Karl Polanyi's The Great Transformation

...He saluted the constraints imposed on the labor market and finance by the democratic state, the representative of society...

...Erosion often stems from globalized competition, spurred not least by policies of export-led growth, urged by the international financial agencies upon the industrially less developed countries...

...The notion of "double movement" seems to imply a measure of reconcilability, of occasional mutual adaptation, as successive generations of workers came to accept the discipline of factory work, and employers learned the value of the worker as a resource of know-how and experience...

...Capital flight, of which the specific causes cannot be detailed here, triggered the Asian financial crisis of 1997-1998...

...Eventually this led to its modification...

...The protection of workers by legislation (society's mandate)—to follow another strand of Polanyi's argument—has been progressively eroded by disregard of labor standards...

...Commodification was alienation in its literal sense of "otherness...

...While designed to aid the working poor, the EITC has effectively also been a "shadow subsidy" (as an Urban Institute scholar has put it) to employers...

...Among the reasons for this "resilience" surely was the expansionary drive of capitalist enterprise, promoted by the investment opportunities of the post-World War II era and the favorable government policies noted earlier...

...its progressive constriction during the last quarter of the nineteenth century...

...This is a topic that lies outside the purview of Polanyi's work...

...and this notwithstanding a rise in output per hour worked (productivity) DISSENT / Winter 2000 n 101 RECONSIDERATIONS of 30 percent over the twenty-five-year period...

...Since the early nineteenth century, Polanyi argues, the employment interest of labor and the interest of investors and bankers in the sta bility of monetary value have been antagonistic...

...its commodification would thus be reversed...

...True, society's self-protection here took reactionary forms, an alliance of peasants and "feudal" landlords, "playing with traditional sentiments in their fight for agrarian tariffs...

...Both remarks are premised on the historical context of capitalistic development...

...Its abandonment in 1971 had quite different reasons...

...the gold standard, which anchored the international economy...

...This makes for "casualization" of part of the workforce—a process that has also been occurring in the countries of the European Union...

...The rise of the state as ally of the worker is a recent development, which the recrudescence of the market subverts...

...Resistance to inflationary price developments, themselves essentially attributed to "excessive" wage claims, replaced the goal of high employment as an economic policy priority...

...Labor's wages and working conditions would now be determined by means of bargaining and legislation...

...Fascism indeed sought to reform the market (by autarchic measures and bilateral trade) but "at the price of the extirpation of all democratic institutions...

...It is not surprising that the Federal Reserve and Wall Street, ever ready to resist any sign of increased wage pressures, have not been exercised about low unemployment...

...True, the self-protection of society began with the emergence of the labor market early in the nineteenth century...

...the gold standard could not be sustained...

...Polanyi does not discuss the liberal state apart from the struggle between the classes that composed it...

...It was a time when government intervention had by and large ended the Great Depression, when the political and social status of business had reached its nadir, and when war had been initiated by Germany and Japan, whose fascist or militarist rulers had been brought to power largely as a result of the preceding economic catastrophe...

...Controls on capital flows and foreign exchange, meant to shield domestic currency against undue fluctuations, were introduced in the 1930s, and were to last into the 1960s...

...It precipitated a great economic and social crisis as bankruptcies and soaring interest rates destroyed jobs, and as plummeting exchange rates steeply raised import prices and reduced the living standards of large parts of the affected countries' population to poverty levels...

...February 15, 1999...

...Guidance of the economy came to be entrusted to the Federal Reserve and the Treasury Department...

...The market system would cease to be self-regulating...

...Polanyi strongly endorsed government actions and programs that sought to cope with the devastations of the Great Depression, like those undertaken in the United States and the United Kingdom...

...The leading classes of the liberal state were unsympathetic to the aspirations of the working class...

...Karl Polanyi, a Christian socialist, refugee from fascist persecution in the Vienna of 1934, wrote his book in the early 1940s, in the United Kingdom and the United States...

...The book had appeared thirty years earlier, and is still referenced in bibliographies of works published today...

...Reporters for the New York Times summed it up eloquently: "For . . . most Americans, these are still good times...

...Contributing to the profound transformation in the relationship between capital and labor has been the "restructuring" of the workforce by American corporations...

...Cole "it became the unwritten law of the constitution that the working class must be denied the vote...

...The "market" in financial services means that capital will flow to wherever returns on RECONSIDERATIONS investment seem promising...

...W W E HAVE ENTERED an anti-Polanyian world...

...Extremely high interest rates in the early 1980s (bank loans to preferred borrowers averaged an unprecedented 14 percent, in the capital-richest country on earth) helped bring on a recession that engendered the highest unemployment rates since the depression of the 1930s...

...it was part of, and in large measure shaped, that century's history...

...Restructuring" means the use of part-time or temporary workers having no rights to benefits to which "core" workers are entitled...

...Is a great worldwide economic crisis once again necessary for the state to re-emerge as the agent of social self-protection...

...The antagonism has gained in intensity since the 1970s...

...We cannot say...

...Or will the work of human rights organizations like the International Labor Organization or the International Confederation of Free Trade Unions suffice...

...The gain of the ten-hour day is 100 n DISSENT / Winter 2000 quickly offset by intensification of the work pace or loss of jobs from technical improvements...

...They get shot out of the water but surface again and remain afloat," Charles Kindleberger, the economic historian, wrote about Karl Polanyi's The Great Transformation: The Political and Economic Origins of Our Time twenty-five years ago...

...Countries like Germany, Japan, and France kept their investment options more or less insulated, yet experienced vigorous economic growth...

...The spread of low-wage employment has been made somewhat acceptable by the Earned Income Tax Credit (EITC...

...It is undeniable, however, that powerful democratizing forces have come to the fore over the past two decades...

...The self-regulating market— self-regulating in terms of the principles of economic theory as well as of governmental laissezfaire— reduced labor and land to commodities, salable by definition at whatever price they would fetch...

...the "market" alone should govern...

...they do not refer merely to psychological proclivities...

...The emergence of employment policy, implemented by budgetary and monetary measures, as well as various welfarestate institutions, strengthened labor and limited the reach of the market...

...In terms of purchasing power, the weekly wage in the nonagricultural economy (excepting government) in 1998, although it has gone up a bit in recent years, still ran 15 percent below the peak it had attained in 1973...

...More perilous to the livelihood and status of working people than the erosion of labor standards—which to some limited extent they can resist—has been the unrelenting pressure of the "Wall Street-Treasury complex" to liberalize financial services worldwide, to ensure unfettered international capital markets...

...What was unanticipated was the rise of the market to social dominance...

...The drive toward global deregulation of banks and other financial institutions has originated chiefly with American financial service businesses facing maturing markets at home and seeking expansion abroad...

...This last line of Polanyi's is akin to Marx's description of capital accumulation as the "Moses and the prophets" of the bourgeoisie...

...and its demise during the first third of the twentieth...

...Thus, the commodification of money, like that of labor and land, eroded the integrality of society...

...Similarly, by commodifying land, subjecting its product to the dictates of free trade, much of Europe's peasantry was in danger of being pauperized and uprooted...

...Equally important were underlying attitudes...

...The nearly unrestricted freedom of international finance, the insistent process of deregulation, the urgency with which the privatization of public functions is being pursued, and the undermining of much of what trade unions achieved nationally by global financial and industrial decisions—all manifest the reign of capital, the retreat of the state, the weakening of social protection...

...Trade unions and emerging labor parties objected to the dear money exacted by the gold standard and to the monetary and fiscal conservatism associated with it...

...But elsewhere in the world, hundreds of millions of people [are] caught in a severe crisis, one that has recast lives and will haunt a generation in the East just as the Great Depression shaped a generation in the West...

...These developments have combined with the globalization of labor markets, weakening of labor organizations, and regression in the observance of labor standards...

...What is it that sustains the relevance of this book...

...Much of the innovation in the financial sector entails the recording of transactions more quickly, but is society really that much better off as a result...

...From his point of view, the "central institution of the century [was] production based on the free market...

...Deregulation means that banks abroad grant unimpeded access to foreign investors (that is, participants in their lending and underwriting...

...Someone might get interest that might otherwise have accrued to someone else, but have more goods been produced...

...There has been opposition to this on grounds that domestic investment objectives would tend to be neglected if they were out of line with the profit targets of foreign investors...

...It was degenerative in character, a menace to civilization...

...I I NDISPUTABLY, the scope of regulatory and policy interventions in the capitalist economy during the 1930s and after spelled a new era, another "great transformation," as Polanyi noted...

...It was oblivious to the web of culture and institutions that embedded them in society...

...They repressed working-class demands, often by armed force...

...Thus the contending interests of the liberal state inhabited two opposed universes...

...The balance of power eventually disintegrated because of imperialist rivalries...

...During the nineteenth and early twentieth centuries, capital movements, while unimpeded, were closely linked to tangible 102 n DISSENT / Winter 2000 objects—infrastructure projects, new factories, trade in goods...

...DISSENT / Winter 2000 n 103...

...But distrust persisted...

...The social and economic position of business and industry, however, was revitalized, their self-confidence restored, first by the production priorities of World War II (which only they could meet), and subsequently by the investment opportunities afforded by the vast infrastructure projects initiated by government, and the economic growth and stabilization that government policies assured...

...The market would annihilate the worker's humanity unless resisted by state legislation or by trade unions and other forms of association...

...Barry Eichengreen's Globalizing Capital, indispensable for studying recent financial crises, appears to have been strongly influenced by Polanyi's ideas...

...He simply writes, "Reaction was the beneficiary of the socially useful function which it happened to perform" by resisting the inroads of the world market upon domestic agriculture...

...Polanyi lightly passes over this fact, which, in Germany, turned out to have dire consequences for democracy...

...But "in RECONS IDE RAT IONS reality . . . [it] was determined by one factor: the condition of the market system...

...And money and credit, no longer linked to gold, would be ruled by "functional finance"—that is, by the requirements of income stabilization, cyclical conditions, and economic growth...

...He argued that the social and economic conflicts of that era, and the depression and war that ended it, arose from the incompatibility of the self-regulating market with society's effort to protect itself against the ravages that market inflicted upon labor and land...

...the defeat of the air traffic controller strike by the Reagan administration, clearly signaling to business that it would have broadened latitude in attacking labor, gravely weakened trade union organizing and bargaining efforts...

...Polanyi postulates the self-regulating market as one of four pillars of nineteenth century civilization, the other three having been the balance of power, which ensured a hundred years of peace...

...For both Polanyi and Marx, as I read them, the market represents the arena where the value of commodities is "realized...

...Polanyi viewed these developments as denoting the end of an era that had begun late in the eighteenth century—an era marked by the triumph of the self-regulating market...

...Only a small proportion, an estimated 10 percent, of international financial transactions is linked to trade in goods and services...

...He would undoubtedly have supported controls on capital movements so as to prevent excessive exchange rate fluctuations and guard the priority of employment-creating domestic investment...

...The worker, as during the nineteenth century, would again be reduced to a cost factor, similar to other factors in production—a status whose abolition lay at the heart of labor movement demands and of much social legislation...

...But, reading Polanyi, the conflict between the mandates of social protection and the interests involved in the self-regulating market was not resolved until the depression of the 1930s and World War II threatened to demolish civilization— and to an extent actually did so...

...The middle classes fulfilled their function by developing an all but sacramental belief in the universal beneficence of profit . . . while the laboring people, to a smaller or greater extent, became representatives of the common human interests that had become homeless...

...Polanyi viewed society as the shield of the worker's humanity against the market forces that would diminish and possibly destroy it...

...the other, social protection, "aiming at the conservation of man and nature as well as productive capability...

...But the gold standard also subjected industry to deflationary price movements (as when an excess of imports over exports caused reductions in central banks' gold reserves, requiring higher discount rates and curtailed lending to business)—leading to lower production and rising unemployment...

...The worker, subjected to the labor market, was now separated from his social integuments, his moral stature undermined...

...Gold, "commodity money," as Polanyi terms it, a store of value, became the monetary base indispensable to free international trade...

...It was only in 1867 that "a considerable part" of that class was enfranchised...

...The ascendancy of the dollar to reserve currency status, notwithstanding periodic weaknesses, further extended the power base of business...

...This at the cost of perpetuating a sizeable stratum of working poor (an estimated 19.8 million workers claimed the tax credit in 1998)—given that the EITC is anchored to a poverty line that bears no relation to a living wage...

...DISSENT / Winter 2000 • 99 RECONSIDERATIONS The near autonomy of the gold standard as facilitator of the market proved to be unendurable...

...It was the sine qua non of stable exchange rates...

...The breakdown of the self-regulating (world) market, however, ruined both classes, giving rise to fascism and war...

...T T HE SOCIAL HISTORY of the nineteenth century, Polanyi asserts, was the history of this conflict between society, seeking to shield its human substance and heritage, and the imperialism of the market driven by the lure of gain and "reducing all motivation to this lure...

...The insistence with which unimpeded global capital flows are defended as promoting economic growth has little if any basis in reality...

...But these expectations, shared by and large by John Maynard Keynes, were eventually swamped, as Eichengreen notes, by "the market's unanticipated resilience...

...Inside and outside England," Polanyi writes, "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 capitalism...

...It seems that much of the social and political history of the nineteenth century is being repeated, if in a much enlarged arena...

...In England," wrote G.D.H...

...It tends to set a ceiling on part of the aggregate wage bill, thus helping to bolster price stability...

...The break with employment policy was itself a severe political defeat for labor...

...they are not in question here...

...Money, instead of functioning merely as a medium of exchange and unit of account, also was commodified...

...The institutional and ideological foundations of the self-regulating market were rebuilt and, as a result, the functions of the state as representative of society's broader interests have been narrowed or privatized...

...Yet it is no less true, as historians of labor have amply shown, that just as the worker has no access to the means of production he operates without his employer's granting it, so his or her know-how and experience may be absorbed into the design of the machinery and the industrial organization controlled by the employer...

...All these developments bring home the relevance of Polanyi's interpretation of the social history of the nineteenth century...

...European fascism, in itself a "revolutionary movement," allied itself with counterrevolutionary and nationalist tendencies...

...The comparatively low unemployment rates of the mid- and late 1990s stem at least partially from these developments, and the modest wage pressures they imply...

...and the same held true until recently for East Asia, where high savings rates helped finance growth...

...The International Monetary Fund has rejected or ignored such arguments...

...The advocacy by these agencies and the Organization for Economic Cooperation and Development (OECD) of "market-clearing" wage policies to reduce unemployment, and many other recommendations that would modify, if not altogether dismantle, labor standards, aim at intensifying labor-market competition...

...As Joseph Stiglitz, chief economist of the World Bank, wrote in Whither Socialism, rent-seeking does not increase the efficiency with which society's resources are allocated...

...Rather, he speaks of a "double movement," informed by two differing organizing principles—the one being economic liberalism insisting on the market's selfregulation...

...HoRST BRAND is a long-time contributor to Dissent...

...The underlying incompatibilities persist...

...and the liberal state...

...It also means that capital will flee if losses loom...

...These were, and remain, normal functions of long- and short-term capital markets...

...Today's financial institutions have, by contrast, become a parasitic superstructure upon, and even danger to, productive enterprise...

...The term "conflict" does not occur prominently in Polanyi's book...

...This has entailed (inter alia) reductions in the part of corporate employment that contributes least to the value-added of goods and services, and hence the outsourcing of operations more cheaply performed, here or abroad, by firms employing low-wage, less-skilled workers...

...Further undermining these efforts was (and is) increasing import competition, due to the rise in the dollar's value versus foreign currencies because of the high interest rates...

...And although these forces face great political and economic odds, and although Polanyi did not anticipate the vastness of the arena in which they must act, his vision of a socialdemocratic polity that would ensure working people's dignity and autonomy may yet carry the day...

...Much of the other 90 percent represents capital whose returns come from "rents"—that is, gains from speculation on differences in interest or exchange rate values, or foreknowledge of movements in share values...

...Mutual adaptation occurs, but remains transient...