Allocating Resources

The financial implications of allocating resources according to parecon principles are essential when considering the transition from capitalism to participatory economics. We will briefly dive into comparing parecon to the current capitalist model and discuss whether a company can function with such an alternative method of operating.

What is the problem of allocating resources in the current system?

Companies, like people, are subject to the same economic laws of motion; they act in their own best interests and compete for scarce resources (such as capital). If a company is currently successful (i.e., profitable), it can use that financial stability to fuel further growth. The problem arises when this mechanism starts to break down, which often occurs during economic recession or depression; for example, many banks collapsed during the 2008 Financial Crisis because they could not meet the demand for loans. Even though this was not an intentional result of their actions, the bottom line was still very much affected. The main problem with using this method in a company is that it implies that all major decisions would have to be made by the board of directors.

Consequently, any profit/loss responsibility lies with them, which might cause problems if they cannot meet their expected targets. For example, imagine the company has hit its targets and achieved "sustainable" growth for the coming year. There will be an increased demand for resources, so there needs to be adequate funding available - but due to financial mismanagement, existing resources become limited. Suppose shareholders can see no return on investment. In that case, there may not be sufficient capital being pumped into the firm, meaning that work carried out within production could suffer as a result.

What are the parecon ideas on allocation?

Participatory planning involves allocating mechanisms to centralized planning and resource allocation. A designated facilitation board will be responsible for setting up the prices for all the goods and services. Consequently, individuals would create a yearly consumption plan based on their income and needs. They would submit their projects to a board for aggregating the information. Further on, depending on the information received, the facilitation board would update prices and evaluate spending needs. That would be the baseline for creating an effective resource allocation plan. In this scenario, some citizens may revise their initial draft and update the proposed method.

Parecon differs from the current capitalist model because it intends to balance out a person's sacrifice in terms of labor and remuneration. The model involves more measurements and relies heavily on peer evaluation.

Would the parecon allocate method be sustainable?

Critics of the system claim that parecon allocation systems would not be sustainable in our society because it is human nature for people to own more than their personal needs. Parecon principles cannot co-exist with capitalism because both methods have entirely different goals and values. Parecon principles are not justifiable in the modern financial world. Despite the sound parecon values, implementing the model is challenging from a practical standpoint.

Conclusion

In parecon, consumption goods are acquired based on their usefulness. How much one decides they need them rather than through exchange or according to the ability to pay as in capitalism. In addition, there is no limit or accumulation of wealth beyond that which people contribute to the social effort. The model is currently idealistic and would require a dramatic shift in methodology and adjusting until it functions to the benefit of society.