What is Participatory Economics?

Jessica Ellis
Jessica Ellis

Participatory economics, also known as parecon, is an economic theory proposed as an alternative to both traditional socialism and free-market capitalism. Popularized by the efforts of activist Michael Albert and economist Robin Hahnel, the theory has gained both considerable interest and criticism since its inception. Possibly the most intriguing factor about participatory economics is that it dispenses with the idea that capitalism and socialism are the only possible economic principals, and introduces some new possibilities and concepts into the world of economics.

Woman holding a book
Woman holding a book

Proponents of parecon tend to believe that both capitalism and socialism have failed to meet their established goals. While centrally planned socialist economies have repeatedly been shown to fail through suppression of individual needs and few inhibitions to corruption, capitalist economies limit public access to prioritized technology, allow the mass gain of wealth and accompanying political power by corporations and a few individuals, and seem largely incompatible with the equality principles embedded in democracy. On the deepest level, what participatory economic rebels against is the idea that there are only two options; by creating a third potential model, the authors attempt to open the discussion on economics to new possibilities.

There are several main principles of participatory economics, some of which revolve around restructuring of workplaces. According to the model, business decisions would be made by the entire employee force rather than only upper management. Additionally, the idea of upper management would be eliminated by expanding the responsibilities of each position to create an average balance of power rather than a hierarchy. Payment would be given based on effort and sacrifice, so those in dangerous positions, such as firefighters, might be paid more than those in relatively safe jobs, such as janitors.

The system would rely on community and regionally based councils in which all participating members have a vote, and decisions are made by majority with some exceptions. Those with a vested interest in a particular issue might have more of a say in it; for example, construction workers might have a weighted vote in whether a town should build a bridge, since they will be doing the building. Prices would be set periodically or annually by determining how many and what kind of goods a community is able to produce, and which items are planned to be consumed. These supply and demand lists would go through a multi-round adjustment period for refinement based on conflicting needs.

The theory of participatory economics also suggests the elimination of fluidly circulating money. People would earn commercial credits only through working, based on the effort and sacrifice model for income, which could be exchanged for goods and services. When a person buys an apple, credits appropriate to the value are deducted from the individual's account, but simply disappear, rather than being added to a merchant's account. Since money is earned solely for work, profits are not a factor.

Criticisms of participatory economics are vast and come from multiple directions. Some cite the preponderance of bureaucracy created by the council system, while others question how a worker could be trained to do all necessary jobs to create a balance of power. Critics also cite inconsistencies in the theory, such as the fact that someone at some level will have to determine “effort and sacrifice,” and that physical danger and hours worked are from the only considerations in the importance of a job. Regardless of criticism, participatory economics receives praise from some quarters simply for opening a new level of debate on modern economic theory.

Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a wiseGEEK writer.

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Discussion Comments


The appropriate or transcendent system balance for America requires four systems: libertarianism to balance socialism and cooperativism to balance cooperativism. What we currently need in America is a job creation system developing worker owned manufacturing cooperatives. Using such a system inherently manifests the features of participatory economics and provides the working class an opportunity to participation in the management and benefits of their labor.

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