International Trade

As part of the long term development and strategic planning, a Participatory Economy discusses and agrees on policies for trade and financial interactions with external economies, the balance between exports and imports, import restrictions for the protection of domestic industries or the environment, export subsidies to support newly started exporting industries, etc. Direct foreign investments are not allowed in a Participatory Economy since they would run counter to its values, especially self-management.

When there are big differences in opportunity costs for production of goods between different regions and economies, there are also potential efficiency gains to be achieved by specialisation of production and trade, even though these benefits sometimes are exaggerated. When a participatory economy is forming its trade policy it needs to consider many factors. The decisions regarding trade policy both affect and are affected by other long term planning decisions. 

The effects of imports on domestic production and consumption need to be analysed. Perhaps there are goods that the economy for one reason or another regards as so harmful that importing them altogether should not be allowed, for example, goods that affect the environment or health negatively. Imports of both capital goods and consumption goods have effects on the development of domestic production that need to be analysed and assessed. Maybe society wants to protect a certain domestic production during a build-up phase or for other reasons by restricting imports.

Similarly, the export of goods has effects on the economies receiving the goods that need to be analysed based on a participatory economy’s values. Maybe exporting worker councils should be supported by subsidies during certain periods. In general terms, international trade is justified if it increases the economy’s social benefit or reduces the economy’s social cost compared to what would be the case with no trade. 

The 50% rule

For a participatory economy, the goal must be to negotiate terms of trade with other economies that are consistent with the fundamental values of a participatory economy ​​- justice, self-management, solidarity, diversity, efficiency and ecological sustainability – regardless of whether the trading partners are functional participatory economies or capitalist economies.

If a participatory economy is trading with a relatively richer economy, it should aim to obtain as large part as possible of the efficiency gain resulting from the trade and certainly not below 50 %. If a participatory economy, on the other hand, is trading with a relatively poorer economy it should accept to receive less than 50 percent of the efficiency gain and be content to see its poorer trading partner receive the majority of the gain. If efficiency gains from trade are distributed in this way, it gradually reduces the gap between richer and poorer trading partners. 

Note that this rule for allocation of efficiency gains from trade should, as a rule, apply regardless of whether the trading partner is a participatory economy or a capitalist economy. Citizens in a poorer economy on average receive lower compensation for their efforts than citizens in richer economies, and by using the “50 percent” rule when trading, a participatory economy confirms that “justice” means that the same effort or sacrifice should be compensated to the same degree.

A participatory economy cannot argue that the principle of justice is not applicable to trade with capitalist economies, on grounds that the citizens of such an economy may not necessarily support the same principle of justice. The point is that its values preclude a participatory economy from interacting with other economies on conditions which itself considers to be unfair (For a longer discussion of the 50 % see chapter 8 in (Hahnel, 2005) and for a detailed account on participatory international planning see (Hahnel, 2020)).

Pricing of internationally traded goods

The logic behind product development, categorisation of goods, design and production processes in a participatory economy is for all intents and purposes valid also for goods that are traded between economies. However, goods that are traded between economies are not priced through the annual planning. Instead, these prices will normally be set on international markets through negotiations between representatives for economies, buyers and sellers.

Before the start of every annual planning, prices for all internationally traded goods are estimated and quoted by agencies attached to the IFB based on negotiated prices on international markets. Presumably, the federations and support units of exporting and importing parties will play an important role in international price negotiations. As described, negotiated prices may be affected by decisions to award less developed partners more than 50% of the efficiency gain that result from trade. 

Domestically charged and credited prices for internationally traded goods may also be affected by decisions to implement tariffs, export fees, subsidies etc. to reflect external social costs and benefits that are not reflected in a trading partner’s offered prices. Examples of such costs and benefits that may justify price adjustments are harmful effects on environment from pollution and benefits from developing a domestic industry. 

Thus, when the annual planning starts, there are independently set purchase prices for all categories of goods that are imported, and selling prices for all categories of goods that are exported. These prices are fixed and do not change during the annual planning. Guided by these prices and the guidelines for international trade announced in the long-term international trade planning, the annual planning process will, in theory, generate appropriate and efficient volumes for export and import, as well as the allocation of all domestically traded goods and services and their prices.

Volumes of import and export will obviously also depend on additional circumstances such as the existing relations between producers and international counterparts, supply chains and distribution networks, and trading actors may be helped by federation support units focusing on promoting trade. In the annual planning support units can help to estimate volumes of internationally traded goods for the year to come.

Generally speaking, both producers and consumers in countries with small domestic markets will benefit more from international trade compared to countries with large domestic markets due to economies of scale in production. In some cases, producers and countries will even depend on it.

For example, producers of very expensive capital goods, e.g., airplanes and heavy machinery with large set-up costs, will struggle to find enough customers for their production lines to be socially beneficial if restricted to domestic customers and will, as a rule, have to turn to international markets. And of course, unequal access to natural resources and mineral deposits between regions and countries and different conditions for agricultural production due to different climates largely affects international trade.

So, for a small participatory economy with few natural resources there may be a very large number of both consumed and produced products that are not priced through the annual planning process but instead are negotiated externally and independently between actors on international markets. Importantly though, certain prominent productive resources in a participatory economy will never be traded internationally and therefore always be allocated and priced through the annual planning, most notably labour, land and existing capital resources.

Price differences

Adjustments of trade prices to award less developed partners more than 50% of the efficiency gain will introduce an “accounting problem” in a participatory economy if these adjustments differ between trade partners and are not applied universally on products. Identical products should domestically be priced the same and not differ between actors since this would be unfair. One way to handle this is to work with “price differences” between externally negotiated and paid international trade prices, which will differ between trading partners, and prices that the economy charge and credit actors “domestically”, which, for identical products should be the same and not differ between actors in the economy. 

Tariffs, fees and subsidies agreed on in the international trade planning will also create “price differences” between externally paid prices and domestically recorded prices in the books of producers and consumers. 

There are other potential sources of price differences, as well. Notably, during the annual planning iterations, announced domestic prices for internationally traded goods and services stay fixed and the agreed final annual plan, and production and consumption plans, will be based on these prices. However, during the year internationally paid trading prices may very well fluctuate and deviate from the prices on which the agreed plan is based, whereas domestically charged and credited prices during the year should correspond to the prices set in the agreed annual plan, unless price changes are deemed necessary and negotiated between federations in mid-year adjustments. 

Any difference between domestically recorded prices in the books of worker and consumer councils and the actually paid export and import prices will be recorded as “price differences” in the Society Account ledger. If the prices for imported goods that are set in the annual planning and recorded in the books of worker councils during the year exceed the externally paid import prices, positive price differences arise (a form of tariffs on the imported goods), which show up as credit entries in the ledger of the Society Account. In the end, it is the consumers that pay for import tariffs.

If the prices set in the annual planning that are credited to worker councils for exported goods are lower than the external export prices, there are also positive price differences (a form of export fees), which generate credit entries in the Society Account ledger. If instead the internal prices from the annual planning that are credited to worker councils for exported goods exceeds external export prices, negative price differences arise (a form of export subsidies), which end up as debit entries in the Society Account ledger.

Tourism

Goods that are sold to visiting consumers and tourists is a special case of exports. In this case, some entity such as the tourist board or the international trade board will need to estimate the expected volume of goods and services sold to visiting tourists in the coming year based on a variety of different external circumstances outside of the annual planning procedure.

Notice that goods bought by visiting consumers and tourists may very well be imported in the first place or produced for a “domestic market”. In the annual planning, the demand from visiting consumers and tourists will be added to the demand from domestic citizens of the goods and services in question. Correspondingly, estimated and planned purchases by citizens travelling abroad to other countries are imports and will be subtracted from the domestic demand to arrive at the total demand.