Do individuals in a participatory economy have an incentive to search for innovations, and do workers councils have an incentive to implement productive innovations once they’re found?

A participatory economy does not reward those who discover productive innovations with vastly greater consumption rights than others that make comparable personal sacrifices or effort in their work. Instead a participatory economy emphases direct social recognition of outstanding achievements. This is for a number of reasons. First, successful innovation is almost always the result of cumulative human creativity and not a single person’s endeavours. Also, an individual’s contribution is often the result of genius and/or luck as much as personal sacrifice, all of which implies that recognizing innovation through social esteem instead of material reward is more ethical. Second, social incentives will not necessarily prove less powerful than material ones. No economy ever has paid innovators the full social value of their innovations because if it did, there would be little left for those who apply them over long periods of time. This means if material compensation was the only reward, innovation would be under stimulated in any case. Material reward is often merely an imperfect substitute for something else that is truly desired — social esteem. Actual policy in a participatory economy would ultimately be settled democratically in light of results.

However, there are material incentives to implement socially useful innovations in a participatory economy. Any change that increases the social benefits of the outputs that workers produce, or reduces the social costs of the inputs they use will increase the workers council’s social benefit to social cost ratio. This makes it easier for the council to get its proposals accepted in the participatory planning process, can allow workers to reduce their effort, can permit them to improve the quality of their work life, or can raise the average effort rating (i.e income) the council can award its members. But just as in capitalism, adjustments will make any advantage temporary. As the innovation spreads to other enterprises, and as indicative prices change, the full social benefits of their innovation will be both realized and spread to all workers and consumers.

The faster the adjustments are made, the more efficient and equitable the outcome. On the other hand, the more rapid the adjustments, the less the “material incentive” to innovate and the greater the incentive to “ride for free” on the innovations of others. A participatory economy is better equipped to manage this tradeoff compared to a capitalistic economy. Most importantly, in a participatory economy “service to society” is recognised directly and is therefore a stronger incentive to innovation. This means that more innovation will occur in a participatory economy than in capitalism for the same speed of adjustments. Secondly, research and development (R&D) is largely a public good which usually is undersupplied in a market economy, whereas a participatory economy allocates resources to the production of public goods just as easily as to the production of private goods. Finally, in capitalism the only mechanism for providing incentives for innovation is to slow down their spread, at the expense of efficiency. This is done by making the transaction costs of registering patents and negotiating licenses from patent holders very high. While it is recommended only as a last resort, the transaction costs of granting extra consumption rights for a limited period of time would be negligible in a participatory economy.