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Interviews Post-Capitalist Vision

Robin Hahnel Interview on Participatory Economics – Part 5 – Optimal Plan, Enterprise Incentives, Worker Control, Consumer Satisfaction

Editor’s Note: Discussion includes optimal and efficient production plans in Parecon, accounting of benefits and costs, enterprise incentives, worker control, and satisfying consumers.

[After The Oligarchy] Hello fellow democrats, futurists, and problem solvers, this is After The Oligarchy. Today I’m speaking with Professor Robin Hahnel.

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] Last time we were talking about production units and we’re going to continue talking about production units, as in worker councils, as in enterprises. And the first question is a follow-up to part of our discussion last time, and we were talking about social costs and social benefits, and the incentives of worker councils in parecon.

So let me frame the matter by presenting my understanding of our last interview. This is going to be a bit technical for viewers but we will break it down and it will be understandable. So I asked you, essentially, ‘wouldn’t we want worker councils to strive for a social benefit much greater than a social cost rather than merely the social cost equalling the social benefit – or having a social benefit to cost ratio of one? Because that means producing the greatest net social benefit. And, if so, what will make worker councils do that?’

‘Social Benefit’ is Revenue. ‘Social Cost’ is Cost.
Net Social Benefit: Revenue – Cost.
‘Social responsibility’ constraint is breaking even. Revenue ≥ Cost.

And you replied, basically, ‘no, we want worker councils to produce up until the marginal social benefit is equal to the marginal social cost. Because if the social benefit is greater than the social cost then there is still some net social benefit to squeeze out by producing another unit (like producing another chair). And this terminates when the marginal social benefit is equal to the marginal social cost, which is when the social benefit the social cost ratio equals one (SB/SC = 1).’

That’s a mouthful. So, this is my understanding of what was said at the time. Please correct me if I misinterpreted what you said during that interview because it seems to me that maybe there was a miscommunication. Because it seems to me that if you keep producing chairs up until the marginal social benefit of that chair is equal to the marginal social cost, that’s the point at which social benefits minus social costs is the greatest. But that’s not going to be the same as the social benefits divided by the social cost equal to one, that there is parity between social costs and social benefits. So could you just clarify or respond to that please?

‘Marginal’ refers to the last chair produced, the last tomato, the last dental filling.
Total Net Benefits are maximised when Marginal Benefit equals Marginal Cost.
The quantity output when Total Benefit = Total Cost is different to when Marginal Benefit = Marginal Cost.

[RH] First of all, I want to thank you for asking the question and probing on this. Because it is a little complicated and it forced me to go back and rethink through. So let me just see if I can lay it out there on in a straightforward way. What I’m going to lay out there is standard and then I’m going to explain why the way we model something is different from standard. And that’s I believe where the sort of miscommunication comes in.

So you’re absolutely right that the general efficiency criterion is you want total social benefits minus total social costs to be as large as possible. You want to maximize, as you’re saying, the difference between total social benefits and total social costs. I mean this principle is we call it the ‘efficiency criterion’ and applies to anything. Anything you’re doing, you want to do it so as to maximize the benefits to any and all people over all time periods minus the cost to any and all people of overall time periods.

Now, mathematically what that is equivalent to is you want to keep doing something up to the point where the last little unit of whatever you did generated exactly the same amount of social benefits as it did increase social costs. So saying you want to maximize the difference between total social benefits and total social costs is the same as saying you want to keep doing something up to the point where the marginal social benefit of the last little bit of it you did is exactly as big as the marginal social cost of the last little bit you did. That’s just mathematics.

Here’s where things get a little complicated. When we’re talking about social benefits, then the context in which I’m always talking about it is I’m thinking of a particular worker council or a particular consumer council. Then you have to ask well the social benefits in the mathematical pure sense includes everybody, which means it includes the council that we’re considering. So social benefits are usually thought of as being social benefits for others, for everybody else other than the worker council; and social costs are usually thought of as being only the social cost to those who aren’t in the council.

I mean one thing that’s always a little bit delicate or complicating is these social costs that we’re thinking of cost a society something that a worker council does. That includes the opportunity cost – traditionally, as everybody does it – of using scarce labour in that worker council. If you have you have a certain amount of engineers and carpenters in an economy, any time one worker council uses them they can’t be used in another worker council. And that we traditionally call an ‘opportunity cost’. So standard treatments will include the opportunity cost of using engineers or carpenters in any workplace, in any worker council. It doesn’t usually include something that mainstream economists call the ‘disutility of labour’. So there’s a scarcity cost to using labour but in addition – for labour, unlike other inputs – there’s also not just an opportunity cost, performing the activity might be more or less pleasurable, or more or less unpleasurable.

Usually, traditionally, when we’re talking about social costs for a workplace we include the opportunity costs of using these different categories of labour but we don’t really include the disutility. Or at least it’s possible not to include that part. Now, for two particular reasons, that I’m going to come to in a minute, we chose to model worker council and consumer councils in a particular way.

Toy example illustrating Marginal Benefit and Marginal Cost. Here Net Total Benefit is maximum when Marginal Benefit = Marginal Cost.

For consumer councils it’s very straightforward and easy to understand. A consumer council should maximize what economists call their utility, their well-being, their satisfaction from the activities they engage in. And for a consumer council we usually think of the activities of people are engaging in as what are called consumption activities. So the whole idea is you want your consumer council to maximize the well-being they get out of their consumption activities. Oh, but it’s subject to a constraint. And I’m going to use this phrase to describe the constraint: broadly speaking I would say as long as what they’re consuming is socially responsible. And in the case of a consumer council what social responsibility amounts to is well it would be irresponsible if the social cost to society of their consumption activity was larger than what we consider to be their fair income. So for a consumer council we basically have this set up where what we want them to do is to maximize their well-being as long as they’re being socially responsible. As long as the social cost of society of their consumption activity is what I would call justified or warranted by the income that they fairly have. And for us that income for some of them it’s their income from work, and for some of them it’s their social security payment or their childcare allowance or whatever it is.

We wanted to model worker councils exactly in the same way. We wanted to say, hey, these are people, these are humans engaged in a human activity. It happens to be an activity we think of as work or production rather than consumption. But the worker council is a bunch of people engaged in an activity and we want them to maximize the satisfaction or utility they get from engaging in their activity as long as their activity is socially responsible. So, we modelled worker councils as maximizing … Now, in their case it may be maximizing the satisfaction you get from the work process that you engage in. What it may amount to is minimizing the disutility of your labour. But still, it’s the same sort of … I mean where we had reasons, basically underlying methodological reasons, for wanting to view the entire thing in this way, sort of very symmetrical to what it is that consumers are doing.

So for a worker council what we said is we’re going to assume that what they’re going to try to do is to maximize their utility subject to the social responsibility constraint. Now, for us the social responsibility constraint is: nobody should object to them doing what they want to do as long as what they’re doing is not making anybody else worse off. So we model their social responsibility constraint as: worker council do whatever you want, as long as the social benefits – and now these would be the social benefits to any and all other people – are at least as great as the social cost to any and all other people. And that’s the way we set up our procedure. That’s the way we set up our model.

And when we say that the annual participatory planning procedure will achieve an efficient outcome, or in economist language a Pareto optimal outcome under certain assumptions, what we mean is if worker councils do this and if consumer councils do this, we can prove that the outcome will be socially efficient. It will be a Pareto optimum. Now you might ask well why did we want to model things this way? And this is where I thank you for forcing me to think back why decades ago we did this.

It was for two reasons. We actually believe in self-management. I think there’s long been a divide between anti-capitalists, between the anarchists and the socialists, or on the question of socialism how libertarian a socialist are you. And I think we’re firmly in the camp of feeling that there is a very important, great, value put on doing things in a way that provides workers and consumers with self-management. So if you’re thinking in terms of self-management, then the idea that we want people, we want workers and consumers to be doing whatever they want as long, as they’re behaving in socially responsible ways is in our mind the right way to look at it.

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Interviews Post-Capitalist Vision

Robin Hahnel Interview on Participatory Economics – Part 1B – Consumption, Consumerism, Advertising

Editor’s note: discussion topics include whether consumer councils in Participatory Economics (parecon) are incentivized to oversell, whether worker councils in parecon can oversell, conspicuous consumption, whether parecon would reproduce a ‘throwaway society’, whether consumer federations in parecon would compete, plan adjustments during the year, and the scope for rising living standards within ecological limits.

[After the Oligarchy] Hello everybody, this is After the Oligarchy. Today I’m speaking with Professor Robin Hahnel.

Robin Hahnel is a professor of economics in the United States, co-founder with Michael Albert of the post-capitalist model known as Participatory Economics (Parecon), and author of many books.

Today’s conversation is in association with meta: the Centre for Post-capitalist Civilization. This is Part B of the first in a series of interviews with Professor Robin Hahnel about participatory economics, and in particular his latest book Democratic Economic Planning published in 2021. It’s an advanced discussion of the model proposed in that book, so I recommend you familiarize yourself with participatory economics to understand what we’re talking about.

The discussion will also continue on the forum of participatoryeconomy.org.

Okay so the next question, staying on consumption, is about excessive consumption and the possibilities of this in participatory economy. So, firstly on the side of consumer councils, since consumer federations organize consumption – for example through shopping centres and online shops – consumer federations will decide how to present and, in general, ‘market’ goods and services. Will there be any incentive to oversell? For example, to convince people to buy things they don’t need or want.

[Robin Hahnel] Okay so I warned you before that you had picked the two things that I am the least … well, are my least favourite subjects.

[AO] Well your intellectual honesty is always appreciated – that’s how we like to do things here. But just whatever comes to mind is good enough.

I’ll give you my best answer, but I’ll preface it by saying that I don’t shop right. I don’t go shopping, I hate shopping. I have always found somebody else who will do the shopping for me. The only thing I enjoy shopping for is … I cook and I go into stores and I shop for food. [But not] clothes, [nor] anything else. There was a time when I would go into bookstores but now we don’t read books anymore, they’re all online. So I am not a shopper.

And at one point, there were three female students in one of my classes and we had done a little section on participatory economics. And they came in during office hours, three of them together it was like a delegation, and they came in and they said ‘well, Professor Hahnel, there are a lot of things we really do like about what you’re proposing here. But there’s one thing we just don’t like: you don’t seem to understand the pleasures of malling it.’ And at first I didn’t even understand what the word [was], I didn’t know what they were what they meant when they said ‘mall’. And they meant going to a mall and seeing and being seen, and spending four hours, you know, after school or after work at the mall. And that they were basically telling me some of us really like that, and we just want to know whether we’re going to be able to do that in a participatory economy.

And I had to say ‘well your dream is my nightmare’. I mean the fact that I would be trapped in a mall for five hours is sort of the worst thing that could ever happen to me. And so I’m going to admit to you that anybody who enjoys the pleasure of shopping, at least this person who designed this economy did not have you in mind. Because it’s the farthest thing from my mind.

But I do just think that structurally, almost by accident, I was concerned with the perverse incentive for sellers to lie to people about how good their products are. And that’s a huge feature of capitalism. I thought well, why don’t we reverse who is in charge of explaining to people what the properties of different options are? Why don’t we put the consumer federations, why don’t we assign them that role? Rather than put producers in the situation where they’re constantly trying to convince somebody to buy something, [where] they’re over-selling the value to the consumer. Let’s get the incentives right.

So the proposal was … I mean, people do need to find out about products. Now, at this point I don’t know how they do it because now everybody’s buying online. Nobody goes to the malls anymore. But at the time we were originally writing this, we said well we can still have malls. I mean, I was trying to get my poor students, I was trying to convince them to support participatory economics, it was shameless. That’s what I was trying to tell them. You can still go to the mall, but the mall is going to be run by your consumer federation. And they’re going to have all sorts of things that are new things on display there. And maybe you can impulse buy, if you want to impulse buy. Or you can just go and see it.

I know that in Cuba they did set up … they weren’t shopping malls, but they would periodically put on sort of a big show where they would display items that were going to be new items that were going to become available. And they would put them on show, and people would visit, and that’s how they would become aware of what was going to soon become available, if they wanted to find out what was coming.

So our suggestion has been that that should be the approach. And then the question is well if it’s the consumer federations that are in charge of … first of all, the consumer federations are going to have their own research and development units that are responsible to them for doing research into new consumer products. Why don’t we want the consumers to be in charge of looking into new consumer products instead of having the producers be the ones that are doing all that research? So we essentially said let’s reverse who’s in charge of that research. Let’s reverse the whole question of who is in charge of presenting and showing people what is available, A.K.A. advertising.

My father was a miserable employee in the advertising industry, so I grew up very aware that there are two supposed purposes of advertising: one is a legitimate public service, which is making accurate information about product availabilities and capabilities available to the public; and the other is tricking them into buying things they really don’t want. So the goal here is … we do have a legitimate service that needs to be provided, and that is information. But we want to do it in a way that we don’t have a terribly perverse incentive about who’s in charge of it and what their motivations will inevitably be.