12/08: Karl Polanyi and Globalization

[논둑길맨발로]

Karl Polanyi and Globalization

---

By Girish Mishra

Thursday, October 09, 2008

Change Text Size a- | A+

Girish Mishra's ZSpace Page

Join ZSpace

If one wants to understand the real nature of ongoing globalization, based on the Washington Consensus and its impending fate, one needs to turn to Karl Polanyi's The Great Transformation, published in 1944. Polanyi's formulations are more relevant now than ever before. Fred Block of the University of California is quite correct when he states that even "after many decades, The Great Transformation remains fresh. Indeed, it is indispensable for understanding the dilemma facing global society at the beginning of the twenty-first century." Its durability lies in the fact it "provides the most powerful critique yet produced of market liberalism—the belief that both national societies and global economy can and should be organized through self-regulating markets. Since the 1980s, and particularly with the end of the Cold War in the early 1990s, this doctrine of market liberalism, under the labels of "Thatcherism," "Reaganism," "Neoliberalism," and "the Washington Consensus," has come to dominate global politics."

 

Soon after Polanyi's magnum opus appeared, the Cold War began and the bone of contention came to be capitalism versus the Soviet-style socialism and in this dispute it did not have much relevance. Only after the end of the Cold War when the Washington Consensus-based globalization has come to be pushed up and thrust on developing countries, it has become extremely relevant. Neoliberals have been maintaining that revolutionary changes in the sphere of transport and communications have made it clear that there is no way out but to accept the Anglo-American model of free market capitalism in order to integrate all national economies in one global entity to facilitate free flow of goods and capital. This vision of globalization has generated, all over the world, a great deal of opposition. Whether one is for or against, one can learn a great deal from The Great Transformation. 

 

Before we proceed further, let us have a look at the background of Polanyi. He was of Hungarian origin. Though born in Vienna in 1886, he was brought up in Budapest in an environment of social commitment and intellectual honesty. His brother was a noted philosopher of science and a nephew was awarded Nobel Prize in science. In the 1920s, Polanyi worked as a senior economic journalist and in the course of his work, he came across the views and arguments of Ludwig von Mises and his disciple, Friederich von Hayek, busy with their mission to restore the intellectual legitimacy of market liberalism, shattered by the World War I and the growing attraction towards socialism after the success of the Bolshevik Revolution. It needs to be noted that Polanyi's The Great Transformation and Hayek's The Road to Serfdom came out in the same year (1944). Both, Polanyi and Hayek, had their rationale for publishing their books. To Block, "While the former celebrated the New Deal in the United States precisely because it placed limits on the influence of market forces, the latter book insisted that the New Deal reforms placed the United States on a slippery slope that would lead both to economic ruin and a totalitarian regime." Even though Mises and Hayek had little impact for a long time, they, however, persisted in stressing their viewpoint. From the 1930s through the 1960s, Keynesian thinking dominated the governments' active handling of the economies in the West and market continued to be regulated by the state.

 

Mises and Hayek, however, succeeded in getting a number of followers, the prominent among them being Milton Friedman, the leader of the Chicago School. Hayek lived long enough to see the collapse of the Soviet Union and inspire Margaret Thatcher and Ronald Reagan to go in for his neo-liberal prescription, consisting of deregulation, liberalization and privatization.

 

Even though Karl Polanyi died in 1964 much before the advent of the Washington Consensus-led globalization, he had foreseen the disastrous results of neo-liberalism as early as the 1920s. As an economic journalist, he had witnessed the Great Depression and the rise fascism. He himself was forced to flee first to England and then to America. Even though he lived the rest of his life in the West, his primary concern was that part of the world that later came to be known as developing countries. In a letter to a friend he wrote on January 6, 1958: "My life was a ‘world'-life—I lived the life of the human world... My work is for Asia, for Africa, for the new peoples." Today when the developing world is the major target of the champions of neo-liberal economic policies going by the name of the Washington Consensus, Polanyi's book provides the analysis and arguments to mobilise the masses for a powerful resistance.

 

Coming to the book, it consists of three parts. Parts one and three, spread over five chapters, deal with the immediate conditions that led to the World War I, the Great depression, the New Deal and the rise of fascism. The riddle posed by Polanyi is: why did a prolonged period of comparative peace and prosperity, ranging from 1815 when Napoleon vanished from the scene to 1914, gave way to economic collapse and the Great Depression and the two world wars with global consequences? Part two of the book with its sixteen chapters tries to present the explanation.

 

Soon after the Industrial Revolution, Adam Smith came out with the formulation that if the state kept itself confined strictly only to three functions, namely, defence of the country from external enemies, maintenance of law and order internally and the provision of such services as roads, hospitals, schools, etc. that were consumed collectively but no individual or group of individuals was in a position to provide them and raise resources only to meet these obligations, "the invisible hand" or the market forces would run the economy smoothly. He cautioned that the formation of any kind of association or union by labour, producers of raw materials and goods, shopkeepers or consumers would vitiate the smooth running of the economy. In other words, he ruled out collective bargaining by labour and the formation of monopolies by producers. This was the theory of market liberalism whose central idea was that society should be subordinated to self-regulating market mechanism. England being the dominant economy of the world tried to impose it as the basis of organizing the global economy.

 

In the second part of the book (chapters 11-18) Polanyi showed that market liberalism gave rise to an inevitable counter response from the society to protect itself from harmful effects of market and resist its attempt to dominate the society. To quote Block, "These efforts meant that market liberalism could not work as intended, and the institutions governing the global economy created increasing tensions within and between nations. The collapse of peace that led to World War I, and the collapse of economic order leading to the Great Depression, are shown to be the direct consequence of attempting to organize the global economy on the basis of market liberalism. The second "great transformation"- the rise of fascism - is a result of the first "great transformation" - the rise of market liberalism."

 

Even though he agreed with Keynes as regards his critique of market liberalism, he had his own explanation for the dominance of market liberalism and for the consequences flowing from this dominance. The concept of embeddedness, put forth by him, is the key to his explanation. This concept underlines that, prior to the advent of Industrial Revolution, the economy was not autonomous, but an integral part of the society and was subordinated to its politics, customs, religious practices and traditions, and social relations. With Industrial Revolution, a new crop of economists, from Adam Smith onward, emerged; who did not think it was logical to continue with the old pattern of keeping the economy under the thumb of the society but to leave it under the system of self-regulating markets. Thus it was the society that came to be subordinated to the logic of the market. To quote Polanyi,"Ultimately, that is why the control of the economic system by the market is of overwhelming consequence to the whole organization of society; it means no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, social relations are embedded in the economic system. The vital importance of the economic factor to the existence of society precludes any other result. For once the economic system is organized in separate institutions, based on specific motives and conferring a special status, society must be shaped in such a manner as to allow that system to function according to its own laws. This is the meaning of the familiar assertion that a market economy can function only in a market society."   

 

Polanyi emphasized that "The step which makes isolated markets into a market economy, regulated markets into a self-regulating market, is indeed crucial." Yet it was wrong to say that "such a development was the natural outcome of spreading of markets. It was not realized that the gearing of markets into a self-regulating system of tremendous power was not the result of any inherent tendency of markets towards excrescence, but rather the effect of highly artificial stimulants administered to the body social in order to meet a situation which was created by no less artificial phenomenon of the machine."

 

Polanyi emphatically underlined that a completely self-regulating market, which was fully disembedded from the society was nothing but a chimera. It could not be realized in reality. In his own words, "Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus engendered society in yet another way. It was this dilemma which forced the development of the market system into a definite groove and finally disrupted the social organization based upon it."

 

The mission to create a totally self-regulating market economy is predicated on the assumption that both the human beings and natural environment are turned into pure commodities, that is, they are freely bought and sold. If this happens, it will result in the destruction of both human society and the natural environment. If we look around, it becomes obvious that the votaries of the ongoing globalization, based on the Washington Consensus, have been constantly pushing human societies to the brink of their doom. The phenomenon of global warming and its inevitable consequences are crystal clear. Human trafficking and the growing trade in human organs underline that human beings have been reduced to mere commodities. The efforts to increase the autonomy of market are bound to boomerang. The resistance to the ongoing globalization has been gaining momentum. People have been refusing to be seduced by the new pied pipers and acquiesce in the destruction of society and nature.

 

To understand the main plank of this resistance movement, let us go back to what Polanyi said. He termed the thing that was produced for sale in a market a commodity. From this angle, he made a distinction between a real and a fictitious commodity. He regarded land, labour, and money, not real but, as fictitious commodities as they were not primarily produced to be sold on a market.

 

As far as labour was concerned, converting it into a commodity was sure to prove disastrous. "To separate labour from other activities of life and to subject it to the laws of the market was to annihilate all organic forms of existence and to replace from by a different type of organization, an atomistic and individualistic one.

 

"Such a scheme of destruction was best served by the application of the principle of freedom of contract. In practice this meant that the noncontractual organizations of kinship, neighborhood, profession, and creed were to be liquidated since they claimed the allegiance of the individual and this restrained his freedom. To represent this principle as one of noninterference, as economic liberals were wont to do, was merely the expression‎ of an ingrained prejudice in favor of a definite kind of interference, namely, such as would destroy noncontractual relations between individuals and prevent their spontaneous re-formation."

 

The process of alienation of human beings from means of production forced them to sell their ability to work or starve. Thus their labour became a commodity. The destruction of primitive society along with all its pillars became indispensable for commodification of labour because in primitive society there was no fear of starvation. In India village community and joint family provided protection from starvation. Whatever else might have been the defects of pre-capitalist society in India, jajmani system was a stable form of the distribution of social product. To Polanyi, "It is the absence of the threat of individual starvation which makes primitive society, in a sense, more human than market economy, and at the same time less economic."

 

As regards land, it is an element of nature, which has been intimately linked to human institutions. To isolate it and convert it into a commodity has brought in far-reaching consequences that are being witnessed in many parts of India. Polanyi noted: "Traditionally, land and labor are not separated; labor forms part of life, land remains part of nature, life and nature form an articulate whole. Land is thus tied up with the organizations of kinship, neighborhood, craft, and creed—with tribe and temple, village, gild, and church. One Big Market, on the other hand, is an arrangement of economic life which includes markets for the factors of production. Since these factors happen to be indistinguishable from the elements of human institutions, man and nature, it can be readily seen that market economy involves a society the institutions of which are subordinated to the requirements of the market mechanism.

 

"The proposition is as utopian in respect to land as in respect to labor. The economic function is but one of many vital functions of land. It invests man's life with stability; it is the site of his habitation; it is a condition of the physical safety; it is the landscape and the seasons. We might as well imagine his being born without hands and feet as carrying on his life without land. And yet to separate land from man and organize society in such a way as to satisfy the requirement of a real-estate market was a vital part of the utopian concept of a market economy."

 

To convert land into a commodity, colonists tried their best to destroy social and cultural system of the colonized people. "The first stage was the commercialization of the soil, mobilizing the feudal revenue of the land. The second was the forcing up of the production of food and organic raw materials to serve the needs of a rapidly growing industrial population on a national scale. The third was the extension of such a system of surplus production to overseas and colonial territories. With this last step land and its produce were finally fitted into the scheme of a self-regulating world market." It is obvious that liquidation was synonymous with commercialization of land or making land a commodity. Thus land came under the purview of market. The next step was to make land produce raw materials and food to feed the newly-set up factories and labourers working there.

 

The crisis of self-regulating market system reflected itself in the First World War, the collapse of Gold Standard and the Great depression. Say's law that supply creates its own demand and the doctrine of self-regulating market, disembedded completely from society collapsed. While New Deal was one attempt to deal with the situation, the other two were planning and state regulation, and fascism.

 

What did fascism offer in order to tackle the crisis, brought about by liberal capitalism? Its prescription lay in the "reform of market economy achieved at the price of the extirpation of all democratic institutions, both in the industrial and in the political realm. The economic system which was in peril of disruption would thus be revitalized, while the people themselves were subjected to a re-education designed to denaturalize the individual and make him unable to function as the responsible unit of the body politic. This re-education, comprising the tenets of a political that denied the idea of the brotherhood of man in all its forms, was achieved through an act of mass conversion enforced against recalcitrant by scientific methods of torture."

 

It is interesting to note that both socialism and fascism were "rooted in a market society that refused to function." Further, fascism was directed against self-regulating market system as well as against its competitor, socialism. Polanyi points out, "In reality, the part played by fascism was determined by one factor: the condition of the market system."

 

The dominance of fascism was directly related to the health of the market system. During 1917-23 when market system was in good shape, its help was not needed to set it right. It remained undeveloped though governments, occasionally, sought its services to maintain law and order by crushing the forces that aimed at changing the existing socio-economic system. "In the period 1924-29, when the restoration of the market system seemed ensured, fascism faded out as a political force altogether.

 

"After 1930 market economy was in the general crisis. Within a few years fascism was a world power." It was during this period that it put forth an alternative to an industrial system, based on self-regulating market dispensation. Thus, "the emerging regimes of fascism, socialism, and the New Deal were similar only in discarding laissez-faire principles."

 

Market societies give rise to two contradictory tendencies, namely, the laissez-faire tendency to extend the boundaries of the market and the protective counter tendency to limit its scope. Not only labouring people, but capitalists, too, some time join the resistance because of the fear of uncertainty and fluctuations that self-regulating markets may give rise to.

 

Polanyi's formulations have not lost relevance in the present era of globalization. Nay, their importance has increased. Since the end of the Cold War we are being told day and night that a new irreversible era has begun in human history. It has begun making national boundaries as well as nation-states obsolete. Once nations accept the logic of the global marketplace, they have no option but to open the doors of their economies for free flow of goods and capital. This will pave the way for the replacement of age-old conflicts and rivalries with cordiality and friendly competition in the production of goods and services and coming out with better technologies and forms of business organization. Like their predecessors, neoliberals insist that all nations must have complete trust in the effectiveness of self-regulating markets.   

 

The present era of globalization is better placed than its predecessors. The current global financial system is more effective and trouble free than the gold standard. "Exchange rates and national currencies are no longer fixed in relation to gold; most currencies are allowed to fluctuate in value on the foreign exchange markets. There are also powerful international financial institutions such as the International Monetary Fund and the World Bank that play a major role in managing the global system. But behind these important differences there lies a fundamental commonality - the belief that if individuals and firms are given maximum freedom to pursue their economic self-interest, then the global marketplace will make everyone better off.

 

"It is this fundamental belief that lies behind the systematic efforts of neo-liberals to dismantle restraints on trade and capital flows and to reduce governmental "interference" in the organization of economic life."

 

Thomas L. Friedman, The New York Times columnist and a tireless champion of on-going globalization has asserted: "When your country recognizes ... the rules of the free market in today's global economy, and decides to abide by them, it puts on what I call "the Golden Straitjacket."  The Golden Straitjacket is the defining political-economic garment of the globalization era. The Cold War had the Mao suit, the Nehru jacket, the Russian fur. Globalization has only the Golden Straitjacket. If your country has not been fitted for one, it will be soon."

 

Golden Straitjacket requires that the role and functions of the state are drastically curtailed, the movements of trade and capital are freed from all restraints, and capital markets are deregulated. In the present era of globalization, a state has no option but to wear the new garment because it is forced on it by the "Electric Herd" of international traders on foreign exchange and financial markets. The question is: will this vision be realized?

 

If we have we keep Polanyi's analysis of three fictitious commodities in mind, it becomes obvious that "this neoliberal version of automatic market adjustment at the global level is a dangerous fantasy. Just as national economies depend on an active governmental role, so does the global economy need strong regulatory institutions, including a lender of last resort. Without such institutions, particular economies - and perhaps the entire global economy - will suffer crippling economic crises.

 

"But the more fundamental point that we learn from Polanyi is that market liberalism makes demands on ordinary people that are simply not sustainable. Workers, farmers, and small business people will not tolerate for any length of time a pattern of economic organization in which they are subject to periodic, dramatic fluctuations in their daily economic circumstances. In short, the neoliberal utopia of a borderless and peaceful globe requires that millions of ordinary people throughout the world have the flexibility to tolerate ... a prolonged spell in which they must survive on half or less of what they earned before. Polanyi believes that to expect that kind of flexibility is both morally wrong and deeply unrealistic. To him it is inevitable that people will mobilize to protect themselves from these economic shocks."

 

Increasing discontents lead to protests in various forms (including suicides by farmers in India as witnessed in recent times) whereby masses try to resist neoliberal globalization. If discontents become more intense and widespread, the ruling classes may resort to communalism, casteism, racism, regionalism, etc. to disrupt the unity of people and sow seeds of conflicts among them. Obviously, the utopian vision of the neoliberals leads to disastrous consequences.

 

It is not true that there is no alternative to the on-going globalization based on the Washington Consensus or neo-liberalism. From a reading of Polanyi's book, it emerges that the alternative lies in a combination of socialism and democracy. "Polanyi's vision depends on expanding the role of government both domestically and internationally. He challenges the now fashionable views that more government will lead inevitably to both bad economic results and excessive control of social life."

 

 

During the Cold War, the business of reform in the US came to an end. Only in the Scandinavian countries polanyi's vision remained influential and led to the emergence of welfare states." But in the larger countries, Polanyi's vision was orphaned, and the opposing views of market liberals like Hayek steadily gained strength, triumphing in the 1980s and 1990s."

 

With the Cold War becoming history, Polanyi's vision has assumed its relevance. It provides a real alternative to market liberalism-based globalization that is unsustainable and is bound to give rise to economic crises and authoritarian regimes. "The alternative is that ordinary people in nations around the globe engage in a common effort to subordinate the economy to democratic politics and rebuild the global economy on the basis of international cooperation."

 

In the end, "For Polanyi, the deepest flaw in market liberalism is that it subordinates human purposes to the logic of an impersonal market mechanism. He argues instead that human beings should use the instruments of democratic governance to control and direct the economy to meet our individual and collective needs."

 

      

                                                          Dr. Girish Mishra,

                                                          M-112 Saket,

                                                          New Delhi-110017

                                                          Tel. 29563211

                                                          E-mail: gmishra@girishmishra.com

 

---

Fred Block: "Introduction" to Karl Polanyi's The Great Transformation, Beacon Press, Boston, 2001, p.1

Ibid, p. 3, fn iv.

Ibid.

Ibid.

Karl Polanyi, The Great Transformation: the political and economic origins of our time, Boston, 1957, p.57.

Ibid.

Ibid.,  pp. 3-4.

Ibid., p.163.

Ibid., p. 164.

Ibid. p. 178.

Ibid. p.179

Ibid. p.237

Ibid. p.239

Ibid. p.242

Ibid.

Ibid. p.244

Fred Block, op.cit. p.18

Ibid.

Thomas L. Friedman, The Lexus and the Olive Tree, New York, 1999, p. 86

Fred Block, op. cit. pp. 18-19

Ibid. p.21

Fred Block, op.cit., p. 22

Ibid

Ibid., p.23

http://www.zcommunications.org/karl-polanyi-and-globalization-by-girish-mishra 

The Great Transformation: The Political and Economic Origins of Our Time

Posted Wed, 2000-05-31 20:00 by backend

Author: 

Polanyi, Karl

Reviewer: 

Mayhew, Anne

Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time. 1944. xiii + 305.

Review Essay by Anne Mayhew, College of Arts and Sciences, University of Tennessee. amayhew@utk.edu

Markets to Market to Protection: Karl Polanyi's Great Transformation

Karl Polanyi, once a World War I officer in the Austro-Hungarian army, a lecturer at the People's University, and a member of the editorial staff of Vienna's leading financial newspaper, who had been forced first from his native Hungary and then from Vienna by the turmoil of revolutions and dictatorships, began The Great Transformation as an exile in England at the end of the 1930s. He completed it in the U.S. during World War II. The task he set himself was to explain the political and economic origins of the collapse of nineteenth-century civilization, and the great transformation that Polanyi had lived through in the twentieth. As he saw it, four institutions were crucial to the economic and political order that had characterized the North Atlantic Community and its periphery in the nineteenth century: a balance of political power, the international gold standard, a self-regulating market system, and the liberal state. The SRM (self-regulating market) was "the fount and matrix of the system," the "innovation which gave rise to a specific civilization" (p. 3).

The Great Transformation is a history of the SRM: of its emergence from the fact that the Industrial Revolution of the late eighteenth and early nineteenth centuries took place within a thoroughly commercial though not yet thoroughly market-organized economy; its nurture through the efforts of the liberal economists and statesmen of England in the first decades of the nineteenth century; and finally its demise as a consequence of the "protective reaction" to counteract the consequences that the SRM spawned. Two crucial differences between Polanyi's analysis and that of most other historians of the economy and of the thought of the nineteenth century are so important to understanding his work that they must be made explicit even before their role in the larger argument is recounted. Polanyi differentiated between economic systems in which there were markets and the "starkly utopian" SRM of the nineteenth century. Markets are places or networks in which goods are bought and sold; they are human interactions organized by price, quality, and quantity of traded goods and services. The SRM was a society-wide system of markets in which all inputs into the substantive processes of production and distribution were for sale and in which output was distributed solely in exchange for earnings from sales of inputs. The second crucially distinct feature of Polanyi's analysis is his argument that the SRM could not survive -- not because of the distributional consequences that play the major role in Marx's explanation of the inevitable collapse of capitalism -- but because the starkly utopian nature of the SRM gave rise to a spontaneous counter movement, even among those enjoying increased material prosperity. Society is vital to humans as social animals, and the SRM was inconsistent with a sustainable society.

Polanyi developed his argument from the work of many economic historians, historians of thought, anthropologists, and others. The Industrial Revolution of the late eighteenth and early nineteenth centuries was "an almost miraculous improvement in the tools of production," but was also an equally powerful revolution in economic organization that was in part a consequence of the introduction of the new machines into an already commercially organized economy, and in part a social experiment. Up to this point the economies of much of Western Europe, and certainly of most of Britain, had been quite thoroughly commercialized: cottage industries, paid agricultural labor, and thriving trade in towns meant that most people earned money and used that money to buy the material stuff of life. However, as Polanyi also noted, control and regulation of markets by governments and other organizations were also widespread and common. Markets were controlled; they did not control until the beginning of the nineteenth century.

In laying out this argument, Polanyi recognized the need to deal directly with the proposition, itself a creation of late eighteenth and early nineteenth century British thought, that market organization of economic activity was the natural state of human affairs. Polanyi was (counter to what many of his later critics say) quite well aware that markets and careful calculation of prices by buyers and sellers alike had long been important parts of many human societies. By use of logic and of the historical record, Polanyi developed a schema of "forms of economic integration": that is, forms of organization for production and distribution, of which the familiar circular flow of an idealized capitalist economy (the SRM) is only one. Polanyi developed his schema for characterizing economies to show that economies could and had been organized in ways other than through an SRM. He argued that the organization of production and distribution in many societies had been accomplished through social relationships of kin or community obligations and counter obligations (reciprocity) and that other societies, on scales as small as a band of Kung bushmen or as large of Hammurabi's empire, or even as large as the planned economy of the Soviet Union, employed redistributive systems.

In much of Western Europe a combination of redistributive and reciprocative systems dominated through the end of the feudal and manorial era, and came to be increasingly supplemented and then replaced by market trading, the control and encouragement of which was a major focus of medieval municipal and mercantilist national governments. (In The Great Transformation Polanyi also described "householding" as a form of integration, but in later work reclassified it as "redistribution writ small.")

Then, toward the end of the eighteenth century, and with full force in the first half of the nineteenth century, two things happened. The rapidly expanding factory system altered the relationship between commerce and industry. Production now involved large-scale investment of funds with fixed obligations to pay for those funds. Producers were less and less willing to have either the supply of inputs or the vents for output controlled by governments. The second and closely related change was the development of economic liberalism as a body of thought that provided justification of a new set of public policies that facilitated transformation of land, labor, and capital into the "fictitious commodities" of a self-regulating system. Land (nature), labor (people), and capital (power of the purse) were not in fact produced for sale. Nor did the available quantity of land, labor, and capital disappear inconsequentially when relationships of supply and demand produced low input prices. This issue was, of course, particularly acute in the case of labor and led to the dismal conclusions of classical economics. Polanyi describes how, in spite of the threat to social order, the philosophy that came to be called "laissez faire" was "[b]orn as a mere penchant for non-bureaucratic methods . . . [and] evolved into a veritable faith in man's secular salvation through a self-regulating market" (p. 135). Polanyi describes this evolution of British thought from the humanistic approach of Adam Smith, who wrote in a time of "peaceful progress," through Malthus's acceptance of poverty as part of the natural order, and on to the triumphant liberalism of the more prosperous 1830s. What is important is that a set of recommendations about public policy was transformed into widespread acceptance as the laws of a natural order.

Polanyi called the continuing tension and conflict between the efforts to establish, maintain, and spread the SRM and the efforts to protect people and society from the consequences of the working of the SRM "the double movement." On one side was a concerted philosophical and legislative program to establish the SRM from the enclosures of the 1790s through the Poor Law Reform of 1834 to the Ricardian Bank Charter Act of 1844 and the repeal of the Corn Laws in 1846. The other side was a widely varying, unorganized set of movements, legislative reforms, and administrative actions to limit the effects of self-regulation, from the Chartists through early legislation to limit the hours and places of work of women and children, through the growth of labor unions, and through the emergence of the Bank of England as lender of last resort, to reimposition of tariffs on foodstuffs, and to the first legislation presaging the welfare state. As the SRM was impaired in operation, justifications for international economic cooperation and the liberal state weakened.

Polanyi's story of the tensions in and collapse of the self-regulating economies that developed in the first half of the nineteenth century differs sharply from the story that Marx anticipated and from the story that Marxian economists have told. Though Polanyi argues that perception and response to the damages of the SRM varied by class, and therefore "the outcome was decisively influenced by the character of the class interests involved," (p. 161) it was not unfair distribution of total output via exploitation that caused the tensions and ultimate collapse of the SRM system. The working class did not rise up to overthrow the system. Rather, land owners and bankers as well as merchants, whose interests were often threatened by fluctuations in trade, joined workers in seeking protection. As they got protection, the SRM was "impaired," eventually the point of collapse. Increasing protection so impaired the SRM that it could no longer coordinate the world's economy when World War I destroyed Europe's balance of power. The struggle to restore the nineteenth century system by reestablishing the gold standard destroyed the international financial system.

Dictatorships in some places and more benign management elsewhere emerged in nationally varying responses to the collapse of the SRM system. Polanyi was optimistic but uncertain about what the longer term results of the reaction to the nineteenth century utopian experiment in economic organization would be, and if he were alive today his answer might remain uncertain for, to a remarkable extent, the conflicting sides of Polanyi's double movement still dominate debates in public policy. As neo-liberalism founded on faith in secular salvation through the natural emergence of a self-regulating market system has spread in Central and Eastern Europe and in Asia, Africa, and Latin America, so too have calls for protection of man, nature, and national interests. The framework that Polanyi provided for understanding the collapse of nineteenth century civilization and the rise of the troubled twentieth remains powerful.

Having said this, however, it must also be said that The Great Transformation contains some major errors of omission and interpretation. Most striking to me, as an economic historian of the United States, is his cavalier and quite wrong assertion that a double movement did not develop in the U.S. until after 1890 because, until then, "free land," a ready supply of cheap labor, and a lack of commitment to keeping foreign exchanges stable meant that a fully self-regulating market did not exist and no protection was needed. This is plainly wrong. In addition, some students of England in the late eighteenth and early nineteenth century quarrel with his interpretation of the Speenhamland system of subsidies in aid of wages.

However, the strongest and most long lasting criticism of The Great Transformation has been directed at the passages where he argues that reciprocative and redistributive forms of integration have been much more common in human history than self-regulating market systems. These criticisms invariably focus, however, not on the forms of integration themselves but on the mistaken proposition that Polanyi assumed the forms to be founded on different human motives: the SRM on self-interest and rational calculation and reciprocative systems on kindness and generosity. (Far less has been said about motives associated with redistribution, probably because emphasis has been on the contrast between greed and kindness, and on the proposition that "you cannot change human nature," with the associated proposition that the nineteenth century British economy was truly natural.) The original attack of this kind came, not from economists or economic historians, but from anthropologists whose disciplinary literature Polanyi had used in making his assertion. Beginning in the early 1960s, anthropologists, for reasons having to do with changing political structures in the worlds that they studied and because of the evolution of thought in their discipline, began to insist that the primitive and peasant peoples whom they studied were as rational as any westerners.

These anthropologists -- known as formalists in the debates that ensued -- found in Polanyi, and in the work of some of his followers such as George Dalton, a convenient target. They accused Polanyi and his followers of romanticism about other peoples. Description of behavior in reciprocative systems was fodder: "The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay" (italics added, p. 46). To anthropologists, who ignored the crass and rational self-interest implied by the phrase that I have italicized, this smacked of saying that non-modern, non-western people were "different" and not self-interested and rational. They disagreed and by extension dismissed the rest of Polanyi's argument about reciprocity and the SRM.

Very similar arguments have been mounted by some economists. The passage most often quoted in ridicule of Polanyi's argument is this: "previously to our time no economy has ever existed that, even in principle, was controlled by markets . . . gain and profit made on exchange never before [the nineteenth century] played an important part in human economy" (p. 43). Deirdre McCloskey, both in print and in a heated exchange on the FEMECON list serve, faults Polanyi in a way that illustrates precisely the difficulty that many readers, anthropologists and economists alike, have had with the book. McCloskey says that Polanyi asked the right question, but gives the wrong answer in saying that markets played no important role in earlier human societies. As proof McCloskey cites evidence that, the further away from their source of obsidian the Mayan blade makers were, the less was the ratio of blade weight to cutting length. To McCloskey this indicates that "By taking more care with more costly obsidian the blade makers were earning better profits; as they did by taking less care with less costly obsidian" (1997, p. 484). Ergo, Polanyi is wrong, presumably about the existence of other forms of integration and their importance. To be more careful with harder to get valuables is certainly rational, but it is not evidence of how blade makers were provisioned with material means for their sustenance or joys.

It is one thing to note that people for whom shipment of obsidian was difficult treated it with care; another to assume that they used it to produce goods that they sold for profit. Polanyi is in fact careful to note that the range of human motives varies little across systems, with the specific form of action that any motive such as self-interest, generosity, anger, or jealousy may take dependent upon the system. The economic system does not, however, depend upon the presence, or absence of the preponderance of any one motive. That this is perhaps the most difficult point that Polanyi makes is itself testament to the success of those who created the justifications for the nineteenth century.

In the years after publication of The Great Transformation Polanyi and a number of colleagues and students expanded analysis of the forms of economic integration and produced the collection of essays published as Trade and Markets in Ancient Empires. Both books present Polanyi's understanding of what made the economies of the nineteenth and of the twentieth centuries so different, and with such far-reaching consequences, Polanyi created a way of thinking about economies and societies that has had substantial impact on economic history, anthropology, and the study of the ancient Mediterranean. The Great Transformation remains important as a highly original contribution to the understanding of the Western past; it has been and is important in methodological debates in the social sciences. Beyond that, as the double movement continues, the book is likely to remain one of the best guides available to what brought us to where we are.

Annotated References:

Polanyi, Karl. 1944, 1957. The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon Press by arrangement with Rinehart & Company, Inc. (The Beacon Press version remains in print and is the version for which page numbers are given in this essay. The book has been translated into and published in Hungarian, Chinese, Japanese, French, German, Portuguese, and Spanish).

Dalton, George. 1961. "Economic Theory and Primitive Society," American Anthropologist 63 (Feb.): 1-25. [One of the articles that sparked the formalist-substantivist dispute in economic anthropology.]

Drucker, Peter. 1979. Adventures of a Bystander. New York: Harper & Row. [This book contains an account of the remarkable Polanyi family by a friend who knew them in Vienna.]

Duncan, Colin A.M. and David W. Tandy. 1994. From Political Economy to Anthropology: Situating Economic Life in Past Societies. Montreal and New York: Black Rose Books. [Selection of papers from annual Polanyi Institute Conference.]

Finley, Moses I. 1978. The World of Odysseus . New York: Viking Press. [Classic application of Polanyi to the ancient world.]

Halperin, Rhoda. 1988. Economies Across Cultures: Towards a Comparative Science of the Economy. New York: St. Martin's Press.

Mayhew, Anne. 1972. "A Reappraisal of the Causes of Farm Protest in the U.S., 1870-1900." Journal of Economic History 32 (June): 464-475. [Though not acknowledged as such, this was an application of Polanyi's ideas to the U.S. economy.]

Mayhew, Anne. 1980. "Atomistic and Cultural Analyses in Economic Anthropology: An Old Argument Repeated," in John Adams, editor, Institutional Economics: Contributions to the Development of Holistic Economics . Boston: Martinus Nijhoff.

McCloskey, Deirdre N. 1997. "Polanyi was Right, and Wrong." Eastern Economic Journal 23 (Fall): 483- 487.

North, Douglass C. 1977. "Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi." Journal of European Economic History 6 (Winter): 703-716.

Polanyi, Karl, Conrad M. Arensberg, and Harry W. Pearson. 1957. Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Illinois: The Free Press.

Sievers, Allen M. 1974. The Mystical World of Indonesia: Culture and Economic Development in Conflict. Baltimore: Johns Hopkins University Press. [Polanyi applied to development issues.]

Schaniel, William C. and Walter C. Neale. 2000. "Karl Polanyi's Forms of Integration as Ways of Mapping." Journal of Economic Issues 34 (March): 89-104.

Tandy, David W. 1997. Traders and Warriors: The Power of the Market in Early Greece. Berkeley: University of California Press. [Recent application of Polanyi to the ancient world.]

Geographic Area: 

General, International, or Comparative

Subject: 

Markets and Institutions

Time period: 

20th Century: Pre WWII

 http://eh.net/node/2743

The revenge of ideas: Karl Polanyi and Susan Strange

Fred Halliday, 24 September 2008

Subjects:

• Economics
• globalisation
• global politics
• economics

The crisis of the finance sector is vindication of the neglected work of an economic historian of "great transformation" and an anatomist of "casino capitalism", says Fred Halliday.  

About the author

Fred Halliday (1946-2010) was most recently Institució Catalana de Recerca i Estudis Avançats / Catalan Institution for Research and Advanced Studies (ICREA) research professor at the Institut Barcelona d'Estudis Internacionals (Barcelona Institute for International Studies / IBEI). He was from 1985-2008 professor of international relations at the London School of Economics (LSE), and subsequently professor emeritus there

Fred Halliday's many books include Political Journeys: The openDemocracy Essays (Saqi, 2011); Caamaño in London: the Exile of a Latin American Revolutionary (Institute for the Study of the Americas, 2010); Shocked and Awed: How the War on Terror and Jihad Have Changed the English Language (IB Tauris, 2010); 100 Myths about the Middle East (Saqi, 2005); The Middle East in International Relations: Power, Politics and Ideology (Cambridge University Press, 2005); Two Hours That Shook the World: September 11, 2001 - Causes and Consequences (Saqi, 2001); Nation and Religion in the Middle East (Saqi, 2000); and Revolutions and World Politics: The Rise and Fall of the Sixth Great Power (Palgrave Macmillan, 1999)

During the two decades or so that I taught "international relations" as an academic discipline at the London School of Economics and Political Science (LSE), the most challenging and rewarding part of the job was giving core-course lectures on political and social ideas - sometimes branded "theory" - that are relevant to understanding the arena of relations between states and peoples. The heart of the postgraduate masters' course was a set of "great books": not a tight or fixed canon but a body of works that introduced some shaping ideas (sovereignty, states, and nation, forexample) - and which, above all, got the students thinking. 

There were three books that gave me particular satisfaction in teaching, because each in its own way did what all education should do, namely challenge the assumptions of common sense. The first was EH Carr's classic, The Twenty Years' Crisis (1939), a work that combined an attack on the illusions and wishful thinking of much writing on international relations with a staunch defence of the need for utopia, dreams, and distant aspirations in human affairs.

The second key book was Benedict Anderson's Imagined Communities, a study of how the sentiments and affinities of people who had no direct experience or contact with one could coalesce into a shared identity which they came to understand as national, and of the arbitrary and artificial (if often inexorable) nature of this emergent belonging. To tell a group of 100 young people from all over the world that their own much cherished nations were modern rather than ancient, little more grounded in objective fact than the loyalties of a club of football supporters, and that the very concept of "nation" was analytically and morally questionable, was a rare, professorial and cosmopolitan, pleasure. If they remember nothing else of what I taught, I hope they remember that. 

A retrieval‎! of history

The third great and thought-provoking, work was Karl Polanyi's The Great Transformation: The Political and Economic Origins of Our Time (1944). This is a book of imaginative and wide-ranging historical sociology that traces the rise of the modern capitalist market from the industrial revolution in England in the late 18th century (the "great transformation" of the book's title) to the convulsions of the 1920s and 1930s and the outbreak of the second world war. 

Polanyi's book begins in the unlikely setting of the Pelican Inn - a pub in Dorset, England's "west country", where in the 1790s agricultural labourers met to protect their living standards. It goes on to provide a compelling, if wilfully digressive, account of how modern markets work; and in particular of the inbuilt instability, and inexorable swings and oscillations, that they embody. The author challenges the idea that there is anything "natural" or universal about the modern market; Polanyi emphasises the cultural and political underpinnings of markets, and shows how this complex phenomenon - at once generating wealth and provoking instability and poverty - is the particular outcome of modern industrial society.

His conclusion is a product of the broad, social-democratic, and informed liberal opinion of the time - that is, in the aftermath of the great depression in the 1930s and during a global war: that markets are human and contingent entities that have to be regulated, and managed, by states. There is no such thing as a "hidden hand". A "pure" market unanchored to other social institutions and practices cannot exist. 

The argument that Karl Polanyi (1886-1964) makes about markets could be extended to other human practices and institutions for which the same universality and inexorable "naturalness" is sometimes claimed: belief in God, the authority and indeed desirability of monarchs, the heterosexual and nuclear family, the inevitability of empires and other forms of inter-state inequality, the violent character of particular peoples or regions of the world, and the liberal-democratic order itself.

In face of such "reification" - the resort to inevitability that defenders of all these institutions make - the prerequisite critical move is less to challenge the institutions' desirability (which may insome cases be strong) but to show how arbitrary, fragile and contingent they are. It is precisely this historicisation and demystification that critical thought is intended to achieve. 

Polanyi himself led a nomadic existence. He fled his native Hungary in 1919; worked as an economic journalist in Austria until 1933; lived in England where he taught for the Workers Educational Association through the second world war; then moved to teach at Columbia University before being obliged to move residency to Canada (as his wife Ilona Duczynska's communist affiliations meant she was denied an entry visa to the United States). Polanyi died in Canada in 1964, and is interred with his wife in his Hungarian homeland.

Thoughout his life - and in Austria as much as in the US - Polanyi criticised the lack of realism of orthodox economics. The Great Transformation has been subjected to criticism from a number of directions, while more recently the tradition that its author represented has been pushed to one side by financiers and speculators (in the world of practice) and the majority of economists (in the academic world). In the process, a raft of ubiquitous supportive words and phrases have been generated to perpetuate the idea of the naturalness of the market - among them "market adjustments", "natural self-correction", "iron laws of trade and finance", "market forces" themselves.

But the greatest myth of all is that of the "free market" itself, as if the modern market was ever free in a meaningful way- of state guarantees, of security, international law, labour control and regulation; and as if a system in which power was allocated in a grotesquely unequal and unstable manner could be said to guarantee the "freedom" of most people subject to it. For Polanyi, the market - and the economy generally - was (in the words of one of his most important papers) - an "institute process"; a perspective that opens lines of inquiry that still reverberate across several disciplines (see Ayse Bugra & Kaan Agartan, Reading Karl Polanyi for the Twenty-First Century: Market Economy as a Political Project [Palgrave, 2007]).

An intellectual fusion

The high point of such "neo-liberal" glorification of markets came in waves - with the Reagan-Thatcher years of the1980s; the fall of the socialist planned economies in the early 1990s; the IT boom and the rise of China in the 2000s. All seemed to confirm‎! the trend. Yet thoughout these years the message of Polanyi - and of others who had insisted on the need for the state to regulate markets, such as JM Keynes in Britain and JK Galbraith in the US - continued to inspire some. 

Among them, and with a flamboyance born of her earlier years as a financial journalist on the Observer and the Economist, was my former colleague and patron, Susan Strange (1923-98). Susan was a pioneer of the reintegration of politics with economics, in the discipline named "international political economy"; together with a number of colleagues in the US, she sought to re-establish the analytic and public-policy linkage between states and markets. 

Long before most, Susan recognised that the world of finance was growing in importance on a global scale and was not merely determined by the field of production. Casino Capitalism, a book of prophetic insight written in the early 1970s, was indeed about how a new world of global finance, independent of states and of industrial production, had begun to emerge. It had been made possible by Richard Nixon's cutting the link of the dollar to gold in 1971 and by new forms of global communications technology. The "casino" in the title refers not to the role of speculation and gambling in world finance, but to the fact that, for the first time in history, global markets were open twenty-four hours a day. 

This conception of finance as an autonomous sphere of economic activity was presented alongside the argument that no economic system - industrial, financial, agricultural - could function without the active role of the state. Her theoretical aspiration was to echo the pioneering work of Adam Smith, David Ricardo and Karl Marx in bringing together the study of politics and the state with that of the economy and markets. The policy injunction that followed was that the modern state had to promote and protect markets, just as it did (for example) security of traveland transport, the stability of currencies, the promotion of education and scientific research, and other often unacknowledged but essential supports. 
Also in openDemocracy on the global financial crisis of 2007-08:

Saskia Sassen, "Globalisation,the state and the democratic deficit" (18 July 2007)

Robert Wade, "The financial crisis: burst bubble, frayed model"(1 October 2007)

Avinash D Persaud, "The dollar standard: (only the) beginning of the end"(5 December 2007)

Willem Buiter, "The end of American capitalism (as we knew it)" (17 September 2008) 

This approach was developed in Susan Strange's laterbook Mad Money: When Markets Outgrow Governments (1998). This work anticipated the current hubris of financial leaders and policy-makers - in their belief not just that one upon another set of bogus practices and inflated loan systems could be sustained, but in that what they had created somehow corresponded to a natural and hence implicitly eternal order. Such beliefs are above all rooted in ignorance of history. Now, in the dramatic days of mid-September 2008, the unprecedented intervention of the United States government and of its European counterparts in financial markets also confirm‎!s the validity of much of Karl Polanyi and Susan Strange's approach to the understanding of political-economic life and institutions. 

A reopened door

I never met Karl Polanyi, though I did meet his daughter Kari Polanyi-Levitt (professor of economics at McGill University,Montreal). I did know and admire Susan Strange, a person of indomitable optimism, humour and mordant tongue. Her favourite slogan, one that from his experienceas a financial journalist Polanyi would for sure have endorsed, was: "Always attack the economists!" I can only imagine her now, propping up a bar somewhere in southern England, a pint of beer in her hand, and a twinkle in her eye, pouring scorn on the placebo analyses of Alan Greenspan and George Soros, on the conceits of her former employer, the Economist, and on the folly of the captains of finance in the City of London and Wall Street (see Ann Pettifor, "The week that changed everything", 22 September 2008).

Yet both Susan Strange and Karl Polanyi would also affirm that if markets' equilibrium-seeking self-corrective mechanism was fictive, moments of economic crisis and transformation were a challenge to make their own ideas part of the self-understanding of the age. Perhaps then the financial sector's unfolding implosion will - as well as teaching market fetishists a sobering lesson - create further space for a revival of interest in the work of these fine, relevant thinkers. In the meantime, and with every day's news confirm‎!ing the instinct, let there be no respite for the economists.     

READ ON

Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Beacon Press, 1944) 

Ayse Bugra & Kaan Agartan, Reading Karl Polanyi for the Twenty-First Century: Market Economy as a Political Project [Palgrave, 2007]

Susan Strange, Mad Money: When Markets Outgrow Governments (University of Michigan Press, 1998)

Karl Polanyi Institute of Political Economy

Mark Harvey et al., ed., Karl Polanyi: New Perspectives on the Place of Economy in Society (Manchester University Press, 2008)

The Great Transformation: The Political and Economic Origins of Our Time

http://www.opendemocracy.net/article/the-revenge-of-ideas-karl-polanyi-and-susan-strange 

[논둑길맨발로]

Karl Polanyi and Globalization--맥스, 애나

The Great Transformation: The Political and Economic Origins of Our Time--베로니카

The revenge of ideas: Karl Polanyi and Susan Strange-케이티