Any economy has to have a system for deciding what particular goods and services to produce and therefore how to best make use of its scarce productive resources for fulfilling human wants and needs.
In capitalism, allocation happens through market exchange, where privately-owned firms compete against one another for profits, set prices, use advertising to influence consumer preferences and make best guesses to decide what to produce. In centrally planned economies like the ex-soviet union, a central board of planners gather data to decide what to produce and give production orders to firms to carry out.
Instead, a participatory economy is a type of democratically planned economy. There is no market exchange nor central planning. Society’s productive resources are owned by everyone collectively and distributed via decentralised participatory planning procedures which everyone takes part in.
Goals
Participatory planning is designed to solve well-known failures inherent to markets and central planning. It is designed to further the values of self-management, justice, solidarity, ecological stewardship, efficiency and diversity in the following ways:
- To generate accurate prices that reflect the true costs of consuming goods and services to society, which includes pollution.
- To enable a fair distribution of income by separating its relationship from the costs of labour in producing goods and services.
- To enable collective consumption preferences to be easily put forward.
- To enable individuals, workplaces and neighbourhoods the freedom to decide on their own affairs without any central authority telling them what to do.
- To eliminate the bias towards growth over leisure and the underpricing of harmful activities inherent in market systems.
- To reveal how our choices impact on others.
- To generate variety of options, goods and services for people to fulfill their lives.
The Participants
The participatory planning procedure involves the following groups participating:
- Households and Federations of Consumers’ Councils
- Workers’ Councils and their Federations
- A facilitation group, who update and facilitate the flow of information during the planning procedure.
Planning Time Horizons
The are three types of planning, which involved short-term to long-term planning:
- Annual Planning – for distributing productive resources for the year ahead (1 year)
- Investment Planning – for deciding on which capital stocks to increase (1-5 years)
- Development Planning – for deciding on long-term structural changes (5-20 years)
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Annual Planning
Before the start of every new year, every workplace, household and federation council participate in an annual planning procedure, which is likely to last a few weeks to complete.
The planning procedure occurs over a series of rounds, or ‘iterations‘.
In each round:
- Every household and consumer council in society is asked to provide information about what they expect to consume for the year ahead, and every workplace proposes what goods and services they’d like to produce.
- More accurate information is generated about the full costs to society of production and consumption choices, until an efficient plan is reached.
In more detail, each round involves the following three steps:
Step 1: New Prices Announced
Prices of all resources, goods and services, and pollutants are announced by the facilitation group. Workers and consumers use these prices during the planning procedure to learn about the cost to society of making different choices about what goods and services to produce and consume for the year ahead.
Price = a quantitative estimate of the opportunity costs and social costs of using resources and consuming goods and services.
Step 2: Proposals
Consumer Proposals
Every individual, family or ‘household’ proposes what they expect to consume for the year ahead. They look at their consumption from last year and based on new prices, changes in their preferences, and their projected income, make adjustments up or down to the quantities of goods or services that they expect to consume.
Planning one’s consumption does not involve deciding on any detail, but just using general categories. For example, categories could be grouped based on entertainment, clothing, food and so on. The consumer planning would have similarities to the use of online banking, personal finance software and family financial planning common today.
So that individuals, families or households are making a fair claim on consumption, they need to adjust their proposal so that their expenses are within their income. To do this they may need to reduce their consumption or choose less costly goods to have their proposals accepted.
Every neighbourhood and federation consumer council combines the proposals of its individual members together with proposals for their collective public goods. As long as their total consumption is within their members’ incomes, proposals are fair and accepted by their peer councils.
Worker Proposals
Every workplace proposes what they expect to produce for the year ahead. This includes the inputs they need, such as raw materials and machinery, and the outputs they will create, such as bicycles. This includes byproducts that have a negative social impact, like pollution.
It’s also an opportunity for every worker to get to decide how many hours a week they’d like to work during the year.
Each workplace is required to make a socially responsible, i.e efficient, use of society’s scarce productive resources. To do so, they create or adjust their proposal so that the value of the goods and services they produce, social benefit, is greater than the value of the inputs they want to use, social cost, i.e social benefit > social cost. To achieve this, a workplace can increase their output, or change their production to a more desirable output, or use less costly inputs.
Social Benefit to Social Cost Ratio (SB/SC) = the total value to society of the goods or services a workplace produces divided by the total cost of the inputs to society used for production. Anything over one indicates an efficient, or, in other words, a responsible use of society’s scarce resources.
Step 3: Updating Prices
The facilitation group, using a software algorithm, updates the prices of all productive resources, pollutants, and final goods and services up or down. The price of any item will go up if there is an excess in demand and will go down if there is an excess in supply.
Converging on a Plan
The process repeats itself over several rounds, with consumers and workers reacting to changes in prices and adjusting their proposals, until there are no longer any excesses in supply or demand. By the end of the process an efficient, fair and environmentally sustainable plan for the year is attained.
During the Year
Like today, there are places to shop for goods and services. Every person would have an electronic debit card that is charged whenever they purchase a good or consume a service.
Of course, people’s actual consumption during the year will differ somewhat to their consumption plan.
Many changes will cancel out on the aggregate level, but where there is significant deviation, users can be prompted to confirm they’d like to update their plan. Worker and consumer federations will be responsible for monitoring consumption patterns and coordinating any necessary changes to production during the year.
FAQs
Will I need to know what to consume one year ahead?
No, you are not expected to know what you want to consume in any detail for the year ahead.
An individual consumption proposal is just a consumer’s best estimate of what they think they will consume in the upcoming year by choosing from a list of broad categories of goods, e.g. “shoes”, “bicycles”, and “computers”. This starts by looking at their previous year’s data, and then adjusting up or down as prices change from round to round during the planning.
Can I borrow or save?
Yes. Any individual can save by spending less than their income.
If someone needs more income than they have, they can make an application to borrow. Loan applications could be handled by an organisation similar to a community credit union today.
How is this different to Markets?
The difference is in how prices, production, consumption and income are decided.
In a market economy, prices are set by the individual interaction between a buyer and a seller. Whereas, in a Participatory Economy, prices are set through annual democratic planning which all actors in society participate in.
This has many implications, which you can read about in articles on the site and on the comparison table. Annual democratic planning is designed to solve the inherent failures with markets and further the values of equity, solidarity, diversity, self management, efficiency and environmental stewardship.
How is this different to Command Planning?
The difference is in how prices, production, consumption and income are decided.
In a centrally planned economy, data is collected and prices are set by a central planning board. Whereas, in a Participatory Economy, prices are set through annual democratic planning which all actors in society participate in.
This has many implications, which you can read about in articles on the site and on the comparison table. Annual democratic planning is designed to solve the inherent failures with central planning and further the values of equity, solidarity, diversity, self management, efficiency and environmental stewardship.
Isn’t all this planning time consuming?
It is important to first note that planning is needed and done in any type of economy. The difference is that planning is inclusive in a participatory economy, not done only by government or corporate elites.
Planning would only take place over a few weeks at the end of every year. For workplaces, this would be part of one’s job, not take up any of one’s leisure time.
Personal consumption planning is not expected to be any more time consuming than currently filling out tax returns (tax returns would not be required in a participatory economy).
During the year citizens can also attend voluntary meetings of their neighbourhood consumer council to make decisions around local public goods. Each council can arrange a meeting schedule that fits their community’s needs, for example meeting once a month.
It is likely that people in a participatory economy will choose to work fewer hours than in today’s economy and therefore have more leisure time overall. While planning will require some time, the benefits of an economy based on cooperation and solidarity would far outweigh any costs.
Is there money in a Participatory Economy?
There is a currency in a Participatory Economy. However, there are some important differences to money today.
Income, and therefore currency in a Participatory Economy is non-transferrable. You cannot transfer your income to another person or organisation (with the exception of redistribution of income within one’s consumer council for special needs requests). Whenever you purchase a good or service you are not transferring your income to the workers of the workplace who you have purchased the good from. Income and sales are separate accounts in a participatory economy. The income workers receive is from the society account, not from their workplace’s sales account. For more information on accounting in a participatory economy, see the book Anarchist Accounting.
In a Participatory Economy, currency is simply an accounting unit used to keep track of consumption rights. Currency can only be used as a means accepted as payment for goods and services. Every citizen has an account which is credited whenever they receive income and debited whenever they pay for a good or service and every citizen would have an electronic debit card for making payments.
An important difference to a capitalist economy is that income is distributed fairly in a participatory economy and capital is socially owned. Therefore differences in people’s incomes across society would be small compared to today. The only way to receive income is from work, from needs based allowances or for compensation from pollution. It is not possible to purchase shares or gain income from rent or interest.
Further Resources
Participatory Planning Simulation
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Investment and Long-run Development Planning
In Parts IV and V of Democratic Economic Planning we spell out concrete proposals for how to go about organizing participatory investment planning and different kinds of long-run development planning at great lengths.
New Challenges: We start by pointing out that investment and development planning present new challenges which require answers to new questions.
- During annual participatory planning worker councils know what their technological capabilities are and consumers know what their preferences are. But future technologies and future preferences can only be estimated with some uncertainty. Which means that there is no alternative to guessing what consumer preferences will be in the future, and what new, more productive technologies will become available in the future. Taking both access to information and motivation into account, who is best suited to the task of estimating what future preferences and technologies will be?
- When estimates inevitably prove to be inaccurate to some extent, initial investment and development plans will be inefficient. Is there some way to identify mistakes and revise investment and development plans to reduce losses in well-being and thereby improve outcomes?
Briefly, this is how we have proposed to meet these new challenges:
It is a simple mathematical exercise to write out the necessary conditions for aggregate investment and development plans to be efficient: The last dollar invested must generate a future benefit equal to the present benefit of the last dollar spent on consumption. And once estimates of future technologies and preferences are provided these equations can be easily solved to calculate an optimal investment plan over time.
What is not straightforward, and requires careful deliberation, is identifying who can best be trusted to provide accurate estimates of what future technologies and future consumer preferences are likely to be. After carefully analyzing both access to information about future technologies and preferences, as well as what their motivation might be, we proposed the following:
Investment Planning: The National Federation of Consumer Councils, assisted by its R&D department, should estimate changes in future consumers’ utility functions. The National Federation of Worker Councils, with input from both its R&D department and industry federations of worker councils, should estimate changes in future production functions. Together with information about the benefits of more consumption now from the most recent annual plan, these estimates are sufficient to allow the staff of an investment planning agency to calculate the optimal level of saving and investment for each year covered by the investment plan.
Long-run Development Planning: There are two additional considerations which must be considered when doing long-run education and environmental planning. The first is that these plans will cover much longer time periods than the five years which investment in ordinary capital goods typically requires. Which means estimates of future costs and benefits from investing in education and environmental protection and enhancement will be even more prone to error. The second is that there are additional categories of benefit to be considered from investing in education and environmental protection, and therefore we must decide who is best suited to estimate the magnitudes of these additional benefits.
Long-run Education Planning: In the case of long-run education planning we propose that delegates to industry federations of worker councils work together with officials in a Ministry of Education to estimate both the production benefits and the social costs of more education. We propose that delegates to the National Federation of Consumer Councils together with officials from the Ministry of Education estimate the long-term personal benefits from education. And we recommended that the national legislature in consultation with the Ministry of Education be charged with providing planners with estimates of the political “capacitation” benefits of additional education which are particularly important in participatory, democratic societies. We identified the Ministry of Education and industry federations as the best advocates for more education, and the National Federation of Consumer Councils as the best advocate for more consumption and less investment of any kind.
Long-run Environmental Planning: In the case of environmental planning we recommend that delegates to the National Federation of Consumer Councils estimate what environmental economists call the “use value” and the “existence value” people place on changes in the natural environment in the future, and that the Ministry for the Environment work with industry federations of worker councils to estimate the effects of investment in the environment on production, where often what we need to estimate are the effects of declining stocks of environmental assets on future production. We identified industry federations and the Ministry for the Environment as the best advocates for more investment in environmental protection and explained why the National Federation of Consumer Councils is again best suited to make the case for more consumption and less investment in environmental protection.
Updating Investment and Development Plans: However, our most important intellectual contribution to the theory of investment and development planning is we have shown how inevitable errors in estimates of future consumer preferences and technologies can be detected, and how investment and development plans can then be updated to improve outcomes dramatically. In chapter 11 of Democratic Economic Planning, we demonstrate how errors in estimates of different categories of future costs and benefits can be identified as soon as results from early years become known, and how plans for later years can then be corrected in time to mitigate welfare losses in the remaining years of these plans. This is particularly important for longer-term development plans where errors will inevitably be greater, and therefore where benefits of corrections will be greater as well.
Conclusion: Unlike annual planning where worker councils know what their technological options are, and consumers know what their preferences are, nobody knows for sure what future technologies and preferences will be. But how much or little we should invest depends on what those future technologies and preferences will be. Therefore, taking both access to relevant information and motivation into account, we have carefully considered who is best suited to provide the most accurate estimates possible of future technologies and preferences, to be used when creating different investment plans for consideration.
Of course, national investment and development plans should be subject to thorough debate and ultimately decided either by a vote in the national legislature or by a national referendum. And of course advocacy groups and political parties should all weigh in with different opinions during those deliberations. But what we might call the quality of the outcome of that debate about how much to invest, and what to invest in will depend on how well the debate is organized and structured.
For example, under our proposals, to make a persuasive argument for more investment and less consumption than what the proposed plan calls for, I would have to do more than simply say “Ithink more investment would be better.” Instead, I would have to explain why I believed technological change was going to be higher than what industry federations had estimated it was likely to be; or why future consumers were going to enjoy greater satisfaction from consumption than the national consumer federation had estimated it was likely to be when the plan under discussion was formulated. Yes, in the end of course investment and long-run economic development plans should be decided by a democratic vote. What we have proposed is how to organize discussion and debate leading up to a democratic vote. We have proposed that participants be asked to explain which estimate of which future benefit or cost used in calculating an investment plan they disagree with is in error, and why this therefore implies that either more or less investment is warranted than a proposed plan calls for. Our goal is to make discussion leading up to a democratic decision more focused and productive.
FAQs
Is there a stock market?
No. There is no private ownership of productive resources in a participatory economy. Capital is owned under the commons and access is distributed to workplaces during democratic planning. Therefore there are no stocks/shares to be bought or sold.
Can I use my personal savings to make investments?
No. A key difference is that in a Participatory Economy the decision over how much of the economic pie should go towards investment, i.e creating new capital, such as new machines, technology, etc, happens via a democratic process for society as a whole. Investment is not made by individuals from personal savings, as is the case today.
The decision is made via representatives of worker and consumer national federations in consultation with support units and the wishes of lower level councils. The decision precedes the annual planning
Because capital in a Participatory Economy is socially owned by everyone in society, it is not possible, either for individuals or consumer councils, to use saving to invest in different types of financial securities such as shares, bonds, options, convertibles, derivatives, and the plethora of other financial instruments that today’s financial sector offers.
Individuals may of course choose to save, if for example they plan to buy a very expensive item or want to take an extended break from work to go travelling. However, on the whole, the level of personal saving or borrowing is likely to add up to much less than in today’s capitalist societies for two reasons:
(1) Individual consumers in a participatory economy do not have to worry about saving to pay for their children’s education or their living expenses for when they are sick or retired as many in today’s capitalist societies are forced to do, and
(2) there is no or only a moderate and predictable rate of interest paid on savings and therefore savings cannot be used as a speculative or rent-seeking vehicle to accrue more income.
How do I get investment for a startup business idea I have?
If you have an idea and want to start up a new business with a group of others, you can form a new preliminary workers’ council and make an application to join your relevant industry federation.
For example if you want to open a new pizzeria, you would apply to join the restaurants federation. The application would be similar to a business plan today. The federation would decide whether to accept your application considering the industry capacity. If approved the federation would provide you with some initial capital such as a premises.
Membership of the federation grants your permission to participate in the annual planning, where, along with other workplaces, you can request access to resources.
How is this different to how development planning is done today?
Development planning today is done by central governments along with some large corporations. The outcome depends on their ideology and narrow business interests. It excludes the vast majority of people in decision-making over development priorities.
In contrast, development planning in a Participatory Economy involves democratic inclusive procedures which enables popular participation through federations of workers’ and consumers’ councils.