Editor’s Note: discussion topics include monopoly & oligopoly, how to regulate monopoly in capitalism, how to regulate monopoly in parecon, how to organise strategic & essential sectors (like health) in parecon.
Robin Hahnel is a professor of economics in the United States, and author of many books, but today I’m interviewing him as co-originator with Michael Albert of the post-capitalist model known as Participatory Economics (or Parecon).
Today’s conversation is in association with meta: the Centre for Post-capitalist Civilization. This is the third in a series of interviews with Professor Hahnel about participatory economics, and in particular his latest book Democratic Economic Planning published in 2021. If you haven’t watched the first two interviews check them out here.
It’s an advanced discussion of the model proposed in that book so I recommend that you familiarize yourself with participatory economics to understand what we’re talking about. You can do that by visiting participatoryeconomy.org. You can also read Of the People, By the People (2012) for a concise introduction to parecon. And Professor Hahnel has a new book coming out in a few months called A Participatory Economy (2022).
Robin Hahnel, thank you for joining me again.
[Robin Hahnel] Great to be with you again.
[ATO] The next question is a bit different, it’s about monopoly and strategic sectors. For example, what about natural monopolies in parecon? These would be things like electricity, [methane] gas, water, sewage, transport, communications, health, mining, etc. These are sectors of the economy, these are production processes, where … electricity production and distribution is a classic example; it doesn’t make sense for there to be three companies with three different electrical grids, for example. And which are also of strategic, vital, importance. That society be provided with a reliable supply of electricity, where there aren’t blackouts, where it has an appropriate cost, and so forth. So, there are sectors like this which are natural monopolies, and either you end up with a situation – where you have a market system – private monopolies, or a situation where the solution is for the state to take control of these and nationalize them.
So, is there any opportunity in parecon to charge monopoly rents? And what if natural monopoly worker councils don’t treat indicative prices parametrically? Let’s deal with the first question then come back to the second. And if you could just explain what a monopoly rent is to people.
[RH] We have an answer. Every economist knows that only if you have competitive market structures could you make any case that you’re going to get efficient outcomes. As soon as you have a market structure that’s not competitive in a capitalist economy, what will happen is in the most extreme cases a monopoly, and a natural monopoly is sort of the most likely real world example to end up with, one company is the only company that’s producing this product.
As soon as you have that, there is a perverse incentive for that company to produce less than the socially optimal outcome, and therefore to drive its price up. So, two things happen. It reduces the amount that it supplies. That also means it reduces the number of units it’s going to sell, so that’s a negative effect on revenues. On the other hand, every unit it does sell is going to sell at a higher price, and that’s a positive effect on revenues. And the problem is the positive effect is larger than the negative effect leading to a predictable sub-optimal level of output.
Now there are two solutions to this in a capitalist economy. One is to nationalize the natural monopoly and not have it maximize profits but to maximize net social benefits, that is produce the amount that actually is the efficient amount. And the other solution is to regulate the monopoly and say well there’s only one of you but we’re going to set up a regulatory agency. And the regulatory agency’s job … Most people think the regulatory agency’s job is to keep them from price gouging but what economists understand is, no, the regulatory agency’s job is not really to keep them from price gouging, it’s to force them to produce more than they would otherwise be willing to produce if they weren’t regulated. And then the price will take care of itself.
That’s how it works, and one of the problems that defenders of modern market capitalist economies are faced with is in theory they know their economy is only efficient if all industries are competitive. But in reality, what has happened over time is the number of non-competitive industries, and it’s usually not a monopoly, a natural monopoly, it’s an oligopoly. But the same logic applies to oligopolies and economists all know this. So, on the one hand in the real world markets become less and less competitive, and yet defenders of market capitalist economies continue to insist that these are the most efficient economies.
We have a solution in a participatory economy. And the solution takes a very simple form, which is any worker council in our economy is supposed to take the indicative prices as givens.
[ATO] Can you just explain to people briefly what the indicative price is?
[RH] Right, so for instance if you have a natural monopoly let’s choose electricity. During the planning procedure that natural monopoly is quoted a price per watt of electricity and then responds with its output proposals.
[Editor’s Note: During annual planning, worker councils and consumer councils make production and consumption proposals for the year. These proposals are aggregated by the Iteration Facilitation Board (IFB) which feeds back new ‘indicative prices’ to producers and consumers according to a rule chosen to encourage the balancing of supply and demand. This continues for a number of rounds (iterations) until a feasible plan is reached.]
Now, the thing that a monopoly does that’s inefficient is it doesn’t look at market price and take it as a given. Instead, what it does is it asks well wait a minute I’m looking at the entire demand curve. I’m not going to take the price I’m quoted as a given because I can see that if I reduced my supply I could drive that price higher. So, in effect what monopolies are doing is they are not taking prices as givens. They are recognizing that their monopoly status permits them to affect what the price is going to end up being.
These are worker councils in a participatory economy, and there just happens to be one that’s producing electricity in a given region. They don’t have stockholders that are telling them to maximize profits, instead they are certainly supposed to be obeying the rules of the system and one of the rules is when you make your proposals you respond to indicative prices as the given price. You do not calculate ‘but I could affect that price by my response in this round’. Aha, what would prevent one from doing it?