How does a participatory economy protect the environment?

January 15, 2025

Both market economies and command-planning economies are and were poor stewards of the natural environment (to put it mildly).  Theorists of market economies, for example, relegated the natural environment to the category of “externalities”, which is shorthand for “things we ignore and don’t need to worry about”. This is proving to be woefully shortsighted as humanity is halfheartedly working to prevent the destruction of civilization from “externalities” as the climate emergency and the many compounding disasters that such “externalities” would wreak.

This is where models of “third way” models of democratic economic planning are poised to shine, but how would that work?  How exactly would a democratically planned economy, like the model of a participatory economy (MPE), protect our shared environment in contrast to environmentally destructive predecessor economies?

To be fair, the original articulation of MPE didn’t account for the environment, as the original developers acknowledge.  Environmental protection was not one of the original values of the model, and there were no proposed institutions to protect and nurture our shared natural environment.  However, updated articulations of the model have acknowledged this failing and have been working to address the matter, and unlike retentionist economists who ignore or belittle the environment (less successfully over time as environmental disasters escalate), MPE is able to accommodate environmental protection as we will describe in some detail below.

Keep in mind, there is already a fair amount to say about this, and this article will touch on many of those developments, but this is a realm of active development (both theoretical and practical), as well as cutting-edge research.  What follows should be read as a rough guide to the current state of affairs regarding MPE and the environment.

For what recent MPE literature has to say on the matter, Robin Hahnel’s book Democratic Economic Planning includes a section titled “Pollution” in chapter 7 which details the institutions and procedures in participatory annual planning, and chapter 14 outlines proposals for longer-term participatory environmental planning.

Indicative Prices

The prices for good and services in a participatory economy, termed “indicative prices”, have a key role to play when it comes to protecting the environment.  Market economies ignore the impacts of social and environmental costs, while indicative prices as the term suggests incorporate that in the prices.  This way, worker councils and consumer councils can have accurate information for the environmental impacts of their activities and respond appropriately.

What’s more, pollutants themselves can also be priced, which will prove critical later in this article.  Pollutants in a just economy should behave handled accordingly: demand for being polluted should be low (obviously, nobody wants to be polluted), and prices for pollutants should be high.

Generational Equity Constraint

One recent proposal for addressing environmental concerns for longer time scales in MPE is the “generational equity constraint”.  It is a mechanism to ensure that people who are alive now acknowledge the environmental concerns of people in the future.  More formally, it requires that consumption in adjacent years don’t exceed a certain percentage.

Communities of Affected Parties

Another recent proposal is the introduction of a new category of participants referred to as “communities of affected parties” (CAPs).  CAPs comprise those individuals or groups who are affected by a particular pollutant, and are included in the participating planning procedure in an MPE along with workers councils and consumer councils.  If a CAP should choose to endure pollutants, the members of the CAP would receive compensation in the form of additional consumption credits.  That is, CAP members would be paid for their trouble.

I should say, it can be kind of morbid to think of pollutants like this: after all, nobody wants to be polluted, so why should pollution ever be greater than zero?  One could argue in reply that this approach has two advantages: One, it forces economic actors in an MPE to put environmental concerns front of mind.  Two, it provides a concrete mechanism where actors can affect pollution, including the possibility of working together to get pollution down to zero.

Role reversal of consumers and producers

In the most common approach for handling supply and demand, worker councils produce the supply of a good while consumer councils express the demand for a good.  But when it comes to handling pollutants in a participatory economy, the roles are reversed.  Consumer councils and CAPs provide the supply of pollutant permissions which workers councils now demand.  

The participatory planning procedure otherwise proceeds normally: Workers councils express the supply of the goods they wish to produce and their demand for pollutant permissions.  Consumer councils express the demand of the goods they wish to consume and their supply of pollutant permissions.  CAPs also provide their own supply of pollutant permissions.  All parties use indicative prices to determine what they want to produce or consume and acknowledge the generational equity constraint in their computations.

Computer simulations

For years, I have been involved in developing computerized simulations of MPE, which also appear in the book Democratic Economic Planning (chapter 9).  These simulations have provided some confirmatory evidence that the participatory planning procedure is practical — that is, the number of iterations required to arrive at a feasible plan is a “reasonable” handful, as the literature on the topic long expected.

More recently, I have been working with MPE co-inventor Robin Hahnel to work out the mathematical formalisms for expanding the computerized simulations to include pollutants and encompass environmental concerns.  We have included in our software a new category for pollutants, complete with its own indicative price, and incorporated it to work with the code for the participatory planning procedure.

We are still in the very earliest work on this front, but I can say that what we have seen so far is promising, and it is personally breathtaking to see an economy — even a computerized simulation — address the environment so directly and more diligently than any other economy, perhaps ever.  I expect that I’ll be working for much of the year 2025 to continue developing the code, increase the number of simulation experiments, and announce our results.

Conclusion

Despite a slow start, advocates for MPE have rallied to address legitimate concerns to protect the environment.  Original mechanisms like indicative prices and the participatory planning procedure work together with newer proposed institutions like the generational equity constraint and CAPs to help protect the environment and minimize pollutants.  When it comes to addressing pollution in a participatory planning procedure, worker councils and consumer councils reverse their roles: worker councils demand pollutant permissions which consumer councils and CAPs supply.  And computer simulation research of some of these formalisms is so far encouraging with more development to come.

It is an encouraging state of affairs for democratically planned economies in general and MPE in particular, unlike those of retentionist economies of the past.  Environmentalists, that is everyone on Earth, would be wise to consider the environmental strengths of the model of a participatory economy.

Start the discussion at forum.participatoryeconomy.org