The free market is an impossible utopia

www.washingtonpost.com/blogs/monkey-cage/wp/2014/07/18/the-free-market-is-an-impossible-utopia/

 

The free market is an impossible utopia

 

Polanyi argues that the attempt to create amarket society is fundamentally threatening to human society and the common good. When these public goods and social necessities (what Polanyi calls “fictitious commodities”) are treated as if they are commodities produced for sale on the market, rather than protected rights, our social world is endangered and major crises will ensue.

 

Polanyi makes it clear that today’s vexing economic problems are almost entirely political problems.Taking Polanyi seriously means rejecting the illusion of a “deregulated” economy. What happened in the name of “deregulation” has actually been “reregulation,” this time by rules and policies that are radically different from those of the New Deal and Great Society decades help giant corporate and financial institutions maximize their returns through revised anti-trust laws

 

By Henry Farrell July 18  Follow @henryfarrell

(Courtesy: Harvard University Press)

Fred Block (research professor of sociology at University of California at Davis) and Margaret Somers (professor of sociology and history at the University of Michigan) have a new book, “The Power of Market Fundamentalism: Karl Polanyi’s Critique” (Harvard University Press, 2014). The book argues that the ideas of Karl Polanyi, the author of “The Great Transformation,” a classic of 20th century political economy, are crucial if you want to understand the recession and its aftermath. I asked the authors a series of questions.

HF - Your book argues for the continued relevance of Karl Polanyi’s work, especially “The Great Transformation.” What are the ideas at the core of Polanyi’s thought?

FB & MS – Polanyi’s core thesis is that there is no such thing as a free market; there never has been, nor can there ever be. Indeed he calls the very idea of an economy independent of government and political institutions a “stark utopia”—utopian because it is unrealizable, and the effort to bring it into being is doomed to fail and will inevitably produce dystopian consequences. While markets are necessary for any functioning economy, Polanyi argues that the attempt to create amarket society is fundamentally threatening to human society and the common good.  In the first instance the market is simply one of many different social institutions; the second represents the effort to subject not just real commodities (computers and widgets) to market principles but virtually all of what makes social life possible, including clean air and water, education, health care, personal, legal, and social security, and the right to earn a livelihood. When these public goods and social necessities (what Polanyi calls “fictitious commodities”) are treated as if they are commodities produced for sale on the market, rather than protected rights, our social world is endangered and major crises will ensue.

Free market doctrine aims to liberate the economy from government “interference”, but Polanyi challenges the very idea that markets and governments are separate and autonomous entities. Government action is not some kind of “interference” in the autonomous sphere of economic activity; there simply is no economy without government rules and institutions. It is not just that society depends on roads, schools, a justice system, and other public goods that only government can provide. It is that all of the key inputs into the economy—land, labor, and money—are only created and sustained through continuous government action. The employment system, the arrangements forbuying and selling real estate, and the supplies of money and credit are organized and maintained through the exercise of government’s rules, regulations, and powers.

By claiming it is free-market advocates who are the true utopians,Polanyi helps explain the free market’s otherwise puzzlingly tenacious appeal: It embodies a perfectionist ideal of a world without “coercive” constraints on economic activities while it fiercely represses the fact that power and coercion are the unacknowledged features of all market participation.

HF -  How do those ideas help us understand the vexing economic problems we still face today?

FB & MS – By putting government and politics into the center of economic analysis, Polanyi makes it clear that today’s vexing economic problems are almost entirely political problems. This can effectively change the terms of modern political debate: Both left and right today focus on “deregulation”—for the right it is a rallying cry against the impediments of government; for the left it is the scourge behind our current economic inequities.  While they differ dramatically on its desirability, both positions assume the possibility of a “non-regulated” or “non-political” market.  Taking Polanyi seriously means rejecting the illusion of a “deregulated” economy. What happened in the name of “deregulation” has actually been “reregulation,” this time by rules and policies that are radically different from those of the New Deal and Great Society decades. Although compromised by racism, those older regulations laid the groundwork for greater equality and a flourishing middle class.  Government continues to regulate, but instead of acting to protect workers, consumers, and citizens, it devised new policies aimed to help giant corporate and financial institutions maximize their returns through revised anti-trust laws, seemingly bottomless bank bailouts, and increased impediments to unionization.

The implications for political discourse are critically important: If regulations are always necessary components of markets, we must not discuss regulation versus deregulation but rather what kinds of regulations we prefer: Those designed to benefit wealth and capital? Or those that benefit the public and common good? Similarly, since the rights or lack of rights that employees have at the workplace are always defined by the legal system, we must not ask whether the law should organize the labor market but rather what kinds of rules and rights should be entailed in these laws—those that recognize that it is the skills and talents of employees that make firms productive, or those that rig the game in favor of employers and private profits?

HF – Polanyi argued against a line of thought that you describe as “market fundamentalism,” which perhaps has its beginnings in Malthus’s arguments two centuries ago. Why does Malthus’s way of thinking still resonate in U.S. political debates over welfare and economic ‘reform?’  

FB & MS – Malthus’s enduring contribution to social policy was to make scarcity the virtuous disciplinary necessity upon which rests the very possibility of a productive workforce. Polanyi explains how the original invention of a market economy that could function independently of the state depended entirely on a new body of ideas that began in earnest not with the liberalisms of Hobbes, Locke or even Adam Smith, but with the new political economy of Malthus and Ricardo. This way of thinking, which we call social naturalism, conceived of society as governed by the same laws that operate in nature—a conceit that is necessary to make the idea of a self-regulating market even plausible.  Social naturalism displaced rationality and morality as the essence of humanity, and imposed biological instincts in their place, making human motivations no different from those of the rest of the animal kingdom: We are incentivized to labor (and earn wages) only because of our primary biological drive to eat; and we are likewise content to rest once the drive of hunger is satisfied.

From this perspective, it is the “natural” condition of scarcity alone that disciplines the unemployed into voluntarily taking up the bitter task of paid labor.  If one removes that scarcity by “artificial” means—by providing food stamps, unemployment benefits, an adequate minimum wage—so too the incentive to work disappears. Hence the refrain made famous during the 2012 election that 47 percent of Americans are “takers;” that poverty relief will inevitably turn the safety net into a “hammock;” and that food stamps and other hunger-relieving interventions have turned the “inner city” into a “culture of dependence.”  One would be hard pressed to draw any substantive distinctions between the current conservative rhetoric, and that which flourished in the early 19th century when Malthus led the campaign against social insurance and the safety net. The reality, of course, then as now, is the poor have always struggled to make do in the face of structural forces that they cannot control.

HF – You suggest that Polanyi’s arguments about the “double movement” help explain the tea party movement among conservatives. What is the “double movement” and what forces is it giving rise to in U.S. politics today?

FB & MS – Polanyi argued that the devastating effects on society’s most vulnerable brought on by market crises (such as the Great Depression in the 1930s) tends to generate counter movements as people struggle to defend their livelihoods, their neighborhoods, and their cultures from the destructive forces of marketization.  The play of these opposing dynamics is the double movement, and it always involves the effort to remobilize political power to tame the apparent over-extension of market forces.  The great danger Polanyi alerts us to, however, is that mobilizing politics to protect against markets run wild is just as likely to be reactionary and conservative, as it is to be progressive and democratic. Whereas the American New Deal was Polanyi’s example of a democratic counter movement, fascism was the classic instance of a reactionary counter-movement; it provided protection to some while utterly destroying democratic institutions.

This helps us to understand the tea party as a response to the uncertainties and disruptions that free market globalization has brought to many white Americans, particularly in the South and Midwest. When people demonstrate against Obamacare with signs saying “Keep Your Government Hands off My Medicare,” they are trying to protect their own health care benefits from changes that they see as threatening what they have.  When they express deep hostility to immigrants and immigration reform, they are responding to a perceived  threat to their own resources—now considerably diminished from outsourcing and deindustrialization.  Polanyi teaches us that in the face of market failures and instabilities we must be relentlessly vigilant to the threats to democracy that are often not immediately apparent in the political mobilizations of the double movement.

HF – The European Union’s single currency creates many of the same tensions between international rules and domestic society as the gold standard did a century ago. What are the political consequences of these tensions?

FB & MS – We just saw in the European elections that right-wing, seemingly fringe parties, came in first in France and the U.K.  This is a response to the continuing austerity policies of the European Community that have kept unemployment rates high and blocked national efforts to stimulate stronger growth.  It might still be largely a protest vote—a signal to the major parties that they need to abandon austerity, create jobs, and reverse the cuts in public spending.   But unless there are some serious initiatives at the European Community and the global level to chart a new course, we can expect that the threat from the nationalist and xenophobic right will only grow stronger.

Henry Farrell is associate professor of political science and international affairs at George Washington University. He works on a variety of topics, including trust, the politics of the Internet and international and comparative political economy.