4 of 10: How will workplaces know what to produce?

This is the fourth part of ten extracts from the book Democratic Economic Planning (2021, Routledge) by Robin HahneI.

Some critics have dismissed participatory planning on the belief that it is impractical to expect consumers to specify what they want during annual participatory planning in sufficient detail for producers to know what to produce. In this short extract from chapter 15: After the Plan: Dispelling Common Confusions, Hahnel addresses this concern, among other common confusions about participatory planning, including how a democratically planned economy can accommodate product detail and make adjustments during the year just as well as market systems.

The size 6 purple women’s high-heeled shoe with a yellow toe problem

David Schweickart ridiculed household consumption planning as “nonsense on stilts” in his 2006 book review of Michael Albert’s Parecon: Life After Capitalism (Verso, 2003).

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 in “The Red and the Black” published in The Jacobin (9) in 2013.

There are more than two million products in Amazon.com’s “kitchen and dining” category alone!

And in Alternatives to Capitalism: Proposals for a Democratic Economy (Verso, 2016), 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 is so prominent in critics minds, let’s give it a name. Let’s call it the “Size 6 purple women’s 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 women’s high-heeled shoe with a yellow toe. The producer must know that size 5 will not do, a red toe will not do, a low heel will not do. However, it is unreasonable to expect the consumer who will eventually discover she wants a size 6 purple women’s high-heeled shoe with a yellow toe to specify this at the beginning of the year as part of her annual consumption request.

How does a shoe producer in any economy know to produce a size 6 purple women’s 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 database mining have made their guesswork 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, 20th-century 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, and so on 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 women’s shoes, and Y% of the women’s shoes it made last year were size 6. How does it know whether to start making size 6 purple women’s high-heeled shoes with a yellow toe, or size 6 purple women’s high-heeled shoe 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 women’s 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 women’s 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 women’s 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 women’s 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. 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 an 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 that 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. 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.

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 that allow producers to turn “coarse” categories in the annual plan into more “refined” categories as the year proceeds, so an economy that begins the year with a comprehensive annual plan is a practical possibility, and cannot be dismissed as “nonsense on stilts.”