Opening a Dialogue: What I think we should do to improve our economic system
Oct 3, 2004, 11:22a
What follows below is a letter I've been working on since July. I recently finished reading Michael Albert's Parecon: Life After Capitalism. He proposes an alternative economic system to capitalism, and though I didn't agree with many of his points, I think we share many of the same values. Interested in opening a dialogue with him and others about improving our economic system, I sent him the following letter:
October 3, 2004
Dear Michael Albert,
I recently finished reading your latest book, Parecon: Life After Capitalism. I really enjoyed reading it. I had several comments about the book and our current economic system, which I wanted to share with you. Further, I had several questions about the participatory economic system, which I was hoping you could answer.
I hope that this letter fosters a productive dialogue between us.
My Motivation and Goals
Over the past several months I've begun to realize that though capitalism is the best, scalable economic system that we have, it isn't good enough. In my mind, it's biggest flaw is that it doesn't require that people's incentives be in line with their values. Frequently, people will take actions that are contrary to their values because the incentives are high enough. For example, a mother may work 15 hours a day and never see her kid because she's trying to get promoted. She may sacrifice a good relationship with her child in exchange for greater material wealth. As another example, a typical cost-conscious consumer will purchase the cheapest item available even though the low price may be due to the fact that its producers receive no health care, a low wage, and poor working conditions.
I've been trying to conceive of a new economic system where one's incentives would be in line with one's values, and it was with this background that I excitedly began reading your book.
Fundamentally, I believe that you and I both share the same goals. We both agree that we should live in a world that supports equity, self-management, diversity, solidarity and efficiency through cooperation and healthy competition. The first several chapters that articulated these goals were fantastic.
In my mind, we need an economic system that also includes the following values:
1) Respect for all people
2) Freedom and independence for all people
3) Empowering and diverse work for all people
I think we need a system where people not only do what they enjoy, but also do what they are best at which is also best for society as a whole. Sounds like a win-win-win situation that we need to create and perpetuate. It would also be nice to have a system that maximizes the motivating potential of non-material incentives, such as trust, friendship, and esteem.
Ideally, this system would also produce a high quality of life that includes the following:
1) Universal Food, Water and Power
2) Universal Education
3) Universal Health Care
4) Universal Employment
5) Universal Insurance
6) Ethical Foreign Policy
What follows includes various comments and questions I had on parts of your book. All page numbers reference the 2004 paperback edition of Parecon published by Verso.
Human Behavior and Materialism
"... in any economy individuals rationally orient their preferences toward opportunities that will be relatively plentiful and away from those that will be relatively scarce." (54)
I don't think that this is always true. For example, it's the preference for the expensive, scarce product that gets many people up in the morning. Big houses are scarce, but nearly everyone wants one. Diamonds are scarce, and nearly everyone wants them. Striving to realize an individual's preference for a scarce product yields high levels of satisfaction for many people.
Existing generations crave material wealth so much, it seems, that I see it being nearly impossible to give up. Whether it is socialized or natural doesn't matter; the fact is that it exists, and I see a transition to a less materialistic society as being nearly impossible and possibly not even worthwhile. Parecon may still be a materialistic society, but I don't think it would flourish in that way. Also, "fun" is a highly valued behavior, and it is tied very closely with materialism, thought it needn't be.
Question: How do we allow for "fun" in a parecon?
Capitalism and Markets
I agree that "markets don't necessarily measure the value of outputs in tune with the outputs' true social benefits." (60) Your example of the value of plastic surgery vs. the value of a clinic in a poor community is an effective one. As you say, markets don't account for the negative or positive external effects of some goods, leading markets to "mis-measure contribution in systemic and socially harmful ways." (61) Not accounting for externalities is a self-enforcing positive feedback system, which leads to even greater unaccounted-for externalities as consumers purchase more of these "cheap" products.
"In sum, capitalist globalization produces poverty, ill health, shortened life spans, reduced quality of life, and ecological collapse." (4)
I think that this is an inaccurate and unfair assessment of capitalist globalization. Clearly the life span within developed countries has increased over the past several centuries under a capitalist system, as has the typical person's material wealth. I agree that our environment was abused during this time, and I think it's reasonable to expect that now that we've achieved a great deal of wealth, it is time to address the needs of the environment. To put it another way: I would never fault someone for cutting down portions of the rain forest if he needs the wood for survival, heat, or shelter. But once we've achieved an adequate standard of living and the rain forest is now being used for wants beyond the needs of human survival and health services, it is clear that the environment should be prioritized above these wants. With respect to poverty, I also disagree with your statement. The number of people living on less than $1 per day has dropped from 35% to 12%, adjusted for inflation, in the past 20 years, according to a recent Institute for International Economics report. Clearly they still live in poverty, but I think it's inaccurate to say that this poverty was produced by capitalism. Rather, capitalism has overall produced a net reduction in poverty, but clearly more should be done.
Question: Do you have evidence that, over a long period of time (>20 years), capitalism has resulted in an increase in overall poverty?
"There is no way of keeping profits up but by keeping wages down." (34)
I don't think this is true. Profits can go up in a variety of ways that don't force wages to go down. For example, profits may rise if revenues rise, or if new technology is used that increases the profit margin of each product sold.
"That is, the lack of concrete qualitative information and the obscuring of social ties and connections in market economies make cooperation difficult, while competitive pressures make cooperation irrational." (66)
I don't think this is true. Competition can also encourage cooperation between some groups, though perhaps not between all groups. For example, a company competing with a market power, such as Microsoft, is incented to partner and cooperate with other companies who are competing with the market power, even if this reduces their mutual competition. Successfully competing with your largest rival can be a greater benefit than the cost of not competing with your lesser rivals. Also, cooperation can breed dependence, which is another way to compete with a strategic competitor (e.g. this is why Google encouraged Yahoo to license Google's web search technology even though they were competitors).
I agree that markets are not just a funnel for greed but also a system that perpetuates greed.
"In each market transaction one party gains more only if the other party gains less." (67)
I don't think this is true. Win-win situations exist. For example, one party may offer technology to another party to increase their productivity, whereby both parties gain by each gaining more. If the technology company earns more, it will produce more productivity technology. And if the technology-receiving company earns more by purchasing the technology, they will continue to purchase more technology because it's in the company's best interest.
"In short, in a realistic world of unequal economic power the most effective profit maximizing strategy is often to maneuver at the expense of those with less economic power so as to re-slice the pie (even while shrinking it) rather than to work to expand the pie." (73)
I don't think this is true. Most companies want to grow, and the easiest way to grow is if the market in which the company operates grows. If the market grows, the demand grows, which means the company can just continue doing what it's doing and sell more of its products because their is a larger audience. Jockeying to take market share from competitors in the same market or different markets, thereby reducing the size of the pie, is frequently a much more difficult and daunting task. I guess it depends on the maturity of the market. If the market is young, growing the market is easier. If the market is mature, than you may be willing to destroy your competitors at the expense of shrinking the pie, assuming you get more customers overall.
"Anyway, anyone who knows anything about business in capitalism knows that upper-level workers spend much of the time they are not worrying about protocol, daydreaming, gossiping on the phone, and worrying about interoffice competitions." (195)
This is not necessarily true, and depends on the office. Where I work (Google), executives tend to work harder than anyone else.
"What determines availability in capitalism? The aims and motives of owners, a fact which significantly restricts options." (212)
Consumers also have great power over what is made available. Both influence each other - I don't think it's just a one-way street.
"Moreover, too often material reward is merely an imperfect substitute for what is truly desired: social esteem. How else can one explain why those who already have more wealth than they can ever use continue to accumulate more?" (250)
They may enjoy their work and it may earn them a lot of money, so they accumulate more of it.
Research and development are not under-supplied in a market economy, as you suggest on 251-252. I would agree with you if you said that those funds could be spent on more socially-valuable R&D, such as micro-lending research and technology for low-cost water purifiers.
"Once upon a time people chafed at the idea that slavery would be abolished and their 'freedom to own slaves' eliminated. We believe the logic of justice requires the pareconish restrictions on 'individual freedom' just as the logic of justice places restrictions on the freedom to profit from private ownership of productive property or of slaves." (256)
Effective analogy, but not sure sure it's appropriate. When one person's freedom impinges so directly on another's, such as with slavery, this is clearly immoral. However, it's not equivalent to one person's freedom indirectly impinging on another's, such as through job selection or property ownership. I think we're abusing the meaning of the word "freedom" in this case. We shouldn't confuse "freedom" with "ability" or "skill" or "talent". "Freedom" guarantees an opportunity, not a result from that opportunity.
Summary of My Thoughts on Parecon
Here are my thoughts on the principal tenets of parecon:
1) Social rather than private ownership.
I'm not sure this is better, since it removes the greatest incentive that people have to work, the materialism of private ownership.
2) Nested worker and consumer councils and balanced job complexes rather than corporate workplace organization.
I think councils are inefficient. Balanced job complexes do seem worthwhile.
3) Remuneration for effort and sacrifice rather than for property, power and output.
I think you should remunerate for output, effort, and need (more about that below). I think you should also limit the financial benefit gained by owning the means of production if possible, though I don't think this is a requirement.
4) Participatory planning rather than markets or central planning.
I think participatory planning will be very inefficient, because it encourages bureaucracy.
5) Participatory self-management rather than class rule.
Decision-making power dependent on impact of the decision on you seems worthwhile.
Parecon: General Issues
"If we examine not the rarified world of perfect models, but the real world of actual social processes, the case becomes stronger because the fall-off in achievement in parecon as we move from theory to the real world is quite modest, but the fall-off in performance of the other models is huge and destructive." (146-147)
Questions: How do you know? How are you comparing the difference between theory and practice to achieve the theory? How do you know that parecon is better? Have you tried it on the scale that other social economic models have been tried?
"A parecon would not have the type of 'boom and bust' cycles that plague market economies." (206)
Question: Why not?
"Although additional participation by citizens requires that more of their time go to managing collective consumption than under capitalism, it is less time than they previously spent compensating for the ills induced by profit-motivated decisions." (211)
Question: How do you know?
It seems to me that they would take equivalent time, though most people would find profit-seeking more rewarding.
"In a parecon you do not rise in the eyes of your neighbors or peers due to owning more, but for your personal qualities and achievements." (250)
Questions: How are you going to change what is perceived to be human nature, that is, respect for material wealth?
Questions: How is the actual implementation of parecon going? Are there other locations outside of South End Press where people are experimenting with implementing parecon?
Question: How would war be financed in a parecon?
Questions: What about the free-rider problem? If no one had to work in order to survive, wouldn't the free-rider problem incur costs so high that it could place the entire system in jeopardy?
Parecon: Remuneration
"To reward and punish people for things they cannot control violates the same basic tenet of social justice that says it is unfair to pay differently according to race or sex." (37)
I think that this is also untrue. People will be rewarded or punished for various things in their lives, some of which is genetically determined, socially determined, or determined by free will. Discrimination is wrong only when it is irrational. Discrimination based on skill level is completely moral and just: if one individual can do the job better than the other, there is no good or moral reason why the more competent person shouldn't be offered the job. Sexism and racism are defined to be wrong only when people are punished primarily because of their race or sex, not their ability. Arguing that a person should be rewarded even if they are not the best performer because the best performer has an innate advantage is unfair, in my opinion. If we care about performance, the best performer should be rewarded to encourage future performers.
Of course, certain groups of people have certain skill sets due to their access to education, so I firmly believe that access to education should not be limited if you have a lower skill set. Affirmative action helps level the field and enforce greater social justice, and I support it.
The argument of "control" is a tenuous one. The nature vs. nurture debate is far from resolved, so it is unclear to say what exactly a specific person controls about their behavior.
Questions: Does a genetic disposition to work hard mean that they should receive less, because they have an inborn talent to work hard? How are we to even know this? Is a decision to go to medical school, induced by parental and social pressure, under an individual's control?
The line is blurry, so I believe that in practical terms it is difficult to implement this dubious morality, and it may even be immoral.
"To use the terminology of economists: in a market system with effort-governed wages, goods made directly or indirectly by labor whose effort wages were higher than their marginal revenue product would sell at prices higher than their real costs, while goods made directly or indirectly by labor whose effort wages were lower than their marginal revenue product would sell at prices lower than their real costs." (63)
I don't understand why MRP is relevant here, or what your definition of "real costs" is. If prices are primarily dependent on wages and not on demand (value of output), it makes sense that prices will rise if wages rise, and fall if wages fall.
Question: Why would misallocation and misvaluing of goods increase compared with today if we enforce wages according to effort/sacrifice?
"If payment is equal for equal effort, there is no incentive for people to train themselves to be most socially valuable." (233)
I completely agree, though I don't think parecon addresses this.
"If the allocation of duties, responsibilities, sacrifices, and rewards are fair, and is seen to be fair, as in a parecon, one's sense of social duty will be a more powerful incentive than it is today." (234)
Question: Why?
Today I see individuals give back to their society or university mostly when it is blatantly clear that they benefitted hugely from that experience and their wealth today is in some part owed to the people who helped them in the past. An example of this is when a wealthy alumnus donates a library to his alma mater. Not sure how a parecon induces this feeling of debt.
In a parecon, individuals are incented primarily to work longer, not to work smarter, which can lead to overall inefficiency in work over time, as innovations are repeatedly passed up.
Overall, you advocate remuneration based on effort, sacrifice, and need, rather than one based on output or inborn talent or skills. Therefore, remuneration would mostly be a function of hours spent working and intensity per hour work. However, what if work duration and intensity are not always consciously controlled? Rather, it could be the result of inborn talents or social circumstances such as available resources, education, childhood environment, and socialization. I would argue that work duration and intensity are less consciously controllable than you think. This contradicts your belief that remuneration should not be based on innate talent or uncontrollable circumstances. Instead of remuneration based solely on effort, I believe that we should have a system where remuneration is based on output in addition to effort and need. There are too many situations where you could spent a lot of effort trying to produce something that few want, which leads to lower social benefit than producing something that many want. Seems like remuneration should be based on the social benefit of your work as well as effort and need, which helps create a compassionate society.
Questions: If your sum marginal revenue product is higher than everyone else's, which means that you contributed more than anyone else, don't you deserve more? Isn't that fair?
Remuneration should partially be based on impact of work, which can be approximated by looking at the marginal revenue product.
Parecon: Balanced Job Complexes
A balanced job complex sounds great, though I'm not sure it should be a requirement for everyone who works. If someone excels at a specific task (such as a physicist) and the overall social benefit would be lower if they didn't spend all their time on it, I don't think they should be forced to have a balanced job complex. The overall social good or value that would be generated would likely be decreased, though it's hard to know for sure.
Having a balanced job complex removes a significant incentive: people work harder knowing that it will pay off with a better job in the future.
Question: Won't the removal of this incentive result in a drop in productivity?
Maybe not, because it would increase initial productivity because workers will be more happy and satisfied with their work. This effect is probably more significant, so balanced job complexes should increase productivity overall.
Another significant assumption that you make is that everyone prefers creative tasks over rote tasks. I don't think this is necessarily true, as some may excel at rote tasks or prefer them because they are easy, or for some other reason.
"So the workweek would go from about 40 hours to 13, in that scenario, over 40 years, with no loss of fulfillment or in output earmarked to engender socially beneficial progress." (243)
Questions: How can you be so sure that socially beneficial output would have remained unchanged? Also, what are the social consequences of a 13-hour work week? What would people do with all of their time? Will they just consume more?
Often people who don't know what to do with their time exhibit greater levels of depression because they lack meaningful activities in their lives.
I think that individuals should be able to choose how much they work as their productivity increases. Also, the benefit of competition is more on focusing effort than on increasing effort, though it tends to do both.
Question: How do you think we should balance the costs and benefits of working more or working less as our per hour productivity increases?
Parecon: Councils and Planning
I think that the market as a mechanism for allocation is the best system we have so far, and using councils instead would dramatically increase inefficiency such that overall social benefit would be reduced.
"To enjoy output responsibly, in contrast, consumers ought to consider what they would like to have from the social product, either as individuals or in collective association with their family, neighbors, or others." (91)
Question: Do you really think that consumers would participate in such considerations, seeing how we do nearly none of it today (e.g. low voter turnout)?
Question: How do you arrive at the decision-making process?
Given a group of passionate individuals, deciding on how to decide is often the most difficult and contentious step, so I don't think you should assume that there will be agreement on the mechanisms of the decision-making process.
"Participatory workers must weigh the gains from working less or using less productive though more fulfilling techniques, against the consequent loss of consumer well being. Likewise, participatory consumers must weight the benefits of consumption requests against the sacrifices required to produce them." (123)
Question: How do you get people to plan?
Thinking ahead and planning is a task that takes a good deal of effort.
Much of the participatory planning process assumes a) that individuals know what they want, and b) that individuals want to plan (128). Consumers don't always know what they want. For example, it's difficult for someone to predict that they want a car or cell phone or computer before it's been developed and made available at a reasonable price or before their friends have one. Further, planning requires great effort and forethought, which most people don't do. You can look at our consumer credit debt (~$2000 per household on average) as evidence of our general reluctance to plan.
Participatory planning also doesn't account for fads and trends, requiring consumption of such items for much longer or much shorter periods than before. If the fad is popular during the budgeting process, society may over-allocate resources to its production. If the fad is popular 6 months after the budgeting process, it may never see the light of day.
"To these ends, in participatory planning, when the residents of a smaller council propose some desired collective consumption (a pool or a changed energy delivery mechanism), the proposal has to not only gain support in their own council, but must also be delivered to more encompassing councils above. So a proposal may go from a neighborhood up to a town and then to a city, a county, and so on, and likewise it may go from a state to a region and on to a country." (140)
To me this sounds like the tyranny of the masses, the inefficient bureaucracy. This doesn't sound empowering at all, but very unempowering. My neighbors and I have to consult with basically the whole world (exaggerating of course) if we want to build a pool? Not only is this unempowering, it sounds incredibly inefficient.
Questions: How exactly are indicative prices calculated and revised? What happens if you don't fulfill your production promises? I assume you lose consumption privileges? How are people incented to weigh the social costs of their consumptive actions?
"There are no competing companies producing products, only 'product industries' creating diverse styles and qualities of goods for different purposes, all with the intention that everyone get what best meets their needs." (217)
Without competition, I don't think that the best products will be produced.
"It is hard to see any way facilitation board workers (whom we call facilitators for short) could gain by maliciously biasing data even if they went about their work without supervision." (222)
Why? Maybe they want to increase the quality of their job complexes? If we are committed to implementing a parecon, we need to closely examine the new incentives that will lead individuals to do unexpected things in a parecon. Another example: those who decide job rotations or balancing are incented to give their family and friends better rotations or balances.
"Decision-making authority can be assigned in proportion to how decisions affect people." (230)
This may lead to the rise of special-interests, which are a small group of individuals who gain much more per person than the rest of society loses per person, and thus are incented the most to see that decisions go in their favor.
Another goal should be to reduce the overall time spent running the economy (I think we agree here). However, in a parecon, more time would be spent in meetings simply because you would have to meet with more people, since more people would be involved in more decisions. Enforcement of democratic decisions is not necessarily less time-consuming than enforcing autocratic decision. It depends on the individuals involved.
Parecon advocates conducting economic affairs, such as allocation, consumption, and production, primarily with economic councils. However, this seems like a recipe for inefficiency and reduced productivity. It took the California government several months to agree on a budget this year, and that was a negotiation between a small number of people. If everyone was involved, the length of the negotiations would be much longer and likely take more than a year.
Strategy for Improving Our Economic System and Society
Rather than revising our economic system and starting with something radically different, I think that we need to use our current system to achieve our goals. I think this is an achievable approach for improving the world.
Private property is a powerful incentive, and envisioning a society where it will no longer exist will just generate opposition to the more laudable goals of this project.
Removing inheritance of wealth does not guarantee equal opportunity for the younger generation. They still benefit from their parent's wealth, and the opportunities of better education, opportunity, and contacts that continue even if the actual wealth is removed. This issue would quickly polarize people against parecon because it feels unfair and unjust, so I think it should be dropped. I also don't think it would accomplish much by way of increasing equal opportunity.
Transition to Parecon
Questions: Why would individuals choose to give up a materialistic lifestyle for the lifestyle that parecon provides? How do you propose funding a parecon if the wealthiest have little incentive to join? How do you remove ownership of the means of production? How do you make public the existing private educational institutions? Why hasn't this been implemented yet? What is standing in our way?
Return to Capitalism
It seems like savings and intelligent investment would return the world to uneven wealth distribution and a capitalist economy. The argument against the emergence of black markets is that society just wouldn't allow it, but this seems unrealistic. And even if there is no money, their will be some other form of exchange. As long as there are more desperate individuals out there, monopoly power on labor will also not be possible.
Questions: How does parecon prevent people from maximizing profits, surplus or revenues? What happens if people save in a parecon, and then use those built-up savings to return to a capitalist system? How does a parecon prevent that, if at all? Won't some individuals also pursue black markets in areas where parecon does not provide what individuals want? Also, won't money make a comeback since it's the most convenient and efficient medium of exchange? How are you going to prevent scabs from breaking a strike?
What We Should Do
I think we need to make incremental improvements to our current capitalistic system. These should include focusing our time, energy, and money on the following areas:
1) Incentives: We need an economic system that incents shared self-interest, maximizing the win-win situations that can exist in the world. People's incentives should be in line with their values.
2) Consumption: We need to include externalities in the price of goods and provide more information to consumers so they can make more informed consumption decisions. (See the description of Super Facts below)
3) Production: We need to require a living wage, health care, insurance, educational services, and safe and respectful working conditions to employees that produce goods.
4) Allocation: Since we haven't thought of anything better, we should use the market.
5) Values and Needs: We need an economy that furthers people's values and meets people's needs.
6) Decisions: Individuals should have decision-making input proportional to the impact of that decision on that person.
7) Supporting Institutions: We need institutions that support the goals described above.
Super Facts
Super Facts is a way to inform consumers about information beyond prices when they are about to purchase products. Super Facts is essentially an extension of the Nutrition Facts found on food items, but relevant to social conditions and applied to all products, not just food.
Every product sold would include a Super Facts label, which would list the following:
- A grade for the human impact that creating the product had, which would be lower if the company used sweatshops, child labor, or other poor practices.
- A grade for the environmental impact of the product, which would be lower if the company harmed the environment in the production, distribution, or disposal of the product.
- Whether the product included animal products or not, for the vegetarians out there.
- The political and philosophical stance of the company that created the product (e.g. progressive, moderate, conservative, pro-life, pro-choice, etc.).
- The actual parent company of the product, so that companies with poor reputations couldn't hide behind sub-brands.
- A URL where the consumer could find more detailed information about the product.
Just as restaurants get graded by the health department, products would get graded by the Super Facts Organization. These grades would be automatically generated based on information on the Internet and manually created based on other information. Of course, many companies may not be willing to include a Super Facts label on their products, but as the program gets more popular, the conspicuous absence of a label will effectively represent an admission of guilt.
Continuing the Dialogue
In addition to email, I've also snail-mailed a copy of this letter to you and published a copy of this letter on my blog (www.livejournal.com/~nbhatla).
I'm looking forward to hearing back from you soon and kicking off this dialogue.
Warmest Regards,
Nikhil Bhatla
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