Power of Market Fundamentalism

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* Book: The Power of Market Fundamentalism: Karl Polanyi's Critique. By Fred Block and Margaret R. Somers. Harvard University Press, 2014



"What is it about free-market ideas that give them tenacious staying power in the face of such manifest failures as persistent unemployment, widening inequality, and the severe financial crises that have stressed Western economies over the past forty years? Fred Block and Margaret Somers extend the work of the great political economist Karl Polanyi to explain why these ideas have revived from disrepute in the wake of the Great Depression and World War II, to become the dominant economic ideology of our time.

Polanyi contends that the free market championed by market liberals never actually existed. While markets are essential to enable individual choice, they cannot be self-regulating because they require ongoing state action. Furthermore, they cannot by themselves provide such necessities of social existence as education, health care, social and personal security, and the right to earn a livelihood. When these public goods are subjected to market principles, social life is threatened and major crises ensue.

Despite these theoretical flaws, market principles are powerfully seductive because they promise to diminish the role of politics in civic and social life. Because politics entails coercion and unsatisfying compromises among groups with deep conflicts, the wish to narrow its scope is understandable. But like Marx's theory that communism will lead to a "withering away of the State," the ideology that free markets can replace government is just as utopian and dangerous."


Robert Kuttner:

"red Block and Margaret Somers, both economic sociologists, have been Polanyi admirers for more than three decades. In The Power of Market Fundamentalism: Karl Polanyi’s Critique, they aim to reintroduce him in an era of resurgent laissez-faire and political blockage that he could have scripted. “Our focus,” they write, “is on the rebirth in the 1970s and 1980s of the same free market ideas that were widely assumed to have died in the Great Depression.”

Block and Somers provide a thorough reprise of Polanyi for readers new to him and careful analysis for specialists. The best part of their book is its introductory chapter, a well—integrated and brisk summary of the man and his ideas. Other chapters provide useful discussions of what Polanyi’s social history gets right and slightly wrong, as well as astute comparisons of Polanyi with Keynes and Marx.

Unlike Marx, Polanyi viewed the transformation of a more balanced commercial society into a market-dominated one as neither natural nor inevitable. For Polanyi, as Block and Somers observe, “progress could only come through conscious human action based on moral principles.” Though there was a logical pattern to capitalism’s overwhelming social structures, we were not doomed to repeat our mistakes. Polanyi was a huge fan of Roosevelt’s New Deal, which he saw as the sane alternative to laissez-faire dystopia on the one side and totalitarian anti-politics on the other. “The eclipse of Wall Street in the 1930s,” he wrote, “saved the United States from a social catastrophe of the Continental type.”

Polanyi rejected both Marxists and economic libertarians for their shared premise that the state should or could wither away. Marxists assumed the state would be redundant after the workers’ revolution. Libertarians saw (and see) the state as interfering with the genius of the market. Polanyi embraced democratic politics, both as an end in itself and as the necessary precondition for taming the economy. Despite his gloomy rendering of history, Polanyi remained an optimist.

Block and Somers also re-examine Polanyi’s research. A key section of The Great Transformation pivots on a local English ordinance known as the Speenhamland law, which Polanyi treats as an emblematic shift in emergent capitalism. Approved by the justices of Berkshire County at a May 6, 1795, meeting, Speenhamland increased the worker protections of the old Elizabethan Poor Law of 1601. With wages falling, pauperism spreading, unrest increasing, and the English gentry all too aware of revolutionary events across the Channel in France, the law provided that any worker who could not earn enough to feed his family was entitled to supplemental relief from the local parish tied to the price of bread—“a minimum income should be assured to the poor irrespective of their earning.”

But the law, like a badly designed modern welfare program, backfired. Many employers reduced wages, knowing that the parish would make up the difference. Some workers, disdaining the wretched pay on offer, became idlers. Costs to taxpayers increased. The dysfunctional system led to outcries from welfare reformers of the day, culminating in the infamous report of the 1832 Royal Commission, which, in turn, led directly to the reform of 1834 and the poorhouse.

Block and Somers find that Polanyi overstated the ubiquity of the Speenhamland system. In practice, poor-relief formulas in England varied widely. What Polanyi did not overstate was the dislocation of the working poor—first by the enclosure movement, then by the industrial revolution—and the perverse response of economic liberals.

A weakness of the Block-Somers book is that several chapters are based on published journal articles, insufficiently blended into a new whole. As a consequence, the tone is uneven, and the book has a fair amount of repetition. Nor do Block and Somers offer much on Polanyi’s personal journey. They include just four pages of summary on his life. The British social scientist Gareth Dale, author of the fine 2010 book Karl Polanyi: The Limits of the Market, and Berkeley Fleming of Mount Allison University in Canada are currently working on the first comprehensive Polanyi biographies.

Fortunately, a good deal on the connection between Polanyi’s life and his work has already been written by his daughter and literary executor, Kari Polanyi Levitt, an emerita professor at McGill University in Montreal. In Polanyi Levitt’s most recent book, From the Great Transformation to the Great Financialization, she provides fascinating new material on Polanyi’s debate with Mises and Hayek. From the time he worked at the Österreichische Volkswirt in the mid-1920s, Polanyi engaged Mises and Hayek both ideologically and technically, arguing over pricing mechanisms under democratic socialism and the emergent dangers of the libertarian system then strangling Europe’s postwar recovery. Polanyi viewed Mises and Hayek as modern counterparts of Adam Smith, David Ricardo, and the social Darwinist Herbert Spencer, punishers of the poor in the name of market incentives. “Inside and outside England,” he wrote in The Great Transformation, “from Macaulay to Mises, from Spencer to Sumner, there was not a militant [free-market] liberal who did not express his conviction that popular democracy was a danger to capitalism.”

Hayek contended in The Road to Serfdom that even democratic forms of state planning were bound to end in the totalitarianism of a Stalin or a Hitler. But 70 years later, there is not a single case of social democracy leading to dictatorship, while there are dozens of tragic episodes of market excess destroying democracy. “The fascist solution of the impasse reached by liberal capitalism,” Polanyi wrote, “can be described as a reform of market economy achieved at the price of the extirpation of all democratic institutions.” Polanyi surely had the better of the argument. But Hayek had more influence over prevailing ideology and practice. Polanyi and Marx might converge on the inference that Hayek’s views were more useful to the ruling class." (http://prospect.org/article/karl-polanyi-explains-it-all)