"To allow the market mechanism to be the sole director of the fate of human beings
and their natural environment indeed, even of the amount and use of purchasing
The current crisis in the light of Karl Polanyi by Phil Hearse power, would result in the demolition of society." Karl Polanyi T his article looks at the current world turmoil and
suggests that a great deal of light can be shed on it by using the theories of the Austrian-born political economist Karl Polanyi, and particularly his book The Great Transformation published in 1944'. It also discusses the controversial question of whether the current crisis marks the end of this phase of neoliberalism, the so-called 'Washington consensus' based on privatisation, free markets and the dominance of finance capital.
Polanyi had an ambiguous relationship with Marxism and some of his key differences with orthodox Marxism are discussed here; but much of what he says about free market liberalism and crisis are completely in line with historical materialism and its understanding of human history.
The 'great transformation' that Polanyi discusses is the rise of free market liberalism and then its collapse in the 1930s - and its replacement by other modes of economic and political functioning, in particular fascism. He explains that the theory and practice of self-regulating markets had only come into existence in the second half of the 19th century and he insists that this, far from being "natural' or obvious, is a departure from the whole of previous human history. He says (apologies for the gendered language universal in 1944):
"The outstanding discovery of recent historical and anthropological research is that man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts
31 * Marxism so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end. Neither the process of production nor that of distribution is linked to specific economic interests attached to the possession of goods; but every single step of that process is geared to a number of social interests which eventually ensure that step is taken." (Great Transformation p.48) This isn't exactly the way orthodox Marxists would express it, but there are strong parallels. What Polanyi is doing here is polemicising against the notion of 'homo economicus, the free market liberal myth that human beings are by nature self-interested economic actors, concerned primarily to maximise their wealth possessions.
The fundamental problem says Polanyi is that with the advent of free market liberalism, instead of the economy being subject to society, society is subject to the economy. He of course has no illusions that before free market liberalism there was any sort of egalitarian or nonclass society. Far from it. But what he points out is that until the emergence of free market capitalism the economy was subject to other imperatives, those imposed under feudalism for example by the noble aristocracy, the crown and the church. He uses the notion of 'embeddedness' to explain the interaction of the economy and society at large. Sure, he says, every society is limited by the extent of its economic production, but only with free market
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32 Why neoliberalism led to crisis, war and uprising capitalism do strictly economic imperatives override everything. The comparison with the situation under modern neoliberalism is obvious, even more in the moves which western governments are taking to address the
Polanyi compares the 'conservative 1920s' to the 'revolutionary 1930s," the former decade being when free market liberalism let rip with a vengeance. in a giant speculative boom, the the latter when after the 1929 crash free market liberalism was challenged by radical political alternatives, in particular fascism. Why did this happen?
First, according to Polanyi - and this is key to his whole theory - the attempt to impose the dominance of the economy over everything must ultimately fail. Inevitably it leads to massive inequalities, conflicts between states and intolerable pauperisation. Once it gets to the stage where living standards are falling by 5% each year, there will be mass rebellion. Society will reassert itself against the economy. This doesn't mean that the challenge will have to come from the left. On the contrary, Polanyi sees fascism as one form of society trying to impose its domination over the economy again.
"If ever there was a political movement that responded to the needs of an objective situation, and was not the result of fortuitous causes, it was fascism... It offered an escape from the institutional deadlock, which was essentially alike in a large number of countries, and yet, if the remedy were tried it would produce everywhere sickness unto death. This is the manner in which civilisations perish. The fascist solution to the impasse reached by liberal capitalism can be described as a reform of market economy achieved at the price of the extirpation of all democratic institutions, both in the industrial and political domains. The people themselves were subjected to a re-education... This re-education, comprising the tenets of a political religion that denied the brotherhood of man in all its forms, was achieved through an act of mass conversion, enforced against recalcitrants by scientific methods of torture." (Great Transformation, p.245) Of course Polanyi, an Austrian refugee from fascism resident in Britain, had absolutely zero sympathy with fascism; but it is just fact that the Nazis put an end to the economic crisis and through state management of the economy, semi-military direction of labour, the banning of real unions and re-armament put Germany back to work. Polanyi also insists at some length that nowhere did the fascists attain power by a (counter-) revolutionary assault on the existing capitalist state, but everywhere were ushered into power by conservative reactionaries (as in for example the invitation to Hitler to become Chancellor in February 1933).
What's striking in Polanyi is that he has no real theory of capitalist crisis that would parallel orthodox Marxist theories of over-accumulation and under-consumption. He just sees it as inevitable that under free market capitalism there will be crises and eventually "society' will attempt to take back control of the economy. Politically Polanyi has parallels with some types of Keynesian thinking, explained below.
However he sees the Gold Standard as being the proximate cause of the 1930s crisis, what he calls the 'unseen link' between the general crisis of free market capitalism and the slump that followed the 1929 crash. Briefly summed up, the Gold Standard that required nations to peg their currency to the price of, and convertibility to, gold worked brilliantly to facilitate world trade; everyone could have confidence in national currencies (being 'as good as gold'). But when countries were faced with an outflow of gold from their national reserves, they could only reverse this by massive deflation, forcing down the consumption of the working class to poverty levels.
The Gold Standard acted as a sort of non-institutional International Monetary Fund (IMF), World Trade Organisation (WTO) and World Bank all rolled into one: an instrument of the strict disciplining of the economies of trading nations. Economic crisis had to be paid for by 'society' - and of course this means overwhelmingly the workers and sections of the petty bourgeoisie. This is exactly what happened in Britain and indeed most major capitalist powers. By the time most nations went off the Gold Standard it was too late.
Now what has all this to do with the present crisis? Polanyi saw free market liberalism as having been crushed in the 'revolutionary' 1930s and world war and - in 1944 - on the way to being replaced by something else. We know that that something else - the Keynesian, welfare state class compromise - lasted for 30 years or more after 1945. It's monetarist replacement transformed itself in the 1980s into a full-scale repeat of the free market experiment that led to the 1929 crash, the slump and world war. The post-1945 slogan 'Never again', which applied to the "hungry 30s' not just the Holocaust, was torn up and thrown in the rubbish bin. Everywhere we see the catastrophic results.
The contemporary crisis is a root and branch crisis of the whole neoliberal system and it cannot be simply overcome by annihilating bits and pieces of fictitious capital here and there and paying down the debt over a few years. The scale of the austerity cuts being imposed on the working class, particularly in Europe, show that a quick resolution of the crisis is not on the minds of serious bourrent social security, welfare and health systems, attack so- been living beyond our means, and like a family in debt defiance in much of Europe has spilled over in to the Eu- 1 The Great Transformation, Karl Polanyi, Beacon Press 1944. geois politicians. What is being proposed is the decapitation of the living standards of the working class. Polanyi's 5% a year decline in living standards is minimal in respect to the crushing of the incomes of workers in Greece, which is experiencing falls in personal incomes unparalleled outside war time. Greek-style austerity is coming to Portugal soon and no one knows how far the contagion will go. In Britain the government proposes to close down the curcial housing and sack millions of public sector workers. Many are going to lose more than 5% a year.
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In this situation it is inevitable that sustained attempts will be made to take the economy back under the control of society. Already rebellion is contagious. As Fred Block explains:
"...the fundamental point learnt from Polyani is that market liberalism makes demands on ordinary working people that are simply not sustainable. Workers, farmers and small business people will not tolerate for any length of time a pattern of economic organisation in which they are subject to dramatic fluctuations in their daily living circumstances. In short [neoliberalism]...requires that millions of people throughout the globe have the flexibility to tolerate -perhaps as often as every five or tens years- on half or less of what they previously earned. Polanyi believes that to expect that kind of flexibility is both morally wrong and deeply unrealistic. To him it is inevitable that people will mobilise to protect themselves from these economic shocks." 3 A key feature of the Middle East uprisings is the extent to which they were propelled by falling living standards and mass poverty; and the role of the working class in mass strikes, particularly in Egypt, has been crucial. This is not just a revolt for abstract 'democracy', but a rebellion against the brutal and corrupt kleptocracies that dominated the region. The fabulous wealth of the ruling clans against the crunching poverty, especially in North Africa, is self-evident to most ordinary citizens. Like the mobilisations in Greece, France and elsewhere, this revolt is a product of the economic crisis and not just coincidentally
More than that. The atmosphere of rebellions and Notes ropean periphery in North Africa. You can be sure that the workers and youth in Tunisia who initiated the rebellion were well aware of the mass strikes in France and mass strikes and riots in Greece.
In this situation the mainstream neoliberal politicians have no roadmap out of the crisis, other than to at33 * Marxism tack the living standards of the working and middle classes. Their attempts to contain the revolt are however leading to a degradation of democracy. The ruling elites are relying on two things to force through their assassination of living standards: repression and extremely reactionary mass media attempts to divide and demoralise opposition, particularly through racism but also through the absurd notion that 'there is no alternative', that 'we have must now face the consequences.
If it is inevitable that workers will rebel, as now (late February) public sector workers are doing in even Republican-dominated US states, it is equally inevitable that attempts to forge political projects for society to take control of the economy will also emerge. As ever, mass revolt, mass dissatisfaction, can be mobilised in right wing and reactionary ways, although in Europe this has not so far been the case in most countries. We have entered the epoch of massive crisis and mass revolt; the world will look very different in ten years' time. Real left political alternatives have to be forged at a mass level on a radical anticapitalist programme. According to Polanyi:
"Socialism is essentially the tendency inherent in industrial civilisation to transcend the selfregulating market by subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be no more than a useful but subordinate trait in a free society". (Great Transformation, p.242). The term seems to have been first used by critics of John Stuart Mill in 2 Great Transformation, page 21. 3 Fred Block Introduction to The Great Transformation