Participatory economics, often abbreviated parecon, is an

economic system An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within an economy. It includes the combination of the various institutions, agencies, entities, decision-making proces ...

based on participatory decision making as the primary economic mechanism for allocation in society. In the system, the say in decision-making is proportional to the impact on a person or group of people. Participatory economics is a form of a

socialist Socialism is an economic ideology, economic and political philosophy encompassing diverse Economic system, economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. It describes ...

decentralized planned economy involving the

collective ownership Collective ownership is the ownership of private property by all members of a group. The breadth or narrowness of the group can range from a whole society to a set of coworkers in a particular enterprise (such as one collective farm). In the la ...

of the

means of production In political philosophy, the means of production refers to the generally necessary assets and resources that enable a society to engage in production. While the exact resources encompassed in the term may vary, it is widely agreed to include the ...

. It is a proposed alternative to contemporary

capitalism Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

and

centralized planning A planned economy is a type of economic system where Investment (macroeconomics), investment, Production (economics), production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A pla ...

. This

economic model An economic model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed ...

is primarily associated with political theorist Michael Albert and

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

Robin Hahnel, who describes participatory economics as an

anarchist Anarchism is a political philosophy and Political movement, movement that seeks to abolish all institutions that perpetuate authority, coercion, or Social hierarchy, hierarchy, primarily targeting the state (polity), state and capitalism. A ...

economic vision. The underlying values that parecon seeks to implement are: equity,

solidarity Solidarity or solidarism is an awareness of shared interests, objectives, standards, and sympathies creating a psychological sense of unity of groups or classes. True solidarity means moving beyond individual identities and single issue politics ...

, diversity,

workers' self-management Workers' self-management, also referred to as labor management and organizational self-management, is a form of organizational management based on self-directed work processes on the part of an organization's workforce. Self-managed economy, ...

efficiency Efficiency is the often measurable ability to avoid making mistakes or wasting materials, energy, efforts, money, and time while performing a task. In a more general sense, it is the ability to do things well, successfully, and without waste. ...

(defined as accomplishing goals without wasting valued

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

s), and

sustainability Sustainability is a social goal for people to co-exist on Earth over a long period of time. Definitions of this term are disputed and have varied with literature, context, and time. Sustainability usually has three dimensions (or pillars): env ...

. The institutions of parecon include workers' and consumers' councils utilising self-managerial methods for decision-making, balanced job complexes,

remuneration Remuneration is the pay or other financial compensation provided in exchange for an employee's ''services performed'' (not to be confused with giving (away), or donating, or the act of providing to). Remuneration is one component of reward managem ...

based on individual effort, and wide decentralized planning. In parecon, self-management constitutes a replacement for the mainstream conception of economic freedom, which Albert and Hahnel argue by its very vagueness has allowed it to be abused by

capitalist Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

ideologues. Albert and Hahnel claim that participatory economics has been practiced to varying degrees during the

Russian Revolution The Russian Revolution was a period of Political revolution (Trotskyism), political and social revolution, social change in Russian Empire, Russia, starting in 1917. This period saw Russia Dissolution of the Russian Empire, abolish its mona ...

of 1917,

Spanish Revolution of 1936 The Spanish Revolution was a social revolution that began at the outbreak of the Spanish Civil War in 1936, following the Spanish coup of July 1936, attempted coup to overthrow the Second Spanish Republic and arming of the worker movements an ...

, and occasionally in

South America South America is a continent entirely in the Western Hemisphere and mostly in the Southern Hemisphere, with a considerably smaller portion in the Northern Hemisphere. It can also be described as the southern Subregion#Americas, subregion o ...

Work and distribution

Balanced job complexes

A balanced job complex is a collection of tasks within a given workplace that is balanced for its equity and empowerment implications against all other job complexes in that workplace.

Compensation for effort and sacrifice (principle for distribution)

Albert and Hahnel argue that it is inequitable and ineffective to compensate people on the basis of luck (e.g. skills or talents that owe to their birth or heredity), or by virtue of workers' productivity (as measured by the ''value'' of the goods they produce). Therefore, the primary principle of participatory economics is to reward workers for their effort and sacrifice.Albert, Michael Parecon: Life After Capitalism Part II, Chapter 7: Remuneration pp. 112–17. Additionally, participatory economics would provide exemptions from the compensation for effort principle. The starting point for the income of all workers in a participatory economy is an equal share of the social product. From this point, incomes for personal

expenditure An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition i ...

s and consumption rights for

public goods In economics, a public good (also referred to as a social good or collective good)Oakland, W. H. (1987). Theory of public goods. In Handbook of public economics (Vol. 2, pp. 485–535). Elsevier. is a goods, commodity, product or service that ...

can be expected to diverge by small degrees, reflecting the choices that individuals make in between work and

leisure Leisure (, ) has often been defined as a quality of experience or as free time. Free time is time spent away from business, Employment, work, job hunting, Housekeeping, domestic chores, and education, as well as necessary activities such as ...

time, and the level of danger and difficulty of a job as judged by their immediate workplace peers.

Allocation of resource

Albert and Hahnel argue that decentralized planning can achieve Pareto optimum, and does so under less restrictive assumptions than free market models (see: the first fundamental theorem of welfare economics). Their model incorporates both public goods and externalities, whereas markets do not achieve Pareto optimality when including these conditions.

Facilitation boards

In a proposed participatory economy, key information relevant to converging on an economic plan would be made available by Iteration Facilitation Boards (IFBs), which, based on proposals from worker/consumer councils and economic data, present indicative prices and economic projections at each round of the planning process. The IFB has no decision-making authority. In theory, the IFB's activity can consist mainly of computers performing the (agreed upon)

algorithms In mathematics and computer science, an algorithm () is a finite sequence of mathematically rigorous instructions, typically used to solve a class of specific problems or to perform a computation. Algorithms are used as specifications for per ...

for adjusting prices and forecasts, with little human involvement.

Motivations (opposition to central planning and capitalism)

Robin Hahnel has argued that "participatory planning is not central planning", stating "The procedures are completely different and the

incentive In general, incentives are anything that persuade a person or organization to alter their behavior to produce the desired outcome. The laws of economists and of behavior state that higher incentives amount to greater levels of effort and therefo ...

s are completely different. And one of the important ways in which it is different from central planning is that it is incentive compatible, that is, actors have an incentive to report truthfully rather than an incentive to misrepresent their capabilities or preferences." Unlike historical examples of central planning, the parecon proposal advocates the use and adjustment of price information reflecting marginal social opportunity costs and benefits as integral elements of the planning process. Hahnel has argued emphatically against

Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and ...

a priori ('from the earlier') and ('from the later') are Latin phrases used in philosophy to distinguish types of knowledge, Justification (epistemology), justification, or argument by their reliance on experience. knowledge is independent from any ...

tendency to deny the possibility of alternatives:

Friedman assumes away the best solution for coordinating economic activities. He simply asserts "there are only two ways of coordinating the economic activities of millions—central direction involving the use of coercion—and voluntary cooperation, the technique of the marketplace." ..a participatory economy can permit all to partake in economic decision making in proportion to the degree they are affected by outcomes. Since a participatory system uses a system of participatory planning instead of markets to coordinate economic activities, Friedman would have us believe that participatory planning must fall into the category of "central direction involving the use of coercion."

Albert and Hahnel have voiced detailed critiques of centrally-planned economies in theory and practice, but are also highly-critical of

. Hahnel claims "the truth is capitalism aggravates prejudice, is the most inequitable economy ever devised, is grossly inefficient—even if highly energetic—and is incompatible with both economic and political democracy. In the present era of free-market triumphalism it is useful to organize a sober evaluation of capitalism responding to Friedman's claims one by one."

Critique of markets

Mainstream economists largely acknowledge the problem of externalities but believe they can be addressed either through Coasian bargaining or the use of Pigovian taxes—corrective taxes on goods that produce negative externalities. While Hahnel (and Albert) favour the use of Pigovian taxes as solutions to environmental problems within market economies (over alternatives such as the issuance of marketable permits), he is critical about the regressive incidence of such taxes. Firms in a market economy will seek to shift the costs of taxation onto their consumers. While this might be considered a positive development in terms of incentives—since it penalizes consumers for "dirty" consumption—it fails to achieve the

polluter pays principle In environmental law, the polluter pays principle is enacted to make the Party (law), party responsible for producing pollution responsible for paying for the damage done to the natural environment. This principle has also been used to put the cos ...

and would instead aggravate "economic injustice." Hahnel, therefore, recommends that pollution taxes be linked to cuts in regressive taxes such as social security taxes. Hahnel is also critical of the mainstream assumption that externalities are anomalous and, on the whole, insignificant to market efficiency; he asserts instead that externalities are prevalent—the rule rather than the exception—and substantial. Ultimately, Hahnel argues that Pigovian taxes, along with associated corrective measures advanced by market economists, fall far short of adequately or fairly addressing externalities. He argues such methods are incapable of attaining accurate assessments of social costs:

Markets corrected by pollution taxes only lead to the efficient amount of pollution and satisfy the polluter pays principle if the taxes are set equal to the magnitude of the damage victims suffer. But because markets are not incentive compatible for polluters and pollution victims, markets provide no reliable way to estimate the magnitudes of efficient taxes for pollutants. Ambiguity over who has the property right, polluters or pollution victims, free rider problems among multiple victims, and the transaction costs of forming and maintaining an effective coalition of pollution victims, each of whom is affected to a small but unequal degree, all combine to render market systems incapable of eliciting accurate information from pollution victims about the damages they suffer, or acting upon that information even if it were known.

Class and hierarchy

Although parecon falls under

left-wing Left-wing politics describes the range of Ideology#Political ideologies, political ideologies that support and seek to achieve social equality and egalitarianism, often in opposition to social hierarchy either as a whole or of certain social ...

political tradition, it is designed to avoid the creation of powerful intellectual elites or the rule of a

bureaucracy Bureaucracy ( ) is a system of organization where laws or regulatory authority are implemented by civil servants or non-elected officials (most of the time). Historically, a bureaucracy was a government administration managed by departments ...

, which is perceived as the major problem of the economies of the

communist state A communist state, also known as a Marxist–Leninist state, is a one-party state in which the totality of the power belongs to a party adhering to some form of Marxism–Leninism, a branch of the communist ideology. Marxism–Leninism was ...

s of the 20th century. In their book ''Looking Forward'' Albert and Hanhel termed this situation 'coordinatorism'. Parecon advocates recognize that monopolization of empowering labor, in addition to private ownership, can be a source of class division. Thus, a three-class view of the economy (capitalists, coordinators, and workers) is stressed, in contrast to the traditional two-class view of

Marxism Marxism is a political philosophy and method of socioeconomic analysis. It uses a dialectical and materialist interpretation of historical development, better known as historical materialism, to analyse class relations, social conflict, ...

. The coordinator class, emphasized in parecon, refers to those who have a monopoly on empowering skills and knowledge, and corresponds to the doctors, lawyers, managers, engineers, and other professionals in present economies. Parecon advocates argue that, historically,

ignored the ability of coordinators to become a new ruling class in a post-capitalist society.

Innovation

Hahnel has also written a detailed discussion of parecon's desirability compared to capitalism with respect to incentives to innovate. In capitalism,

patent law A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A ...

intellectual property rights Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...

and barriers to market entry are institutional features that reward individual innovators while limiting the use of new technologies. Hahnel notes that, in contrast, "in a participatory economy all innovations will immediately be made available to all enterprises, so there will never be any loss of static efficiency.".

Criticism

The market socialist David Schweickart suggests participatory economics would be undesirable even if it was possible:

It is a system obsessed with comparison (Is your job complex more empowering than mine?), with monitoring (You are not working at average intensity, mate—get with the program), with the details of consumption (How many rolls of toilet paper will I need next year? Why are some of my neighbors still using the kind not made of recycled paper?)

Other criticism raised by Schweickart include: * Difficulty with creating balanced job complexes and ensuring they do not suffer from inefficiency. * A system based on peer evaluation may not work as workers could slack off and there would be little incentive for colleagues to damage their relationships by giving them bad reviews. Alternatively it may cause workers to become suspicious of one another, undermining

. * A compensation system based on effort would be difficult to measure and would need to be based on an average rating system of effort. * Parecon's compensation system would be overly

egalitarian Egalitarianism (; also equalitarianism) is a school of thought within political philosophy that builds on the concept of social equality, prioritizing it for all people. Egalitarian doctrines are generally characterized by the idea that all h ...

and likely cause

resentment Resentment (also called ranklement or bitterness) is a complex, multilayered emotion that has been described as a mixture of disappointment, disgust and anger. Other psychologists consider it a Mood (psychology), mood or as a secondary emotion ( ...

among workers who work harder while also discouraging them from putting in extra effort since they will gain no greater compensation. * Parecon would likely produce an onerous and tiresome requirement to list off all things people want produced, which would likely suffer from uncertainty given people do not always know what they desire, as well as issues with how much information they should be required to supply and complexities with the negotiations required between worker and consumer councils. Theodore Burczak argues that it would be difficult for others to measure sacrifice in another's labor, which is largely unobservable.

Planning

Participatory economics would create a large amount of administrative work for individual workers, who would have to plan their consumption in advance, and a new bureaucratic class. Proponents of parecon argue that capitalist economies are hardly free of bureaucracy or meetings, and a parecon would eliminate banks, advertising, stock market, tax returns and long-term financial planning. Albert and Hahnel claim that it is probable that a similar number of workers will be involved in a parecon bureaucracy as in a capitalist

, with much of the voting achieved by computer rather than meeting, and those who are not interested in the collective consumption proposals not required to attend. Critics suggest that proposals require consideration of an unfeasibly large set of policy choices, and that lessons from planned societies show that peoples' daily needs cannot be established well in advance simply by asking people what they want. Albert and Hahnel note that markets themselves hardly adjust prices instantaneously,Michael Albert, "Parecon: Life After Capitalism", p. 282. and suggest that in a participatory economy facilitation boards could modify prices on a regular basis. According to Hahnel these act according to democratically decided guidelines, can be composed of members from other regions and are impossible to bribe due to parecon's non-transferable currency.Michael Albert and Robin Hahnel, "Looking Forward" pp. 92–93. However,

Takis Fotopoulos Takis Fotopoulos (; born 14 October 1940) is a Greek people, Greek political philosophy, political philosopher, economist and writer who founded the Inclusive Democracy movement, aiming at a Thesis, antithesis, synthesis, synthesis of classical d ...

argues that "no kind of economic organisation based on planning alone, however democratic and decentralized it is, can secure real self-management and freedom of choice."Takis Fotopoulos (2003), "Inclusive Democracy and Participatory Economics", ''Democracy & Nature'', Volume 9, Issue 3 November 2003, pp. 401–25.