Post-plan adjustments during a year

September 11, 2023

The annual planning procedure results in an agreed plan for all consumption and production that will take place in the economy in the year ahead. One way to describe an agreed annual plan is to say that it consists of a set of individual production plans for all active workplaces, a set of individual consumption plans for all consumer councils and federations, and a set of prices for all categories of goods, services and resources to be produced and consumed during the year ahead. 

However, as soon as the year starts and all through the year, all sorts of circumstances will inevitably change. Consumers will change their minds about their planned consumption and worker councils’ productive capacities and supply chains will be affected by “external” changes that were not possible to foresee at the time of planning. 

Generally speaking, changing consumer preferences during the year will be relatively easier to deal with in terms of adjusting a plan, everything else being equal, compared to changes in supply since changes in consumer preferences do not necessarily mean that the economy’s total production or income change. Changes in supply, for instance due to exceptionally poor harvests in the agricultural industry or disruptions in international supply chains for intermediate goods and components, are more difficult to manage since they can potentially affect a society’s total production and income and have substantial ripple effects throughout a large part of the economy. 

Fortunately, a year is a relatively short time period and changes in circumstances should normally, in the aggregate, be relatively limited and the implications will always be temporary since the next annual planning is never more than a few months away.

In any case, a participatory economy must nevertheless be flexible enough to handle and react to changing circumstances during a year and be able to adjust the agreed current annual plan when necessary. What tools does a participatory economy have to adjust an agreed plan during a year when circumstances change? There are basically three main scenarios:

Scenario 1: Changes cancel out

Consumer preferences will inevitably change during the year. However, changes at the individual level will often cancel out at the aggregate level and therefore not require any, or only minor, changes in production plans. This scenario will at the most only require changes in the distribution plan, which is a relatively minor issue.

Scenario 2: Make adjustments

If changes in consumption preferences of individuals don’t cancel out or if the supply of goods changes to a degree that production plans need to be updated and adjusted to the new circumstances, the national consumption federation needs to negotiate changes in the agreed plans with the relevant industry federations, potentially affecting both consumption and production plans. 

Such changes to consumption and production plans can be done in a number of different ways with different effects and implications:

  • a) In some situations, the least disruptive alternative will be to leave annual production plans more or less unaltered until the next annual planning even if consumer preferences change, or to only make production adjustments that are unavoidable due to supply disruptions. This alternative means, instead, that consumption presumably would have to be rationed in a way that is collectively negotiated and agreed. For instance, this could make sense in situations when the external supply of intermediate goods and components are temporarily disrupted or if consumer preferences for durable non-essential goods have changed but the next annual planning is only a few months away. In best case, rationing consumption in these situations would simply mean that the expected delivery time of the rationed products would be extended, primarily for the customers that failed to include the products in their original consumption proposals. In worst case, a customer would have to wait until the next annual planning to get her delivery.
  • b) Negotiated minor adjustments in production plans during a year due to changes in consumer preferences will not necessarily affect unit production cost dramatically and can therefore often be implemented relatively painlessly and without price changes. This is especially true if the annual planning process, as it should, deliberately aims for “safety margins” in the form of a required percentage excess supply for certain, or maybe even most, goods and services, and, in any case, definitely for goods and services for which demand is deemed especially prone to change during the year.
  • c) If the negotiated adjustments of production volumes due to changed consumer preferences are large enough to result in increased unit production costs for some worker councils, it can still be agreed that prices, nevertheless, should remain unchanged until the next annual planning. This means that some worker councils will be burdened with increased costs and their SB/SC ratios will be affected. Of course, this should be recognised and the effects on SB/SC ratios should not be allowed to affect workers’ compensation in the year to come.
  • d) Alternatively, worker councils could be compensated for their increased unit production costs due to agreed and imposed changes in production plans, partly or in total, through the introduction of an “adjustment fee” charged on the consumers that deviate considerably from their originally submitted consumption plans. This solution will leave consumers who stick to their original consumption plans less affected but will introduce additional administration costs for society since it introduces the need to administer the collection of fees from consumers and the allocation of compensations to producers.
  • e) Finally, a participatory economy certainly has the opportunity to “go all the way” and negotiate adjustments in relative prices during a year as a reaction to changed circumstances and especially in the case of major changes in external supply. However, midyear price adjustments should be used with caution and as a last resort after the other alternative tools have been deemed inadequate, for three reasons;  i) if price adjustments are due to changes in consumer demand, midyear price changes will unfairly “punish” customers who correctly included their actual consumption in their consumption plans and stuck with it, ii) it is difficult to foresee and estimate the actual effects on demand when a price of a product is changed, in the absence of a comprehensive planning procedure, and iii) changes in a relative price of one product may lead to unforeseen and extensive ripple changes in demand for many other goods and services throughout the economy. 

Scenario 3: Initiate a new planning process

If changes in the external supply of goods are extremely dramatic, it could be justified to initiate a completely new comprehensive annual planning process during the year, or at least some simplified version of it, perhaps with federations playing a more prominent role instead of individual consumer and worker councils.

Conclusion

To sum up, a participatory economy certainly has the ability to react to changing circumstances, such as modified consumption preferences or changed supply, and adjust the plan accordingly during a year. Presumably, considering that a year is a rather short time period, many changes will be limited and therefore relatively easy to implement.

In more complicated cases, where the necessary changes of the annual plan will result in increased unit production costs, the main issue is to decide how the increased unit costs should be allocated. Should consumers bear the costs, or producers? If consumers should be charged a new higher price, should every consumer be charged the higher price, or just the consumers that failed to include their consumption in their consumption proposal?

How ever a participatory economy, in the end, decides to go about to adjust and update an agreed annual plan during a year due to changing circumstances, it will always be through a social process in which federations of consumers and producers negotiate and agree to the adjustments of the initially agreed plans. Changes in production volumes and prices will never be left to negotiations between individual actors, buyers and sellers, as in market economies.

Notable Replies

  1. This is a good article, thanks for sharing! I’m glad you mentioned what you did in scenario 3, because based on the results we’re seeing in the simulations, it seems running some simplified version of the planning procedure could be pretty quick and painless.

  2. However, does changing the plan during the year not cause efficiency problems, and does the computer simulation of the participating economy include the simulation of changing the plan during the year?

  3. No, I don’t see why any of this would cause efficiency problems. And yes, at least one does this explicity.

  4. My thanks to Anders for writing this article. The most common complaint I’ve heard about the model of a participatory economy is that it’s not very flexible – how does it handle changes to the participatory plan? Up until now, the responses from participatory economy advocates have felt unsatisfying. This article answers that important question head-on, with specific, concrete, actionable details and proposals.

    I suspect that will find myself referring to this article again and again because it answers such a common question in an excellent fashion. Again, thank you, Anders.

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