decided by federations representing those who live in a region, who are advised by scientists employed in R&D operations run by their federation10 … If a worker council proposes to emit x units of a particular pollutant into an affected region they are ‘charged’ the indicative price for releasing that pollutant in the region times x … The consumer federation for the region affected looks at the indicative price for a unit of any 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 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 from work would otherwise warrant. (pp. 124–5)
If the consumers harmed by pollution are unwilling to permit, at the level of compensation offered by the price of pollution, as much pollution as the producers would like, then the price for units of pollution will go up in the next round of the iterative planning process. And if the price is too high, then the federation of consumers affected by pollution will want to purchase more units of pollution than the producers will want to emit, and so the price will decline in the next round. This continues iteratively until an equilibrium is reached.
This is indeed a clever device. The principal alternative discussed by Robin is pollution taxes (called “Pigouvian taxes”) set equal to the value of the negative externalities and imposed on polluters. The problem with such taxes, as Robin points out, is the difficulty in knowing how high to set the taxes to fully cover the amount of damage caused by the pollution. What Robin proposes is a specific method for determining the level of those taxes by organizing what is very much like a series of collective auctions for the right to pollute. The auctions continue until there is an equilibrium between the demand for pollution payments and the supply of pollutants offered by producers. Robin sees the process as iterative adjustments in the indicative price for pollution, but it could equally well be described as a method for determining the Pigouvian taxes on pollutants. This looks a lot like a quasi-market in which the buyers and sellers are councils of various sorts acting as agents for individuals as consumers and workers.
This device for calculating the value of externalities could work well in some situations. But it could easily become extremely complex and cumbersome. There are a number of issues in play: The geographical boundaries of a particular source of pollution may or may not correspond to the boundaries of existing consumer federations. If the smallest scale federation that includes all of the affected areas is the relevant decision-making body, then this would often include large numbers of consumers unaffected by the pollution. This undermines the sense in which the valuation of damage by the federation as a whole would reflect the subjective valuation of those most affected by the pollution in question. Would coalitions of most affected consumers be able to constitute themselves as an ad hoc federation and insist on higher prices for the rights to pollute? Furthermore, even apart from the fact that different parts of a region will have differential damage, there may be considerable heterogeneity among the population of an area with respect to how much they care about the damage in question. This is obviously a problem in any system for constructing a metric of damage from pollution, but it adds special complexity when the process is meant to be participatory and deliberative. Would consumers with stronger anti-pollution preferences be able to form an ad hoc federation to demand higher pollution prices? Could they constitute a blocking coalition?
Finally, unless I am misunderstanding the process involved, the procedures Robin advocates would likely generate considerable heterogeneity in the pollution taxes (i.e. the negative externality charges built into “indicative prices”) faced by producers of similar goods in different places. This means producers in areas where consumers don’t care so much about pollution would be able to produce at lower cost. However, there is no restriction (as far as I can tell) that they only distribute their products to the pollution-indifferent consumers. This means that the same goods will be available to consumers elsewhere at lower and higher indicative prices depending on the pollution preferences of consumers in the places where production takes place. This begins to look like a situation that generates market pressures on the high cost producers.
Given that there are many thousands of potential pollutants, and the geographical damage-boundaries of different pollutants from the same production process will often be different, the actual process by which negative externalities are dealt with through iterated annual planning by consumer federations could become extremely cumbersome and inconsistent. In such a situation, consumers might decide that they prefer a simpler system that combines government regulations that impose various kinds of limits on allowable pollution with a system of uniform taxes on different types of environmental externalities. Given that, in a participatory economy, the democratic accountability of government policy making will not be distorted by concentrations of private power as in capitalism, consumers-as-citizens might prefer the uniformity and predictability of such a regulatory system even though it would be less immediately responsive to the particular preferences for levels of pollution of citizens-as-consumers.
Risk-Taking Innovation
I have no problem with the broad principle that a great deal of investment in new projects—perhaps even a large majority of investments—could be effectively organized through some kind of participatory, democratic planning process involving various kinds of councils and federations. Whether this would be precisely organized along the lines of worker councils and sectoral federations as proposed by Robin or through some other institutional arrangement is a secondary matter; the important point is that it is plausible that much investment can be productively allocated through directly democratic processes.
What is less clear to me is whether the optimal system would eliminate all features of more market-like allocations for at least some investments. Is there good reason to believe that the optimal system would allow no investments outside of the decision-making processes of councils and federations? Consider the following example:
Suppose a group of people have an idea for some new product but they cannot convince the relevant council or federation to provide them the needed capital equipment and raw materials to produce it. There is just too much skepticism about the viability of the project. An alternative way of funding the project could be through a form of crowdsourcing finance along the lines of Kickstarter. The workers involved would post a description of the project online and explain their specific needs for material inputs. They appeal to people (in their role of consumers) to allocate part of their annual consumption allowances to the project. Consumers might decide, for example, to put in extra hours at work in order to acquire the extra funds needed for their contribution, or they might just decide to consume less of some discretionary part of their consumption bundle. Once sufficient funds are raised in this manner, the project can proceed. Such a device could be used for an experimental theater project that the relevant sector federation (which would in effect function like an arts council) thinks is a waste of resources. Or it could be used for some new manufactured product.
There are a variety of motivations that might lead people to voluntarily make this allocation. They might believe in the social value of the project and therefore be willing to give the funds as an outright grant. This is currently the motivation behind a range of Kickstarter projects in the arts. Or they might be really keen on the product, and give the funds in exchange for a promise of being the first to get the product itself at an equal value to what they gave. This would, in effect, be simply a long-term pre-order of the product, although operating outside of the mechanism of the IFB. But potential contributors to the project might also only be interested in contributing if they got a positive return on their
