Wednesday, December 28, 2016

Book Review - Karl Polanyi: What the Austro-Hungarian economic theorist tells us about the upheavals of our age

Karl Polanyi: A Life on the Left 
By Gareth Dale

Review article by Nikil Saval

Nikil Saval - Karl Polanyi In Our Times
There are many ways to read The Great Transformation: as a book about the rise of liberalism and the origins of the welfare state, as a discussion of the birth of fascism and why Europe went to war. But Polanyi also had more immediate concerns. His argument was also a rebuke of right-wing arguments, often made by libertarian figures like Hayek and Mises, about the impracticality of left-wing thinkers. While socialists are usually the ones charged with being irresponsible dreamers, Polanyi wanted to show that it was economic liberals who were in fact dedicated to an implausible utopia. An unchecked market was anything but natural. Left to function on its own, it destroys human beings and the planet along with it…

... The unyielding inflexibility of the euro, and the wild-eyed ardency of its defenders, has caused several observers of this debacle to turn back to Karl Polanyi. The left-wing Austro-Hungarian sociologist and economic historian had been a violent critic of the gold standard—which, like the euro, restricted a nation’s capacity to inflate or deflate its currency based on the needs of its citizens. In his classic of economic history published in 1945, The Great Transformation, Polanyi showed how the gold standard made it impossible for nations to manage their own economies and how it often encouraged the retraction of welfare. It also empowered a small group of financial elites over the rest of society. Given their access to credit, bankers—rather than politicians and civil-society activists—became the country’s most powerful decision-makers. “Under the gold standard,” Polanyi complained, “the leaders of the financial market” find themselves “in the position to obstruct any domestic move in the economic sphere which [they happen] to dislike.”

For Polanyi, the problem with this social arrangement was not only that it impeded the democratic process but that it also allowed the interests of the market to assert their primacy over those of society. This happened in Polanyi’s time, during the late 19th and early 20th centuries when laissez-faire liberalism underwrote a violently unequal, predatory global capitalism with few social protections, and it has also happened in ours. Over the past four decades, and often at the behest of various banking interests, center-right and center-left parties throughout much of the North Atlantic have privatized generous stretches of the state and have allowed the logic of the market to pervade almost every aspect of social life.

There are now thriving markets for passports and body parts. Cost-benefit analyses determine which departments at a public university get funding and which hospitals, parks, and schools get shuttered. In Polanyi’s time, his main concern focused on how swiftly and dangerously labor, land, and money became “fictitious commodities” and how this despoiled human life and the environment; today, we live in a world in which it seems like almost every social good is capable of being monetized: health, happiness, education, housing, communication, even citizenship have all become commodities sold and purchased on the market.

But Polanyi’s Great Transformation was not all dark prophecy; it also offered us some insight into how societies rebelled against this marketization of social life. The free-market economy, Polanyi argued, not only empowered financial elites and commodified social goods; it also created a countermovement in which bodies of people emerged, demanding that the state protect them from the market. In his time, Polanyi believed this could be found in the insurgence of social democratic and socialist politics at the turn of the century, and today as well there are signs of a similar resurgence of social democracy, even socialism, in the party politics and thought of many European and North American countries. These might be indications, however incipient, of what Polanyi called the “double movement” - of society’s tendency to strike back after an age of privatization and economic liberalization - and they may bring back the more radical implications of Polanyi’s argument with them.

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To search for Polanyi’s intellectual and political roots means coming into contact with a bewilderingly febrile left-wing intellectual milieu that appears to have little bearing on our present. However promising the current moment may seem with a self-described “democratic socialist” coming tantalizingly close to winning the Democratic Party’s presidential nomination, Gareth Dale’s new biography offers us a bracing reminder of a far richer world of socialist activity that once existed in much of the West. Debates over early-20th-century Hungarian socialism; the strategic plans of “Red Vienna”; the reformist 1961 platform of the Soviet Communist Party: These questions obsessed Polanyi and his contemporaries to a degree that seems almost inconceivable now and certainly residing in a sobering distance to our own immediate lives. 

Polanyi’s political activism and intellectual work were implicated in the widest questions debated on the left. The son of wealthy Hungarian Jews, he emerged as part of the “Great Generation” of Hungarian artists and intellectuals in Budapest at around the turn of the 20th century. John von Neumann, the mathematician, and Béla Bartók, the composer, were his contemporaries; so were the sociologist Karl Mannheim and the Marxist theoretician and literary critic György Lukács. Polanyi’s brother, Michael, became a philosopher of science, who for many years was better known than Karl.

… In its critique of 19th-century liberalism, The Great Transformation offers a remarkable amount of insight into how it helped commoditize those parts of human culture that should have remained outside the jurisdiction of the market - in particular, land, labor, and money. Subject to the logic of the market, instead of how the use of these social goods might benefit or harm society, land, labor, and money are transformed into what Polanyi calls “fictitious commodities.” According to the utopian advocates of laissez-faire economics, these goods are better off traded on the open market, but as Polanyi shows in his book, if land, labor, and money are permitted to follow the mechanisms of the market alone, there would be few safeguards to protect their health, leading to significant devastation.

This was recognized not only by socialists and critics of the free market but by many liberals who discovered that various attempts at the commodification of these goods resulted in massive social dislocation and upheaval; and so, as Polanyi shows, liberals also turn to the state to ensure that the “self-regulating” market could emerge despite these disruptions. Many of the central elements of this economic system - a “competitive labor market, automatic gold standard, and international free trade” - were far from naturally occurring, and they also required a state to ensure that “self-regulation” didn’t cause too much damage. The free market could not simply come into being on its own; it had to be legislated.

England, the home of economic liberalism, passed the anti-corn law in 1846, called the Importation Act, which lowered British agricultural tariffs. There were also the Bank Charter Act of 1844, which cemented the gold standard, and the Poor Law Amendment Act of 1834, the bête noire of Charles Dickens, which ensured that the poor would be forced to work at subsistence wages in order to live. “The road to the free market,” Polanyi writes, “was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism.”

Ad hoc countermeasures designed to protect the populace against this newly liberated market emerged in the years after laissez-faire economics set in: the criminalization of child labor in the mines; food “wholesomeness” laws; a workers-­compensation act holding employers liable for injuries to their employees. The self-regulating market, Polanyi argued, helped generate a spontaneous movement against it. In his excellently pithy formulation: “Laissez-­faire was planned, planning was not.”

Even so, this double movement didn’t result in the erection of a true welfare state or the kind of social democracy that Polanyi championed. He believed this was because the architects of economic policy were concerned only with keeping the social fabric from fraying irrevocably, not with finding ways to actually reassert society’s power over the market.

This refusal to fully embrace a more robust social-democratic model was also why so many policy-makers resisted taking their countries off the gold standard (Franklin Roosevelt being a notable exception): It robbed them of the ability to induce the threat of a run on the currency and to maintain both their own and the market’s supremacy over public-policy matters.

Even socialist governments found themselves hamstrung by the gold standard. The administration of Léon Blum in France couldn’t engage in real deficit spending, because financial interests maintained a franc that was pegged to gold. The growing tensions between political and economic power appeared to have reached a stalemate. Either the gold standard had to be abandoned, as it was in the United States, allowing for the New Deal; or economic power would have to move against democracy, as happened in fascist Europe…

But the place where Polanyi ended - a vision of a socialist and social-democratic state pushing back against the commodification of social goods - is one that leaves us with the dilemma we still face. Many of the attempts to reform the market economy have foundered or been countered by right-wing retrenchment. The Bernie Sanders and Jeremy Corbyn phenomena aside, social democracy is hardly thriving; most of its parties are in disarray, challenged on both the insurgent left and the revanchist right. What appears presently to be in crisis is liberalism itself, with violent, ugly solutions proffered by neofascists across the globe.

Polanyi was witness to just such a challenge, in Hungary and Red Vienna, driving him to adopt more radical positions - and, ultimately, to find himself against the market economy altogether. It is this Polanyi, the one least gracious to capitalism and least enchanted by its so-called freedoms, who speaks most clearly to our present moment; it is this Polanyi who renounces his - our - desire to be satisfied with meager fixes and urges us instead to turn our collective frustration and energies against the economic system that threatens our destruction... read the full article:

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