Karl Polanyi and the Modern World – Part 7

“I grew up on the butt-end of the English class system. I’m an orphan and I was raised by my grandmother. So I am the greatest example of inter-generational social mobility you’re ever going to see, because I’m a freaking Ivy League professor…How did I do that? because of this thing that gets blamed called the welfare state, that bloated, paternalist, out-of-control, [dis]incentivizing, demotivating piece of crap called the welfare state…”
–Mark Blyth

When I first started writing about The Great Transformation, I had intended to just write one post. That was before I discovered the richness and complexity of Polanyi’s ideas. It also dovetailed well with some other stuff I was already working on regarding the ancient economy and the roots of social institutions.

Here are a couple of good short summaries of Polanyi’s ideas on the Web:

Summary of the Great Transformation by Polanyi (WEA Pedagogy Blog)

Karl Polanyi Explains It All (The American Prospect)

Populist Backlash and Political Economy (Brad DeLong)

The latter one is interesting. It’s a summary of the core ideas of both Polanyi and John Maynard Keynes. The author, Brad DeLong writes: “I find it alarming that here we are, more than one a half decades into the twenty-first century, and the wisdom and true knowledge that is state-of-the-art as far as political economy is concerned is still to be found in the writings of John Maynard Keynes and Karl Polanyi.” The Real World Economics Review blog, a blog of “heterodox” economists and critics of the Neoclassical approach to economics, picked Keynes and Polanyi’s books as #1 and #2 of their ten most influential economics books of the last 100 years. This may explain DeLong’s complaint: one reason why the works of those two economists are ignored is because they had to be ignored in order to make room for the Chicago School free market fundamentalism which has gutted the commons and made the billionaires so much wealthier, even in an era of anemic growth. It’s also interesting to note that DeLong is one of the few economists to openly call himself a Neoliberal (despite the fact that actual Neoliberals typically avoid using that term).

I would be remiss if I didn’t at least mention Neoliberalism. As we saw in our survey, markets are created through government intervention by breaking up pre-existing social structures, especially in a crisis, and imposing them from above. Philip Mirowski, in his book about Neoliberalism Never Let a Serious Crisis Go To Waste, points out that Neoliberals are not in favor of small government at all, rather they desire a powerful state that can impose markets onto every aspect of human life.

He says that in the case of Market failure, the Neoliberal playbook consists of the following steps:

  • Create a “fog of doubt” i.e. confusion, over whether markets really failed at all. This usually takes the form of scapegoating some sort of government “interference” without which things would have been fine. For example, blaming the housing bubble and bust on  government forcing banks to lend to minorities. This has been conclusively disproven, yet market fundamentalists can still insist it’s true because they are in an intellectual echo chamber.
  • Create “new and stranger” markets to solve problems with the previous markets. This has the effect of commodifying even more things, including all of nature itself. The classic case here is creating carbon “cap-and-trade” schemes to deal with climate change rather than just capping emissions.
  • Argue that the market will call forth some sort of “innovation” that will solve the problem. In the case of global warming, this manifests, for example, as Elon Musk worship. The private sector is infinitely innovative, and so long as the “incentives” are right, the Market will solve any problem as long as government doesn’t get in the way. Electric cars, genetically-modified crops, fracking and geoengineering are all proof of this.

He also makes the following points about it:

  • Under Neoliberalism, whoever falls behind has only themselves to blame for not positioning themselves correctly in the Market and not making the most of their “human capital.” That is, there is no one else to blame; it’s all on you and you alone. Failure is your fault, and the self-recrimination and shame of “your fault” culture and an individualist ethos prevents any effective collective response to Neoliberal ideas.
  • Neoliberalism is sustained by a “thought collective” that is structured like a Russian Doll consisting of think-tanks, societies, foundations, universities, professorships, journals, publications, etc., and promoted by well-compensated intellectual prostitutes sustained by money from wealthy donors and corporations who benefit from the philosophy.

I’m a neoliberal. Maybe you are too (Medium)

Neoliberalism, the Revolution in Reverse (The Baffler)

On Neoliberalism: An Interview with David Harvey (Monthly Review)

The crux of the post I was originally going to write was based on a couple articles I read making a similar point: that the reason the so-called “welfare states” provides greater levels of happiness, life satisfaction, stability, and social cohesion is because they “decommodify” things like labor, housing and education to a large extent, removing them from the vagaries of the market and making them into social goods that everyone has access to. At the same time, they retain market institutions for the distribution of genuine commodities. That’s the point of this article, which argues that Bernie Sanders’ ideas of social democracy are rooted in this idea of “decommodification,” and hence those of Karl Polanyi (emphasis mine):

Gøsta Esping-Andersen made a different use of Polanyi in his groundbreaking The Three Worlds of Welfare Capitalism, published in 1990. He found that the right way to understand the differences between the welfare states of the United States, Sweden, and France isn’t necessarily to look at how much money they spend, but at how much they decommodify labor. Decommodification, for him, means that “a service is rendered as a matter of right, and when a person can maintain a livelihood without reliance on the market.” The United States actually spends a lot on welfare, but mostly for people who already have jobs—in the source of income boosts, tax-free benefit packages, and the like—so this spending does little to decommodify labor…

One of the divides within the Democratic primary between Bernie Sanders and Hillary Clinton has been between a social-democratic and a “progressive” but market-friendly vision of addressing social problems. Take, for example, health care. Sanders proposes a single-payer system in which the government pays and health care directly, and he frames it explicitly in the language of rights: “healthcare is a human right and should be guaranteed to all Americans regardless of wealth or income.”

Clinton, meanwhile, describes affordable health care as a right. Clinton also wants higher education to remain a market commodity…Sanders here offers a straightforward defense of decommodification—the idea that some things do not belong in the marketplace—that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter and the narrow policy “wonk” focus that tends to dominate coverage.

Whether or not Sanders has read Polanyi—similar language about economic and social rights was also present in FDR’s New Deal, which Sanders argues is the basis of his brand of socialism—Polanyi’s particular definition of socialism sounds like one Sanders would share:

“Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously 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 more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons.”

Sanders’s particular notion of a political revolution—in which people use democracy to change the rules governing our national political economy—is very Polanyian. Polanyi’s socialism has a certain modern appeal when the more traditionally Marxist idea of having the state seize the means of production has been abandoned even by most who identify as socialists. Instead, Polanyi’s relevance for today lies in his arguments that markets need to be subjected to democratic control, that human beings resist being transformed fully into commodities, and a fully realized market society is both impossible, undesirable, and at odds with genuine liberty and freedom.

Karl Polanyi for President (Dissent)

This article elaborates on that point (emphasis mine):

It is arguably the single most important concept in the entire logic of capitalism: commodification, more specifically the commodification of labour. A commodified world is one in which the vast majority of the population is dependent for their economic survival on the sale of their labour power as a commodity in the form of wage or salary work. In other words, to survive, people must sell their ability to work in the same kind of market that exists for any other commodity. As the 18th-century political economist Adam Smith noted, the demand for men is like that for any other commodity. Whatever the many positive and commendable aspects of the market economy, the reduction of people to commodities comes with two negative consequences.

First, when people become commodities they become subject to pitiless market forces beyond their control. They face a world characterised by chronic insecurity, since the market for the sale of their labour is, like the market for any commodity, subject to uncontrollable fluctuation. People become dependent on forces indifferent to them, or to any individual. As the Danish sociologist Gøsta Esping-Andersen put it in The Three Worlds of Welfare Capitalism (1990), ‘the market becomes to the worker a prison’. To survive and try to flourish, people adopt the values and norms of the market prison – competitive individualism, egotism, a focus on short-term material gain. In practice, these values detract from a satisfying life.

Commodification has another, equally destructive aspect. When people are reduced to commodities, they lack the ability to make moral claims on society. Just as we have no moral responsibility to bushels of wheat or consignments of mobile phones, we have no moral responsibility to workers who are conceived of as commodities, labour units instead of people. Not only is a commodity without a right to a job to begin with, it certainly has no right to paid sick days or vacation time, to pensions or healthcare, or to protection against arbitrary dismissal, to say nothing of a guaranteed severance package or similar redundancy benefits.

Rather than being treated with dignity and respect – as valued members of a community whose work contributes to the general good – workers as commodities are merely another factor of production, no more worthy of considerate treatment than the machines they manipulate.

If commodification is so harmful to humans, while the greater market system itself contributes so much to human society, the obvious solution is to maintain the essential features of the market while introducing public policies that serve to ‘decommodify’ workers and their families. Simply put, a society is decommodified to the extent that individuals can maintain something like a middle-class existence if they are unable to successfully sell their labour power as a commodity due to illness, old-age, disability, the need to care for a family member, the desire to improve one’s position through further education, or simply the inability to find (good) jobs when times are hard. The greater the level of decommodification, the easier it is for more people to survive without winning in the labour market.

The creation of a social safety net (the much-maligned ‘welfare state’) is essential to decommodifying people. It assures that those unable to find work will be provided with a minimum income, coupled in its most expansive form with other programmes that limit the extent to which one’s wellbeing is dependent on income – such as ‘family allowances’ (ie child support payments provided by the public), subsidised daycare and housing, and the availability of healthcare as a social right, ie as something (like police protection) that one receives because one is a citizen, not because one can pay for it.

Which political system does happiness economics support (Aeon)

That social democracies are far superior for human happiness is beyond dispute:

Using both individual- and aggregate-level data, I find that life satisfaction is higher in those countries that have the highest levels of decommodification…Critically, all of these relationships obtain regardless of one’s income or social status. Everyone benefits from a more generous welfare state…The fact is that, however we approach the subject empirically, human happiness increases as the level of decommodification increases.

The author then asks an important question:

If there is a strong link between the social-democratic vision of politics and human wellbeing, why does that vision appear to be in retreat? If ‘big government’ makes people happy, why do voters seem to be more inclined to elect governments that are committed to unfettered markets, ‘flexible’ labour laws, and ever-lower social spending?

The author answers that we’re bad at judging what makes us happy. He also points out the obvious–that politics reflects the priorities of the wealthy rather than those of the common people. Surveys over the years have shown that most people support things like universal health care and education, better schools, help for the unemployed, housing for all, a smaller military, etc.

I’ve referred to the book The Power of Market Fundamentalism before. In this review, the author points out why free market fundamentalism is such a seductive philosophy for a lot of people:

..Social naturalism, the idea that markets are pre-political, autonomous, and ultimately guided by natural laws, is not simply something embraced by Chicago school economists or policymakers. Market fundamentalism taps into our individualism, our independence, our conception of freedom, our sense of self, our very ethos. The authors write, “Its exceptional powers, we believe, are rooted in its promise of a world without politics, a world of almost complete individual freedom where the role of government—so often feared as coercive and threatening to our rights—would be kept to an absolute minimum.” This is why the idea of a free market can strike people as intuitive when it is clear it doesn’t work according to the theory.

…Another powerful justification of market fundamentalism, what Albert Hirschman called “the perversity thesis,” has become the guiding ideology of political campaigns to limit government intervention. The thesis holds that the market is “an equilibrium of self-adjustment” and that redistributive social policies to mediate market outcomes actually distort the market mechanism and hurt the people they are intended to help.

TPMF, importantly, contributes new research that pinpoints the moment in history when these ideas—social naturalism and the perversity thesis—became popularized. In 1795, in a small English town called Speenhamland, squires decreed that the poor would be entitled to welfare depending on the going price of bread and their family size. In 1798, Thomas Malthus reacted hostilely in his Essay on the Principle of Population, and argued that poor relief eliminates the scarcity that creates work incentives, thereby creating market disfunction. But this did not immediately translate into legislative change. Many elites worried that abolishing the Poor Law would trigger revolution in the countryside. But in 1834, after push-back from landed elites and clergy and with a new Whig government in power, a Royal Commission Report issued a damning critique of the program, spreading the ideas of Malthus to the population. The Report reframed the agricultural downturn as an “enduring parable of the dangers of government ‘interference’ with the market.” The result was welfare retrenchment, the New Poor Law, which substituted workhouses for relief and laid a foundation for social naturalism that persists today. Markets became embedded in ideas.

The Power of Bad Ideas (Boston Review)

This idea of decommodification – the idea of taking certain things out of the economic sphere and moving them back into the social/political, is a critical one. I’m convinced that it’s something that needs to happen, and that this will become ever more urgent as 1.) Growth comes to an end, and 2.) Formal jobs disappear. This takes us beyond the simplistic dichotomy of our only options being either “free markets” or “central planning.” Rather, it puts the market in its proper place vis-à-vis society:

According to a libertarian way of thinking, the product of the market is just while taxes are a form of theft. The pre-tax distribution of income is fair, while the post-tax one is the result of government “interference” in the economy. But to a Polanyian, this is nonsense, because the pre-tax distribution of income is just as much a product of social and political institutions as is the post-tax distribution. States don’t interfere with markets—they create them. That doesn’t mean that all markets are bad, and Polanyi never imagined that they would all end. It just means that if markets are interfering with other social priorities (like democracy, for example), or producing bad outcomes, you can change the rules that govern what parts of society operate with what kinds of markets.

Polanyi might also point out that even when the market is supposed to be “natural” and self-sustaining, states need to step in to ensure that they work. This was clearly the case in the financial crisis, when the financial markets imploded rapidly, putting the entire payments system and healthy firms at major risk. But it’s also clear in the European Union. The central bank controlling the euro took specific actions to drive Spain and Italy into market chaos to force austerity and neoliberal reforms. This didn’t simply happen on its own; the state had to intervene through markets.


Polanyi also offers a method of left analysis that doesn’t invoke Marxism. Polanyi was influenced by Marxism but his framework doesn’t sit easily with it; for example, he defines classes as cultural formations rather than by their relationship to the means of production. For this reason, as the writer Peter Frase notes, Polanyi has been more popular with theorists and academics seeking “a non-Marxist form of social democracy” that is robust and deeply theorized…

And the political movements arising due to the inability of people to sell their labor power in the Market are exactly in-line with what Polanyi predicted. We have a labor and housing crisis caused by the market – people can no longer afford homes, and the four-decade trend to “discipline” labor has strained society to the breaking point…

Polanyi wouldn’t have been surprised by the rise of Trump. He knew that the double movement—the protective steps that people take when exposed to too much unfettered capitalism—does not always benefit the left. Trump supporters clamoring to make America great again reflect one version of this; they hearken to a time when life was more secure and stable, at least for certain types of working- and middle-class whites.

For Polanyi, it would make sense that the Sanders and Trump insurgencies happened simultaneously, and that there are some people who would rank those two as their favored candidates, in spite of them seeming to come from opposite ends of the political spectrum. Both campaigns are based in part in complaints about the corrosive effects of exposure to global markets. Both are against so-called “free trade” and skeptical of open borders…in spite of all their differences, both Sanders and Trump look like expressions of “double movement” politics.

So that sums up the points I originally wanted to make, but I’d like to make a few more.

I think the above explains the tragic impotence of our politics. Since we’ve completely divided the economic sphere from the political sphere, politicians can do nothing about our exploding social problems except talk about growing the economy and hope for the best. Most of our lives are spent in the economic sphere after all–we need it to procure our food, clothing and shelter. We spend most of our lives “at work”– a totalitarian arrangement where democracy is banished and where you can be commanded what to do and when to do it with no recourse. In the economic sphere we are, essentially, slaves, and it is in this sphere that we spend most of our time.

So we vote for Democrats and Republicans to no avail – they can do nothing but preside over whatever the economic system decrees. If the economic system decrees, for example, that half of the population is redundant to the economic order, or that vast swaths of the country become economic “sacrifice zones,” well then, that’s a shame, but nothing can be done. It’s the “logic” of the economy. Our priority is never to “interfere” in the workings of the Market, because that will make us all worse off, or at least that’s what our leaders say. So we cycle randomly between political parties looking for a savior–from Republicans to Democrats back to Republicans–from Bush to Clinton, to Bush, to Obama, to Clinton–and nothing changes! This is because both parties can do nothing but promise more growth. That’s the extent of their ability to tackle real problems. But, of course, politicians can’t create growth. Sure, they’ll claim once their tax cut passes, or once we repeal this or that regulation, or some other “pro-growth” policy, things will change. But it doesn’t work. Voting doesn’t change anything. It can’t by design.

Think of how we’re supposed to find work now. We’re just tossed into the impersonal market, sink-or-swim style, with some vague notion of finding something to do that we’re “passionate” about. Most people aren’t passionate about any of the crap we are forced to do to earn money. We’re also told that we’re worthless without a college degree, meaning that colleges have become tollbooths to jobs, and charge accordingly. So we become indentured servants, going deeply into debt just to get a mere chance at a job. We are turned into high-risk indebted gamblers just to survive! Think of how insane that is.

We must simply conform to what the market decrees. If that means becoming rootless flotsam hopping in the U-Haul every few years and moving to a new location gambling that there will be jobs there, well, then, you simply have to do that and not complain. If you need to abandon the neighborhood your parents and grandparents and grew up in to look for ajob, then that is what you must do. You must conform to the economy, not the other way around. No wonder social bonds are so strained. And anyone who falls behind, well, they alone are responsible for their plight.

It also indicates why we are addicted to permanent growth. Once growth slows the market stops working and society is thrown into chaos. Unemployment, poverty, homelessness, crime, all increase, and nothing can be done so long as the foundation of society is simply economic market exchange.

The idea that we are all “rugged individualists” engaged in constant, unremitting competition in the market arena is incredibly toxic. No wonder we are constantly at each other’s throats. No wonder we have so many mass shootings. The idea of the market is competition, but competition is not a social glue–it’s a solvent. A society of markets becomes Hobbes’ “warre of all against all.” Here’s a good Reddit comment:

The idea that “competition” is a natural order of things is completely fabricated. Competition is a learned behavior and value, 100%.

A think tank back in the 50s-60s proved this to be true. I forget off-hand which it was, I think the Rand corporation. As I recall after coming up with “game theory” as a way to predict human behavior, they did studies and found that nobody in their studies behaved with the “rational self interest” in the way they had predicted; everyone cooperated with each other instead. And rather than re-evaluating their hypothesis, they just assumed the testing was an anomaly and steamrolled right into the cold war continuing to utilize game theory as their primary model for fighting it.

Cooperation is the natural human tendency, not competition. Competition has simply been heavily indoctrinated into people for the last 50 years or so.

Competition for resources only occurs when there is a perceived threat to one’s own access for those resources. But if there is no threat, then there is no reason for competition (putting yourself at risk of losing out) to be preferred over cooperation (ensuring everyone, including oneself, gets a share of the resources).

Sociopaths got into power during a period of intense paranoia, and they have built the world around them to suit that vision.

I believe that story was told by Douglas Rushkoff in his book Life Inc. Indeed, that cooperation, not competition, was the foundation for human society was pointed out by Peter Kropotkin.

Here’s another good Reddit comment:

The Anglosphere/West Europeans don’t understand how important having a semblance of community which their societies almost totally lack, matters. They depend on money, the state and technology for almost everything so when those mechanisms break their societies will not function.

This makes me think about the book Reinventing Collapse. The thesis of that book is that the United States would be much more vulnerable to an economic collapse than the Soviet Union was. Well, now we can clearly see why. Every aspect of modern American life is utterly dependent on functioning Markets! The Soviet Union was mostly a non-market economy. Yes, it was less “efficient,” but it was far more resilient: even without paychecks, people showed up for work to keep the lights on, the trains running, and the hospitals staffed. People didn’t lose their homes or their jobs. People were less dependent on a market which didn’t deliver goods anyway, as empty shelves and lines testified, so they lived in what was essentially a “pre” market economy: growing their own food, living with relatives in apartments which could not be sold, and bartering for basic supplies. This was how most societies functioned prior to the last two hundred years, making “collapse” a much different concept than how we think of it today.

It’s interesting to contemplate how the Market changes people’s behavior. People are assumed naturally to be acquisitive, competitive, lazy, status seeking, eager to accumulate goods and gain the most money for the least effort, and so forth. Thus, the market is portrayed as a natural extension of human behavior. But as we’ve seen, the idea that all of us need to claw everything we need from the impersonal Market is a very new one. It has never existed before the present. As Polanyi states, “Previously to our time, no society has ever existed that, even in principle, was controlled by markets”. There is nothing natural about how it makes us behave—like greedy, selfish, assholes. So to what extent is our behavior shaped by market institutions, and then the resulting behavior is claimed as our “natural” human nature, and anything going against it “unnatural” and doomed to fail? As David Graeber says:

“At this point, it’s easier to understand why economists feel so defensive about challenges to the Myth of Barter, and why they keep telling the same old story even though most of them know it isn’t true. If what they are really describing is not how we ‘naturally’ behave but rather how we are taught to behave by the market—well who, nowadays, is doing most of the actual teaching? Primarily, economists. … [I]s economics instead a technique of operating within a world that economists themselves have largely created?”

Another side-effect is that everything we do is evaluated through the lens of short-term profit. Nothing can be done that looks to future generations, only immediate profit.  In pre-market societies, the foundations of life were social/religious, rather than productivism/profit. You could never have something like the Gothic cathedrals, which took several lifetimes to build, under the current system. No wonder our culture and built environment are so impoverished.

There are a lot more ideas to discuss based on this, but I’ll end it here.

Now, there’s a guy called Karl Polanyi. Karl Polanyi was a Hungarian refugee writing at the same time as Hayek. and he wrote a book in 1944, the same time he wrote his most famous book The Road to Serfdom, called the Great Transformation. And in the Great Transformation he said, whenever we try to make markets, we forget that they don’t come out of the ground and they’re not given by God. It’s just like globalization. The entire architecture of globalization depends upon legal treaties. When we talk about financial markets and people trading derivitives, we figure these are legal contracts. These are things made by men and women.

Now what Polanyi pointed out is was, when you liberalize to use our contemporary language; when you privatize, integrate, when you create global supply chains, when you outsource, when you do all these things, the people who get hurt by this do not get automatically compensated. And when they figure out that they’re never going to be compensated, they invented democracy. And then they come after the people who have done this to them through the ballot box. There’s no guarantee that you get a nice outcome. There’s no guarantee that you end up with a nice New Deal order with a little bit of redistribution. Let’s remember that Adolf Hitler was voted into power. And at the 1934 election the Nazis got 43.1 percent of the vote…

–Mark Blyth

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