The Great Transformation Page 4
Contemporary Relevance
Polanyi’s arguments are so important for contemporary debates about globalization because neoliberals embrace the same utopian vision that inspired the gold standard. Since the end of the Cold War, they have insisted that the integration of the global economy is making national boundaries obsolete and is laying the basis for a new era of global peace. Once nations recognize the logic of the global marketplace and open their economies to free movement of goods and capital, international conflict will be replaced by benign competition to produce ever more exciting goods and services. As did their predecessors, neoliberals insist that all nations have to do is trust in the effectiveness of self-regulating markets.
To be sure, the current global financial system is quite different from 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, the global marketplace will make everyone better off.
This fundamental belief lies behind the systematic efforts of neoliberals to dismantle restraints on trade and capital flows and to reduce governmental “interference” in the organization of economic life. Thomas Friedman, an influential defender of globalization, writes: “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 polical-economic garment of this 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.”26 Friedman goes on to say that the “golden straitjacket” requires shrinking the state, removing restrictions on trade and capital movements, and deregulating capital markets. Moreover, he cheerfully describe how the constraints of this garment are enforced by the “electronic herd” of international traders on foreign exchange and financial markets.
Polanyi’s analysis of the three fictitious commodities teaches that this neoliberal vision of automatic market adjustment at the global level is a dangerous fantasy. Just as national economies depend on an active governmental role, so too 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 learned 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—perhaps as often as every five or ten years—a prolonged spell in which they must survive 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 mobilize to protect themselves from these economic shocks.
Moreover, the recent period of ascendant neoliberalism has already witnessed widespread protests occurring around the world where people attempt to resist the economic disruptions of globalization.27 As such dissatisfactions intensify, social order becomes more problematic and the danger increases that political leaders will seek to divert discontent by scapegoating internal or external enemies. This is how the utopian vision of neoliberals leads not to peace but to intensified conflict. In many parts of Africa, for example, the devastating effects of structural adjustment policies have disintegrated societies and produced famine and civil war. Elsewhere, the post–Cold War period has seen the emergence of militantly nationalist regimes with aggressive intentions toward neighbors and their own ethnic minorities.28 Furthermore, in every corner of the globe militant movements—often intermixed with religious fundamentalism—are poised to take advantage of the economic and social shocks of globalization. If Polanyi is right, these signs of disorder are harbingers of even more dangerous circumstances in the future.
Democratic Alternatives
Although he wrote The Great Transformation during World War II, Polanyi remained optimistic about the future; he thought the cycle of international conflict could be broken. The key step was to overturn the belief that social life should be subordinated to the market mechanism. Once free of this “obsolete market mentality,” the path would be open to subordinate both national economies and the global economy to democratic politics.29 Polanyi saw Roosevelt’s New Deal as a model of these future possibilities. Roosevelt’s reforms meant that the U.S. economy continued to be organized around markets and market activity, but a new set of regulatory mechanisms now made it possible to buffer both human beings and nature from the pressures of market forces.30 Through democratic politics, people decided that the elderly should be protected from the need to earn income through Social Security. Similarly, democratic politics expanded the rights of working people to form effective unions through the National Labor Relations Act. Polanyi saw these initiatives as the start of a process by which society would decide through democratic means to protect individuals and nature from certain economic dangers.
At the global level Polanyi anticipated an international economic order with high levels of international trade and cooperation. He did not lay out a set of blueprints, but he was clear on the principles:
However, with the disappearance of the automatic mechanism of the gold standard, governments will find it possible to drop the most obstructive features of absolute sovereignty, the refusal to collaborate in international economics. At the same time it will become possible to tolerate willingly that other nations shape their domestic institutions according to their inclinations, thus transcending the pernicious nineteenth-century dogma of the necessary uniformity of domestic regimes within the orbit of world economy.
In other words collaboration among governments would produce a set of agreements to facilitate high levels of international trade, but societies would have multiple means to buffer themselves from the pressures of the global economy. Moreover, with an end to a single economic model, developing nations would have expanded opportunities to improve the welfare of their people. This vision also assumes a set of global regulatory structures that would place limits on the play of market forces.31
Polanyi’s vision depends on expanding the role of government both domestically and internationally. He challenges the now fashionable view that more government will inevitably lead to both bad economic results and excessive state control of social life. For him a substantial governmental role is indispensable for managing the fictitious commodities, so there is no reason to take seriously the market liberal axiom that governments are by definition ineffectual. But he also explicitly refutes the claim that the expansion of government would necessarily take an oppressive form. Polanyi argues instead that “the passing of market economy can become the beginning of an era of unprecedented freedom. Juridical and actual freedom can be made wider and more general than ever before; regulation and control can achieve freedom not only for the few, but for all.” But the concept of freedom that he outlines goes beyond a reduction of economic and social injustice; he also calls for an expansion of civil liberties, stressing that “in an established society, the right to nonconformity must be institutionally protected. The individual must be free to follow his conscience without fear of the powers that happen to be entrusted with administrative tasks in some of the fields of social life.”
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olanyi ends the book with these eloquent words: “As long as [man] is true to his task of creating more abundant freedom for all, he need not fear that either power or planning will turn against him and destroy the freedom he is building by their instrumentality. This is the meaning of freedom in a complex society; it gives us all the certainty that we need.”32 Of course, Polanyi’s optimism about the immediate post–World War II era was not justified by the actual course of events. The coming of the Cold War meant that the New Deal was the end of reform in the United States, not the beginning. Planned global economic cooperation gave way relatively quickly to new initiatives to expand the global role of markets. To be sure, the considerable achievements of European social democratic governments, particularly in Scandinavia, from the 1940s through the 1980s provides concrete evidence that Polanyi’s vision was both powerful and realistic. 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.
Yet now that the Cold War is history, Polanyi’s initial optimism might finally be vindicated. There is a possible alternative to the scenario in which the unsustainability of market liberalism produces economic crises and the reemergence of authoritarian and aggressive 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. Indeed, there were clear signs in the last years of the 1990s that such a transnational social movement to reshape the global economy is now more than a theoretical possibility.33 Activists in both the developed and developing countries have organized militant protests against the international institutions—the World Trade Organization, the International Monetary Fund, and the World Bank—that enforce the rules of neoliberalism. Groups around the world have begun an intense global dialogue over the reconstruction of the global financial order.34
This nascent movement faces enormous obstacles; it will not be easy to forge a durable alliance that reconciles the often conflicting interests of people in the global South with those in the global North. Furthermore, the more successful such a movement is, the more formidable will be the strategic challenges it faces. It remains highly uncertain whether the global order can be reformed from below without plunging the world economy into the kind of crisis that occurs when investors panic. Nevertheless, it is of enormous significance that for the first time in history, the governance structure of the global economy has become the central target of transnational social movement activity.
This transnational movement is an indication of the continuing vitality and practicality of Polanyi’s vision. 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. Polanyi shows that the failure to take up this challenge produced enormous suffering in the past century. His prophecy for the new century could not be clearer.
I have incurred significant debts in preparing this introduction. The greatest is to Kari Polanyi Levitt, who provided extensive and detailed comments, both substantive and editorial, on several drafts of the introduction. It has been a rare privilege to work with her. Michael Flota, Miriam Joffe-Block, Marguerite Mendell, and Margaret Somers also gave me valuable feedback. Margaret Somers has helped me to understand Polanyi’s thought for close to thirty years; much of what I have written reflects her thinking. In addition, Michael Flota provided assistance in the preparation of the introduction and in the larger task of preparing this new edition.
I also owe a considerable debt to Kari Polanyi Levitt and Marguerite Mendell in their roles as the co-directors of the Karl Polanyi Institute of Political Economy, located at Concordia University in Montreal, Quebec. My understanding of Polanyi’s thought has been deeply shaped by their collegiality and by the archive they maintain of Polanyi’s papers. Readers who want to learn more about Polanyi’s thought and the international community of scholars working in this tradition should contact the Karl Polanyi Institute and consult the important series of books, Critical Perspectives on Historic Issues, published with Black Rose Press in Montreal.
1. A full biography of Polanyi does not yet exist, but much of the relevant material is covered in Marguerite Mendell and Kari Polanyi Levitt, “Karl Polanyi—His Life and Times,” Studies in Political Economy, no. 22 (spring 1987): 7–39. See also Levitt, ed., Life and Work of Karl Polanyi (Montreal: Black Rose Press, 1990); and her essay, “Karl Polanyi as Socialist,” in Kenneth McRobbie, ed., Humanity, Society, and Commitment: On Karl Polanyi (Montreal: Black Rose Press, 1994). Extensive biographical material is also available in Kenneth McRobbie and Kari Polanyi Levitt, eds., Karl Polanyi in Vienna (Montreal: Black Rose Press, 2000). Peter Drucker, the management theorist who knew the Polanyi family in Vienna, has written an amusing account in his memoir Adventures of a Bystander (New York: John Wiley, 1994), but many of the specific facts—including some of the names of Polanyi’s siblings—are inaccurate.
2. For an account of Ludwig von Mises and Friedrich Hayek from the 1920s through the 1990s, see Richard Cockett, Thinking the Unthinkable: Think Tanks and the Economic Counter-Revolution, 1931–1983 (London: Fontana Press, 1995). Cockett stresses the irony that England, who invented market liberalism, had to reimport it from Vienna.
3. By coincidence, Polanyi’s book was first published in the same year that Hayek published his most famous book, The Road to Serfdom (Chicago: University of Chicago Press, 1944). While Polanyi’s work celebrated the New Deal in the United States precisely because it placed limits on the influence of market forces, Hayek’s 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.
4. Marguerite Mendell, “Karl Polanyi and Socialist Education,” in Kenneth McRobbie, ed., Humanity, Society, and Commitment: On Karl Polanyi (Montreal: Black Rose Press, 1994), pp. 25–42.
5. Polanyi wrote the book in English; he had been fluent in the language since childhood.
6. Letter to Be de Waard, January 6, 1958, cited by Ilona Duczynska Polanyi, “I First Met Karl Polanyi in 1920 …,” in Kenneth McRobbie and Kari Polanyi Levitt, eds., Karl Polanyi in Vienna (Montreal: Black Rose Press, 2000), pp. 313, 302–15.
7. Karl Polanyi, Conrad M. Arensberg, and Harry W. Pearson, eds., Trade and Market in the Early Empires: Economies in History and Theory (Glencoe, Ill.: Free Press, 1957); Polanyi, Dahomey and the Slave Trade: An Analysis of an Archaic Economy (Seattle: University of Washington, 1966); George Dalton, ed., Primitive, Archaic, and Modern Economics: Essays of Karl Polyani (1968; reprint, Boston: Beacon Press, 1971); and Harry W. Pearson, ed., The Livelihood of Man (New York: Academic Press, 1977).
8. For an analysis of some of Polanyi’s key sources, see Margaret Somers, “Karl Polanyi’s Intellectual Legacy,” in Kari Polanyi Levitt, ed., Life and Work of Karl Polanyi (Montreal: Black Rose Press, 1990), pp. 152–58.
9. Polanyi’s relationship to Marxism is one of the most complex and debated issues in the literature. See Mendell and Polanyi Levitt, “Karl Polanyi—His Life and Times”; Fred Block and Margaret Somers, “Beyond the Economistic Fallacy: The Holistic Social Science of Karl Polanyi,” in Theda Skocpol, ed., Vision and Method in Historical Sociology (Cambridge: Cambridge University Press, 1984), pp. 47–84; Rhoda H. Haperin, Cultural Economies: Past and Present (Austin: University of Texas Press, 1994).
10. Polanyi’s concept of embeddedness has been borrowed and elaborated on by important contemporary scholars, including John Ruggie, “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization 36 (spring 1982): 379–415; Mark Granovetter, “Economic Action and Social Structure: The Problem of Embeddedness,” American Journal of S
ociology 91 (November 1985): 481–510; and Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, N.J.: Princeton University Press, 1995). The precise inspiration for the coinage is not known, but it seems plausible that Polanyi drew the metaphor from coal mining. In researching English economic history, he read extensively on the history and technologies of the English mining industry that faced the task of extracting coal that was embedded in the rock walls of the mine.
11. No less a figure than the great French historian Fernand Braudel reads Polanyi in this way. See Braudel, Civilization and Capitalism Fifteenth–Eighteenth Century, vol. 2, The Wheels of Commerce, trans. Sian Reynolds (Berkeley: University of California Press, 1992), pp. 225–29.