GLOBALISATION - THE GREAT TRANSFORMATION - POLANYI
The origins of our future?
To read of constitutions being
‘foisted upon turbulent despots by business-minded bankers’ may
sound like the aftermath of the 1997 Asian exchange-rate crisis.
Instead, that comment comes from a 1944 analysis of the nineteenth
century, Karl Polanyi’s The
Great Transformation, subtitled ‘The political and economic
origins of our time’. For Polanyi, ‘our time’ meant two world
wars, the 1930s depression and totalitarianism. He saw that
‘cataclysm’ as a reaction against the triumph of an unregulated
market over society a hundred years before.
Karl Polanyi (1886-1964) was an economic historian with an anthropological bent who quit his native Vienna in 1934 to become a professor in England and then in the USA. His academic writings included Trade and Market in the Early Empires (1957) and Dahomey and the Slave Trade (1966).
Polanyi’s politics were those of the Protestant Left: ‘Resignation’, he concluded, ‘was ever the fount of man’s strength and new hope’. In 1935, he co-edited Christianity and the social revolution, scorning ratiocinations that reduced people to objects of exchange. His charge against the market’s domination was not ‘economic exploitation’ but ‘the disintegration of the cultural environment’. (p. 157) (Quotations will be referenced to the 1957 paperback edition.)
Polanyi explored a double contradiction within market-dominated societies: the first between labour and capital, and the second between the capital and nature. These conflicts intersect because ‘labor and land are no other than the human beings themselves of which every society consists and the natural surrounding in which it exists’. (p. 72) The capitalist buys both raw materials and labor – nature and man. Machine production in a commercial society involves, in effect, no less a transformation than that of the natural and human substance of society into commodities … the dislocation caused by such devices must disjoint man’s relationships and threaten his natural habitat with annihilation. (p.42)
The task was to protect social and physical environments.
Although The Great Transformation has remained in print, Polanyi has not received the attention given to contemporaries such as fellow Viennese social philosophers Karl Popper or Friedrich-August von Hayek. Since the late 1980s, however, communitarians have been drawing inspiration from Polanyi’s premise that
man’s economy, as a rule, is submerged in his social relations. While history and ethnography know of various kinds of economies, most of them comprising the institution of markets, they know of no economy prior to our own, even approximately controlled and regulated by markets. (p. 46)
Socialists and small-c conservatives alike are encouraged by this contention that the direction of society by its market is neither timeless nor universal, let alone desirable. For instance, an erstwhile Thatcherite, John Gray, opened False Dawn, his 1998 critique of the resurgence of laissez-faire, with a chapter entitled ‘From the Great Transformation to the global free market’.
Another group turning to Polanyi are those ecologists fearful of what he called ‘the juggernaut, improvement’ (p.182) but who continue to seek social equality. Founding the quarterly journal Capitalism, Nature and Socialism in 1988, James O’Connor drew on Polanyi’s account of capital’s assault on nature and labour to develop eco-Marxism; O’Connor’s endeavour culminated in his 1998 collection, Natural Causes. From along the same axis, Paul Burket’s Marx and nature (1999) has re-connected the class struggle with capital’s robbery of nature.
The pertinence of The Great Transformation to these debates over globalisation and the environment depends on Polanyi’s four-part thesis:
Although these strands were never isolated in Polanyi’s writing, they need to be separated here to introduce his thought.
The themes of The Great Transformation will be considered under six headings:
Each aspect will be woven around subsequent scholarship and current events.
market overtakes society
Polanyi attributed this shift to four forces. First, expropriation of common lands had accelerated during the half-century to 1830, leaving ever more people with nothing to sell but their capacity to work. Three more free-market interventions by the state followed the Whig electoral victory of 1832. In 1834, a New Poor Law set public relief beneath the lowest rate going in the labour market so that the indigent were forced to accept jobs at near to starvation levels. This assault on incomes was supported by a drive against unionism. The Whig administration transported to Van Dieman’s Land in 1834 six agricultural labourers from Dorset - the Tolpuddle martyrs - whose offence had been the taking of an oath to conceal their agreement to resist a reduction in their wages from seven to six shillings a week.
To these pressures, the Whigs added the terror of the workhouse in order to keep the poor off the public purse, not matter how cheap it was place them there. Dickens had dramatised the fear of workhouse in the character of Betty Higden in Our Mutual Friend. To Polanyi’s mind, ‘even more impressive even than the outbursts of pain and anger that came from poets and philanthropists was the icy silence with which Malthus and Ricardo passed over the scenes out of which their philosophy of secular perdition was born’. (p. 98) In the late 1880s, a scion of one of the great Whig families, and legatee of £20,000, Bertrand Russell, suspected that even the workhouse interfered with the encouragement of thrift.
Thirdly, repeal of the Corn Laws in 1846 ended subsidies to British-grown grains. Liberals pushed for this abolition as one more way to reduce the socially necessary costs of reproducing labour power. Their motive was apparent when these advocates of a free-labour market at home defended the import of slave-grown sugar from Brazil because it was even cheaper than that harvested by indentured labourers in British colonies.
The severity of the Irish famine by the late 1840s was a consequence of the liberal revolution. Although the story is often told as an natural disaster, in fact, that ruin grafted ecological blight onto liberal economics. Cattle and salmon from enclosed estates were being exported to England. Whig reluctance to continue relief after 1847 ensured ever more deaths.
While under the regime of feudalism and of the village community, noblesse oblige, clan solidarity, and regulation of the corn market checked famines, under the rule of the market the people could not be prevented from starving according to the rules of the game. (p.160)
The Howard government’s funding of a memorial to the victims of the Irish famine is more likely to be the outcome of ignorance about why so many starved than another piece of hypocrisy from upholders of the free market system that exacerbated the catastrophe.
In The origins of English individualism (1978), Alan Macfarlane challenged Polanyi’s hypothesis about a great transformation, which he conceded had become ‘one of the major theories of economic anthropology’. The rebuttal misrepresented Polanyi’s position which accepted the market’s existence throughout the millennia before its significance altered. To some extent, Macfarlane’s error is attributable to the inadequacy of Polanyi’s own differentiation of the emergence of a market-directed society around 1800 from the experiment with a self-regulated market in Britain between 1832 and 1879. The notion that the market was born in the eighteenth century was never part of Polanyi’s thesis which required only the novelty of the market’s dominance over society.
Against Polanyi’s distinction between the market’s long presence and its sudden pre-eminence, Macfarlane upheld Adam Smith’s foundation of ‘classical economics on the premise of the rational “economic” man …[as] … a universal and long-evident type’. This claim to universality, however, ran counter to Macfarlane’s proposition about the peculiarity of English individualism. His criticisms also overlooked how Polanyi had separated Smith from ‘a host of writers’ who had followed in his ‘wake and established his paradigm of the bartering savage as an axiom of their respective sciences’. (p. 44) Moreover, Polanyi endorsed Smith’s treatment of wealth as ‘merely an aspect of the life of the community, to the purposes of which it remained subordinate’. (p. 111) Homo economicus appears with John Stuart Mill. Smith is not to blame for all the policies carried out in his name by people who have neither heard of his treatise on the Moral Sentiments (1759) nor opened The Wealth of Nations (1776).
Among that throng was Margaret Thatcher who is often guyed for telling Woman’s Own late in 1987 that there is ‘no such thing as Society … only individual men and women and … families’. Had Thatcher been reacting against the stock-market swindlers who plead that a category - Society - is to blame from their malfeasance, she would have scored a point. The flaw in her position was what she left out. Over and above the personal and the domestic are the institutions of class, principally the corporations and the state through which she served them. Thatcher had been right to say that there is no such ‘thing’ as society, because society is not a thing. Rather, there are social relationships structured for power and expropriation. To speak of society as if it were an undifferentiated whole is to miss most of the issues that make redistributive welfare as necessary as it is difficult to secure the outcomes desired by equalitarians. Society was never a thing for Polanyi, but he could write as if its interests existed independently of conflicting groups.
opposite pole from Thatcher, socialists seeking an economic program
after the implosion of the command economies are puzzling over the
extent to which the market and society are capable of serving each
other. Varied positions about their compatibility were canvassed in the
symposium Market Socialism (1998), edited by Bertell Ollman. Those who think a
balance is achievable lean on Polanyi to show that most markets have
operated without taking charge of the economy, still less of society. By
contrast, Ollman contends that Polanyi had demonstrated that the crux of
the great transformation was its turning of the worker into another
commodity. Hence, Polanyi appreciated that to ‘take labour out of the
market means a transformation as radical as was the establishment of a
competitive labour market’. (p. 251) How far can capital compromise
its prerogatives to control working conditions without surrendering its
right to expand? Socialists cannot accept the treatment of labour power
as a commodity without abandoning our reason for being.
The utopias of laissez-faire
Road to Serfdom (1944), von Hayek had objected to state planning
because direction of an entire economy could not be sustained without
interference in every aspect of life. His second line of complaint was
that because reasoning is a social process of discovery, all the
information needed for a national plan could not be ascertained in
advance. Socialism required more rational calculations than economic
behaviour allowed. He tied these criticisms into a technical debate over
whether the information needed to calculate the socialist plan could be
generated without the price signals that are the graphite of a market
economy. Even if systems of management, production and distribution
could be devised to match supply with demand, only the price mechanisms
of a market could generate new wants and the means to fulfil them. The
expansion of reason, thus, depended on accepting limits to rational
attempt at a laissez-faire
economy had ended just as the economic formulation for its practice
appeared in the 1870s. Ever since, Neo-Classical economists have
conjured with equations that would supply the market with a model of
perfect rationality. In short, they attempted for capitalism what their
mentor, von Hayek, had declared impossible for any human activity. The
Neo-Classicals made their marginal advances by assuming conditions
essential to their model, notably through the exclusion of time. This
spectacle provided innocent merriment to onlookers until the 1980s when
the flawed algebra was treated as proof of Economic Rationalism. John
Gray turned away from the free-market program when he realised that its
proponents were engaged in ‘an experiment in utopian social
engineering’ as doomed and as dangerous as any undertaken by socialist
In Polanyi’s eyes, the great transformation had led to the self-regulated experiment which, in turn, led to the cataclysm after 1914. The losers under laissez-faire, both nation-market-states and social classes, fought back. The results were two world wars, self-defeating protectionism and totalitarianisms. Extrapolating from these experiences, John Gray fears that the current effort to impose free-trade across the planet will result in comparable reactions through trading blocks such as the European Union, and the religious-cum-ethnic chauvinisms. Fortune magazine in February 1940 had acknowledged that for ‘nearly one-fourth of the [US] population there is no economic system - and from the rest there is no answer’. That aphorism now applies to the world. One in four live on one US dollar or less a day. As for answers, socialism bankrupted itself and the market can offer only more of the same.
narrative of socialism may be dead but the grander narrative of capital
accumulation, with its ideology of mass marketing, is rampaging more
freely than at any time since the 1860s. This upsurge became possible
partly because, as Francis Fukayama popularised, the logic of capital is
no longer opposed by even a real existing socialism. A second reason is
that globalised markets are treated as natural and inevitable, not
recognised as another rhetorical device. Meanwhile, post-modernism’s
attention to the fracturing of the modernist project conceals its
reflorescence through monopolising capitals, wherein it had been
Oligopolies now have a new grand narrative in bio-technologies where life itself is being commodified through the human genome project and Genetically modified foods. The patenting of seeds is a new form of the enclosure movement.
In light of the current schemes to use carbon trades to perpetuate ‘the juggernaut, improvement’, it is worth noting that in The Road to Serfdom (1944) von Hayek had called for ‘some substitute for the regulation of the price mechanism’ to protect nature. Likewise, Polanyi recognised that the ‘revolt against imperialism was mainly an attempt on the part of exotic peoples to achieve the political status necessary to shelter themselves from the social dislocations caused by European trade policies’. (p. 183) He would not, therefore, have been surprised that neo-colonialism in the 1950s and 1960s, like so-called globalisation today, attempted to contain national liberation to the constitutional realm, and to keep it out of the economic. Indeed, Susan George’s summary of the protests at the 1999 World Trade Organization meeting in Seattle reads like a paraphrase of Polanyi:
There is another international law – that of human rights, multilateral environmental agreements and labour law to which trade should be subordinate. The economy should serve the people and their natural environment, not the other way around. Too much liberalisation spells death to freedom. (Le Monde Diplomatique, November 1999, p. 2)
Contary to that position, the Howard government operates a double standard in regard to international treaties. Conventions on human rights are disparaged while freer trade agreements remain sacrosanct. Whenever the US Departments of Commerce and Agriculture dabble in protectionism, our advocates of deregulation assure us that, although Australian firms and farmers are losing sales, our negotiators retain the advantage of the high moral ground. Satisfaction with ethical superiority does not extend to global warming, or to industrial relations.
To own the first kind of property, but none of the second is to be subject to those who possess productive properties. To be in that situation is also to face state officials who subordinate the first and third kinds of property to the needs of capital.
Employment Minister Tony Abbott, for example, attacks those among the unemployed who are reluctant to abandon their homes (personal property) in order to offer their labour power for sale hundreds of miles from their families and friends. Minister Abbott thus assumes that labour is a commodity without ties to place or kin, and with no investments in housing. This attitude comes from the spokesperson for a government which simultaneously deploys rhetoric about ‘the family as the best social welfare system ever devised’ in order to advance its socially regressive agenda.
Allied to this assault on ‘job snobs’ is the requirement that, to receive benefits, the unemployed must sign an agreement to take any job offered to them. Polanyi paraphrased this free market position: ‘It is not for the commodity to decide where it should be offered for sale, to what purpose it should be used, at what price it should be allowed to change hands, and in what manner it should be consumed or destroyed’. (p. 176)
Polanyi continued that the economist Ludwig von Mises (1881-1973) had been correct to argue that if workers
“did not act as trade unionists, but reduced their demands and changed their locations and occupations according to the requirements of the labour market, they could eventually find work”. This sums up the position under a system based on the postulate of the commodity character of labour. (p. 176)
Polanyi thus spelt out the consequences of an deregulated market in labour that its local advocates, such as Flinders University Professor Judith Sloan, are reluctant to acknowledge, whether out of shame, or for fear of the reaction if their assumptions become explicit. A call from Flinders philosophers for voluntary slavery had the merit of truth in labeling.
Australia’s first chief justice, Sir Samuel Griffith, wrote in 1889, that if ‘a measure of freedom of contract exists’ between the employer and the employed ‘it has been obtained by combination on the part of labourers’. Individual workplace agreements fail the Griffith test for civilised because they lack equality of bargaining power. The state intervention of Reith’s industrial relations is dissolving the collective bargaining essential for redressing the relations between capital and labour.
this principle as one of non-interference, as economic liberals were
wont to do, was merely the expression of an ingrained prejudice in
favour of a definite kind of interference, namely, such as would destroy
non-contractual relations between individuals and prevent their
spontaneous re-formation. (p. 163)
interference is at the root of the current broken-backed unionism after
Reagan, Thatcher and Hawke governments struck down strikers. The result,
according to the vice-Chairman of the G7 Group, Alan Blinder, in his
1999 Adam Smith Award Lecture, is that ‘labor is increasingly being
treated as “just another commodity” to be bought and sold on a spot
market’. So, is the state more destroyer than saviour? Some of the
paradox can be resolved by tracking changes in the behaviour of states
over time. Is its nature subject to reversal, or is the state always a
In place of the usual coupling of nation with state, we need to think of a nation-market-state. The word ‘market’ has two interconnected meanings. First is the system of exchange, and secondly, there is the geographic area over which each market holds sway. The latter is established by the nation-state which extends its territory and services the expansion of capital.
Today we are told that the market guarantees democracy, and free trade is the price of liberty. Polanyi, on the other hand, recorded that ‘inside and outside England, from Macaulay to Mises, from Spencer to Sumner, there was not a militant liberal who did not express his conviction that popular democracy was a danger to capital’. (p. 226) Ever since the extension of the franchise to a majority of adult males, the task for the managers has been to make democracy safe for capital. For instance, during the 1960s, revolts by blacks, anti-war protesters and students seeking a revivtalisaiton of the participatory democracy of the Founding Fathers provoked alarm among those whom Noam Chomsky called the New Mandarins. The Trilateral Commission, set up by David Rockefeller, reported in 1975 on ‘The Governability of Democracies’, that is, how minority privilege was to be protected from majority rule.
John Gray sees democracy and the free market as rivals. For market forces to rule, their instrumentalities, such as the WTO and IMF (or the postponed Multinational Agreement on Investment), must be protected from legislative review and from reversals of policy at elections. Since the Asian financial crisis of 1997-99, the IMF has retreated from its anti-statist prescriptions to underwrite the installation of ‘effective states’, which can keep order during the chaos caused by ‘improvement’.
The notion that the nation-market-state has been rendered irrelevant by globalisation is open to several challenges. In Globalisation in Question (1999), Paul Hirst and Grahame Thompson accumulate data on investment and trade that undermine the claims made for the very existence of globalisation. Instead, they say we are seeing only an intensification of inter-national commerce. If that is so, the nation-market-state can still be used to protect nature and labour.
Polanyi’s debate with von Hayek over state intervention to secure freedoms had begun in the social democratic Vienna of the 1920s. In The Road to Serfdom (1944), von Hayek argued that only state intervention to increase competition was desirable. For him, a democracy which led to any other kind of planning was capable of becoming ‘as oppressive as the worst dictatorship’; the welfare state, he warned, could create ‘a degree of dependence scarcely distinguishable from slavery’.
Spurning such hyperpole, Polanyi was nonetheless awake to the prospect of bureaucratisation but he hoped that for as long as the social democrat stuck to the ‘task of creating more abundant freedom for all, he need not fear that either power or planning will … 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’. (p. 258B)
Although that reassurance will not longer suffice, Polanyi was right to see that the graver danger was that the logic of capital would prove inimical to social democracy. That incompatibility explained why ‘the reform of capitalist economy by socialist parties is difficult even when they are determined not to interfere with the property system’. (p. 234) Refusal by the Hawke-Keating administrations even to admit this inherent bias meant that the Kelty Accords found it easier to restrain labour than to marshal capital. The unions were reconstructed but investments were not. The ALP’s retreat from Keynesianism occurred in the corporate sector, not over public spending. Deficit budgets for Keynes were never more than a tool to counter the failure of capitalists to invest.
Rather than challenge the implacable face of capital, Polanyi sought to temper its ‘gales of creative destruction’ with a modest proposal:
the liberal revolution that had overwhelmed Britain after 1832 for
taking ‘place with an abruptness which makes nonsense of the legend of
English gradualism, fostered at a later time when arguments against
radical reform were sought’. (p. 101) The current wave of laissez-faire
interventions by nation-market-states has been hardly less precipitous.
grounds that it was unwise to go too far too quickly on political
matters, the corporate executives and business consultants who formed
Conservatives for an Australian Head of State favoured a minimalist
model. For this stance, they claimed to represent ‘a lot of cautious
conventionally minded people - millions of them’. Yet these same
managers are not in the least conservative about market policies.
Instead, these constitutional conservatives are maximalists in their
economic correctness. Caution plays no part in their demands towards the
economy where deregulation, privatisation, down-sizing and restructuring
can never go fast or far enough.
discerned in this pleading ‘the last remaining argument of economic
liberalism today. Its apologists are repeating in endless variations
that but for the policies advocated by its critics, liberalism would
have delivered the goods.’ (p. 143) This defence echoes through the
current cries to remove all brakes on the open economy. Its proponents
allege that delays in implementing a totally unregulated market are why
its benefits remain just around the corner.
An even greater transformation?
Polanyi’s great transformation had been led by English experiences of science-based farming and the factory system, powered by water, horses and steam, and financed through the joint-stock company. ‘Social not technical invention was the intellectual mainspring of the Industrial Revolution’. (p. 119) After the 1870s came the ‘American System’ of mass manufacturing managed in oligopolies which excited the merger of marketing with entertainment.
between the first free-trade episode and this era of monopolising are
clear: war moved from occasional eruption to perpetual dynamic; the
growth of the state and the invention of the corporation constrained
individual entrepreneurship; the visible hand of marketeers sidelined
price competition as the sales effort burgeoned; family business were
marginalised by a few corporations (oligopolies); and consumer needs
were redefined to meet the necessity that capital has to expand. Whereas
the moment of laissez-faire in
the nineteenth century had been confined to Britain, almost all of the
world’s population and resources are now subject to the corporatised
market. The market no longer stops at the
garden gate. Business took over the replenishment of our capacity to
labour with the corporate provision of food, drink and leisure: KFC in
place of a pot-roast chicken, Sprite instead of home-made lemonade,
video games rather than parlour games.
Attempts to sum up the twentieth century are often based on developments since 1950. Not a few are coloured by the exceptionalism of the 1990s. In contrast, von Hayek conveyed the mentality prevalent in the 1940s when he lamented: ‘Scarcely anybody doubts that we must continue to move towards socialism’. Three other quotations from that decade spotlight the doubts that the corporate planners had to eradicate. In 1945, the advertising manager of the New York Herald-Tribune protested that anti-Trust prosecutions had convinced the American people that the country’s greatest criminals were in corporate boardrooms. The January 1948 issue of the Harvard Business Review noted that ‘Half of our economic thought is devoted to speculating when the next depression is coming’. Four months later, the American Business Review accepted that ‘capitalism’ had become ‘a brand name of demonstrated ill will’ and endorsed its replacement with ‘free enterprise’.
During the anti-fascist war, Karl Polanyi was one of a number of European scholars across the political spectrum to reflect on their life experiences. To read The Great Transformation alongside Joseph Schumpeter’s Capitalism, Socialism and Democracy (1943), Theodor Adorno’s Minima Moralia (1947), F.-A. von Hayek’s The Road to Serfdom (1944) and Karl Popper’s The Open Society and Its Enemies (1945) is to enter the company of minds reeling from ‘the cataclysm’. Their trepidation was profound even before Hiroshima and public awareness of the Holocaust. The triumphalism of capital since the collapse of the Soviet bloc in 1989-91, the new economy and the stock market’s lurch towards infinity, had no place in their experience or expectations.
Attending to the trajectory of the long twentieth century - that is, since the 1870s - will keep us aware that reversals as huge as those that have overtaken the world since Polanyi published may again rearrange capital’s dominion over labour and nature. In preparing us for any eventuality before the year 2050, Polanyi provides a voice uncontaminated by absolutes, as comfortable with moral choice as with economic analysis, and enriched by that historical sensibility without which judgements about our time, or his, can never be more than thinking from hand-to-mouth.