April 23, 2013

A (more) detailed proposal for parecon's indicative prices

"Every economy has prices." I remember Robin Hahnel saying those words in one of the Shed Sessions produced by the folks at Z Magazine on participatory economics. What those prices reflect, and how those prices are calculated, can vary from economy to economy.

The prices in contemporary capitalism reflect mainly two things: (1) supply and demand, taken as a single entity, and (2) bargaining power. Bargaining power can reflect power relations between buyers and sellers, or between capital and labor, or even between sellers in a market (ask any small-town merchant about Wal-Mart and about the bargaining power of its prices).

Markets make primal the interaction between buyer and seller, but clearly a lot is missed in the price, mainly because markets tend to ignore anything that doesn't immediately reflect the immediate interaction between buyer and seller. It ignores, among other things:

1. The labor costs related to the exchange. Ask Foxconn and Apple (irony: I'm typing these words on an Apple computer). Ask Nike and sweatshop shoes (heck, Nike has a chronic allergy to even acknowledging its labor practices). Ask Wal-Mart and its labor force (motto: "There's a reason we're the world's most profitable company. We pay our employees peanuts. Wal-Mart: Always low wages. Always").

2. The social costs stemming from the purchase. I used to posit a hypothetical example in discussions about parecon by using firearms as an example. It's not a hypothetical anymore, at least not in the minds of most of the American public.

3. The environmental impacts connected to the purchase. This might be the kicker -- the thing that might be most closely pinned to the destruction of the human species if we don't change course. The purchase price of oil in its doesn't reflect the pollution that's emitted, the harm to breathing and to animals, the destructive impacts of a warming planet by burning fossil fuels (The Onion's "Man on the street" once described it as follows: "The health of the economy demands that we destroy the planet.") I used to have a poster that listed the revised sticker price for a standard automobile IF the costs of wars connected to oil were taken into account -- in the ballpark of $150,000 for a car that would otherwise cost $8,000. (War is a hell of an externality.)

Why are such numbers ignored? Presumably because market economists want to make their model simple and manageable. I can understand the willingness to make a simple model for analysis. After all, if you don't strive for simplification, you could be chasing will-o'-the-wisps all day, spending all the time hunting down numbers and avoiding having to make a decision. But while simplicity is sought for, so is accuracy, and the fact remains that while market economists stick their head in the sand, the ignored labor, social, and especially the environmental costs are kicking their elevated behinds.

In contrast, in a participatory economy, the prices that are used are what are termed "indicative prices" -- meaning that they strive to indicate the various impacts of one or another choice. Markets ignore the effects beyond the immediate market exchange, and in fact there's a name for these outside effects: externalities. They are clearly external -- outside -- the immediate exchange, and markets therefore ignore them. To their and our detriment.

This isn't a call to skirt decision-making. Far from it. Of course, we could seek, but we should base indiciative prices on best available knowledge at the time. Indeed, in one of the very first articulations of the model of participatory economics, "prices are 'indicative' during the planning process in the sense of indicating the best current estimates of final valuations. They are not binding but flexible in the sense that qualitative information provides important additional guidance."

But the model, and future articulations of the model, don't specify what should go into an indicative. Based on what's discussed here, let me offer the following four-component model of indicative prices in participatory economics:

1. Supply and demand
2. Known labor impacts
3. Known environmental impact
4. Known social impacts

The greater the negative impact of each component, the higher the component price and the overall price. How is negative impact determined? One way using current technology would be to use a cellphone app for people to add in their vote regarding the impact (positive or negative) for a given good. The results can then be aggregated and calculated to an indicative price component and ultimately affect an indicative price. (I have a set-up like this that's used in my -- cross your fingers! -- forthcoming participatory economics simulacrum.) In the event technology could be considered a hurdle, there's no reason other means could be used in a similar fashion to contribute to an indicative price.