Any economy has to have a system for deciding what particular goods and services to produce and therefore how to best make use of its scarce productive resources for fulfilling human wants and needs.
In capitalism, allocation happens through market exchange, where privately-owned firms compete against one another for profits, set prices, use advertising to influence consumer preferences and make best guesses to decide what to produce. In centrally planned economies like the ex-soviet union, a central board of planners gather data to decide what to produce and give production orders to firms to carry out.
Instead, a participatory economy is a type of democratically planned economy. There is no market exchange nor central planning. Society’s productive resources are owned by everyone collectively and distributed via decentralised participatory planning procedures which everyone takes part in.
Participatory planning is designed to solve well-known failures inherent to markets and central planning. It is designed to further the values of self-management, justice, solidarity, ecological stewardship, efficiency and diversity in the following ways:
- To generate accurate prices that reflect the true costs of consuming goods and services to society, which includes pollution.
- To enable a fair distribution of income by separating its relationship from the costs of labour in producing goods and services.
- To enable collective consumption preferences to be easily put forward.
- To enable individuals, workplaces and neighbourhoods the freedom to decide on their own affairs without any central authority telling them what to do.
- To eliminate the bias towards growth over leisure and the underpricing of harmful activities inherent in market systems.
- To reveal how our choices impact on others.
- To generate variety of options, goods and services for people to fulfill their lives.
The participatory planning procedure involves the following groups participating:
- Households and Federations of Consumers’ Councils
- Workers’ Councils and their Federations
- A facilitation group, who update and facilitate the flow of information during the planning procedure.
Planning Time Horizons
The are three types of planning, which involved short-term to long-term planning:
- Annual Planning – for distributing productive resources for the year ahead (1 year)
- Investment Planning – for deciding on which capital stocks to increase (1-5 years)
- Development Planning – for deciding on long-term structural changes (5-20 years)
Before the start of every new year, every workplace, household and federation council participate in an annual planning procedure, which is likely to last a few weeks to complete.
The planning procedure occurs over a series of rounds, or ‘iterations‘.
In each round:
- Every household and consumer council in society is asked to provide information about what they expect to consume for the year ahead, and every workplace proposes what goods and services they’d like to produce.
- More accurate information is generated about the full costs to society of production and consumption choices, until an efficient plan is reached.
In more detail, each round involves the following three steps:
Step 1: New Prices Announced
Prices of all resources, goods and services, and pollutants are announced by the facilitation group. Workers and consumers use these prices during the planning procedure to learn about the cost to society of making different choices about what goods and services to produce and consume for the year ahead.
Price = a quantitative estimate of the opportunity costs and social costs of using resources and consuming goods and services.
Step 2: Proposals
Every individual, family or ‘household’ proposes what they expect to consume for the year ahead. They look at their consumption from last year and based on new prices, changes in their preferences, and their projected income, make adjustments up or down to the quantities of goods or services that they expect to consume.
Planning one’s consumption does not involve deciding on any detail, but just using general categories. For example, categories could be grouped based on entertainment, clothing, food and so on. The consumer planning would have similarities to the use of online banking, personal finance software and family financial planning common today.
So that individuals, families or households are making a fair claim on consumption, they need to adjust their proposal so that their expenses are within their income. To do this they may need to reduce their consumption or choose less costly goods to have their proposals accepted.
Every neighbourhood and federation consumer council combines the proposals of its individual members together with proposals for their collective public goods. As long as their total consumption is within their members’ incomes, proposals are fair and accepted by their peer councils.
Every workplace proposes what they expect to produce for the year ahead. This includes the inputs they need, such as raw materials and machinery, and the outputs they will create, such as bicycles. This includes byproducts that have a negative social impact, like pollution.
It’s also an opportunity for every worker to get to decide how many hours a week they’d like to work during the year.
Each workplace is required to make a socially responsible, i.e efficient, use of society’s scarce productive resources. To do so, they create or adjust their proposal so that the value of the goods and services they produce, social benefit, is greater than the value of the inputs they want to use, social cost, i.e social benefit > social cost. To achieve this, a workplace can increase their output, or change their production to a more desirable output, or use less costly inputs.
Social Benefit to Social Cost Ratio (SB/SC) = the total value to society of the goods or services a workplace produces divided by the total cost of the inputs to society used for production. Anything over one indicates an efficient, or, in other words, a responsible use of society’s scarce resources.
Step 3: Updating Prices
The facilitation group, using a software algorithm, updates the prices of all productive resources, pollutants, and final goods and services up or down. The price of any item will go up if there is an excess in demand and will go down if there is an excess in supply.
Converging on a Plan
The process repeats itself over several rounds, with consumers and workers reacting to changes in prices and adjusting their proposals, until there are no longer any excesses in supply or demand. By the end of the process an efficient, fair and environmentally sustainable plan for the year is attained.
During the Year
Like today, there are places to shop for goods and services. Every person would have an electronic debit card that is charged whenever they purchase a good or consume a service.
Of course, people’s actual consumption during the year will differ somewhat to their consumption plan.
Many changes will cancel out on the aggregate level, but where there is significant deviation, users can be prompted to confirm they’d like to update their plan. Worker and consumer federations will be responsible for monitoring consumption patterns and coordinating any necessary changes to production during the year.
Will I need to know what to consume one year ahead?
No, you are not expected to know what you want to consume in any detail for the year ahead.
An individual consumption proposal is just a consumer’s best estimate of what they think they will consume in the upcoming year by choosing from a list of broad categories of goods, e.g. “shoes”, “bicycles”, and “computers”. This starts by looking at their previous year’s data, and then adjusting up or down as prices change from round to round during the planning.
Can I borrow or save?
Yes. Any individual can save by spending less than their income.
If someone needs more income than they have, they can make an application to borrow. Loan applications could be handled by an organisation similar to a community credit union today.
How is this different to Markets?
The difference is in how prices, production, consumption and income are decided.
In a market economy, prices are set by the individual interaction between a buyer and a seller. Whereas, in a Participatory Economy, prices are set through annual democratic planning which all actors in society participate in.
This has many implications, which you can read about in articles on the site and on the comparison table. Annual democratic planning is designed to solve the inherent failures with markets and further the values of equity, solidarity, diversity, self management, efficiency and environmental stewardship.
How is this different to Command Planning?
The difference is in how prices, production, consumption and income are decided.
In a centrally planned economy, data is collected and prices are set by a central planning board. Whereas, in a Participatory Economy, prices are set through annual democratic planning which all actors in society participate in.
This has many implications, which you can read about in articles on the site and on the comparison table. Annual democratic planning is designed to solve the inherent failures with central planning and further the values of equity, solidarity, diversity, self management, efficiency and environmental stewardship.
Isn’t all this planning time consuming?
It is important to first note that planning is needed and done in any type of economy. The difference is that planning is inclusive in a participatory economy, not done only by government or corporate elites.
Planning would only take place over a few weeks at the end of every year. For workplaces, this would be part of one’s job, not take up any of one’s leisure time.
Personal consumption planning is not expected to be any more time consuming than currently filling out tax returns (tax returns would not be required in a participatory economy).
During the year citizens can also attend voluntary meetings of their neighbourhood consumer council to make decisions around local public goods. Each council can arrange a meeting schedule that fits their community’s needs, for example meeting once a month.
It is likely that people in a participatory economy will choose to work fewer hours than in today’s economy and therefore have more leisure time overall. While planning will require some time, the benefits of an economy based on cooperation and solidarity would far outweigh any costs.
Is there money in a Participatory Economy?
There is a currency in a Participatory Economy. However, there are some important differences to money today.
Income, and therefore currency in a Participatory Economy is non-transferrable. You cannot transfer your income to another person or organisation (with the exception of redistribution of income within one’s consumer council for special needs requests). Whenever you purchase a good or service you are not transferring your income to the workers of the workplace who you have purchased the good from. Income and sales are separate accounts in a participatory economy. The income workers receive is from the society account, not from their workplace’s sales account. For more information on accounting in a participatory economy, see the book Anarchist Accounting.
In a Participatory Economy, currency is simply an accounting unit used to keep track of consumption rights. Currency can only be used as a means accepted as payment for goods and services. Every citizen has an account which is credited whenever they receive income and debited whenever they pay for a good or service and every citizen would have an electronic debit card for making payments.
An important difference to a capitalist economy is that income is distributed fairly in a participatory economy and capital is socially owned. Therefore differences in people’s incomes across society would be small compared to today. The only way to receive income is from work, from needs based allowances or for compensation from pollution. It is not possible to purchase shares or gain income from rent or interest.
Participatory Planning Simulation
Investment planning involves looking at the next five years and deciding on how much to consume and how much to invest and which stocks of capital or industry capacities to expand. A higher investment in the future means less consumption available for today, and vice-versa.
Investment = foregoing consumption today by allocating resources to things that will bring benefit to us in the future.
For example, should we increase the capacity of the solar industry or the coal industry? Is it more important to increase the stock of 3D printers or tractors? Should we train more architects or more carpenters?
Because these questions have an impact on everyone’s lives in the future, the goal is to give all a greater influence in investment decisions.
The investment planning can be broken down into two stages:
1. The Aggregate Plan
How much do we want to invest?
The first stage of the investment planning is to agree on an aggregate plan for how the economy should allocate its total production between consumption and investment in the next five years, and determine the associated required annual social rate of return on investment.
Deliberations on investment are conducted by delegates in the industry and consumer federations who consult with those they represent, the use of opinion polls, and final referenda.
For example, a society could decide to split up its gross domestic product by 80% towards making goods for consumption today, and 20% towards investment in producing capital and research for consumption for the future.
2. The Detailed Plan
What machines, technology, research, etc do we want to produce?
The next step is to specify exactly a) what capital goods to produce during the year and b) how to initially allocate capital between workplaces, industries and consumer councils. These decisions will be made during the annual planning, when the agreed aggregated investment plan will be transformed into a detailed plan for the year’s production of capital goods, including replacement and supplementary investments, new production facilities and extensions.
Is there a stock market?
No. There is no private ownership of productive resources in a participatory economy. Capital is owned under the commons and access is distributed to workplaces during democratic planning. Therefore there are no stocks/shares to be bought or sold.
Can I use my personal savings to make investments?
No. A key difference is that in a Participatory Economy the decision over how much of the economic pie should go towards investment, i.e creating new capital, such as new machines, technology, etc, happens via a democratic process for society as a whole. Investment is not made by individuals from personal savings, as is the case today.
The decision is made via representatives of worker and consumer national federations in consultation with support units and the wishes of lower level councils. The decision precedes the annual planning
Because capital in a Participatory Economy is socially owned by everyone in society, it is not possible, either for individuals or consumer councils, to use saving to invest in different types of financial securities such as shares, bonds, options, convertibles, derivatives, and the plethora of other financial instruments that today’s financial sector offers.
Individuals may of course choose to save, if for example they plan to buy a very expensive item or want to take an extended break from work to go travelling. However, on the whole, the level of personal saving or borrowing is likely to add up to much less than in today’s capitalist societies for two reasons:
(1) Individual consumers in a participatory economy do not have to worry about saving to pay for their children’s education or their living expenses for when they are sick or retired as many in today’s capitalist societies are forced to do, and
(2) there is no or only a moderate and predictable rate of interest paid on savings and therefore savings cannot be used as a speculative or rent-seeking vehicle to accrue more income.
How do I get investment for a startup business idea I have?
If you have an idea and want to start up a new business with a group of others, you can form a new preliminary workers’ council and make an application to join your relevant industry federation.
For example if you want to open a new pizzeria, you would apply to join the restaurants federation. The application would be similar to a business plan today. The federation would decide whether to accept your application considering the industry capacity. If approved the federation would provide you with some initial capital such as a premises.
Membership of the federation grants your permission to participate in the annual planning, where, along with other workplaces, you can request access to resources.
Book: Democratic Economic Planning (Robin Hahnel, 2021)
Development planning involves looking even further into the future (5-20 years), and deciding on important structural transformations the economy should make. Any national economy is made up of different sectors, which can be be grouped into broad categories, such as heavy industry, manufacturing, food agriculture, services, tourism, etc.
Development Planning = an analysis of the country’s objectives and priorities to create a long-term plan for the development of different sectors of the economy.
Decisions need to be made such as:
- Which sectors of the economy should be expanded or contracted?
- How fast do we want to replace fossil fuels with green renewable energy?
- Do we want to replace monocropping with conservation agriculture?
- Do we want to reduce our work hours, eliminate unpleasant work and increase leisure time through the use of robotics and automation?
To give everyone in society a say in development priorities, decisions would be conducted through deliberation by delegates via federations of industry and consumers with the support of experts and researchers.
Because long-term development planning requires looking even further into the future it makes using numbers less reliable. A narrowed down list of alternative investment and development plans would be put to citizens for final referenda.
How is this different to how development planning is done today?
Development planning today is done by central governments along with some large corporations. The outcome depends on their ideology and narrow business interests. It excludes the vast majority of people in decision-making over development priorities.
In contrast, development planning in a Participatory Economy involves democratic inclusive procedures which enables popular participation through federations of workers’ and consumers’ councils.