Churchill is often misquoted as having said that democracy is the worst form of government except for all the others*. A similar sentiment is sometimes expressed about capitalism*: "Socialism was tried in Russia and look what happened there." It is no longer acceptable to make idealistic utopian claims about how wonderful life would be without capitalism. Anyone proposing an alternative now must say why their idea would work, and address legitimate fears about totalitarianism.

Participatory Economics (shortened to parecon, which can also mean a participatory economy) is one such alternative (invented by Michael Albert and Robin Hahnel around 1990*). As well as proving mathematically that parecon is efficient, they gave good reasons why Russian communism failed and why parecon would not.

This article is too short to cover every aspect of parecon, in particular all of the common objections. At the bottom of this entry is a section on further reading if you want to know more*.

So what is parecon?

Parecon is motivated by four key values: solidarity, diversity, equity and self-management. Solidarity means encouraging people to work for the benefit of others as well as yourself. Diversity means giving people more options, for how they work and what they consume. It's difficult to say what equity means in one sentence, but roughly speaking it's about fairness and equality of outcomes. Nobody should have substantially more wealth or power than anyone else. Self-management means what it sounds like: everyone has a say in decisions which affect them. Specifically, in parecon this means that everyone should influence decisions in proportion to how much they are affected by them.

It's not possible to predict how things would actually turn out in an actual parecon, but here are some aspects of what an ideal parecon would be like:

• Equality - nobody would be much richer than anyone else. In a parecon equality is not perfect, but there are no groups of people who are systematically poorer than other groups, and differences in income are based on personal choice. You might choose, for example, to work much harder than normal for a few months if you had some particular big thing you wanted to purchase. It would be rare, though, to see one person earning more than twice as much as another.
• Classlessness - a parecon society wouldn't have social classes. It's not possible for everyone to have equal status - not everyone can be the person who discovers a cure for cancer for example - but there wouldn't be systematic differences that last through generations. There would be an equality of opportunity.
• Work - there would be no bosses. That's not to say that all organisation would be left to chance, that there'd be no consequences for not working or working badly, etc. The difference would be that everyone would have a say in how their workplace was run, and you would never be entirely subordinate to someone else. There would still be administration and duties, and expertise would play a role, but it wouldn't be authoritarian.
• Planning - a parecon is a planned economy. People would need to engage in planning processes, which would involve meetings and time spent thinking about what you might want to buy in the future (so that it can be produced).

In practice, things never work out like you might hope, and so there'd still be a role for politics in a parecon.

There are three main features of parecon - described below - production, consumption and planning:

1. Production means how people would work and how things would actually get made.
2. Consumption means how people decide what they want and how the things that are produced get divided up.
3. Planning means how we decide what to produce given what people want and how much things cost to produce.

It is helpful to have in mind how a capitalist economy arranges things in these respects:

1. Most people work in jobs over which they have fairly limited control, typically doing a very specific and often repetitive task.
2. Individuals consume what they can afford to buy.
3. There is no overall planning procedure, profitable companies succeed and unprofitable ones go out of business.

Production

In a parecon, every individual is a member of a workers' council. These can be freely formed by anyone. Roughly speaking, these are the equivalent of companies in a capitalist economy. Within a workers' council, individuals do a range of tasks as they would in a capitalist company. Where parecon really differs from capitalism in this respect is that everyone works in what are called balanced job complexes (BJCs). What this means is that the range of tasks they do are balanced for desirability, participation and empowerment.

Every BJC should be, on average, equally desirable overall (or equally onerous to put it more pessimistically). Everyone should also have a roughly equal degree of participation in the overall management of their council. Finally, everyone should find their BJC equally empowering overall, which might need some explanation. Some jobs, although they are very hard work and possibly unpleasant in some respects, give the person doing them more control over their lives and more understanding of the institutions and circumstances affecting them. This greater control and knowledge gives them power over others whose work doesn't 'empower' them in this way. Lawyers are a good example of this. Although they typically work fairly long hours, their job gives them a great knowledge of how the system works which they can use to their advantage. Many lawyers enjoy great success in contesting parking tickets, for example, something which the rest of us can only dream about.

Consumption

In addition to being workers, everyone is also a consumer, and so everyone belongs to a consumers' council. An individual or family belongs to a neighbourhood council, which in turn belongs to a federation of neighbourhood councils, which in turn, etc., right up to a national consumption council. This heirarchy of consumption exists because there are different types of consumption which affect different numbers of people. Apples and oranges are consumed at an individual level, but when we 'consume' education we typically do it along with lots of others*.

The amount that an individual can consume is related to their work. In a capitalist system, you work for wages or you accumulate money through ownership, and then you spend that money. Parecon has something similar to wages, but the idea is that you are paid according to the effort and sacrifice you make. So for example, cleaning toilets, it is usually agreed, is more effort and more unpleasant than writing restaurant reviews, and would therefore be paid better in a parecon*. In a parecon though, there would not be jobs which are just toilet cleaner and just restaurant critic, because jobs have to be balanced.

There are a few reasons for paying people according to the effort they have put in and sacrifices they have made. The first is a moral one. The effort people make is the only thing they personally have any control over. They can't control who their parents are, how strong, creative or intelligent they are, but they can choose to work more or less hard. The second is a pragmatic one. There's no point rewarding people for things about themselves they can't change, because that doesn't provide people with any incentives. There is a third reason, to do with class, explained in the section 'What about Russia?' below.

Participatory Planning

Planning in a parecon works through an iterative (repeated) process. Essentially, it starts with everyone giving a rough idea of what they would like to make or consume, and then trying to fit these together. It takes a few 'rounds' of planning to match the two, and each round gets closer to a perfect match.

The Iteration Facilitation Board (IFB) announces 'indicative prices' (basically guesses) at the cost of producing various goods. These guesses might come from how much it cost to produce things last year for example. The consumers' councils then submit requests for what they would like based on these estimates of the prices. Next, the workers' councils submit proposals for things to make, including lists of what they would need to use to make them. The IFB takes all this into account, and calculates excess supply or demand, and uses this to recalculate the indicative prices. The consumers' councils and workers' councils then revise and resubmit their proposals based on these new prices, and the process repeats until a viable plan is settled on.

But does it work?

It's difficult to say what it means for an economy to 'work'. Some ways of organising an economy will be better in some ways and worse in others. But consider this: suppose you could reorganise things so that everyone was better off afterwards, or at least not worse off. If it's possible to reorganise things like this, then obviously the economy is not efficient. If it's not possible to do this, then the economy is called Pareto efficient after the Italian economist Vilfredo Pareto.

Pareto effiency is a minimum standard because obviously any economy that wasn't Pareto efficient could be improved in an uncontroversial way that made everyone better off. But, it's not the only important standard for judging how good an economy is. It might be that an economy where one person owned 90% of the wealth and everyone else owned a tiny amount in comparison was Pareto efficient, because any way of increasing the wealth of everyone else would have to take away some of the wealth of that one individual. Still, most people wouldn't say that such an economy was a good one. In a nutshell - a Pareto efficient economy isn't necessarily a good one, but an economy that isn't Pareto efficient is certainly a bad one.

An important result in economic theory is that a 'perfect' free market is Pareto efficient. A 'perfect' free market is one where there are no monopolies, everyone knows everything about the economy, and so on*. Using the same mathematical theory, Albert and Hahnel have proved that a parecon is also Pareto efficient. So in this sense at least, parecon 'works'.

One of the critiques of socialism* is that if you centralise the economic decision making, you're giving those decision makers a task that is too difficult for them, and so the result will be inefficient. In free market capitalism, in principle there are no decision makers burdened with such enormously complex decisions*. Parecon shares this virtue with free market capitalism. Plans are settled on by the repeated interaction of the producers' and workers' councils through the IFB, and this effectively distributes the decision making to everyone (as in capitalism).

A whole economy has never been run along parecon lines, so it's difficult to say whether or not it would work in practice, even if we know it would work in theory. There are some small companies that run according to the principles of parecon*, but the largest employs less than 20 people. There isn't space here to say anything about the large issue of how a transition to a participatory economy might be made, but because it's never been tried before, it's possible that a society that had made that decision might well want to do so gradually, experimenting with these ideas rather than rushing in and attempting to change everything overnight.

What about Russia?

Soviet Russia came into existence through a violent revolution, and fought to stay in existence through an incredibly brutal civil war. The violence continued with the secret police and Gulags. Communism in Russia was born in violence, and its leaders acquired authoritarian habits*. Obviously, avoiding violence and emphasising democracy would be of the utmost importance in creating a parecon, and this itself would avoid many of the problems of Russian Communism.

One of the key concepts of Marxism is the notion of class. The bourgeoisie own the means of production (factories, land, etc.), and the proletariat do the actual work. Simplistically, Communism was supposed to create a classless society by getting rid of ownership, and therefore the owning class. Albert and Hahnel argue* that this misses out a crucial third class, which they call the coordinator class. These are the people who do not own the means of production, but through their superior knowledge and their place in the workplace exert more control over the economy than the workers*. The theory says that whenever you give one group of people jobs that are systematically more empowering than others, where they get more say over the conditions of their work, make important decisions, learn new things and don't just do rote labour, then this group will become a coordinator class. Once they become a class they have class interests, and they will reorganise the economy in those interests. This creates inequality which undermines the whole point of socialism. There is also the possibility that this class will become a ruling class which is what happened in the USSR.

Parecon strives to be a classless society which avoids coordinatorism by emphasising balanced job complexes, and everyone having a say in decisions to the extent that they are affected by them*. Since parecon emphasises participatory, democratic decision making, and prevents the formation of class interests which go against the ideal of equality, Albert and Hahnel argue that it wouldn't become authoritarian.

Further reading

• Participatory Economics website, including:
• Parecon books, several of which are available to download free online.
• In defense of parecon, a section devoted to responses to criticisms, which covers most of the common objections to the system.