[Van-Parecon] Participatory Economics & the Environment (Pt. 2)

[vancouverparecon at resist.ca]

Hello,

Here is Pt. 2 of our latest feature, "Participatory Economics & the
Environment": an interview with Robin Hahnel. This is a four part series;
four questions and four answers. For this series we e-mail one part each
week over the next few weeks. Or, you can skip ahead and visit the series
on our web site. See links at the bottom of this e-mail.


The Vancouver ParEcon Collective interviews Robin Hahnel (Pt. 2)

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.


Skip ahead!
Pt. 1: http://vanparecon.resist.ca/parecon_files/pareconenvironmentone.html
Pt. 2: http://vanparecon.resist.ca/parecon_files/pareconenvironmenttwo.html
Pt. 3: http://vanparecon.resist.ca/parecon_files/pareconenvironmentthree.html
Pt. 4: http://vanparecon.resist.ca/parecon_files/pareconenvironmentfour.html


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
(http://www.routledge-ny.com).