Question

What were Vanek’s five principles for a participatory economy? How did these principles address deficiencies of either the market (capitalist) or the centrally planned (socialist) system?

Answer 1

Vanek's five principles for a paticipating economy are as follows:

1. Participation in management. Every worker should participate in the management of the enterprise in which he or she worked on an equal footing. In most cases this implies a representative democracy in which workers delegate their day-to-day responsibility to an elected chief executive, a board of directors, and a workers’ council who make most decisions on behalf of the workers.

2. Income sharing. In a participatory economy, rather than being paid a ?xed wage, the workers in each ?rm receive their income by dividing the pro?ts among them in an equitable fashion, usually dictated by a formula democratically determined by the workers themselves. Differences in the size of workers’ shares should re?ect work of different intensity, skill level, or quality.

3. Capital to be owned by society as a whole. Socialism is de?ned by society, rather than individuals, owning the means of production, and Vanek’s participatory economy is socialist in that sense. The capital employed by any enterprise is not owned by that enterprise or indeed by the workers of that enterprise, but rather by the state, which rents out the capital for a contractual fee. This fee should not be merely nominal but should re?ect the scarcity, or opportunity cost.

4. Coordination via the market not the plan. In Vanek’s conception, the participatory economy should be fully decentralized. All of the actors in the
system—consumers, enterprises, associations, and the various levels of government—should be free to make decisions without interference from the government (or the party). While there should be no command planning, some form of indicative planning to allow better coordination is appropriate. Vanek does call for government intervention to resolve abuse
of monopoly power and, by implication, other instances of market failure, but the important principle is the sovereignty of individuals operating through the market, rather than the preferences of planners or politicians.

5. Freedom of employment. The ?nal characteristic of the ideal participatory state is that each individual is at total liberty to choose his occupation and his particular place of employment. A necessary counterpart to this is that each enterprise is at full liberty to hire, or not hire, any person. The problem of establishing appropriate grounds for dismissal is more dif?cult and enterprises should be free to create their own rules for limiting the ability to dismiss workers, even when strictly economic criteria might call for it.

Some of the ways in which these principles for participatory economy by Vanek address the deficiencies of the market and the centrally planned system:

1. A participatory economy will show reduced tendency to monopolization, and hence increased consumer welfare, relative to a capitalist economy.

2. Nonproductive expenditure in the participatory economy would be less than under capitalism. Since the advantage of size is limited under labor management, expenses on advertising and marketing designed to win larger market share are less remunerative than in the capitalist environment. Thus a participatory economy wastes less on nonproductive expenses than a capitalist one.

3. Participatory ?rms will show reduced workplace friction, and a smaller incidence of strikes relative to capitalist ?rms.

4.  A participatory economy will have a greater tendency to full employment compared to capitalism

5.  A participatory economy will have a lower long-run tendency toward in?ation. It is possible that in the long run (as opposed to the short-run discussed earlier) the participatory form of organization has a lower tendency to in?ation than conventional capitalism.

6. Firms in the participatory economy will be more socially responsible than a capitalist ?rm.