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Participatory Economics & the Environment (Pt. 2)

Go to Pt. 1 / Pt. 2 / Pt. 3 / Pt. 4

Chris Spannos interviews Robin Hahnel.

January 10, 2004

Robin Hahnel has taught political economy at American University for over 25 years. He has co-authored, along with Michael Albert, numerous books on participatory economics. His forthcoming book is Economic Justice and Democracy: From Competition to Cooperation published by Routledge. Chris Spannos is a member of the Vancouver Parecon Collective

Spannos: What would be considered a judicious use of natural resources and, assuming we do replace capitalism, how does a participatory economy adjudicate pollution levels, resource depletion and sustainability?

Hahnel: A judicious use of natural resources is one that preserves a natural environment that not only continues to be capable of supporting human and non-human life on the planet, but provides future generations with a natural environment that is at least as beneficent as the one we enjoy today. However, this does not mean that every aspect of today's natural environment must be preserved exactly as it is today. As I explained above, that is impossible in any case, but fortunately unnecessary. New technologies must be developed to replace existing ones before the raw materials they require are used up. Stocks of renewable resources must be increased to compensate future generations for nonrenewable resources that are depleted. New technologies must be developed to replace existing ones that overtax the capacity of the environment to absorb waste from human activity. Ecological economists are correct to point out that depletion of natural "capital" cannot be substituted for entirely by more human produced "capital." On the other hand, a judicious use of the environment does include substituting some renewable forms of natural capital for some non-renewable forms, and substituting some kinds of human made capital for some kinds of non-renewable natural capital. But mostly a judicious use of the environment requires further development and rapid substitution of renewable energy systems for fossil fuels and nuclear energy, rapid de-automobilization of our mode of transportation, and rapid changes in consumption and living patterns.

A participatory economy determines levels of pollution and resource depletion through the participatory planning process. How does participatory planning internalize the negative external effects of pollution? In each iteration in the annual planning procedure there is an indicative price for every pollutant in every relevant region representing the current estimate of the damage done by releasing a unit of that pollutant into the region. What is a pollutant and what is not is decided by federations representing those who live in a region, who are advised by scientists employed in R&D operations run by the residents' federations. For example, if only the residents of ward 2 of Washington DC feel they are adversely affected by a pollutant released in ward 2, then ward 2 is the relevant region. But if the federation representing residents of all wards of Washington DC decides that residents of all wards are affected by a pollutant released in ward 2, then the entire city of Washington is the relevant region. Whereas, if the federation representing all who live in the Chesapeake Bay watershed feels that all who live in the watershed are adversely impacted by a pollutant released in ward 2, then the relevant region includes the District of Columbia, Maryland, and parts of Virginia, Delaware and Pennsylvania.

If a worker council located in an affected region proposes to emit x units of a particular pollutant they are "charged" the indicative price for that pollutant in that region times x -- just like they are charged y times the indicative price of a ton of steel if they propose to use y tons of steel as inputs in their production process, and just like they are charged z times the indicative price of an hour of welding labor if they propose to use z hours of welding labor. In other words, any pollutants the worker council proposes to emit is counted as part of the social cost of their proposal, just as the cost of making the steel inputs and the opportunity cost of the welding labor they propose to use are counted as part of the social cost of their proposal -- all to be weighed against the social benefits of the outputs they propose to make. The consumer federation for the relevant region looks at the indicative price for a unit of every pollutant that impacts the region and decides how many units it wishes to allow to be emitted. The federation can decide they do not wish to permit any units of a pollutant to be emitted -- in which case no worker council operating in the region will be allowed to emit any units of that pollutant. But, if the federation decides to allow X units of a pollutant to be emitted in the region, then the regional federation is "credited" with X times the indicative price for that pollutant. What does it mean for a consumer federation to be "credited?" It means the federation will be permitted to buy more public goods for its members to consume than would otherwise be possible given the effort ratings of its members. Or, it means the members of the federation will be able to consume more individually than their effort ratings would otherwise warrant. In other words, residents of a region have a right not to be polluted if they so choose. On the other hand, if they choose to permit a certain amount of pollution to occur in their region they are compensated for the damage they choose to endure.

This procedure allows people in different regions to choose different tradeoffs between less pollution and more consumption. Why? Citizens in different communities might have different opinions about how damaging pollution is or beneficial consumption is. Or, even if all effects could be estimated with certainty, not all people feel the same about how much they value environmental preservation versus consumption, and citizens in different regions may feel differently on average as well. Does this create the kind of "race to the bottom effect" environmentalists point out that local, as opposed to national standards, do today? It is important to remember that in a participatory economy there are no significant differences in income and wealth between communities. For that reason I do not believe permitting communities to choose their own environmental standards risks creating a "race to the bottom effect" in a participatory economy as it certainly does in a society where poor communities are unfairly tempted to permit greater environmental destruction to attract jobs and income while only wealthy communities can afford the luxury of strict pollution controls.

This procedure in the annual planning process protects the environment sufficiently only if present residents in the region of impact are the only ones who suffer adverse consequences. While this is the case for some pollutants, it is often the case that future generations bear a great deal of the cost of pollution today. The interests of future generations must be protected in the long-run participatory planning process and by an active environmental movement, as I explain below. However, before moving on to the long-run planning process and other features of a participatory economy that help protect the environment, I hasten to point out how much of an improvement the annual participatory planning process provides over market systems. Under traditional assumptions the above procedure will: (1) reduce pollution to "efficient" levels, (2) satisfy the "polluter pays principle," (3) compensate the actual victims of pollution for the damage they suffer, and (4) induce worker councils and consumer federations to truthfully reveal the benefits and costs of pollution. In other words, the procedure is what economists call "incentive compatible."

The fact that a participatory economy can treat pollution and environmental preservation in an "incentive compatible" way is crucial. When producers or consumers have incentives to ignore damaging effects on the environment of their choices about what and how to produce and consume, it is not incentive compatible. And when polluters and pollution victims lack incentives to reveal the true costs of pollution to victims, or the true benefits of pollution to consumers of the products produced jointly with the pollution, it is not incentive compatible. But in a participatory economy since producers are charged for harmful emissions the damage from pollution is included in the cost of a worker council proposal -- giving producers just as much incentive to reduce pollution as any other cost of production. And since the indicative prices consumers are charged for goods in participatory planning include the costs of pollution associated with their production and consumption, there is just as much incentive for consumers to reduce consumption of goods that cause pollution as there is for them to reduce consumption of goods that require scarce productive resources or unpleasant labor to produce.

But does the procedure yield an "efficient" indicative price for pollutants, i.e. a price that permits pollution as long as the benefits outweigh the costs, but prevents pollution whenever the costs outweigh the benefits? In most cases it is reasonable to assume that as emission levels increase the costs to victims of additional pollution rise and the benefits to producers and consumers of additional pollution fall. In which case the efficient level of pollution is the level at which the cost of the last unit emitted is equal to the benefit from the last unit emitted. What will happen if the Iteration Facilitation Board, IFB, quotes a price for a pollutant during the planning process less than the "efficient" price, i.e. less than the price at which the last unit of emissions causes damage equal to its benefits? In this case the pollution victims, represented by their federation, will not find it in their interest to permit as much pollution as polluters would like, i.e. there will be excess demand for permission to pollute -- and the IFB will increase the indicative price for the pollutant in the next round of planning. If the IFB quotes a price higher than the efficient price the federation representing pollution victims will offer to permit more pollution than polluters will ask to emit -- and the IFB will decrease the indicative price in the next round. There is no incentive for pollution victims to pretend they are damaged either more or less than they really are, or for polluters to pretend they benefit more or less than they really do from being allowed to pollute, because each would fare worse by responding untruthfully than by responding truthfully to the indicative prices quoted by the IFB. Consequently, when the IFB adjusts the indicative prices for pollutants until requests to pollute equal permission to pollute, the efficient level of pollution is reached.

Uncorrected markets accomplish none of the four goals above. Markets corrected by pollution taxes could only reduce pollution to efficient levels and satisfy the "polluter pays" principle if the taxes were set equal to the magnitude of the negative external effect. 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. A participatory economy, on the other hand, awards victims an incontestable right not to be polluted, and arms them with a federation that includes every victim to express and represent their interests. Moreover, the context of participatory planning makes it in the best interests of the federation's members for their federation to truthfully express the magnitude of the damage pollution does to its collective victims.

Since the market system contains no mechanism for generating accurate estimates of the damage from pollution, how can levels of pollution taxes be set in a market economy? Leaving the level of pollution taxes to be determined by the relative power of polluters and victims to influence politicians clearly has no claim to efficiency, and in an age of overweening corporate power invariably leads to taxes that are too low, and too much pollution.

The crucial difference between participatory planning and market economies in this regard is that the participatory planning procedure generates accurate quantitative estimates of the costs and benefits of pollution while markets do not. Consequently, even "good faith" efforts to internalize the cost of pollution through taxes or tradable permit programs in market economies are "flying blind," and opportunities for "bad faith" intervention are ever present. Estimates from surveys and studies are less accurate than the indicative prices for pollutants that would be automatically generated by the participatory planning procedure. Moreover, because everyone knows estimates based on surveys and studies are unreliable, it is possible for interested parties to challenge estimates they find inconvenient. Interested parties frequently finance alternative surveys and studies that arrive at predictably different conclusions regarding the damage from pollution and benefits from environmental preservation. Since, unlike participatory planning, market systems generate no "objective" estimates that could serve as arbiters, debates over the size of pollution taxes in market economies, or the number of permits we should print up, invariably devolve into a cacophony of "he said, she said."

While participatory planning may "settle accounts" efficiently and equitably concerning the environment for all those taking part in the various councils and federations, what protects the interests of future generations who cannot speak for themselves? How can we avoid intergenerational inequities and inefficiencies while preserving economic democracy when a great deal of the adverse effects of environmental deterioration are born by people who cannot be part of the democratic decision making process today? The interests of future generations -- which includes the future state of the natural environment -- must always be protected (or ignored) by the present generation. This is true whether it is a political or economic elite in the present generation that weighs the interests of the present generation against those of future generations, or a democratic decision making process involving all members of the present generation that weighs the competing interests of different generations.

In a participatory economy intergenerational efficiency and equity regarding the environment must be achieved in the same way intergenerational efficiency and equity is achieved in all other regards -- by means of restraints the present generation places on itself in its democratic deliberations concerning the long-run plan. In a participatory economy the same rules and procedures are used to determine the long-run plan as are used for the annual plan. Federations rather than individual worker and consumer councils play a larger role in long-run planning, as do R&D facilities attached to federations. But federations of workers propose and revise investments they would like to make in their own industries, together with federations of consumers who propose and revise what they would like to be able to consume more and less of in the future, in a process that settles on particular investment priorities and time tables. The long run planning process also generates estimates of what economists call the marginal user costs of scarce resources, just as the annual planning process generates estimates of the social opportunity costs of using productive resources in a given year. When it is agreed through the long run planning process that consumers 5 and 50 years down the road will have particular levels of consumption, long run plans translate that commitment into a commitment to have particular amounts of scarce natural resources available 5 and 50 years from now, and these resource commitments are in turn translated into user costs for resources in annual plans distributing their depletion judiciously over time. In broad terms, each annual plan is hammered out within constraints imposed by choices already agreed to in the long-run planning process, which is where issues of intergenerational equity and environmental sustainability are settled.

For example, if the long-run plan calls for more overall investment, this decreases the amount of consumption available in this year's annual plan. If the long-run plan calls for reducing the automobile fleet and expanding rail and bus service in the future, this reduces the amount of investment and productive resources this year's annual plan is permitted to allocate to worker councils making automobiles, and increases the amount of investment and resources to be allocated to worker councils making trains. And if the long-run plan calls for a 25% reduction in carbon emissions over five years, the national consumer federation must reduce the amount of carbon emissions it permits accordingly in each of the next five annual plans. Major changes in the energy, transportation, and housing sectors, as well as conversions from polluting to "green" technologies and products, are all determined by the long-run planning process. When consumer federations demand more green space and improvements in air and water quality for the future during this process, investment priorities in energy, transportation, and housing are affected, and time tables for phasing in "green" technologies and products are settled on.

Sometimes when the present generation draws up the long-run plan they are making choices that affect only the future generation. Will people in the future transport themselves in cars or trains? But often when the present generation agrees on the long-run plan they make choices that favor one generation over another. Will the present generation consume less, so more can be invested and future generations will be able to consume more? Will the present generation consume less, so carbon emissions can be reduced more and future generations will suffer less from climate change? Will the present generation consume less so "green" technologies and products can be phased in more quickly, and future generations can enjoy increased environmental amenities sooner rather than later? I can think of no way to guarantee that members of the present generation will take the interests of future generations sufficiently to heart, or, for that matter, choose wisely for them even when there is no intergenerational conflict of interest. Whether or not the present generation decides on a long-run plan democratically or autocratically, there is no way to guarantee they will not make mistakes that damage future generations: Maybe replacing cars with trains for our descendants is a mistake because solar powered cars would be as environmentally friendly as trains and more convenient. Nor is there any way to make sure the present generation will not behave like Louis XV and simply decide, apre mois l'deluge. I can hope that people who practice economic justice diligently among themselves, as a participatory economy requires, will practice it on behalf of their children, grandchildren, and great grandchildren as well. I can hope that people used to permitting pollution only when the benefits outweigh the costs will apply the same principle in their long-run planning and include the costs to those they know will follow them. And I can hope that when people have choices posed in ways that make perfectly clear when they would be favoring themselves unfairly at the expense of their descendants, that they will be too ashamed to do so. Long-run participatory planning is designed to make issues of intergenerational equity and efficiency as clear as possible. It is also designed to estimate the detrimental and beneficial effects of economic choices on the environment accurately and incorporate them into the overall costs and benefits that must be weighed. But even so, there is no guarantee that future generations and the environment might not be slighted. Some will have to speak up in the long-run participatory planning process when they think others in their generation are unmindful of future generations. And some will have to speak up during long-run planning when they think others are neglectful of the future of the environment.

Finally, there are other features of a participatory economy that favor environmental protection. (1) An egalitarian distribution of wealth and income means nobody will be so poor and desperate that they cannot afford to prioritize environmental preservation over material consumption. There will be no destitute colonists cutting down and burning valuable rain forests because they have no other way to stay alive. There will be no poverty stricken local communities who acquiesce to host unsafe toxic waste dumps because they are desperate for additional income. An egalitarian distribution of income and wealth also means nobody will be so rich they can buy private environmental amenities while lobbying and voting to permit the public environment to deteriorate. (2) A system that minimizes the use of material incentives and emphasizes rewards for social serviceability greatly diminishes the environmentally destructive effects of conspicuous consumption. (3) An allocative system that provides productive resources to workers as long as the social benefits of their work exceed the social costs -- including the environmental costs and the cost of lost leisure -- eliminates the competitive rat race for producers to accumulate and grow despite the environmental consequences, and despite the fact that after a certain point our extra consumption is not worth the leisure we sacrifice. In other words, unlike capitalist economies, and communist economies ruled by leaders who chose to compete with them in a "growth race," there is no bias toward injudicious growth in a participatory economy. In two books, Overworked American: The Unexpected Decline of Leisure (Basic Books, 1992), and The Overspent American: Why We Want What We Don't Need (Basic Books, 1998) Juliet Schor dissected the irrationality of over work and over consumption in America, tracing its causes to incentives embedded in the economic system. None of the perverse incentives she documents would be present in a participatory economy.

However, in the end there is nothing a democratic economy can do to prevent environmental abuse if people make unwise or selfish choices. This can happen because people are simply unaware of the detrimental environmental consequences of their choices, or underestimate their severity. This can occur because the present generation is selfish and cares more about itself than about future generations. Or, if one believes that other species have rights or interests that deserve to be taken into account, it can be because humans refuse to do so. An active environmental movement educating and agitating for its causes will be necessary in a participatory economy, and the health of the biosphere will depend on this movement's wisdom, strength and persuasive powers.

Go to Pt. 1 / Pt. 2 / Pt. 3 / Pt. 4

Robin Hahnel has taught political economy at American University for over 25 years. He has co-authored, along with Michael Albert, numerous books on participatory economics. His forthcoming book is Economic Justice and Democracy: From Competition to Cooperation published by Routledge.