Economic Justice

June 2, 2022

A text from a talk at the Center for Ethics and Public Affairs at the Murphy Institute at Tulane University in New Orleans Louisiana, April 2022.

What is economic justice? How might economic justice be achieved? To pretend I could lay matters to rest regarding the answer to either question would be ridiculous, not merely presumptuous. In this essay what I will try to do instead is explore (1) a few of the intellectual dilemmas that arise when trying to answer the first question; and (2) some of the practical problems that arise when trying to devise institutions and decision making procedures to achieve what I believe is the most compelling answer to the first question — workers should be rewarded according to their efforts and sacrifices. My treatment of neither question is exhaustive, but instead highly selective — focusing on a few issues where I believe I might be able to advance the quality of debate.

Defining Economic Justice

Four Maxims

I have discovered over the years that ordinary people, economists, and philosophers approach the question of economic, or distributive justice differently. When addressing ordinary people and economists considering four different distributive “maxims,” and various arguments offered in favor and against each of them, is useful to get the ball rolling.

  • Maxim 1: To each according to the social value of the contribution of her human and physical capital.
  • Maxim 2: To each according to the social value of the contribution of only her human capital.
  • Maxim 3: To each according to her effort and personal sacrifice.
  • And, Maxim 4: To each according to her need.

Roughly speaking maxim 1 is the way conservatives would like us all to agree to define economic justice, and can be used to justify a competitive capitalist economic system. Maxim 2 is the way at least some liberals tend to define economic justice, and can be used to justify a market socialist economic system. Maxim 3 is how many economic justice activists define economic justice, and the model of a “participatory economy” is self-consciously designed to achieve this outcome. While maxim 4 is the distributive principle that most anarchists espouse, and hopefully someday will blossom in a new world basking in the brilliant sunlight of resolute human solidarity founded on mutual trust!

In various publications over the past thirty years I have explained why I believe both maxim 1 and maxim 2 cannot be defended as fair, why maxim 4 is a better conception of what is “humane” than what is “fair,” i.e. is appropriate only in a world where invidious comparisons of economic justice have become obsolete; and therefore why maxim 3 comes closest to defining a “fair” system of compensation. The underlying rationale for maxim 3 is that people should eat from the economy “stew pot” according to the sacrifices they made in cooking the stew. Or, put differently, that more compensation for above average sacrifices and less compensation for below average sacrifices “evens things out” overall.

One argument for why sacrifice deserves reward is because people have control over how much they sacrifice. I can decide to work longer hours, or work harder, whereas I cannot decide to inherit wealth, be 6 foot 8, or have a high IQ. It is commonly considered unjust to punish someone for something she could do nothing about. On those grounds paying someone less simply because she is not strong or smart violates a fundamental precept of fair play. On the other hand, if someone doesn’t work as long or hard as the rest of us, we don’t feel it is inappropriate to pay her less because she could have worked longer or harder if she had chosen. In the case of reward according to effort, avoiding punishment is possible, whereas in the case of reward according to contribution it is largely unavoidable.

But are all people equally able to sacrifice? Or is it easier for some to make sacrifices than it is for others, just as it is easier for some to perform difficult and valuable physical or mental tasks than it is for others? Questions such as these make me happy I am not a philosopher! What can one say, except, “perhaps.” But even if it is only a matter of degree, is it delusional to think it is usually easier for people to affect how much effort they put into a task, or how much they sacrifice for the common good, than it is for them to affect how valuable the contribution they make will be? I am happy to leave philosophers to debate free will, but as an economist I feel on solid ground in believing we usually have more control over our efforts and sacrifices than we do over how valuable our contribution will prove to be.

In any case, I see no reason for society to frown on those who prefer to make fewer sacrifices as long as they are willing to accept less economic benefits to go along with their lesser sacrifice. Just because people enter into a system of equitable cooperation with others does not preclude leaving the sacrifice/benefit trade-off to personal choice. Maxim 3 simply balances any differences in the burdens people choose to bear with commensurate differences in the benefits they receive.

And indeed, this may be the strongest argument for reward according to sacrifice. Even if all were not equally able to make sacrifices, extra benefits to compensate for extra burdens seems fair. When people enter into economic cooperation with one another, for the arrangement to be fair should not all participants benefit equally? Since each participant bears burdens as well as enjoys benefits, it is equalization of net benefits — benefits enjoyed minus burdens born — that makes economic cooperation fair. So if some bear more of the burdens, justice requires that they be compensated with benefits commensurate with their greater sacrifice. Only then will all enjoy equal net benefits. Only then will the system of economic cooperation be treating all participants equally — giving equal weight or priority to the interests of all participants. Notice that even if some are more able to sacrifice than others, the outcome for both the more and less able to sacrifice is the same when extra sacrifices are rewarded. In this way all receive the same net benefits from economic cooperation irrespective of any differences in their abilities to contribute or to sacrifice.

However, philosophers – notorious nit pickers! — insist on approaching distributive justice in a more systematic way. How would I situate maxim 3 among some noteworthy modern theories of distributive justice? Modern social philosophers usually do not address economic justice in terms of maxims. Robert Nozick explicitly rejects the “maxim approach” arguing against all “pattern models” of social justice as violations of individual liberty. Instead he proposes a theory of “historical entitlements.” John Rawls argues in his theory of “justice as fairness” that (1) what is fair is what rational people would agree to in a fair negotiating situation, and (2) what they would agree to would be the “difference,” or “maxi-min” principle — unequal outcomes are just if and only if they act to benefit the worst off group absolutely. And Ronald Dworkin sparked interest in focusing attention on the issue of personal responsibility among “egalitarian” philosophers, which has been taken up by G.A. Cohen, Richard Arneson, and John Roemer among others.

Robert Nozick 

Robert Nozick objects to the maxim approach altogether: “To think that the task of a theory of distributive justice is to fill in the blank in ‘to each according to his ___’  is to be predisposed to search for a pattern, and no end-state principle or distributional pattern principle can be continuously realized without continuous interference in people’s lives.” (Nozick 1974: 259-260) He goes on to provide a number of convincing examples to demonstrate that if people are completely free to do as they wish with what is their “just allotment” by hypothesis, they may well upset the pattern deemed to be just in the first place. Therefore, a rebuttal to Nozick’s claim that all pattern models — including maxim 3 – infringe unjustifiably on people’s individual liberty is in order.

My objection is that a reasonable conception of individual liberty should not mean that all conceivable uses of one’s person and property must necessarily be permitted. Just because I recognize that you are owner of a gun does not mean I agree that the principle of individual liberty allows you to use it to shoot at me, or at my dog, or even at a deer wandering through our neighborhood and across your yard out of hunting season. Similarly, freedom to dispose of one’s wealth, even if it was fairly acquired, need not include the right to dispose of it in a way that disrupts economic justice.

Of course people should be free to consume X rather than Y, or consume less now and more later. But that does not mean people should be free to destroy economic justice by leaving large inheritances to some while others receive no inheritance at all — even if those leaving bequests acquired their wealth fairly. Just as it is reasonable for a community to establish zoning restrictions on people’s use of their real estate through a fair and democratic process, it is reasonable for a society of moral beings to democratically decide to restrict disposition of personal property in ways that would be systematically destructive of distributive justice. Otherwise, it becomes impossible for communities to achieve distributive justice. In other words, when Nozick rejects pattern models of economic justice on grounds that they may require some restrictions on how people can dispose of what they acquired fairly, he effectively abandons distributive justice because he disarms communities of the means necessary to achieve distributive justice.

In effect Nozick operates with a very limited conception of property. Just because I recognize that something is your property, and I agree that you acquired it fairly, and I agree this means in general you can do with it what you want; this need not imply that I agree that your right to dispose of that property as you wish takes precedence over any and all other considerations — no matter what you decide you want to do with it, and no matter what the consequences of that choice might be. Nozick’s conception of property is too “black or white” to be useful in a social world where individual rights conflict, or in a world where there are legitimate objectives besides individual liberty.

Finally, Nozick implies that only someone with an authoritarian bent would consider restricting liberty to preserve distributive justice. But notice that regarding inheritance, it is not individual rights in general that are served by Nozick’s solution, since the right of a few to make particular kinds of bequests is only protected at the expense of the right of many to equal economic opportunity. Nozick’s answer, of course, is that no historical entitlements earned people the right to an equal economic opportunity, whereas, in his opinion, there are historical entitlements that earn people the right to dispose of their justly acquired property as they choose. But whether Nozick’s theory of historic entitlements, holds up or not on its own terms — and I do not believe it does – it is misleading to characterize it as a defense of the primacy of individual rights in general, as it is often portrayed. In fact it is a defense of the supposed moral legitimacy of the right of some — the older generation — to do some things — make any kind of bequest — and the presumed absence of any legitimate right of others — the younger generation — to do other things — start life with equal opportunities.

John Rawls

In the first part of his theory of “justice as fairness” Rawls argues that we should accept as just whatever outcome we believe would be agreed to by rational parties in a fair negotiating situation. Rawls carefully constructs such an “original position” using the ingenious device of a “veil of ignorance” which prevents negotiating parties from knowing whether they will be weak or strong, smart or dumb, lucky or unlucky, blessed or not blessed with wealthy and generous parents, etc. In this way Rawls eliminates much unproductive debate about distributive justice that is little more than rationalization for self-serving conceptions. In the second part of his theory he argues that what people in the original position would agree to is what he calls the difference, or maximin principle, namely that unequal outcomes are just if and only if they act to improve the outcome for the worst off group absolutely.

Rawls’ difference principle has been interpreted in two different ways. One interpretation is that any Pareto improvement that makes the worst off better off, passes the test of justice. In this interpretation it does not matter if the change improves the outcome for those who are better off by a great deal and the outcome for the worst off by only a little, and thereby increases inequality. So in this interpretation Rawls can be read as providing a rationale for any form of trickledown economics: No matter how small, if the merest trickle reaches the bottom, any cascade at the top is innocent of the crime of injustice. The second interpretation — which I am quite sure is the one Rawls himself intended — is that justice demands that society scan all possible outcomes and enact the one that maximizes the outcome for the worst off group absolutely even if that outcome leaves some people better off than the worst off group. As all economists should know, these are not the same thing at all.

Suppose you are originally better off than I am, and there are two possible changes we can make. The first change would make you much better off than you are initially, but only make me slightly better off than I was before. Since we are both better off than we were initially, the first change is a Pareto improvement on the status quo. The second change would make us both moderately better off than we were initially. Since we are both better off than we were initially, the second change is also a Pareto improvement on the status quo. Clearly the second change satisfies the difference principle: Of all three possible outcomes — the status quo, the first change, and the second change — the second change makes me, the worst off person, the best off I can be. But does the first change also satisfy Rawls’ difference principle, in which case the large unequal outcome between you and me it creates would be deemed perfectly fair?

If we compare the first change with the status quo, it makes me, the worst off person, slightly better off, and therefore seems to satisfy the difference principle as well, despite the fact that it mostly helps you, the better off person. And if the second change were not also possible, the first change would satisfy Rawls’ difference principle because it would make me, the worst off person, the best off I can be.But if the second change is also possible the first change does not satisfy the difference principle as Rawls intended it to be interpreted. I believe that Rawls only intended the second change to pass his difference principle test, and only intended to argue that the inequality between us that remains after we make the second change is fair and unobjectionable.

Rawls argued that people in the original position would rationally fear that they might prove to be the worst off after the veil of ignorance was lifted. Moreover, he argued they would have to weigh matters very cautiously because they would never be allowed to cry “foul” to any outcome they had agreed to while in the original position — no matter how bad the result proved to be for them. Rawls concluded that in these circumstances people would only agree to accept unequal outcomes if they worked to the advantage of the worst off. As I interpret Rawls, that means he concluded that while the second change would be agreed to by people in the original position, the first change would not. 

But while I do not believe Rawls intended to sanction all trickledown economics, even in the second interpretation Rawls can give the moral thumbs up to economic inequality. In fact, that was one of the purposes of his theory. Rawls asked if unequal outcomes were necessarily unjust. He reasoned that if the unequal outcomes would have been unanimously agreed to in a fair negotiation they should not be deemed unfair. And he reasoned that what all would agree to in a fair situation, in which nobody knew in advance where they were likely to end up, would be to maximize the outcome for the worst off. If the arrangement that accomplished this — maximizing the minimum outcome — happened also to be an unequal outcome, Rawls concluded that those inequalities would not be unfair.

Philosophers and economists have debated whether or not people would choose Rawls’ difference principle in his original position for over forty years. Some have suggested that the difference principle is too conservative, and asked why people in the original position would not choose instead to maximize expected utility, and argued that only an implicit assumption of extreme risk aversion would lead people to choose the difference principle. Not surprisingly, economists are highly represented among such critics. Others have asked why people in the original position would forego large benefits for all groups at the bottom of the income bracket except for the group at the very bottom in order to win a marginal gain for the bottom most group. Economists who debate the comparative merits of different measures of inequality are invariably surprised to hear Rawlsians argue for what amounts to a principle of poverty reduction that references only the wellbeing of the bottom most group. And various authors have challenged Rawls’ argument for what information should or should not be permitted to penetrate the veil of ignorance. Conservatives, in particular, have criticized the veil of ignorance for not permitting people to know how productive they are compared to others, arguing that this information is morally relevant, hiding it from negotiators renders the original position unfair, and consequently agreements negotiated under these conditions are unfair as well.  But my main concern lies elsewhere.

While Rawls was most anxious to refute utilitarian notions of justice, that is theories that justify inequalities if they increase the total benefits of all people added together, it is worth noting that Rawls’ theory provides good reason to reject both maxim 1 and maxim 2 as well. People behind the veil of ignorance would never agree to maxim 1 because they might discover after the veil was lifted that they would be revealed to be descendants of paupers, but would have forsworn all rights to call “foul” over the Rockefeller grandson problem. Similarly, people behind the veil of ignorance would not agree to maxim 2 because when the veil of ignorance was lifted they might discover they were low paid garbage collectors rather than high paid brain surgeons, with no right to complain. But what about maxim 3? Could maxim 3 be chosen in Rawls’ original position?

Rawls makes no reference to effort or sacrifice in his discussion of the difference principle. Maxim 3 sanctions unequal consumption rights only if they compensate for differences in sacrifice, whereas the difference principle sanctions inequalities only if they serve to improve outcomes for the worst off. But it is not clear that when Rawls speaks of “outcomes,” and who is better or worse off, that he does not mean to include what I have called burdens, or “sacrifices” in the calculus.  As a matter of fact, as I read his intent, he either does, or should do so. There is nothing in his theory that should lead him to distinguish between a dangerous job and a smaller portion of food rations as negative aspects of someone’s situation or outcome. In which case, in Rawlsian terms maxim 3 is equivalent to the principle of equal outcomes, that is outcomes in which different sacrifices people make in work are precisely compensated for by different consumption benefits, yielding equal “outcomes” for all. But of course Rawls’ difference principle is not the equality principle. Rawls began with the equality principle, explicitly asked if deviations from equal economic outcomes might be just, and came to the conclusion that unequal outcomes were fair if they made the worst off group better off than any other possible outcome did — including equal outcomes for all.

As I interpret him, Rawls’ defense of unequal outcomes hinges on two factual assumptions. Only ifthe economic system that maximizes the outcome of the worst off does so only by generating unequal outcomes, can Rawls judge those inequalities to be equitable. There are many who rush to cast capitalism and unequal property income in precisely this light — arguing that the poorest in a capitalist economy with unequal property incomes are absolutely better off than they would be in any other system. And there are others who dispute the case for capitalism on factual grounds, but claim that market socialism with unequal marginal revenue product wages maximizes the economic wellbeing of the poorest, compared to all other feasible alternatives. I do not believe the facts justify inequalities according to Rawls’ difference principle in either capitalism or market socialism. I do not believe the poorest in capitalist economies are as well off as the poorest would be in more than one kind of  non-capitalist economy I can think of, and I do not believe most of the unequal property income in capitalist economies serves to raise the worst off. Nor do I believe that those at the bottom of the wage distribution in market socialist economies would be as well off as the poorest in a participatory economy, and I believe most of the inequality in marginal revenue product wages in market socialism serves to lower, not raise the wages of the lowest paid in absolute terms. So, I could accept Rawls’ theory and criticize inequalities in capitalism and market socialism as unjust based on his theory. But I believe Rawls’ theory of economic justice tends to focus attention other than where it should be. In my view those concerned with economic justice need not worry overly about the degree to which inequality may help the worst off, because inequality hurts them almost always. But I am inclined not only to dispute those who rationalize capitalist and market socialist inequalities in Rawlsian terms on factual grounds, I am inclined to protest on ethical grounds as well, which means as much as I respect and appreciate all Rawls’ did to advance the quality of thinking about distributive justice, I differ with Rawls’ conclusions about economic justice.

Suppose we find an economic system that distributes the burdens and benefits of economic activity fairly. What the system is, and what we deem to be fair is irrelevant for present purposes. Then suppose it turns out that by permitting some deviation from these fair outcomes it is possible to improve the outcome for everyone and make the outcome for what now is the worst off group better than it would be under any conceivable alternative arrangement. Citizens of such an economy if placed in Rawls’ original position might well vote unanimously to permit the deviation, as Rawls argues rational people in his original position would do. I, personally, would probably join the consensus! But even if I did, I would not call the outcomes with the deviation fair or just. By hypothesis, those outcomes deviate to some extent from what is just. Nor would I call the original economy that was just by hypothesis, unjust in light of the effect of the deviation. Yet this is what Rawls’ theory requires me to do. According to Rawls’ theory the original outcome was not actually just – we only mistakenly thought it to be so. According to Rawls, only the outcome with the deviation is truly fair.

Perhaps this reduces to semantics, but I find Rawls’ conception unnecessarily confusing. Maybe I have been a practicing economist too long, but I find it far easier to distinguish between efficiency and equity rather than conflate them, as I believe Rawls has done, even if unintentionally. When Rawls has people in his original position consider distributive principles they must take any considerations they care about into account when doing so. So if distributive principles have implications not only for economic justice but for economic efficiency as well, people in Rawls’ original position would have to consider both effects when deciding what to agree to — unless they did not care about one goal at all. As a philosopher Rawls is naturally prone to think of distributive principles as a matter of economic justice. But economists are long used to thinking of the implications of different distributive patterns on efficiency as well as on equity. Rawls implicitly recognizes what we economists call the efficiency effect when he recognizes the possibility that unequal outcomes may permit the worst off to do better than insisting on equal outcomes. But he treats distributive outcomes as if the only difference between them is that some are fair and others are not. Another difference between them is that some may be more and others less efficient. 

Regarding the example above, why not simply say: The original economy was just, but we have assumed a conflict, or “tradeoff,” between efficiency and equity by hypothesizing that some particular deviation from fair outcomes yields an efficiency gain that is distributed in such a way that nobody is worse off and the maximum possible amount of the efficiency gain is distributed to the worst off group. In which case even those fearing they might end up in the worst off group would have no reason to vote against approving the deviation. But that simply means people deem a particular efficiency gain, distributed in a particular way, to be of greater importance than a particular deviation from economic justice. Why call the second outcome more equitable and the first unjust? Does that add insight, or obfuscate what is going on? Why not simply call the first outcome more equitable, and the second less equitable but more efficient and therefore more desirable even from the perspective of those who become the worst off? 

Concretely, suppose in the original outcome all differences in income are exactly commensurate with differences in the efforts or sacrifices people make in work – which is why it is seen to be equitable. While in the deviation those who now receive more than others make no greater sacrifices than those who receive less than they do. To call the deviation fair – and retroactively criticize the initial outcome as unfair – seems to be a bizarre contortion of the notion of distributive justice that is entirely unnecessary. We can acknowledge that after all the effects of the deviation — that is, the effects on both equity and efficiency are pointed out – the deviation might be unanimously approved by all in the original position, without renouncing the principle of distributive justice which holds that differences in income are only fair if they compensate for differences in the sacrifices people made.

Rawls’ difference principle, in effect, conflates two different social goals — economic justice and efficiency. In my view it is better to recognize equity and efficiency as different goals, search for an economy that achieves both to the greatest degree, and search for policies within this economy that promote both to the greatest extent. If it turns out there are conflicts, or tradeoffs, between equity and efficiency either in choosing between different economic systems, or in choosing policies within a particular economy, we can deal with that in a straightforward manner, hopefully through a fair and democratic decision making process.

When confronted with tradeoffs between goals, most people are inclined to attach weights to different priorities, and the argument that precedes a democratic vote is over what those weights should be. Implicit in this approach — multiple priorities that require us to choose weights when there are conflicts — is that the weights will not be 1.00 for one of the priorities and 0.00 for all others! Rawls’ difference principle compels us to proceed in a very different way. When faced with a possible conflict between equity and efficiency Rawls’ difference principle directs us to scan all possible outcomes and find the outcome that maximizes the net benefits for the worst off group. If this outcome is also an egalitarian outcome there is no conflict between equity and efficiency. But if the worst off fares better in an unequal outcome there is a conflict between equity and efficiency, and Rawls’ difference principle directs us to attach a weight of 1.00 to efficiency and 0.00 to equity, and choose the unequal outcome no matter how little the efficiency gain, and how great the loss in equity. While I am no longer surprised when my fellow economists make this choice, I find it ironic that Rawls, a social philosopher who devoted his life to the investigation of social and distributive justice, implicitly gives absolute priority to efficiency over equity whenever there is a conflict between the two.

Ronald Dworkin 

Beginning with Ronald Dworkin 1981 modern egalitarians explicitly took up the conservative challenge that unequal outcomes need not be unfair when they derive from personal choices people make. Broadly speaking, egalitarian theory over the past forty years became a project to replace equality of outcomes with equality of opportunities, and the task became how to distinguish between factors affecting outcomes that people should not be held responsible for from those they should. For the most part philosophers focused on difficult issues concerning where to draw the dividing line in theory between “not responsible” and “responsible,” while economists focused on designing procedures for identifying and implementing different choices for where any line lies. In particular, the degree to which preferences and efforts are “freely chosen” or “conditioned” has been a major subject of debate among egalitarian philosophers. And how to divide populations into different “types” who share the same conditions for which people are not deemed to be responsible, in order to reduce differences in outcomes within types to differences in “freely chosen efforts” has been a major concern among egalitarian economists. Major contributors include Amartya Sen, Richard Arneson, G.A. Cohen, Thomas Scanlon, John Roemer, Marc Fleurbaey, Walter Bossert, and Vito Peragine. Where does maxim 3 fit into this large and growing modern egalitarian literature?

Clearly no maxim can be as sophisticated as an entire theory of distributive justice covering a myriad of difficult “cases” designed to challenge any broad generalization. Nor should a theory of distributive justice be confused with the problem of how to design economic systems, institutions, and policies to yield equitable outcomes.  Nonetheless, arguing that differences in income should be commensurate with differences in the efforts and sacrifices people make seems very much in tune with modern egalitarian social theory. Maxim 3 is highly egalitarian while acknowledging a legitimate role for agency. Moreover, the simplicity of a maxim has some advantages:

(1) Maxim 3 side steps important debates among modern egalitarian philosophers over what is to be equalized and how to quantify necessary compensation: Utility? Primary goods? Capacities? Opportunities? Maxim 3 simply addresses income and differences in income.

(2) One can explicitly stipulate that maxim 3 does not resolve important problems having to do with differences in need which must be dealt with, and are a major subject in the modern egalitarian literature.

(3) In an economy where income is distributed according to maxim 3 there is no need to engage in significant unequal educational expenditures to compensate those with disadvantageous personal or cultural “conditions” in order to secure equality of opportunity. As long as people are compensated only according to their effort and sacrifice, differences in human capital will have no effect on expected income. I find no reason to accept the assumption implicit in the work of many modern egalitarians that in complex societies labor markets which distribute income in accord with marginal productivities are a practical necessity. In which case, it is unnecessary to level the educational playing field at the expense of an efficient allocation of educational resources in order to render income distribution fair. In brief, by basing income distribution on effort and sacrifice — instead of on productivity, or contribution — an efficient educational “meritocracy” need not lead to an unfair distribution of labor income.

(4) Egalitarian philosophers argue over where agency starts, and egalitarian economists debate the best way to design suitable procedures to identify different dividing lines and calculate appropriate compensations. In my view identifying and evaluating differences in “freely chosen effort” among workers is an inherently imprecise science. And while it is useful for philosophers to remind us that all human behavior is a subtle mixture of “conditioned” vs. “chosen,” distinguishing between the part of people’s effort which is “freely chosen” from the part that is “conditioned” is something about which reasonable people will likely continue to disagree. As I will soon explain, what advocates for a “participatory economy” like myself propose in this regard is that there is no better solution than to leave these judgments to be resolved by workers themselves, in their democratically self-managed enterprises using whatever procedures they believe are most suitable. We use two words to identify the “goal” – effort and sacrifice – and as imperfect as decisions will sometimes be, who is better suited than co-workers to sit in judgement over any differences in “freely chosen effort” among them.

Finally, let me respond to a criticism of Maxim 3 raised by John O’Neill in a comment published in a special issue of Science & Society devoted to different “models of socialism.” Since that issue was published I have now had the benefit of communicating extensively with people in two collectives who attempted to put maxim 3 into practice over several decades, as well as discussions about “effort rating” among advocates for the vision of a participatory economy. Based on that experience I now believe the issue O’Neill raises will inevitably come up whenever people try to apply maxim 3.  O’Neill objected that “distribution according to effort fails as a general principle because it is potentially humiliating, in particular for a low-output worker who is given a ‘high-effort’ score. It reflects badly on the evaluation of the worth of her capacities. The problem here is that the effort scores necessarily involve judging not just the performance of workers but their person.” (italics added)

Being judged can prove unpleasant, and people understandably hesitate to volunteer to be judged by others no matter what the standards of judgment. Many people also understandably hesitate to volunteer to sit in judgment of their workmates. But until we are willing to accept one another’s self-evaluations without question, judgment at the hands of external parties may be regrettable, but it is unavoidable. O’Neill correctly points out that maxim 3 requires judging not only people’s performance but their capabilities as well. But I think we only avoid making “double judgments” at the cost of justice. To spare people the embarrassment of judging their capabilities, and to judge only the value of their contributions amounts to accepting maxim 2 as our notion of fairness. Of course maxim 2 has many supporters, but for those of us who cannot rationalize away the doctor/garbage collector problem, it fails the test of fairness. Is O’Neill willing to systematically punish the less able with lower economic rewards to avoid what he sees as their humiliation? Because that is what shying away from judging potentials as well as performance amounts to.

I think a far better solution that does not sacrifice economic justice is to replace the misguided social norm that lower ability is humiliating with the valid norm that only failing to live up to one’s abilities, or failing to accept responsibility for one’s decision not to, is shameful. Moreover, until the unwarranted stigma that concerns O’Neill disappears, I suggest we let the less able decide for themselves whether or not they would like to have their performance compared to their abilities. Many of them may be quicker than their more able workmates to overcome the unwarranted assumption that to be less able is humiliating, and thereby free themselves to receive their just deserts, that is according to their sacrifices.

In Sum

Both Nozick and Rawls ask us to assume we have achieved an equitable outcome and then pose a disturbing challenge. Nozick asks what we would do if people chose to use their just allotments in ways that disturb equitable outcomes in the future. Rawls asks what we would do if there is a deviation that improves outcomes for the worst off group by more than any other deviation would. However, I believe there are good answers to both questions. As explained, agreeing that someone’s allotment is theirs, fair and square, does not necessarily commit us to agreeing that they should be able to do whatever they wish with it, including something that makes it impossible to achieve distributive justice. And admitting that even the worst off group might vote for a deviation from an equitable outcome that improves their outcome does not mean they, or we, consider the deviation fair and the original outcome unfair. It simply means people might value an efficiency gain, if large enough, more than a loss of equity, if small enough.

Nozick’s argument against any kind of pattern model, or maxim, is unacceptable because it amounts to giving up on economic justice altogether. In effect it grants equity no weight whatsoever compared to a flawed conception of economic freedom that avoids the essential issue of whose freedoms take precedence over whose when inevitable conflicts arise. While Rawls’ difference principle is much more appealing, nonetheless, Rawls conflates equity and efficiency in a way that obfuscates rather than clarifies issues. But more importantly for present purposes, there seems to be no compelling argument in Rawls against equal outcomes as fair outcomes, i.e. against maxim 3 which achieves overall equality by compensating unequal sacrifices with commensurate benefits. Instead Rawls makes a strong case for why we should seriously consider prioritizing efficiency at the expense of equity if the efficiency gain makes groups that are badly off, better off than they would be if we insisted on strict equality. Personally, I have little problem with this conclusion, although, unlike Rawls who I believe was too easily swayed by mainstream economists in this regard, I do not expect to find many situations where permitting inequalities works to the advantage of those who are worse off.

Finally, recent work among “modern egalitarians” stimulated by Dworkin that seeks to “level the playing field” regarding conditions over which people have no control, but hold people responsible for that part of their outcomes over which they do have control, seems fully consistent with the argument presented here for maxim 3. The fact that Roemer names the part people do control, and can be fairly held accountable for, their “freely determined effort” makes clear how close maxim 3 is to what many others in this growing school of thought now argue is fair and just. However, there are two issues authors in the “modern egalitarian tradition” treat at great length which are unnecessary for the argument made here: (1) how to level the educational playing field, and (2) how to distinguish “freely chosen effort” from “conditioned effort.” If income is based on effort and sacrifice alone, distributing educational resources unequally so all enter the labor market with equivalent vectors of “human capital” is unnecessary to achieve distributive justice. And if co-workers are best suited to rate one another’s efforts, they will no doubt decide how to go about this themselves.

How Time Matters

In “Economic Justice: Confronting Dilemmas” (Hahnel 2020) I use a simple one-good, dynamic model to illustrate dilemmas any theory of distributive justice must confront. There are three key features of the model: (1) While everyone is assumed to be equally productive, whenever anyone works with “capital” – in my simple model “seed corn” – they are more productive than when they have no “capital” to work with. (2) In the first week everyone starts with the same amount of seed corn. (3) Initially there is not enough “capital” to produce all that must be produced using the more productive, “capital intensive” technology, i.e. “capital” is scarce.

Dilemma 1: Even if there is no labor market or credit market, in other words, even when all agents enter into no economic relationships with one another of any kind; compensation for something that occurs in an early week will rise arithmetically week after week forever. This means even if we agree that something that some people did in some early week which others did not entitles them to some additional amount of compensation which is appropriate, whatever that amount may be, at some point the compensation will exceed what we stipulated was fair.

Dilemma 2: If there is either a labor market — where some might use their seed corn to hire others to work for them in exchange for a wage — or a credit market — where some might lend seed corn to others to work with in exchange for interest payment — and even if these markets are competitive; compensation for something that occurs in an early week will rise exponentially week after week. Which means, even if we agree that something that some people did in some early week which others did not entitles them to some amount of compensation which is appropriate, whatever that amount may be, the compensation will exceed what we stipulated was fair even more quickly. And even though in the case of a labor or credit market compensation will eventually cease when accumulation finally renders seed corn abundant, this can easily occur long after cumulative compensation has become clearly excessive. In other words, permitting people to enter into employer-employee relationships, or lender-borrower relationships will magnify economic injustice until such time as “capital” becomes scarce.

These two dilemmas remain no matter what it was that some people did in an early week that others did not do, which allowed them to start a subsequent week with more capital, or seed corn than others. So while we can debate the moral implication of different reasons why some came to have more seed corn than others, the above dilemmas remain nonetheless.

While the debate over the moral implications of what causes some people to have more seed corn than others at the end of week 2 must be engaged, and there will, no doubt, continue to be disagreements, as we have already seen important moral dilemmas arise irrespective of where one comes down in this philosophical debate. Suppose one believes the ten people who end up with an extra bushel of corn at the close of week 2 came by it fair and square, and therefore deserves compensation. How large should the compensation be? Doesn’t size matter?

Robert Nozick’s answer is: “No, size does not matter.” According to Nozick’s theory of “justice in acquisition and justice in transfer” if the extra unit of seed corn is justly acquired, whatever the consequences may be, they are fair and just unless the just acquisition is subsequently marred by a violation of justice in transfer. Since, under autarky, there are no “transfers” of any kind, no outcome can be unfair according to Nozick when the initial acquisition is just. Whether or not voluntary “transfers” mediated by competitive credit and labor markets between actors who are fully informed of the consequences measure up to “justice in transfer” is debatable. Nozick and his followers argue transfers are just as long as they are voluntary, fully informed, and credit and labor markets are competitive. I argue that when seed corn is scarce and some have more than others, transfers in credit and labor markets are not just, even when they are voluntary, fully informed, and the markets are competitive. However, my point here regarding Nozick’s theory of distributive justice is how unreasonable it is to refuse to consider the magnitude, or size of consequences even under autarky where disputes over what qualifies as justice in transfer are irrelevant. Suppose we have decided that compensation is deserved. When is it too little? Too much? Or, as Goldilocks famously said: Just right?

The easiest way to see that there is no avoiding a serious moral dilemma whenever productive assets are owned privately is to consider the case where people earn a moral right to compensation by working more days. We can simplify calculations by assuming that people are immortal, have a zero personal rate of time preference, and that people who work more days in one week are compensated by awarding them days off in other weeks.

In this case it is reasonable to conclude that anyone who works four more days than others in early weeks to accumulate an extra bushel of seed corn deserves four days off in later weeks as compensation. Under these assumptions four days off is compensation that is commensurate with the four extra days these people worked which others did not.  However, under the rules of autarky in our model anyone with an extra bushel of seed corn will be able to work three days less than others which means that compensation commensurate with sacrifice—four days off—will have occurred before the second week is over—yet compensation will continue to rise arithmetically forever. In our model if there is a credit or labor market, not only will compensation soon rise to five, not three, fewer days worked per week, those who work five fewer days, that is no days at all, will begin to accumulate ever more corn than others as well. Total cumulative compensation will soon exceed four days off, yet compensation will continue to rise exponentially until seed corn is no longer scarce. In sum, even if those who initially come to have more seed corn do so in a manner which deserves compensation:

  • If seed corn can be privately owned and people enter into no economic relations whatsoever, accumulation will cease before it becomes abundant and cumulative compensation will eventually exceed the amount which can be morally justified.
  • If seed corn can be privately owned and people are “free” to enter into credit and employment relations, over compensation will be even more excessive, although, in theory, accumulation might eventually render seed corn abundant, at which point the advantage of owning more seed corn would cease.

The Most Difficult Case

Immortals with a zero rate of time discount should not care when they work, so trading more days off later for fewer days worked earlier is clearly the rational strategy—and everyone should do it! So why would some do it and some not? And what are the moral implications?

I have found over the past decade when teaching the corn model that I can strengthen students’ conviction that the unequal outcomes that result when only some work more in early weeks are morally unobjectionable by stipulating further that the industrious share their wisdom and enlighten their less wise comrades about the advantages of working more days in early weeks — but to no avail. However, sometimes an obsessive student who calculates how large the inequality in outcomes becomes as more and more weeks roll by exclaims: “But look what eventually happens. So much inequality . . . which just keeps growing! At some point doesn’t the punishment exceed the crime?” As class discussion continues, sometimes another student asks: “What are the wise supposed to do if they cannot enlighten their comrades?” And then demands to know, from me: “Are you saying that the industrious are morally compelled not to work more in early weeks if they cannot convince others to do likewise?” 

Fortunately, even if we apply the maxim compensation commensurate with sacrifice strictly, this does not require foregoing the efficiency gain from some who are wise working more in early weeks. It simply requires sharing the benefit of that efficiency gain equitably. What the maxim requires in this most difficult, moral case is:

  • First, compensate the industrious who work more days than others in early weeks fully for their extra sacrifice by allowing them to take off an equal number of days later whenever they want to.
  • After which, everyone must work the same number of days. But since the extra sacrifice of the industrious increases the stock of seed corn in the economy, which increases labor productivity in the economy, everyone will be able to work fewer days than before.

Does this penalize the wise and industrious? I don’t think so — although many students have disagreed with me on this point. In my view we have fully compensated the industrious for their extra days of work in early weeks with an equal number of days off later. And the wise benefit from their industry equally with the less wise, as all now work less than before. Of course, some students point out that those who did not work more in early weeks — even though their wiser comrades explained to them why it would be to their and everyone else’s advantage to do so — have benefited just as much as the industrious in my “solution,” which is certainly true.  However, another way of saying the same thing is that the distributive maxim compensation commensurate with sacrifice prevents the wise from taking unfair advantage of their greater wisdom.

Achieving Economic Justice

It should already be apparent that achieving consensus that maxim 3 best describes what economic justice requires is hard enough. But designing an economy so workers will be compensated according to their efforts and sacrifices is arguably even harder. How do we propose to accomplish this? And how do we respond to objections critics have raised?

Workers must judge their workmates

To implement maxim 3 we must measure, or quantify something we call effort and sacrifice. Moreover, we must overcome people’s understandable reluctance to have their own efforts and sacrifices judged by others, and to sit in judgement of their workmates efforts and sacrifices as well. We propose that workers councils do this as they see fit.

Many critics have expressed concerns about attempting to reward effort and sacrifice, and problems that may arise when effort and sacrifice are judged by one’s workmates.

First, it is very difficult to observe and measure an individual’s sacrifice or work effort. Moreover, people would have an interest in understating their natural talents and abilities. Second, while it would elicit greater work effort and sacrifice, it would do nothing to assure that such effort and sacrifice were expended in a desirable way.

— Thomas Weisskopf

A society seeking optimum production needs to discourage clumsy effort and encourage proficient effort to avoid waste. Otherwise, the less successful have no material incentive to modify bungling methods.

— Mark Hagar

Maximizers would have incentives to perform at less than their best in early stages in order to maximize a later effort score. A standard strategic move to maximize winnings over a series of handicap races is to intentionally perform badly in early races in to get a better handicap in later ones.

— John O’Neill

Anyone who has participated in a workplace with more than two or three workers knows the problem of cliques and rivalries that tends to arise. It is not clear how one would prevent cliques and rivalries from intruding into the effort evaluation process.

— David Kotz

Before addressing these concerns, it is important to dispose of a common misconception about a participatory economy and what socialists have long referred to as “material incentives.” Many critics have jumped to the conclusion that there are no material incentives for workers in a participatory economy. This is simply not true. People do not receive equal consumption for unequal efforts and sacrifices in a participatory economy. People’s efforts and sacrifices are rated by their coworkers, and people are awarded consumption rights according to those ratings. To each according to her effort and sacrifice means there are material rewards for above average sacrifices and material consequences for below average sacrifices.

However, differences in people’s efforts and sacrifices will not lead to the extreme income differentials characteristic of all economies today, nor the degree of income inequality predictable in market socialist economies. Therefore admittedly, material incentives will play a smaller role in participatory economies than they do in other economies. Moreover, supporters believe a participatory economy can eventually lead to more and more distribution on the basis of need, that is, to a gradual reduction of material incentives. What reasons are there to expect any of this to be the case?

In a society that awards esteem mostly on the basis of what Thorsten Veblen famously termed “conspicuous consumption,” it is hardly surprising that large income differentials are considered necessary to induce effort. But to assume that only conspicuous consumption can motivate people because under neoliberal capitalism we have strained to make this so is unwarranted. There is plenty of evidence that people can be moved to great sacrifices for reasons other than a desire for personal wealth. Family members often make sacrifices for one another without the slightest thought of material gain. Patriots die to defend their country for little or no pay. And there is good reason to believe that for people who are not pathological, wealth is generally coveted only as a means of attaining other ends such as economic security, comfort, respect, status, or power. If accumulating disproportionate consumption opportunities is often a means of achieving more fundamental rewards, there is good reason to believe a powerful system of incentives need not be based on widely disparate consumption opportunities when basic needs are guaranteed and fundamental desires are rewarded directly rather than indirectly.

If expertise and excellence are accorded social recognition directly, as we propose they should be in a participatory economy, there should be less need to employ the intermediary of conspicuous consumption. If economic security is guaranteed, for everyone, as it is in a participatory economy, there should be no need to accumulate out of fear for the future. If the material, medical, and educational needs of one’s children are provided for at public expense, as they are in a participatory economy, there should be no need to accumulate to guarantee one’s children the opportunities they deserve. Moreover, if people design their own jobs and participate in economic decision making, as they do in a participatory economy, they should carry out their responsibilities with less need for external motivation of any kind. And if the distribution of burdens and benefits is fair, as it is in a participatory economy, people’s sense of social duty should be a more powerful incentive than it is today.

In other words, while a participatory economy does have material incentives, it isdesigned to maximize the motivating potential of many non-material incentives as well. Supporters think there is good reason to believe these non-material incentives can play a much bigger role in a participatory economy than they do today. But there is no way to “prove” that material rewards may be less necessary to motivate effort in different social circumstances than we are accustomed to. Nor do we expect to convince skeptics in a few paragraphs. However, it is important to pose the question skeptics raise accurately: If medical, retirement, and children’s expenses are taken care of at social expense; if valuable contributions are awarded public recognition; if people plan and agree to their tasks themselves; if a fair share of effort and personal sacrifice are demanded by workmates who must otherwise pick up the slack; and if extra effort or greater sacrifice is rewarded by commensurate increases in consumption opportunities; then will people still be insufficiently motivated to do what needs to be done without larger income differentials than are permitted in a participatory economy? In any case, that is the relevant question.  Now to address critics’ various concerns.

Weisskopf gives voice to the common assumption that effort is difficult, if not impossible to measure, while the value of a worker’s contribution can be measured easily. But neither half of this proposition is as compelling as usually presumed. Assigning responsibility for outcome in group endeavors is often ambiguous. Sports teams are more suited to such calibration than production teams. And compared to football, soccer, and basketball, it is easiest to calibrate the value of individual contribution to group achievement in baseball. But even in baseball, debates over different measures of offensive contribution, like batting average, on base percentage, runs batted in, slugging percentage, etc., as well as disagreements over the relative importance of pitching versus hitting versus fielding, not to speak of arguments over what are called “intangibles” and “team chemistry” testify to the difficulty of assigning individual responsibility for group success. Moreover, it is often more difficult, not less, to assign individual responsibility to different workers than to different athletes for the accomplishments of their “teams.”

Nor is measuring effort as impossible as Weisskopf and others presume. Anyone who has taught and graded students for long knows there are two different ways to proceed. Teachers can compare students’ performances on tests and papers to some abstract standard in the teacher’s head, or, more realistically, to each other’s performances. Alternatively, teachers can compare a student’s performance to how well we expect the student to be able to do on an assignment. We can ask: Given the student’s level of preparation when she entered the class, given the student’s natural ability, is this an A, B, or C effort on the assignment for this student? This kind of question is not one teachers find impossible to answer.

Moreover, it should be easier for workmates to judge one another’s efforts and sacrifices than it is for teachers to judge students’ efforts. By and large teachers do not observe their students’ efforts. On the other hand, in a participatory economy a worker’s effort is judged by people who do the same kind of work, people who often work next to and in collaboration with her, and people who are familiar with how she has worked in the past. For all these reasons it should be easier for workmates to judge one another’s efforts than it is for teachers to judge students’ efforts.

While we believe worker councils would take the task of rating one another seriously since it affects how much consumption each is entitled to, we do not expect all worker councils to approach the task of rating one another in the same way. Some groups of workers may decide they only want to make rough distinctions between people’s effort and sacrifice – and simply rate satisfactory and unsatisfactory, or below average, average, and above average. While other groups might want to draw much finer distinctions — perhaps giving everyone a score between zero and two hundred, with one hundred the average score. And no doubt worker councils will use different procedures to judge one another’s efforts and sacrifices. The number of people on the rating committee, their term of office, rules for rotation, the grievance procedure, and the amount of time spent observing others, versus collecting testimony from workmates, versus self-testimony will no doubt vary from worker council to worker council.

Presumably one thing people will consider when deciding where they want to apply to work in a participatory economy will be whether they feel comfortable with the way a worker council they join goes about rating its members. Do I like the degree of gradation? Do I trust the system? Do I think they spend too much or too little time judging one another? Proponents of a participatory economy expect these are questions job applicants will ask about alternative places to work, just as we expect dissatisfaction with the rating process will be among the reasons people leave employment in one worker council and seek it in another. Ultimately the question is not whether people’s efforts and sacrifices in work, will be perfectly estimated because, of course, they will not be. Instead the question is if most people will feel they are being treated fairly most of the time, and if not, whether people will feel they have reasonable opportunities for redress.

Weisskopf, Hagar and O’Neill all ask if there are sufficient incentives in a participatory economy to ensure that people will exert themselves in socially useful ways. But why would one’s coworkers reward clumsy, bungling, or misdirected effort rather than proficient effort? Why would fellow workers have any less incentive to discourage ineffective, and encourage effective effort on the part of coworkers than capitalist employers do? Every rating committee is constrained by a fixed average rating for all workers in their council. Therefore, rewarding inefficient effort on the part of a coworker is just as detrimental to the interests of other workers in the council as it would be if they deliberately overstated a worker’s effort. While those serving on rating committees will surely consider coworkers’ contributions to output as one piece of evidence in estimating how hard a workmate is trying to be effective, the difference is that in a participatory economy they will take other factors into account as well, because simply rewarding the value of someone’s contribution is not always fair.

Who are better than her coworkers to know if a worker is charging off at breakneck speed without checking to see if her exertions are effectively directed? Who is in a better position to judge if someone habitually engages in “clumsy effort?” Who can better tell if someone only gives the appearance of trying?  Not only are coworkers in the best position to make these judgments, fellow workers in a worker council in a participatory economy have just as much incentive to discourage these kinds of behaviors as do capitalist employers or managers of market socialist enterprises.

Weisskopf and O’Neill also worry that people will try to disguise their true abilities to trick workmates into giving them higher effort ratings than they deserve. It is true that competitors in a series of races which they know will be handicapped may have an incentive to go slow in early races to inflate their handicap advantages in later ones. But again, remember who is judging effort in a participatory economy. Who is in a better position to know if someone is deliberately under performing in the beginning than the people working with her in the same kind of task? We should also ask how much damage is done if someone does pull the wool over her workmate’s eyes through this stratagem. There is an efficiency loss from deliberate under performance in early races as well as an injustice because later efforts are overestimated and over rewarded. But rewarding place of finish is even more unfair because it penalizes the less able for something they cannot do anything about. Rewarding place of finish is also less efficient since it provides no incentive to improve performance if an improvement is insufficient to pass a rival. Is it really a fatal flaw if some devious-minded worker in a participatory economy tries to underperform early in order to be overpaid later?

Finally, Kotz worries that cliques and rivalries will lead to inequities and mistrust in participatory workplaces. Why might this be true? Cliques attempt to bias judgments that are the basis for reward. If reward were according to weight, and if all workers were weighed on the same scale, in public view, there would be no reason for cliques to arise because it would be impossible to contest judgments. Or, if reward were according to personal whim, but there was no way to discover the identity of the judge whose whim a clique would have to influence, there would also be no basis for cliques. So the problem with reward according to effort and sacrifice as judged by one’s coworkers is that people’s efforts and sacrifices are subject to question, and everyone knows whose opinion matters. Moreover, if all rotate on to and off of the effort rating committee, those serving now know those they judge will judge them later. “Payback” and “tit-for-tat” are phrases that spring to mind. Can the problem of cliques be avoided? I don’t think it is possible to eliminate differences of opinion about effort or sacrifice. And, unfortunately, economic justice requires compensating for differences in effort or sacrifice, not differences, for example, in weight! So unless we are prepared to foreswear attempts to reward people fairly, the best that can be done in this regard is to explore ways to diminish problems that arise due to differences of opinion.

However, many assume the only way to reduce disagreement about workers’ relative efforts and sacrifices is to improve the accuracy of measurement. And indeed, this is one strategy: (1) Collect more and better evidence, and weigh it more judiciously. However there are two additional strategies that can be pursued as well: (2) Improve “due process” so people are less resentful even when they disagree with judgments. Disagreements are problematic to the degree that they breed resentment. (3) Reduce the importance of the entire issue relative to other issues. Even if there are disagreements over judgments, and even if there is dissatisfaction over process, if the question of rating is farther down people’s list of priorities, the consequences will be less problematic.

The Winston Churchill defense

I recognize that these are palliatives rather than cures. I began by admitting that perfect measurement is impossible. Moreover, I realize that my second suggestion amounts to searching for ways to make people more accepting of what they believe to be unfair, and my third suggestion amounts to trying to make people worry less about economic injustice in general.

However, there is an important difference between economies which systematically practice injustice and an economy that is organized to distribute the burdens and benefits of economic activity as fairly as possible. And there is good reason to believe people’s attitudes about distributive justice would be somewhat different in those different contexts. If people believe the economic system is fair, might they not be inclined to attach less importance to disagreements over distributive outcomes in general? If workers believe their own council practices due process, might they not be more tolerant when they disagree with their rating committee? Is there no reason to believe that the more economic justice people experience the less people will be inclined to form cliques and engage in rivalry when the overall system is fair, and when workers in every council have it within their power to modify procedures until they are satisfied there is “due process” if not perfect justice?  In general, is it unreasonable to hope that the more economic justice people experience, and the longer justice prevails over injustice, the less people will choose to spend their time and energy in invidious comparisons, at least regarding the distribution of consumption rights over material possessions?

It is possible to immunize judges from pressures coming from those they judge, but we fear the disadvantages of doing so in this context would far outweigh the advantages, and therefore do not recommend it. Outsiders could be brought in to judge — workers from other worker councils in the same industry federation being obvious candidates. But outside judges reduce self-management for workers in their councils. In other words, the main problem with outside judges is precisely that they are outsiders. Do we want self-management or not? Alternatively, the identity of co-workers serving on the ratings committees could be kept secret to protect them from influence. While secrecy may appear attractive, I am deeply skeptical that this would minimize rather than maximize the problem of cliques. Besides a host of theoretical reasons that open and easy access to information for all is good policy, and besides the fact that good legal systems recognize the importance of those charged being able to know the identity of their accusers, there is a major practical reason that secrecy is bad policy. Namely, it doesn’t work! More often than not it turns out that what one blithely assumed could be kept secret, actually was not kept secret. So what we usually must choose between is openness versus pretense of secrecy, whether we realize it or not. In this case, the advantages of openness over pseudo-secrecy vis-a-vis cliques and rivalries seem obvious.

In sum, critics raise important issues proponents of participatory economics do not wish to belittle. In the end we can only say: (1) Estimating the value of people’s contributions to collaborative outcomes is also an imperfect science and subject to question. (2) While proponents of participatory economics recommend rewarding effort and sacrifice as an equitable social norm that is compatible with efficiency, in the end we propose that individual worker councils rate their members as they see fit, and expect they will go about it in very different ways. (3) Finally, perhaps the best defense for having coworkers judge one another’s efforts and sacrifices at work is the defense attributed to Winston Churchill for democratic government: “No one pretends that democracy is perfect…. Democracy is the worst form of government… except for all the others.” In a similar vein, while  rating efforts and sacrifices by coworkers will no doubt prove difficult and quarrelsome at times, failing to monitor and reward effort and sacrifice, or judging workers on some basis other than their efforts and sacrifices, or assigning someone other than one’s workmates as judges would be worse. In short, our critics no doubt are right: Remuneration according to effort and sacrifice, as judged by one’s coworkers is the worst possible system of compensation…except for all the alternatives!

Economic Justice and Efficiency

I have defended maxim 3 as what economic justice means or requires, and have proposed what I believe is the best way to implement this maxim, as difficult and problematic as this may be. However, there is another objection people have raised, which merits response. What if achieving economic justice comes at the expense of achieving economic efficiency? What if there is a trade-off between economic justice and efficiency? In this final section I outline the case for why this would not be the case in a participatory economy.

Motivational Efficiency

As explained, workers are compensated according to effort and sacrifice in a participatory economy because this is just and fair. And one’s effort and sacrifice are assessed by coworkers because as problematic as this may be, any other system of evaluation would be far worse.

In truth, economic productivity is largely the result of scientific and technological knowledge accumulated over decades and centuries, embodied in equipment and organizations of work that are also inherited. What any one of us could produce absent this “gift” from the past, and absent the cooperation of others, is miniscule compared to what we can produce, on average, by using this gift together. What is absurd is the notion that some deserve to appropriate thousands of times more than others from the bounty this public good of social economic productivity provides. When we understand that each generation inherits its productive potential it is easier to see why only differences in the efforts and sacrifices people make when setting this productive potential in motion should serve as the basis for any differences in rewards among us. In any case, while the quantity and quality of non-labor inputs one works with, how many others there are with the same skill set one has, talent, and luck all influence how productive people’s work will be; the only factor over which people have any control is how much effort they exert. So not only is rewarding effort the fair thing to do, it is also the best way to motivate people to perform up to their abilities. In sum, rewarding effort as judged by workmates aligns individual interest with the social interest quite nicely.

Allocative Efficiency

It is in the self-interest of individual worker councils to have more and higher quality inputs to work with, while it is in the social interest to allocate scarce productive resources to wherever they are most socially valuable. Particularly in light of the fact that only a worker council can propose and revise its requests for inputs, how does the annual participatory planning procedure reconcile the self-interest of worker councils with the social interest?

During the participatory planning process worker councils are asking permission from others to be allowed to use scarce productive resources that belong to everyone — including different categories of labor — as well as intermediate products and capital goods others must produce in exchange for a promise to deliver certain amounts of socially valuable goods and services. Since the planning procedure generates ever more accurate estimates of social costs — including the opportunity costs of using different categories of labor — and social benefits, it is easy to see if the social benefits expected from the outputs a worker council promises to deliver exceed the social costs of the inputs it is requesting. Only in this case is it in the interest of all the other worker and consumer councils to vote to approve the proposal. So in order to obtain the resources they want to work with, that is in order to serve their own interests, worker councils are required to serve the social interest as well. We have proved that the annual participatory planning procedure will achieve Pareto optimal outcomes under fewer assumptions than needed to prove the “fundamental theorem of welfare economics” for a private enterprise market economy. In other words, a participatory economy is even more likely to achieve what economists call allocative efficiency than are other economic systems. 

Dynamic Efficiency

However, with regard to rewarding innovation there is a possible conflict of interest between two goals — dynamic and static efficiency. To achieve static efficiency, we propose that all productive innovations be made available immediately to all workplaces, which have every incentive to immediately put them to good use.  When innovations are produced as “outputs” in industry and consumer federation research and development units, there is no conflict between static and dynamic efficiency. And since R&D is a public good, and a participatory economy tends to allocate more resources toward the production of public goods than market economies, this should increase the pace of innovation. However, since innovations are shared with all immediately, where is the incentive for individual worker councils to innovate rather than wait for special R&D units or other worker councils to do so? In particular, will it prove desirable to provide material rewards to innovating workplaces, above and beyond what their members’ efforts and sacrifices entitle them to?

We believe there is good reason to believe in an economy where it is unlikely that status will be achieved through conspicuous consumption, and where social serviceability will be more highly esteemed, that rewarding workers in highly innovative enterprises with consumption rights in excess of sacrifices may not be necessary. However, since before their demise twentieth-century, centrally planned economies had ceased to be as “dynamic” as some of their capitalist competitors, one of the most powerful arguments against any socialist economy today is that it will not match the dynamism of capitalist economies. What if people in a participatory economy came to the conclusion that extra rewards for workers in innovating enterprises were needed? The need for, and size of any such rewards could be determined democratically by all citizens. However, unlike patents which provide material rewards for innovation in private enterprise economies by prohibiting others from using the innovation which generates a great deal of “static” inefficiency as consumers of drugs in the United States can attest; any material rewards for innovating enterprises in a participatory economy will not limit their use by others. In this way, any material rewards for innovating enterprises in a participatory economy to promote dynamic efficiency would not come at the expense of static efficiency. But another way innovation occurs is through new start up enterprises in industries. How does that work in a participatory economy?

Any group of workers who can submit a proposal during the planning procedure that is approved as socially responsible, i.e. whose social benefit to cost ratio is at least one, will receive the inputs it requests to start producing when the year begins. That could be a group composed mostly of students exiting the educational system. It could be a group of disgruntled members of an existing worker council who have been consistently outvoted about how to do things, and who want to start up a new operation to try and do things their own way. So in many ways it is easier for a new, innovative group to put their idea into motion than in capitalism, where they would either have to save up enough themselves, or convince a lender to finance their operation.

However, we must protect others from negative consequences if a group of crackpots submit a proposal that looks good and is approved, but in fact is a fantasy because they will not be able to fulfill their promise. If this happens, at a minimum resources will be wasted, and in all likelihood other worker councils who rely on deliveries from the crackpots which do not arrive will be unable to fulfil their plans through no fault of their own. So a “gate keeper” is needed in a participatory economy, and we initially recommended empowering industry federations to certify the credibility of new groups asking to participate in the planning process. But what if industry federations are too conservative in these judgments, and act like old fuddy-duddies who stifle creative new ideas and innovation?

There are other ways groups who want to start up new enterprises might demonstrate their credibility. If a group comes with an impressive display of crowd sourcing support, this can demonstrate credibility. If members of the group have relevant educational credentials, this can demonstrate credibility. If members of the group have worked in the industry elsewhere this demonstrates credibility. Finally, there is no reason a review board separate from all the industry federations cannot be created where groups who were turned down for accreditation by their industry federation can appeal for approval. This board could even be ordered to overturn rulings from the industry federation until the number of new worker councils they approve to participate in the planning procedures who turn out to be crackpots reaches some specified percentage – demonstrating that the review board was no longer being too conservative in accrediting start-ups.


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