailed, annual economic planning – let’s consider these criticisms very carefully.
Some have dismissed our proposal on grounds that it is impractical to expect consumers to express their desires in sufficient detail to provide producers with the level of detail they require to know what to produce. And some critics have dismissed our proposal on grounds that when, in the words of the poet Robert Burns, “the best-laid plans of mice and men often go arwy,” unlike market economies planned economies cannot respond when new developments arise.
The Size 6 Purple High Heeled Shoe with a Yellow Toe Problem :David Schweickart ridiculed household consumption planning as “nonsense on stilts” in his book review of Michael Albert’s Parecon: Life After Capitalism.
“Unless requests are made in excruciating detail producers won’t know what to produce. In any event, they have little motivation to find out what people really want.”
Seth Ackerman dismissed participatory economics for this reason alone:
“There are more than two million products in Amazon.com’s “kitchen and dining” category alone!”
And Erik Olin Wright put it this way:
“The problem is that the gross categories provide virtually no useful information for the actual producers of the things I will consume. It does not help shirt-makers very much to know, based on the aggregation of individual household consumption proposals, that consumers plan to spend a certain per cent of their budget on clothing; they need to have some idea of how many shirts of what style and quality to produce since these have very… different opportunity costs.”
Since this concern was so prominent in critics’ minds we decided to call it the “size 6 purple high-heeled shoe with a yellow toe problem.” Quite simply the problem is this: A shoe producer must know to produce a size 6 purple high-heeled shoe with a yellow toe. The producer must know that size 5 will not do, a red toe will not do, and a low heel will not do. However, it is unreasonable to expect the consumer who will eventually discover she – or he – wants a size 6 purple high-heeled shoe with a yellow toe to specify this at the beginning of the year as part of his or her annual consumption request.
How does a shoe producer in any economy know to produce a size 6 purple high-heeled shoe with a yellow toe, rather than a slightly different shoe? In a market economy shoe producers guess what shoe consumers will want when they decide to go shoe shopping. They guess based on past sales. They guess based on any consumer research they engage in, perhaps including information culled from focus groups. They guess based on government projections of changes in relevant economic variables such as the distribution of income among households.
And recently, many large companies have started to use newly available data gathering and processing capabilities to predict what products particular customers will want in the future. When I go to the Amazon website to inquire about some book, Amazon now tells me what other books I might be interested in buying. Only when I go on the internet from my wife’s email address does Amazon provide me with book suggestions that do not match my preferences. In our brave new market economy producers often know what we will want before we do! In market economies producers also try to influence what I will want to buy through advertising. In other words, a shoe company will decide to produce a certain style shoe and use advertising to make people want to buy the style they have decided to produce.
In sum: In market economies producers guess what to produce – because most sales are not arranged through pre-orders – and producers use advertising to try to influence consumers to buy what they have produced. New technologies of automated inventory supply management and consumer data base mining have made their guess work more accurate, but in the end producers in market economies are still guessing.
There is often a great deal of inefficiency that results from this guessing game that is an intrinsic feature of market economies. Unlike planned economies, in market economies there is no attempt to coordinate all the production and consumption decisions actors make before those decisions are translated into actions. As a result a great deal of what economists call “false trading” occurs. False trades are trades individual parties make at prices that fail to equate supply and demand – which actually occurs more often than not! While seldom emphasized, competent economic theorists know that all false trading generates inefficiency to some extent, and dis-equilibrating forces operate in market systems alongside equilibrating forces when quantities adjust as well as prices. The notion that in market economies the convenience consumers enjoy of not having to pre-plan their consumption with producers comes at no price is based on the grossly unrealistic assumption that market economies are always in general equilibrium. For all their faults, twentieth century centrally planned economies did not experience major depressions, or even significant recessions caused by mutually reinforcing dis-equilibrating forces in markets that all too often go unchecked by appropriate countervailing fiscal and monetary policies in market economies. But how will all this work in a participatory economy where there is a self-conscious attempt to coordinate production and consumption decisions before production begins?
Let’s begin with information consumers will have about what is available. Ironically, the two million products in the Amazon.com “kitchen and dining” section is not an insurmountable problem rendering comprehensive economic planning of any kind impossible at all. Instead it is a wonderful example of how consumers today can easily be made aware of the tremendous variety of products that will be available in a participatory economy. Just as Amazon.com can list millions of products – providing pictures and details about their characteristics – consumer federations can provide this service to consumers in a participatory economy for any who wish to shop online. And for those who prefer what some of my students once told me were “the pleasures of malling it,” consumer federations can host shopping malls where anyone who wishes can go to see and be seen, and walk away with whatever strikes their fancy. Information about product improvements can be provided by consumer federations as well. The fact that it will be consumer federations providing information about products, rather than producers singing their own praises as is the case in market economies, should be a significant change for the better. But, how, critics ask, will consumers pre-order?
It is important to distinguish between what we need to accomplish and what we do not need to accomplish in the annual participatory planning process. Just as we do not have to eliminate every last bit of excess demand for every good and service in order to start the year, when the year starts any shoemaking worker council with an approved proposal knows it should start making shoes. It also knows how much cloth, leather, rubber, etc. it has been pre-authorized for during the year, and how many shoes it has said it can make. It also knows that X% of the shoes it made last year were high heeled shoes, and Y% of the high heeled shoes it made last year were size 6. How does it know whether to start making size 6 purple high-heeled shoes with a yellow toe, or size 6 purple high-heeled shoes with a red toe? It does just what a shoemaking company in a market economy does: It makes an educated guess.
Then, as soon as actual consumption begins new information becomes available. Suppose purchases of size 6 purple high-heeled shoes with a yellow toe are lower than producers expected while the red toed shoes are disappearing like hot cakes. This kind of new information is what helps worker councils answer the question: Exactly what kind of shoe should I be producing, just as it does in market economies. So much for the claim that a planned economy has no answer to the size 6 purple high-heeled shoe with a yellow toe problem. It has the same answer a market system does with regard to moving from a “coarse” decision about shoe production to a “detailed” decision about size 6 purple high-heeled shoes with a yellow toe production as the year progresses.
This first kind of new information fills in the details producers need to know about exactly what kinds of shoes people want, which is why consumers do not need to specify these details when submitting their personal consumption requests during the planning procedure. Submitting personal consumption requests during planning is not impossibly burdensome because the form would only need to have an entry called “shoes” for one to put a number after, not an entry called “size 6 purple high-heeled shoes with a yellow toe!” Those kinds of details are revealed by actual purchases as the year proceeds. In other words, Erik Olin Wright misread our proposal when he wrote: “Since the coarse categories would not be useful for planning by federations of workers councils, and this is the fundamental purpose for pre-ordering consumption, I will assume that the finest level of detail is required.” Consumption proposals during planning are made using what Erik calls “coarse categories” because the fine level of detail producers require is revealed as the plan is actually implemented. Whether filling out even this reduced list of items is beyond people’s capabilities or desires we will return to shortly.
What about David Schweickart’s claim that worker councils “have little motivation to find out what people really want,” disenfranchising consumers as the centrally planned Soviet economy certainly did for decades? Here it is important to distinguish between the worker council production plan that was approved as “socially responsible” before the year began, and what the worker council is credited for at the end of the year. Plan approval is based on projected social benefit to cost ratios. However, worker councils are credited for the social benefit to cost ratio of actual outputs delivered and accepted, and actual inputs used during the year. Similarly, consumers, and consumer councils and federations are charged for what they actually consume during the year, not what was approved for them in the plan. Any differences are recorded as increases or decreases in the debt or savings of individual consumers, neighborhood councils, and consumer federations.
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. So if their approved production plan had a SB/SC ratio of 1.09 but their actual ratio at year’s end turns out to be 1.03 the cap on average effort ratings for workers in the council next year is 103 not 109. Therefore, a worker council which failed to reduce yellow toed shoe production and increase red toed shoe production in response to signals that become available during the year about what consumers truly like would in all likelihood end up with a lower actual social benefit to cost ratio, and consequently a lower average effort rating for the following year.
There are endless details one could pursue in this, as in other areas, regarding exactly how a participatory economy would actually function. Suppose a worker council delivers yellow toed shoes to the consumer federation. Suppose the consumer federation accepts them anticipating that they will sell, only to discover later that nobody bought them because they bought red toed shoes instead. Who takes responsibility? Does the worker council get credit for them because they were accepted by the consumer federation? Or does the consumer federation notify the worker council at the end of the year that it does not get credit for some of the yellow toed shoes it produced? As any business knows, selling is different from selling on consignment.
However, the important question is not which option will be chosen – because that will be decided by the people who live in a participatory economy. The issue is simply whether or not there are perfectly straightforward answers which allow producers to turn “coarse” categories in the annual plan into more “refined” categories as the year proceeds; so an economy which begins the year with a comprehensive annual plan is a practical possibility, and not cannot be dismissed as “nonsense on stilts.”
Post-Plan Adjustments : Actual purchase patterns during the year reveal more than needed details about consumer desires. They also signal when consumers have changed their minds. At the individual level people reveal by their purchases that they want more of some things and less of others than they indicated during planning. At the aggregate level individual increases and decreases sometimes cancel out and therefore require no changes in production. When they do not, how to increase or decrease production of shoes because consumers have changed their minds must be negotiated between the shoe industry federation and the national consumer federation. Again, there are different ways these adjustments might be handled, each with its pros and cons. But the relevant point is that adjustments can be made. When making adjustments in production the crucial questions are: (1) To what extent will the shoe producers and shoe industry or consumers bear the burden of adjustments? And (2) will shoe customers who change their demand for shoes be treated any differently from shoe customers who do not?
In the case of excess supply the issue reduces to whether or not producers will be credited for shoes that are added to inventories, and if so how much. 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. Beyond crediting shoe workers for working longer hours, will the indicative prices of shoes and those resources be increased above their levels in the plan, or not? If shoe production is not raised sufficiently to satisfy all who now want shoes, will those who did not increase their demand above what they ordered be given preference? While those living in a participatory economy will have to debate the pros and cons of different answers to these questions, our point is simply that these questions all can be answered.
The difference between a planned economy and an unplanned, market economy, is that to the extent that consumers submit proposals that reflect changes they anticipate in their tastes from previous years, and to the extent that worker councils submit proposals that reflect anticipated changes in their technologies and work preferences, the approved annual plan is our best guess of what should be done, and therefore reduces the number and size of adjustments necessary. All mechanisms for making adjustments in a market economy are available if wanted in a planned economy as well, although presumably a participatory economy would put a higher priority on mechanisms which distribute the costs of adjustments more fairly.
Finally, how burdensome is it for consumers to put numbers next to a list of “coarse categories?” Perhaps I was too flip when I once explained how a lazy person such as myself might spend no time submitting a new consumption request, but what would happen in such a case? If a person does not fill out and submit a consumption request form, his or her neighborhood council can simply use the person’s actual consumption last year as their new consumption request for this year. If their effort rating for this year warrants this level of consumption, their request will be approved and included in the neighborhood proposal. If not, and if a person continues to fail to respond to requests for a new proposal, the neighborhood council can reduce every item in their last year consumption by the same percentage until the reduced request is covered by their lower effort rating this year. In this way neighborhood consumption councils, who must submit neighborhood proposals during the planning procedure, can do what they have to do even if some of their irresponsible members fail to provide personal consumption proposals.
At the end of our dialogue book Erik Olin Wright seems to understand how signaling necessary details to producers, and making adjustments because consumers change their minds can work in a participatory economy. He wrote:
“Production…in effect would be done pretty much as… now: producers would examine the sales and trends of sales in the recent past, and make their best estimate of what to produce…on that basis. Indeed, since producers and their sector federations can continually and efficiently monitor these trends, they are in a position to make updates to plans in an on-going way on the basis of the actual behavior of consumers, rather than mainly organize their planning activities around annual plans animated by uninformative household pre-orders.”
This is accurate enough, although I don’t see why Erik dismisses household pre-orders as “uninformative.” They certainly provide industry federations more useful information at the start of the year than the limited information market systems provide producers about changes in consumer intentions.
In sum: From year to year consumers’ incomes change, and consumers’ desires change. Signaling producers about how these changes are likely to affect their demands for different goods and services is what pre-ordering is for, and why it is quite useful for producers. Necessary details can be filled in from consumer profiles and actual purchases during the year, and adjustments can be negotiated with the aid of instantaneous inventory supply line prompts at the disposal of worker councils and federations. But just because pre-ordering lacks detail and people change their minds does not mean the planning process is pointless. If we want consumers to influence what is produced in the economy, and if we are going to decide what is produced in large part through a planning procedure, then we need consumers to provide their best guesses about what they will want. We don’t need them to agonize over their proposals, and we certainly can accommodate them when they change their minds.
Finally, is the adjustment process really just a market after all, as Erik Olin Wright suggested when he asked: “Aren’t mid-year adjustments really just forms of market behavior?” Clearly, approved consumption plans are not treated as binding contracts since individuals are free to change their minds as the year proceeds. One possible option for making adjustments would allow indicative prices to rise when excess demand for something appears during the year, and indicative prices to fall in the case of excess supply. In which case: If it looks like a market, and smells like a market, doesn’t that mean it is a market?
The answer is an emphatic “no!” for three reasons:
(1) In market economies there is no comprehensive production and consumption plan that has been agreed to at the beginning of the year. There is no plan where people had an opportunity to affect production and consumption decisions at least roughly in proportion to the degree they are affected. There is no plan that incorporates effects on “external parties” which are ignored by buyers and sellers who make the decisions in market economies. There is no plan that would be efficient, fair, and environmentally sustainable if carried out. Instead, in a market economy all decisions about how to organize a division of labor and distribute the benefits from having done so are settled by agreements between buyer-seller pairs – which predictably leads to outcomes which are inequitable, inefficient, and environmentally unsustainable as argued in chapter 2.
(2) Even when adjustments are made during the year in a participatory economy individual buyers and sellers do not negotiate adjustments between themselves however they see fit, including any adjustment in prices. Instead, adjustments are negotiated socially. Industry and consumer federations negotiate adjustments in production. And whether or not to adjust indicative prices is also a social decision, so that fairness as well as efficiency can be taken into account.
(3) Markets are the aggregate sum of haggling between many self-selected pairs of buyer-sellers. Neither participatory planning nor the adjustment procedures I have discussed above permit self-selected buyer-seller pairs to make whatever deals they want because the consequences of allowing this are unacceptable.
In conclusion, ironically perhaps the most common objection people have raised to our proposal is a simple confusion about what a comprehensive economic plan is, and is not. It is not a detailed plan of the kind that David Schweickart, Seth Ackerman, and initially Erik Olin Wright assumed, and which Schweickart summarily dismissed as “nonsense on stilts.” Once that misunderstanding about comprehensive plans is dealt with, the question is simply if it is possible to (a) fill in the necessary details producers need, and (b) adjust to changes which were not foreseen when the plan was agreed to. Hopefully we have explained enough about how details can be filled in and adjustments made during implementation to dissuade people from dismissing our proposal out of hand. There are reasonable questions critics can, and have raised about the wisdom of our proposal. But dismissing any kind of comprehensive economic planning as simply impossible is not one of them.
While we do not endorse procedures used in real world centrally planned economies during the twentieth century where consumers were disenfranchised – unnecessarily in our view – as anyone who lived in those economies knows, necessary details producers need can be added to comprehensive economic plans drawn up in “coarse” categories. And adjustments can be made during implementation.